<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 6, 1996
REGISTRATION STATEMENT NO. 333-09163
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
EVEREN CAPITAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
DELAWARE 6719 36-4019175
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NUMBER)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
77 WEST WACKER DRIVE
CHICAGO, ILLINOIS
60601-1694
(312) 574-6000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
JANET L. REALI, ESQ.
SENIOR EXECUTIVE VICE
PRESIDENT,
GENERAL COUNSEL AND
SECRETARY
EVEREN CAPITAL
CORPORATION
77 WEST WACKER DRIVE
CHICAGO, ILLINOIS 60601-
1694
(312) 574-6000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
COPIES TO:
CHARLES I. COGUT, ESQ. HOWARD S. LANZNAR, ESQ.
SIMPSON THACHER & BARTLETT KATTEN MUCHIN & ZAVIS
425 LEXINGTON AVENUE 525 W. MONROE STREET
NEW YORK, NEW YORK 10017 SUITE 1600
(212) 455-2000 CHICAGO, ILLINOIS 60661
(312) 902-5200
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE AND DISTRIBUTION TO THE
PUBLIC: As soon as practicable after the Registration Statement becomes
effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering: [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [_]
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectuses: one to be
used in connection with an offering in the United States and Canada (the "U.S.
Prospectus") and one to be used in connection with a concurrent international
offering (the "International Prospectus") of the Common Stock, par value $.01
per share, of EVEREN Capital Corporation. The form of U.S. Prospectus is
included herein and is followed by the outside front cover page and outside
back cover page to be used in the International Prospectus, which are the only
differing pages of the International Prospectus. The outside front cover page
and outside back cover page of the International Prospectus included herein
are each labeled "Alternative Page for International Prospectus."
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (SUBJECT TO COMPLETION)
ISSUED SEPTEMBER 6, 1996 SHARES
EVEREN CAPITAL CORPORATION
COMMON STOCK
All of the shares of Common Stock offered hereby are being sold by EVEREN
Capital Corporation. Of the shares being offered, shares are being
offered initially in the United States and Canada by the U.S. Underwriters and
shares are being offered initially outside of the United States and
Canada by the International Underwriters. See "Underwriters." Prior to this
offering, there has been no public market for the Common Stock of the Company.
It is currently estimated that the initial public offering price will be
between $ and $ per share. The initial public offering price will be
determined by agreement between the Company and the Underwriters in accordance
with the recommendation of a "qualified independent underwriter" as required by
the Conduct Rules of the National Association of Securities Dealers, Inc. See
"Underwriters" for a discussion of the factors to be considered in determining
the initial public offering price. The Company has applied for the listing of
its Common Stock on the New York Stock Exchange under the symbol EVR.
-----------
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR CERTAIN INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CON-
TRARY IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
UNDERWRITING
PRICE DISCOUNTS AND PROCEEDS TO
TO PUBLIC COMMISSIONS (1) COMPANY (2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share............................... $ $ $
- --------------------------------------------------------------------------------
Total(3)................................ $ $ $
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</TABLE>
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(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended.
(2) Before deducting expenses payable by the Company, estimated at $900,000.
(3) The Company has granted the U.S. Underwriters an option, exercisable within
30 days of the date hereof, to purchase up to additional shares
of Common Stock at the price to public less underwriting discounts and
commissions for the purpose of covering over-allotments, if any. If such
option is exercised in full, the total price to public, underwriting
discounts and commissions and proceeds to Company will be $ ,
$ and $ , respectively. See "Underwriters."
-----------
The shares are offered, subject to prior sale, when, as and if accepted by
the Underwriters named herein and subject to approval of certain legal matters
by Katten Muchin & Zavis, counsel for the Underwriters. It is expected that
delivery of the shares will be made on or about , 1996 at the office
of EVEREN Securities, Inc. in Chicago, Illinois, against payment therefor in
immediately available funds.
EVEREN SECURITIES, INC.
MORGAN STANLEY & CO.
INCORPORATED
LEHMAN BROTHERS
, 1996
LOGO
<PAGE>
[MAP]
The Company intends to distribute to its stockholders annual reports
containing consolidated financial statements audited by its independent
auditors and will make available copies of quarterly reports for the first
three quarters of each fiscal year containing interim unaudited financial
information.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN
THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY
BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this Prospectus.
Capitalized terms used but not defined in this summary are defined elsewhere in
this Prospectus. Unless the context otherwise requires, as used in this
Prospectus, "EVEREN" and the "Company" mean EVEREN Capital Corporation, a
Delaware corporation ("EVEREN Capital") and the issuer of the Common Stock, and
its subsidiaries. Unless otherwise indicated, numbers and percentages of shares
outstanding in this Prospectus assume (i) no exercise of the Underwriters'
over-allotment option and (ii) the consummation of the Transactions (as defined
in "Company History"). This Prospectus contains forward-looking statements that
involve risks and uncertainties. Actual results could differ materially from
those discussed in the forward-looking statements as a result of certain
factors, including those set forth under "Risk Factors" and elsewhere in this
Prospectus.
THE COMPANY
EVEREN is a leading, full-service securities brokerage firm that provides a
broad range of investment services and products primarily to individuals and
also to institutions, corporations and municipalities. The Company's core
strength is its retail operations which are focused on individual investors and
which generated more than 70% of the Company's net revenues in each of the last
three years. The Company also engages in capital markets, asset management and
clearing activities that complement and capitalize on the strength of the
Company's retail operations.
In its retail business, the Company focuses on maintaining and developing
strong client relationships in local and regional markets while providing the
breadth and quality of services and products offered by national brokerage
firms. Headquartered in Chicago, the Company operates its retail business
through an integrated network of approximately 1,175 investment consultants
located in 138 offices in 27 states. As of January 1, 1995, EVEREN was ranked
as the eleventh largest brokerage firm in the United States based on number of
investment consultants, according to the Securities Industry Association. As of
June 30, 1996, EVEREN held over $38 billion of customer assets in more than
430,000 client accounts.
EVEREN enjoys strong market positions in targeted regional markets with
approximately 73% of its branch offices and 74% of its investment consultants
located in the states of Illinois, California, Ohio, Wisconsin, Colorado and
Texas. EVEREN's market penetration is primarily the result of the consolidation
and integration in 1990 of five prominent predecessor firms to form a network
of seasoned investment consultants. Annualized average production for the
Company's investment consultants was $320,000 for the six months ended June 30,
1996 and, at that date, the Company's client assets per investment consultant
averaged $28.9 million. Management believes that the experience of, and
relationships developed by, its investment consultants help to differentiate
the Company from its competitors in its targeted markets and enable the Company
to more effectively access and serve clients. As of June 30, 1996, the
Company's investment consultants averaged more than eight years of tenure with
the Company and 16 years of experience in the securities brokerage industry.
Based upon a confidential industry survey conducted by a third party,
management believes that the productivity of its investment consultants exceeds
that of most regional firms.
The Company also provides a full range of equity and fixed income products,
investment banking services and other capital markets products and services
through approximately 287 professionals located in eleven offices in major
cities in the United States. The Company is increasing the coordination of its
investment banking, syndicate and trading activities and focusing those
activities on middle market and growth companies in selectively targeted
industries in which management believes the Company has specialized expertise.
In addition, EVEREN is expanding its asset management business through a joint
venture with Mentor Investment Group, Inc. ("Mentor"), an asset management
company that has approximately $5.7 billion of assets under management. Through
its subsidiary, EVEREN Clearing Corp. ("EVEREN Clearing"), the Company also
provides securities clearing services to its trading and brokerage businesses
and to approximately 30 correspondent firms.
3
<PAGE>
In September 1995, the Company became independent when its employees
purchased it from Kemper Corporation ("Kemper") in the Buy-Out (as defined
herein). As a result, the Company is currently employee-owned, with
approximately 92% of the Company's current employees having an ownership
interest. The Company experienced net losses in 1992, 1993, 1994 and 1995 of
$38.4, $3.7, $2.2 and $15.9 million, respectively. Since the Buy-Out, EVEREN
has experienced improved growth and profitability. For the fourth quarter of
1995, its first full quarter as an independent entity, the Company reported net
income of $6.2 million on net revenues of $131.3 million compared to net income
of $0.7 million on net revenues of $114.2 million in the fourth quarter of
1994. For the six months ended June 30, 1996, the Company generated net income
of $49.2 million, including a $30.2 million after-tax gain on the sale of a
subsidiary, on net revenues of $282.0 million compared to a net loss of $2.7
million on net revenues of $233.6 million for the first six months of 1995.
Management believes that the Company's independence and employee ownership have
resulted in high levels of employee motivation, confidence and commitment,
which have in turn contributed significantly to the Company's improved
performance.
The Company is dedicated to expanding its retail brokerage franchise while
increasing the proportion of revenues and profits contributed by its capital
markets and asset management businesses. The Company continually focuses on
enhancing its profitability through revenue growth and strict cost controls.
Key elements of the Company's strategy include actions to:
. Provide a high level of value-added service to clients. Management seeks to
provide its retail investment consultants with a work environment and
resources that enable them to offer clients service superior to that
provided by most national brokerage firms and a range of products and
services broader than those offered by most regional brokerage firms.
. Increase penetration in existing markets. The Company targets select local
markets in which its presence often equals or exceeds that of national
brokerage firms. The Company is focused on achieving target market
penetrations in most of its markets to realize operating efficiencies and
develop a meaningful presence in such communities.
. Grow client assets and increase asset management activity. The Company
seeks to increase client wealth at the Company by encouraging existing
clients to maintain an increasing proportion of their financial assets with
the Company through the introduction of new cash management accounts and by
attracting new clients. The Company also intends to offer proprietary
mutual fund products through its joint venture with Mentor and otherwise
increase its asset management activities.
. Expand capital markets activity. The Company intends to increase the
origination of equity products primarily by focusing on select industry
groups through coordinated research, investment banking, syndicate and
trading efforts.
. Pursue opportunistic acquisitions consistent with the Company's overall
strategy. The Company will selectively pursue acquisition opportunities
that either deepen penetration in its existing markets or add new,
sufficiently penetrated markets to strengthen its franchise and further
leverage its existing infrastructure.
. Maintain rigorous cost discipline. The Company seeks to minimize operating
costs by closely aligning its compensation structure to profitability
targets and cost minimization goals and by converting fixed costs to
variable costs where appropriate.
. Maintain a conservative risk profile. The Company will continue to control
the risks in each of its businesses by minimizing securities inventories,
hedging to the extent practicable and subjecting each of its businesses to
strict risk management guidelines.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the shares
Company...........................
U.S. Offering.................... shares
International Offering........... shares
Common Stock to be outstanding shares (1)
after the offering................
Dividend policy.................... The Board of Directors intends to pay
quarterly dividends of $ . per share on
the outstanding shares of Common Stock
commencing in the fourth quarter of 1996.
Use of proceeds.................... Approximately $36 million of the net
proceeds to the Company from the offering
will be used to repay the aggregate
principal amount of indebtedness
outstanding under the Loan Agreement (as
defined herein). The remaining net
proceeds will be used for general
corporate purposes, including potential
future acquisitions. The principal purpose
of the offering is to increase EVEREN's
equity capital and to facilitate its
access to the public capital markets. The
offering is being implemented at this time
in light of what management believes,
based on market indices, volume levels and
recent initial public offering activity
generally, to be favorable conditions
prevailing in the public equity markets.
Proposed New York Stock Exchange EVR
symbol............................
</TABLE>
- --------
(1) Based on shares outstanding at , 1996. Excludes 1,120,625 shares
of Common Stock subject to outstanding stock options as of June 30, 1996,
at a weighted average exercise price of $7.48 per share, none of which are
currently exercisable. See "Capitalization" and "Company Stock Plans."
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
(IN MILLIONS, EXCEPT PER SHARE DATA)
The summary consolidated financial and operating data should be read in
conjunction with the Consolidated Financial Statements and Notes thereto
appearing elsewhere in this Prospectus and with "Management's Discussion and
Analysis of Financial Condition and Results of Operations." Results for interim
periods are not necessarily indicative of results to be expected during the
remainder of the year or for any future period.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
---------------------- -----------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
-------- -------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Total revenues.......... $300.5 $260.6 $543.2 $530.0 $673.7 $677.5 $663.7
Net revenues............ 282.0 233.6 490.7 485.2 626.8 624.5 600.4
Total non-interest
expenses............... 251.0 237.7 512.7(/2/) 497.9 628.3 652.0 593.9
Gain on sale of
subsidiary............. 50.2 -- -- -- -- -- --
Income (loss) before
taxes and cumulative
effect of accounting
changes................ 81.2 (4.1) (22.0) (12.7) (1.5) (27.5) 6.5
Net income (loss)....... $ 49.2(/1/) $ (2.7) $(15.9)(/2/) $ (2.2) $ (3.7)(/3/) $(38.4)(/4/) $ 6.2
Earnings per share(/5/). $ 4.98
========
Pro forma net income
(loss) per share(/6/)..
======== ======
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
----------------------------------
PRO PRO FORMA AS
ACTUAL FORMA(/7/) ADJUSTED(/8/)
--------- ---------- -------------
<S> <C> <C> <C>
STATEMENT OF FINANCIAL CONDITION DATA:
Total assets................................ $ 1,767.4 $ 1,765.1 $
Long-term obligations(/9/).................. 175.2 143.7
Stockholders' equity........................ 195.9 190.9
Book value per share of Common Stock
outstanding................................ $ 16.23 $ 16.25 $
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
------------------ ---------------------
1996 1995 1995 1994 1993
-------- -------- ----- ----- -----
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
After-tax return on average
equity........................... 30.1% (1.6)% (10.6)% (1.4)% (2.4)%
Compensation and benefits expense
as a percentage of net revenues.. 62.3% 65.9% 68.4% 67.6% 61.8%
Non-compensation and benefits
expense as a percentage of net
revenues......................... 26.8% 36.0% 36.1% 35.1% 38.5%
Assets in client accounts (at end
of period) (in billions)......... $ 38.2 $ 33.0 $36.8 $31.0 $33.9
</TABLE>
- --------
(1) Includes a $50.2 million pre-tax ($30.2 million after-tax) gain on sale of
subsidiary. See "Company History" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
(2) Includes $33.3 million pre-tax ($22.0 million after-tax) of non-recurring
charges incurred in connection with the Buy-Out. See "Company History" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
(3) After cumulative effect at January 1, 1993 of a change in accounting for
income taxes of $5.5 million. See Note 2 of Notes to Consolidated Financial
Statements.
(4) After cumulative effect at January 1, 1992 of a change in accounting for
post-retirement benefits of $10.0 million.
(5) Earnings per share of Common Stock is not presented for periods other than
the most recent period as historical per share information is not
indicative of the Company's continuing capital structure.
(6) Pro forma net income per share of Common Stock is calculated by dividing
net income for the period after eliminating the after-tax interest expense
related to the Debentures (as defined herein) by the weighted average
number of shares of Common Stock and Common Stock equivalents outstanding
from the beginning of the period, adjusted only for the number of shares of
Common Stock sold in the offering, the proceeds with respect to which will
be used to repay indebtedness under the Loan Agreement (as defined herein).
(7) Reflects the Transactions. See "Company History" and "Capitalization".
(8) Reflects the sale of shares of Common Stock offered hereby at an
assumed initial price to the public of $ per share (net of estimated
underwriting discounts and commissions and offering expenses) and the
application of the net proceeds therefrom. See "Use of Proceeds" and
"Capitalization."
(9) Consists of the Debentures and collateralized mortgage obligations backed
by investments in mortgage-backed certificates. See "Company History."
6
<PAGE>
RISK FACTORS
This Prospectus contains forward-looking statements that involve risks and
uncertainties. Actual results could differ materially from those discussed in
the forward-looking statements as a result of certain factors, including those
set forth below and elsewhere in this Prospectus. The following factors should
be considered carefully in addition to the other information contained in this
Prospectus before purchasing the Common Stock offered hereby.
VOLATILE NATURE OF THE SECURITIES BUSINESS
The securities business is, by its nature, subject to significant risks,
particularly in volatile or illiquid markets, including the risk of trading
losses, losses resulting from the ownership or underwriting of securities,
counterparty failure to meet commitments, customer fraud, employee fraud,
issuer fraud, errors and misconduct, failures in connection with the
processing of securities transactions and litigation.
The Company's principal business activity, retail broker-dealer operations,
as well as its investment banking, institutional sales, investment advisory,
clearing and other services, are highly competitive and subject to various
risks, volatile trading markets and fluctuations in the volume of market
activity. The securities business is directly affected by many factors,
including economic and political conditions, broad trends in business and
finance, legislation and regulation affecting the national and international
business and financial communities, currency values, inflation, market
conditions, the availability and cost of short-term or long-term funding and
capital, the credit capacity or perceived creditworthiness of the securities
industry in the marketplace and the level and volatility of interest rates.
These and other factors can contribute to lower price levels for securities
and illiquid markets.
Lower price levels of securities may result in (i) reduced volumes of
securities, options and futures transactions, with a consequent reduction in
commission revenues, (ii) losses from declines in the market value of
securities held in trading, investment and underwriting positions and (iii)
reduced management fees calculated as a percentage of assets managed. In
periods of low volume, levels of profitability are further adversely affected
because certain expenses remain relatively fixed. Sudden sharp declines in
market values of securities and the failure of issuers and counterparties to
perform their obligations can result in illiquid markets which, in turn, may
result in the Company having difficulty selling securities, hedging its
securities positions and investing funds under its management. Such negative
market conditions, if prolonged, may also lower the Company's revenues from
investment banking and other activities.
As a result of the varied risks associated with the securities business,
which are beyond the Company's control, the Company's commission and other
revenues could be adversely affected. A reduction in revenues or a loss
resulting from the underwriting or ownership of securities could have a
material adverse effect on the Company's results of operations and financial
condition. In addition, as a result of such risks, the Company's revenues and
operating results may be subject to significant fluctuations from quarter to
quarter and from year to year. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Results of Operations--Six
Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995" and
"--Quarterly Results."
SIGNIFICANT COMPETITION
All aspects of the Company's business are highly competitive. The Company
competes directly with national and regional full service broker-dealers and,
to a lesser extent, with discount brokers, dealers, investment banking firms,
investment advisors and certain commercial banks and, indirectly for
investment assets, with insurance companies and others. The financial services
industry has become considerably more concentrated as numerous securities
firms have either ceased operations or have been acquired by or merged into
other firms. Such mergers and acquisitions have increased competition from
these firms, many of which have significantly greater equity capital,
financial and other resources than the Company. With respect to retail
brokerage activities, certain of the regional firms with which the Company
competes have operated in certain markets longer than has the Company and its
predecessors and have established long-standing client relationships. In
addition, the
7
<PAGE>
Company expects competition from domestic and international commercial banks
to increase as a result of recent and anticipated legislative and regulatory
initiatives in the United States to remove or relieve certain restrictions on
commercial banks relating to the sale of securities. Finally, the Company
competes with others in the financial services industry with respect to the
recruiting of new employees and the retention of current employees. See "--
Dependence on Key Personnel."
HISTORY OF NET LOSSES
The Company experienced net losses in 1992, 1993, 1994 and 1995. Although
the Company had net income of $49.2 million, including a $30.2 million after-
tax gain on the sale of BETA Systems, Inc. ("BETA") for the six months ended
June 30, 1996, there can be no assurance that the Company will achieve or
sustain profitability in the future. Future operating results will depend on
many factors, including demand for the Company's services, the Company's
ability to maintain its client relationships and obtain new clients, the
Company's ability to implement its strategies, the Company's success in
attracting and retaining qualified personnel, the level of competition and the
Company's ability to respond to competitive developments. There can be no
assurance that the Company will be successful in addressing the risks
presented by such factors. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business."
RISKS ASSOCIATED WITH IMPLEMENTATION OF THE COMPANY'S STRATEGIES; RISKS
ASSOCIATED WITH ACQUISITIONS AND JOINT VENTURES
The Company's strategies include potential further penetration of existing
markets, entry into new markets and, particularly in the capital markets area,
expansion of the services it provides. There can be no assurance that the
Company will be able to successfully identify service or market opportunities
that are complementary to the Company's operations. If the Company
successfully identifies any such opportunities, there can be no assurance that
the Company's lack of significant experience with respect to a new service or
market will not hinder the Company's ability to successfully capitalize on
such opportunity. In addition, there can be no assurance that any such
opportunity will enhance the Company's business, results of operations or
financial condition.
To the extent the Company seeks to implement such strategies through
strategic acquisitions, there can be no assurance that the Company will be
able to successfully identify, acquire on favorable terms or integrate any
acquisitions. If an acquisition is completed, there can be no assurance that
such acquisition will enhance the Company's business, results of operations or
financial condition. The Company may face competition for acquisition
opportunities, which may inhibit the Company's ability to consummate
attractive acquisitions on terms favorable to the Company. Although the
Company is not currently in discussion with any acquisition candidates, a
substantial portion of the Company's capital resources, including a portion of
the proceeds of this offering, could be used for acquisitions. The Company may
require additional debt or equity financing for future acquisitions, which
financing may not be available on terms favorable to the Company, if at all.
Finally, when acquiring a predominantly personal service business such as a
securities brokerage firm, a need to provide financial or other incentives to
the professionals and other employees of such firm could make any such
acquisition difficult to consummate successfully.
To the extent the Company seeks to implement such strategies through
strategic joint ventures, many of the risks associated with acquisitions could
be present. In addition, joint ventures may involve additional risks
associated with lack of control. On July 25, 1996, the Company entered into a
joint venture agreement with Mentor pursuant to which the Company will acquire
an initial 20% ownership interest in Mentor. See "Business--Mentor Joint
Venture."
RISKS ASSOCIATED WITH COST REDUCTION STRATEGY
One of the Company's strategies is to reduce costs by converting certain
costs from fixed to variable. There can be no assurance that the Company will
successfully implement such strategy or that, if implemented, such
8
<PAGE>
strategy will enhance the Company's business, results of operations or
financial condition. In addition, if the revenues of the Company increase,
there may be a revenue level at which it would be advantageous for certain
costs to be fixed as opposed to variable so that the Company could benefit
from economies of scale relating to such costs.
To the extent the Company implements such strategy by outsourcing support or
other services to third-party providers, the Company may be subject to the
risks associated with the lack of control over and lack of direct supervision
of such services. The Company has recently outsourced its back office
processing and quotation services to BETA, a former subsidiary of the Company.
See "Company History." The failure, interruption or reduced quality of the
services provided by BETA or other third-party service providers to the
Company could have a material adverse effect on the Company's operating
results.
DEPENDENCE ON KEY PERSONNEL
Most aspects of the Company's business are dependent on highly skilled
individuals. The Company devotes considerable resources to recruiting,
training and compensating such individuals. In addition, one component of the
Company's strategy is to increase market penetration by recruiting experienced
investment consultants and new trainees. There can be no assurance that such
recruiting efforts will be successful or, if successful, that they will
enhance the Company's business, results of operations or financial condition.
The Company has taken further steps to encourage individuals to remain in the
Company's employ, including providing the opportunity for equity participation
through the EVEREN Capital Corporation 401(k) and Employee Stock Ownership
Trust which is part of the EVEREN Capital Corporation 401(k) and Employee
Stock Ownership Plan (collectively, the "KSOP"), two employee stock purchase
plans and an incentive compensation plan. Individuals employed by the Company
may, however, choose to leave the Company at any time to pursue other
opportunities. In past years, the Company has experienced significant net
losses of investment consultants to its competitors. The level of competition
for such personnel remains intense. The loss of key personnel could materially
and adversely affect the Company's results of operations. See "Business--
Retail Brokerage Activities--Recruiting."
In accordance with industry practice, one of the Company's methods for
recruiting an experienced investment consultant is to offer such a recruit a
substantial up-front payment based on past performance levels with his or her
previous employer. Generally, the investment consultant must reimburse the
Company for an up-front payment only if he or she does not remain employed
with the Company for a specified period of time. There can be no assurance
that the Company will receive an adequate return on such up-front payments.
See "--Significant Competition" and "Business--Employees."
The Company's success will depend to a significant extent on the efforts and
abilities of its senior executive officers. The loss of a senior manager could
have a material adverse effect on the Company's business, financial condition
and results of operations. While the Company has entered into employment
agreements with nine of its current senior executives and while all members of
senior management have unvested restricted stock and option grants, there can
be no assurance that any of such persons will not voluntarily terminate his or
her employment with the Company. See "Management--Employment Agreements."
DEPENDENCE ON OUTSIDE SOURCES OF FINANCING
The Company, like others in the securities industry, relies on external
sources to finance a significant portion of its day-to-day operations,
principally customer margin account balances and certain transactions. The
principal sources of the Company's cash and liquidity are commissions,
collateralized repurchase agreements and collateralized bank loans. Liquidity
management includes the monitoring of assets available to hypothecate or
pledge against short-term borrowings. EVEREN Clearing maintains credit lines
with seven banks aggregating approximately $585.0 million, of which $220.0
million (including $40.0 million of unsecured credit arrangements) had been
drawn down as of June 30, 1996. Availability of financing to the Company can
vary depending on market conditions, the volume of certain trading activities,
credit ratings, credit capacity and the overall availability of credit to the
financial services industry. There can be no assurance that the Company will
continue to maintain its current access to these lines of credit or that
adequate financing to support the Company's business will be available in the
future on terms attractive to the Company, or at all.
9
<PAGE>
PRINCIPAL TRANSACTIONS
The Company's market making, underwriting and trading activities involve the
purchase, sale or short sale of securities as principal. These activities
involve the risks of changes in the market prices of such securities and of
decreases in the liquidity of the securities markets, which could limit the
Company's ability to resell securities purchased or to repurchase securities
sold short. In addition, these activities subject the Company's capital to
significant risk that counterparties will fail to perform their obligations.
RISKS ASSOCIATED WITH FEDERAL AND STATE REGULATION
The Company's business is, and the securities and commodities industries
are, subject to extensive regulation in the United States, at both the federal
and state level. As a matter of public policy, regulatory bodies are charged
with safeguarding the integrity of the securities and other financial markets
and with protecting the interests of customers participating in those markets
and not with protecting the interests of the Company's stockholders. In
addition, self-regulatory organizations and other regulatory bodies in the
United States, such as the Securities and Exchange Commission (the "SEC"), the
New York Stock Exchange, Inc. (the "NYSE"), the National Association of
Securities Dealers, Inc. (the "NASD"), the Commodity Futures Trading
Commission (the "CFTC"), the National Futures Association (the "NFA") and the
Municipal Securities Rulemaking Board (the "MSRB"), require strict compliance
with their rules and regulations. Failure to comply with any of these laws,
rules or regulations, some of which are subject to interpretation, could
result in a variety of adverse consequences including civil penalties, fines,
suspension or expulsion, which could have a material adverse effect upon the
Company.
The laws and regulations, as well as governmental policies and accounting
principles, governing the financial services and banking industries have
changed significantly over recent years and are expected to continue to do so.
During the last several years Congress has considered numerous proposals that
would significantly alter the structure and regulation of such industries. The
Company cannot predict which changes in laws or regulations, or in
governmental policies and accounting principles, will be adopted, but such
changes, if adopted, could materially and adversely affect the business and
operations of the Company. See "Regulation."
NET CAPITAL REQUIREMENTS; HOLDING COMPANY STRUCTURE
The SEC, the NYSE, the CFTC and various other securities and commodities
exchanges and other regulatory bodies in the United States have rules with
respect to net capital requirements which affect the Company. These rules have
the effect of requiring that at least a substantial portion of a broker-
dealer's assets be kept in cash or highly liquid investments. Compliance with
the net capital requirements by EVEREN Securities, Inc. ("EVEREN Securities")
and EVEREN Clearing could limit operations that require intensive use of
capital, such as underwriting or trading activities. These rules could also
restrict the ability of the Company to withdraw capital from EVEREN Securities
or EVEREN Clearing, even in circumstances where EVEREN Securities or EVEREN
Clearing have more than the minimum amount of required capital, which, in
turn, could limit the ability of the Company to pay dividends, implement its
strategies, pay interest on and repay the principal of its debt and redeem or
repurchase shares of outstanding capital stock. In addition, a change in such
rules, or the imposition of new rules, affecting the scope, coverage,
calculation or amount of such net capital requirements, or a significant
operating loss or any unusually large charge against net capital, could have
similar adverse effects. See "Capital Requirements."
LITIGATION
Many aspects of the securities brokerage business involve substantial risks
of liability. In recent years, there has been an increasing incidence of
litigation involving the securities brokerage industry, including class action
suits that generally seek substantial damages and other suits seeking punitive
damages. Underwriters are subject to substantial potential liability for
material misstatements and omissions in prospectuses and other communications
with respect to underwritten offerings of securities. Like other securities
brokerage firms, the
10
<PAGE>
Company has been named as a defendant in class action and other suits and has
in the past been subject to substantial settlements and judgments. See
"Business--Legal Proceedings."
DEPENDENCE ON SYSTEMS
The Company's business is highly dependent on communications and information
systems. In addition, the Company has outsourced its back office processing and
quotation services to BETA. See "Company History." Any failure or interruption
of the Company's or BETA's systems could cause delays in the Company's
securities trading activities and an inability to execute client transactions,
which could have a material adverse effect on the Company's operating results.
There can be no assurance that the Company or BETA will not suffer any such
systems failure or interruption, whether caused by an earthquake, fire, other
natural disaster, power or telecommunications failure, act of God, act of war
or otherwise, or that the Company's or BETA's back-up procedures and
capabilities in the event of any such failure or interruption will be adequate.
USE OF DERIVATIVE FINANCIAL INSTRUMENTS
The Company enters into certain futures contracts, options contracts, forward
agreements and interest rate agreements in the ordinary course of its business
to hedge or modify exposures to interest rate fluctuations related to interest-
sensitive securities in its inventory and to its unit investment trust
origination activities. While the use of these derivatives allows the Company
to better manage certain risks, derivatives also have risks that are similar in
type to the risks of the cash market instruments to which their values are
linked. For example, in times of market stress, sharp price movements or
reductions in liquidity in the cash markets may be related to comparable or
even greater price movements and reductions in liquidity in the derivative
markets. Further, the risks associated with derivatives are potentially greater
than those associated with the related cash market instruments because of the
additional complexity and potential for leverage. In addition, derivatives may
create credit risk (the risk that a counterparty on a derivative transaction
will not fulfill its contractual obligations), as well as legal, operational,
reputational and other risks beyond those associated with the underlying cash
market instruments to which their values are linked. The Company manages
derivative related risks, including market, liquidity and credit risks, as part
of its overall risk management policies and procedures. There can be no
assurance that the Company's use of derivatives may not have a material adverse
effect on its results of operations or financial condition in any period. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Derivative Financial Instruments."
CONTROL OF THE COMPANY; ANTI-TAKEOVER EFFECTS OF CERTAIN CHARTER PROVISIONS
Upon the completion of this offering, the Company's current employees and
directors, through the KSOP and otherwise, will own approximately % of the
outstanding Common Stock. Accordingly, the employees and directors, if they and
the KSOP trustee were to act as a group, would be able to elect all of the
Company's directors, increase the authorized capital and otherwise control the
policies of the Company. Upon the completion of the offering, the Company's
Board of Directors will have the authority to issue up to 10,000,000 shares of
Preferred Stock and to determine the price, rights, preferences and privileges
of those shares without any further vote or action by the stockholders. The
rights of the holders of Common Stock will be subject to, and may be adversely
affected by, the rights of the holders of any Preferred Stock that may be
issued in the future. The issuance of shares of Preferred Stock, while
potentially providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of making it
more difficult for a third party to acquire a majority of the outstanding
voting stock of the Company. Certain provisions of the Amended and Restated
Certificate of Incorporation and the Restated By-Laws of the Company and the
Company's preferred share purchase rights may be deemed to have anti-takeover
effects and may delay, deter or prevent a tender offer or takeover attempt that
a stockholder might believe to be in his or her best interest including those
attempts that might result in a premium over the market price for shares of the
Common Stock. Such provisions may also
11
<PAGE>
adversely affect the market prices for the Common Stock. These provisions,
with respect to the Company's Amended and Restated Certificate of
Incorporation and Restated By-Laws, include the inability of the stockholders
to take any action without a meeting or to call special meetings of
stockholders, certain advance notice procedures for nominating candidates for
election as directors and for submitting proposals for consideration at
stockholders' meetings, and limitations on the ability to remove directors and
the filling of vacancies on the Board of Directors. The Company is also
subject to the provisions of Section 203 of the Delaware General Corporation
Law (the "DGCL"), which will prohibit the Company from engaging in a "business
combination" with an "interested stockholder" for a period of three years
after the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed
manner. The application of Section 203 also could have the effect of delaying
or preventing a change of control of the Company.
ABSENCE OF PRIOR MARKET FOR COMMON STOCK
Prior to this offering, there has been no public market for the Common
Stock, and there can be no assurance that an active public market will develop
or, if developed, be sustained following this offering. The initial public
offering price of the Common Stock will be determined through negotiations
between the Company and the Representatives of the Underwriters, based upon
several factors. See "Underwriters" for a discussion of the factors to be
taken into account in determining the initial public offering price. Certain
factors, such as fluctuations in operating results of the Company or its
competitors and market conditions generally, could cause the market price of
the Common Stock to fluctuate substantially. In addition, the stock market has
experienced significant price and volume fluctuations that have particularly
affected the market prices of equity securities of companies and that have
often been unrelated to the operating performance of such companies.
Accordingly, the market price of the Common Stock may decline even if the
Company's operating results or prospects have not changed.
SHARES ELIGIBLE FOR FUTURE SALE
Sale of a substantial number of shares of Common Stock in the public market,
whether by purchasers in this offering or other stockholders of the Company,
could adversely affect the prevailing market price of the Common Stock, and
could impair the Company's future ability to raise capital through an offering
of its equity securities. There will be shares of Common Stock
outstanding immediately after completion of this offering, of which will
be freely tradeable in the public markets, subject in certain cases to the
volume and other limitations set forth in Rule 144 promulgated under the
Securities Act of 1933, as amended (the "Securities Act"), and certain -day
lock-up agreements with the Underwriters. See "Shares Eligible for Future
Sale," "Dilution" and "Underwriters."
IMMEDIATE AND SUBSTANTIAL DILUTION
Purchasers of Common Stock in this offering will experience immediate
dilution in net tangible book value of $ per share, based on an assumed
initial public offering price of $ per share. To the extent that
currently outstanding options to purchase Common Stock are exercised,
purchasers of Common Stock will experience additional dilution. See
"Dilution."
FORWARD-LOOKING STATEMENTS
This Prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). Such forward-looking statements
may be deemed to include the Company's plans to identify emerging trends and
industries, expand the range of services it offers, increase the number of its
investor and company clients, increase its principal investment activities and
increase the number of its personnel. Actual results could differ from those
projected in any forward-looking statements for the reasons detailed in the
other sections of this "Risk Factors" portion of, and elsewhere in, this
Prospectus.
12
<PAGE>
COMPANY HISTORY
EVEREN was formed through the consolidation in 1990 of five well-established
regional brokerage firms that had been acquired by Kemper in the 1980s. The
names of these brokerage firms, the regions in which they operated, their
headquarters and the years in which they were founded are set forth below.
<TABLE>
<CAPTION>
YEAR
PREDECESSOR FIRM REGION HEADQUARTERS FOUNDED
---------------- ------ ------------ -------
<S> <C> <C> <C>
Bateman Eichler, Hill West Coast Los Angeles 1931
Richards, Incorporated
Blunt Ellis & Loewi Midwest Milwaukee; Chicago 1928
Incorporated
Boettcher & Company, Inc. Rocky Mountains Denver 1910
Lovett Underwood Texas Houston 1981
Neuhaus & Webb, Inc.
Prescott, Ball & Eastern Midwest Cleveland; New York 1934
Turben, Inc.
</TABLE>
Following the consolidation, EVEREN operated as a subsidiary of Kemper and
conducted its business under the "Kemper" name. Kemper was a financial
services holding company principally engaged in the asset management and life
insurance businesses. Management believes that ownership uncertainty
surrounding the Company beginning in 1992, and then surrounding Kemper in 1994
and 1995, adversely affected the Company's ability to retain investment
consultants, the productivity of the Company's brokerage network and the
Company's investment banking and related revenues. See "Risk Factors--History
of Net Losses" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
On September 13, 1995 the KSOP purchased 96.6% of the then outstanding
Common Stock from Kemper (the "Buy-Out"), with the remainder being acquired by
members of management. As a result, substantially all of the Common Stock is
owned by the Company's employees either directly or through the KSOP. See
"Company Stock Plans--The KSOP." In connection with the Buy-Out, the holders
of Kemper's common stock received a distribution of shares (the "Preferred
Distribution") of the Company's Series A Exchangeable Preferred Stock (the
"Exchangeable Preferred Stock"), which shares were subsequently exchanged for
EVEREN's 13.5% Junior Subordinated Debentures due 2007 (the "Debentures").
Following the Buy-Out, a portion of the shares of Common Stock held in the
KSOP but not yet allocated to the account of any specific KSOP participant
were reoffered (i.e., KSOP participants were given an opportunity to allocate
a portion of their plan account assets previously otherwise invested to an
investment in such shares) and sold to the Company's employees. Approximately
two-thirds of all eligible employees participated, voluntarily allocating a
total of $29.6 million of their retirement funds to an investment in Common
Stock. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Equity Participation of Employees" and "Company Stock
Plans."
Since the Buy-Out, management has focused on building stockholder value by
emphasizing the Company's core retail and capital markets operations and
continuing to reduce costs. Management believes that the Company's improved
operating performance and revitalized focus result in great part from the
benefits of independence and employee ownership, as well as the implementation
of key initiatives since the Buy-Out. See "Business--Strategy."
On April 30, 1996 the Company sold BETA, a back office processing and quote
services subsidiary. Aside from exiting a non-core business, this divestiture,
and the operating agreements entered into with BETA in connection with it,
have enabled the Company to reduce data processing costs and quote services
expenses.
13
<PAGE>
On July 25, 1996 the Company entered into a joint venture agreement (the
"JVA") pursuant to which it will acquire an initial 20% ownership interest in
Mentor, the asset management subsidiary of Wheat First Butcher Singer, Inc.
("Wheat"), a Mid-Atlantic based regional securities brokerage firm, for no
direct cash consideration. Mentor currently has approximately $5.7 billion in
assets under management, up from $1.0 billion in early 1993, and offers seven
distinct investment styles through retail mutual funds, institutional mutual
funds and separately managed portfolios. The JVA calls for the Company to
transfer money market mutual fund assets (currently approximately $2.8
billion) held in client accounts, with certain exceptions, to Mentor-sponsored
funds by December 31, 1996. The JVA also entitles the Company to earn an
additional equity interest in Mentor not later than late 1998, up to a maximum
50% ownership interest, based on revenues generated by assets attributable to
the Company's clients. The Company will account for the joint venture as an
equity investment. See "Business--Mentor Joint Venture" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Company Developments."
The Company has also been committed to improving its balance sheet following
the Buy-Out. In connection with the Buy-Out, the Company incurred $55.0
million of bank debt related to the KSOP. This indebtedness was retired in
full by May 1, 1996, some 39 months ahead of schedule. On June 17, 1996 the
Company exchanged all of its outstanding Exchangeable Preferred Stock for an
aggregate $32.2 million principal amount of Debentures. On July 30, 1996 the
Company called all of the outstanding Debentures for redemption on September
16, 1996 for an aggregate redemption price of $36.0 million (the
"Redemption"). The Redemption will be funded by borrowings under a Loan
Agreement among the Company, LaSalle National Bank and The Bank of New York
(the "Loan Agreement"). The Company intends to repay such borrowings with a
portion of the net proceeds from the offering. See "Use of Proceeds."
In addition to the Redemption, subsequent to June 30, 1996 and prior to the
consummation of this offering, the Company will have completed the following
transactions: (i) the repurchase, in accordance with the terms of the KSOP, of
an aggregate 322,832 shares of Common Stock that had been allocated to the
KSOP accounts of certain BETA employees, (ii) the payment by the Company of a
cash dividend of $1.18 per share on its outstanding Common Stock ($13.9
million in the aggregate), (iii) the application by the KSOP of $13.6 million
to repay indebtedness owed by the KSOP to the Company, (iv) the allocation
upon such repayment to the accounts of employee KSOP participants of all
shares of Common Stock held in the KSOP that had not been allocated
previously, (v) the reclassification of 107,400 vested and 108,750 unvested
shares, and unvested options on an additional 183,750 shares of the Company's
nonvoting common stock, into an identical number of vested and unvested shares
of Common Stock and options, and (vi) the obtaining of $36.0 million in bank
borrowings under the Loan Agreement to finance the Redemption. The Redemption
and the transactions described in clauses (i) through (vi) above are
collectively referred to as the "Transactions."
EVEREN Capital was incorporated in Delaware in May 1995 in anticipation of
the Buy-Out. The business acquired by EVEREN Capital in the Buy-Out was, and
continues to be, operated primarily by EVEREN Securities and EVEREN Clearing.
EVEREN Capital conducts business primarily through EVEREN Securities and has
no operations of its own. The primary asset of EVEREN Capital is all of the
common stock of EVEREN Securities Holdings, Inc. ("ESHI"), which in turn owns
all the outstanding stock of EVEREN Securities and other related companies. As
used in this Prospectus, the "Company" and "EVEREN" refer, prior to the Buy-
Out, to ESHI and its subsidiaries, and following the Buy-Out, to EVEREN
Capital and its subsidiaries. EVEREN Capital's principal executive offices are
located at 77 West Wacker Drive, Chicago, Illinois 60601 and its telephone
number is (312) 574-6000.
14
<PAGE>
DIVIDEND POLICY
Following consummation of this offering, the Company's Board of Directors
intends to pay a quarterly dividend of $ . per share on the outstanding
shares of Common Stock commencing in the fourth quarter of 1996. The timing
and amount of future dividends will be determined by the Board of Directors
and will depend upon a number of factors, including the Company's earnings,
financial condition and cash requirements at the time such payment is
considered. Furthermore, the net capital rules of various regulatory bodies
impose limitations on the payment of dividends by the Company. See "Capital
Requirements" and "Description of Capital Stock."
DILUTION
The net tangible book value of the Company as of June 30, 1996, pro forma
for the Transactions, was $190.9 million, or approximately $16.25 per share of
Common Stock. See "Capitalization" and "Selected Consolidated Historical
Financial and Operating Data." Net tangible book value per share represents
the amount of the Company's tangible assets prior to the sale of the shares
offered hereby, less its total liabilities, divided by the number of shares of
Common Stock outstanding. After giving effect to the sale of the shares of
Common Stock offered hereby (at an assumed initial public offering price of
$ per share, after deducting estimated underwriting discounts and
commissions and offering expenses), the pro forma net tangible book value of
the Company as of June 30, 1996 would have been $ , or approximately $
per share. This represents an immediate increase of $ per share to
existing stockholders and an immediate dilution of $ per share to new
investors. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share(1)....... $
Pro forma net tangible book value per share as of June
30, 1996................................................. $
Increase in net tangible book value per share
attributable to new investors...........................
-------
Pro forma net tangible book value per share after the
offering.................................................
-------
Dilution in net tangible book value per share to new
investors................................................ $
=======
</TABLE>
- --------
(1)Before deducting estimated underwriting discounts and commissions and
offering expenses.
The following table summarizes, on a pro forma basis as of June 30, 1996,
after giving effect to the offering, the number of shares of Common Stock
purchased from the Company, the total consideration paid and the average price
per share paid by the existing stockholders and by the investors purchasing
shares of Common Stock offered hereby:
<TABLE>
<CAPTION>
SHARES TOTAL
PURCHASED CONSIDERATION AVERAGE
-------------- -------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------ ------- ------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders............. % $ % $
New investors.....................
----- ---- ------ ---- -----
Total.........................
===== ==== ====== ==== =====
</TABLE>
The foregoing computations exclude 1,120,625 shares of Common Stock subject
to outstanding stock options as of June 30, 1996 at a weighted average
exercise price of $7.48 per share. None of such options are currently
exercisable. To the extent that any of such options is exercised, there will
be further dilution to new investors.
15
<PAGE>
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the Common
Stock offered hereby, based on an assumed initial public offering price of
$ per share and after deducting underwriting discounts and commissions and
estimated offering expenses, are estimated to be approximately $
($ if the U.S. Underwriters' over-allotment option is exercised in
full). The principal purpose of the offering is to increase EVEREN's equity
capital and to facilitate its access to the public capital markets. The
offering is being implemented at this time in light of what management
believes, based on market indices, volume levels and recent initial public
offering activity generally, to be favorable conditions prevailing in the
public equity markets.
Approximately $36 million of the net proceeds will be used to repay the
aggregate principal amount of borrowings under the Loan Agreement, which
borrowings were incurred to redeem the Debentures, which had an interest rate
of 13.5% and would have matured on September 15, 2007. The interest rate on
the borrowings under the Loan Agreement (which matures on September 15, 1997,
unless extended) is the London Interbank Offered Rate ("LIBOR") plus 1.75%
(7.48% as of August 31, 1996). The remaining net proceeds to be received by
the Company from the offering will be used for general corporate purposes,
including potential future acquisitions. Pending such uses, the proceeds will
be invested in short-term securities or used to reduce short-term borrowings.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Liquidity and Capital Resources."
16
<PAGE>
CAPITALIZATION
The following table sets forth the Company's consolidated capitalization as
of June 30, 1996 (i) on an actual basis, (ii) on a pro forma basis to reflect
the Transactions and (iii) on a pro forma as adjusted basis to reflect the
Transactions, receipt by the Company of the net proceeds from the sale of the
shares of Common Stock offered hereby at an assumed initial public offering
price of $ per share (after deducting estimated underwriting discounts and
commissions and offering expenses) and the application of the net proceeds
therefrom. See "Use of Proceeds." This data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and Notes thereto
included elsewhere herein.
<TABLE>
<CAPTION>
JUNE 30, 1996
------------------------------------
PRO FORMA
PRO AS
ACTUAL FORMA ADJUSTED
-------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
LIABILITIES:
Bank loans payable.................. $220,000 $256,000(/1/) $220,000(/2/)
-------- -------- --------
Debentures.......................... 31,542 -- (/3/) --
STOCKHOLDERS' EQUITY:
Common Stock, $.01 par value per
share.............................. 119 121(/4/) (/5/)
Nonvoting common stock, $.01 par
value per share.................... 2 -- (/4/) --
Additional paid-in capital.......... 168,638 173,090(/6/) (/7/)
Unrealized gain (loss) on available-
for-sale securities, net of income
taxes.............................. (4,698) (4,698) (4,698)
Unearned KSOP shares................ (13,611) -- (/8/) --
Unearned restricted stock........... (1,444) (1,444) (1,444)
Treasury stock, at cost............. (210) (5,088)(/9/) (5,088)
Retained earnings (since January 1,
1996).............................. 47,095 28,966(/1//0/) 28,966
-------- -------- --------
Total stockholders' equity....... 195,891 190,947
-------- -------- --------
Total capitalization.......... $447,433 $446,947 $
======== ======== ========
</TABLE>
- --------
(1) Reflects bank borrowings of $36.0 million under the Loan Agreement to
finance the Redemption.
(2) Reflects the repayment of such $36.0 million of bank borrowings with a
portion of the proceeds from the offering.
(3) Reflects the Redemption.
(4) Reflects the exchange of 107,400 vested and 108,750 unvested shares and
unvested options on an additional 183,750 shares of the Company's
nonvoting common stock for an identical number of vested and unvested
shares of Common Stock and unvested options for an identical number of
shares of Common Stock.
(5) Reflects the par value of shares issued in connection with the
offering.
(6) Reflects the receipt, in connection with the dividend referred to in
footnote 10 below, of $3.8 million under the indemnification arrangement
entered into between the Company and Kemper at the time of the Buy-Out and
a credit of approximately $0.6 million for the excess of the fair value
over cost of shares released to the KSOP and subsequently allocated to
participants.
(7) Reflects the net proceeds, in excess of par value, from the offering.
(8) Reflects the allocation of Common Stock to employee participant accounts
upon the KSOP's repayment of indebtedness owed to the Company with
proceeds from the dividend referred to in footnote 10 below.
(9) Reflects the repurchase, for approximately $4.9 million in accordance with
the terms of the KSOP, of 322,832 shares of Common Stock that had been
allocated to the KSOP accounts of certain BETA employees.
(10) Reflects the payment on August 5, 1996 of a $13.9 million cash dividend
($1.18 per share) on the outstanding Common Stock, a $3.0 million after-
tax extraordinary charge related to the anticipated early extinguishment
of debt in the Redemption and approximately $1.2 million of compensation
expense related to the release of the remaining unearned shares of Common
Stock to the KSOP.
17
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA
(IN MILLIONS, EXCEPT PER SHARE DATA)
The following table includes summary historical consolidated financial data
for the Company which was derived from the Consolidated Financial Statements
of the Company. The summary consolidated statement of financial condition data
at December 31, 1995 and the summary consolidated statement of operations data
for the year ended December 31, 1995 were derived from the audited
Consolidated Financial Statements and the Notes thereto of EVEREN included
elsewhere in this Prospectus. The summary consolidated statement of financial
condition data at December 31, 1994 and the summary consolidated statement of
operations data for each of the years in the two-year period ended December
31, 1994 were derived from the audited Consolidated Financial Statements and
the Notes thereto of ESHI included elsewhere in this Prospectus. The summary
consolidated statement of financial condition data at December 31, 1993, 1992
and 1991 and the summary consolidated statement of operations data for each of
the years in the two-year period ended December 31, 1992 have been derived
from audited financial statements of ESHI which are not included in this
Prospectus. The summary consolidated statement of financial condition data as
of June 30, 1996 and 1995 and the summary consolidated statement of operations
data for the six months ended June 30, 1996 and 1995 were derived from
unaudited Consolidated Financial Statements of EVEREN included elsewhere in
this Prospectus and include, in the opinion of management, all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the financial position and results of operations of EVEREN for
such periods. The results for the year ended December 31, 1995 and the six-
months ended June 30, 1996 are not necessarily indicative of the results to be
expected for the entire year ending December 31, 1996. The related
consolidated financial data should be read together with the Consolidated
Financial Statements of EVEREN and ESHI and Notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
---------------------- ----------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues:
Commissions............ $ 117.7 $ 89.5 $ 190.4 $ 180.5 $ 241.1 $ 227.3 $ 222.5
Principal
transactions.......... 65.3 57.6 122.1 119.1 158.5 166.0 166.1
Investment banking..... 27.0 23.4 47.1 61.9 105.3 120.7 87.0
Asset management....... 27.7 25.8 53.3 51.5 49.8 46.9 42.5
Other.................. 25.3 23.1 49.1 43.2 44.9 35.7 51.1
Interest............... 37.5 41.2 81.2 73.8 74.1 80.9 94.5
-------- -------- -------- -------- -------- -------- --------
Total revenues....... 300.5 260.6 543.2 530.0 673.7 677.5 663.7
Interest expense....... 18.5 27.0 52.5 44.8 46.9 53.0 63.3
-------- -------- -------- -------- -------- -------- --------
Net revenues......... 282.0 233.6 490.7 485.2 626.8 624.5 600.4
-------- -------- -------- -------- -------- -------- --------
Non-interest expenses:
Compensation and
benefits.............. 175.6 154.0 335.5 328.0 387.1 403.7 377.9
Brokerage and
clearance............. 6.8 5.5 11.4 11.5 15.1 17.9 22.1
Communications......... 19.9 21.4 41.8 41.3 49.2 50.1 48.7
Occupancy and
equipment............. 20.3 22.1 54.5 46.4 48.7 48.8 50.3
Promotional............ 8.4 6.5 13.5 18.9 22.4 25.0 17.0
Other.................. 20.0 28.2 56.0 51.8 105.8 106.5 77.9
-------- -------- -------- -------- -------- -------- --------
Total non-interest
expenses............ 251.0 237.7 512.7(/2/) 497.9 628.3 652.0 593.9
Gain on sale of
subsidiary............ 50.2(/1/) -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Income (loss) before
taxes and cumulative
effect of accounting
changes................ 81.2 (4.1) (22.0) (12.7) (1.5) (27.5) 6.5
Income tax (expense)
benefit................ (32.0) 1.4 6.1 10.5 3.3 (0.9) (0.3)
-------- -------- -------- -------- -------- -------- --------
Net income (loss) before
cumulative effect of
accounting changes..... 49.2 (2.7) (15.9) (2.2) 1.8 (28.4) 6.2
-------- -------- -------- -------- -------- -------- --------
Net income (loss)....... $ 49.2(/1/) $ (2.7) $ (15.9)(/2/) $ (2.2) $ (3.7)(/3/) $ (38.4)(/3/) $ 6.2
======== ======== ======== ======== ======== ======== ========
Earnings per share(/4/). $ 4.98
========
Pro forma net income
(loss) per share(/5/)..
======== ========
STATEMENT OF FINANCIAL
CONDITION DATA (AT END
OF PERIOD):
Total assets............ $1,767.4 $1,817.7 $2,550.6 $1,554.7 $1,632.4 $2,007.3 $1,790.8
Long-term
obligations(/6/)....... 175.2 313.3 160.7 289.4 285.7 389.1 444.3
Stockholders' equity.... 195.9 164.5 131.6 167.2 150.5 154.1 192.5
Book value per share of
Common Stock
outstanding(/7/)........ $ 16.23
OPERATING DATA:
After-tax return on
average equity......... 30.1% (1.6)% (10.6)% (1.4)% (2.4)% (22.2)% 3.2%
Compensation and
benefits expense as a
percentage of net
revenues............... 62.3% 65.9% 68.4% 67.6% 61.8% 64.6% 62.9%
Non-compensation and
benefits expense as a
percentage of net
revenues............... 26.8% 36.0% 36.1% 35.1% 38.5% 39.8% 36.0%
Assets in client
accounts (at end of
period) (in billions).. $ 38.2 $ 33.0 $ 36.8 $ 31.0 $ 33.9 N/A N/A
</TABLE>
- -------
(1) Includes a $50.2 million pre-tax ($30.2 million after-tax) gain on the
sale of BETA. See "Company History" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
(2) Includes $33.3 million pre-tax ($22.0 million after-tax) of non-recurring
charges incurred in connection with the Buy-Out. See "Company History" and
"Management's Discussion and Analysis of Financial Condition and Results
of Operations."
(3) After cumulative effect at January 1, 1992 of a change in accounting for
post-retirement benefits of $10.0 million and at January 1, 1993 of a
change in accounting for income taxes of $5.5 million. See Note 2 of Notes
to Consolidated Financial Statements.
(4) Earnings per share of Common Stock is not presented for periods other than
the most recent period as historical per share information is not
indicative of the Company's continuing capital structure.
(5) Pro forma net income per share of Common Stock is calculated by dividing
net income for the period, after eliminating the after-tax interest
expense related to the Debentures by the weighted average number of shares
of Common Stock and Common Stock equivalents outstanding during the
period, adjusted only for the number of shares of Common Stock sold in the
offering the proceeds with respect to which will be used to repay
indebtedness under the Loan Agreement.
(6) Consists of the Debentures and collateralized mortgage obligations backed
by investment in mortgage-backed certificates. See "Company History."
(7) Book value per share of Common Stock outstanding is not presented for
periods other than the most recent period as such presentation would not
be meaningful.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with "Selected
Historical Consolidated Financial Data" and the Company's Consolidated
Financial Statements and Notes thereto, each appearing elsewhere in this
Prospectus. In addition to historical information, the following Management's
Discussion and Analysis of Financial Condition and Results of Operations
contains forward-looking statements that involve risks and uncertainties. The
Company's actual results could differ significantly from those anticipated in
these forward-looking statements as a result of certain factors, including
those discussed in "Risk Factors" contained elsewhere in this Prospectus.
BUSINESS ENVIRONMENT
The Company's principal business activity, retail broker-dealer operations,
as well as its investment banking, institutional sales, investment advisory,
clearing and other services, are highly competitive and subject to various
risks, volatile trading markets and fluctuations in the volume of market
activity. As a result, the Company's revenues and earnings have been, and may
continue to be, subject to wide fluctuations including economic and securities
market conditions, changes in interest rates, competitive conditions within
the industry and regulatory developments. Consequently, the results of
operations for a particular period may not be indicative of results to be
expected for other periods.
Industry market conditions were generally favorable during 1995 and the
first six months of 1996. However, in 1994 an environment of rising interest
rates, which began in February of that year, caused price and liquidity
volatility in the fixed income securities markets which, in turn, adversely
impacted revenues in fixed income securities. Also, in early 1994 a downturn
in the retail sector of the securities industry contributed to reduced retail
production. By mid-1995 interest rates stabilized and began to trend downward,
positively impacting fixed income securities prices and both the institutional
and the retail sectors of the securities industry. In addition, favorable
economic conditions created a stronger retail demand for equity securities and
related products beginning in mid-1995 and continuing through the first six
months of 1996.
COMPANY DEVELOPMENTS
Management believes that, until the Buy-Out, ownership uncertainty adversely
impacted the Company in a number of areas, most notably the Company's ability
to recruit and retain qualified revenue-producing personnel, the productivity
of the Company's retail branch network and the Company's participation in
investment banking transactions. As a result of these ownership uncertainties
and increased market volatility, management implemented a defensive strategy
focusing on the retention of the Company's then existing workforce, a resizing
of its operations and general cost containment. Management believes that all
of the aforementioned factors depressed the Company's performance, despite
generally favorable market conditions during much of this time period. With
the Buy-Out in September 1995, the ownership uncertainty was resolved. In
anticipation of, and in conjunction with, the Buy-Out, the Company incurred
several non-recurring charges during the third quarter of 1995 as discussed
below under "--Results of Operations." Management believes ownership
resolution has contributed to a significant turnaround in the Company's
profitability, aided in the retention and recruitment of quality employees and
enabled the Company to implement certain strategic initiatives. See
"Business--Strategy."
Effective January 1, 1996 the Company implemented a quasi-reorganization and
revalued its assets and liabilities to fair value as of that date. This
revaluation resulted in a reduction in net assets of $3.7 million. The quasi-
reorganization also resulted in the transfer of the accumulated deficit as of
January 1, 1996 of $306.5 million to additional paid-in capital. Such
revaluation has not had and will not in the future have any significant impact
on the operating results of the Company. The balance in retained earnings at
June 30, 1996 represents the accumulated net earnings available to common
stockholders arising subsequent to the date of the quasi-reorganization. The
quasi-reorganization as of January 1, 1996 was effected in order to reflect
the emergence of the Company as a new organization, signal the end of its
transition from a wholly-owned subsidiary to a fully independent company and
to enable the Company to present more accurately the new organization's
cumulative performance.
19
<PAGE>
Consistent with its strategy of focusing on its core retail and capital
markets businesses, on April 30, 1996 the Company completed the sale of BETA
for $63.5 million. The sale, which resulted in a pre-tax gain of approximately
$50.2 million and an after-tax gain of approximately $30.2 million, is
reflected in the Company's second quarter results. Based upon an internal
financial analysis, management believes that the loss of BETA's net income
will be more than offset by increased net interest income combined with
reduced data processing and quote services expenses resulting from new five-
year operating agreements executed in connection with the sale.
On June 17, 1996 the Company exchanged all of its outstanding Exchangeable
Preferred Stock for an aggregate $32.2 million principal amount of the
Debentures. On July 30, 1996 the Company issued a notice calling all of the
outstanding Debentures for redemption on September 16, 1996 at a price of 112%
of principal or $36.0 million, plus accrued interest. This redemption will be
funded principally through $36.0 million of borrowings under the Loan
Agreement and will result in an extraordinary charge of approximately $3.0
million after-tax in the quarter ending September 30, 1996 due to the early
extinguishment of debt. The Company intends to use a portion of the net
proceeds from the offering to repay the borrowings under the Loan Agreement.
See "Use of Proceeds."
On July 25, 1996 the Company entered into the JVA, pursuant to which it will
acquire an initial 20% ownership interest in Mentor for no direct cash
consideration. Under the terms of the JVA, the Company's ownership interest
may increase to as much as 50%. This joint venture will be accounted for as an
equity investment, and future operating results will include the Company's
proportionate share of the earnings or losses of Mentor. See "Business--Mentor
Joint Venture."
On August 5, 1996 the Company paid a cash dividend of $1.18 per share on its
shares outstanding as of July 23, 1996. This dividend allowed the KSOP to
repay its remaining loan balance to the Company, incurred in connection with
the Buy-Out, and allowed the release of substantially all of the remaining
unallocated KSOP shares to employee participant accounts. This release of
unallocated KSOP shares required the recording of compensation expense of
approximately $3.4 million (after-tax) which is included in the Company's
results of operations for the period ended June 30, 1996. As a result of this
dividend and the repayment by the KSOP of the loan with the proceeds thereof,
all shares held in the KSOP will be treated as outstanding in the Company's
future financial statements. Accordingly, future share dilution and
compensation expense, which would have occurred had such shares been released
over the expected remaining 39-month term of the loan, will be eliminated.
EQUITY PARTICIPATION OF EMPLOYEES
Substantially all of the current outstanding Common Stock is owned by the
Company's employees either directly or indirectly through the KSOP. Management
believes that significant employee ownership fosters a culture that encourages
strong performance and provides employees the opportunity to participate in
the future performance of the Company.
On September 13, 1995 the KSOP purchased 10,437,781 shares of Common Stock,
representing 96.6% of the then outstanding shares of Common Stock, from Kemper
in the Buy-Out. Kemper agreed to indemnify the Company for the first $20.0
million of employer contributions (other than 401(k) contributions) to the
KSOP. As of June 30, 1996, Kemper had paid $16.2 million of such first $20.0
million to the Company pursuant to such agreement. The Company received the
remaining $3.8 million following the August 5, 1996 dividend payment. The
receipt of such payments is recorded as additional paid-in capital but is not
reflected in the Company's Statement of Operations.
Immediately following the Buy-Out, 3,654,685 shares of Common Stock held in
the KSOP but not yet allocated to the account of any specific KSOP participant
were reoffered (i.e., KSOP participants were given an opportunity to allocate
a portion of their plan account assets previously otherwise invested to an
investment in such shares) to KSOP participants in an aggregate amount not to
exceed $25.0 million (the "Founders' Offering"). The price per share in the
Founders' Offering of $6.8405 was equal to the price per share paid by
20
<PAGE>
the KSOP in the Buy-Out. Subject to the terms of the Founders' Offering and the
contribution limitations of the Internal Revenue Code of 1986, as amended (the
"Code"), the Company contributed to the KSOP an amount equal to one-half of the
amount invested in Common Stock by each participant in Common Stock in the
Founders' Offering.
Employee response to the Founders' Offering resulted in subscriptions
substantially higher than $25 million. As a result, in December 1995 the
Company, through the KSOP, offered additional shares of Common Stock to KSOP
participants who participated in the Founders' Offering up to the amount
oversubscribed. An additional $4.6 million of participant assets was allocated
to an investment in an aggregate 670,949 shares of Common Stock through this
offering.
In order to provide additional ownership opportunities to employees, in the
second quarter of 1996 the Company instituted three new employee benefit plans
to provide current and future employees the opportunity to acquire Common Stock
outside of the KSOP. See "Company Stock Plans" for a description of the plans.
In connection with these plans, the Company recognizes additional compensation
expense equal to the difference between the fair value of the Common Stock
issued and the amount of cash compensation otherwise payable or cash paid under
each respective plan. In the absence of a public market, fair value, as used in
all of the equity participation plans, is based upon periodic valuation
analyses prepared by an independent investment banking firm.
COMPONENTS OF REVENUES AND EXPENSES
Revenues. Commissions include revenues generated by executing listed and
over-the-counter transactions as agent, as well as commissions earned on the
sales of mutual funds, insurance, annuities and certain other products.
Principal transactions consist of gains and losses from the trading of
securities by the Company as principal, including principal sales credits.
Investment banking revenues primarily include underwriting revenues, which are
comprised of underwriting selling concessions, management fees and underwriting
fees, as well as merger and acquisition and other advisory fees. Asset
management revenues primarily include managed account fees and 12b-1
distribution fees. Other revenues include transaction and account fees,
correspondent clearing and execution income and miscellaneous income. Interest
income primarily includes interest earned on customer margin accounts and
interest income on securities owned and investments in mortgage backed
certificates. Net revenues equal total revenues less interest expense. Interest
expense includes interest paid on bank borrowings, collateralized securities
transactions with brokers and dealers and collateralized mortgage obligations.
Expenses. Compensation and benefits expense includes sales, trading and
incentive compensation, which are primarily variable based on revenue
production, and salaries, payroll taxes, and employee benefits, which are
relatively fixed in nature. Incentive compensation, including bonuses for
eligible employees, are accrued for ratably based on actual or estimated annual
amounts. Brokerage and clearance expense includes the cost of securities
clearance, floor brokerage and exchange fees. Communications expense includes
charges for telecommunications, news and market data services, customer
statements and depreciation on data processing and telecommunications
equipment. Occupancy and equipment expense includes rent and operating expenses
for facilities, expenditures for repairs and maintenance, and depreciation of
furniture, fixtures and leasehold improvements. Promotional expense includes
travel, entertainment and advertising. Other expenses include general and
administrative expenses, including professional services, litigation expenses,
dues and assessments, and other miscellaneous expenses.
21
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain financial data as a percentage of net
revenues:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE YEAR ENDED
30, DECEMBER 31,
----------------- --------------------------
1996 1995 1995 1994 1993
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenues:
Commissions............ 41.7% 38.3% 38.8% 37.2% 38.5%
Principal transactions. 23.2 24.7 24.9 24.5 25.3
Investment banking..... 9.6 10.0 9.6 12.8 16.8
Asset management....... 9.8 11.0 10.9 10.6 7.9
Other.................. 9.0 9.9 10.0 8.9 7.2
Interest............... 13.3 17.6 16.5 15.2 11.8
----- ----- ----- ----- -----
Total revenues....... 106.6 111.5 110.7 109.2 107.5
Interest expense....... 6.6 11.5 10.7 9.2 7.5
----- ----- ----- ----- -----
Net revenues......... 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- -----
Expenses:
Compensation and
benefits.............. 62.3 65.9 68.4 67.6 61.8
Brokerage and
clearance............. 2.4 2.4 2.3 2.4 2.4
Communications......... 7.1 9.2 8.5 8.5 7.8
Occupancy and
equipment............. 7.2 9.5 11.1 9.6 7.8
Promotional............ 3.0 2.8 2.8 3.9 3.6
Other.................. 7.1 12.1 11.4 10.7 16.9
----- ----- ----- ----- -----
Total non-interest
expenses............ 89.1 101.9 104.5 102.7 100.3
Gain on sale of
subsidiary............ 17.8 -- -- -- --
----- ----- ----- ----- -----
Income (loss) before
taxes and cumulative
effect of accounting
changes................. 28.7 (1.9) (4.5) (2.7) (0.3)
Income tax (expense)
benefit................. (11.3) 0.6 1.2 2.2 0.5
----- ----- ----- ----- -----
Net income (loss) before
cumulative effect of
accounting changes...... 17.4 (1.3) (3.3) (0.5) 0.2
----- ----- ----- ----- -----
Net income (loss)........ 17.4%(/1/) (1.3)% (3.3)%(/2/) (0.5)% (0.7)%(/3/)
===== ===== ===== ===== =====
</TABLE>
- --------
(1) Includes $30.2 million after-tax gain on sale of BETA (10.7% of net
revenues).
(2) Includes $22.0 million after-tax of non-recurring charges incurred in
connection with the Buy-Out (4.5% of net revenues).
(3) Includes cumulative effect of a change in accounting principles at January
1, 1993 of (0.9)% related to a change in accounting for income taxes.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
The Company experienced strong operating results for the six months ended
June 30, 1996 compared to the first six months ended June 30, 1995. Revenues
increased in all of the Company's businesses, expenses declined as percentages
of net revenues, and net income (without giving effect to the gain realized
from the sale of BETA) improved significantly. Management attributes these
results to two principal factors. First, favorable conditions prevailed in the
equity markets during the first half of 1996, reflecting continued investor
optimism concerning inflation and interest rate stability. Second, this period
reflects the continued benefits of ownership resolution, which management
believes has enhanced employee motivation, confidence, commitment and
productivity and allowed management to concentrate on its key strategic
initiatives.
Total revenues increased $39.9 million or 15% to $300.5 million for the six
months ended June 30, 1996 from $260.6 million for the six months ended June
30, 1995. Revenues increased in all of the Company's major product areas during
the first six months of 1996. Net revenues increased $48.4 million or 21% to
$282.0 million for the six months ended June 30, 1996 from $233.6 million for
the six months ended June 30, 1995.
Commission revenues increased $28.2 million or 32% to $117.7 million for the
six months ended June 30, 1996 from $89.5 million for the six months ended June
30, 1995, due to increased business in both the retail and institutional areas,
consistent with the overall growth in listed share volume on all the major
equity exchanges.
22
<PAGE>
During this period the Company benefited from a 26% increase in average
production per investment consultant (commissions, principal sales credits and
12b-1 and managed account fees credited to the production of all investment
consultants divided by the average number of investment consultants during the
period) when compared to the same period in 1995.
Principal transaction revenues increased $7.7 million or 13% to $65.3
million for the six months ended June 30, 1996 from $57.6 million for the six
months ended June 30, 1995, due to the strong trading volumes generated in the
Company's retail sector throughout the first half of 1996 and a significant
increase in trading gains and principal sales credits from over-the-counter
equity transactions, consistent with improved market conditions.
Investment banking revenues increased $3.6 million or 15% to $27.0 million
for the six months ended June 30, 1996 from $23.4 million for the six months
ended June 30, 1995. The increase in investment banking revenues was
indicative of the increased underwriting activity seen throughout the industry
and the Company's participation in a larger number of transactions. In
addition, management believes that resolution of the Company's past ownership
uncertainties has increased the Company's ability to participate in this type
of business.
Asset management revenues increased $1.9 million or 7% to $27.7 million for
the six months ended June 30, 1996 from $25.8 million for the six months ended
June 30, 1995, due primarily to increased managed account fees and increased
12b-1 distribution fees in 1996, consistent with the strong mutual fund
inflows seen throughout the industry in 1995 and 1996.
Other income increased $2.2 million or 10% to $25.3 million for the six
months ended June 30, 1996 from $23.1 million for the six months ended June
30, 1995. This resulted primarily from increased transactional fee income and
a license fee earned by BETA prior to its sale.
Interest and dividend income decreased $3.7 million or 9% to $37.5 million
for the six months ended June 30, 1996 from $41.2 million for the six months
ended June 30, 1995, due to lower average inventory balances and a lower
average rate of interest earnings on margin accounts. The decline in interest
and dividend income was more than offset by a decrease in interest expense of
$8.5 million or 31% to $18.5 million for the six months ended June 30, 1996
from $27.0 million for the six months ended June 30, 1995. This decrease in
interest expense was the net result of reduced costs of financing lower levels
of securities inventories and customer margin accounts, and reduced levels of
long-term debt which resulted from the Buy-Out and the early repayment of the
KSOP debt.
Total non-interest expenses increased $13.3 million or 6% to $251.0 million
for the six months ended June 30, 1996 from $237.7 million for the six months
ended June 30, 1995. This increase was the net result of an increase in
production-related compensation attributable to higher revenue, partially
offset by reduced operating expenses resulting from the Company's continued
focus on cost containment.
Compensation and benefits expense increased $21.6 million or 14% to $175.6
million for the six months ended June 30, 1996 from $154.0 million for the six
months ended June 30, 1995, primarily due to increased incentive and
production-related compensation. However, compensation and benefits as a
percentage of net revenues declined to 62% in this period from 65% in the
first six months of 1995. This decrease reflects the fixed nature of a
significant portion of this expense as well as the decrease in production-
based payout to retail investment consultants that was implemented in the
third quarter of 1995.
Brokerage and clearance expense increased $1.3 million or 24% to $6.8
million for the six months ended June 30, 1996 from $5.5 million for the six
months ended June 30, 1995. This increase was directly related to the
increased transaction volume in the current period and was consistent with the
24% increase in commission and principal transaction revenues in the current
period when compared with the 1995 period.
All other operating expenses decreased an aggregate $9.6 million or 12% to
$68.6 million for the six months ended June 30, 1996 from $78.2 million for
the six months ended June 30, 1995, primarily due to the continued realization
of benefits from cost containment programs initiated in previous years. All
other operating expenses
23
<PAGE>
as a percentage of net revenues declined to 24% for the six months ended June
30, 1996 from 34% for the six months ended June 30, 1995. Specifically, when
comparing the periods ended June 30, 1996 and 1995, communications expense
decreased $1.5 million or 7%; occupancy and equipment expense decreased $1.8
million or 8%; promotional expense increased $1.9 million or 29%; and other
expenses decreased $8.2 million or 29%. After excluding from first quarter
1995 expenses a $3.7 million pre-tax charge related to the failure of a
correspondent firm of EVEREN Clearing in March 1995, other expenses decreased
$4.5 million or 18% for the six months ended June 30, 1996 when compared to
the six months ended June 30, 1995. The increase in promotional expense during
this period was due to increased advertising expenses incurred to promote the
Company.
The Company's income tax provision (benefit) for the six months ended June
30, 1996 and 1995 was $32.0 million and $(1.4) million, respectively, which
represented a 39% effective tax rate on income before taxes for the six months
ended June 30, 1996 and a 34% effective benefit rate for the six months ended
June 30, 1995. The effective rate increase for 1996 is due primarily to
certain non-deductible compensation expenses related to appreciation on the
shares of Common Stock released to the KSOP (and subsequently allocated to
participants) and higher state and local income taxes.
Net income increased $51.9 million to $49.2 million for the six months ended
June 30, 1996 from a net loss of $2.7 million for the six months ended June
30, 1995.
1995 COMPARED TO 1994
Stronger operating results for 1995 were more than offset by $33.3 million
pre-tax ($22.0 million after-tax) of non-recurring charges related to the Buy-
Out that are discussed below. Management believes that the improved results in
1995, exclusive of non-recurring charges, were due in part to the turnaround
in the equity and fixed income markets that began in the second quarter and
continued through year end 1995. This factor, coupled with ownership
resolution in the later part of 1995, contributed to improved commission and
principal transaction revenues. For the fourth quarter of 1995, its first full
quarter as an independent entity, the Company reported net income of $6.2
million on net revenues of $131.3 million, compared to net income of $0.7
million on net revenues of $114.2 million for the fourth quarter of 1994.
Total revenues increased $13.2 million or 2% to $543.2 million for the year
ended December 31, 1995 from $530.0 million for the year ended December 31,
1994. Net revenues increased $5.5 million or 1% to $490.7 million for the year
ended December 31, 1995 from $485.2 million for the year ended December 31,
1994. These small increases were largely due to stronger market conditions in
the second half of 1995, which more than offset the weaker market conditions
in the first half of 1995.
Commission revenues increased $9.9 million or 5% to $190.4 million for the
year ended December 31, 1995 from $180.5 million for the year ended December
31, 1994. In the third and fourth quarters of 1995 commission revenues
increased by $10.6 million or 26% and $10.6 million or 27%, respectively, when
compared to the corresponding quarters in 1994, primarily reflecting improved
securities market conditions. Specifically, retail investment consultant
productivity improved significantly in the second half of 1995 due to
stability in the Company's workforce.
Principal transaction revenues increased $3.0 million or 3% to $122.1
million for the year ended December 31, 1995 from $119.1 million for the year
ended December 31, 1994, due to stronger equity markets and reduced volatility
in the fixed income markets. Increased stability in the fixed income markets
in 1995 resulted in increased trading profits in the municipal, government and
corporate bond areas, which accounted for the moderate improvement in
principal transaction revenues.
Investment banking revenues decreased $14.8 million or 24% to $47.1 million
for the year ended December 31, 1995 from $61.9 million for the year ended
December 31, 1994. Management believes that uncertainties with respect to the
Company's ownership negatively impacted its ability to generate investment
banking fees and participate in the upswing in equity origination business
experienced by other firms in this period.
24
<PAGE>
Asset management revenues increased $1.8 million or 3% to $53.3 million for
the year ended December 31, 1995 from $51.5 million for the year ended
December 31, 1994, primarily due to higher revenues earned on wrap accounts
and other fee earning assets.
Other income improved $5.9 million or 14% to $49.1 million for the year
ended December 31, 1995 from $43.2 million for the year ended December 31,
1994. The most significant element of this increase was the receipt of
approximately $2.8 million in recoveries in 1995 related to the contested
recruitment of Company employees by certain competitors. In addition, the
Company took advantage of favorable market conditions in the fourth quarter of
1995 by exercising its right to call certain of its collateralized mortgage
obligations and selling the related mortgage-backed securities, resulting in a
gain of approximately $2.1 million. Without giving effect to these two items,
other income improved $1.0 million or 2% for the year ended December 31, 1995
compared to the year ended December 31, 1994.
Interest and dividend income improved $7.4 million or 10% to $81.2 million
for the year ended December 31, 1995 from $73.8 million for the year ended
December 31, 1994, as increased earnings from higher interest on margin
accounts more than offset reduced customer margin borrowings. The improvement
in interest and dividend income, however, was offset by an increase in
interest expense of $7.7 million or 17% to $52.5 million for the year ended
December 31, 1995 from $44.8 million in 1994, which resulted from higher
average interest rates on the Company's borrowings.
Total non-interest expenses increased $14.8 million or 3% to $512.7 million
for the year ended December 31, 1995 from $497.9 million for the year ended
December 31, 1994, as a result of the non-recurring charges discussed below.
Such non-recurring charges amounted to $33.3 million pre-tax. Excluding these
non-recurring items, total non-interest expenses decreased $18.5 million or 4%
to $479.4 million for the year ended December 31, 1995 from $497.9 million for
the year ended December 31, 1994, due to the continued impact of cost
containment efforts.
The $33.3 million pre-tax ($22.0 million after-tax) of non-recurring charges
noted above are made up of the following: (i) $6.0 million of expenses related
to changing and publicizing the Company's name; (ii) $10.6 million of expenses
associated with the Company's decisions to sublease to third parties, rather
than to use in the Company's business, a significant portion of its 115,000
square feet of office space in Houston, Texas and to move its Denver, Colorado
operations from a 153,000 square feet owned building to a new leased facility;
(iii) $14.2 million for an initial contribution and a matching contribution to
the KSOP related to the Founders' Offering; and (iv) $2.5 million in
compensation expense as a result of the vesting of previously restricted stock
issued to senior management as part of the Buy-Out. All of these charges were
a result of or incurred in connection with the Buy-Out and were reflected in
third quarter 1995 operating results.
Compensation and benefits expense increased $7.5 million or 2% to $335.5
million for the year ended December 31, 1995 from $328.0 million for the year
ended December 31, 1994. Compensation and benefits as a percentage of net
revenues increased to 68.4% for the year ended December 31, 1995 from 67.6%
for the year ended December 31, 1994. Included in the increase in compensation
and benefits expense are non-recurring charges of $16.7 million related to the
vesting of restricted stock issued to senior management, and the initial and
matching KSOP contributions related to the Founders' Offering. Excluding these
items, compensation and benefits expense decreased $9.2 million (3%) or to 65%
of net revenues as a result of several factors including decreased production-
based compensation related to the weaker market conditions in the first half
of 1995, a reduction in production-based payout to retail investment
consultants beginning in August 1995 of approximately 2% of retail revenues
and, management believes, uncertainties surrounding the Company's ownership.
Brokerage and clearance expense remained relatively constant, decreasing
$0.1 million or 1% to $11.4 million for the year ended December 31, 1995 from
$11.5 million for the year ended December 31, 1994 as a result of the
Company's continued focus on cost containment, despite increased transaction
volumes.
Communications expense increased $0.5 million or 1% to $41.8 million for the
year ended December 31, 1995 from $41.3 million for the year ended December
31, 1994 mainly due to increased depreciation on broker workstation equipment.
25
<PAGE>
All other operating expenses, excluding the 1995 non-recurring charges of
$16.6 million pre-tax related to the sublease and relocations and the
Company's name change, decreased $9.7 million or 8% to $107.4 million for the
year ended December 31, 1995 from $117.1 million for the year ended December
31, 1994 as the benefits of cost containment programs continued to be
realized. Specifically, when comparing the years ended December 31, 1995 and
1994, occupancy and equipment (excluding $10.6 million of non-recurring
charges for the sublease and relocations) decreased $2.5 million or 5%;
promotional expense decreased $5.4 million or 29%; and other expenses
decreased $5.5 million or 11% after excluding a $6.0 million expense related
to the Company's name change and a $3.7 million charge related to the failure
of an EVEREN Clearing correspondent firm. While the Company believes that the
failure of this EVEREN Clearing correspondent firm was an isolated event which
is not indicative of a trend, the Company initiated more stringent credit and
risk management procedures in order to reduce the risk of any such future
losses. See "--Risk Management."
The Company's income tax benefit for the years ended December 31, 1995 and
1994 was $6.1 million and $5.0 million (excluding a $5.5 million 1994 benefit
related to the revaluation of certain tax assets), respectively, which
represented a 28% effective benefit rate in 1995 and a 39% effective benefit
rate in 1994. The effective rate decline in 1995 was due to lower tax-exempt
interest income and higher state and local taxes.
The net loss increased $13.7 million to $15.9 million for the year ended
December 31, 1995 from $2.2 million for the year ended December 31, 1994.
1994 COMPARED TO 1993
Weak industry conditions and uncertainty as to the Company's ownership had
an adverse impact on operating results beginning in early 1994. During the
1994 period the Company proceeded with its cost control program and with
resizing the organization, reducing employee (other than investment
consultant) headcount by approximately 10% at December 31, 1994 compared to
December 31, 1993.
Consistent with the generally weak market conditions experienced throughout
the industry in 1994 and a net loss of investment consultants by the Company,
total revenues decreased $143.7 million or 21% to $530.0 million for the year
ended December 31, 1994 from $673.7 million for the year ended December 31,
1993. Net revenues decreased $141.6 million or 23% to $485.2 million for the
year ended December 31, 1994 from $626.8 million for the year ended December
31, 1993. These decreases were the result of poor market conditions coupled
with uncertainty surrounding the Company's and Kemper's ownership in 1994.
These and other factors led to a reduction in the average number of investment
consultants, lower average production per investment consultant and lower
investment banking revenues.
For the reasons described above, commission revenues decreased $60.6 million
or 25% to $180.5 million for the year ended December 31, 1994 from $241.1
million for the year ended December 31, 1993.
Principal transaction revenues declined $39.4 million or 25% to $119.1
million for the year ended December 31, 1994 from $158.5 million for the year
ended December 31, 1993, reflecting, in addition to the factors described
above, a tightening in the fixed income markets resulting from rising interest
rates as well as increased market volatility. The increase in short-term
interest rates in 1994 and uncertainty over their future direction caused a
reduction in demand for fixed income products and a reduction in the value of
most fixed income instruments. By contrast, fixed income markets were
generally strong in 1993, particularly within the tax-exempt and mortgage-
backed areas.
Investment banking revenues decreased $43.4 million or 41% to $61.9 million
for the year ended December 31, 1994 from $105.3 million for the year ended
December 31, 1993, primarily due to the factors described above and
significantly reduced equity and municipal underwriting activity. Volatility
in the fixed income markets resulted in reduced transactions. Ownership
uncertainties adversely affected the Company's ability to participate in
investment banking transactions.
Asset management revenues increased $1.7 million or 3% to $51.5 million for
the year ended December 31, 1994 from $49.8 million for the year ended
December 31, 1993, due to increased fee earning assets.
26
<PAGE>
Other income decreased $1.7 million or 4% to $43.2 million for the year ended
December 31, 1994 from $44.9 million for the year ended December 31, 1993,
reflecting lower transaction fee revenues due to reduced volume from retail
accounts.
Interest and dividend income decreased $0.3 million to $73.8 million for the
year ended December 31, 1994 from $74.1 million for the year ended December 31,
1993. Due to market volatility in 1994, the Company reduced its fixed income
securities inventory, resulting in reduced interest income, which was offset by
increased earnings from margin accounts due to higher interest rates. Despite
higher rates, interest expense decreased $2.1 million or 4% to $44.8 million
for the year ended December 31, 1994 from $46.9 million for the year ended
December 31, 1993, due to reduced borrowings.
Total non-interest expenses, excluding a supplemental addition to legal
reserves in 1993 discussed below, decreased $100.4 million or 17% to $497.9
million for the year ended December 31, 1994 from $598.3 million for the year
ended December 31, 1993, largely as a result of decreased production-based
compensation and a focus on cost containment.
Compensation and benefits expense decreased $59.1 million or 15% to $328.0
million for the year ended December 31, 1994 from $387.1 million for the year
ended December 31, 1993, primarily due to lower commission expense (resulting
from lower retail revenues) and reduced production-based compensation accruals.
Brokerage and clearance expense decreased $3.6 million or 24% to $11.5
million for the year ended December 31, 1994 from $15.1 million for the year
ended December 31, 1993, due to lower volumes which resulted from market
volatility and relatively lower levels of investor confidence.
All other expenses, excluding a supplemental addition to legal reserves in
1993, declined $37.7 million or 19% to $158.4 million for the year ended
December 31, 1994 from $196.1 million for the year ended December 31, 1993, as
the benefits of a then recently instituted cost containment program took
effect. Specifically, when comparing the years ended 1994 and 1993,
communications expense decreased $7.9 million or 16%, occupancy and equipment
expense decreased $2.3 million or 5%, and promotional expense decreased $3.5
million or 16%. In addition, other expenses decreased $24.0 million or 32% due
in large part to lower litigation-related expense. Results in 1993 included a
supplemental addition to the Company's litigation reserves of $19.8 million
after-tax. The addition was based on management's evaluation of pending legal
matters in light of then current information. The Company subsequently settled
certain significant litigation within established reserves.
The Company's income tax benefit for the years ended December 31, 1994 and
1993 was $5.0 million (after adjustment for a special revaluation of $5.5
million) and $1.7 million (after adjustment for deferred tax asset
revaluations), respectively, which represented a 39% effective benefit rate in
1994 and a 115% effective benefit rate in 1993. In 1993, significant net tax-
exempt income relative to the loss before income taxes was the primary reason
for the high effective benefit rate.
The net loss decreased $1.5 million or 41% to $2.2 million for the year ended
December 31, 1994 from $3.7 million for the year ended December 31, 1993. The
1994 net loss included the benefits of $5.5 million from revaluation of certain
tax liabilities. The 1993 net loss included a charge of $5.5 million for the
adoption of Statement of Financial Accounting Standards No. 109, which changed
the method of accounting for deferred income taxes. See Note 2 of Notes to
Consolidated Financial Statements.
27
<PAGE>
QUARTERLY RESULTS
The information set forth below is derived from unaudited quarterly results
of operations of the Company for each quarter of 1995 and the first two
quarters of 1996. The data has been prepared by the Company on a basis
consistent with the Consolidated Financial Statements included elsewhere in
this Prospectus and includes all adjustments, consisting principally of normal
recurring accruals, that the Company considers necessary for a fair
presentation thereof. These operating results are not necessarily indicative
of the Company's future performance.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------------
6/30/96 3/31/96 12/31/95 9/30/95 6/30/95 3/31/95
-------- ------- -------- -------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Commissions........... $ 60,277 $57,431 $49,591 $ 51,188 $47,189 $42,336
Principal
transactions......... 34,469 30,875 30,863 33,670 30,180 27,414
Investment banking.... 16,540 10,442 15,520 8,220 11,807 11,546
Asset management...... 13,231 14,480 13,907 13,636 13,031 12,759
Other................. 13,486 11,722 14,552 11,493 12,112 10,978
Interest.............. 19,278 18,191 19,452 20,497 20,460 20,768
-------- ------- ------- -------- ------- -------
Total revenues...... 157,281 143,141 143,885 138,704 134,779 125,801
Interest expense...... 9,203 9,254 12,567 12,942 13,368 13,651
-------- ------- ------- -------- ------- -------
Net revenues........ 148,078 133,887 131,318 125,762 121,411 112,150
-------- ------- ------- -------- ------- -------
Expenses:
Compensation and
benefits............. 88,893 86,725 83,101 98,378(/2/) 80,193 73,801
Brokerage and
clearance............ 3,899 2,949 2,590 3,329 2,729 2,774
Communications........ 9,567 10,321 10,305 10,085 10,703 10,666
Occupancy and
equipment............ 10,052 10,224 10,714 21,687(/2/) 10,929 11,154
Promotional........... 4,375 3,982 3,453 3,568 3,269 3,218
Other................. 10,881 9,049 10,504 17,219(/2/) 12,568 15,683
-------- ------- ------- -------- ------- -------
Total non-interest
expenses........... 127,667 123,250 120,667 154,266(/2/) 120,391 117,296
Gain on sale of
subsidiary........... 50,181(/1/) -- -- -- -- --
-------- ------- ------- -------- ------- -------
Income (loss) before
taxes.................. 70,592 10,637 10,651 (28,504) 1,020 (5,146)
Income tax (expense)
benefit................ (28,173) (3,831) (4,413) 9,125 (517) 1,930
-------- ------- ------- -------- ------- -------
Net income (loss)....... $ 42,419(/1/) $ 6,806 $ 6,238 $(19,379)(/2/) $ 503 $(3,216)
======== ======= ======= ======== ======= =======
</TABLE>
- --------
(1) Includes a $50.2 million pre-tax ($30.2 million after-tax) gain on the
sale of BETA.
(2) Includes $33.3 million pre-tax ($22.0 million after-tax) of non-recurring
charges incurred in connection with the Buy-Out as discussed under
"Results of Operations--1995 Compared to 1994." On a pre-tax basis,
excluding these charges, compensation and benefits expense would decrease
$16.7 million to $81.7 million from $98.4 million; occupancy and equipment
expense would decrease $10.6 million to $11.1 million from $21.7 million;
and other expenses would decrease $6.0 million to $11.2 million from $17.2
million.
28
<PAGE>
The following table sets forth certain statement of operations data as a
percentage of net revenues.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------
6/30/96 3/31/96 12/31/95 9/30/95 6/30/95 3/31/95
------- ------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Commissions........... 40.7% 42.9% 37.8% 40.7% 38.9% 37.7%
Principal
transactions......... 23.3 23.1 23.5 26.8 24.9 24.4
Investment banking.... 11.2 7.8 11.8 6.5 9.7 10.3
Asset management...... 8.9 10.8 10.6 10.8 10.7 11.4
Other................. 9.1 8.8 11.1 9.1 10.0 9.8
Interest.............. 13.0 13.6 14.8 16.3 16.9 18.5
----- ----- ----- ----- ----- -----
Total revenues........ 106.2 107.0 109.6 110.2 111.1 112.1
Interest expense...... 6.2 7.0 9.6 10.2 11.1 12.1
----- ----- ----- ----- ----- -----
Net revenues.......... 100.0 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- ----- -----
Expenses:
Compensation and
benefits............. 60.0 64.8 63.3 78.2 (/2/) 66.1 65.8
Brokerage and
clearance............ 2.6 2.2 2.0 2.6 2.2 2.5
Communications........ 6.5 7.7 7.8 8.0 8.8 9.5
Occupancy and
equipment............ 6.8 7.6 8.2 17.2 (/2/) 9.0 9.9
Promotional........... 3.0 3.0 2.6 2.8 2.7 2.9
Other................. 7.3 6.8 8.0 13.7 (/2/) 10.4 14.0
----- ----- ----- ----- ----- -----
Total non-interest
expenses........... 86.2 92.1 91.9 122.5 (/2/) 99.2 104.6
Gain on sale of
subsidiary........... 33.9(/1/) -- -- -- -- --
----- ----- ----- ----- ----- -----
Income (loss) before
taxes.................. 47.7 7.9 8.1 (22.5) 0.8 (4.6)
Income tax (expense)
benefit ............... (19.0) (2.9) (3.4) 7.3 (0.4) 1.7
----- ----- ----- ----- ----- -----
Net income (loss)....... 28.7%(/1/) 5.0% 4.7% (15.2)%(/2/) 0.4% (2.9)%
===== ===== ===== ===== ===== =====
</TABLE>
- --------
(1) Includes a $50.2 million pre-tax or 33.9% ($30.2 million after-tax or
20.4%) gain on the sale of BETA.
(2) Includes the $33.3 million pre-tax or 26.5% ($22.0 million after-tax or
17.4%) of net revenues for non-recurring charges incurred in connection
with the Buy-Out discussed under "Results of Operations--1995 Compared to
1994." On a pre-tax basis, excluding these charges, compensation and
benefits expense would decrease 13.3% to 64.9% from 78.2%; occupancy and
equipment expense would decrease 8.4% to 8.8% from 17.2%; and other
expenses would decrease 4.8% to 8.9% from 13.7%.
The upward trend in the Company's net revenues for the six quarterly periods
ended June 30, 1996 reflects recent favorable retail brokerage industry market
conditions and general stability in the fixed income markets, combined with
ownership certainty which has resulted in improved investment consultant
retention, recruitment and average production, as well as increased investment
banking activity.
Net revenues during this six-quarter period follow the same positive trend,
with the Company realizing the benefit of declining non-customer/dealer
related interest expense as a result of the elimination of certain long-term
debt owed to Kemper and the accelerated repayment of the KSOP loans.
While in absolute dollar amounts, non-interest expenses have trended up
during the six periods (excluding the third quarter 1995 non-recurring charges
of $33.3 million pre-tax discussed previously), such absolute dollar increases
are generally attributable to compensation and benefits expense and brokerage
and clearance expense, all of which are significantly correlated to revenue
growth. As a percentage of net revenues, non-interest expenses have trended
downward during such periods which trend management believes to be a result of
the Company's cost containment focus.
Net income (both in absolute dollar amounts and as a percentage of net
revenues) also reflects a positive trend during this six-quarter period, with
the exception of the third quarter of 1995 which includes the $22.0 million
(after-tax) of non-recurring charges discussed previously.
29
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
HOLDING COMPANY
EVEREN Capital is the parent holding company for ESHI, the holding company
for the Company's operating subsidiaries. As the parent, EVEREN Capital expects
to receive dividends, interest on any loans and payments for federal income tax
from its subsidiaries. Dividends and other distributions, as well as certain
interest payments, to EVEREN Capital from its registered broker-dealer
subsidiaries, which are expected to be EVEREN Capital's primary sources of
liquidity, are restricted as to amounts which may be paid by applicable law and
regulations. The "net capital" rules are the primary regulatory restrictions.
EVEREN Capital's rights (and the rights of its stockholders and creditors) to
participate in the assets of any subsidiary are also subject to prior claims of
the subsidiary's creditors, including customers of the broker-dealer
subsidiaries (except to the extent the Company itself may be a creditor with
recognized claims). See "Capital Requirements" and Note 11 of Notes to
Consolidated Financial Statements. Since the Buy-Out, the Company has also
generated funds from loans for the Buy-Out, the sale of BETA and the issuance
of Common Stock to employees.
Immediately following the offering, all indebtedness incurred in connection
with the Buy-Out will have been retired in full. See "Company History" and "Use
of Proceeds."
The Company believes that its current level of equity capital, combined with
funds anticipated to be generated from operations and the anticipated proceeds
of this offering, will be adequate to fund its operations for the foreseeable
future.
OPERATING SUBSIDIARIES
The assets of EVEREN Securities and EVEREN Clearing, the Company's primary
operating subsidiaries (the "Subsidiaries"), are highly liquid with the
majority consisting of securities inventories and collateralized receivables,
both of which fluctuate depending on the levels of customer business.
Collateralized receivables consist primarily of securities purchased under
agreements to resell ("resale agreements") and securities borrowed, both of
which are secured by U.S. government and agency securities and highly
marketable corporate debt securities. In addition, the Subsidiaries have
significant receivables from customers, brokers and dealers which turn over
rapidly. The Subsidiaries' total assets and the individual components of total
assets vary significantly from period to period because of changes relating to
customer needs and economic and market conditions. A relatively small
percentage of total assets is fixed or held for a period of longer than one
year. The Company's total assets at June 30, 1996, December 31, 1995 and
December 31, 1994 were $1.8 billion, $2.6 billion and $1.6 billion,
respectively.
The majority of the Subsidiaries' assets are financed through daily
operations by securities sold under repurchase agreements, securities sold not
yet purchased, securities loaned, bank loans and through payables to customers,
brokers and dealers. Short-term funding is generally obtained at rates related
to federal funds, LIBOR and money market rates. Other borrowing costs are
negotiated depending upon prevailing market conditions. The Company monitors
overall liquidity by tracking the extent to which unencumbered marketable
assets exceed short-term unsecured borrowings. The Company maintains borrowing
relationships with a broad range of banks, financial institutions,
counterparties and others. At June 30, 1996, the Subsidiaries had $585 million
in uncommitted and committed bank credit lines with seven banks.
Repurchase agreements are used primarily for customer accommodation purposes
and to finance the Company's inventory positions in U.S. government and agency
securities. These positions provide products and liquidity for customers and
are not maintained for the Company's investment or market speculation. The
level of
30
<PAGE>
activity fluctuates significantly depending on customer needs; however, these
fluctuations have no material effect on cash flows, liquidity or capital
resources. The Company monitors the collateral position and counterparty risk
on these transactions daily. See "Risk Management."
The Subsidiaries are capital intensive. In addition to normal operating
requirements, capital is required to cover financing and regulatory charges on
securities inventories, investment banking commitments and investments in
fixed assets. The Company's overall capital needs are continually reviewed to
ensure that its capital base can appropriately support the anticipated needs
of the Subsidiaries. Management believes that existing capital, funds from
operations and current credit facilities will be sufficient to finance the
operating subsidiaries' ongoing businesses. The majority of the Subsidiaries'
assets are funded with liabilities that reprice on a matched basis, generally
producing a positive spread. As a result, the Company has modest exposure to
fluctuations in interest rates (other than the effect of interest rate
volatility on market conditions and prices of fixed income securities, and the
resulting impact on the Company's revenues).
CASH FLOWS
The Company's statements of consolidated cash flows classify cash flow into
three broad categories: cash flows from operating activities, investing
activities and financing activities. The Company's net cash flows are
principally associated with operating and financing activities, which support
the Company's trading, customer and banking activities.
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
Cash and cash equivalents at June 30, 1996 and 1995 totaled $43.2 million
and $7.1 million, respectively, representing an increase of $28.6 million for
the six months ended June 30, 1996 and a decrease of $3.4 million for the
comparable period of 1995.
For the first half of 1996 and 1995, cash provided from operating activities
was used primarily in financing activities to reduce bank loans payable. Cash
flows from investing activities for the first six months of 1996 were further
bolstered by the $59.3 million net proceeds ($63.5 million of gross sales
proceeds less costs of sale) from the sale of BETA.
Cash provided by operating activities totaled $27.7 million and $62.0
million for the first six months of 1996 and 1995, respectively. In 1996, the
net change in receivables from and payables to customers, dealers, affiliates
and others of $20.9 million, the decrease in securities purchased under
agreements to resell in excess of the decrease in securities sold under
agreements to repurchase of $32.7 million and an increase in accounts payable
of $13.9 million were primary sources of operating cash flow. An increase in
securities owned of $39.9 million and a decrease in securities owned, not yet
purchased of $14.6 million used operating cash flow. In 1995, the net change
in receivables from and payables to customers, dealers, affiliates and others
of $68.0 million, a decrease in securities owned of $33.1 million and a
decrease in other assets of $6.2 million generated operating cash flow. An
increase in securities purchased under agreements to resell in excess of the
increase in securities sold under agreements to repurchase of $20.8 million, a
decrease in securities sold, not yet purchased of $5.5 million and a decrease
in accounts payable, accrued expenses and other liabilities of $23.3 million
used operating cash flow.
For the first six months of 1996, cash provided from investing activities of
$57.6 million resulted from the $59.3 million of net proceeds from the sale of
BETA and the $2.1 million of cash proceeds from the sale of fixed assets which
were partially offset by $4.0 million of fixed asset purchases. For the first
six months of 1995, the Company used $30.0 million for investing activities,
which was comprised of $26.4 million net cash flows used in its mortgage-
backed securities investing activities and $3.6 million used for the purchase
of fixed assets.
For the first six months of 1996, the Company's financing activities used
$56.7 million primarily as a result of the collection of $9.1 million under
the Kemper indemnification, $9.3 million related to repayment of the KSOP
loan, repayment of $77.8 million of bank loans, receipt of $4.2 million in
proceeds from the issuance of additional shares of Common Stock under Company
stock plans and a cash dividend payment of $1.1 million
31
<PAGE>
during the second quarter on the Exchangeable Preferred Stock. In 1995,
financing activities consisted of $34.1 million of proceeds from the issuance
in excess of repayments of collateralized mortgage obligations and the
repayment of $62.1 million of bank loans.
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
Cash and cash equivalents at December 31, 1995, 1994 and 1993 totaled $14.6
million, $10.5 million and $7.0 million, respectively, reflecting increases of
$4.1 million and $3.5 million, respectively, for 1995 and 1994 and a decrease
of $8.0 million for 1993.
For the full years 1995 and 1994, cash provided from operating activities was
used in financing activities to reduce bank loans payable and to a limited
extent in 1994 in investment activities to fund fixed asset acquisitions, while
in 1993, cash provided by financing activities was used primarily for operating
activities.
Cash provided by operating activities totaled $34.3 million and $15.7 million
in 1995 and 1994, respectively, while cash used for operating activities was
$112.6 million in 1993. In 1995, there were changes in securities owned and
securities owned, not yet purchased of $58.2 million and changes in other
assets and other liabilities of $44.2 million which generated cash. These
sources were partially offset by a $22.3 million increase in securities
purchased under agreements to resell in excess of the increase in securities
sold under agreements to repurchase and a $25.3 million use of funds related to
the net change in receivables from and payables to customers, dealers,
affiliates and others. During 1994, decreases in net securities positions of
$81.6 million and other assets of $12.4 million along with a $19.2 million
increase in securities sold under agreements to repurchase in excess of the
increase in securities purchased under agreements to resell generated cash.
Uses of cash flow offsetting these sources were the net change in receivables
from and payables to customers, dealers, affiliates and others of $83.0 million
and a decrease in accounts payable, accrued expenses and other liabilities of
$35.4 million. In 1993 a decrease of securities purchased under agreements to
resell in excess of a decrease in securities sold under agreements to
repurchase of $27.5 million and an increase in accounts payable, accrued
expenses and other liabilities of $35.4 million generated cash. A net change in
receivables from and payables to customers, dealers, affiliates and others of
$153.2 million and increases in securities owned and securities sold, not yet
purchased of $12.7 million used cash.
In 1995 cash provided from investing activities of $59.9 million resulted
primarily from the $62.4 million of net cash flows from the sale, purchase and
principal collections on investments in mortgage-backed-securities which was
offset by $2.5 million of fixed asset purchases. In 1994 the Company used $44.8
million for investing activities which was comprised primarily of $24.0 million
net cash flows used in its mortgage-backed securities investing activities and
for the purchase of $20.8 million of fixed assets. In 1993 cash provided from
investing activities of $95.0 million consisted of $110.8 million from the
collection of principal on its mortgage-backed securities investments that was
offset by $15.8 million of fixed asset purchases.
In 1995 the Company's financing activities included $4.7 million in proceeds
from the offering related to the over-subscribed Founders' Offering,
collections of $7.1 million under the Kemper indemnification, $61.0 million of
repayments in excess of proceeds from the issuance of collateralized mortgage
obligations, payment of debt issuance costs of $1.0 million related to the KSOP
loans and the repayment of $40.0 million of bank loans. In 1994 financing
activities consisted of a $19.0 million capital contribution from Kemper, $23.6
million of proceeds from the issuance in excess of repayments of collateralized
mortgage obligations and the repayment of $10.0 million of bank loans. In 1993
repayment of collateralized mortgage obligations totaled $115.3 million and
bank loans increased by $124.9 million.
DERIVATIVE FINANCIAL INSTRUMENTS
Derivatives are financial instruments, the payments on which are linked to
the prices, or relationships between prices, of securities or commodities,
interest rates, currency exchange rates or other financial measures
(collectively referred to as "cash market instruments"). Derivatives enable the
Company and its clients to manage their exposure to interest rates, currency
exchange rates and security and other price risks. Derivatives include
structured notes, swaps, futures or forward contracts and options. Certain
types of derivatives, including forwards and certain options, are traded in the
over-the-counter markets. Other types of derivatives, including futures
contracts and listed options, are traded on regulated exchanges.
32
<PAGE>
Based on relative notional amounts, management believes that the Company's
derivative activities are not as extensive as those of many of its competitors.
The Company does not engage in the speculative trading of derivatives. Instead,
the Company has focused its derivative activities on trading in forward and
futures contracts in U.S. government and agency issued or guaranteed securities
as hedges against the Company's securities inventory positions. The Company
also executes transactions in exchange-traded futures contracts and listed
options on behalf of its clients.
The Company has entered into certain futures and options contracts on a
limited basis in the ordinary course of its business to hedge or modify
exposures to interest rate fluctuations related to its unit investment trust
product originations and interest-sensitive securities in its inventory. Given
the limited use of such derivatives, the Company has not incurred and does not
expect to incur any material losses relating to its derivative investments that
would not be substantially offset with corresponding gains on the securities
hedged. Both the securities hedged and the derivative instruments are carried
on the statement of financial condition at their market values. Gains and
losses, both realized and unrealized, from both the hedged securities and the
derivative instruments are included in current operating results. See Note 20
of Notes to Consolidated Financial Statements.
RISK MANAGEMENT
The ways in which the Company manages its exposure to various types of risks
on a day-to-day basis are critical to its survival and financial success. The
Company monitors its market and counterparty risk on a daily basis through a
number of control procedures designed to identify and evaluate the various
risks to which the Company is exposed.
The Company often acts as a principal in customer-related transactions in
financial instruments which expose the Company to market risks. The Company
makes dealer markets in certain equity securities, investment-grade corporate
debt, high-yield securities, U.S. government and agency securities, mortgages
and mortgage-backed securities and municipal fixed-income securities. In
connection with its market making activities, the Company maintains securities
inventories to facilitate customer transactions. The Company covers its
exposure to market risk by limiting its net long or short positions, both
overall and by individual product area, by limiting the number of days
inventory is held, by selling or buying similar instruments and by utilizing
various derivative financial instruments such as futures and forward and option
contracts. Management believes the Company's philosophy, risk management and
hedging practices result in carefully managed market exposure and reduced
earnings volatility.
At June 30, 1996 and December 31, 1995, the Company's securities owned and
securities sold, not yet purchased consisted of the following:
<TABLE>
<CAPTION>
OWNED 6/30/96 12/31/95
----- -------- --------
(IN THOUSANDS)
<S> <C> <C>
Obligations of the U.S. Government or its agencies...... $ 78,912 $ 62,808
State and municipal obligations......................... 19,056 22,333
Corporate obligations................................... 73,140 44,954
Corporate stocks and warrants........................... 8,352 9,205
Other................................................... 1,713 1,956
-------- --------
$181,173 $141,256
======== ========
<CAPTION>
SOLD, NOT YET PURCHASED
-----------------------
<S> <C> <C>
Obligations of the U.S. Government or its agencies...... $ 56,958 $ 70,130
State and municipal obligations......................... 1,090 601
Corporate obligations................................... 10,658 13,809
Corporate stocks and warrants........................... 8,326 7,085
Other................................................... 25 7
-------- --------
$ 77,057 $ 91,632
======== ========
</TABLE>
33
<PAGE>
The Company manages risk exposure utilizing mechanisms involving various
levels of management. The Company's risk management committee assists senior
management in managing risk associated with trading and inventory accounts. The
primary function of this committee is to establish and monitor position limits
for these accounts on an ongoing basis. Current and proposed underwriting and
other commitments are subject to due diligence reviews by senior management as
well as professionals in the appropriate business and support units involved.
The Company's trading activities result in the creation of inventory
positions. Position and exposure reports are prepared daily by operations
staff. Such reports are distributed to and reviewed independently on a daily
basis by the risk management committee as well as by certain members of senior
management. In addition, the corporate accounting group prepares a daily
summarized position report indicating both long and short exposure. These
reports, which are distributed to various levels of management throughout the
Company, enable senior management to better control inventory levels and
monitor results of the trading areas. The Company also reviews and monitors, at
various levels of management, inventory aging, pricing, concentration and
securities ratings.
In addition to position and exposure reports, the Company produces a daily
revenue report which summarizes the trading, interest, commissions, fees,
underwriting and other revenue items for each of the trading departments. Daily
revenues are reviewed for various risk factors and are independently verified
by a member of the risk management committee. The daily revenue report is
summarized by the corporate accounting group and distributed to various levels
of management throughout the Company, together with position and exposure
reports. These reports enable senior management to monitor and better control
overall activity of the trading areas.
Credit risk related to various financing activities is reduced by the
industry practice of obtaining and maintaining possession and control of
collateral. The Company monitors its exposure to counterparty risk on a daily
basis through the use of credit exposure information and the monitoring of
collateral values. The Company's credit department is responsible for reviewing
counterparties to establish appropriate exposure limits for a variety of
transactions. In addition, the Company actively manages the credit exposure
relating to its trading activities by monitoring the creditworthiness of
counterparties and their related trading limits on an ongoing basis, requesting
additional collateral when deemed necessary and limiting the amount and
duration of exposure to individual counterparties.
The Company seeks to control the risks associated with its investment banking
activities through a process that results in a thorough review by various
committees of the risks associated with all significant transactions prior to
acceptance of any engagement. The Company currently has various commitment and
other review committees. Each such committee is chaired by a member of senior
management and has at least one additional senior management member. Other
committee members include employees who provide expertise in the evaluation and
analysis of proposed transactions brought before the particular committee.
EVEREN's risk management effort also includes an emphasis on compliance.
Retail branch managers and other supervisors are required to engage in specific
review and other tasks, and complete various reports, as part of their
supervisory responsibilities. The Company's compliance department professionals
monitor the Company's retail and capital markets activities, conduct periodic
and other examinations, respond to any customer complaints that arise and
interface with the various regulatory agencies that have jurisdiction over the
Company and its business. See "Regulation."
34
<PAGE>
BUSINESS
GENERAL
EVEREN is a leading, full-service securities brokerage firm that provides a
broad range of investment services and products primarily to individuals and
also to institutions, corporations and municipalities. The Company's core
strength is its retail operations, which are focused on individual investors
and which generated more than 70% of the Company's net revenues in each of the
last three years. The Company also engages in capital markets, asset
management and clearing activities that complement and capitalize on the
strength of the Company's retail operations.
In its retail business, the Company focuses on maintaining and developing
strong client relationships in local and regional markets while providing the
breadth and quality of services and products offered by national brokerage
firms. Headquartered in Chicago, the Company operates its retail business
through an integrated network of approximately 1,175 investment consultants
located in 138 offices in 27 states. As of January 1, 1995, EVEREN was ranked
as the eleventh largest brokerage firm in the United States based on number of
investment consultants, according to the Securities Industry Association. As
of June 30, 1996, EVEREN held over $38 billion of customer assets in more than
430,000 client accounts.
EVEREN enjoys strong market positions in targeted regional markets with
approximately 73% of branch offices and 74% of its investment consultants
located in the states of Illinois, California, Ohio, Wisconsin, Colorado and
Texas. EVEREN's market penetration is primarily the result of the
consolidation and integration in 1990 of five prominent predecessor firms to
form a network of seasoned investment consultants. Annualized average
production for the Company's investment consultants was $320,000 for the six
months ended June 30, 1996 and, at that date, the Company's client assets per
investment consultant averaged $28.9 million. Management believes that the
experience of, and relationships developed by, its investment consultants help
to differentiate the Company from its competitors in its targeted markets and
enable the Company to more effectively access and serve clients. As of June
30, 1996, the Company's investment consultants averaged more than eight years
of tenure with the Company and 16 years of experience in the securities
brokerage industry. Based on an industry source, management believes that both
the productivity and tenure of its investment consultants exceed that of most
regional firms and approximate the averages of all United States securities
brokerage firms.
The Company also provides a full range of equity and fixed income products,
investment banking services and other capital markets products and services
through approximately 287 professionals located in eleven offices in major
cities in the United States. The Company is increasing the coordination of its
investment banking, syndicate and trading activities and focusing those
activities on middle market and growth companies in selectively targeted
industries in which management believes the Company has specialized expertise.
In addition, EVEREN is expanding its asset management business through a joint
venture with Mentor, an asset management company that has approximately $5.7
billion of assets under management. Through its subsidiary, ECC, the Company
also provides securities clearing services to its trading and brokerage areas
and approximately 30 correspondent firms.
In September 1995, the Company became independent when its employees
purchased it from Kemper in the Buy-Out. As a result, the Company is currently
employee-owned, with approximately 92% of the Company's current employees
having an ownership interest. The Company experienced net losses in 1992,
1993, 1994 and 1995 of $38.4, $3.7, $2.2 and $15.9 million, respectively.
Since the Buy-Out, EVEREN has experienced improved growth and profitability
relative to prior periods. For the fourth quarter of 1995, its first full
quarter as an independent entity, the Company reported net income of $6.2
million on net revenues of $131.3 million compared to net income of $0.7
million on net revenues of $114.2 million for the fourth quarter of 1994. For
the six months ended June 30, 1996, the Company generated net income of $49.2
million, including a $30.2 million after-tax gain on the sale of a subsidiary,
on net revenues of $282.0 million compared to a net loss of $2.7 million on
net revenues of $233.6 million for the first six months of 1995. Management
believes that the Company's
35
<PAGE>
independence and employee ownership have resulted in high levels of employee
motivation, confidence and commitment, which have in turn contributed
significantly to the Company's improved performance.
STRATEGY
EVEREN is dedicated to expanding its retail brokerage franchise while
increasing the proportion of revenues and profits contributed by its capital
markets and asset management businesses. The Company continually focuses on
enhancing its profitability through revenue growth and strict cost controls.
Key elements of the Company's strategy include actions to:
. Provide a high level of value-added service to clients. Management seeks
to provide its retail investment consultants with a work environment and
resources that enable them to offer clients service superior to that
provided by most national brokerage firms and a range of products and
services broader than those offered by most competing regional brokerage
firms. Management believes that the Company's ability to provide clients
with superior service is primarily attributable to the long average
tenure and experience of its investment consultants, a high average level
of support staff per investment consultant and the breadth of the
Company's service and product offerings. The Company is also actively
seeking to enhance the consultative, as opposed to transactions-oriented,
nature of its approach in an effort to meet and serve its clients' needs
more effectively.
. Increase penetration in existing markets. EVEREN targets select local
markets in which its presence often equals or exceeds that of larger
national brokerage firms. The Company is focused on achieving target
market penetrations (generally 10%-15% market share) in most of its
markets to realize operating efficiencies and develop a meaningful
presence in such communities. To achieve desired market penetration, the
Company is building its investment consultant base by recruiting
experienced investment consultants in appropriate markets, as well as
selectively hiring and training new investment consultants. Newly
recruited investment consultants typically occupy available space within
existing offices, although the Company may selectively open new offices
in locations in which it believes it can reach desired penetration
levels.
. Grow client assets and increase asset management activity. The Company
seeks to increase the level of client wealth at the Company by
encouraging existing clients to maintain an increasing proportion of
their financial assets with the Company and by attracting new clients.
Toward this end, the Company has undertaken two recent initiatives. The
first initiative was the introduction of new cash management products
that allow clients to consolidate their financial assets into one, full
service, integrated account with a variety of features. The introduction
of these products, coupled with certain marketing efforts related to
them, is designed both to facilitate the maintenance of higher balances
at the Company and also to attract and reward higher net worth
individuals who maintain assets greater than $500,000 at the Company.
The Company's second initiative is the joint venture with Mentor, which
will provide the Company's investment consultants with proprietary mutual
funds to sell to existing and new clients. The arrangement will expand
the Company's product offerings while also allowing the Company to
diversify and potentially increase its earnings through direct
participation in Mentor's earnings. The Company is seeking to increase
the recurring, fee-based revenues generally associated with asset
management activities.
. Expand capital markets activity. The Company intends to increase its
origination of equity products. To implement this strategy, the Company
is increasing the coordination of its research, investment banking,
syndicate and equity trading activities to focus those activities on
middle market and growth companies in a group of core industries. By
focusing its activities, the Company expects to enhance its reputation in
such industries and increase its penetration, thereby leading to the
execution of a greater volume of larger, higher margin transactions.
36
<PAGE>
. Pursue opportunistic acquisitions consistent with the Company's overall
strategy. The Company intends to selectively pursue acquisition
opportunities that either deepen penetration in its existing markets or
add new, sufficiently penetrated, markets to its franchise. Management
intends to selectively pursue acquisitions, principally of smaller
brokerage firms that have a full-service orientation similar to the
Company and that are likely to further leverage the Company's
infrastructure. The Company intends to continue to consider from time to
time the divestiture, elimination or resizing of other non-core
businesses, programs or assets in order to increase the focus on its
retail brokerage and capital markets businesses.
. Maintain rigorous cost discipline. The Company seeks to minimize
operating costs and to convert fixed costs to variable costs as
appropriate. The Company regularly reviews the expense levels in, and
profit contributions of, each retail branch office and business unit to
determine appropriate consolidation and other cost saving opportunities.
In addition, the Company has closely aligned the compensation structure
for branch managers and other managerial personnel to profitability
targets and the attainment of cost minimization goals. The Company also
seeks to reduce fixed costs by divesting non-core businesses, such as
BETA, and resizing certain business units, such as its municipal bond
unit.
. Maintain conservative risk profile. The Company will continue to control
the risks in each of its businesses. Securities inventories are
maintained at relatively low levels, hedged to the extent practicable and
subjected to strict risk management guidelines. The Company seeks to
limit its exposure to trading losses by focusing its trading activity on
facilitating its retail and institutional businesses rather than on
trading for its own account. Management seeks to foster a conservative
approach to risk through a number of mechanisms including the linking of
trader compensation to production as a priority over trading profits, an
emphasis on compliance, a focus on education and the implementation of
thorough risk management systems monitored on a daily basis.
RETAIL BROKERAGE ACTIVITIES
EVEREN's retail business offers clients a complete range of investment
products, such as stocks, bonds and mutual funds, and investment services,
including investment advice, financial planning and asset management.
Management believes that the breadth and quality of the Company's products and
services, coupled with the productivity, tenure and experience of its
investment consultants, allow it to provide superior service to its clients
and help to distinguish EVEREN from its competitors.
MARKETS
EVEREN's investment products and services are marketed to clients by a
network of approximately 1,175 investment consultants operating out of 138
retail branch offices in 27 states primarily located in five regions in the
United States. Approximately three-quarters of the Company's investment
consultants at June 30, 1996 were located in branch offices in California
(274), Ohio (148), Illinois (149), Wisconsin (114), Colorado (98) and Texas
(85).
The following table sets forth certain information as of, or for the six
months ended, June 30, 1996 for each of the five regions:
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE
NUMBER OF INVESTMENT OF RETAIL
REGION BRANCH OFFICES CONSULTANTS REVENUES(1)
------ -------------- ----------- -----------
<S> <C> <C> <C>
Central 18 180 11%
Eastern 41 252 28
Midwestern 35 265 23
South Central 6 95 7
Western 38 383 31
--- ----- ---
Total 138 1,175 100%
=== ===== ===
</TABLE>
- --------
(1) Retail revenues include commissions, principal sales credits, 12b-1 and
managed account fees credited to the production of an individual
investment consultant, as well as asset management and margin interest
income earned on related client assets.
37
<PAGE>
Many of EVEREN's retail offices are located in smaller cities or suburban
areas in which the Company's presence equals or exceeds that of the larger
national brokerage firms. The Company's top fifteen branch offices accounted
for 37% of retail revenues for the six months ended June 30, 1996.
RETAIL PRODUCTS AND SERVICES
EVEREN offers a full line of investment products to its retail clients.
These include cash management accounts, listed and over-the-counter stocks,
government and corporate bonds, tax-exempt state and local government bonds,
open- and closed-end mutual funds, unit investment trusts, commodities,
individual retirement accounts ("IRAs") and a wide variety of investment
advisory products. Service offerings include investment advisory services,
financial planning services such as retirement planning and planning for
college funding, asset allocation advice, margin loans and prototype 401(k)
plans and services. The Company imposes a service charge for certain of its
retail services. Others are provided without charge to facilitate the
accumulation of investment assets in client accounts.
The table below sets forth the percentage contribution of various retail
investment products and services to EVEREN's 1995 retail revenues:
<TABLE>
<CAPTION>
PERCENTAGE OF
PRODUCT/SERVICE RETAIL REVENUES(1)
--------------- ------------------
<S> <C>
Equities............................................... 41%
Asset management ...................................... 12
Margin interest........................................ 12
Mutual funds........................................... 11
Other ................................................. 11
Taxable fixed income................................... 9
Municipals............................................. 4
---
Total.............................................. 100%
===
</TABLE>
--------
(1) Retail revenues include commissions, principal sales credits, 12b-1 and
managed account fees credited to the production of an individual
investment consultant, as well as asset management and margin interest
income earned on related client assets.
In May 1996 as part of its strategy to grow client assets and increase asset
management activity, EVEREN introduced two new forms of cash management
accounts, the EVEREN Automatic Access Account(TM) ("AAA") and the EVEREN
Advantage account ("Advantage"). AAA and Advantage are designed to allow
clients to consolidate their financial assets in a full service, integrated
account. AAA accounts feature numerous services, including a daily sweep of
any cash in the client's account to a money market mutual fund, unlimited free
checking, debit cards, margin account access and automatic bill payment.
Advantage account holders also will receive customized statements showing gain
and loss information, a complimentary IRA and EVEREN Online Service, a service
that will provide the client with direct access to his or her account
information via computer modem. Higher net worth clients are rewarded with
complimentary services for maintaining higher account balances. Management
believes that AAA and Advantage have been well received by clients. By June
30, 1996 over 470 AAA and 4,200 Advantage accounts had been opened with
average assets per account equal to $596,000 compared to $88,000 of average
assets per account Company-wide.
EVEREN offers its clients approximately 3,000 different mutual funds,
including mutual funds of every type, sponsored by approximately 90 different
firms. As of June 30, 1996 eight of these firms, each of which is a leading
mutual fund sponsor, had been designated as preferred vendors within the
Company's retail network, based on service level and other criteria developed
by the Company. On July 25, 1996 the Company entered into a joint venture with
Mentor, an asset management company with approximately $5.7 billion of assets
under management, pursuant to which Mentor will be accorded a preferred vendor
status consistent with the Company's equity interest in Mentor. See "--Mentor
Joint Venture."
INVESTMENT ADVISORY SERVICES
The Company's investment advisory services include performance monitoring,
selection of third party investment managers and, to a limited extent,
discretionary asset management. The investment advisory services offered by
the Company are tailored for a variety of clients, including individuals,
pension and profit-
38
<PAGE>
sharing plans, trusts and estates, charitable organizations, corporations and
other business and governmental entities. These services are provided by
approximately 239 investment consultants located in 78 of the Company's branch
offices. Investment advisory services are typically rendered on a fixed or
"wrap" fee basis, such that all services, including execution services, are
provided by EVEREN for a fixed fee, payable quarterly, usually a percentage of
assets under management.
In April 1996 the Company redesigned and reintroduced certain of its
investment advisory service offerings, including the following programs:
<TABLE>
<CAPTION>
PROGRAM/ALLOCATION DESCRIPTION
------------------ -----------
<C> <S>
EVEREN Masters Client portfolio managed by one or more outside
investment advisory firms
EVEREN Portfolio Management Client portfolio managed by a specially
qualified investment consultant
EVEREN Fund Allocation Non-discretionary no-load mutual fund wrap
product
EVEREN Paragon Tailored manager selection, performance
monitoring and other services, the fee for
which can be paid in hard or soft dollars
</TABLE>
Management believes that the redesign of these programs provides an
opportunity to significantly grow client assets under management and the
recurring fee-based revenues generally associated with asset management
activities.
INVESTMENT CONSULTANTS
Productivity. One of the strengths of the Company's retail business is the
experience and productivity of its investment consultants. Management believes
that average production and average client assets per investment consultant
are important measures of productivity.
<TABLE>
<CAPTION>
PER INVESTMENT CONSULTANT 1996 1995 1994 1993
------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Average production for period(/1/).... $320,000(/2/) $275,000 $258,000 $295,000
Average client assets at period end
(in millions)(/3/)................... $ 28.9 $ 27.8 $ 23.2 $ 26.5
</TABLE>
- --------
(1) Average production is calculated by dividing the aggregate commissions,
principal sales credits and 12b-1 and managed account fees credited to the
production of all investment consultants by the average number of
investment consultants during the period.
(2) Annualized for 1996 based on average production at June 30, 1996.
(3) Average client assets equals total assets held in retail client accounts
divided by number of investment consultants. Excludes certain annuity and
mutual funds and other assets not actually held in the client's account
but on which commissions or similar payments are received. 1996 data as of
June 30, 1996.
Based upon a confidential industry survey conducted by a third party,
management believes that the average production generated by the Company's
investment consultants exceeded the industry average of $230,000 for regional
firms in 1995 and approximated the industry average of $283,000 for all firms.
In 1993, 1994 and 1995, the Company had 30, 19 and 27 investment consultants,
respectively, whose production exceeded $1,000,000. As of June 30, 1996, the
Company had 36 investment consultants whose 1996 production exceeded $500,000.
Management believes that the increase in investment consultant productivity
from 1994 to date is attributable, in part, to the departure of lower revenue-
producing investment consultants during this period and the recruitment of
higher revenue producing investment consultants.
Management believes that the Company's high level of support staff per
investment consultant is a key contributor to the Company's investment
consultant productivity. EVEREN employs more than 900 retail support staff,
approximately 825 of whom are located in branch offices. The branch office
support staff is composed primarily of sales assistants, most of whom are
licensed to execute client orders, as well as wire operators, cashiers and
others. As of June 30, 1996 the Company's ratio of support staff per
investment
39
<PAGE>
consultant was 0.7 to 1. Management believes this high level of support staff
allows the Company's investment consultants to focus on strengthening existing
and developing new client relationships rather than on providing time
intensive but less specialized services, such as trade processing and
logistical support. Management also believes any additional costs incurred by
the Company in maintaining its high support staff ratio are more than offset
by the improved levels of productivity and resulting higher levels of retail
revenues.
In the effort to maximize investment consultant productivity, the Company
also has a number of professional product liaisons in its capital markets area
that primarily service investment consultants as well as approximately 57
professionals in its marketing and investment services area focused on
providing product information and support to investment consultants and
clients.
Tenure. On average, EVEREN's investment consultants have more than eight
years of tenure with the Company and 16 years of experience in the securities
brokerage industry. Management attributes this long tenure to a number of
factors that management believes distinguish the Company from its competitors.
EVEREN's corporate culture emphasizes employee ownership and incentives that
encourage strong performance. In addition, management believes that such
culture offers a level of independence for investment consultants greater than
that permitted by many national firms. Moreover, management believes that the
high level of support staff per investment consultant and the breadth of
product and service offerings provided by the Company attract investment
consultants. Finally, management believes that the Company's commission payout
rates, particularly for higher level producers, exceed those of most of the
Company's competitors, especially the national firms.
Recruiting. In order to achieve its desired market share penetrations,
EVEREN is building its investment consultant base by recruiting experienced
investment consultants in targeted markets, as well as selectively training
new investment consultants. The Company added a net of 32 new investment
consultants for the first six months of 1996, compared to a net decline of 54
investment consultants for the first six months of 1995. The Company's
recruitment efforts are coordinated in-house by a national investment
consultant recruiter who has been employed in this capacity by the Company
since 1994. Management believes that the Company will be able to meet its
recruiting goals in part by highlighting certain aspects of its corporate
culture and other factors discussed above under "--Tenure" that distinguish it
from its competitors. However, the Company faces significant competition from
other firms seeking to recruit qualified investment consultants and there can
be no assurance that the Company's recruiting and retention efforts will be
successful.
Training. The Company intends to strengthen its base of investment
consultants by means of its ongoing training programs. Through EVEREN
University, which provides coordinated training and educational programs, a
core curriculum is being developed to help experienced investment consultants
gather more client assets and serve clients more effectively. Trainee
investment consultants will participate in a completely revamped program that
will focus on a consultative rather than transactions-oriented approach, asset
gathering, technology and overall financial planning for clients. See "--
EVEREN University and EVEREN Foundation."
SIPC INSURANCE
The Company maintains insurance provided by the Securities Investors
Protection Corporation ("SIPC") for up to $500,000 per customer account, as
well as excess SIPC coverage for up to an additional $9.5 million ($10.0
million total protection) per client account. Coverage up to an additional
$49.5 million ($50.0 million total protection) is available for clients
electing specialized account services.
CAPITAL MARKETS ACTIVITIES
The Company engages in a full range of capital markets activities, including
product origination, trading and research of equity, taxable fixed income and
municipal securities. The Company's capital markets activities are primarily
client-driven, in contrast to those of many other securities firms which
emphasize proprietary trading, and currently account for approximately 25% of
the Company's net revenues. Capital markets activities are conducted through
approximately 287 professionals in eleven offices located in major cities
across the United States.
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EQUITIES
The Company seeks to focus its equity capital markets activities
increasingly on institutional clients because of their greater share volumes
and resulting revenues. The Company is therefore seeking to coordinate its
equity securities research, investment banking, syndicate and trading
activities by industry group and focus those activities on middle market and
growth companies in a group of core industries. These industries currently
include financial services (primarily thrifts, insurance companies and finance
companies), real estate, technology (primarily computer hardware and
software), consumer goods (primarily retail, catalogues and restaurants),
industrials (primarily specialty chemicals, capital goods, metals and mining
and selected manufacturing), telecommunications (primarily equipment and
wireless and landline services) and health care.
Research. The Company provides equity research coverage primarily on a group
of middle-market and growth companies in the Company's core industries. The
Company's research staff, consisting of 22 senior analysts, twelve junior
analysts and eleven assistants and support staff, prepares periodic reports on
approximately 250 publicly traded companies and uses a team approach that is
designed to allow depth of coverage. Since the Buy-Out, the Company has hired
a new research director and enhanced its research capabilities with the net
addition of seven research analysts, with a combined 53 years of research
experience. In addition, the Company purchases research coverage from two
well-regarded investment banks. This out-sourcing of research provides the
broad services needed by retail investment consultants and clients and allows
the Company's in-house analysts to focus where they can add value. The Company
also maintains a research liaison desk to provide responsive support service
to its investment consultants and retail clients.
Investment Banking. The Company offers a broad range of investment banking
services primarily relating to equity offerings and private placements to
middle market and growth companies, principally in the Company's core
industries. The Company has approximately 40 investment banking professionals
in five locations. In the first six months of 1996, the Company participated
as a lead or co-manager in eleven equity offerings and private placements
aggregating $505 million, compared to only three such transactions in the
first half of 1995 aggregating $175 million. Management attributes this
increase to resolution of the Company's ownership situation, favorable market
conditions and better coordination of its retail and investment banking
groups. The Company also offers other investment banking services, including
mergers and acquisitions advisory and debt origination.
Institutional Sales. The Company distributes equity securities through an
institutional equity sales force that primarily serves mid-size and large
institutional clients. In 1995, the Company designated a new director of
institutional equity sales and hired approximately eleven new institutional
equity sales professionals, bringing the number of such professionals employed
by the Company to 32 located in four offices. In the first six months of 1996,
the institutional equity sales force generated $9.3 million of revenues, up
from $4.5 million in the first half of 1995.
Trading. The Company makes a market in approximately 475 over-the-counter
stocks, including most of those covered by the Company's research department.
EVEREN employs 18 trading professionals who execute transactions in both over-
the-counter and listed securities primarily for retail and institutional
clients. Traders are paid based on a formula that encourages them to work with
the Company's investment consultants and institutional sales professionals to
generate sales revenues as a priority over trading profits. The Company seeks
to limit its exposure to trading losses by focusing its trading activity on
facilitating its retail and institutional businesses rather than on trading
for its own account. The Company imposes low position limits for its traders.
TAXABLE FIXED INCOME
The Company provides a broad range of government, government agency and
corporate fixed income securities to its retail and generally smaller
institutional clients. A relatively small amount of the taxable fixed income
securities offered by the Company are originated internally, most being
obtained in the secondary market.
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<PAGE>
The taxable fixed income department employs 71 professionals, including fixed
income research personnel who primarily provide investment ideas and credit
oversight. To facilitate taxable fixed income sales, the Company enters into
standard repurchase and reverse repurchase agreements with qualified
institutional clients.
MUNICIPALS
The Company provides underwriting and financial advisory services to, and
distributes securities of, tax-exempt municipalities principally in the
Midwest. The Company's municipal securities business includes an institutional
sales force of 22 professionals located predominantly in New York City, as
well as a group of 15 public finance investment bankers that provide
underwriting and financial advisory services. As part of its cost reduction
strategy, the Company has realigned and downsized its municipal business as of
July 1, 1996, eliminating 10 out of 94 positions.
GATEWAY MORTGAGE ACCEPTANCE CORPORATION
Gateway Mortgage Acceptance Corporation ("Gateway") is a wholly-owned
limited purpose subsidiary whose business activities are limited to issuing
series of collateralized mortgage obligations, directly or through one or more
trusts beneficially owned by it, to retail investors and purchasing, owning
and selling other mortgage-related assets associated with collateralized
mortgage obligations. In the fiscal year ended December 31, 1995, Gateway, as
a pass-through entity, accounted for approximately $19.0 million of interest
income and approximately $19.0 million of interest expense of the Company.
Gateway has no employees. Gateway retains the right to call, beginning four
years after issuance, the collateralized mortgage obligations it issues and
may realize a gain, if any, between the call price of such securities and the
underlying value of the collateral. See Notes 2, 7 and 8 of Notes to
Consolidated Financial Statements.
MENTOR JOINT VENTURE
The Company has entered into a joint venture (the "Joint Venture") pursuant
to which it will acquire an initial 20% ownership interest in Mentor, the
asset management subsidiary of Wheat, a Mid-Atlantic based securities
brokerage firm, for no direct cash consideration. The JVA provides the Company
with an opportunity not later than late 1998 to increase its ownership stake
in Mentor up to a maximum 50% equity interest (or such lesser equity interest
equal to Wheat's equity interest if another firm is added to the Joint
Venture).
By entering into the Joint Venture, the Company is seeking to grow client
assets under management by offering a greater range of asset management
products and, through its ownership interest in Mentor, to capture a portion
of earnings relating to client assets under management that would otherwise be
earned by third-party vendors.
Mentor is a regional asset management firm headquartered in Richmond,
Virginia that offers seven distinct investment styles (cash, active fixed
income, balanced, tactical asset allocation, large capitalization quality
growth, global/international equity growth and small/mid-capitalization equity
growth) through retail mutual funds, institutional mutual funds and separately
managed portfolios. Mentor currently has three regional representatives to
service the Wheat system and has committed to add five regional
representatives to service the Company and its clients. As of June 30, 1996,
Mentor had approximately $5.7 billion in assets under management compared to
$1.0 billion in early 1993.
The JVA calls for the Company to transfer approximately $2.8 billion of
money market mutual fund assets now held in client accounts, with certain
exceptions, to Mentor-sponsored funds by December 31, 1996 and prohibits each
of the Company and Wheat from engaging, directly or indirectly, in the asset
management business other than through Mentor or through activities generally
engaged in by broker-dealer firms.
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<PAGE>
Under the JVA, the Company will have representation on Mentor's board
proportionate to its ownership interest. The Company's investment in Mentor
will be accounted for under the equity method of accounting and a
proportionate share of Mentor's profits will be included in the pre-tax
earnings of the Company each year.
EVEREN CLEARING
The Company, through EVEREN Clearing, a broker-dealer registered with the
SEC and a member firm of the NYSE and other principal exchanges, provides
securities execution and clearing services on a fully-disclosed basis and
commodities clearing services for EVEREN Securities and other non-affiliated
broker-dealers.
EVEREN Clearing was incorporated in Delaware in 1984 to service the clearing
needs of the broker-dealers then affiliated with Kemper. EVEREN Clearing
expanded its clearing services to outside broker-dealers in order to leverage
its clearing structure, thereby reducing EVEREN Securities' clearing costs. As
of June 30, 1996, EVEREN Clearing provided clearing services for approximately
30 non-affiliated broker-dealers. Over the past several years, enhancements in
systems and procedures have allowed EVEREN Clearing to reduce its workforce by
over 27% to 378 as of June 30, 1996 from 522 as of December 31, 1992,
resulting in lower clearing costs per trade.
EVEREN UNIVERSITY AND EVEREN FOUNDATION
The Company recently established EVEREN University to provide coordinated
training, education and development programs for Company employees, clients
and others. Separate courses and programs are being developed for experienced
investment consultants, trainees, branch office managers and other employees
that will be designed to enhance their fundamental and professional skills and
improve their familiarity with the services and products the Company offers.
See "--Retail Brokerage Activities--Investment Consultants--Training."
In conjunction with EVEREN University, the Company has recently established
the EVEREN Foundation (the "Foundation"), a not-for-profit corporation through
which the Company's employee matching gift program, its annual retail "charity
day" and other charitable programs will be coordinated and funded. The
Foundation's focus will be education. To provide initial funding for the
Foundation, the Company has approved a seed grant of $250,000 and has agreed
to match, on a two-for-one basis until September 30, 1996 and on a one-for-one
basis until December 15, 1996, any contributions made by employees and certain
others to the Foundation.
The Company expects EVEREN University and the Foundation to play important
roles in the implementation of the Company's local market penetration
strategy.
EMPLOYEES
At June 30, 1996, the Company employed approximately 3,200 persons. Of that
number, approximately 2,080 were employed in the Company's retail areas
(including 57 in its marketing and investment services areas) 439 in its
capital markets area, 304 in administrative and financial areas (including 38
in compliance) and 378 at EVEREN Clearing. Of the Company's employees at such
date, approximately 1,900 were classified as professionals and 1,300 as
support staff. None of the Company's employees are subject to a collective
bargaining agreement. Management believes that the Company's relations with
its employees are good.
PROPERTIES
The Company leases 241,000 square feet of office space (and an additional
36,000 square feet of warehouse space) in Chicago, Illinois; 115,000 square
feet in one location in Houston, Texas, a significant portion of which is
subleased; 41,000 square feet in two locations in Cleveland, Ohio; 30,000
square feet in one location in Los Angeles, California; 118,000 square feet in
two locations in Milwaukee, Wisconsin; 38,000 square feet in two locations in
New York City; and approximately 700,000 square feet in other locations
nationwide.
COMPETITION
All aspects of the Company's business are highly competitive. The Company
competes directly with national and regional full service broker-dealers and,
to a lesser extent, with discount brokers, dealers, investment
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<PAGE>
banking firms, investment advisors and certain commercial banks and indirectly
for client assets with insurance companies and others. The financial services
industry has become considerably more concentrated as numerous securities
firms have either ceased operations or have been acquired by or merged into
other firms. Such mergers and acquisitions have increased competition from
these firms, many of whom have significantly greater equity capital, financial
and other resources than the Company. With respect to retail brokerage
activities, many of the regional firms with whom the Company competes have
operated in their regions significantly longer than has the Company and have
established long-standing client relationships. In addition, the Company
expects competition from domestic and international commercial banks to
increase as a result of recent and anticipated legislative and regulatory
initiatives in the United States to remove or relieve certain restrictions on
commercial banks relating to the sale of securities.
In addition, the Company faces competition for investment consultants.
Although the Company takes steps to maintain strong relationships with its
investment consultants, because of the significant emphasis on and importance
of its retail operations, the Company faces competition in attracting and
retaining high-producing retail brokers. While many competitors require their
registered representatives to enter into restrictive non-competition
agreements which seek to prohibit the representatives from being employed by
any competitor, the Company has not implemented such a requirement because it
believes that the general use of such agreements is not conducive to
attracting valuable employees.
Management believes that the principal competitive factors influencing the
Company's business are the quality of its investment consultants and other
professional staff, the Company's reputation in and penetration of the local
markets in which it operates, its existing client relationships, its mix of
market capabilities and the incentives associated with employee ownership.
LEGAL PROCEEDINGS
Many aspects of the Company's business involve substantial risks of
liability. In recent years there has been an increasing incidence of
litigation involving the securities brokerage industry, including class action
suits that generally seek substantial damages and other suits seeking punitive
damages. Underwriters are subject to substantial potential liability for
material misstatements and omissions in prospectuses and other communications
with respect to securities offerings. Like other securities brokerage firms,
the Company has been named as a defendant in class action and other suits and
has in the past been subject to substantial settlements and judgments.
Following are descriptions of certain of the lawsuits in which the Company
is currently a named defendant. The Company intends to vigorously defend
itself against the allegations in each of such actions. Although there can be
no assurances, the Company does not believe that the ultimate outcome of any
of this litigation, individually or in the aggregate, will have a material
adverse effect on its financial condition. Due, however, to the relatively
early stage of each of these lawsuits and the lack of information currently
available, management cannot accurately make estimates of potential loss, if
any, or assure that such lawsuit will have no material adverse effect on the
Company's results of operations in any particular period.
In Re Nasdaq Market-Makers Antitrust Litigation. In December 1994 a
consolidated amended class action complaint was filed in the United States
District Court for the Southern District of New York against thirty-three
broker-dealer market makers in The Nasdaq National Market System ("Nasdaq")
traded securities, including EVEREN Securities, alleging the defendants had
conspired to fix the "spread" between bid and asked prices for Nasdaq traded
securities in violation of Section 1 of the Sherman Act. On behalf of a
purported class allegedly including all United States customers of the
defendants who purchased or sold securities on Nasdaq during a period from May
1989 through May 1994, plaintiffs claim damage in that allegedly they paid
more for securities purchased on Nasdaq, or received less on securities sold,
than they would have but for the alleged conspiracy. Compensatory damages,
treble damages, attorneys' fees and costs and other relief are being sought
against each of the defendants on a joint and several basis. In August 1995
the Court granted defendants' motion to dismiss
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on the ground that plaintiffs had failed to specify the stocks in which the
alleged collusion had occurred. Plaintiffs then filed a further amended
complaint identical in substance to the dismissed one listing over 1,000
securities allegedly the subject of the claimed conspiracy. Defendants have
filed their answer denying the material allegations of such complaint.
Discovery is proceeding.
In addition, allegations of collusion among market-makers became the subject
of investigations by the Antitrust Division of the Department of Justice
("DOJ"), the SEC and the NASD. EVEREN Securities and other market makers have
responded to Civil Investigative Demands by the DOJ and to subpoenas by the
SEC. On July 17, 1996 DOJ filed a civil complaint against 24 market makers,
other than EVEREN Securities, alleging that a common understanding arose among
the defendants and other market makers to adhere to a quoting convention for
the purpose of fixing the inside spread on a substantial number of Nasdaq
stocks in violation of the antitrust laws and announced that the market makers
named in that complaint had entered into a settlement agreement with the DOJ.
Cuyahoga County, Ohio Litigation (Jones, et al. v. McDonald & Co., et al.).
In August 1995 a lawsuit was filed in the Court of Common Pleas of Cuyahoga
County, Ohio on behalf of the County of Cuyahoga (the "County"), the State of
Ohio and the Board of County Commissioners against eight broker-dealers and
banks, including EVEREN Securities, relating to investment losses suffered by
the County and its Secured Assets Fund Earnings program (the "S.A.F.E. Fund").
Plaintiffs' second amended complaint alleges that the defendants facilitated
and assisted the staff of the County's investment department in engaging in
certain investment activity that was risky and speculative and that violated
the S.A.F.E. Fund's policies and procedures and certain state laws. The
investments at issue consisted of fixed-income securities, specifically U.S.
Treasuries and government agency securities, financed by reverse repurchase
transactions. When interest rates rose dramatically in 1994, resulting in a
decline in the value of the County's investment portfolio, the County
terminated the S.A.F.E. program, liquidated its portfolio and incurred losses.
Thereafter, the County Treasurer was convicted of dereliction of duty and the
County's Chief Investment Officer pled guilty to dereliction of duty and
falsification. The complaint seeks unspecified compensatory damages and
punitive damages, costs and attorneys' fees, alleging investment losses in the
"tens of millions of dollars." News reports have indicated that the County
incurred investment losses exceeding $100 million. The complaint alleges breach
of fiduciary duty and negligence by EVEREN Securities and the other defendants.
The complaint also alleges fraud, misrepresentation and violation of the Ohio
securities law by three defendants other than EVEREN Securities in connection
with certain of the County's securities issuances. The Ohio Supreme Court has
disqualified all Cuyahoga County judges from hearing the case, and a retired
judge from another Ohio county has been assigned.
Estate of Braunstein, et al. v. Merrill Lynch, Pierce, Fenner & Smith, Inc.,
et al. EVEREN Securities is named as a defendant, together with ten other
broker-dealers, in a purported class action lawsuit filed in the Supreme Court
of the State of New York, County of New York, in May 1994. Plaintiffs purport
to state claims individually and on behalf of a class of all individuals or
entities who have had accounts with one or more of the defendants in which they
have had free credit balances from which the defendants have derived economic
benefit for which they have not accounted to the plaintiffs. The complaint
purports to assert causes of action for breach of fiduciary duty and unjust
enrichment. Plaintiffs allege that defendants unlawfully retained interest
earned on free credit balances in broker-dealer accounts. Plaintiffs seek
compensatory damages, the imposition of a constructive trust, an injunction to
require the payment of interest on free credit balances, costs and attorneys'
fees. In June 1995 the court granted defendants' motion to dismiss for failure
to state a cause of action. Plaintiffs then filed an amended complaint
containing similar claims. Defendants motion to dismiss the amended complaint
was denied. Defendants have filed an answer in the case, and discovery has
commenced.
In addition to the matters described above, the Company is currently a
defendant in various civil actions and arbitrations arising out of its
activities as a broker-dealer in securities. Some of such actions involve
allegations of misconduct by Company employees, and other actions involve
claims against the Company by current or former employees. The Company does not
believe that any such matters will have a material adverse effect on its
financial condition or results of operations.
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<PAGE>
REGULATION
The securities industry in the United States is subject to extensive
regulation under both federal and state laws. EVEREN Securities and EVEREN
Clearing are registered as broker-dealers, and EVEREN Securities is registered
as an investment adviser, with the SEC. They are subject to regulation by the
SEC and by self-regulatory organizations, principally the NASD, the MSRB and
national securities exchanges such as the NYSE. Securities firms are also
subject to regulation by state securities administrators in those states in
which they conduct business. EVEREN Securities is a registered broker-dealer
in all 50 states, the District of Columbia and the Commonwealth of Puerto
Rico. Failure to comply with the laws, rules or regulations of the SEC, such
self-regulatory organizations and state securities commissions may result in
censure, fine, the issuance of cease-and-desist orders or the suspension or
expulsion by such entities of a broker-dealer, an investment adviser, officers
or employees. The Company believes that it is currently in material compliance
with the regulations to which it is subject.
EVEREN Securities and EVEREN Clearing are registered with the CFTC as
futures commission merchants and are subject to regulation as such by the CFTC
and various domestic boards of trade and other commodity exchanges. EVEREN
Securities' commodity futures and options business is also regulated by the
NFA, a not-for-profit membership corporation which has been designated as a
registered futures association by the CFTC.
Because financial services businesses are subject to extensive regulation on
the federal and state level, and because of the possibility of changes
resulting from numerous legislative and regulatory proposals that are advanced
each year and from judicial decisions, it is possible that changes will be
necessary in the way in which the Company conducts its activities. While it is
difficult to predict the impact of any new laws, regulations or judicial
decisions, the Company anticipates that regulation of the securities and
commodities industries will increase at all levels and that compliance
therewith will become more difficult. Monetary penalties and restrictions on
business activities by regulators resulting from compliance deficiencies are
also expected to become more severe.
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<PAGE>
CAPITAL REQUIREMENTS
As registered broker-dealers, EVEREN Securities and EVEREN Clearing are
subject to the SEC's net capital rule, Rule 15c3-1 (the "Net Capital Rule"),
promulgated under the Exchange Act. The NYSE monitors the application of the
Net Capital Rule. EVEREN Securities and EVEREN Clearing each compute net
capital under the alternative method which requires minimum net capital equal
to the greater of $1.0 million for EVEREN Securities and $1.5 million for
EVEREN Clearing or 2% of aggregate items arising from customer transactions. A
broker-dealer may be required to reduce its business if its net capital is
less than 4% of aggregate debit balances and may also be prohibited from
expanding its business or paying cash dividends if resulting net capital would
be less than 5% of aggregate debit balances. In addition, the Net Capital Rule
does not allow withdrawal of subordinated capital if net capital would be less
than 5% of such debit balances.
The Net Capital Rule also limits the ability of broker-dealers to transfer
large amounts of capital to parent companies and other affiliates. Under the
Net Capital Rule, equity capital cannot be withdrawn from a broker-dealer
without the prior approval of the SEC when net capital after the withdrawal
would be less than 25% of its securities position haircuts (which are
deductions from capital of certain specified percentages of the market value
of securities to reflect the possibility of a market decline prior to
disposition). In addition, the Net Capital Rule requires a broker-dealer to
notify the SEC and the appropriate self-regulatory organization two business
days before a withdrawal of excess net capital if the withdrawal would exceed
30% of the broker-dealer's excess net capital, and two business days after a
withdrawal that exceeds 20% of excess net capital, provided that no such
notice need be given if the withdrawal is less than $500,000. Finally, the Net
Capital Rule authorizes the SEC to order a freeze on the transfer of capital
if a broker-dealer plans a withdrawal of more than 30% of its excess net
capital and the SEC believes that such a withdrawal would be detrimental to
the financial integrity of such broker-dealer or would jeopardize the broker-
dealer's ability to pay its customers.
EVEREN Securities receives flow-through capital benefits from EVEREN
Clearing, to the extent available, in accordance with the Net Capital Rule. At
June 30, 1996 and December 31, 1995, EVEREN Securities had net capital, as
defined, of $108.1 million and $94.2 million, respectively, which exceeded its
minimum net capital requirement by $107.1 million and $93.2 million,
respectively. At June 30, 1996 and December 31, 1995, EVEREN Clearing had net
capital of $58.7 million and $58.6 million, respectively, which exceeded its
net capital requirement by $44.1 million and $45.0 million, respectively.
Compliance with the Net Capital Rule could limit those operations of the
Company that require the intensive use of capital, such as underwriting and
trading activities and the financing of customer account balances, and also
could restrict its ability to pay dividends, repay debt and redeem or purchase
shares of its outstanding Common Stock.
The SEC, the NYSE, the CFTC and various other securities and commodities
exchanges and other regulatory bodies in the United States have rules with
respect to net capital requirements which affect the Company. A change in such
rules, or the imposition of new rules, affecting the scope, coverage,
calculation or amount of such net capital requirements, or a significant
operating loss or any unusually large charge against net capital, could
adversely affect the ability of the Company to expand or maintain present
levels of business or pay dividends or interest.
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<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company, their respective ages
and their respective present positions are as follows:
<TABLE>
<CAPTION>
NAME AGE PRESENT POSITION
---- --- ----------------
<C> <S> <C>
James R. Boris 51 Chairman of the Board and Chief Executive
Officer
Stephen G. McConahey 52 President, Chief Operating Officer and Di-
rector
Stanley R. Fallis 55 Senior Executive Vice President and Direc-
tor of
Administration and Operations
David M. Greene 50 Senior Executive Vice President and Direc-
tor of
Client Services
Arthur J. McGivern 49 Senior Executive Vice President and Direc-
tor of
Corporate Development
Janet L. Reali 45 Senior Executive Vice President, General
Counsel and Secretary
Thomas R. Reedy 36 Senior Executive Vice President and Direc-
tor of
Capital Markets
John G. Sullivan 51 Senior Executive Vice President and Direc-
tor of
Marketing and Investment Services
Daniel D. Williams 44 Senior Executive Vice President, Chief Fi-
nancial
Officer and Treasurer
Thomas M. Mansheim 38 Senior Vice President, Controller and Chief
Accounting Officer
William M. Daley(1)(2) 48 Director
William T. Esrey(1)(2) 56 Director
Homer J. Livingston Jr.(1)(2) 61 Director
William C. Springer(1)(2) 56 Director
</TABLE>
- --------
(1) Member of the Compensation Committee of the Board of Directors of the
Company.
(2) Member of the Audit Committee of the Board of Directors of the Company.
James R. Boris was elected Chairman of the Board and Chief Executive Officer
of the Company in May 1995. Mr. Boris is Chairman of the Board and Chief
Executive Officer of EVEREN Securities, and has held such positions since
January 1990. From January 1994 until September 1995, he was also an Executive
Vice President of Kemper. From January 1990 until September 1995, he served on
the board of directors of Kemper Financial Companies, then a Kemper subsidiary
("KFC"), and the boards of its major subsidiaries.
Stephen G. McConahey was elected President and Chief Operating Officer of
the Company in May 1995, and has been a director since July 1995. Mr.
McConahey is President and Chief Operating Officer of EVEREN Securities and
has held such positions since January 1994. He was Senior Vice President for
Corporate and Internal Development of Kemper from 1990 through December 1993.
He was also Executive Vice President (Corporate and International Development)
of Kemper Financial Services, Inc. from 1988 through December 1993 and Senior
Vice President of KFC from 1990 through 1993. Mr. McConahey is also a member
of the Board of Trustees of AMLI Residential Properties Trust, a publicly-
traded real estate investment trust that invests in multi-family properties,
and is an individual general partner of Boettcher Venture Capital Partners,
L.P.
Stanley R. Fallis was elected Senior Executive Vice President of the Company
in May 1995 and also acts as the Company's Director of Administration and
Operations. In April 1995, he was elected Senior Executive
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<PAGE>
Vice President and Chief Administrative Officer of EVEREN Securities. From
March 1994 until April 1995, he was Senior Vice President and Director of
Strategic Planning of Kemper. He was Senior Executive Vice President, Treasurer
and Chief Financial Officer of EVEREN Securities from September 1991 until
March 1994, after having been Executive Vice President, Chief Financial Officer
and Treasurer from April 1990 until September 1991.
David M. Greene was elected Senior Executive Vice President of the Company in
May 1995 and also acts as the Company's Director of Client Services. Since
January 1994 he has been Senior Executive Vice President and Director of Client
Services of EVEREN Securities. From October 1992 until January 1994, he was
EVEREN Securities national sales director. From August 1991 to October 1992 he
was Regional Director of EVEREN Securities branch offices in Wisconsin, Iowa,
Florida and Minnesota. Prior thereto, he was branch manager of the Madison,
Wisconsin branch office of an EVEREN Securities predecessor firm, Blunt Ellis &
Loewi Incorporated ("BEL").
Arthur J. McGivern was elected Senior Executive Vice President and Director
of Corporate Development of the Company in February 1996, at which time he was
also elected Senior Executive Vice President and Director of Corporate
Development of EVEREN Securities. From January 1994 to January 1996, he was
Senior Vice President and Corporate Counsel of Kemper. Prior to the Buy-Out Mr.
McGivern was an officer of a number of the Company's subsidiaries, including
the following positions at EVEREN Securities: Executive Vice President from
March 1991 to September 1992; Senior Executive Vice President from September
1992 to September 1995; General Counsel from March 1991 to September 1995; and
Corporate Secretary from March 1991 to December 1993.
Janet L. Reali was elected Senior Executive Vice President, General Counsel
and Secretary of the Company in February 1996 after having been Executive Vice
President and Secretary since May 1995. In December 1995 she was elected Senior
Executive Vice President, General Counsel and Secretary of EVEREN Securities
after having been Executive Vice President, Corporate Counsel and Corporate
Secretary since December 1993. She was Senior Vice President and Associate
General Counsel of EVEREN Securities from July 1991 to December 1993. Before
joining EVEREN Securities, she was a partner in the Chicago law firm of Keck,
Mahin & Cate.
Thomas R. Reedy was elected Senior Executive Vice President of the Company in
May 1995 and acts as the Company's Director of Capital Markets. He has been
Senior Executive Vice President of EVEREN Securities since December 1993. He
was Executive Vice President from September 1993 to December 1993 and Senior
Vice President from January 1991 to September 1993. He has held the additional
titles of Director of Capital Markets since January 1995, Director of Product
Origination from June 1994 to January 1995, Director of Investment Banking from
September 1993 to June 1994 and Director of Public Finance from January 1991 to
September 1993. He originally joined EVEREN Securities in 1988 as a Senior Vice
President of BEL.
John G. Sullivan was elected Senior Executive Vice President of the Company
in February 1996 and also acts as the Company's Director of Marketing and
Investment Services. He has been a Senior Executive Vice President and Director
of Marketing and Investment Services of EVEREN Securities since October 1995.
Prior to joining the Company, he worked at Smith Barney Inc. as Executive Vice
President for strategic marketing from July 1995 to October 1995, as Executive
Vice President and director of recruiting and development from June 1994 to
June 1995 and as Executive Vice President and Director of that firm's northwest
retail division from 1990 to 1994.
Daniel D. Williams was elected Senior Executive Vice President, Chief
Financial Officer and Treasurer of the Company in May 1995. Since April 1995 he
has been Senior Executive Vice President and Chief Financial Officer of EVEREN
Securities. From January 1994 to April 1995 he was Executive Vice President and
Director of Finance and Administration and from January 1991 to January 1994 he
was Senior Vice President and Director of Accounting of EVEREN Securities.
Thomas M. Mansheim was elected Vice President, Controller and Chief
Accounting Officer of the Company in May 1995 and Senior Vice President,
Controller and Chief Accounting Officer as of July 1995. Since January 1991 he
has been Senior Vice President, and since January 1994 he has been Director of
Accounting, of EVEREN Securities.
49
<PAGE>
William M. Daley has been a director of the Company since September 1995. He
is a partner with the Chicago law firm of Mayer, Brown & Platt, having
rejoined the firm in May 1993, concentrating in the areas of corporate and
government relations matters. From September 1993 through December 1993, he
served as Special Counsel to the President of the United States for the North
American Free Trade Agreement. A partner with Mayer, Brown & Platt from 1985
to 1990, Mr. Daley concentrated in the corporate and government relations
areas, and assisted in expanding the firm's Washington office. He held the
position of President and Chief Operating Officer of Amalgamated Bank of
Chicago from 1990 to 1993, after joining the bank as Vice Chairman in 1989. He
serves on the boards of directors for the Federal National Mortgage
Association and Wheelabrator Technologies, Inc. EVEREN Securities has utilized
and anticipates that it will continue to utilize the services of Mayer, Brown
& Platt.
William T. Esrey has been a director of the Company since September 1995. He
has been Chief Executive Officer of Sprint Corporation since 1985 and Chairman
since 1990. He was also President of Sprint from 1985 until February 1996. He
serves on the boards of Sprint, The Equitable Life Assurance Society of the
United States, PanEnergy Corporation and General Mills, Inc.
Homer J. Livingston Jr. has been a director of the Company since September
1995. He was Chief Executive Officer of The Chicago Stock Exchange from
January 1993 until he retired in May 1995, following a 30-year career in the
commercial and investment banking fields. Mr. Livingston previously served as
Chairman and Chief Executive Officer of The Livingston Financial Group, a firm
he started in 1988 that specialized in commercial bank restructuring. Mr.
Livingston serves as a board member of the Peoples Energy Corporation and
American National Can Company.
William C. Springer has been a director of the Company since September 1995.
He has held the title of President and Chief Executive Officer for Heinz
U.S.A. since 1989. In 1992, he was appointed President of Heinz North America,
responsible for Heinz Canada and Heinz U.S.A. Additionally, in September of
1993 he was elected to the board of directors of the H.J. Heinz Company and
assumed responsibility for the Heinz Service Company and Heinz operations in
Latin and South America.
Compensation of Directors. Directors who do not receive compensation as
officers or employees of the Company are paid an annual retainer of $17,500, a
fee of $2,500 paid in Common Stock for each meeting of the Board of Directors
attended, and a cash fee of $1,000 for each committee meeting attended. The
Compensation Committee is authorized to determine the amount of the annual
retainer to be paid in Common Stock. Such directors will also be reimbursed
for reasonable travel and related expenses.
COMMITTEES OF THE BOARD OF DIRECTORS
Audit Committee. The Audit Committee reports to the Board of Directors in
discharging its responsibilities relating to the accounting, reporting and
financial control practices of the Company. The Audit Committee has general
responsibility for oversight of financial controls, as well as the Company's
accounting and audit activities. The Audit Committee annually reviews the
qualifications of the independent auditors. The Audit Committee is composed
entirely of outside directors who are not now, and have never been, officers
of the Company. The Audit Committee consists of Mr. Livingston (Chairman) and
Messrs. Daley, Esrey and Springer.
Compensation Committee. The Compensation Committee is responsible for
administering all of the Company's employee benefit and compensation plans.
The Compensation Committee establishes corporate policy and programs with
respect to the compensation of officers and employees of the Company,
including establishing compensation programs, policies and practices, such as
salary, cash incentives, long-term incentive compensation, stock purchase and
other programs and making grants under such plans. No member of this committee
will receive an award or payment under any employee plan, other than as
described below. See "--Executive Officers and Directors--Compensation of
Directors." The Compensation Committee is composed entirely of outside
directors who are not now, and have never been, officers of the Company. The
members of the Compensation Committee are Mr. Esrey (Chairman) and Messrs.
Daley, Livingston and Springer.
50
<PAGE>
The 1995 Non-Employee Directors Plan (the "Directors Plan") provides non-
employee directors with incentives to improve the Company's performance by
increasing their level of stock ownership and granting of non-qualified stock
options. See "Company Stock Plans--1995 Non-employee Directors Plan."
Participation in the Directors Plan by non-employee directors is mandatory.
EXECUTIVE COMPENSATION
Prior to the Buy-Out, certain officers and employees of the Company
participated in various compensation plans of Kemper. The following tables set
forth certain information regarding the compensation paid or accrued by the
Company and Kemper to or for the account of the Chief Executive Officer and
each of the four most highly compensated executive officers of the Company for
services rendered in all capacities during the Company's fiscal years ended
December 31, 1995 and 1994.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION AWARDS
--------------------------------- ----------------------------------
OTHER RESTRICTED STOCK
ANNUAL STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL COMPENSATION AWARDS OPTIONS COMPENSATION
POSITION YEAR SALARY($) BONUS($) ($)(1)(5) ($)(2)(6) (#)(3)(7) ($)(4)(8)
- ------------------ ---- --------- ---------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
James R. Boris,......... 1995 $500,000 $1,300,000 $507,767 $1,500,000 30,000 $156,542
Chairman of the 1994 440,000 300,000 367,418 220,400 11,000 369,671
Board and Chief
Executive Officer
Stephen G. McConahey,... 1995 385,000 900,000 743,832 1,000,000 22,500 30,036
President and Chief 1994 350,000 175,000 335,498 261,000 14,000 206,777
Operating Officer
David M. Greene,........ 1995 250,000 450,000 233,677 0 17,000 27,526
Senior Executive 1994 200,000 85,000 21,468 0 4,350 118,340
Vice President
Thomas R. Reedy,........ 1995 250,000 400,000 194,379 0 17,000 41,662
Senior Executive 1994 200,000 85,000 0 0 4,350 87,357
Vice President
Frank V. Geremia,(9).... 1995 275,000 300,000 284,726 0 13,000 30,911
Senior Executive 1994 275,000 190,000 122,045 92,800 4,600 188,159
Vice President
</TABLE>
- --------
(1) For 1995, the amounts disclosed in this column include:
(a) Compensation based on Kemper salary and benefit programs and contractual
arrangements. The realization of compensation in 1995 resulted from
Kemper's consummation of certain transactions (including the Buy-Out):
(i) Compensation income reported in 1995 as the result of an arrangement
Kemper extended to approximately 52 management and administrative
personnel of EVEREN Securities. Under this Kemper Corporation 1995
Deferred Bonus program, Messrs. Greene, Reedy and Geremia received
payments of $120,000, $120,000 and $51,600, respectively, immediately
after the Buy-Out.
(ii) $404,460, $606,690 and $179,118 for Messrs. Boris, McConahey and
Geremia, respectively, based on the value on the vesting date of
phantom restricted stock units awarded in 1995 under the Kemper
Corporation 1995 Executive Incentive Plan.
(iii) The taxable value of the Exchangeable Preferred Stock payments made
to each of the named executives by Kemper pursuant to the Preferred
Distribution based on the number of in the money Kemper stock
options held by each named executive. The distribution ratio in the
Preferred Distribution was one share of Preferred Stock for every
31.25 shares of Kemper common stock underlying any unexercised and
unexpired options (and/or units) participants held on September 7,
1995. No fractional shares of Exchangeable Preferred Stock were
distributed in the Preferred Distribution. For compensation
purposes, the taxable income from this distribution was based on
the participant's Kemper options (and/or units) and was equal to
$20.8125 (the average of the high and low sales prices of the
Exchangeable Preferred Stock on its first day of trading, September
14, 1995) times the number of shares of Exchangeable Preferred
Stock received, plus any cash received in lieu of fractional
shares.
51
<PAGE>
(iv) Compensation amounts paid to Messrs. Boris, McConahey and Geremia as
non-preferential dividend equivalents on phantom Kemper restricted
stock units.
(b) Compensation based on the Company's salary and benefit programs:
(i) The taxable value of nonvoting common stock awarded to Messrs.
Greene, Reedy and Geremia, which shares of nonvoting common stock
were exchanged for shares of Common Stock on a one-for-one basis as
part of the Transactions. Because of the restrictions placed on the
transfer of this stock, the Company advanced an amount to Messrs.
Greene, Reedy and Geremia to cover the withholding tax obligations
incurred in connection with the receipt of the shares of nonvoting
Common Stock. Under the terms of this loan, each executive pledged
the shares issued as collateral of the principal amount owed to the
Company. Payment of the loan was due the earlier of (i) the first
date on which the stock is sold or otherwise transferred, in whole or
part, in any transaction in which the executive receives any amount
of cash consideration for all or any portion of the transferred
stock, or (ii) the first date on which there no longer remained
outstanding any shares of Exchangeable Preferred Stock or Debentures
issued in exchange for shares of such Exchangeable Preferred Stock,
or (iii) the date of any acceleration of the payments due following
such demand by the Company.
(ii) The taxable benefits from personal use of any employer-provided
automobile, adjusted for the related tax expense.
(iii) The taxable benefits of various incentive trips the named
executives participated in during 1995.
(iv) A distribution of $31,921 made to Mr. Greene from the Blunt Ellis &
Loewi Amended and Restated Deferred Incentive Compensation Plan.
(2) Amounts reported for 1995 were awarded under the terms of the 1995 Plan (as
defined herein) and certain provisions of employment agreements entered
into with the Company. Under the terms of such employment agreements,
Messrs. Boris and McConahey received 219,281 and 146,188 shares,
respectively, of Common Stock. Such shares vested in 1995.
(3) Stock options displayed for 1995 relate to Common Stock and were granted
under the 1995 Plan. The nonqualified stock option granted to each named
executive is subject to a five-year cliff vesting schedule. If a
participant terminates service prior to the end of the five-year period for
reasons other than death, permanent disability or retirement, the options
and all associated rights are forfeited and returned to the Company.
Certain provisions exist for acceleration of vesting for various change of
control scenarios.
(4) The amounts in this column for 1995 include employer contributions
allocated to the accounts of the named executives under profit sharing
plans (including the supplemental plan) maintained by EVEREN Securities and
Kemper in the case of Mr. Boris, Kemper, KFC and EVEREN Securities in the
case of Mr. Geremia, and EVEREN Securities in the case of Messrs.
McConahey, Greene and Reedy.
Effective with the 1995 plan year, the Company adopted the KSOP and employer
contribution provisions which provided for a fifty percent match of the
first five percent of participants' elective 401(k) contributions and a
discretionary year-end contribution. Under the KSOP, annual compensation
which is attributable to restricted stock vesting, stock option exercise or
nonqualified deferred compensation vesting is not taken into account for
employer contributions.
In addition, in the Founders' Offering, the Company contributed to the KSOP
an amount equal to one-half of the amount invested by each participant in
the Common Stock in the Founders' Offering, with the amount subject to such
contribution being limited to the lesser of 40% of the participant's 1995
compensation (limited to $150,000, as provided by the KSOP) or $60,000.
Finally, as a part of the Buy-Out, the Company and Kemper made a special
contribution to the KSOP. This initial employer contribution was allocated
to participants who were employed by the Company on December 31, 1995, in
proportion to participants' 1995 earnings. Each of the named executives
participated in the initial employer KSOP contribution of $3,000,000, based
on eligible compensation in 1995 (limited to $150,000 per individual).
(5) For 1994, the amounts disclosed in this column include:
(a) Compensation income reported in 1994 of $349,838 for Mr. Boris, $319,150
for Mr. McConahey and $122,045 for Mr. Geremia, based on the value on
the vesting date of restricted stock awarded in 1991 and 1992 under the
Kemper Corporation 1989 Senior Executive Long-Term Incentive Plan.
(b) Compensation income reported for Mr. Greene of $21,468 which resulted
from commission incentives earned in 1994.
(6) Amounts reported for 1994 were awarded under Kemper's restricted stock
plans. The values shown are based on the closing price of Kemper common
stock on the date any restricted stock was awarded multiplied by the number
of shares awarded. A five-year restriction period on transfers or other
dispositions applied to all awards of restricted stock when made. All
shares reflected in the table which were awarded in 1992 vested in full
when the approval of the merger agreement among Kemper, Conseco, Inc., an
Indiana corporation ("Conseco"), and a wholly owned subsidiary of Conseco,
pursuant to which Kemper would have been acquired by Conseco (the "Conseco
Merger Agreement") in June 1994, activated certain "change of control"
acceleration provisions under the Kemper Corporation 1989 Senior Executive
Long-Term Incentive Plan. In June 1994, Mr. Boris vested in an aggregate
5,700 shares, Mr. McConahey vested in an aggregate 5,200 shares and Mr.
Geremia vested in an aggregate 2,200 shares. Until the shares of restricted
stock granted in 1992 or earlier vested, dividend equivalents, calculated
based on the amount of the per share dividend declared and paid on Kemper
common stock, were paid as additional compensation income to the named
individuals when dividends were paid to Kemper's stockholders. Participants
were also entitled to settle their tax obligations on the vesting of
restricted shares by utilizing a portion of the award shares. Due to the
June 1994 vesting of all outstanding shares of restricted stock granted in
1992 or earlier and the cancellation of shares awarded in 1993 and 1994, no
shares of restricted stock were held by any of the named executive officers
at December 31, 1994.
(7) Stock options displayed for 1994 were granted under Kemper's stock option
plans and relate to Kemper common stock. The options were granted at an
exercise price of $58 per share and were out of the money at the time of
the completion of the merger transaction among Kemper and Zurich Insurance
Company and its affiliates; therefore they were not exercised or cashed out
and expired as worthless.
52
<PAGE>
(8) For 1994, and unless otherwise specifically noted, the amounts disclosed in
this column relate solely to compensation based on Kemper long-term
compensation programs and include:
(a) The amounts of employer contributions and forfeitures allocated to the
accounts of the named persons under profit sharing plans (including the
supplemental plan) maintained by EVEREN Securities, Kemper Financial
Services, Inc. and Kemper in the case of Mr. Boris, and Kemper in the
case of Messrs. McConahey, Geremia, Reedy and Greene. In 1994, $172,366
was allocated to the account of Mr. Boris, and Messrs. McConahey,
Geremia, Greene and Reedy received allocations of $120,000, $108,750,
$73,720 and $56,400, respectively. All named executives commenced
participation in Kemper's profit sharing plan on January 1, 1994.
Messrs. Boris, Geremia, Greene and Reedy previously participated in the
EVEREN Securities profit sharing plan through 1993. Mr. Boris also
vested in additional amounts under the Kemper Financial Services, Inc.
plan in 1994 (included in his preceding total).
(b) Distributions from the Kemper supplemental plan. The supplemental plan
provided for an accelerated lump sum distribution of vested amounts
credited to the plan which were attributable to the underlying profit
sharing plan upon a "change of control" under the plan. In the third
quarter of 1994, distributions of $145,995, $39,968, $57,605, $30,957
and $23,152 were made to Messrs. Boris, McConahey, Geremia, Reedy and
Greene. These distribution totals include sums earlier contributed by
the named executives over their respective years of plan participation,
together with employer contributions, as well as investment returns on
both types of contributions.
(c) Amounts representing a portion of the executives' income tax payments
arising from the June 1994 vesting of shares of restricted stock of
Kemper due to the approval of the Conseco Merger Agreement. The
Committee on Compensation and Organization of the Kemper Board of
Directors (the "Kemper Committee") authorized such payments to 16 senior
executives of Kemper or the Company who were precluded under pertinent
securities law limitations or discouraged as a matter of appearance from
subsequently selling their vested shares of restricted stock prior to
the closing of the then-planned Conseco merger transaction. The
executives' tax liabilities were based on the $61.375 fair market value
of the restricted stock on the vesting date. Kemper's payments to the
executives were derived from a formula based on certain relative stock
values but approximated one-third of the executives' total income tax
liabilities from the imputed income on vesting. Mr. Boris received
$51,310, and Messrs. McConahey and Geremia received $46,809 and $19,804,
respectively, under this tax liability payment arrangement.
(9) Mr. Geremia ceased to be an employee on April 30, 1996 upon consummation of
the sale of BETA.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
OF
ASSUMED ANNUAL
RATES OF STOCK
PRICE
APPRECIATION
FOR OPTION
INDIVIDUAL GRANTS TERM(4)
------------------------------------ -----------------
% OF TOTAL
OPTIONS
NUMBER OF GRANTED TO
SHARES EMPLOYEES
UNDERLYING IN EXERCISE OR
OPTIONS FISCAL BASE PRICE EXPIRATION
NAME GRANTED(#)(1) YEAR(2) ($/SH)(3) DATE 5%($) 10%($)
- ---- ------------- ---------- ----------- ----------------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
James R. Boris.......... 30,000 3.0% $6.8405 December 19, 2005 $129,060 $327,060
Stephen G. McConahey.... 22,500 2.3% $6.8405 December 19, 2005 $ 96,795 $245,295
David M. Greene......... 17,000 1.7% $6.8405 December 19, 2005 $ 73,134 $185,334
Thomas R. Reedy......... 17,000 1.7% $6.8405 December 19, 2005 $ 73,134 $185,334
Frank V. Geremia........ 13,000 1.3% $6.8405 December 19, 2005 $ 55,926 $141,726
</TABLE>
OPTION GRANTS IN 1995
- --------
(1) Each of the options reflected in this table, when granted, were subject to
cliff vesting provisions whereby the underlying stock would become eligible
for exercise after the fifth anniversary of the date of the grant.
The options disclosed in this table, if not fully exercised, automatically
become fully exercisable upon a change of control of the Company, as
defined in the award document, and are currently subject to certain stock
transfer restrictions imposed on the underlying shares.
(2) Based on 994,075 shares, the total number of shares granted under options
in 1995.
(3) The option exercise price assigned by the Compensation Committee was the
value of Common Stock held by the KSOP on the date of the respective
grants. In 1995, this was the same as the per share price paid by the KSOP
at the time the KSOP acquired shares of Common Stock from Kemper.
(4) The assumed annual rates of stock price appreciation are prescribed in the
rules of the SEC and should not be construed to forecast any future
appreciation in the value for the Common Stock.
53
<PAGE>
AGGREGATED OPTION EXERCISES IN 1995 AND OPTION VALUES AT YEAR-END 1995
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
SHARES UNEXERCISED IN-THE-MONEY
ACQUIRED OPTIONS AT OPTIONS AT
ON FY-END(#)(2) FY-END($)(2)(3)
EXERCISE VALUE EXERCISABLE/ EXERCISABLE/
NAME (#) REALIZED($)(1) UNEXERCISABLE UNEXERCISABLE
---- -------- -------------- ------------- ---------------
<S> <C> <C> <C> <C>
James R. Boris....... -- -- 43,218/30,000 470,967/117,885
Stephen G. McConahey. -- -- 48,562/22,500 492,351/ 88,414
David M. Greene...... -- -- 9,224/17,000 74,720/ 66,802
Thomas R. Reedy...... 6,100(/4/) $45,725(/4/) 5,282/17,000 7,340/ 66,802
Frank V. Geremia..... -- -- 18,147/13,000 183,533/ 51,084
</TABLE>
- --------
(1) Based on the amount by which the last sale price of Kemper common stock on
the exercise date exceeds the exercise price.
(2) Exercisable options relate to options for Kemper common stock granted under
the Kemper Corporation 1990 Stock Option Plan. Unexercisable options relate
to options for Common Stock granted under the EVEREN Capital Corporation
1995 Stock Plan.
(3) The value of exercisable options is based on the amount, if any, by which
the last sale price of Kemper common stock of $49.625 at December 31, 1995
exceeds the exercise price; the value of unexercisable options is based on
the amount by which the valuation of Common Stock of $10.77 at December 31,
1995 made by the independent financial advisor to the KSOP trustee exceeds
the exercise price.
(4) Mr. Reedy exercised a non-qualified stock option to purchase Kemper common
stock previously granted to him under the Kemper Corporation 1990 Stock
Option Plan.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with nine of its current
senior executives (each a "Senior Executive"), including each of Messrs. Boris,
McConahey, Greene and Reedy, that provide for them to be employed as executive
officers of the Company. The following is a summary of the main features of the
employment agreements.
The employment agreements provide for each Senior Executive to receive a base
salary and annual bonus (as a percentage of base salary) based principally on
the Company's achievement of such performance standards as the Board of
Directors may determine. The Board of Directors has the right to increase such
base salaries and annually reviews and re-establishes bonus levels for the
following year. Certain portions of such bonuses may be paid in restricted
stock or other securities of the Company subject to applicable vesting
requirements as the Board of Directors may determine. Under their employment
agreements, Messrs. Boris and McConahey received special KSOP loan payoff
bonuses of $2.5 million and $2.0 million, respectively, when the KSOP loans
were repaid in full in May 1996.
Pursuant to the employment agreements, the Senior Executives are employed at
will. However, if the Company were to terminate a Senior Executive other than
for Cause (as defined), or if a Senior Executive were to resign his or her
employment for Good Reason (as defined), the Senior Executive would be entitled
to receive a severance payment (in lieu of any benefits to which he or she
might otherwise be entitled under any severance or similar plan or program of
the Company) as follows:
Messrs. Boris and McConahey would be entitled to receive a severance payment
equal to the sum of (i) two times their annual base salary plus two times their
target bonus at the time of such termination; plus (ii) a pro rata target bonus
for the year in which such termination takes place; plus (iii) any unpaid
annual bonus attributable to any prior year, provided that for such purposes
Mr. Boris' target bonus will be not less than 150% of his base salary and Mr.
McConahey's target bonus will not be less than 125% of his base salary.
54
<PAGE>
Each of the other Senior Executives would be entitled to receive an amount
equal to the sum of (i) twelve months' base salary as of the date of the Senior
Executive's termination (or as of any date within the preceding twelve months,
if higher); provided, however, that if the Senior Executive has completed more
than twelve years of service with the Company, the Senior Executive shall
receive one additional month of base salary for each year of service in excess
of twelve years not to exceed a total of twenty-four months' base salary; plus
(ii) the Senior Executive's target bonus at the date of such termination; plus
(iii) a pro-rated target bonus for the year in which the termination occurs;
plus (iv) any unpaid bonus attributable to the preceding year.
If any Senior Executive's employment is terminated by the Company other than
for Cause or is terminated by the Senior Executive for Good Reason or is
terminated due to the Senior Executive's death, any stock options, restricted
stock or other equity interests in the Company's stock previously granted to
the Senior Executive shall become fully vested on the Senior Executive's
termination date provided that such accelerated vesting is not prohibited by
law.
If Mr. Boris' or Mr. McConahey's employment is terminated by that Senior
Executive for Good Reason or by the Company other than for Cause within two
years following a Change of Control, (as defined) or if Mr. Boris' or Mr.
McConahey's employment is terminated by the Company other than for Cause prior
to a Change of Control involving the acquisition of the Company and the
termination is made at the request of the buyer, the Company will pay an amount
equal to the sum of (i) three years' base salary as of the date of such
termination (or as of any date within the preceding twelve months, if higher);
plus (ii) three times their respective maximum bonus at the date of such
termination, provided that for such purposes, Mr. Boris' maximum bonus will be
not less than 300% of his base salary and Mr. McConahey's maximum bonus will be
not less than 275% of his base salary; plus (iii) a pro-rated target bonus for
the year in which the termination occurs; plus (iv) any unpaid annual bonus
attributable to the preceding year.
If any of the other Senior Executives' employment is terminated by that
Senior Executive for Good Reason or by the Company other than for Cause within
two years following a Change of Control, or if any of the other Senior
Executives' employment is terminated by the Company other than for Cause prior
to a Change of Control involving the acquisition of the Company and the
termination is made at the request of the buyer, the Company will pay to that
Senior Executive an amount equal to the sum of (i) two years' base salary as of
the date of that Senior Executive's termination (or as of any date within the
preceding twelve months, if higher); plus (ii) two times that Senior
Executive's maximum bonus at the date of such termination; plus (iii) a pro-
rated target bonus for the year in which the termination occurs; plus (iv) any
unpaid annual bonus attributable to the preceding year.
In the case of death, the Senior Executive's estate would receive payments
under the employment agreements of an amount equal to three month's base salary
(six months in the case of Messrs. Boris and McConahey) plus a pro-rated target
bonus through the date of death.
COMPANY STOCK PLANS
THE KSOP
In order to continue to foster a culture that encourages strong employee
performance and provides ownership incentives to the Company's employees, the
Company has taken certain steps to provide employees with equity participation
in the Company. On September 13, 1995 the KSOP purchased 10,437,781 shares of
Common Stock, representing 96.6% of the then outstanding shares, from Kemper in
the Buy-Out for an aggregate purchase price of $71.4 million or $6.8405 per
share, with the remainder being acquired by members of management. As of June
30, 1996, the KSOP owned 11,088,040 shares of Common Stock representing 93.5%
of the shares of Common Stock then outstanding. As part of the Transactions,
all of the Common Stock held in the KSOP has been specifically allocated to
employee participants' accounts (excluding forfeitures). The KSOP is an
employee stock ownership plan which is intended to be qualified under Sections
401(a) and 401(k) of the Code and to meet the requirements of Section
4975(e)(7) of the Code.
55
<PAGE>
In general, each full-time employee of EVEREN Capital and its subsidiaries
that have adopted the KSOP (individually, a "Participating Employer" and
collectively, the "Participating Employers") is eligible to participate in the
KSOP. Each full-time employee of a Participating Employer is eligible to
participate in the KSOP on the first day of the calendar quarter immediately
following the employee's date of hire. (Part-time or temporary employees must
complete at least 1,000 hours of service in a 12-month period before they may
participate.) The executive officers of the Company participate in the KSOP on
the same basis as all other eligible employees.
On an on-going basis, the KSOP provides for contributions to be made by the
Participating Employers as well as KSOP participants, subject to the terms of
the KSOP and applicable Code limitations. A KSOP participant may elect to make
pre-tax contributions ("401(k) Contributions") of between 1% and 10% of the
participant's compensation taken into account under the KSOP. The Participating
Employers make periodic matching contributions to the KSOP equal to 50% of the
first 5% of compensation an eligible participant contributes to the KSOP as
401(k) Contributions. In addition to these matching contributions, the
Participating Employers may also make discretionary contributions to the KSOP
in an amount determined by the Company, subject to Internal Revenue Service
("IRS") requirements.
Participants in the KSOP vest on a graduated schedule, and their service with
the Participating Employers prior to the establishment of the KSOP is taken
into account for vesting purposes. Participants are fully vested after five
years of service if they had three or more years of service as of April 1,
1994, or after seven years of service if they had less than three years of
service as of April 1, 1994.
Special provisions apply to distributions of Common Stock from the KSOP. KSOP
participants generally are not entitled to distributions of their benefits
invested in Common Stock until they terminate employment with the Participating
Employer. For participants whose employment terminates for reasons other than
retirement or death, distribution of the vested portion of their Common Stock
accounts generally will not begin until one year after the end of the plan year
that is the fifth plan year following the plan year during which their
employment terminated. Distribution of the vested portion of the Common Stock
held on behalf of participants who retire or die will begin no later than one
year following the end of the plan year in which they retire or die.
Participants have the right to direct the KSOP trustee (the "KSOP Trustee")
as to the voting (or, in the event of a tender offer, the tendering) of the
shares of Common Stock allocated to their KSOP accounts. If a participant fails
to direct the KSOP Trustee as to how to vote the shares allocated to the
participant's KSOP account, then the KSOP Trustee will vote those shares,
together with unallocated shares, in the same proportion as the KSOP Trustee
was directed by the other participants who gave voting directions. In the event
of a tender offer, if a participant does not direct the KSOP Trustee to tender
those shares allocated to his or her KSOP account, then the KSOP Trustee will
not tender such shares; the KSOP Trustee will tender unallocated shares in the
same proportion as the KSOP Trustee was directed by other participants to
tender allocated shares. Notwithstanding the foregoing, the KSOP Trustee will
in all cases exercise its independent judgment in voting (or tendering) shares
of Common Stock if doing so is necessary to satisfy its fiduciary obligations
under the Employee Retirement Income Security Act of 1974.
1996 EMPLOYEE PERIODIC PAYROLL STOCK PURCHASE PLAN
The purpose of the 1996 Employee Periodic Payroll Stock Purchase Plan (the
"Payroll Stock Purchase Plan") is to provide an opportunity for the employees
of the Company to purchase shares of Common Stock through voluntary automatic
payroll deductions and cash contributions. An aggregate of 500,000 shares of
Common Stock may be sold pursuant to the Payroll Stock Purchase Plan.
1996 RESTRICTED STOCK INCENTIVE PLAN
The Company's 1996 Restricted Stock Incentive Plan (the "Incentive Plan")
provides additional incentives to certain employees of the Company through
awards of shares of Common Stock. The Company has reserved
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for issuance under the Incentive Plan a maximum of (i) 4,000,000 shares of
Common Stock plus (ii) any shares of Common Stock that may be reserved for
issuance under the 1996 New Employee Restricted Stock Purchase Plan (the "New
Employee Plan"), that are not actually issued pursuant thereto and that the
Compensation Committee instead designates as being reserved for issuance under
the Incentive Plan. All shares awarded pursuant to the Incentive Plan initially
are subject to certain vesting and transfer restrictions.
1996 NEW EMPLOYEE RESTRICTED STOCK PURCHASE PLAN
The purpose of the New Employee Plan is to provide a one-time opportunity for
certain new employees of the Company and its subsidiaries to purchase shares of
Common Stock for cash. All shares purchased pursuant to the New Employee Plan
initially are subject to certain vesting and transfer restrictions.
The Company has reserved for issuance under the New Employee Plan a maximum
of (a) 500,000 shares of Common Stock plus (b) any shares of Common Stock that
may be reserved for issuance under the Incentive Plan that are not issued
pursuant thereto and that the Compensation Committee instead designates as
being reserved for issuance pursuant to the New Employee Plan.
1995 STOCK PLAN
The purpose of the 1995 Stock Plan (the "1995 Plan") is to provide employees
of the Company with additional incentive to promote the success of the
Company's business, to remain employees of the Company and to acquire equity
interests in the Company. The 1995 Plan provides the Compensation Committee
with the ability to make outright grants of unrestricted Common Stock and to
award restricted stock ("Restricted Stock"), incentive stock options ("ISOs")
within the meaning of Section 422 of the Code, nonqualified stock options
("NSOs"), stock appreciation rights ("SARs"), phantom stock ("Phantom Stock")
and performance units ("Performance Units") (awards of Common Stock, Restricted
Stock, ISOs, NSOs, SARs, Phantom Stock and Performance Units are collectively
referred to as "Awards"). The 1995 Plan permits a total of 1,365,469 shares of
Common Stock to be awarded to Participants under the 1995 Plan in the form of
outright grants of Common Stock, ISOs, NSOs or Restricted Stock, or in payment
of SARs, Phantom Stock shares or Performance Units. As of June 30, 1996, Awards
had been made under the 1995 Stock Plan covering all but 100 of the shares
reserved for issuance thereunder.
1995 NON-EMPLOYEE DIRECTORS PLAN
The Directors Plan, which provides for the issuance of Common Stock and non-
qualified stock options to non-employee directors, enhances the Company's
ability to attract and retain non-employee directors and provides such
directors with additional incentives to improve the Company's performance by
increasing their level of stock ownership. The Directors Plan provides that,
immediately following the date of each meeting of the Board of Directors, each
non-employee director will receive (i) a portion of his or her annual retainer
paid in Common Stock and (ii) $2,500 for attending the meeting, also paid in
Common Stock. The number of shares of Common Stock to be issued to each non-
employee director for each board meeting is determined by dividing the amount
to be paid by the per share fair market value of the Common Stock. In addition,
following the meeting of the Board of Directors held after each annual
stockholders' meeting, each non-employee director receives an NSO to purchase
1,500 shares of Common Stock. All shares of Common Stock awarded to
participants in the Directors Plan vest immediately, and options awarded to
participants vest based on the amount of time that has elapsed since the option
award date.
Participation in the Directors Plan by non-employee directors is mandatory.
In general, no more than 60,000 shares of Common Stock may be granted outright
or issued upon the exercise of options awarded under the Directors Plan.
DIRECTORS' DEFERRED COMPENSATION ARRANGEMENT
The Company maintains a deferred compensation arrangement that allows non-
employee directors to defer the receipt of any cash payment of fees for the
then-current fiscal year by authorizing an irrevocable election prior to the
beginning of each calendar year. Such fees deferred under this arrangement are
credited with interest at the end of each calendar year at a rate determined by
the Board of Directors.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with the Buy-Out, agreements were entered into between Kemper
and EVEREN that among other things, obligate Kemper to indemnify the Company
for the first $20.0 million of employer contributions (other than 401(k)
contributions) made to the KSOP following the Buy-Out. As of June 30, 1996
Kemper had a remaining liability of approximately $3.8 million pursuant to such
indemnification obligation which amount is expected to be paid in connection
with the August 5, 1996 dividend payment. See "Management's Discussion and
Analysis of Financial Condition and Result of Operations--Equity Participation
of Employees."
Also, in connection with the Buy-Out, the Company and Kemper entered into a
Tax Sharing Agreement, pursuant to which the parties made an election under
Section 338(h)(10) of the Internal Revenue Code of 1986, as amended (the
"Section 338(h)(10) Election). The Tax Sharing Agreement also provides that
Kemper will be responsible for and receive the benefits of (i) all settlements
with the Internal Revenue Service (the "IRS") for the 1990 and prior year tax
periods, (ii) the impact of all tax items for the 1990 and prior year tax
periods theretofore identified by the IRS that reverse during the period
January 1, 1991 through the date of the Buy-Out and (iii) all tax issues for
the period from January 1, 1991 to the date of the Buy-Out identified by Kemper
and the Company in the Tax Sharing Agreement. The Tax Sharing Agreement further
provides that each party will be responsible for its own taxes for the periods
from January 1, 1991 through the date of the Buy-Out except that (a) Kemper
will not be responsible for reimbursing the Company for the tax benefits
associated with any net loss (and the Company will not be responsible for
reimbursing Kemper for the taxes due on any net income) reported by the Company
for the 1994 tax year and the 1995 tax year to the date of the Buy-Out and (b)
the calculation of the Company's share of taxes shall be determined by
disregarding the divestiture and the Section 338(h)(10) Election. The Tax
Sharing Agreement provides that the Company will be responsible for all audit
adjustments for the tax period from January 1, 1991 through September 13, 1995
that are not referred to in clauses (ii) or (iii) above, and that the Company
will be responsible for and receive the benefits of all tax liabilities and
refunds attributable to the business of the Company after the date of the Buy-
Out.
In addition, in connection with the Buy-Out, EVEREN and Kemper entered into
an assumption agreement under which Kemper is obligated to hold the Company
harmless with respect to certain litigation matters.
Prior to the Buy-Out, the Company provided certain services to a wholly-owned
subsidiary of Kemper. As a result, the Company earned approximately $14.1
million and $16.7 million, in 1993 and 1994, respectively, in investment
management income for acting as an underwriter and distributor of money market
funds managed by a wholly-owned subsidiary of Kemper. The Company also received
approximately $17.0 million and $22.4 million, in 1993 and 1994, respectively,
in commission revenue for commissions earned from affiliates of a Kemper
subsidiary for the sale of mutual funds and other products. The management
income and commission revenues were standard broker fees and commission loads
earned in the normal course of business. During 1994 a Kemper subsidiary made
an additional capital contribution of $19.0 million to the Company.
From time to time, the Company uses the services of Mayer Brown & Platt, the
law firm in which director William M. Daley is a partner.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to
beneficial ownership of the Company's Common Stock as of August 31, 1996, and
as adjusted to reflect the completion of this offering, by (i) each named
executive officer, (ii) each director, (iii) each holder of more than five
percent of the Company's Common Stock and (iv) all current directors and
executive officers as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES OF
NUMBER OF COMMON STOCK
SHARES OF BENEFICIALLY
COMMON OWNED
STOCK -----------------
BENEFICIALLY BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER(1) OWNED(2) OFFERING OFFERING
--------------------------------------- ------------ -------- --------
<S> <C> <C> <C>
James R. Boris................................. 289,404 2.5% %
Stephen G. McConahey........................... 203,407 1.7
William M. Daley............................... 3,099 *
William T. Esrey............................... 2,786 *
Homer J. Livingston, Jr........................ 3,099 *
William C. Springer............................ 2,527 *
David M. Greene................................ 46,792 *
Thomas R. Reedy................................ 40,573 *
Comerica Bank--Illinois, not in its individual
or corporate capacity but solely as Trustee of
the KSOP
758 West North Avenue
Chicago, IL 60610............................. 10,765,208 91.6
All directors and executive officers as a group
(14 persons, including the above)............. 740,630 6.3
</TABLE>
- --------
*Less than 1% of the shares outstanding.
(1) Except as otherwise indicated, the address of each of the persons in this
table is as follows: c/o EVEREN Capital Corporation, 77 West Wacker Drive,
Chicago, Illinois 60601.
(2) Except for the following, all shares of the Company's Common Stock
beneficially owned by the Company's directors and executive officers are
owned of record by the KSOP Trustee and are subject to the voting
arrangement described under "Company Stock Plans--The KSOP." The following
directors and executive officers own Common Stock outside of the KSOP: Mr.
Boris, 252,098 shares; Mr. McConahey, 168,200 shares; Mr. Daley, 3,099
shares; Mr. Esrey, 2,786 shares; Mr. Livingston, 3,099 shares; Mr.
Springer, 2,527 shares; and all directors and executive officers as a
group, 528,489 shares.
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DESCRIPTION OF CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
Under the Amended and Restated Certificate of Incorporation of EVEREN Capital
(the "Certificate of Incorporation"), EVEREN Capital is authorized to issue
100,000,000 shares of Common Stock, par value $.01 per share and up to
10,000,000 shares of preferred stock, par value $.01 per share ("Preferred
Stock").
COMMON STOCK
Dividends. Subject to any prior dividend rights of the holders of Preferred
Stock, dividends may be paid on the Common Stock as determined by the Board of
Directors out of funds legally available therefor. EVEREN Capital's ability to
pay dividends is contingent upon the earnings of its subsidiaries, as well as
their ability to declare and pay dividends to EVEREN Capital. Certain
subsidiaries may be limited in their ability to pay dividends by capital and
other rules of regulatory bodies, as well as certain covenants in instruments
governing certain indebtedness.
Voting. Holders of Common Stock are entitled to vote on all matters to be
voted on by the stockholders of EVEREN Capital, including the election of
directors and, except as otherwise required by law or provided in any
resolution adopted by the Board of Directors with respect to any series of
Preferred Stock, the holders of Common Stock exclusively will possess all
voting power. Each share of Common Stock is entitled to one vote on all
matters. Holders of Common Stock do not have cumulative voting rights.
Liquidation Value. After the satisfaction in full of any liquidation
preferences of holders of Preferred Stock, holders of Common Stock are entitled
to ratable distribution of the remaining assets available for distribution to
stockholders in the event of any liquidation, dissolution or winding up of
EVEREN Capital.
Other. The Common Stock is not subject to redemption, whether by operation of
a sinking fund or otherwise. Holders of Common Stock are not entitled to
preemptive rights under the Certificate of Incorporation or under the Restated
By-Laws of EVEREN Capital (the "By-Laws").
Transfer Agent and Registrar. The Transfer Agent and Registrar for the Common
Stock is Harris Trust and Savings Bank.
PREFERRED STOCK
The Board of Directors is authorized to provide for the issuance of shares of
Preferred Stock, in one or more series, and to fix for each such series such
designations, preferences and relative, participating, optional and other
special rights, and such qualifications, limitations and restrictions, as are
stated in the resolution adopted by the Board of Directors providing for the
issue of such series and as are permitted by the DGCL.
PREFERRED SHARE PURCHASE RIGHTS
The Board of Directors is considering adopting a Shareholder Rights Plan
prior to the consummation of the offering and causing to be issued one
Preferred Share Purchase Right (a "Right") to each share of outstanding Common
Stock following consummation of the offering. If adopted by the Board of
Directors, each Right will entitle the registered holder to purchase from
EVEREN Capital one one-hundredth of a Share of Series A Preferred Stock (a
"Preferred Share") at a price of $ per one-hundredth of a Preferred Share
(the "Purchase Price") subject to adjustment. The terms of the Rights will be
set forth in a Rights Agreement (the "Rights Agreement") between EVEREN and a
Rights Agent.
Until the earlier to occur of (i) 10 days following a public announcement
that a person or group of affiliated or associated persons, other than the KSOP
(an "Acquiring Person") has acquired beneficial ownership of 15% or more of the
outstanding Common Stock or (ii) 10 business days (or such later date as may be
determined by action of the Board of Directors prior to such time as any person
or group becomes an Acquiring Person) following the commencement of, or
announcement of an intention to make, a tender offer or exchange offer the
consummation of which would result in the beneficial ownership by a person or
group, other than the KSOP, of 15% or more of such outstanding Common Stock
(the earlier of such dates being called the "Rights Distribution Date"), the
Rights will be evidenced by the Common Stock certificates.
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The Rights Agreement will provide that, until the Rights Distribution Date,
the Rights will be transferable with and only with the Common Stock. Until the
Rights Distribution Date (or earlier redemption or expiration of the Rights),
Common Stock certificates will contain a notation incorporating the Rights
Agreement by reference. As soon as practicable following the Rights
Distribution Date, separate certificates evidencing the rights ("Rights
Certificates") will be mailed to holders of record of the Common Stock as of
the close of business on the Rights Distribution Date and such separate Rights
Certificates alone will evidence the Rights.
The Rights will not be exercisable until the Rights Distribution Date. The
Rights will expire on the tenth anniversary of the date of their issuance (the
"Final Expiration Date"), unless the Final Expiration Date is extended or
unless the rights are earlier redeemed by the Company, in each case as
described below.
The Purchase Price payable, and the number of Preferred Shares or other
securities or property issuable, upon exercise of the Rights will be subject to
adjustment from time to time to prevent dilution.
The Preferred Shares' dividend and liquidation rights are designed such that
the value of the one one-hundredth interest in a Preferred Share purchasable
upon exercise of each Right should approximate the value of one share of Common
Stock.
In the event that any person or group of affiliated or associated persons
becomes an Acquiring Person, each holder of a Right, other than Rights
beneficially owned by the Acquiring Person (which will thereafter be void),
will thereafter have the right to receive upon the exercise thereof at the then
current Purchase Price of the Right, that number of shares of Common Stock (or,
at the option of the Company, Preference Shares) having a market value of two
times the Purchase Price of the Right. In the event that, at any time on or
after the date that any person or group of affiliated or associated persons has
become an Acquiring Person, EVEREN Capital is acquired in a merger or other
business combination transaction or 50% or more of its consolidated assets or
earning power are sold, proper provision will be made so that each holder of a
Right will thereafter have the right to receive, upon the exercise thereof at
the then current Purchase Price of the Right, that number of shares of common
stock of the acquiring company which at the time of such transaction will have
a market value of two times the exercise price of the Right.
At any time after any person or group of affiliated or associated persons
becomes an Acquiring Person and prior to the acquisition by such person or
group of 50% or more of the outstanding Common Stock, the Board of Directors
may exchange the Rights (other than Rights owned by such person or group, which
will have become void), in whole or in part, at an exchange ratio of one share
of Common Stock per Right (subject to adjustment).
With certain exceptions, no adjustment in the Purchase Price will be required
until cumulative adjustments require an adjustment of at least 1% in such
Purchase Price.
At any time prior to the acquisition by a person or group of affiliated or
associated persons of beneficial ownership of 15% or more of the outstanding
Common Stock, the Board of Directors may redeem the rights in whole, but not in
part, at a price of $.01 per Right (the "Redemption Price"). Immediately upon
any redemption of the Rights, the right to exercise the Rights will terminate
and the only right of the holders of Rights will be to receive the Redemption
Price.
The terms of the Rights may be amended by the Board of Directors without the
consent of the holders of the Rights, except that (i) from and after such time
as any person or group of affiliated or associated persons becomes an Acquiring
Person no such amendment may adversely affect the interests of the holders of
the Rights and (ii) no supplement or amendment to the Rights Agreement may be
made which changes the Redemption Price.
Until a Right is exercised, the holder thereof, as such, will have no rights
as a shareholder of the Company, including, without limitation, the right to
vote or to receive dividends.
The Rights will have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire EVEREN
Capital on terms not approved by the Board of Directors, except pursuant to an
offer conditioned on a substantial number of Rights being acquired. The Rights
should not interfere with any merger or other business combination approved by
the Board of Directors since the Rights may be redeemed by EVEREN Capital at
the Redemption Price prior to the time that a person or group has become an
Acquiring Person.
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The foregoing summary of certain terms of the Rights is qualified in its
entirety by reference to the form of the Rights Agreement, a copy of which has
been filed as an exhibit to the Registration Statement.
CERTIFICATE OF INCORPORATION AND BY-LAWS
The Certificate of Incorporation contains several provisions that will make
more difficult the acquisition of control of the Company by various means, such
as a tender offer or open market purchases not approved by the Board of
Directors or a proxy contest. The By-Laws also contain provisions that could
have an anti-takeover effect.
The purposes of these provisions are to discourage certain types of
transactions which may involve an actual or threatened change of control of the
Company and to encourage persons seeking to acquire control of the Company to
consult first with the Board of Directors to negotiate the terms of any
proposed business combination or offer.
Set forth below is a description of certain provisions of the Certificate of
Incorporation and By-Laws. Such description is intended as a summary only and
is qualified in its entirety by reference to the Certificate of Incorporation
and By-Laws. Capitalized terms used and not defined herein are defined in the
Certificate of Incorporation or By-Laws, as the case may be.
NUMBER OF DIRECTORS; REMOVAL; FILLING VACANCIES
The Certificate of Incorporation provides that, subject to any rights of
holders of Preferred Stock to elect additional directors under specified
circumstances, the number of directors will be fixed by, or in the manner
provided in, the By-Laws; provided that such number of directors shall not be
more than eleven. The By-Laws provide that, subject to any rights of holders of
Preferred Stock to elect directors under specified circumstances, the number of
directors will be fixed from time to time exclusively pursuant to a resolution
adopted by directors constituting a majority of the total number of directors
which EVEREN Capital would have if there were no vacancies on the Board of
Directors. Accordingly, the Board of Directors could temporarily prevent any
stockholder from enlarging the size of the Board of Directors and filling the
new directorships with such stockholder's own nominees.
Moreover, the Certificate of Incorporation and By-Laws provide that directors
may be removed only for cause and only by the affirmative vote of holders of at
least 75% of the voting power of all the then outstanding shares of the
outstanding capital stock of EVEREN Capital entitled to vote generally in the
election of directors ("Voting Stock"), voting together as a single class.
LIMITATIONS ON STOCKHOLDER ACTION BY WRITTEN CONSENT; SPECIAL MEETINGS
The Certificate of Incorporation and By-Laws provide that stockholder action
may be taken only at annual or special meetings of stockholders, and prohibit
stockholder action by written consent in lieu of a meeting. Stockholders are
not permitted to call a special meeting or to require that the Board call a
special meeting of stockholders.
ADVANCE NOTICE PROVISION FOR STOCKHOLDER PROPOSALS AND STOCKHOLDER NOMINATIONS
OF DIRECTORS
The By-Laws establish an advance notice procedure with regard to the
nomination, other than by or at the direction of the Board of Directors, of
candidates for election as directors and with regard to matters to be brought
before an annual meeting of stockholders at the request of a stockholder.
These procedures provide that the notice of stockholder proposals and
stockholder nominations for the election of directors at an annual meeting must
be in writing and received by the Secretary of EVEREN Capital not less than 60
days nor more than 90 days prior to the anniversary date of the immediately
preceding annual meeting of stockholders; provided, however, that in the event
that the annual meeting is called for a date that is not within 30 days before
or 60 days after such anniversary date, notice by the stockholder in order to
be timely must be received not earlier than the close of business on the 90th
day prior to such meeting and not later than the later of (i) the close of
business on the 60th day prior to such meeting and (ii) the close of business
on the 10th day following the day on which public disclosure of the date of the
annual meeting was first made. The notice of stockholder nominations must set
forth certain information with respect to the stockholder giving the notice and
with respect to each nominee.
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INDEMNIFICATION; LIMITATION OF LIABILITY
The Certificate of Incorporation and By-Laws provide that EVEREN Capital
shall advance expenses to and indemnify each director and officer of the
Company to the fullest extent permitted by law. EVEREN Capital has entered into
indemnification agreements with each independent director, which require among
other things, EVEREN Capital to indemnify and advance expenses to such
directors to the fullest extent permitted by law. The Certificate of
Incorporation provides, pursuant to authority conferred by Section 102 of the
DGCL, that the directors of EVEREN Capital shall not be personally liable to
EVEREN Capital or its stockholders for monetary damages arising from a breach
of the duty of care.
AMENDMENT OF CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND BY-LAWS
The Certificate of Incorporation provides that the affirmative vote of the
holders of at least 75% of the voting power of the outstanding shares of Voting
Stock, voting together as a single class, is required to amend provisions of
the Certificate of Incorporation relating to the prohibition of stockholder
action without a meeting; the number, election and term of EVEREN Capital's
directors; and the removal of directors. The Certificate of Incorporation
further provides that the By-Laws may be amended by the Board of Directors or
by the affirmative vote of the holders of at least 75% of the outstanding
shares of Voting Stock, voting together as a single class.
SECTION 203 OF THE DGCL
EVEREN is subject to Section 203 of the DGCL, which prohibits a public
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which such person became an interested stockholder unless: (i)
prior to such date, the Board of Directors approved either the business
combination or the transaction which resulted in the stockholder becoming an
interested stockholder; or (ii) upon becoming an interested stockholder, the
stockholder then owned at least 85% of the voting stock, as defined in Section
203; or (iii) subsequent to such date, the business combination is approved by
both the Board of Directors and by holders of at least 66 2/3% of the
corporation's outstanding voting stock, excluding shares owned by the
interested stockholder. For these purposes, the term "business combination"
includes mergers, asset sales and other similar transactions with an
"interested stockholder." An "interested stockholder" is a person who, together
with affiliates and associates, owns (or, within the prior three years, did
own) 15% or more of the corporation's voting stock.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, the Company will have outstanding
shares of Common Stock. Of these shares, the shares of Common Stock sold
in the offering, shares sold in the Founders' Offering and subsequent
offering related thereto, any shares issued pursuant to the Payroll Stock
Purchase Plan and any vested shares issued pursuant to the Incentive Plan or
the New Employee Plan will be freely transferable without restriction under the
Securities Act, unless held by an "affiliate" of the Company (as that term is
defined under the rules and regulations of the Securities Act). Any such
affiliate will be subject to the resale limitations of Rule 144 adopted under
the Securities Act. The remaining shares of Common Stock were issued by
the Company in private transactions not involving a public offering, and are
thus treated as "restricted securities" for purposes of Rule 144. All such
"restricted" shares are currently held by members of management. Restricted
securities may not be resold in a public distribution except in compliance with
the registration requirements of the Securities Act or pursuant to an exemption
therefrom, including that provided by Rule 144.
In general, under Rule 144 as currently in effect, a stockholder (or
stockholders whose shares are aggregated) who has beneficially owned
"restricted securities" for at least two but less than three years, and any
affiliate of the Company who has owned shares for at least two years, is
entitled to sell within any three-month period a number of shares that does not
exceed the greater of 1% of the then-outstanding shares of Common Stock (
shares upon completion of the Offering) or the average weekly trading volume in
the Common Stock on all national securities exchanges and/or reported through
the automated quotation system of registered securities associations during the
four calendar weeks preceding such sale. Sales under Rule 144 are also subject
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to certain provisions regarding the manner of sale, notice requirements and
the availability of current public information about the Company. A
stockholder (or stockholders whose shares are aggregated) who is not an
affiliate of the Company for at least 90 days prior to a proposed transaction
and who has beneficially owned "restricted securities" for at least three
years is entitled to sell such shares under Rule 144 without regard to the
limitations described above.
All of the directors and officers of EVEREN Capital have agreed not to
offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase or otherwise transfer or dispose of, directly or
indirectly, any shares of Common Stock, or any securities convertible into or
exercisable or exchangeable for Common Stock, for a period of 180 days after
the date of this Prospectus without the prior written consent of Morgan
Stanley & Co. Incorporated.
The Company has agreed not to transfer, sell, cause the sale or other
disposition of or contract to transfer, sell or otherwise dispose of, directly
or indirectly, or file or cause the Company to file with the Commission a
registration statement under the Securities Act to register, any shares of the
Company's Common Stock, options or any other securities convertible into or
exercisable or exchangeable for shares of Common Stock, for a period of
days after the date of this Prospectus without the prior written consent of
Morgan Stanley & Co. Incorporated.
Prior to the date of this Prospectus, there has been no public market for
the Common Stock. The Company can make no predictions as to the effect, if
any, that sales of shares of Common Stock or the availability of shares for
sale will have on the market price prevailing from time to time. Nevertheless,
sales of substantial amounts of the Common Stock in the public market, or the
perception that such sales could occur, could adversely affect the market
price of the Common Stock and could impair the Company's future ability to
raise capital through an offering of its equity securities. The Company
expects the Common Stock to be approved for listing on the NYSE under the
symbol EVR.
CERTAIN U.S. TAX CONSEQUENCES TO NON-U.S. HOLDERS
The following is a general discussion of certain United States federal
income and estate tax consequences of the ownership and disposition of Common
Stock by a Non-U.S. Holder. For this purpose, a "Non-U.S. Holder" is any
person who is, for United States federal income tax purposes, a foreign
corporation, a non-resident alien individual, a foreign partnership or a
foreign estate or trust. This discussion does not address all aspects of
United States federal income and estate taxes and does not deal with foreign,
state and local consequences that may be relevant to such Non-U.S. Holders in
light of their personal circumstances. Furthermore, this discussion is based
on provisions of the Code existing and proposed regulations promulgated
thereunder and administrative and judicial interpretations thereof, as of the
date hereof, all of which are subject to change. EACH PROSPECTIVE PURCHASER OF
COMMON STOCK IS ADVISED TO CONSULT A TAX ADVISOR WITH RESPECT TO CURRENT AND
POSSIBLE FUTURE TAX CONSEQUENCES OF ACQUIRING, HOLDING AND DISPOSING OF COMMON
STOCK AS WELL AS ANY TAX CONSEQUENCES THAT MAY ARISE UNDER THE LAWS OF ANY
U.S. STATE, MUNICIPALITY OR OTHER TAXING JURISDICTION.
DIVIDENDS
Dividends, if any, paid to a Non-U.S. Holder of Common Stock generally will
be subject to withholding of United States federal income tax at a 30% rate or
such lower rate as may be specified by an applicable income tax treaty.
However, dividends that are effectively connected with the conduct of a trade
or business by the Non-U.S. Holder within the United States are not subject to
the withholding tax, if the Non-U.S. Holder properly files an executed United
States Internal Revenue Service ("IRS") Form 4224 with the payor of the
dividend but instead are subject to United States federal income tax on a net
income basis at applicable graduated individual or corporate rates. Any such
effectively connected dividends received by a foreign corporation may, under
certain circumstances, be subject to an additional "branch profits tax" at a
30% rate or such lower rate as may be specified by an applicable income tax
treaty with a country where the recipient is a qualified resident.
64
<PAGE>
Dividends paid to an address outside the United States are presumed to be
paid to a resident of such country (unless the payer has knowledge to the
contrary) for purposes of the withholding discussed above and, under the
current interpretation of United States Treasury regulations, for purposes of
determining the applicability of a tax treaty rate. Proposed United States
Treasury regulations , if adopted, would modify the forms and procedures for
determining the applicability of a tax treaty rate. Currently, certain
certification and disclosure requirements must be complied with in order to be
exempt from withholding under the effectively connected income exemption
discussed above.
A Non-U.S. Holder of Common Stock eligible for a reduced rate of United
States withholding tax pursuant to an income tax treaty may obtain a refund of
any excess amounts withheld by filing an appropriate claim for refund with the
IRS.
GAIN ON DISPOSITION OF COMMON STOCK
A Non-U.S. Holder generally will not be subject to United States federal
income tax with respect to a gain recognized on a sale or other disposition of
Common Stock unless (i) the gain is effectively connected with a trade or
business of the Non-U.S. Holder in the United States, (ii) in the case of a
Non-U.S. Holder who is an individual and holds the Common Stock as a capital
asset, such holder is present in the United States for 183 or more days in the
taxable year of the sale or other disposition and certain other conditions are
met, (iii) the Company is or has been a "U.S. real property holding
corporation" for United States federal income tax purposes (which the Company
does not believe that it is or is likely to become) or, (iv) the Non-U.S.
Holder is subject to tax pursuant to the provisions of U.S. tax law applicable
to certain former United States citizens or residents.
An individual Non-U.S. Holder described in clause (i) above will be taxed on
the net gain derived from the sale under regular graduated United States
federal income tax rates. An individual Non-U.S. Holder described in clause
(ii) above will be subject to a flat 30% tax on the gain derived from the sale,
which may be offset by United States capital losses (notwithstanding the fact
that the individual is not considered a resident of the United States). If a
Non-U.S. Holder that is a foreign corporation falls under clause (i) above, it
will be taxed on its gain under regular graduated United States federal income
tax rates and, in addition, may be subject to the branch profits tax equal to
30% of its effectively connected earnings and profits within the meaning of the
Code for the taxable year, as adjusted for certain items, unless it qualifies
for a lower rate under an applicable income tax treaty.
FEDERAL ESTATE TAX
Common Stock held by an individual Non-U.S. Holder at the time of death will
be included in such holder's gross estate for United States federal estate tax
purposes, unless an applicable estate tax treaty provides otherwise.
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
The Company must report annually to the IRS and to each Non-U.S. Holder the
amount of dividends paid to such holder and the tax withheld with respect to
dividends, regardless of whether withholding was required. Copies of the
information returns reporting such dividends and withholding may also be made
available to the tax authorities in the country in which the Non-U.S. Holder
resides under the provisions of an applicable income tax treaty.
Under current law, backup withholding (which generally is a withholding tax
imposed at the rate of 31% on certain payments to persons that fail to furnish
certain information under the United States information reporting requirements)
generally will not apply to dividends paid to a Non-U.S. Holder at an address
outside the United States (unless the payor has knowledge that the payee is a
U.S. person). Proposed United States Treasury regulations, if adopted, would
modify the procedures for determining the application of backup withholding to
a Non-U.S. Holder at an address outside the United States.
65
<PAGE>
Payment of the proceeds of a sale of Common Stock by or through a United
States office of a broker is subject to both backup withholding and
information reporting unless the beneficial owner certifies under penalties of
perjury that it is a Non-U.S. Holder, or otherwise establishes an exemption.
In general, backup withholding and information reporting will not apply to a
payment of the proceeds of a sale of Common Stock by or through a foreign
office of a broker. If, however, such broker is, for United States federal
income tax purposes a U.S. person, a controlled foreign corporation, or a
foreign person that derives 50% or more of its gross income for certain
periods from the conduct of a trade or business in the United States, such
payments will be subject to information reporting, but not backup withholding,
unless (i) such broker has documentary evidence in its records that the
beneficial owner is a Non-U.S. Holder and certain other conditions are met, or
(ii) the beneficial owner otherwise establishes an exemption.
Any amounts withheld under the backup withholding rules may be allowed as a
refund or a credit against such holder's U.S. federal income tax liability
provided the required information is furnished to the IRS.
The backup withholding and information reporting rules are currently under
review by the Treasury Department and their application to the Common Stock
could be changed by future regulations.
UNDERWRITERS
Under the terms and subject to conditions contained in an Underwriting
Agreement dated the date hereof, the U.S. Underwriters named below, for whom
EVEREN Securities, Morgan Stanley & Co. Incorporated and Lehman Brothers Inc.
are serving as U.S. Representatives, have severally agreed to purchase, and
the Company has agreed to sell, and the International Underwriters named
below, for whom EVEREN Securities, Morgan Stanley & Co. International Limited
and Lehman Brothers International (Europe) are serving as International
Representatives (collectively with the U.S. Representatives, the
"Representatives"), have severally agreed to purchase, and the Company has
agreed to sell, the respective number of shares of Common Stock set forth
opposite the names of such Underwriters below:
<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
---- ---------
<S> <C>
U.S. Underwriters:
EVEREN Securities, Inc........................................
Morgan Stanley & Co. Incorporated.............................
Lehman Brothers Inc. .........................................
............................................
--------
Subtotal....................................................
International Underwriters:
EVEREN Securities, Inc........................................
Morgan Stanley & Co. International Limited....................
Lehman Brothers International (Europe)........................
Subtotal....................................................
--------
Total.......................................................
========
</TABLE>
The U.S. Underwriters and the International Underwriters are collectively
referred to as the "Underwriters." The Underwriting Agreement provides that
the obligations of the several Underwriters to pay for and accept delivery of
the shares of Common Stock offered hereby are subject to the approval of
certain legal matters by counsel and to certain other conditions, including
the conditions that no stop order suspending the effectiveness of the
Registration Statement is in effect and no proceedings for such purpose are
pending before or threatened by the SEC and that there has been no material
adverse change or any development involving a prospective material adverse
change in the earnings, results of operations or financial condition of the
Company and its subsidiaries, taken as a whole, from that set forth in the
Registration Statement. The Underwriters are obligated to take and pay for all
of the shares of Common Stock offered hereby (other than those covered by the
over-allotment option described below) if any are taken.
66
<PAGE>
Pursuant to the Agreement Between U.S. and International Underwriters, each
U.S. Underwriter has represented and agreed that, with certain exceptions set
forth below, (i) it is not purchasing any U.S. Shares (as defined below) for
the account of anyone other than a United States or Canadian Person (as defined
below) and (ii) it has not offered or sold, and will not offer or sell,
directly or indirectly, any U.S. Shares or distribute this Prospectus outside
the United States or Canada or to anyone other than a United States or Canadian
Person. Pursuant to the Agreement Between U.S. and International Underwriters,
each International Underwriter has represented and agreed that, with certain
exceptions set forth below, (i) it is not purchasing any International Shares
(as defined below) for the account of any United States or Canadian Person and
(ii) it has not offered or sold, and will not offer or sell, directly or
indirectly, any International Shares or distribute this Prospectus within the
United States or Canada or to any United States or Canadian Person. The
foregoing limitations do not apply to stabilization transactions or to certain
other transactions specified in the Agreement Between U.S. and International
Underwriters. With respect to EVEREN Securities, the foregoing representations
or agreements (i) made by it in its capacity as a U.S. Underwriter shall apply
only to shares of Common Stock purchased by it in its capacity as a U.S.
Underwriter and (ii) made by it in its capacity as an International Underwriter
shall apply only to shares of Common Stock purchased by it in its capacity as
an International Underwriter. As used herein, "United States or Canadian
Person" means any national or resident of the United States or Canada or any
corporation, pension, profit-sharing or other trust or other entity organized
under the laws of the United States or Canada or of any political subdivision
thereof (other than a branch located outside of the United States and Canada of
any United States or Canadian Person) and includes any United States or
Canadian branch of a person who is not otherwise a United States or Canadian
Person. All shares of Common Stock to be offered by the U.S. Underwriters and
International Underwriters under the Underwriting Agreement are referred to
herein as the "U.S. Shares" and the "International Shares," respectively.
Pursuant to the Agreement Between U.S. and International Underwriters, sales
may be made between the U.S. Underwriters and the International Underwriters of
any number of shares of Common Stock to be purchased pursuant to the
Underwriting Agreement as may be mutually agreed. The per share price and
currency settlement of any shares of Common Stock so sold shall be the public
offering price range set forth on the cover page hereof, in United States
dollars, less an amount not greater than the per share amount of the concession
to dealers set forth below.
Pursuant to the Agreement Between U.S. and International Underwriters, each
U.S. Underwriter has represented that it has not offered or sold, and has
agreed not to offer or sell, any shares of Common Stock, directly or
indirectly, in Canada in contravention of the securities laws of Canada or any
province or territory thereof and has represented that any offer of such shares
in Canada will be made only pursuant to an exemption from the requirement to
file a prospectus in the province or territory of Canada in which such offer is
made, and that such dealer will deliver to any other dealer to whom it sells
any of such shares a notice to the foregoing effect.
Pursuant to the Agreement Between U.S. and International Underwriters, each
International Underwriter has represented that (i) it has not offered or sold
and will not offer or sell any shares of Common Stock to persons in the United
Kingdom except to persons whose ordinary activities involve them in acquiring,
holding, managing or disposing of investments (as principal or agent) for the
purposes of their businesses or otherwise in circumstances which have not
resulted and will not result in an offer to the public in the United Kingdom
within the meaning of the Public Offers of Securities Regulations 1995 (the
"Regulations"); (ii) it has complied and will comply with all applicable
provisions of the Financial Services Act 1986 and the Regulations with respect
to anything done by it in relation to such shares in, from or otherwise
involving the United Kingdom; and (iii) it has only issued or passed on and
will only issue or pass on to any person in the United Kingdom any document
received by it in connection with the issue of such shares, if that person is
of a kind described in Article 11(3) of the Financial Services Act 1986
(Investment Advertisements) (Exemptions) Order 1995, or is a person to whom
such document may otherwise lawfully be issued or passed on.
Pursuant to the Agreement Between U.S. and International Underwriters, each
International Underwriter has represented and agreed that it has not offered or
sold, and will not offer or sell, directly or indirectly, in Japan or to or for
the account of any resident thereof, any shares of Common Stock acquired in
connection with this
67
<PAGE>
offering, except for offers or sales of Japanese International Underwriters or
dealers and except pursuant to any exemption from the registration
requirements of the Securities and Exchange Law of Japan. Each International
Underwriter has further agreed to send to any dealer who purchases from it any
of such shares of Common Stock a notice stating in substance that such dealer
may not offer or sell any of such shares, directly or indirectly, in Japan or
to or for the account of any resident thereof, except pursuant to any
exemption from the registration requirements of the Securities and Exchange
Law of Japan, and that such dealer will send to any other dealer to whom it
sells any of such shares a notice to the foregoing effect.
The Underwriters propose to offer part of the shares of Common Stock offered
hereby directly to the public at the public offering price set forth in the
cover page hereof and part to certain dealers at a price which represents a
concession not in excess of $ per share under the public offering
price. The Underwriters may allow, and such dealers may re-allow, a concession
not in excess of $ per share to other Underwriters or to certain
other dealers. After the initial offering of the shares of Common Stock, the
offering price and other selling terms may from time to time be varied by the
Representatives.
Pursuant to the Underwriting Agreement, the Company has granted to the U.S.
Underwriters an option, exercisable for 30 days from the date of this
Prospectus, to purchase up to an additional shares of Common Stock
at the public offering price set forth on the cover page hereof, less
underwriting discounts and commissions. The U.S. Underwriters may exercise
such option to purchase solely for the purpose of covering over-allotments, if
any, incurred in the sale of the shares of Common Stock offered hereby. To the
extent such option is exercised, each U.S. Underwriter will become obligated,
subject to certain conditions, to purchase approximately the same percentage
of such additional shares as the number set forth next to such U.S.
Underwriters' name in the preceding table bears to the total number of shares
of Common Stock offered hereby to the U.S. Underwriters.
The Representatives have informed the Company that the Underwriters do not
intend to confirm sales to accounts over which they exercise discretionary
authority.
The Underwriting Agreement contains covenants of indemnity among the
Underwriters and the Company against certain civil liabilities, including
liabilities under the Securities Act and liabilities arising from certain
untrue statements or omissions in this Prospectus.
See "Shares Eligible for Future Sale" for a description of certain
arrangements by which all officers and directors of the Company have agreed
not to sell or otherwise dispose of Common Stock or convertible securities of
the Company for up to days after the date of this Prospectus without the
prior consent of Morgan Stanley & Co. Incorporated. The Company has agreed in
the Underwriting Agreement that it will not, directly or indirectly, without
the prior written consent of Morgan Stanley & Co. Incorporated, offer, pledge,
sell, contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant to purchase or
otherwise transfer or dispose of any shares of Common Stock or any securities
convertible into or exchangeable for Common Stock, for a period of days
after the date of this Prospectus, except under certain circumstances. The
Company has also agreed, in a separate agreement, that, for this day
period, it will not register under the Securities Act, or agree to register,
any shares of Common Stock on behalf of any third person without the prior
written consent of Morgan Stanley & Co. Incorporated.
PRICING OF THE OFFERING
Prior to the offering there has been no public market for the Common Stock.
The initial public offering price will be determined by negotiation between
the Company and the Representatives. Among the factors to be considered in
determining the initial public offering price will be the future prospects of
the Company and its industry in general, revenues, earnings and certain other
financial and operating information of the Company in recent periods and the
price-book ratios, price-earnings ratios, market prices of securities and
certain financial and operating information of companies engaged in activities
similar to those of the Company. The estimated initial public offering price
range set forth on the cover page of this Preliminary Prospectus is subject to
change as a result of market conditions and other factors.
68
<PAGE>
Under the provisions of the Conduct Rules of the NASD, when an NASD member
such as EVEREN Securities participates in the distribution of its parent
company's securities, the public offering price can be no higher than that
recommended by a "qualified independent underwriter" meeting certain
standards. In accordance with this requirement, Morgan Stanley & Co.
Incorporated has agreed to serve in such role and to recommend a price in
compliance with the requirements of the Conduct Rules.
SUBSEQUENT RESTRICTIONS
NYSE Rule 312(g) prohibits a member corporation, after the distribution of
securities of its parent to the public, from effecting any transaction (except
on an unsolicited basis) for the account of any customer in, or making any
recommendation with respect to, any such security. Thus, following the
offering of the shares EVEREN Securities will not be permitted to make
recommendations regarding the purchase or sale of the Common Stock.
The Conduct Rules of the NASD prohibit employees of the Company, their
spouses and, under certain circumstances, other members of their immediate
families who purchase any of the shares offered hereby from selling, pledging,
assigning, hypothecating or transferring such shares for a period of five
months following the effective date of the offering.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon by Simpson Thacher & Bartlett (a partnership which includes professional
corporations), New York, New York. Certain legal matters will be passed upon
for the Underwriters by Katten Muchin & Zavis (a partnership which includes
professional corporations), Chicago, Illinois.
CHANGE IN INDEPENDENT ACCOUNTANTS
On October 3, 1995, upon recommendation by the Board of Directors, the
Company appointed Deloitte & Touche LLP as its new independent accountants to
replace KPMG Peat Marwick LLP as the Company's certifying independent
accountant. During the 24 months preceding such replacement of KPMG Peat
Marwick LLP as the auditors, there existed no problems relating to any matter
of accounting principles or practices, financial statement disclosures,
auditing scope or procedures, or compliance with applicable rules of the SEC,
which problems, if not resolved to the satisfaction of KPMG Peat Marwick LLP,
would have caused them to make reference to such problems in their reports. In
addition, for each of the past two fiscal years, the reports of KPMG Peat
Marwick LLP on such financial statements did not include an adverse opinion or
a disclaimer of opinion, nor was it qualified as to uncertainties, audit scope
or accounting principles. The opinion for the fiscal year ended December 31,
1993 was modified to reflect the change in accounting for adoption of the
Financial Accounting Standards Board's Statement of Financial Accounting
Standards No. 109 "Accounting for Income Taxes." During the two most recent
fiscal years and through October 3, 1995, the Company had not consulted with
Deloitte & Touche LLP regarding either (i) the application of accounting
principles to a specified transaction, either completed or proposed, or the
type of audit opinion that might be rendered on the Company's financial
statements or (ii) concerning the subject matter of a disagreement with the
former auditor, or a reportable event as described in Regulation S-K Item
304(a)(2).
EXPERTS
The consolidated financial statements of the Company as of December 31, 1995
and for the year then ended, and as of December 31, 1994 and for each of the
two years in the period then ended, included herein and in the Registration
Statement, have been audited by Deloitte & Touche LLP and KPMG Peat Marwick
LLP, independent certified public accountants, respectively, as stated in
their reports appearing elsewhere in this Prospectus and have been so included
in reliance upon such reports given upon the authority of said firms as
experts in accounting and auditing.
69
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the SEC a Registration Statement on Form S-1
(herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act, with respect to the Common
Stock offered hereby. This Prospectus, which forms a part of the Registration
Statement, does not contain all the information set forth in the Registration
Statement, certain parts of which have been omitted in accordance with the
rules and regulations of the SEC. For further information, reference is hereby
made to the Registration Statement.
The Company is subject to the information requirements of the Exchange Act.
As long as the Company is subject to such periodic and information reporting
requirements, it will file all reports, proxy statements and other information
with the SEC required thereby. Such reports, proxy statements and other
information may be inspected and copied at the public reference facilities
maintained by the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the SEC's Regional Offices at Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and at 7
World Trade Center, Suite 1300, New York, New York 10048. Copies of such
materials can be obtained by mail at prescribed rates from the Public Reference
Branch of the SEC, 450 Fifth Street N.W., Washington, D.C. 20549, or obtained
through the SEC's Internet address at http://www.sec.gov.
In addition, information concerning EVEREN will be available for inspection
at the offices of the NYSE, 20 Broad Street, New York, New York 10005.
----------------
For investors outside of the United States: No action has been or will be
taken in any jurisdiction by the Company or by any Underwriter that would
permit a public offering of the Common Stock or possession or distribution of
this Prospectus in any jurisdiction where action for that purpose is required,
other than in the United States. Persons into whose possession this Prospectus
comes are required by the Company and the Underwriters to inform themselves
about and to observe any restrictions as to the offering of the Common Stock
and the distribution of this Prospectus.
In this Prospectus references to "dollars" and "$" are to United States
dollars, and the terms "United States" and "U.S." mean the United States of
America, its states, its territories, its possessions and all areas subject to
its jurisdiction.
70
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Financial Condition--June 30, 1996 and
December 31, 1995...................................................... F-2
Consolidated Statements of Operations--For the three and six months
ended June 30, 1996 and 1995........................................... F-3
Consolidated Statement of Changes in Stockholders' Equity--For the six
months ended June 30, 1996............................................. F-4
Consolidated Statements of Cash Flows--For the six months ended June 30,
1996 and 1995.......................................................... F-5
Notes to Consolidated Financial Statements.............................. F-6
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Reports........................................... F-8
Consolidated Statements of Financial Condition--December 31, 1995 and
1994................................................................... F-10
Consolidated Statements of Operations--For the three years ended
December 31, 1995, 1994, and 1993...................................... F-11
Consolidated Statements of Changes in Stockholders' Equity--For the
three years ended December 31, 1995, 1994, and 1993.................... F-12
Consolidated Statements of Cash Flows--For the three years ended
December 31, 1995, 1994, and 1993...................................... F-13
Notes to Consolidated Financial Statements.............................. F-14
</TABLE>
F-1
<PAGE>
EVEREN CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
ASSETS 1996 1995
------ ----------- ------------
(UNAUDITED)
<S> <C> <C>
Cash and cash equivalents............................. $ 43,195 $ 14,585
Cash and securities segregated under federal and other
regulations.......................................... 16,139 15,556
Receivables from:
Customers........................................... 734,319 648,659
Brokers and dealers................................. 161,007 145,762
Others.............................................. 44,172 51,496
Securities owned, at market........................... 181,173 141,256
Securities purchased under agreements to resell....... 382,420 1,308,495
Investment in mortgage-backed certificates available-
for-sale, at fair value.............................. 149,069 156,457
Fixed assets, at cost, net............................ 34,771 49,403
Other assets.......................................... 21,120 18,958
---------- ----------
$1,767,385 $2,550,627
========== ==========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Liabilities:
Bank loans payable.................................. $ 220,000 $ 297,800
Payables to:
Customers......................................... 187,697 223,757
Brokers and dealers............................... 241,190 78,410
Collateralized mortgage obligations................. 143,723 143,878
Securities sold, not yet purchased, at market....... 77,057 91,632
Securities sold under agreements to repurchase...... 389,431 1,282,788
Deferred income taxes............................... 20,612 26,118
Accounts payable, accrued expenses and other
liabilities........................................ 260,242 246,328
---------- ----------
1,539,952 2,390,711
---------- ----------
Exchangeable preferred stock, $.01 par value per
share; 10,000,000 shares authorized; 1,244,168 shares
issued and outstanding at December 31, 1995.......... -- 28,343
Junior subordinated debentures, 13.5%, due 2007....... 31,542 --
Commitments and contingencies
Stockholders' equity:
Common Stock, $.01 par value per share; 40,000,000
shares authorized, 11,875,269 and 11,496,970 shares
issued and 11,854,579 and 11,493,731 outstanding at
June 30, 1996 and December 31, 1995, respectively.. 119 115
Nonvoting Common Stock, $.01 par value per share;
400,000 shares authorized, 216,150 shares issued
and outstanding.................................... 2 1
Additional paid-in capital.......................... 168,638 449,396
Unrealized gain (loss) on available-for-sale
securities, net of income taxes.................... (4,698) 11,497
Unearned KSOP shares................................ (13,611) (22,875)
Unearned restricted stock........................... (1,444) --
Treasury stock, at cost, 20,690 shares and 3,239
shares, respectively............................... (210) (22)
Accumulated deficit................................. -- (306,539)
Retained earnings (since January 1, 1996)........... 47,095 --
---------- ----------
195,891 131,573
---------- ----------
$1,767,385 $2,550,627
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
EVEREN CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- ------------------
1996 1995 1996 1995
---------- -------- --------- --------
<S> <C> <C> <C> <C>
Revenues:
Commissions.......................... $ 60,277 $ 47,189 $ 117,709 $ 89,525
Principal transactions............... 34,469 30,180 65,345 57,595
Investment banking................... 16,540 11,807 26,983 23,353
Asset management..................... 13,231 13,031 27,712 25,790
Other................................ 13,486 12,112 25,209 23,090
Interest and dividends............... 19,278 20,460 37,469 41,228
---------- -------- --------- --------
Total revenues..................... 157,281 134,779 300,427 260,581
Interest expense..................... 9,203 13,368 18,457 27,019
---------- -------- --------- --------
Net revenues....................... 148,078 121,411 281,970 233,562
---------- -------- --------- --------
Expenses:
Compensation and benefits............ 88,893 80,193 175,619 153,994
Brokerage and clearance.............. 3,899 2,729 6,849 5,502
Communications....................... 9,567 10,703 19,888 21,368
Occupancy and equipment.............. 10,052 10,929 20,276 22,083
Promotional.......................... 4,375 3,269 8,357 6,486
Other................................ 10,881 12,568 19,930 28,255
---------- -------- --------- --------
Total expenses..................... 127,667 120,391 250,919 237,688
Gain on sale of subsidiary........... 50,181 -- 50,181 --
---------- -------- --------- --------
Income (loss) before income taxes...... 70,592 1,020 81,232 (4,126)
Income tax (benefit) expense........... 28,173 517 32,007 (1,413)
---------- -------- --------- --------
Net income (loss)...................... $ 42,419 $ 503 $ 49,225 $ (2,713)
========== ======== ========= ========
Dividends on Exchangeable Preferred
Stock................................. $ 1,085 $ 2,130
========== =========
Net earnings applicable to Common
Stock................................. $ 41,334 $ 47,095
========== =========
Weighted average common shares
outstanding........................... 10,082,787 9,454,163
========== =========
Net earnings per share of Common Stock. $4.10 $4.98
===== =====
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
EVEREN CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
UNREALIZED
GAIN
COMMON STOCK (LOSS) ON RETAINED
------------- ADDITIONAL UNEARNED AVAILABLE UNEARNED EARNINGS TOTAL
NON- PAID-IN RESTRICTED FOR SALE ESOP TREASURY ACCUMULATED (SINCE STOCKHOLDERS'
VOTING VOTING CAPITAL STOCK SECURITIES SHARES STOCK DEFICIT 1/1/96) EQUITY
------ ------ ---------- ---------- ---------- -------- -------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31,
1995............. $115 $ 1 $ 449,396 $ -- $ 11,497 $(22,875) $ (22) $(306,539) $ -- $131,573
Quasi-
reorganization
adjustments at
January 1, 1996:
Restatement of
assets and
liabilities to
estimated fair
value........... (3,675) (3,675)
Transfer of
deficit and
unrealized gain
at January 1,
1996 to
additional paid
in capital...... (295,042) (11,497) 306,539
Amount received
from former
parent under
indemnification
agreement........ 2,811 2,811
Release of KSOP
shares........... 7,368 9,264 16,632
Issuance of
additional
nonvoting
restricted stock. 1 1,515 (1,444) 72
Issuance of
additional common
stock............ 4 4,179 4,183
Accretion of
exchangeable
preferred stock
to redemption
value............ (14) (14)
Permanent tax
benefit related
to stock options. 2,100 2,100
Dividends on
exchangeable
preferred stock.. (2,130) (2,130)
Unrealized gain
(loss) on
available for
sale securities
for the period... (4,698) (4,698)
Purchase of
treasury stock... (188) (188)
Net Income........ 49,225 49,225
---- ---- --------- ------- -------- -------- ----- --------- ------- --------
Balance at June
30, 1996......... $119 $ 2 $ 168,638 $(1,444) $ (4,698) $(13,611) $(210) $ -- $47,095 $195,891
==== ==== ========= ======= ======== ======== ===== ========= ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
EVEREN CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)...................................... $ 49,225 $ (2,713)
Adjustments to reconcile net income (loss) to net cash
flows from operating activities:
Gain on sale of subsidiary........................... (50,181) --
Depreciation and amortization........................ 6,922 8,432
Release of KSOP shares............................... 7,368 --
Amortization of restricted stock..................... 72 --
Deferred income taxes................................ 1,414 --
Change in assets and liabilities:
Cash and securities segregated under federal and
other regulations................................... (583) (1,520)
Receivables from/payables to:
Customers.......................................... (121,720) 20,309
Brokers and dealers................................ 145,623 56,891
Affiliates......................................... -- (4,222)
Others............................................. (2,957) (4,973)
Securities owned..................................... (39,917) 33,129
Securities purchased under agreements to resell...... 926,075 (243,400)
Other assets......................................... 383 6,199
Securities sold, not yet purchased................... (14,575) (5,487)
Securities sold under agreements to repurchase....... (893,357) 222,622
Accounts payable, accrued expenses, and other
liabilities......................................... 13,909 (23,293)
--------- ---------
Net cash flows from operating activities................. 27,701 61,974
--------- ---------
Cash flows from investing activities:
Net proceeds from sale of subsidiary................... 59,346 --
Collections of principal on investments in mortgage-
backed securities..................................... 9,665 8,747
Purchase of investments in mortgage-backed securities.. (9,505) (35,123)
Proceeds from sale of fixed assets..................... 2,120 --
Acquisition of fixed assets, net....................... (3,998) (3,613)
--------- ---------
Net cash flows from investing activities................. 57,628 (29,989)
--------- ---------
Cash flows from financing activities:
Release of shares related to KSOP loan................. 9,264 --
Amount collected under indemnification agreement....... 9,061 --
Proceeds from the issuance of collateralized mortgage
obligations........................................... 9,422 34,080
Repayment of collateralized mortgage obligations....... (9,577) (7,448)
Decrease in bank loans payable......................... (77,800) (62,053)
Proceeds from issuance of common stock................. 4,183 --
Purchase of treasury stock............................. (188) --
Dividend on exchangeable preferred stock............... (1,084) --
--------- ---------
Net cash flows from financing activities................. (56,719) (35,421)
--------- ---------
Increase (decrease) in cash and cash equivalents......... 28,610 (3,436)
Cash and cash equivalents at beginning of the period..... 14,585 10,522
--------- ---------
Cash and cash equivalents at end of the period........... $ 43,195 $ 7,086
========= =========
Supplemental disclosure of cash flow information--
interest paid........................................... $ 17,978 $ 23,008
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
EVEREN CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1996
(1) GENERAL INFORMATION
The consolidated financial statements, prepared in accordance with generally
accepted accounting principles, include the accounts of EVEREN Capital
Corporation and its subsidiaries (the "Company"). The consolidated financial
statements are unaudited. However, in the opinion of management, such financial
statements include all adjustments consisting of normal recurring accruals,
necessary for the fair presentation of the consolidated financial statements.
Certain information and notes normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
omitted pursuant to Securities and Exchange Commission rules and regulations.
Accordingly, these condensed financial statements should be read in conjunction
with the financial statements and notes included in the Company's 1995 Annual
Report on Form 10-K. All material intercompany balances and transactions have
been eliminated. Accounting measurements at interim dates inherently involve
greater reliance on estimates at year end. Actual results could differ from
those estimates. The results of operations for interim periods are not
necessarily indicative of results for the entire year.
(2) RECLASSIFICATIONS
Certain reclassifications have been made in prior period financial statements
to conform to the current period financial statement presentation.
(3) NET CAPITAL RULE
EVEREN Securities, Inc. ("ESI") and EVEREN Clearing Corp. ("ECC"), the
Company's broker-dealer subsidiaries, are subject to the Uniform Net Capital
Rule of the Securities and Exchange Commission ("SEC"). Both ESI and ECC
operate under the alternative method, as defined, of computing minimum net
capital. At June 30, 1996 ESI had net capital of approximately $108.1 million
which was approximately $107.1 million in excess of its required minimum net
capital. At June 30, 1996 ECC had net capital of approximately $58.7 million
which was approximately $44.1 million in excess of its required minimum net
capital. Such net capital requirements could restrict the ability of these
subsidiaries to make dividend distributions to their respective parents.
(4) COMMITMENTS AND CONTINGENCIES
The Company has been named as a defendant in various legal actions in
connection with its securities and commodities business. Some of these lawsuits
involve claims for substantial amounts. Although the ultimate outcome of these
suits cannot be ascertained at this time, it is the opinion of management,
after consultation with outside counsel, that the resolution of such suits will
not have a material adverse effect on the consolidated financial position of
the Company, but may be material to the Company's operating results for any
particular period, depending upon the level of the Company's income for such
period.
In the normal course of business, the Company enters into various contractual
commitments involving future settlement. These include futures, forwards,
options and securities sold, not yet purchased. These transactions are executed
either over-the-counter or are exchange-traded, and are used primarily to hedge
the Company's securities inventory. Many of these products have maturities that
do not extend beyond one year. Transactions relating to such commitments which
were open at June 30, 1996 and subsequently settled had no material effect on
the consolidated financial position of the Company.
F-6
<PAGE>
EVEREN CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(5) QUASI-REORGANIZATION
The Company, with approval from its Board of Directors, implemented a quasi-
reorganization to reflect the emergence of EVEREN as an ongoing, independent
organization and to enable the Company to present more accurately the new
organization's cumulative performance. The quasi-reorganization was effective
January 1, 1996, and all assets and liabilities were adjusted to fair value as
of that date. This resulted in a reduction of net assets of $3.7 million. The
quasi-reorganization also resulted in the transfer of the accumulated deficit
as of January 1, 1996 of $306.5 million to additional paid-in capital. The
balance in retained earnings at June 30, 1996 represents the accumulated net
earnings available to common stockholders arising subsequent to the date of
the quasi-reorganization.
(6) SALE OF SUBSIDIARY
On April 30, 1996 the Company completed the sale of BETA Systems Inc., a
wholly-owned data processing and quote services subsidiary, for $63.5 million.
The sale, which resulted in an after-tax gain of approximately $30.2 million,
has been reported in the Company's second quarter results.
(7) EXCHANGE OF PREFERRED STOCK
On June 17, 1996 the Company exchanged all of its outstanding shares of
Exchangeable Preferred Stock for 13.5% Junior Subordinated Debentures due 2007
(the "Debentures").
(8) SUBSEQUENT EVENTS
On July 22, 1996 the Board of Directors authorized the Company to pay a cash
dividend of $1.18 per share on August 5, 1996 to holders of record as of July
23, 1996. This will allow the KSOP to repay the balance of its loan to the
Company, thereby releasing substantially all remaining unallocated shares to
employee participant accounts.
On July 25, 1996 the Company entered into a joint venture agreement ("JVA")
pursuant to which it will acquire an initial 20% ownership interest in Mentor
Investment Group, Inc. ("Mentor"), an asset management firm, for no direct
cash consideration. The JVA calls for the Company to transfer money market
mutual fund assets held in client accounts to Mentor sponsored funds by
December 31, 1996. The JVA also entitles the Company to earn an additional
equity interest in Mentor, up to a maximum 50% ownership interest, based on
revenues generated by assets attributable to the Company's clients. The
Company will account for the joint venture as an equity investment.
On July 30, 1996 the Company issued a notice calling all of the outstanding
Debentures for redemption on September 16, 1996 at a price of 112% of
principal, plus accrued interest. This redemption will result in an after-tax
extraordinary charge of approximately $3.0 million due to the early
extinguishment of debt which will be included in the Company's third quarter
results of operations.
F-7
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
EVEREN Capital Corporation
We have audited the accompanying consolidated statement of financial
condition of EVEREN Capital Corporation and subsidiaries as of December 31,
1995, and the related consolidated statements of operations, changes in
stockholder's equity, and cash flows for the year ended December 31, 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of EVEREN Capital Corporation and
subsidiaries as December 31, 1995, and the results of their operations and
their cash flows for the year then ended in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
Chicago, Illinois
February 23, 1996
(March 28, 1996, as to the second
paragraph of Note 23)
F-8
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
EVEREN Capital Corporation, as successor corporation to and parent of EVEREN
Securities Holdings, Inc. (formerly Kemper Securities Holdings, Inc.):
We have audited the accompanying consolidated statement of financial
condition of Kemper Securities Holdings, Inc. and subsidiaries as of December
31, 1994, and the related consolidated statements of operations, changes in
stockholder's equity, and cash flows for each of the years in the two-year
period ended December 31, 1994. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Kemper
Securities Holdings, Inc. and subsidiaries as of December 31, 1994, and the
results of their operations and their cash flows for each of the years in the
two-year period ended December 31, 1994 in conformity with generally accepted
accounting principles.
As discussed in Note 2 to the consolidated financial statements, Kemper
Securities Holdings, Inc. and subsidiaries implemented Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes."
KPMG Peat Marwick LLP
Chicago, Illinois
May 5, 1995
F-9
<PAGE>
EVEREN CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1995 AND 1994
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ASSETS 1995 1994
------ ---------- ----------
<S> <C> <C>
Cash and cash equivalents.............................. $ 14,585 $ 10,522
Cash and securities segregated under federal and other
regulations........................................... 15,556 15,066
Receivables from:
Customers............................................ 648,659 642,657
Brokers and dealers.................................. 145,762 81,668
Affiliates........................................... -- 50,231
Other................................................ 51,496 38,170
Securities owned, at market............................ 141,256 178,116
Securities purchased under agreements to resell........ 1,308,495 228,598
Investment in mortgage-backed certificates available-
for-sale, at fair value............................... 156,457 206,377
Fixed assets, at cost, net............................. 49,403 62,882
Other assets........................................... 18,958 40, 370
---------- ----------
$2,550,627 $1,554,657
========== ==========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Liabilities:
Bank loans payable................................... $ 297,800 $ 315,053
Payables to:
Customers.......................................... 223,757 187,502
Brokers and dealers................................ 78,410 78,321
Affiliates......................................... -- 38,246
Collateralized mortgage obligations.................... 143,878 204,833
Securities sold, not yet purchased, at market.......... 91,632 70,334
Securities sold under agreements to repurchase......... 1,282,788 225,177
Deferred income taxes.................................. 26,118 --
Accounts payable, accrued expenses and other
liabilities........................................... 246,328 223,663
---------- ----------
2,390,711 1,343,129
Subordinated debt payable to affiliates................ -- 44,300
Commitments and contingencies
Exchangeable preferred stock, $.01 par value per share;
10,000,000 shares authorized, 1,244,168 shares issued
and outstanding....................................... 28,343 --
Stockholders' equity:
Common Stock, $.01 par value per share; 40,000,000
shares authorized, 11,496,970 shares issued and
11,493,731 outstanding at December 31, 1995;
1,000,000 shares authorized, 995,000 shares issued
and outstanding at December 31, 1994................ 115 10
Nonvoting Common Stock, $.01 par value per share;
400,000 shares authorized, 107,400 shares issued and
outstanding......................................... 1 --
Additional paid-in capital........................... 449,396 457,903
Unrealized gain on available-for-sale securities, net
of income taxes..................................... 11,497 --
Unearned KSOP shares................................. (22,875) --
Treasury stock, at cost, 3,239 shares................ (22) --
Accumulated deficit.................................. (306,539) (290,685)
---------- ----------
131,573 167,228
---------- ----------
$2,550,627 $1,554,657
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-10
<PAGE>
EVEREN CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Commissions.................................... $190,303 $180,535 $241,053
Principal transactions......................... 122,127 119,066 158,524
Investment banking............................. 47,093 61,851 105,319
Asset management............................... 53,332 51,468 49,835
Other.......................................... 49,137 43,235 44,909
Interest....................................... 81,177 73,815 74,092
-------- -------- --------
Total revenues............................... 543,169 529,970 673,732
Interest expense............................... 52,527 44,830 46,873
-------- -------- --------
Net revenues................................. 490,642 485,140 626,859
-------- -------- --------
Non-interest expenses:
Compensation and benefits...................... 335,473 328,005 387,131
Brokerage and clearance........................ 11,422 11,533 15,082
Communications................................. 41,759 41,291 49,186
Occupancy and equipment........................ 54,484 46,361 48,733
Promotion...................................... 13,507 18,882 22,360
Other.......................................... 55,976 51,843 105,843
-------- -------- --------
Total non-interest expenses.................. 512,621 497,915 628,335
Income (loss) before taxes....................... (21,979) (12,775) (1,476)
Income tax benefit............................. 6,125 10,537 3,294
-------- -------- --------
Net income (loss) after taxes.................... (15,854) (2,238) 1,818
Cumulative effect at January 1, 1993 of change in
accounting for income taxes..................... -- -- (5,458)
-------- -------- --------
Net loss......................................... $(15,854) $ (2,238) $ (3,640)
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-11
<PAGE>
EVEREN CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
UNREALIZED
COMMON STOCK GAIN ON
------------- ADDITIONAL UNAMORTIZED AVAILABLE UNEARNED TOTAL
NON- PAID-IN RESTRICTED FOR SALE ESOP TREASURY ACCUMULATED STOCKHOLDERS'
VOTING VOTING CAPITAL STOCK SECURITIES SHARES STOCK DEFICIT EQUITY
------ ------ ---------- ----------- ---------- -------- -------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at January 1,
1993................... $ 10 $-- $438,903 $ -- $ -- $ -- $-- $(284,807) $154,106
Net loss................ (3,640) (3,640)
---- ---- -------- ------- ------- -------- ---- --------- --------
Balances at December 31,
1993................... 10 -- 438,903 -- -- -- -- (288,447) 150,466
---- ---- -------- ------- ------- -------- ---- --------- --------
Capital contribution.... 19,000 19,000
Net loss................ (2,238) (2,238)
---- ---- -------- ------- ------- -------- ---- --------- --------
Balances at December 31,
1994................... 10 -- 457,903 -- -- -- -- (290,685) 167,228
---- ---- -------- ------- ------- -------- ---- --------- --------
Change in equity related
to spinoff adjustments,
net.................... 98 1 6,587 (2,500) (55,000) (50,814)
Deferred tax liability
related to Section 338
election............... (31,919) (31,919)
Common stock offering... 7 4,731 4,738
Amount received from
former parent under
indemnification
agreement.............. 7,124 7,124
Amount due from former
parent under
indemnification
agreement.............. 6,250 6,250
Release of KSOP shares.. 32,125 32,125
Dividends on
exchangeable preferred
stock.................. (1,207) (1,207)
Accretion of preferred
stock to redemption
value.................. (73) (73)
Change in unrealized
gain for the period.... 11,497 11,497
Vesting of restricted
stock.................. 2,500 2,500
Purchase of treasury
stock.................. (22) (22)
Net loss................ (15,854) (15,854)
---- ---- -------- ------- ------- -------- ---- --------- --------
Balances at December 31,
1995................... $115 $ 1 $449,396 $ -- $11,497 $(22,875) $(22) $(306,539) $131,573
==== ==== ======== ======= ======= ======== ==== ========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-12
<PAGE>
EVEREN CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994 1993
----------- -------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................. $ (15,854) $ (2,238) $ (3,640)
Adjustments to reconcile net loss to net
cash flows from operating activities:
Depreciation and amortization........... 16,771 16,200 14,333
Deferred income taxes................... (20,926) 5,783 (15,434)
Change in assets and liabilities:
Cash and securities segregated under
federal and other regulations........ (490) 1,093 (557)
Receivables from/payables to:
Customers........................... 30,253 (68,892) (191,348)
Brokers and dealers................. (64,005) 20,570 19,285
Affiliates.......................... 21,798 (36,569) 24,641
Others.............................. (13,326) 1,892 (5,739)
Securities owned...................... 36,860 88,316 (39,315)
Securities purchased under agreements
to resell............................ (1,079,897) (24,131) 219,176
Other assets.......................... 21,605 12,414 (4,280)
Securities sold, not yet purchased.... 21,298 (6,689) 26,603
Securities sold under agreements to
repurchase........................... 1,057,611 43,298 (191,685)
Accounts payable, accrued expenses,
and other liabilities................ 22,590 (35,361) 35,365
----------- -------- ---------
Net cash flows from operating activities.... 34,288 15,686 (112,595)
----------- -------- ---------
Cash flows from investing activities:
Proceeds from sale of investments in
mortgage-backed securities............... 81,808 6,793 --
Collections of principal on investments in
mortgage-backed securities............... 15,743 44,598 110,816
Purchase of investments in mortgage-backed
securities............................... (35,123) (75,389) --
Acquisition of fixed assets, net.......... (2,508) (20,780) (15,796)
----------- -------- ---------
Net cash flows from investing activities.... 59,920 (44,778) 95,020
----------- -------- ---------
Cash flows from financing activities:
Proceeds from common stock offering....... 4,738 -- --
Amount collected under indemnification
agreement................................ 7,124 -- --
Capital contribution...................... -- 19,000 --
Proceeds from the issuance of
collateralized mortgage obligations...... 34,080 72,569 --
Repayment of collateralized mortgage
obligations.............................. (95,035) (48,954) (115,301)
Debt issuance costs paid.................. (977) -- --
Increase (decrease) in bank loans payable. (40,053) (10,011) 124,889
Purchase of treasury stock................ (22) -- --
----------- -------- ---------
Net cash flows from financing activities.... (90,145) 32,604 9,588
----------- -------- ---------
Increase (decrease) in cash and cash
equivalents................................ 4,063 3,512 (7,987)
Cash and cash equivalents at beginning of
year....................................... 10,522 7,010 14,997
----------- -------- ---------
Cash and cash equivalents at end of year.... $ 14,585 $ 10,522 $ 7,010
=========== ======== =========
Supplemental disclosure of cash flow
information - interest paid to unaffiliated
entities................................... $ 48,780 $ 37,410 $ 40,210
=========== ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-13
<PAGE>
EVEREN CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) GENERAL INFORMATION
EVEREN Capital Corporation ("EVEREN") was incorporated in Delaware in May
1995, for the purpose of acquiring all of the outstanding common stock of
Kemper Securities Holdings, Inc. ("KSHI") and its subsidiaries including its
primary subsidiary, Kemper Securities, Inc. ("KSI"); a clearing subsidiary,
Kemper Clearing Corp. ("KCC"); and a data processing subsidiary, BETA Systems
Inc. On September 13, 1995, KSHI, KSI and KCC changed their names to EVEREN
Securities Holdings, Inc. ("ESHI"), EVEREN Securities, Inc. ("ESI") and EVEREN
Clearing Corp. ("ECC"), respectively. Collectively, EVEREN and its
subsidiaries are referred to in these Notes as the "Company". Prior to
September 13, 1995, the consolidated financial statements present the
financial condition, results of operations and cash flows of KSHI and
subsidiaries.
The Company is a financial services holding company, and is engaged
primarily in the retail and institutional brokerage business, including
investment banking and underwriting services. ESI and ECC are both registered
as brokers and dealers in securities under the Securities Exchange Act of 1934
and as futures commissions merchants under the Commodities Exchange Act. ESI
clears all transactions with and for customers on a fully disclosed basis
through ECC. Another subsidiary, Gateway Mortgage Acceptance Corporation
("Gateway"), was formed to issue and sell one or more series of collateralized
mortgage obligations ("CMOs") directly or through one or more beneficially
owned trusts (each, a "Trust").
On September 13, 1995, the Company completed its separation from its former
parent, Kemper Corporation ("Kemper"), and became an independent, employee-
owned company with publicly traded preferred stock. The preferred stock was
issued to Kemper, which in turn distributed the shares to holders of Kemper
common stock and to holders of certain Kemper common stock options and phantom
stock units as a taxable distribution (the "Kemper Distribution").
Simultaneously, 10,437,781 shares of common stock, par value $.01 per share,
of EVEREN, representing approximately 96% of such shares outstanding, were
sold by Kemper to the EVEREN Capital Corporation 401(k) and Employee Stock
Ownership Trust which is part of the EVEREN Capital Corporation 401(k) and
Employee Stock Ownership Plan (collectively, the "KSOP") for an aggregate
price of $71.4 million or $6.8405 per share (the "KSOP Purchase"). In
accordance with the provisions of Accounting Principles Board Opinion No. 29,
the Company's bases in its assets and liabilities were not adjusted as a
result of the separation from Kemper or the KSOP Purchase.
Following the Kemper Distribution and the KSOP Purchase, the KSOP offered to
KSOP participants up to $25 million of common stock of the Company (3,654,685
shares at $6.8405 per share) as an investment option for a portion of their
current account balances in the KSOP (the "Founders' Offering"). The offering
price per share in the Founders' Offering was equal to the per share price
paid by the KSOP in the KSOP Purchase. As part of the separation from Kemper,
Kemper is obligated to indemnify the Company for the first $20 million of
employer contributions to the KSOP. Of the $20 million to be received from
Kemper, $13.4 million was collected prior to or within 30 days of December 31,
1995 and is recorded as additional paid-in capital.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of EVEREN and its
subsidiaries. All significant intercompany balances and transactions have been
eliminated in consolidation.
F-14
<PAGE>
EVEREN CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Securities and Commodities Transactions
Customer receivables and payables are recorded on a settlement date basis.
The related commission revenues and expenses from securities and commodities
transactions are recorded on trade date. Principal securities and commodities
transactions are also recorded on trade date. Securities owned are recorded at
market value, with unrealized gains and losses included in income.
Securities transactions under agreements to resell and repurchase are
collateralized transactions and are carried at the contract amounts at which
the securities will be resold or reacquired, including accrued interest. It is
the policy of the Company to take possession of the securities purchased under
agreements to resell at the time such agreements are entered into. In the event
that the market value of such securities falls below the contract amount of the
related agreement to resell, the Company requests additional collateral.
Fixed Assets
Fixed assets are recorded at historical cost, net of accumulated depreciation
and amortization. Depreciation on fixed assets is generally recorded on a
straight-line basis over the estimated useful lives of the assets, which range
from four to seven years for furniture and equipment and up to thirty years for
building and improvements. Leasehold improvements are amortized on a straight-
line basis over the lesser of the lease term or the economic life of the asset.
Investment in Mortgage-backed Certificates/Collateralized Mortgage Obligations
The CMOs issued by Gateway are collateralized by certain mortgage-related
instruments ("Certificates") and the investment of the proceeds relating to
principal payments and interest on such Certificates. The CMOs are accounted
for as borrowings. The Certificates are classified as "available-for-sale" and
are accounted for at market value with unrealized gains or losses included in
the equity section of the consolidated statement of financial condition. Market
value is determined using current market valuations from an independent pricing
service.
Stock Based Compensation
The Company accounts for stock-based compensation issued to employees in
accordance with the provisions of Accounting Principles Board Opinion No. 25,
which recognizes compensation cost based upon the intrinsic value at the date
of grant of the equity instrument awarded.
The Financial Accounting Standards Board has issued SFAS No. 123, "Accounting
for Stock-Based Compensation," effective for fiscal years beginning after
December 15, 1995. The Company has elected, as permitted by SFAS No. 123, to
adopt the disclosure requirement of that standard but continue to account for
stock-based compensation under APB Opinion No. 25, "Accounting for Stock Issued
to Employees."
Income Taxes
Income taxes are determined using the liability method, under which deferred
tax assets and liabilities are recorded based on differences between the
financial accounting and tax bases of assets and liabilities. Deferred tax
assets and liabilities are measured based on the currently enacted tax rate
expected to apply to taxable income in the period in which the deferred tax
asset or liability is expected to be settled or realized.
The Company and Kemper have each agreed to make an election under Section
338(h)10 of the Internal Revenue Code (the "Section 338 Election") with respect
to the sale by Kemper and purchase by EVEREN of
F-15
<PAGE>
EVEREN CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
the common stock of ESHI (the "ESHI Purchase"). The impact of the Section 338
Election on the Company is that the assets of ESHI and subsidiaries received a
new, and overall lower, basis for federal income tax purposes. See Note 16 for
a more detailed discussion of the impact of the Section 338 Election on the
Company's financial statements.
Effective January 1, 1993, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes"
("Statement 109") and has reported the cumulative effect of that change in the
method of accounting for income taxes in the 1993 consolidated statement of
operations.
Supplemental Disclosure of Non-Cash Investing and Financing Activities
The Company's 1995 separation from Kemper and the KSOP Purchase included
non-cash spinoff adjustments which resulted in a net reduction in
stockholders' equity of $50.8 million. The adjustments were comprised
primarily of the following: $44.3 million of subordinated debt and $37.6
million in affiliated payables were converted to equity; $48.2 million in
receivables from affiliates was forgiven as a result of termination of a tax
sharing arrangement theretofore in place; preferred shares valued at $27.1
million were issued to Kemper, and $55 million in unearned KSOP shares were
recorded.
Other significant non-cash transactions in 1995 were as follows: in
connection with the purchase of the common stock of the Company, $55.0 million
in bank loans were incurred (the "KSOP Loans"), and in connection with the
agreement of Kemper and the Company to make the Section 338 Election, a
deferred tax liability of $31.9 million was established and reduced additional
paid-in capital.
Reclassifications
Certain prior year amounts have been reclassified to conform with the 1995
financial statement presentation.
(3) CASH AND SECURITIES SEGREGATED UNDER FEDERAL AND OTHER REGULATIONS
The Company is required under the Commodity Exchange Act (the "Act") to
account for and segregate all customer assets as defined by the Act, in
connection with transactions in regulated commodities. As of December 31, 1995
and 1994, cash of approximately $406,000 and $489,000 and securities
(primarily obligations of the U.S. Government) with a market value of
approximately $15.2 million and $14.6 million, respectively, are segregated
pursuant to the Act. At December 31, 1995, the Company was in compliance with
the segregation requirements of the Act and had total segregated funds in
excess of the aggregate required amount by approximately $4.1 million.
(4) RECEIVABLES FROM AND PAYABLES TO CUSTOMERS
The Company extends credit to its customers to finance their purchases of
securities on margin. The Company receives income from interest charged on
such extension of credit. Customer receivables include amounts due on margin
balances. Customer payables include customers' free credit balances.
Securities owned by customers and held by the Company as collateral or as
margin and the market value of commodity option positions owned by customers
are not included in the consolidated statement of financial condition. From
time to time, the Company deposits customers' securities as margin with
clearing organizations. At December 31, 1995 and 1994, such securities
deposited as margin had an aggregate market value of $8.6 million and $11
million, respectively.
F-16
<PAGE>
EVEREN CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(5) SECURITIES-AT MARKET VALUE
Securities owned and securities sold, not yet purchased consisted of the
following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
OWNED 1995 1994
- ----- -------- --------
<S> <C> <C>
Obligations of the U.S. Government or its agencies........... $ 62,808 $ 24,258
State and municipal obligations.............................. 22,333 65,171
Corporate obligations........................................ 44,954 45,234
Corporate stocks and warrants................................ 9,205 4,748
Certificates of deposit...................................... -- 37,624
Other........................................................ 1,956 1,081
-------- --------
$141,256 $178,116
======== ========
<CAPTION>
SOLD, NOT YET PURCHASED
- -----------------------
<S> <C> <C>
Obligations of the U.S. Government or its agencies........... $ 70,130 $ 58,094
State and municipal obligations.............................. 601 1,219
Corporate obligations........................................ 13,809 8,615
Corporate stocks and warrants................................ 7,085 2,128
Certificates of deposit...................................... -- 275
Other........................................................ 7 3
-------- --------
$ 91,632 $ 70,334
======== ========
</TABLE>
(6) SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL AND SECURITIES SOLD UNDER
AGREEMENTS TO REPURCHASE
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL 1995 1994
- ----------------------------------------------- ---------- --------
(IN THOUSANDS)
<S> <C> <C>
U.S. Government and U.S. Government agency obligations
with a market value of $1,339 million ($230 million at
1994)................................................... $1,308,495 $228,598
---------- --------
<CAPTION>
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
- ----------------------------------------------
<S> <C> <C>
U.S. Government and U.S. Government agency obligations
with a market value of $1,313 million ($226 million at
1994)................................................... $1,282,788 $225,177
---------- --------
</TABLE>
The Company enters into collateralized transactions to resell and repurchase
securities. These transactions are carried at the contract amounts at which
the securities will be resold or reacquired plus accrued interest. At December
31, 1995, these agreements matured within ninety days. Securities purchased
under agreements to resell averaged $550.1 million and $345.3 million during
1995 and 1994, and the maximum amounts outstanding at any month-end during
1995 and 1994 were $1,308.5 million and $481.0 million, respectively.
Securities sold under agreements to repurchase averaged $538.8 and $320.6
million during 1995 and 1994, and the maximum amounts outstanding at any
month-end during 1995 and 1994 were $1,282.8 million and $447.0 million,
respectively. At December 31, 1995 these agreements to repurchase had a
weighted-average interest rate of 5.96% (4.41% at December 31, 1994).
F-17
<PAGE>
EVEREN CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(7) INVESTMENTS IN MORTGAGE-BACKED CERTIFICATES
As required by the related indenture provisions of the CMOs, the Certificates
are held as collateral by a trustee of the Trust. The trustee collects
principal and interest payments from the Certificates, reinvests the payments
in eligible investments, and makes principal and interest payments on the CMOs.
A summary of the Certificates, available-for-sale as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1995 1994
-------- --------
<S> <C> <C>
Amortized cost.......................................... $143,949 $206,377
Gross unrealized gains.................................. 12,508 --
-------- --------
Market value............................................ $156,457 $206,377
======== ========
</TABLE>
(8)COLLATERALIZED MORTGAGE OBLIGATIONS
Receipt of principal and interest from the Certificates, including
prepayments, and income earned on the reinvestment of such amounts is applied
to the extent required by the indenture to make monthly payments of principal
on the CMOs. All payments of principal on the CMOs are allocated to the classes
of CMOs in accordance with the terms of the standard indenture provisions.
Interest rates on the CMOs are fixed and range from 7.25% to 9.60% per year.
The stated maturities range from June 1, 2019 through May 31, 2026 and
represent the dates on which the CMOs of each class are expected to be fully
paid. The actual maturities of the CMOs will depend on the rate of principal
payments, including prepayments, on the Certificates. The CMOs may be subject
to redemption at the option of Gateway, in the circumstances and at the
redemption price set forth in the related prospectus.
(9) FIXED ASSETS
Fixed assets consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1995 1994
-------- --------
<S> <C> <C>
Building and improvements.............................. $ 3,811 $ 9,578
Furniture and equipment................................ 116,784 118,499
Leasehold improvements................................. 24,834 24,975
-------- --------
Total cost............................................. 145,429 153,052
Less accumulated depreciation and amortization......... 96,026 90,170
-------- --------
Net fixed assets....................................... $ 49,403 $ 62,882
======== ========
</TABLE>
(10) BANK LOANS PAYABLE
Included in bank loans payable at December 31, 1995 and 1994, are $275
million and $315.1 million in loans drawn from approximately $500 million in
lines of credit extended by seven banks to ECC. The level of these borrowings
fluctuates daily, and at times significantly, depending on market activity and
customer margin activity levels. Under such lines of credit, the Company has
unsecured borrowings totaling $30 million and $20 million at December 31, 1995
and 1994. The remaining borrowings are secured by customers' margin securities
and the Company's securities inventory. The rates on these borrowings are based
on the federal funds rate (6% at December 31, 1995).
F-18
<PAGE>
EVEREN CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
At December 31, 1995, bank loans payable also include the KSOP loans
discussed in Note 2. At December 31, 1995, $32.2 million of the original
amounts outstanding have been retired. The remaining $22.8 million is a four-
year secured amortizing term loan with minimum principal repayments due at the
end of each calendar quarter beginning with December 31, 1995. During each
twelve-month period following the borrowing, minimum principal repayments are
due as follows:
<TABLE>
<CAPTION>
PRINCIPAL
PERIOD ENDING REDUCTION
------------- ------------
<S> <C>
December 31, 1996........................................... $6.0 million
December 31, 1997........................................... $8.0 million
December 31, 1998........................................... $8.8 million
</TABLE>
The interest rates on the KSOP loans are currently based on the three-month
LIBOR. At December 31, 1995, the annualized rate of interest on the loan
balance was 7.1%.
(11)NET CAPITAL REQUIREMENTS, DIVIDEND RESTRICTIONS AND COMMON STOCK REPURCHASE
OBLIGATION
In accordance with the rules and regulations of the Securities and Exchange
Commission for registered brokers and dealers, the capital rules of the New
York Stock Exchange and Regulation 1.17 of the Commodity Futures Trading
Commission, ESI and ECC must maintain minimum net capital. Both ESI and ECC
operate under the alternative method, as defined, of computing minimum net
capital. Such net capital requirements could restrict the ability of each
subsidiary to pay dividends to its parent. At December 31, 1995 and 1994, ESI
had net capital of approximately $94.2 million and $60.8 million, respectively,
which was approximately $93.2 million and $59.8 million, respectively, in
excess of its required minimum net capital; and at each date ECC had net
capital of approximately $58.6 million and $53.3 million, respectively, which
were approximately $45 million and $40.3 million, respectively, in excess of
its required minimum net capital.
Under the terms of the agreements for the KSOP loans, the Company may not pay
any dividends on its common stock until the KSOP loans are repaid.
Pursuant to the provisions of the KSOP, the Company is required to repurchase
at fair market value any shares of common stock allocated to the accounts of
retiring or other terminating plan participants who desire to avail themselves
of such KSOP provisions. Such repurchases are generally to be made within one
year following the end of the calendar year during which the participant
retires or six years following the end of the calendar year in which the
participant terminates employment.
(12) DEFINED CONTRIBUTION PLAN
As of September 13, 1995, EVEREN assumed sponsorship of and restated the KSI
Profit Sharing Plan in the form of the KSOP. EVEREN maintains the KSOP to
provide employees with an opportunity to accumulate funds for retirement and
acquire ownership interests in the voting common stock of EVEREN. Participants
are eligible to make pre-tax contributions to the KSOP and share in employer
contributions. Total contribution expense for the years ended December 31,
1995, 1994 and 1993 was approximately $19.4 million, $9.4 million and $8.8
million, respectively.
F-19
<PAGE>
EVEREN CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(13) POSTRETIREMENT BENEFITS
The Company currently sponsors a plan that provides postretirement medical,
dental, and life insurance benefits for substantially all employees. Employees
generally become eligible for the post-retirement benefit plans when they meet
minimum retirement age and service requirements. The cost of providing most of
these benefits is shared with retirees. The Company has reserved the right to
change or eliminate the benefit plan. The Company accrues the expected cost of
providing these post-retirement benefits during the years that the employee
renders the necessary service.
Actuarial assumptions used to determine net periodic post-retirement benefit
cost include an annual discount rate of 7% for 1995 and 1994, and 8% for 1993.
Actuarial assumptions used to determine the accumulated post-retirement benefit
obligation at December 31, 1995 and 1994 include an annual discount rate of 7%
and 8%, respectively.
Net periodic post-retirement benefit cost for the years ended December 31
include the following components (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Service cost of benefits earned.................... $ 618 $ 918 $ 792
Interest cost on accumulated postretirement benefit
obligation........................................ 1,305 1,433 1,315
Amortization of unrecognized loss (gain)........... (149) 14 --
------ ------ ------
Net periodic postretirement benefit cost........... $1,774 $2,365 $2,107
====== ====== ======
</TABLE>
The following table presents the plan's funded status reconciled with amounts
recognized in the Company's consolidated statement of financial condition at
December 31 (in thousands):
Accumulated post-retirement benefit obligation:
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Retirees................................................. $ 3,637 $ 8,754
Fully eligible active participants....................... 4,255 3,810
Other active participants................................ 7,773 3,746
------- -------
Accumulated post-retirement benefit obligation........... 15,665 16,310
Plan assets at fair value................................ -- --
------- -------
Accumulated post-retirement benefit obligation in excess
of plan
assets.................................................. 15,665 16,310
Unrecognized actuarial gain.............................. 4,902 3,121
------- -------
Accrued post-retirement benefit cost..................... $20,567 $19,431
======= =======
</TABLE>
For measurement purposes, a 9% annual rate of increase in the per capita
health care cost trend rate was assumed for 1996; the rate was assumed to
decrease gradually to 6% by the year 1999 and remain at that level thereafter.
The health care cost trend rate assumption has a significant effect on the
amounts reported. Increasing the assumed health care cost trend rates by one
percentage point would increase the accumulated post-retirement benefit
obligation as of December 31, 1995 by approximately $2.5 million and the
aggregate of the service and interest cost components of net periodic
postretirement benefit cost for the year ended December 31, 1995 by
approximately $327,000.
F-20
<PAGE>
EVEREN CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(14) EXCHANGEABLE PREFERRED STOCK
As discussed in Note 1, on September 13, 1995, EVEREN sold 1,202,805 shares
of Series A Exchangeable Preferred Stock ("Exchangeable Preferred Stock")
having a liquidation preference of $25 per share and a dividend rate of 13.5%
per year. The Exchangeable Preferred Stock must be redeemed by the Company at a
price of $25 per share plus unpaid dividends on September 15, 2007. At the
Company's option, such shares may be redeemed earlier at specified premiums.
The Exchangeable Preferred Stock was recorded at an amount based on the range
at which such shares traded on the issuance date. For the year ended December
31, 1995, dividends on the Exchangeable Preferred Stock were approximately $1.2
million.
The Company may, at its option subject to certain limitations, exchange up to
$58,750,000 aggregate principal amount of 13.5% Junior Subordinated Debentures
("Debentures") due 2007 for all outstanding shares of Exchangeable Preferred
Stock at the rate of $25 principal amount of Debentures for each share of
Exchangeable Preferred Stock.
Dividends on the Exchangeable Preferred Stock are cumulative, payable
quarterly beginning on December 15, 1995 and may be paid in cash or in kind,
until September 15, 2000, at which time dividends must be paid in cash.
(15) STOCK OPTIONS
On December 15, 1995, the Company granted options to purchase 994,075 shares
of its common stock to certain of its employees. The options become exercisable
on December 19, 2000, must be exercised within 10 years from the date of grant,
and are exercisable at a price of $6.8405 per share. Management believes the
exercise price of the options granted approximated the fair value of the
Company's common stock as of the date of grant. Accordingly, no compensation
expense was recognized in 1995. All such options were outstanding at December
31, 1995.
(16) INCOME TAXES
The income tax expense (benefit) for the years ended December 31 was as
follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
U.S. Federal:
Current................................... $ 13,193 $(16,801) $ 11,380
Deferred.................................. (20,926) 5,783 (15,434)
-------- -------- --------
Total................................... (7,733) (11,018) (4,054)
State and Local:
Current................................... 1,922 671 767
Deferred.................................. (314) (190) (7)
-------- -------- --------
Total................................... 1,608 481 760
-------- -------- --------
$ (6,125) $(10,537) $ (3,294)
======== ======== ========
</TABLE>
As a result of the Section 338 Election, ESHI will incur a tax basis
reduction of approximately $97.3 million in its various assets. This reduction
in tax basis will represent future taxable income to ESHI as the individual
assets are converted to cash. Consequently, ESHI and its subsidiaries
established a $31.9 million deferred tax liability as of September 13, 1995.
F-21
<PAGE>
EVEREN CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Income tax expense (benefit) differed from the amounts computed by applying
the U.S. Federal income tax rate of 35% to pretax loss as a result of the
following (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
------- -------- -------
<S> <C> <C> <C>
Computed "expected" tax (benefit)............ $(7,694) $ (4,471) $ (516)
Increase (reduction) in income taxes
resulting from:
Tax-exempt interest, net................... (903) (1,604) (1,935)
Prior year deferred compensation
adjustment................................ -- (5,491) --
Adjustment to deferred tax assets and
liabilities for enacted changes in tax
laws and rates............................ -- -- (1,594)
Travel and entertainment................... 457 696 209
State and local income taxes, net of
Federal income tax benefit................ 1,045 313 494
Other, net................................. 970 20 48
------- -------- -------
$(6,125) $(10,537) $(3,294)
======= ======== =======
</TABLE>
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31 is presented
below (in thousands).
<TABLE>
<CAPTION>
1995 1994
-------- -------
<S> <C> <C>
Deferred tax assets:
Accrued expenses..................................... $ 3,312 $21,666
Deferred compensation................................ 2,035 12,387
Deferred rent........................................ 98 6,939
Other................................................ -- 3,581
-------- -------
Total deferred tax assets.......................... 5,445 44,573
-------- -------
Deferred tax liabilities:
Unrealized gain on available-for-sale securities..... 1,011 --
Section 338 Election unrecognized basis difference... 29,763 --
Plant and equipment, principally due to differences
in depreciation..................................... 30 1,065
Other................................................ 759 249
-------- -------
Total deferred tax liabilities..................... 31,563 1,314
-------- -------
Net deferred tax assets (liabilities).................. $(26,118) $43,259
======== =======
</TABLE>
The net deferred tax assets at December 31, 1994 are included in receivables
from affiliates.
As a result of its separation from Kemper, ESHI will no longer be a member of
Kemper's consolidated tax group for Federal income tax purposes. EVEREN and
Kemper have entered an agreement (the "Tax Sharing Agreement"), which provides
that Kemper will be responsible for and receive the benefits of (i) all
settlements with the Internal Revenue Service (the "IRS") for the 1990 and
prior year tax periods, (ii) the impact of all tax items for the 1990 and prior
year tax periods theretofore identified by the IRS that reverse during the
period January 1, 1991 through September 13, 1995 and (iii) all tax issues for
the period from January 1, 1991 to September 13, 1995 identified by Kemper and
EVEREN in the Tax Sharing Agreement. The Tax Sharing Agreement provides that
EVEREN will be responsible for and receive the benefits of all tax liabilities
and refunds attributable to the business of the Company after September 13,
1995. Tax returns for the years 1991 through 1993 are currently under
examination by the IRS.
F-22
<PAGE>
EVEREN CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Tax Sharing Agreement further obligates both EVEREN and Kemper to make
the Section 338 Election. Though valid as between EVEREN and Kemper, the Tax
Sharing Agreement is not binding on the IRS and does not affect the several
liability of EVEREN, Kemper and their respective subsidiaries to the IRS for
all federal taxes of the consolidated group relating to periods prior to
September 13, 1995.
(17) RELATED-PARTY TRANSACTIONS
Prior to the Company's separation from Kemper, it provided certain services
to a wholly-owned subsidiary of Kemper. As a result, included in investment
management income is approximately $14.1 million and $16.7 million, the Company
received for acting as an underwriter and distributor of money market funds
managed by a wholly-owned subsidiary of Kemper for the years ended December 31,
1994 and 1993, respectively. Included in commission revenue is approximately
$17 million and $22.4 million representing commission earned from affiliates of
a Kemper subsidiary for the sale of mutual funds and other products for the
years ended December 31, 1994 and 1993, respectively. The management income and
commission revenues represent standard broker fees and commission loads earned
in the normal course of business.
During 1994, a subsidiary of Kemper made an additional capital contribution
of $19 million to the Company.
Additional interest expense incurred on payables to affiliates other than
that incurred on subordinated debt payable to affiliates amounted to $2.3
million and $2.5 million for the years ended December 31, 1994 and 1993,
respectively.
(18) COMMITMENTS AND CONTINGENCIES
The Company leases certain office space under various noncancelable operating
leases with remaining terms greater than one year. Future minimum payments
under noncancelable leases as of December 31, 1995 were approximately (in
thousands):
<TABLE>
<CAPTION>
OPERATING
YEAR ENDING DECEMBER 31, LEASES
------------------------ ---------
<S> <C>
1996............................................................ $ 25,176
1997............................................................ 25,427
1998............................................................ 23,428
1999............................................................ 21,498
2000............................................................ 18,734
Thereafter...................................................... 77,510
--------
Total minimum lease payments.................................... $191,773
========
</TABLE>
Certain of the leases are subject to the operating costs of the particular
facilities. Total rental expense for all operating leases, including expenses
related to the abandonment of leased property, was approximately $46.8 million,
$40.9 million and $40.1 million for the years ended December 31, 1995, 1994 and
1993, respectively.
The Company is obligated under unsecured letters of credit totaling
approximately $30 million at December 31, 1995. The letters of credit are
issued by banks to provide the required margin for customers' and introducing
brokers' transactions with the Options Clearing Corporation. Such letters of
credit are generally for periods of 6 to 12 months. The Company pays commitment
fees on these letters of credit at an annual rate ranging from .75% to 2.0%.
In the normal course of business, the Company enters into underwriting
commitments. Transactions relating to such underwriting commitments, which were
open at December 31, 1995 and subsequently settled, had no material effect on
the consolidated statement of financial condition.
F-23
<PAGE>
EVEREN CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(19) LITIGATION
The Company has been named as a defendant in various legal actions in
connection with its securities and commodities business. Some of these lawsuits
involve claims for substantial amounts. Although the ultimate outcome of these
suits cannot be ascertained at this time, it is the opinion of management,
after consultation with counsel, that the resolution of such suits will not
have a material adverse effect on the financial position of the Company but may
be material to the Company's operating results for any particular period,
depending upon the level of the Company's income for such period.
(20) FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATION OF
CREDIT RISK
Certain market and credit risks are inherent in the Company's business,
primarily in facilitating customers' trading and financing transactions in
financial instruments, which include derivatives. The Company also uses
derivative financial instruments to hedge market risk, primarily arising from
fluctuations in interest rates, in its securities inventory. In the normal
course of business, the Company's customer activities include execution,
settlement, and financing of various customer securities and commodities
transactions, which may expose the Company to off-balance sheet risk in the
event the customer is unable to fulfill its contractual obligations.
The Company's customer securities activities are transacted on either a cash
or margin basis. In margin transactions, the Company extends credit to the
customer which is collateralized by cash and/or securities in the customer's
account. In connection with these activities, the Company executes and clears
customer transactions involving securities sold but not yet purchased ("short
sales") and the writing of option contracts. The Company also executes customer
transactions in the purchase and sale of commodity futures contracts (including
options on futures), substantially all of which are transacted on a margin
basis subject to various exchange regulations. The Company seeks to control the
risks associated with its customer activities by requiring customers to
maintain margin collateral in compliance with various regulatory, exchange, and
internal guidelines. The Company monitors required margin levels daily and,
pursuant to such guidelines, requires the customers to deposit additional
collateral or reduce positions when necessary. Such transactions may expose the
Company to significant off-balance sheet risk in the event the margin is not
sufficient to fully cover losses which customers may incur. In the event the
customer fails to satisfy its obligations, the Company may be required to
purchase or sell the collateral at prevailing market prices in order to fulfill
the customer's obligations. In accordance with industry practice, the Company
records customer securities transactions on a settlement date basis, which is
generally three business days after trade date. The Company is therefore
exposed to risk of loss on these transactions in the event of the customer's or
broker's inability to meet the terms of their contracts in which case the
Company may have to purchase or sell financial instruments at prevailing market
prices. The Company believes that the settlement of these transactions will not
have a material effect on the Company's consolidated statement of financial
condition.
The Company's customer financing and securities settlement activities require
the Company to pledge customer securities as collateral in support of various
secured financing sources such as bank loans, securities loaned and agreements
to repurchase. Additionally, the Company pledges customer securities as
collateral to satisfy margin deposits of various exchanges. In the event the
counterparty is unable to meet its contractual obligation to return customer
securities pledged as collateral, the Company may be exposed to the risk of
acquiring the securities at prevailing market prices in order to satisfy its
customer obligations. The Company controls this risk by monitoring the market
value of securities pledged on a daily basis and by requiring adjustments of
collateral levels in the event of excess market exposures. Additionally, the
Company establishes credit limits for such activities and monitors compliance
on a daily basis. The Company also enters into collateralized financing
agreements in which it extends short-term credit, primarily to major financial
institutions. The Company generally controls access to the collateral pledged
by the counterparties, which consists largely of securities issued by the U.S.
government or its agencies.
F-24
<PAGE>
EVEREN CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company is engaged in various securities trading and brokerage activities
servicing a diverse group of corporations, governments, institutional and
individual investors primarily located in the United States. A substantial
portion of the Company's transactions are collateralized and are executed with
and on behalf of other major brokers and dealers. The Company's exposure to
credit risk associated with the nonperformance of these counterparties in
fulfilling their contractual obligation pursuant to securities and commodities
transactions can be directly impacted by volatile trading markets which may
impair the counterparties' ability to satisfy their obligations to the Company.
The Company monitors credit risk on both an individual and group counterparty
basis.
To hedge interest rate exposure in its securities inventory, the Company uses
exchange-traded futures and option contracts that contain varying degrees of
off-balance-sheet risk, whereby changes in the market values of the underlying
securities or other financial instruments may be in excess of the amounts
reflected in the consolidated statement of financial condition. In light of
this strategy, the Company does not expect any material losses relating to such
derivative instruments that would not be offset with corresponding gains on the
securities hedged. These derivative instruments, which consist solely of
exchange-traded futures and option contracts, are carried in the consolidated
statement of financial condition at December 31, 1995 and 1994 at their quoted
market values of $77,000 and $0.8 million, respectively in aggregate, and have
aggregate notional values of approximately $10.2 million and $33 million,
respectively. The average market value of these derivative instruments during
1995 approximated $199,000.
(21) FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments are carried at fair value or at amounts
which approximate fair value. Customer receivables, primarily consisting of
floating-rate loans collateralized by margin securities, are charged interest
at rates similar to other such loans made within the industry. Reverse
repurchase/repurchase agreements, securities borrowed/loaned, and notes payable
to banks are carried at contract amount plus accrued interest or at the amount
of cash collateral advanced or received, which approximates fair value due to
their highly liquid nature and short maturity. The Company's remaining
financial instruments are generally short-term in nature and are typically
liquidated at their carrying values.
(22) QUARTERLY INFORMATION (UNAUDITED) (IN THOUSANDS)
<TABLE>
<CAPTION>
QUARTER
--------------------------------------
1995 FIRST SECOND THIRD FOURTH
- ---- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Total revenues.......................... $125,801 $134,779 $138,704 $143,885
Income (loss) before income taxes....... (5,146) 1,020 (28,504) 10,651
Net income (loss)....................... (3,216) 503 (19,379) 6,238
<CAPTION>
QUARTER
--------------------------------------
1994 FIRST SECOND THIRD FOURTH
- ---- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Total revenues.......................... $151,378 $131,756 $119,972 $126,864
Income (loss) before income taxes....... 3,652 (3,974) (7,066) (5,387)
Net income (loss)....................... 2,677 (2,561) (3,117) 763
</TABLE>
F-25
<PAGE>
EVEREN CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(23) SUBSEQUENT EVENTS
Quasi-Reorganization
In February 1996, the Company's Board of Directors authorized senior
management to take the appropriate steps necessary to effect a quasi-
reorganization. Under a quasi-reorganization, the Company is required to adjust
its assets and liabilities to fair value, record any resulting net write-down
and apply its additional paid-in capital to eliminate any deficiency in
accumulated earnings. Management believes any net write-down will not be
material to the consolidated financial statements at December 31, 1995 and
therefore will have no material effect on the Company's results of operations
in future periods.
Sale of Subsidiary
On March 28, 1996, the Company entered into an agreement to sell BETA Systems
Inc. ("BETA"), a wholly-owned subsidiary for approximately $63.5 million. The
sale is expected to result in an aftertax gain of approximately $30.0 million.
BETA accounted for approximately $15.9 million of the Company's consolidated
revenues for 1995 and $16.5 million of its consolidated assets at December 31,
1995. BETA will continue to provide data processing and quote services to the
Company pursuant to existing agreements.
F-26
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMA-
TION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER CONTAINED
HEREIN OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AU-
THORIZED BY EVEREN CAPITAL
CORPORATION OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THOSE TO
WHICH IT RELATES NOR DOES IT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF
AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SO-
LICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SO-
LICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
ITS DATE OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF EVEREN CAPITAL COR-
PORATION SINCE SUCH DATE.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 7
Company History........................................................... 13
Dividend Policy........................................................... 15
Dilution.................................................................. 15
Use of Proceeds........................................................... 16
Capitalization............................................................ 17
Selected Historical Consolidated Financial and Operating Data............. 18
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 19
Business.................................................................. 35
Regulation................................................................ 46
Capital Requirements...................................................... 47
Management ............................................................... 48
Company Stock Plans....................................................... 55
Certain Relationships and Related Transactions............................ 58
Principal Stockholders.................................................... 59
Description of Capital Stock.............................................. 60
Shares Eligible for Future Sale........................................... 63
Certain U.S. Tax Consequences to Non-U.S. Holders......................... 64
Underwriters.............................................................. 66
Legal Matters............................................................. 69
Change in Independent Accountants......................................... 69
Experts................................................................... 69
Additional Information.................................................... 70
Index to Financial Statements............................................. F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SHARES
EVEREN CAPITAL
CORPORATION
COMMON STOCK
------------------
PROSPECTUS
------------------
EVEREN SECURITIES, INC.
MORGAN STANLEY & CO.
INCORPORATED
LEHMAN BROTHERS
, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LOGO
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
ALTERNATIVE PAGE FOR INTERNATIONAL PROSPECTUS
PROSPECTUS (SUBJECT TO COMPLETION)
ISSUED SEPTEMBER 6, 1996
SHARES
EVEREN CAPITAL CORPORATION
COMMON STOCK
All of the shares of Common Stock offered hereby are being sold by EVEREN
Capital Corporation. Of the shares being offered, shares are being
offered initially outside of the United States and Canada by the International
Underwriters and shares are being offered initially in the United
States and Canada by the U.S. Underwriters. See "Underwriters." Prior to this
offering, there has been no public market for the Common Stock of the Company.
It is currently estimated that the initial public offering price will be
between $ and $ per share. The initial public offering price will be
determined by agreement between the Company and the Underwriters in accordance
with the recommendation of a "qualified independent underwriter" as required by
the Conduct Rules of the National Association of Securities Dealers, Inc. See
"Underwriters" for a discussion of the factors to be considered in determining
the initial public offering price. The Company has applied for the listing of
its Common Stock on the New York Stock Exchange under the symbol EVR.
-----------
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR CERTAIN INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CON-
TRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE DISCOUNTS AND PROCEEDS TO
TO PUBLIC COMMISSIONS (1) COMPANY (2)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share............................ $ $ $
- -------------------------------------------------------------------------------
Total(3)............................. $ $ $
- -------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended.
(2) Before deducting expenses payable by the Company, estimated at $900,000.
(3) The Company has granted the U.S. Underwriters an option, exercisable within
30 days of the date hereof, to purchase up to additional shares
of Common Stock at the price to public less underwriting discounts and
commissions for the purpose of covering over-allotments, if any. If such
option is exercised in full, the total price to public, underwriting
discounts and commissions and proceeds to Company will be $ ,
$ and $ , respectively. See "Underwriters."
-----------
The shares are offered, subject to prior sale, when, as and if accepted by
the Underwriters named herein and subject to approval of certain legal matters
by Katten Muchin & Zavis, counsel for the Underwriters. It is expected that
delivery of the shares will be made on or about , 1996 at the office
of EVEREN Securities, Inc. in Chicago, Illinois, against payment therefor in
immediately available funds.
EVEREN SECURITIES, INC.
MORGAN STANLEY & CO.
INTERNATIONAL
LEHMAN BROTHERS
, 1996
LOGO
<PAGE>
ALTERNATIVE PAGE FOR INTERNATIONAL PROSPECTUS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMA-
TION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER CONTAINED
HEREIN OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AU-
THORIZED BY EVEREN CAPITAL
CORPORATION OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THOSE TO
WHICH IT RELATES NOR DOES IT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF
AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SO-
LICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SO-
LICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
ITS DATE OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF EVEREN CAPITAL COR-
PORATION SINCE SUCH DATE.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 7
Company History........................................................... 13
Dividend Policy........................................................... 15
Dilution.................................................................. 15
Use of Proceeds........................................................... 16
Capitalization............................................................ 17
Selected Historical Consolidated Financial and Operating Data............. 18
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 19
Business.................................................................. 35
Regulation................................................................ 46
Capital Requirements...................................................... 47
Management ............................................................... 48
Company Stock Plans....................................................... 55
Certain Relationships and Related Transactions............................ 58
Principal Stockholders.................................................... 59
Description of Capital Stock.............................................. 60
Shares Eligible for Future Sale........................................... 63
Certain U.S. Tax Consequences to Non-U.S. Holders......................... 64
Underwriters.............................................................. 66
Legal Matters............................................................. 69
Change in Independent Accountants......................................... 69
Experts................................................................... 69
Additional Information.................................................... 70
Index to Financial Statements............................................. F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SHARES
EVEREN CAPITAL
CORPORATION
COMMON STOCK
------------------
PROSPECTUS
------------------
EVEREN SECURITIES, INC.
MORGAN STANLEY & CO.
INTERNATIONAL
LEHMAN BROTHERS
, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LOGO
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Set forth below is an estimate (except for the Commission and NYSE fees) of
the fees and expenses payable by the Registrant in connection with the
Offering of the Common Stock:
<TABLE>
<S> <C>
Securities and Exchange Commission
Registration fee................................................ $ 29,742
Printing and engraving costs.................................... 150,000
Legal fees...................................................... 350,000
Accountants' fees............................................... 150,000
NYSE listing fee................................................ 86,530
Blue Sky qualification fees and expenses........................ 25,000
Miscellaneous................................................... 108,728
--------
Total....................................................... $900,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Reference is made to Section 102(b)(7) of the Delaware General Corporation
law (the "DGCL"), which enables a corporation in its original certificate of
incorporation or an amendment thereto to eliminate or limit the personal
liability of a director for monetary damages for violations of the director's
fiduciary duty, except (i) for any breach of a director's duty of loyalty to
the corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) pursuant to Section 174 of the DGCL (providing for liability of
directors for unlawful payment of dividends or unlawful stock purchases or
redemptions) or (iv) for any transaction from which a director derived an
improper personal benefit.
Reference also is made to Section 145 of the DGCL which provides that a
corporation may indemnify any persons, including officers and directors, who
are, or are threatened to be made, parties to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of such
corporation), by reason of the fact that such person was an officer, director,
employee or agent of such corporation, or is or was serving at the request of
such corporation as a director, officer, employee or agent of another
corporation or other enterprise. The indemnity may include expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding, provided such officer, director, employee or agent acted in good
faith and in a manner he reasonably believed to be in or not opposed to the
corporation's best interests and, for criminal proceedings, had no reasonable
cause to believe that his conduct was unlawful. A Delaware corporation may
indemnify officers and directors in an action by or in the right of the
corporation under the same conditions, except that no indemnification is
permitted without judicial approval if the officer or director is adjudged to
be liable to the corporation. Where an officer or director is successful on
the merits or otherwise in the defense of any action referred to above, the
corporation must indemnify him against the expenses (including attorneys'
fees) which such officer or director actually and reasonably incurred.
The Certificate of Incorporation and the Bylaws of the Company provide for
indemnification of officers and directors to the fullest extent permitted by
applicable law. In addition, the Company has entered into contracts with each
of its independent directors requiring the Company to indemnify such persons
and to advance litigation expenses to such persons to the fullest extent
permitted by applicable law. Delaware law presently permits a Delaware
corporation (i) to indemnify any officer or director in any third-party or
governmental actions against them for expenses, judgments, fines and amounts
paid in settlement and, in derivative actions, for expenses, if the indemnitee
acted in good faith and in the manner he believed to be in or not opposed to
the best interest of such corporation and (ii) to advance expenses in any
action, provided that such officer or director agrees to reimburse the
corporation if it is ultimately determined that he was not entitled to
indemnification. The contracts
II-1
<PAGE>
also require the Company to (i) indemnify such independent directors upon
receipt of an opinion of counsel in certain cases, (ii) pay indemnity demands
pending a determination of entitlement thereto, and (iii) demonstrate, in any
action brought thereunder, that such director was not entitled to
indemnification under applicable law.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following table lists the recent sales of unregistered securities and
includes the type of security, the person to whom the securities were sold,
the consideration and the exemption from registration.
<TABLE>
<CAPTION>
SECURITIES
TITLE OF DATE OF ACT
SECURITY ISSUANCE PURCHASER AMOUNT EXEMPTION CONSIDERATION
-------- -------- --------- ------ ---------- -------------
<S> <C> <C> <C> <C> <C>
Common 8/13/95 1995 Stock Plan 219,281 4(2) Private None
Stock Placement
8/13/95 1995 Stock Plan 146,188 4(2) Private None
Placement
12/29/95 James R. Boris 13,663 4(2) Private $93,461.75
Placement
12/29/95 Stephen G. McConahey 9,108 4(2) Private $62,303.27
Placement
1/8/96 1995 Non-Employee 4,900 4(2) Private None
Directors Plan Placement
5/8/95 1995 Non-Employee 5,455 4(2) Private None
Directors Plan Placement
7/22/96 1995 Non-Employee 1,156 4(2) Private None
Directors Plan Placement
Non-voting 9/13/95 1995 Stock Plan 107,400 4(2) Private None
Stock Placement
5/8/96 1995 Stock Plan 108,750 4(2) Private None
Placement
Options on 12/19/95 1995 Stock Plan 928,150 4(2) Private None
Common Placement
Stock
5/8/96 1995 Stock Plan 183,750 4(2) Private None
Placement
7/22/96 1995 Non-Employee 6,000 4(2) Private None
Directors Plan Placement
</TABLE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- ----------- ---
<C> <S> <C>
1.1 Form of Underwriting Agreement.***
3.1 Amended and Restated Certificate of Incorporation of
Company.**
3.2 Restated By-laws of Company.**
4.1 Form of specimen common stock certificate for Common
Stock.**
5 Opinion of Simpson Thacher & Bartlett (a partnership which
includes professional corporations) regarding the legality
of the common stock being registered.***
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- ----------- ---
<C> <S> <C>
10.1 Assumption Agreement, dated as of September 13, 1995,
between Kemper Corporation and EVEREN Securities
(incorporated by reference to Exhibit 10.6 to the
Registrant's Current Report on Form 8-K dated September 13,
1995 and filed with the Securities and Exchange Commission
on September 27, 1995 ("Form 8-K")).*
10.2 Employment Agreement, dated as of September 13, 1995,
between the Company and James R. Boris, as amended effective
March 28, 1996 (incorporated by reference to Exhibit 10.7 to
the Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996 ("Form 10-K")).*
10.3 Employment Agreement, dated as of September 13, 1995,
between the Company and Stephen G. McConahey, as amended
effective March 28, 1996 (incorporated by reference to
Exhibit 10.8 to the Form 10-K).*
10.4 The EVEREN Capital Corporation 401(k) and Employee Stock
Ownership Trust (incorporated by reference to Exhibit 10.9
to the Form 8-K).*
10.5 The EVEREN Capital Corporation 401(k) and Employee Stock
Ownership Plan (incorporated by reference to Exhibit 10.10
to the Form 8-K).*
10.6 The EVEREN Capital Corporation 1995 Stock Plan dated as of
September 13, 1995.**
10.7 Form of Indemnification Agreement, between the Company and
the directors of the Company.**
10.8 Tax Sharing Agreement, dated as of September 13, 1995,
between the Company and Kemper Corporation (incorporated by
reference to Exhibit 10.13 to the Form 8-K).*
10.9 EVEREN Capital Corporation 1995 Non-employee Directors Plan,
as amended.**
10.10 Stock Award Agreement, dated as of January 8, 1996, by and
between the Company and William M. Daley (incorporated by
reference to Exhibit 10.23 to the Form 10-K).*
10.11 Stock Award Agreement, dated as of January 8, 1996, by and
between the Company and William T. Esrey (incorporated by
reference to Exhibit 10.24 to the Form 10-K).*
10.12 Stock Award Agreement, dated as of January 8, 1996, by and
between the Company and Homer J. Livingston, Jr.
(incorporated by reference to Exhibit 10.25 to the Form
10-K).*
10.13 Stock Award Agreement, dated as of January 8, 1996, by and
between the Company and William C. Springer (incorporated by
reference to Exhibit 10.26 to the Form 10-K).*
10.14 Stock Transfer Restriction Agreement, dated as of January 8,
1996, by and between the Company and William M. Daley
(incorporated by reference to Exhibit 10.27 to the Form 10-
K).*
10.15 Stock Transfer Restriction Agreement, dated as of January 8,
1996, by and between the Company and William T. Esrey
(incorporated by reference to Exhibit 10.28 to the Form 10-
K).*
10.16 Stock Transfer Restriction Agreement, dated as of January 8,
1996, by and between the Company and Homer J. Livingston,
Jr. (incorporated by reference to Exhibit 10.29 to the Form
10-K).*
10.17 Stock Transfer Restriction Agreement, dated as of January 8,
1996, by and between the Company and William C. Springer
(incorporated by reference to Exhibit 10.30 to the Form 10-
K).*
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- ----------- ---
<C> <S> <C>
10.18 Employment Agreement, dated as of February 16, 1996, between
the Company and Stanley R. Fallis (incorporated by reference
to Exhibit 10.31 to the Form 10-K).*
10.19 Employment Agreement, dated as of February 22, 1996, between
the Company and David M. Greene (incorporated by reference
to Exhibit 10.33 to the Form 10-K).*
10.20 Employment Agreement, dated as of February 15, 1996, between
the Company and Arthur J. McGivern (incorporated by
reference to Exhibit 10.34 to the Form 10-K).*
10.21 Employment Agreement, dated as of February 15, 1996, between
the Company and Janet L. Reali (incorporated by reference to
Exhibit 10.35 to the Form 10-K).*
10.22 Employment Agreement, dated as of February 16, 1996, between
the Company and Thomas R. Reedy (incorporated by reference
to Exhibit 10.36 to the Form 10-K).*
10.23 Employment Agreement, dated as of February 20, 1996, between
the Company and John G. Sullivan (incorporated by reference
to Exhibit 10.37 to the Form 10-K).*
10.24 Employment Agreement, dated as of February 15, 1996, between
the Company and Daniel D. Williams (incorporated by
reference to Exhibit 10.38 to the Form 10-K).*
10.25 Joint Venture Agreement dated as of July 25, 1996 among the
Company, Mentor and certain of their affiliates
(incorporated by reference to Exhibit 10.1 to Form 10-Q
dated July 30, 1996 and filed with the Securities and
Exchange Commission on July 30, 1996).*
10.26 Form of Rights Agreement, dated , 1996, between the
Company and .**
10.27 Amendment to the EVEREN Capital Corporation 1995 Stock
Plan.**
11.0 Statement regarding computation of per share earnings.***
16.0 Letter re change in certifying accountant.**
21 Subsidiaries of the Registrant (incorporated by reference to
Exhibit 21.0 to the
Form 10-K).*
23.1 Consent of Deloitte & Touche LLP.**
23.2 Consent of KPMG Peat Marwick LLP.**
23.3 Consent of Simpson Thacher & Bartlett (included in their
opinion filed as Exhibit 5).
24 Powers of Attorney (included in the signature pages of this
Registration Statement).
</TABLE>
- --------
*Previously filed.
**Filed herewith.
***To be filed by Amendment.
(b) FINANCIAL STATEMENT SCHEDULES
The following financial statement schedules not included in the
prospectus appear on the following pages of this Registration Statement:
<TABLE>
<CAPTION>
PAGE SCHEDULE
---- --------
<C> <S>
S-1 Independent Auditors' Report
S-2 Independent Auditors' Report
S-3 Valuation and Qualifying Accounts.
</TABLE>
II-4
<PAGE>
All other schedules are omitted as the required information is included
in the Registrant's consolidated financial statements or the related notes
or such schedules are not applicable.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions described under Item 14
above, or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by a registrant of expenses incurred or paid by a director, officer or
controlling person of such registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT TO THE REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
CHICAGO, STATE OF ILLINOIS, ON THE 6TH DAY OF SEPTEMBER, 1996.
EVEREN Capital Corporation
/s/ James R. Boris
By: _________________________________
James R. Boris
Chairman of the Board and Chief
Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
TO THE REGISTRATION STATEMENT HAS BEEN SIGNED ON SEPTEMBER 6, 1996 BY THE
FOLLOWING PERSONS IN THE CAPACITIES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ James R. Boris Chairman of the Board, Chief Executive
___________________________________________ Officer and Director (Principal Executive
(James R. Boris) Officer)
* President, Chief Operating Officer and
___________________________________________ Director
(Stephen G. McConahey)
* Director
___________________________________________
(William M. Daley)
* Director
___________________________________________
(William T. Esrey)
* Director
___________________________________________
(Homer J. Livingston, Jr.)
* Director
___________________________________________
(William C. Springer)
/s/ Daniel D. Williams Senior Executive Vice President, Treasurer,
___________________________________________ and Chief Financial Officer (Principal
(Daniel D. Williams) Financial Officer)
/s/ Thomas M. Mansheim Senior Vice President, Controller and Chief
___________________________________________ Accounting Officer (Principal Accounting
(Thomas M. Mansheim) Officer)
</TABLE>
<TABLE>
<S> <C>
*Janet L. Reali
___________________________________________
(Attorney-in-Fact)
</TABLE>
II-6
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
EVEREN Capital Corporation
We have audited the consolidated financial statements of EVEREN Capital
Corporation and subsidiaries as of December 31, 1995, and for the year ended
December 31, 1995, and have issued our report thereon dated February 23, 1996
(March 28, 1996, as to the second paragraph of Note 23); such report is
included elsewhere in this Registration Statement. Our audit also included the
consolidated financial statement schedule, Valuation and Qualifying Accounts
for the year ended December 31, 1995, of EVEREN Capital Corporation, listed in
Item 14 of this Registration Statement. This consolidated financial statement
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion based on our audit. In our opinion, such consolidated
financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
Deloitte & Touche LLP
Chicago, Illinois
February 23, 1996
S-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
EVEREN Capital Corporation, as successor corporation to and parent of EVEREN
Securities Holdings, Inc.
(formerly Kemper Securities Holdings, Inc.):
Under the date of May 5, 1995, we reported on the consolidated statement of
financial condition of Kemper Securities Holdings, Inc. and subsidiaries as of
December 31, 1994, and the related consolidated statements of earnings,
changes on stockholder's equity and cash flows for each of the years in the
two-year period ended December 31, 1994, included elsewhere in this
registration statement. In connection with our audits of the aforementioned
consolidated financial statements, we also audited the related financial
statement schedule as of December 31, 1994 and for each of the years in the
two year period ended December 31, 1994. This financial statement schedule is
the responsibility of the Company's management. Our responsibility is to
express an opinion on this financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly,
in all material respects, the information set forth therein.
KPMG Peat Marwick LLP
Chicago, Illinois
May 5, 1995
S-2
<PAGE>
SCHEDULE II
EVEREN CAPITAL CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
DESCRIPTION 1995 1994 1993
- ----------- ------- ------- -------
<S> <C> <C> <C>
Asset valuation reserves:
Balance at beginning of period....................... $11,797 $12,407 $13,366
Additions-provisions for losses...................... 1,411 702 1,999
Deductions(1)........................................ 3,180 1,312 2,958
------- ------- -------
Balance at end of period............................. $10,028 $11,797 $12,407
======= ======= =======
</TABLE>
- --------
(1) These deductions represent the net effect on the valuation reserves of
write-downs and recoveries.
S-3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------- ----------- ----------
<C> <S> <C>
1.1 Form of Underwriting Agreement.***
3.1 Amended and Restated Certificate of Incorporation of
Company.**
3.2 Restated By-laws of Company.**
4.1 Form of specimen common stock certificate for Common
Stock, par value $.01.**
5 Opinion of Simpson Thacher & Bartlett (a partnership
which includes professional corporations) regarding the
legality of the common stock being registered.***
10.1 Assumption Agreement, dated as of September 13, 1995,
between Kemper Corporation and EVEREN Securities
(incorporated by reference to Exhibit 10.6 to the
Registrant's Current Report on Form 8-K dated September
13, 1995 and filed with the Securities and Exchange
Commission on September 27, 1995 ("Form 8-K")).*
10.2 Employment Agreement, dated as of September 13, 1995,
between the Company and James R. Boris, as amended
effective March 28, 1996 (incorporated by reference to
Exhibit 10.7 to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1996 ("Form
10-K")).*
10.3 Employment Agreement, dated as of September 13, 1995,
between the Company and Stephen G. McConahey, as amended
effective March 28, 1996 (incorporated by reference to
Exhibit 10.8 to the Form 10-K).*
10.4 The EVEREN Capital Corporation 401(k) and Employee Stock
Ownership Trust (incorporated by reference to Exhibit
10.9 to the Form 8-K).*
10.5 The EVEREN Capital Corporation 401(k) and Employee Stock
Ownership Plan (incorporated by reference to Exhibit
10.10 to the Form 8-K).*
10.6 The EVEREN Capital Corporation 1995 Stock Plan dated as
of September 13, 1995.**
10.7 Form of Indemnification Agreement, between the Company
and the directors of the Company.**
10.8 Tax Sharing Agreement, dated as of September 13, 1995,
between the Company and Kemper Corporation (incorporated
by reference to Exhibit 10.13 to the Form 8-K).*
10.9 EVEREN Capital Corporation 1995 Non-employee Directors
Plan, as amended.**
10.10 Stock Award Agreement, dated as of January 8, 1996, by
and between the Company and William M. Daley
(incorporated by reference to Exhibit 10.23 to the Form
10-K).*
10.11 Stock Award Agreement, dated as of January 8, 1996, by
and between the Company and William T. Esrey
(incorporated by reference to Exhibit 10.24 to the Form
10-K).*
10.12 Stock Award Agreement, dated as of January 8, 1996, by
and between the Company and Homer J. Livingston, Jr.
(incorporated by reference to Exhibit 10.25 to the Form
10-K).*
10.13 Stock Award Agreement, dated as of January 8, 1996, by
and between the Company and William C. Springer
(incorporated by reference to Exhibit 10.26 to the Form
10-K).*
10.14 Stock Transfer Restriction Agreement, dated as of January
8, 1996, by and between the Company and William M. Daley
(incorporated by reference to Exhibit 10.27 to the Form
10-K).*
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------- ----------- ----------
<C> <S> <C>
10.15 Stock Transfer Restriction Agreement, dated as of January
8, 1996, by and between the Company and William T. Esrey
(incorporated by reference to Exhibit 10.28 to the
Form 10-K).*
10.16 Stock Transfer Restriction Agreement, dated as of January
8, 1996, by and between the Company and Homer J.
Livingston, Jr. (incorporated by reference to Exhibit
10.29 to the Form 10-K).*
10.17 Stock Transfer Restriction Agreement, dated as of January
8, 1996, by and between the Company and William C.
Springer (incorporated by reference to Exhibit 10.30 to
the Form 10-K).*
10.18 Employment Agreement, dated as of February 16, 1996,
between the Company and Stanley R. Fallis (incorporated
by reference to Exhibit 10.31 to the Form 10-K).*
10.19 Employment Agreement, dated as of February 22, 1996,
between the Company and David M. Greene (incorporated by
reference to Exhibit 10.33 to the Form 10-K).*
10.20 Employment Agreement, dated as of February 15, 1996,
between the Company and Arthur J. McGivern (incorporated
by reference to Exhibit 10.34 to the Form 10-K).*
10.21 Employment Agreement, dated as of February 15, 1996,
between the Company and Janet L. Reali (incorporated by
reference to Exhibit 10.35 to the Form 10-K).*
10.22 Employment Agreement, dated as of February 16, 1996,
between the Company and Thomas R. Reedy (incorporated by
reference to Exhibit 10.36 to the Form 10-K).*
10.23 Employment Agreement, dated as of February 20, 1996,
between the Company and John G. Sullivan (incorporated by
reference to Exhibit 10.37 to the Form 10-K).*
10.24 Employment Agreement, dated as of February 15, 1996,
between the Company and Daniel D. Williams (incorporated
by reference to Exhibit 10.38 to the Form 10-K).*
10.25 Joint Venture Agreement dated as of July 25, 1996 among
the Company, Mentor and certain of their affiliates
(incorporated by reference to Exhibit 10.1 to Form 10-Q
dated July 30, 1996 and filed with the Securities and
Exchange Commission on July 30, 1996).*
10.26 Form of Rights Agreement, dated as of , 1996, between
the Company and .**
10.27 Amendment to the EVEREN Capital Corporation 1995 Stock
Plan.**
11.0 Statement regarding computation of per share earnings.***
16.0 Letter re change in certifying accountant.**
21 Subsidiaries of the Registrant (incorporated by reference
to Exhibit 21.0 to the Form 10-K).*
23.1 Consent of Deloitte & Touche LLP.**
23.2 Consent of KPMG Peat Marwick LLP.**
23.3 Consent of Simpson Thacher & Bartlett (included in their
opinion filed as Exhibit 5).
24 Powers of Attorney (included in the signature pages of
this Registration Statement).
</TABLE>
- --------
*Previously filed.
**Filed herewith.
***To be filed by Amendment.
2
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
EVEREN CAPITAL CORPORATION
1. The name of the corporation is EVEREN Capital Corporation.
2. The original Certificate of Incorporation was filed with the
Secretary of State of the State of Delaware on May 11, 1995 under the name NS
Securities Inc. An Amendment to the original Certificate of Incorporation was
filed with the Secretary of State of the State of Delaware on May 22, 1995. On
July 7, 1995 an amendment to the Certificate of Incorporation was filed changing
the corporation's name to CAPMARC, Inc. On July 28, 1995 an amendment to the
Certificate of Incorporation was filed changing the corporation's name to EVEREN
Capital Corporation. On September 13, 1995, an amendment to the Certificate of
Incorporation was filed.
3. This Amended and Restated Certificate of Incorporation has been
duly proposed by resolutions adopted and declared advisable by the Board of
Directors of the corporation, duly adopted by written consent of the sole
stockholder of the corporation in lieu of a meeting and vote and duly executed
and acknowledged by the officers of the corporation in accordance with the
provisions of Sections 103, 228, 242 and 245 of the General Corporation Law of
the State of Delaware.
4. The text of the Certificate of Incorporation of the corporation is
hereby amended and restated to read in its entirety as follows:
ARTICLE I
The name of the corporation (which is hereinafter referred to as the
"Corporation") is:
EVEREN Capital Corporation
ARTICLE II
The registered office and registered agent of the Corporation in the
State of Delaware is The Prentice-Hall Corporation System, Inc. 32 Loockerman
Square Suite L-100, Dover, Delaware, Kent County 19904
ARTICLE III
The purpose of the Corporation shall be to engage in any lawful act or
activity for which corporations may be
<PAGE>
2
organized and incorporated under the General Corporation Law of the State of
Delaware.
ARTICLE IV
The total number of shares of capital stock which the Corporation
shall have authority to issue is one hundred and ten million (110,000,000)
shares which shall be divided into classes as follows: ten million (10,000,000)
shares of Preferred Stock, par value $.01 per share ("Preferred Stock"), and one
hundred million (100,000,000) shares of Common Stock, par value $.01 per share
("Common Stock").
The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized to provide for the issuance
of shares of Preferred Stock in series and, by filing a certificate pursuant to
the applicable law of the State of Delaware (hereinafter referred to as a
"Preferred Stock Designation"), to establish from time to time the number of
shares to be included in each such series, and to fix the designation, powers,
preferences and rights of the shares of each such series and the qualifications,
limitations and restrictions thereof. The authority of the Board of Directors
with respect to each series shall include, but not be limited to, determination
of the following:
(a) The designation of the series, which may be by distinguishing
number, letter or title.
(b) The number of shares of the series, which number the Board of
Directors may thereafter (except where otherwise provided in the Preferred
Stock Designation) increase or decrease (but not below the number of shares
thereof then outstanding).
(c) Whether dividends, if any, shall be cumulative or noncumulative
and the dividend rate of the series.
(d) The dates at which dividends, if any, shall be payable.
(e) The redemption rights and price or prices, if any, for shares of
the series.
(f) The terms and amount of any sinking fund provided for the purchase
or redemption of shares of the series.
(g) The amounts payable on shares of the series in the event of any
voluntary or involuntary liquidation, dissolution or winding up of the
affairs of the Corporation.
(h) Whether the shares of the series shall be convertible into shares
of any other class or series, or any
<PAGE>
3
other security, of the Corporation or any other corporation, and, if so,
the specification of such other class or series or such other security, the
conversion price or prices or rate or rates, any adjustments thereof, the
date or dates as of which such shares shall be convertible and all other
terms and conditions upon which such conversion may be made.
(i) Restrictions on the issuance of shares of the same series or of
any other class or series.
(j) The voting rights, if any, of the holders of shares of the series.
(k) The manner in which any facts ascertainable outside the Preferred
Stock Designation shall operate upon the voting powers, designations,
preferences, rights and qualifications, limitations or restrictions of such
series.
The Common Stock shall be subject to the express terms of the
Preferred Stock and any series thereof. The holders of shares of Common Stock
shall be entitled to one vote for each such share upon all questions presented
to the stockholders.
Except as may be provided in this Amended and Restated Certificate of
Incorporation or in a Preferred Stock Designation, the Common Stock shall have
the exclusive right to vote for the election of directors and for all other
purposes, and holders of Preferred Stock shall not be entitled to receive notice
of any meeting of stockholders at which they are not entitled to vote.
The Corporation shall be entitled to treat the person in whose name
any share of its stock is registered as the owner thereof for all purposes and
shall not be bound to recognize any equitable or other claim to, or interest in,
such share on the part of any other person, whether or not the Corporation shall
have notice thereof, except as expressly provided by applicable law.
ARTICLE V
The business and affairs of the Corporation shall be managed by or
under the direction of its Board of Directors. In furtherance of, and not in
limitation of, the powers conferred by law, the Board of Directors is expressly
authorized and empowered:
(a) to adopt, amend or repeal the By-Laws of the Corporation;
provided, however, that the By-Laws adopted by the Board of Directors under
the powers hereby conferred may be amended or repealed by the Board of
Directors or by the stockholders having voting power with respect thereto;
provided further that in the case of amendments by stockholders, the
affirmative vote of the holders of at
<PAGE>
4
least 75 percent of the voting power of the then outstanding Voting Stock,
voting together as a single class, shall be required to alter, amend or
repeal any provision of the By-Laws (notwithstanding the fact that a lesser
percentage may be specified by the General Corporation Law of the State of
Delaware); and
(b) from time to time to determine whether and to what extent, and at
what times and places, and under what conditions and regulations, the
accounts and books of the Corporation, or any of them, shall be open to
inspection of stockholders; and, except as so determined or as so provided
in any Preferred Stock Designation, no stockholder shall have any right to
inspect any account, book or document of the Corporation other than such
rights as may be conferred by applicable law.
The Corporation may in its By-Laws confer powers upon the Board of
Directors in addition to the foregoing and in addition to the powers and
authorities expressly conferred upon the Board of Directors by applicable law.
Notwithstanding anything contained in this Amended and Restated Certificate of
Incorporation to the contrary, the affirmative vote of the holders of at least
75 percent of the then outstanding Voting Stock, voting together as a single
class, shall be required to amend, repeal or adopt any provision inconsistent
with paragraph (a) of this Article V. For the purposes of this Amended and
Restated Certificate of Incorporation, "Voting Stock" shall mean the outstanding
shares of capital stock of the Corporation entitled to vote generally in the
election of directors.
ARTICLE VI
Subject to the rights of the holders of any series of Preferred Stock
as set forth in a Preferred Stock Designation to elect additional directors
under specific circumstances, any action required or permitted to be taken by
the stockholders of the Corporation must be effected at a duly called annual or
special meeting of stockholders of the Corporation and may not be effected by
any consent in writing of such stockholders. Notwithstanding anything contained
in this Amended and Restated Certificate of Incorporation to the contrary, the
affirmative vote of at least 75 percent of the then outstanding Voting Stock,
voting together as a single class, shall be required to amend, repeal, or adopt
any provision inconsistent with this Article VI. For purposes of all meetings
of stockholders, a quorum shall consist of a majority of the shares entitled to
vote at such meeting of stockholders, unless otherwise required by law.
<PAGE>
5
ARTICLE VII
SECTION 1. Number, Election and Terms of Directors. Subject to the
rights of the holders of any series of Preferred Stock as set forth in a
Preferred Stock Designation to elect additional directors under specified
circumstances, the number of directors of the Corporation shall be fixed by, or
in the manner provided in, the By-Laws of the Corporation; provided that such
number of directors shall not be more than eleven.
The directors shall be elected at the annual meeting of the
stockholders and each director elected shall hold office for a term of one year
or until such director's successor is elected and qualified, except as otherwise
provided herein or as required by law. Unless and except to the extent that the
By-Laws of the Corporation shall so require, the election of directors of the
Corporation need not be by written ballot.
SECTION 2. Removal of Directors; Vacancies. Subject to the rights of
the holders of any series of Preferred Stock to elect additional directors under
specified circumstances, any director or the entire Board of Directors may be
removed from office at any time, but only for cause and only by the affirmative
vote of the holders of at least 75 percent of the then outstanding Voting Stock,
voting together as a single class. Any vacancies in the Board of Directors for
any reason and any newly created directorship resulting by reason of any
increase in the number of directors may be filled only by the Board of
Directors, acting by a majority of the remaining directors then in office,
although less than a quorum, or by a sole remaining director, and any directors
so appointed shall hold office until the next annual meeting of stockholders and
until their successors are elected and qualified.
SECTION 3. Amendment. Notwithstanding anything contained in this
Amended and Restated Certificate of Incorporation to the contrary, the
affirmative vote of the holders of at least 75 percent of the then outstanding
Voting Stock, voting together as a single class, shall be required to amend,
repeal or adopt any provision inconsistent with this Article VII.
ARTICLE VIII
Each person who is or was or had agreed to become a director or
officer of the Corporation, or each such person who is or was serving or who had
agreed to serve at the request of the Board of Directors or an officer of the
Corporation as an employee or agent of the Corporation or as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise (including the heirs, executors, administrators or
estate of such person), shall be indemnified by the Corporation, in accordance
with the By-Laws of the Corporation, to the full extent permitted from time to
time
<PAGE>
6
by the General Corporation Law of the State of Delaware as the same exists or
may hereafter be amended (but, in the case of any such amendment, only to the
extent that such amendment permits the Corporation to provide broader
indemnification rights than said law permitted the Corporation to provide prior
to such amendment) or any other applicable laws as presently or hereafter in
effect. Without limiting the generality or the effect of the foregoing, the
Corporation may enter into one or more agreements with any person which provide
for indemnification greater or different than that provided in this Article
VIII. Any amendment or repeal of this Article VIII shall not adversely affect
any right or protection existing hereunder immediately prior to such amendment
or repeal.
ARTICLE IX
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the General Corporation Law of the
State of Delaware, or (iv) for any transaction from which the director derived
an improper personal benefit. If the General Corporation Law of the State of
Delaware is amended to authorize corporate action further eliminating or
limiting the personal liability of directors, then the liability of a director
of the Corporation shall be eliminated or limited to the fullest extent
permitted by the General Corporation Law of the State of Delaware, as so
amended. Any amendment or repeal of this Article IX shall not adversely affect
any right or protection of a director of the Corporation existing immediately
prior to such amendment or repeal.
ARTICLE X
The Corporation reserves the right at any time and from time to time
to amend, alter, change or repeal any provision contained in this Amended and
Restated Certificate of Incorporation or a Preferred Stock Designation, and any
other provisions authorized by the laws of the State of Delaware at the time in
force may be added or inserted, in the manner now or hereafter prescribed herein
or by applicable law, and all rights, preferences and privileges of whatsoever
nature conferred upon stockholders, directors or any other persons whomsoever by
and pursuant to this Amended and Restated Certificate of Incorporation in its
present form or as hereafter amended are granted subject to the right reserved
in this Article X; provided, however, that any amendment or repeal of Article
VIII or Article IX of this Amended and Restated Certificate of Incorporation
shall not adversely affect any right or protection
<PAGE>
7
existing hereunder immediately prior to such amendment or repeal; and provided
further that no Preferred Stock Designation shall be amended after the issuance
of any shares of the series of Preferred Stock created thereby, except in
accordance with the terms of such Preferred Stock Designation and the
requirements of applicable law.
ARTICLE XI
In the event that any of the provisions of this Amended and Restated
Certificate of Incorporation (including any provision within a single Section,
paragraph or sentence) are held by a court of competent jurisdiction to be
invalid, void or otherwise unenforceable, the remaining provisions are severable
and shall remain enforceable to the full extent permitted by law.
<PAGE>
8
THE UNDERSIGNED, being the ___________________ of the Corporation, for
the purpose of amending and restating the Certificate of Incorporation of the
Corporation pursuant to the General Corporation Law of the State of Delaware,
does make this Certificate, hereby declaring and certifying that this is the act
and deed of the Corporation and that the facts herein stated are true, and
accordingly have hereunto set my hand as of the __th day of September, 1996.
EVEREN CAPITAL CORPORATION
By:________________________
Name:
Title:
Attest:___________________
Name:
Title:
<PAGE>
EXHIBIT 3.2
Amended 9/__/96
RESTATED BY-LAWS
OF
EVEREN CAPITAL CORPORATION
Incorporated under the Laws of the State of Delaware
ARTICLE I
OFFICES AND RECORDS
Section 1.1 Delaware Office. The principal office of the Corporation in
the State of Delaware shall be located in the City of Dover, County of Kent, and
the name and address of its registered agent is Prentice-Hall Corporation
System, Inc. 32 Loockerman Square Suite L-100, Dover Delaware 19904.
Section 1.2 Other Offices. The Corporation may have such other offices,
either within or without the State of Delaware, as the Board of Directors may
designate or as the business of the Corporation may from time to time require.
Section 1.3 Books and Records. The books and records of the Corporation
may be kept outside the State of Delaware at such place or places as may from
time to time be designated by the Board of Directors.
ARTICLE II
STOCKHOLDERS
Section 2.1 Annual Meeting. The annual meeting of the stockholders of the
Corporation shall be held on such date, and at such place and time, as may be
fixed by resolution of the Board of Directors.
Section 2.2 Special Meeting. Subject to the rights of the holders of any
series of preferred stock, par value $.01 per share, of the Corporation (the
"Preferred Stock") to elect additional directors under specified circumstances,
special meetings of the stockholders may only be called by the Chairman of the
Board or by the Board of Directors pursuant to a resolution adopted by a
majority of the total number of directors which the Corporation would have if
there were no vacancies (the "Whole Board"). Such special meetings of the
stockholders shall be held at such places, within or without the State of
Delaware, as shall be specified in the respective notices or waivers of notice
thereof.
Section 2.3 Place of Meeting. The Board of Directors may designate the
place of meeting for any meeting of the stockholders. If no designation is made
by the Board of Directors, the place of meeting shall be the principal office of
the Corporation.
<PAGE>
2
Section 2.4 Notice of Meeting. Written or printed notice, stating the
place, day and hour of the meeting and the purpose or purposes for which the
meeting is called, shall be prepared and delivered by the Corporation not less
than ten days nor more than sixty days before the date of the meeting, either
personally or by mail, to each stockholder of record entitled to vote at such
meeting. If mailed, such notice shall be deemed to be delivered when deposited
in the United States mail with postage thereon prepaid, addressed to the
stockholder at his address as it appears on the stock transfer books of the
Corporation. Such further notice shall be given as may be required by law.
Meetings may be held without notice if all stockholders entitled to vote are
present, or if notice is waived by those not present. Any previously scheduled
meeting of the stockholders may be postponed by resolution of the Board of
Directors upon public notice given prior to the date previously scheduled for
such meeting of stockholders.
Section 2.5 Quorum and Adjournment. Except as otherwise provided by law
or by the Amended and Restated Certificate of Incorporation, the holders of a
majority of the outstanding shares of the Corporation entitled to vote generally
in the election of directors (the "Voting Stock"), represented in person or by
proxy, shall constitute a quorum at a meeting of stockholders, except that when
specified business is to be voted on by a class or series voting as a class, the
holders of a majority of the shares of such class or series shall constitute a
quorum for the transaction of such business. The chairman of the meeting or a
majority of the shares so represented may adjourn the meeting from time to time,
whether or not there is such a quorum. No notice of the time and place of
adjourned meetings need be given except as required by law. The stockholders
present at a duly organized meeting may continue to transact business until
adjournment, notwithstanding the withdrawal of enough stockholders to leave less
than a quorum.
Section 2.6 Proxies. At all meetings of stockholders, a stockholder may
vote by proxy executed in writing by the stockholder, or by his duly authorized
attorney-in-fact. Such proxy must be filed with the Secretary of the Corporation
or his representative at or before the time of the meeting.
Section 2.7 Notice of Stockholder Business and Nominations.
(A) Annual Meetings of Stockholders. (1) Nominations of persons for
election to the Board of Directors of the Corporation and the proposal of
business to be considered by the stockholders may be made at a meeting of
stockholders (a) pursuant to the Corporation's notice of meeting delivered
pursuant to Section 2.4 of these By-Laws, (b) by or at the direction of the
Board of Directors or (c) by any stockholder of the Corporation who is entitled
to vote at the meeting, who complied with the notice procedures set forth in
clauses (2) and
<PAGE>
3
(3) of this paragraph (A) and this By-Law and who was a stockholder of record at
the time such notice is delivered to the Secretary of the Corporation.
(2) For nominations or other business to be properly brought before an
annual meeting by a stockholder pursuant to clause (c) of paragraph (A)(1) of
this By-Law, the stockholder must have given timely notice thereof in writing to
the Secretary of the Corporation. To be timely, a stockholder's notice shall be
delivered to the Secretary at the principal executive offices of the Corporation
not less than sixty days nor more than ninety days prior to the first
anniversary of the preceding year's annual meeting (except for the 1996 annual
meeting, for which such notice shall be timely if delivered in accordance with
Section 2.7(B) of these By-Laws); provided, however, that in the event that the
date of the annual meeting is advanced by more than thirty days or delayed by
more than sixty days from such anniversary date, notice by the stockholder to be
timely must be so delivered not earlier than the ninetieth day prior to such
annual meeting and not later than the close of business on the later of the
sixtieth day prior to such annual meeting or the tenth day following the day on
which public announcement of the date of such meeting is first made. Such
stockholder's notice shall set forth (a) as to each person whom the stockholder
proposes to nominate for election or reelection as a director all information
relating to such person that is required to be disclosed in solicitations of
proxies for election of directors, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended
(the "Exchange Act") (including such person's written consent to being named in
the proxy statement as a nominee and to serving as a director if elected); (b)
as to any other business that the stockholder proposes to bring before the
meeting, a brief description of the business desired to be brought before the
meeting, the reasons for conducting such business at the meeting and any
material interest in such business of such stockholder and the beneficial owner,
if any, on whose behalf the proposal is made; and (c) as to the stockholder
giving the notice and the beneficial owner, if any, on whose behalf the
nomination or proposal is made (i) the name and address of such stockholder, as
they appear on the Corporation's books, and of such beneficial owner and (ii)
the class and number of shares of the Corporation which are owned beneficially
and of record by such stockholder and such beneficial owner.
(3) Notwithstanding anything in the second sentence of paragraph (A)(2) of
this By-Law to the contrary, in the event that the number of directors to be
elected to the Board of Directors of the Corporation is increased and there is
no public announcement naming all of the nominees for director or specifying the
size of the increased Board of Directors made by the Corporation at least
seventy days prior to the first anniversary of the preceding year's annual
meeting, a stockholder's notice required by this By-Law shall also be
<PAGE>
4
considered timely, but only with respect to nominees for any new positions
created by such increase, if it shall be delivered to the Secretary at the
principal executive offices of the Corporation not later than the close of
business on the tenth day following the day on which such public announcement is
first made by the Corporation.
(B) Special Meetings of Stockholders. Only such business shall be
conducted at a special meeting of the stockholders as shall be brought before
the meeting pursuant to the Corporation's notice of meeting pursuant to Section
2.4 of these By-Laws. Nominations of persons for election to the Board of
Directors may be made at a special meeting of stockholders at which directors
are to be elected pursuant to the Corporation's notice of meeting (a) by or at
the direction of the Board of Directors or (b) by any stockholder of the
Corporation who is entitled to vote at the meeting, who complies with the notice
procedures set forth in this By-law and who is a stockholder of record at the
time such notice is delivered to the Secretary of the Corporation. Nominations
by stockholders of persons for election to the Board of Directors may be made at
such a special meeting of stockholders if the stockholder's notice required by
paragraph (A)(2) of this By-Law shall be delivered to the Secretary at the
principal executive offices of the Corporation not earlier than the ninetieth
day prior to such special meeting and not later than the close of business on
the later of the sixtieth day prior to such special meeting or the tenth day
following the day on which public announcement is first made of the date of the
special meeting and of the nominees proposed by the Board of Directors to be
elected at such meeting.
(C) General. (1) Only persons who are nominated in accordance with the
procedures set forth in this By-Law shall be eligible to serve as directors and
only such business shall be conducted at a meeting of stockholders as shall have
been brought before the meeting in accordance with the procedures set forth in
this By-Law. Except as otherwise provided by law, the Amended and Restated
Certificate of Incorporation or these By-Laws, the chairman of the meeting shall
have the power and duty to determine whether a nomination or any business
proposed to be brought before the meeting was made in accordance with the
procedures set forth in this By-Law and, if any proposed nomination or business
is not in compliance with this By-Law, to declare that such defective proposal
or nomination shall be disregarded.
(2) For purposes of this By-Law, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service or in a document publicly filed by the
Corporation with the Securities and Exchange Commission pursuant to Section 13,
14 or 15(d) of the Exchange Act.
<PAGE>
5
(3) Notwithstanding the foregoing provisions of this By-Law, a
stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this By-Law. Nothing in this By-Law shall be deemed to affect any
rights of stockholders to request inclusion of proposals in the Corporation's
proxy statement pursuant to Rule 14a-8 under the Exchange Act.
Section 2.8 Procedure for Election of Directors. Election of
directors at all meetings of the stockholders at which directors are to be
elected shall be by written ballot, and, except as otherwise set forth in any
Preferred Stock Designation (as defined in Article IV of the Amended and
Restated Certificate of Incorporation) with respect to the right of the holders
of any series of Preferred Stock to elect additional directors under specified
circumstances, a plurality of the votes cast thereat shall elect. Except as
otherwise provided by law, the Amended and Restated Certificate of
Incorporation, any Preferred Stock Designation, these By-Laws or any resolution
adopted by a majority of the Whole Board, all matters other than the election of
directors submitted to the stockholders at any meeting shall be decided by a
majority of the votes cast with respect thereto.
Section 2.9 Inspectors of Elections; Opening and Closing the Polls.
------------------------------------------------------
(A) The Board of Directors by resolution may appoint one or more
inspectors, which inspector or inspectors may include individuals who serve the
Corporation in other capacities, including, without limitation, as officers,
employees, agents or representatives of the Corporation, to act at the meeting
and make a written report thereof. One or more persons may be designated as
alternate inspectors to replace any inspector who fails to act. If no inspector
or alternate has been appointed to act, or if all inspectors or alternates who
have been appointed are unable to act, at a meeting of stockholders, the
chairman of the meeting shall appoint one or more inspectors to act at the
meeting. Each inspector, before discharging his or her duties, shall take and
sign an oath faithfully to execute the duties of inspector with strict
impartiality and according to the best of his or her ability. The inspectors
shall have the duties prescribed by the General Corporation Law of the State of
Delaware.
(B) The chairman of the meeting shall fix and announce at the meeting
the date and time of the opening and the closing of the polls for each matter
upon which the stockholders will vote at a meeting.
<PAGE>
6
ARTICLE III
BOARD OF DIRECTORS
Section 3.1 General Powers. The business and affairs of the
Corporation shall be managed by or under the direction of its Board of
Directors. In addition to the powers and authorities by these By-Laws expressly
conferred upon them, the Board of Directors may exercise all such powers of the
Corporation and do all such lawful acts and things as are not by law or by the
Amended and Restated Certificate of Incorporation or by these By-Laws required
to be exercised or done by the stockholders.
Section 3.2 Number, Tenure and Qualifications. Subject to the rights
of the holders of any series of Preferred Stock to elect directors under
specified circumstances, the number of directors shall be fixed from time to
time exclusively pursuant to a resolution adopted by a majority of the Whole
Board. The directors shall be elected at the annual meeting of the stockholders
and each director elected shall hold office for a term of one year or until such
director's successor is elected and qualified, except as otherwise provided
herein or in the Amended and Restated Certificate of Incorporation or as
required by law.
Section 3.3 Regular Meetings. A meeting of the Board of Directors
shall be held without other notice than this By-Law immediately after, and at
the same place as, each annual meeting of stockholders. The Board of Directors
may, by resolution, provide the time and place for the holding of additional
regular meetings without other notice than such resolution.
Section 3.4 Special Meetings. Special meetings of the Board of
Directors shall be called at the request of the Chairman of the Board, the
President or a majority of the Board of Directors. The person or persons
authorized to call special meetings of the Board of Directors may fix the place
and time of the meetings.
Section 3.5 Notice. Notice of any special meeting shall be given to
each director at his business or residence in writing or by telephone
communication. If mailed, such notice shall be deemed adequately delivered when
deposited in the United States mails so addressed, with postage thereon prepaid,
at least five days before such meeting. If by telephone, the notice shall be
given at least twelve hours prior to the time set for the meeting. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the Board of Directors need be specified in the notice of such meeting,
except for amendments to these By-Laws, as provided under Section 7.1 of Article
VII hereof. A meeting may be held at any time without notice if all the
directors are present or if those not present
<PAGE>
7
waive notice of the meeting in writing, either before or after such meeting.
Section 3.6 Quorum. A whole number of directors equal to at least a
majority of the Whole Board shall constitute a quorum for the transaction of
business, but if at any meeting of the Board of Directors there shall be less
than a quorum present, a majority of the directors present may adjourn the
meeting from time to time without further notice. The act of the majority of
the directors present at a meeting at which a quorum is present shall be the act
of the Board of Directors. The directors present at a duly organized meeting
may continue to transact business until adjournment, notwithstanding the
withdrawal of enough directors to leave less than a quorum.
Section 3.7 Vacancies. Subject to the rights of the holders of any
series of Preferred Stock, and unless the Board of Directors otherwise
determines, vacancies resulting from death, resignation, retirement,
disqualification, removal from office, an increase in the authorized number of
directors or other cause may be filled only by the affirmative vote of a
majority of the remaining directors, though less than a quorum of the Board of
Directors, or by a sole remaining director. Any director elected in accordance
with the preceding sentence of this Section 3.7 shall hold office for a term
expiring at the next annual meeting of stockholders and until such director's
successor shall have been duly elected and qualified. No decrease in the number
of authorized directors constituting the Whole Board shall shorten the term of
any incumbent director.
Section 3.8 Executive and Other Committees. The Board of Directors
may, by resolution adopted by a majority of the Whole Board, designate an
Executive Committee to exercise, subject to applicable provisions of law, all
the powers of the Board in the management of the business and affairs of the
Corporation when the Board is not in session, including without limitation the
power to declare dividends, to authorize the issuance of the Corporation's
capital stock, and to adopt a certificate of ownership and merger pursuant to
Section 253 of the General Corporation Law of the State of Delaware, and may, by
resolution similarly adopted, designate one or more other committees. The
Executive Committee and each such other committee shall consist of two or more
directors of the Corporation. The Board may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee. Any such committee, other than the
Executive Committee (the powers of which are expressly provided for herein), may
to the extent permitted by law exercise such powers and shall have such
responsibilities as shall be specified in the designating resolution. In the
absence or disqualification of any member of such committee or committees, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not constituting a quorum, may unanimously appoint another
<PAGE>
8
member of the Board to act at the meeting in the place of any such absent or
disqualified member. Each committee shall keep written minutes of its
proceedings and shall report such proceedings to the Board when required.
A majority of any committee may determine its action and fix the time
and place of its meetings, unless the Board shall otherwise provide. Notice of
such meetings shall be given to each member of the committee in the manner
provided for in Section 3.5 of these By-Laws. The Board shall have power at any
time to fill vacancies in, to change the membership of, or to dissolve any such
committee. Except as otherwise provided by law, the presence of a majority of
the then appointed members of a committee shall constitute a quorum for the
transaction of business by that committee, and in every case where a quorum is
present the affirmative vote of a majority of the members of the committee
present shall be the act of the committee.
Section 3.9 Removal. Subject to the rights of the holders of any
series of Preferred Stock to elect additional directors under specified
circumstances, any director, or the entire Board of Directors, may be removed
from office at any time, but only for cause and only by the affirmative vote of
the holders of at least 75 percent of the then outstanding Voting Stock, voting
together as a single class.
ARTICLE IV
OFFICERS
Section 4.1 Elected Officers. The elected officers of the
Corporation shall be a Chairman of the Board, a President, a Secretary, a
Treasurer, and such other officers as the Board of Directors from time to time
may deem proper. The Chairman of the Board shall be chosen from the directors.
All officers chosen by the Board of Directors shall each have such powers and
duties as generally pertain to their respective offices, subject to the specific
provisions of this Article IV. Such officers shall also have such powers and
duties as from time to time may be conferred by the Board of Directors or by any
committee thereof.
Section 4.2 Election and Term of Office. The elected officers of the
Corporation shall be elected annually by the Board of Directors at the regular
meeting of the Board of Directors held after each annual meeting of the
stockholders. If the election of officers shall not be held at such meeting
such election shall be held as soon thereafter as convenient. Subject to
Section 4.7 of these By-Laws, each officer shall hold office until his successor
shall have been duly elected and shall have qualified or until his death or
until he shall resign.
Section 4.3 Chairman of the Board. The Chairman of the Board shall
preside at all meetings of the stockholders and of the Board of Directors. The
Chairman of the Board shall be
<PAGE>
9
responsible for the general management of the affairs of the Corporation and
shall perform all duties incidental to his office which may be required by law
and all such other duties as are properly required of him by the Board of
Directors. Except where by law the signature of the President is required, the
Chairman of the Board shall possess the same power as the President to sign all
certificates, contracts, and other instruments of the Corporation which may be
authorized by the Board of Directors. He shall make reports to the Board of
Directors and the stockholders, and shall perform all such other duties as are
properly required of him by the Board of Directors. He shall see that all orders
and resolutions of the Board of Directors and of any committee thereof are
carried into effect.
Section 4.4 President. The President shall act in a general executive
capacity and shall assist the Chairman of the Board in the administration and
operation of the Corporation's business and general supervision of its policies
and affairs. The President shall, in the absence of or because of the inability
to act of the Chairman of the Board, perform all duties of the Chairman of the
Board and preside at all meetings of stockholders and of the Board of Directors.
The President may sign, alone or with the Secretary, or an Assistant Secretary,
or any other proper officer of the Corporation authorized by the Board of
Directors, certificates, contracts, and other instruments of the Corporation as
authorized by the Board of Directors.
Section 4.5 Secretary. The Secretary shall give, or cause to be
given, notice of all meetings of stockholders and Directors and all other
notices required by law or by these By-Laws, and in case of his or her absence
or refusal or neglect so to do, any such notice may be given by any person
thereunto directed by the Chairman of the Board or the President, or by the
Board of Directors, upon whose request the meeting is called as provided in
these By-Laws. He shall record all the proceedings of the meetings of the Board
of Directors, any committees thereof and the stockholders of the Corporation in
a book to be kept for that purpose, and shall perform such other duties as may
be assigned to him by the Board of Directors, the Chairman of the Board or the
President. He shall have the custody of the seal of the Corporation and shall
affix the same to all instruments requiring it, when authorized by the Board of
Directors, the Chairman of the Board or the President, and attest to the same.
Section 4.6 Treasurer. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate account of
receipts and disbursements in books belonging to the Corporation. The Treasurer
shall deposit all moneys and other valuables in the name and to the credit of
the Corporation in such depositaries as may be designated by the Board of
Directors. The Treasurer shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, the Chairman of the Board, or the President,
taking proper vouchers
<PAGE>
10
for such disbursements. The Treasurer shall render to the Chairman of the Board,
the President and the Board of Directors, whenever requested, an account of all
his transactions as Treasurer and of the financial condition of the Corporation.
If required by the Board of Directors, the Treasurer shall give the Corporation
a bond for the faithful discharge of his duties in such amount and with such
surety as the Board of Directors shall prescribe.
Section 4.7 Removal. Any officer elected by the Board of Directors may
be removed by a majority of the members of the Whole Board whenever, in their
judgment, the best interests of the Corporation would be served thereby. No
elected officer shall have any contractual rights against the Corporation for
compensation by virtue of such election beyond the date of the election of his
successor, his death, his resignation or his removal, whichever event shall
first occur, except as otherwise provided in an employment contract or under an
employee deferred compensation plan.
Section 4.8 Vacancies. A newly created office and a vacancy in any
office because of death, resignation, or removal may be filled by the Board of
Directors for the unexpired portion of the term at any meeting of the Board of
Directors.
ARTICLE V
STOCK CERTIFICATES AND TRANSFERS
Section 5.1 Stock Certificates and Transfers.
(A) The interest of each stockholder of the Corporation shall be
evidenced by certificates for shares of stock in such form as the appropriate
officers of the Corporation may from time to time prescribe. The shares of the
stock of the Corporation shall be transferred on the books of the Corporation by
the holder thereof in person or by his attorney, upon surrender for cancellation
of certificates for the same number of shares, with an assignment and power of
transfer endorsed thereon or attached thereto, duly executed, with such proof of
the authenticity of the signature as the Corporation or its agents may
reasonably require.
(B) The certificates of stock shall be signed, countersigned and
registered in such manner as the Board of Directors may by resolution prescribe,
which resolution may permit all or any of the signatures on such certificates to
be in facsimile. In case any officer, transfer agent or registrar who has signed
or whose facsimile signature has been placed upon a certificate has ceased to be
such officer, transfer agent or registrar before such certificate is issued, it
may be issued by the Corporation with the same effect as if he were such
officer, transfer agent or registrar at the date of issue.
<PAGE>
11
ARTICLE VI
MISCELLANEOUS PROVISIONS
Section 6.1 Fiscal Year. The fiscal year of the Corporation shall
begin on the first day of January and end on the thirty-first day of December of
each year.
Section 6.2 Dividends. The Board of Directors may from time to time
declare, and the Corporation may pay, dividends on its outstanding shares in the
manner and upon the terms and conditions provided by law and its Amended and
Restated Certificate of Incorporation.
Section 6.3 Seal. The corporate seal may bear in the center the emblem
of some object, and shall have enscribed thereunder the words "Corporate Seal"
and around the margin thereof the name of the Corporation and the words "--
Delaware 1995".
Section 6.4 Waiver of Notice. Whenever any notice is required to be
given to any stockholder or director of the Corporation under the provisions of
the General Corporation Law of the State of Delaware, a waiver thereof in
writing, signed by the person or persons entitled to such notice, whether before
or after the time stated therein, shall be deemed equivalent to the giving of
such notice. Neither the business to be transacted at, nor the purpose of, any
annual or special meeting of the stockholders or the Board of Directors need be
specified in any waiver of notice of such meeting.
Section 6.5 Audits. The accounts, books and records of the Corporation
shall be audited upon the conclusion of each fiscal year by an independent
certified public accountant selected by the Board of Directors, and it shall be
the duty of the Board of Directors to cause such audit to be made annually.
Section 6.6 Resignations. Any director or any officer, whether elected
or appointed, may resign at any time by serving written notice of such
resignation on the Chairman of the Board, the President or the Secretary, and
such resignation shall be deemed to be effective as of the close of business on
the date said notice is received by the Chairman of the Board, the President, or
the Secretary, unless otherwise specified in said notice. No formal action shall
be required of the Board of Directors or the stockholders to make any such
resignation effective.
Section 6.7 Indemnification and Insurance. (A) Each person who was or
is made a party or is threatened to be made a party to or is involved in any
action, suit, or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason of the fact that he or she
or a person of whom he or she is the legal representative is
<PAGE>
12
or was a director, officer or employee of the Corporation or is or was serving
at the request of the Corporation as a director, officer, employee or agent of
another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans, whether
the basis of such proceeding is alleged action in an official capacity as a
director, officer, employee or agent or in any other capacity while serving as a
director, officer, employee or agent, shall be indemnified and held harmless by
the Corporation to the fullest extent authorized by the General Corporation Law
of the State of Delaware as the same exists or may hereafter be amended (but, in
the case of any such amendment, only to the extent that such amendment permits
the Corporation to provide broader indemnification rights than said law
permitted the Corporation to provide prior to such amendment), against all
expense, liability and loss (including, without limitation, attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid
in settlement) reasonably incurred or suffered by such person in connection
therewith and such indemnification shall continue as to a person who has ceased
to be a director, officer, employee or agent and shall inure to the benefit of
his or her heirs, executors and administrators; provided, however, that except
as provided in paragraph (B) of this By-Law with respect to proceedings seeking
to enforce rights to indemnification, the Corporation shall indemnify any such
person seeking indemnification in connection with a proceeding (or part thereof)
initiated by such person only if such proceeding (or part thereof) was
authorized by the Board of Directors of the Corporation.
(B) If a claim under paragraph (A) of this By-Law is not paid in full
by the Corporation within thirty days after a written claim has been received by
the Corporation, the claimant may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall be entitled to be paid also the expense of
prosecuting such claim. It shall be a defense to any such action (other than an
action brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition where the required undertaking,
if any is required, has been tendered to the Corporation) that the claimant has
not met the standards of conduct which make it permissible under the General
Corporation Law of the State of Delaware for the Corporation to indemnify the
claimant for the amount claimed, but the burden of proving such defense shall be
on the Corporation. Neither the failure of the Corporation (including its Board
of Directors, independent legal counsel or stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in the General Corporation Law of the
State of Delaware, nor an actual determination by the Corporation (including its
Board of Directors, independent legal counsel or stockholders) that the
<PAGE>
13
claimant has not met such applicable standard of conduct, shall be a defense to
the action or create a presumption that the claimant has not met the applicable
standard of conduct.
(C) Following any "change in control" of the Corporation of the type
required to be reported under Item 1 of Form 8-K promulgated under the Exchange
Act, any determination as to entitlement to indemnification shall be made by
independent legal counsel selected by the claimant, which such independent legal
counsel shall be retained by the Board of Directors on behalf of the
Corporation.
(D) The right to indemnification and the payment of expenses incurred
in defending a proceeding in advance of its final disposition conferred in this
By-Law shall not be exclusive of any other right which any person may have or
hereafter acquire under any statute, provision of the Amended and Restated
Certificate of Incorporation, By-Laws, agreement, vote of stockholders or
disinterested directors or otherwise.
(E) The Corporation may maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of the Corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability or loss
under the General Corporation Law of the State of Delaware.
(F) The Corporation may, to the extent authorized from time to time by
the Board of Directors, grant rights to indemnification, and rights to be paid
by the Corporation the expenses incurred in defending any proceeding in advance
of its final disposition, to any agent of the Corporation to the fullest extent
of the provisions of this By-Law with respect to the indemnification and
advancement of expenses of directors, officers and employees of the Corporation.
(G) The right to indemnification conferred in this By-Law shall be a
contract right and shall include the right to be paid by the Corporation the
expenses incurred in defending any such proceeding in advance of its final
disposition; provided, however, that if the General Corporation Law of the State
of Delaware requires, the payment of such expenses incurred by a director or
officer in his or her capacity as a director or officer (and not in any other
capacity in which service was or is rendered by such person while a director or
officer, including, without limitation, service to an employee benefit plan) in
advance of the final disposition of a proceeding, shall be made only upon
delivery to the Corporation of an undertaking by or on behalf of such director
or officer, to repay all amounts so advanced if it shall ultimately be
determined that such director or officer is not entitled to be indemnified under
this By-Law or otherwise.
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14
ARTICLE VII
AMENDMENTS
Section 7.1 Amendments. These By-Laws may be amended, added to,
rescinded or repealed at any meeting of the Board of Directors or of the
stockholders, provided notice of the proposed change was given in the notice of
the meeting and, in the case of a meeting of the Board of Directors, in a notice
given not less than two days prior to the meeting; provided, however, that, in
the case of amendments by stockholders, notwithstanding any other provisions of
these By-Laws or any provision of law which might otherwise permit a lesser vote
or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the Voting Stock required by law, the Amended and
Restated Certificate of Incorporation, any Preferred Stock Designation or these
By-Laws, the affirmative vote of the holders of at least 75 percent of the then
outstanding Voting Stock, voting together as a single class, shall be required
to alter, amend or repeal any provision of these By-Laws.
<PAGE>
EXHIBIT 4.1
[FRONT SIDE OF STOCK CERTIFICATE]
COMMON STOCK COMMON STOCK
PAR VALUE $.01 PAR VALUE $.01
INCORPORATED UNDER THE LAWS CUSIP 299761
OF THE STATE OF DELAWARE SEE REVERSE FOR
CERTAIN DEFINITIONS
EVEREN CAPITAL CORPORATION
THIS CERTIFICATE IS TRANSFERABLE IN THE CITY OF NEW YORK OR IN CHICAGO
This Certifies that
is the owner of
FULLY PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK, $.01 PAR VALUE PER
SHARE, OF
EVEREN Capital Corporation transferable on the books of the Corporation by the
holder hereof in pension or by duly authorized attorney on surrender of this
certificate properly endorsed. This certificate and the shares represented
hereby are issued by the Corporation and accepted by the holder subject to all
the provisions of the Certificate of Incorporation and of all certificates and
instruments amendatory or supplementary thereto, to all of which the holder by
the acceptance of this certificate assents. This certificate is not valid unless
countersigned by the Transfer Agent and registered by the Registrar.
In Witness Whereof, said Corporation has caused this certificate to be
signed by facsimile by its duly authorized officers and its corporate seal to be
affixed hereto in facsimile.
Dated:
Countersigned and Registered: Signature
HARRIS Trust and Savings BANK CHAIRMAN OF THE BOARD
(Chicago) AND CHIEF EXECUTIVE OFFICER
Transfer Agent
and Registrar,
By Signature
Authorized Signature. SECRETARY
[CORPORATE SEAL]
-------------------
<PAGE>
EVEREN CAPITAL CORPORATION
EVEREN CAPITAL CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER
WHO SO REQUESTS A STATEMENT OF THE POWERS, DESIGNATIONS, PREFERENCES AND
RELATIVE, PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK
OR SERIES THEREOF WHICH THE COMPANY IS AUTHORIZED TO ISSUE AND OF THE
QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS.
SUCH REQUEST SHOULD BE SENT TO THE SECRETARY OF THE CORPORATION AT ITS HOME
OFFICE, OR TO ITS TRANSFER AGENT NAMED ON THE FACE OF THIS CERTIFICATE.
This certificate also evidences and entitles the holder hereof to certain
rights as set forth in a Rights Agreement between EVEREN CAPITAL CORPORATION and
, dated as of , 1996 as the same may be amended
from time to time (the "Rights Agreement"), the terms of which are hereby
incorporated herein by reference and a copy of which is on file at the principal
executive offices of EVEREN CAPITAL CORPORATION. Under certain circumstances, as
set forth in the Rights Agreement, such Rights will be evidenced by separate
certificates and will no longer be evidenced by this certificate. EVEREN CAPITAL
CORPORATION will mail to the holder of this certificate a copy of the Rights
Agreement without charge after receipt of a written request therefor. Under
certain circumstances, as set forth in the Rights Agreement, Rights owned by or
transferred to any Person who becomes an Acquiring Person (as defined in the
Rights Agreement) and certain transferees thereof will become null and void and
will no longer be transferable.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT-______Custodian_______
(Cust) (Minor)
TEN ENT - as tenants by the entireties under Uniform Gifts to Minors
Act
JT TEN - as joint tenants with right --------------------------
of survivorship and not as (State)
tenants in common
Additional abbreviations may also be used though not in the above list.
For value received, __________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
shares of stock represented by the within Certificate, and do hereby irrevocably
constitute and appoint _____________________________________________ Attorney to
transfer the said stock on the books of the within named Corporation with full
power of substitution in the premises.
Dated
-----------------------
AFFIX MEDALLION SIGNATURE
GUARANTEE IMPRINT BELOW
--------------------------------------------------
--------------------------------------------------
ABOVE SIGNATURE(S) TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE
OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER.
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION SUCH AS A SECURITIES
BROKER/DEALER, COMMERCIAL BANK, TRUST COMPANY,
SAVINGS ASSOCIATION OR A CREDIT UNION
PARTICIPATING IN A MEDALLION PROGRAM APPROVED BY
THE SECURITIES TRANSFER ASSOCIATION, INC.
- -------------------------------------- -----------------------------------------
AMERICAN BANKNOTE COMPANY PRODUCTION COORDINATOR PAT STOVER
680 BLAIR MILL ROAD 215-830-2103
HORSHAM, PA 19044 PROOF OF AUGUST 6, 1996
215-657-3480 EVEREN CAPITAL CORPORATION
H44717lot2patch
- -------------------------------------- -----------------------------------------
SALES PERSON - P. SHEERIN Opr. Ir NEW
1-800-261-9196
- -------------------------------------- -----------------------------------------
/home/larry/home 12/EVEREN44717 /net/banknote/home
<PAGE>
EXHIBIT 10.6
THE EVEREN CAPITAL CORPORATION
------------------------------
1995 STOCK PLAN
---------------
1. Preamble
--------
EVEREN Capital Corporation (the "Company") hereby establishes the
EVEREN Capital Corporation 1995 Stock Plan as a means whereby the Company may,
through outright grants of Company shares and awards of (i) incentive stock
options ("ISOs") within the meaning of Section 422 of the Code, (ii) stock
appreciation rights ("SARs"), (iii) nonqualified stock options ("NSOs"), (iv)
restricted stock ("Restricted Stock"), (v) phantom stock ("Phantom Stock") and
(vi) performance units ("Performance Units"):
(a) provide key employees who have substantial responsibility
for the direction and management of the Company with additional incentive
to promote the success of the Company's business;
(b) encourage such employees to remain in the employ of the
Company; and
(c) enable such employees to acquire proprietary interests in the
Company.
The provisions of this Plan do not apply to or affect any option,
stock, stock appreciation right, restricted stock, phantom stock or performance
unit heretofore or hereafter granted under any other stock plan of the Company,
and all such options, stock, stock appreciation rights, restricted stock,
phantom stock or performance units continue to be governed by and subject to
the applicable provisions of the plan under which they were granted.
2. Definitions
-----------
2.01 "Award" means the grant of Common Stock, Nonvoting Common Stock,
Options, SARs, Phantom Stock, Performance Units and/or Restricted Stock to a
Participant. Awards shall be memorialized by agreements which are subject to
the express terms and conditions of the Plan and to such other terms and
conditions, not inconsistent with the Plan, as the Committee may deem
appropriate (including, without limitation, any transfer restrictions which
the Committee may impose).
2.02 "Award Date" means the date upon which a share of Common Stock
or Nonvoting Common Stock or an Option, SAR,
<PAGE>
Phantom Stock, Performance Unit or Restricted Stock is awarded to a Participant
under the Plan.
2.03 "Board" or "Board of Directors" means the board of directors of
the Company.
2.04 "Code" means the Internal Revenue Code of 1986, as it exists now
and as it may be amended from time to time.
2.05 "Committee" means the Board of Directors until such time as the
Board appoints the Compensation Committee. The term shall thereafter refer
to the Compensation Committee of the Board or another committee consisting of
not less than two directors of the Company appointed by the Board, none of whom
shall participate in the Plan and all of whom shall qualify as disinterested
persons within the meaning of Securities and Exchange Commission Regulation
(S)240.16b-3 or any successor regulation. The Committee may delegate to the
Chief Executive Officer of the Company the administration of Awards granted to
participants who are not officers, directors or non-employee consultants of the
Company. Once appointed, the Committee shall continue to serve until otherwise
directed by the Board of Directors.
2.06 "Common Stock" means the common stock of the Company, par value
$.01 per share.
2.07 "Company" means EVEREN Capital Corporation, a Delaware
corporation, and any successor thereto.
2.08 "Employee" means an employee of the Company and its Subsidiaries.
2.09 "Exchange Act" shall mean the Securities Exchange Act of 1934, as
it exists now or from time to time may hereafter be amended.
2.10 "Fair Market Value" as of any day means a good faith
determination of the fair market value of Common Stock or, if applicable, the
Nonvoting Common Stock as of the close of business on that day (but not less
than the fair market value of such stock most recently determined by the
independent financial advisor to the EVEREN Capital Corporation 401(k) and
Employee Stock Ownership Trust).
2.11 "ISO" means incentive stock options within the meaning of Section
422 of the Code.
2.12 "NSO" means nonqualified stock options, which are not intended to
qualify under Section 422 of the Code.
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<PAGE>
2.13 "Nonvoting Common Stock" means the Nonvoting Common Stock of the
Company, par value $.01 per share.
2.14 "Option" means the right of a Participant, whether granted as
an ISO or an NSO, to purchase a specified number of shares of Common Stock or
Nonvoting Common Stock, subject to the terms and conditions of the Plan and the
agreement memorializing the Participant's Award.
2.15 "Option Price" means the price per share of Common Stock or
Nonvoting Common Stock, as applicable, at which an Option may be exercised.
2.16 "Participant" means an individual to whom an Award has been
granted under the Plan.
2.17 "Performance Unit" means a performance unit or a performance
share issued pursuant to Section 11 of the Plan.
2.18 "Phantom Stock" means hypothetical shares of Common Stock or
Nonvoting Common Stock issued as phantom stock under the Plan.
2.19 "Plan" means the EVEREN Capital Corporation 1995 Stock Plan, as
set forth herein and from time to time amended.
2.20 "Restricted Stock" means Common Stock or Nonvoting Common Stock
awarded to a Participant pursuant to this Plan and subject to the restrictions
contained in Section 9 of the Plan.
2.21 "SAR" means a stock appreciation right issued pursuant to Section
8 of the Plan.
2.22 "Subsidiary" means any subsidiary of the Company.
2.23. Rules of Construction
2.23.1 Governing Law. The construction and operation of this Plan
are governed by the laws of the State of Illinois.
2.23.2 Undefined Terms. Unless the context requires another
meaning, any term not specifically defined in this Plan is used in the sense
given to it by the Code.
-3-
<PAGE>
2.23.3 Headings. All headings in this Plan are for reference only
and are not to be utilized in construing the Plan.
2.23.4 Conformity with Section 422. The ISOs issued under this
Plan are intended to qualify as incentive stock options described in Section 422
of the Code and all provisions of the Plan relating to the ISOs shall be
construed in conformity with this intention. The NSOs issued under this Plan are
not intended to qualify as incentive stock options described in Section 422 of
the Code and all provisions of the Plan relating to NSOs shall be construed
in conformity with this intention.
2.23.5 Gender. Unless clearly inappropriate, all nouns of
whatever gender refer indifferently to persons or objects of any gender.
2.23.6 Singular and Plural. Unless clearly inappropriate,
singular terms refer also to the plural and vice versa.
2.23.7 Severability. If any provision of this Plan is determined
to be illegal or invalid for any reason, the remaining provisions are to
continue in full force and effect and to be construed and enforced as if the
illegal or invalid provision did not exist, unless the continuance of the Plan
in such circumstances is not consistent with its purposes.
3. Stock Subject to the Plan
(a) Except as otherwise provided in Section 3(b) below, the aggregate
number of shares that may be issued under Options, as Restricted Stock, as
unrestricted Common Stock or Nonvoting Common Stock, or as payment for SARs or
Phantom Stock Awards through this Plan may not exceed 1,365,469 shares of Common
Stock and 400,000 shares of Nonvoting Common Stock, provided that the number of
Nonvoting Common Stock shares as to which Awards may be made may not at any time
exceed a one percent (1%) equity interest in the Company (measured by reference
to a fraction, the numerator of which shall be the number of Nonvoting Common
Stock shares which may be issued hereunder and the denominator of which shall
equal the aggregate number of outstanding shares of Common Stock and Nonvoting
Common Stock). Reserved shares may be either authorized but unissued shares or
treasury shares, in the Board's discretion. If any Awards of Common Stock,
Nonvoting Common Stock, Options, Restricted Stock, SARs or Phantom Stock
hereunder shall terminate or expire, as to any number of
-4-
<PAGE>
shares, new Common Stock, Nonvoting Common Stock, Options, Restricted Stock,
SARs and Phantom Stock may thereafter be awarded with respect to such shares.
(b) If there is a change in the corporate structure or shares of the
Company, the Committee may make any adjustments necessary to prevent accretion,
or to protect against dilution, in the number and kind of shares authorized by
the Plan and, with respect to outstanding Awards, in the number and kind of
shares covered thereby and in the applicable Option Price. For the purpose of
this Section 3(b), a change in the corporate structure or shares of the Company
includes, without limitation, any change resulting from a recapitalization,
stock split, stock dividend, consolidation, rights offering, separation,
reorganization, or liquidation and any transaction in which shares of Common
Stock or Nonvoting Common Stock are changed into or exchanged for a different
number or kind of shares of stock or other securities of the Company or another
corporation.
4. Administration
The Plan is administered by the Committee. In addition to any other
powers set forth in this Plan, the Committee has the following powers:
(a) to construe and interpret the Plan;
(b) to establish, amend and rescind appropriate rules and regulations
relating to the Plan;
(c) subject to the express provisions of the Plan, to select the
individuals who will receive Awards, the times when they will receive them,
the number of shares of Common Stock, Nonvoting Common Stock, Options,
Restricted Stock, Phantom Stock, Performance Units and/or SARs to be
subject to each Award (provided, however, that no ISO shall be granted
hereunder more than ten (10) years after the date of the adoption of the
Plan by the Board), the number of shares of Common Stock or Nonvoting
Common Stock to be subject to each Option, the vesting schedule and the
Option Price, payment terms, payment method, and expiration date, if any,
applicable to each Award;
(d) to contest on behalf of the Company or Participants, at the
expense of the Company, any ruling or decision on any matter relating to
the Plan or to any Awards;
-5-
<PAGE>
(e) generally, to administer the Plan, and to take all such steps and
make all such determinations in connection with the Plan and the Awards
granted thereunder as it may deem necessary or advisable; and
(f) to determine the form in which payment of a SAR or a Phantom
Stock Award granted hereunder will be made (i.e., cash, Common Stock,
Nonvoting Common Stock or a combination thereof) or to approve a
Participant's election to receive cash in whole or in part in settlement of
the SAR or Phantom Stock Award.
5. Eligible Employees
------------------
Subject to the provisions of the Plan, the Committee shall from time
to time select those key employees of the Company and any subsidiary or
affiliate of the Company who shall be designated as Participants and determine
the number, if any, of shares of Common Stock and/or Nonvoting Common Stock,
ISOs, NSOs, SARs, Restricted Stock, Phantom Stock and Performance Units, or any
combination thereof, to be awarded to each such Participant; provided, however,
that no ISOs, or SARs granted with respect to ISOs, shall be awarded under the
Plan after the expiration of the period of ten years from the date this Plan is
adopted by the Board.
6. Terms and Conditions of Incentive Stock Options
-----------------------------------------------
Each ISO agreement, in such form as is approved by the Committee,
shall be subject to the following express terms and conditions and to such other
terms and conditions, not inconsistent with the Plan, as the Committee may deem
appropriate:
(a) Option Period. Each ISO will expire as of the earliest of:
(i) the date on which it is forfeited under the provisions of
Section 13;
(ii) ten (10) years (or five (5) years as specified in
paragraph (d) below) from the Award Date:
(iii) three (3) months after the Participant's termination of
employment with the Company and its parent and subsidiaries for
any reason other than death or "disability" (within the meaning
of Code Section 23(e)(3) ("Disability");
-6-
<PAGE>
(iv) twelve (12) months after the Participant's death or
Disability; or (v) any other date (within the limits of the Code)
specified by the Committee when the ISO is granted.
(b) Option Price. Subject to the provisions of paragraph (d) below,
the Option Price shall be determined by the Committee at the time an ISO is
granted, and shall not be less than the Fair Market Value of the Common
Stock or Nonvoting Common Stock on the Award Date.
(c) Other Option Provisions. The form of ISO authorized by the Plan
may contain such other provisions as the Committee may, from time to time,
determine; provided, however, that such other provisions may not be
inconsistent with any requirements imposed on incentive stock options under
code Section 422 and related Treasury regulations.
(d) Awards to Certain Stockholders. Notwithstanding paragraphs (a) and
(b) above, if an ISO is granted to a Participant who, immediately before
the grant of the ISO, owns stock representing more than 10 percent of the
total combined voting power of all classes of stock of the Company or its
parent or subsidiary corporations, the exercise period specified in the
option agreement for which the ISO thereunder is granted shall not exceed
five years from the Award Date, and the Option Price shall be at least 110
percent of the Fair Market Value (as of the Award Date) of the stock
subject to the ISO.
7. Terms and Conditions of Nonqualified Stock Options
--------------------------------------------------
Each NSO agreement, in such form as is approved by the Committee,
shall be subject to the following express terms and conditions and to such other
terms and conditions, not inconsistent with the Plan, as the Committee may deem
appropriate:
(a) Option Period. Unless the Committee specifies otherwise in the
provisions of any Award, each NSO will expire as of the earliest of:
(i) the date on which it is forfeited under the provisions of
Section 13;
(ii) ten (10) years from the Award Date;
-7-
<PAGE>
(iii) three (3) months after the Participant's termination of
employment with the Company and its parent and Subsidiaries for
any reason other than death, Disability or normal retirement (as
defined by any combination of years and service equalling seventy
(70)) ("Normal Retirement");
(iv) three (3) years after the Participant's Normal Retirement
or Disability;
(v) twelve (12) months after the Participant's death; or
(vi) any other date (within the limits of the Code) specified by
the Committee in the Participant's Award when the NSO is granted.
(b) Option Price. At the time granted, the Committee will fix the
Option Price, which (unless the Committee specified otherwise in the
provisions of any Award) will be no less than eighty-five percent (85%) of
the Fair Market Value of the Common Stock or Nonvoting Common Stock shares
subject to the NSO on the Award Date.
(c) Other Option Provisions. The form of NSO authorized by the Plan
may contain such other provisions as the Committee may from time to time
determine.
8. Terms and Conditions of Stock Appreciation Rights
-------------------------------------------------
The Committee may, in its discretion, grant a SAR to any Participant
under the Plan. Each SAR shall be evidenced by an agreement between the Company
and the Participant, and may (but need not necessarily) relate to and be
associated with all or any part of a specific ISO or NSO. A SAR shall entitle
the Participant to whom it is granted the right, so long as such SAR is
exercisable and subject to such limitations as the Committee shall have imposed,
to surrender any then exercisable portion of the Participant's SAR and, if
applicable, the related ISO or NSO, in whole or in part. Should such a surrender
occur, the Participant shall receive from the Company in exchange, without any
payment of cash (except for applicable employee withholding taxes), that number
of shares of Common Stock or Nonvoting Common Stock having an aggregate Fair
Market Value on the date of surrender equal to the product of (i) the excess of
the Fair Market Value of a share of Common Stock or Nonvoting Common Stock (as
determined by the Committee and evidenced in the Award) on the date of surrender
over the Fair Market Value of a share of
-8-
<PAGE>
Common Stock or Nonvoting Common Stock on the date the SARs were issued, or, if
the SARs are related to an ISO or an NSO, the per share Option Price under such
ISO or NSO on the Award Date, and (ii) the number of shares of Common Stock or
Nonvoting Common Stock subject to such SAR, and, if applicable, the related ISO
or NSO or portion thereof which is surrendered. Whether Common Stock or
Nonvoting Common Stock will be received pursuant to the immediately preceding
sentence will depend on whether the SAR and, if applicable, the related ISO or
NSO, pertain to Common Stock or to Nonvoting Common Stock. Notwithstanding
anything stated in this paragraph, the Committee, in its sole discretion, may
allow the Company to settle all or part of the Company's obligation arising out
of the exercise of a SAR by the payment of cash equal to the aggregate Fair
Market Value of the shares of Common Stock or Nonvoting Common Stock which the
Company would otherwise be obligated to deliver.
A SAR granted in conjunction with an ISO or NSO shall terminate on the
same date as the related ISO or NSO and shall be exercisable only if the Fair
market Value of a share of Common Stock (or, as applicable, Nonvoting Common
Stock) exceeds the Option Price for the related ISO or NSO, and then shall be
exercisable to the extent, and only to the extent, that the related ISO or NSO
is exercisable. The Committee may at the time of granting any SAR add such
additional conditions and limitations to the SAR as it shall deem advisable,
including, but not limited to, limitations on the period or period within which
the SAR shall be exercisable and the maximum amount of appreciation to be
recognized with regard to such SAR. Should a Participant become (or be) subject
to Section 16(a) and Section 16(b) of the Exchange Act, the Committee may at any
time add such additional conditions and limitations to such SAR which, in its
discretion, the Committee deems necessary or desirable in order to comply with
such Section 16(a) or Section (b) and the rules and regulations issued
thereunder, or in order to obtain any exemption therefrom. Any ISO or NSO
portion thereof which is surrendered with a SAR shall no longer be exercisable.
9. Terms and Conditions of Restricted Stock Awards
-----------------------------------------------
All shares of Common Stock or Nonvoting Common Stock awarded to
Participants under the Plan as Restricted Stock shall be subject to the
following express terms and conditions and to such other terms and conditions,
not inconsistent with the Plan, as the Committee shall deem appropriate:
(a) Restricted Period. Shares of Restricted Stock awarded to
Participants may not be sold, assigned,
-9-
<PAGE>
transferred, pledged or otherwise encumbered before they vest. Subject to
the provisions of paragraph (b) below and any other restrictions imposed by
law, any shares of Restricted Stock that vest will be transferred, subject
only to the restrictions set forth in Section 20, to the Participant or, in
the event of his death, to the beneficiary or beneficiaries designated by
writing filed by the Participant with the Committee for such purpose or, if
none, to his estate. Delivery of shares in accordance with the preceding
sentence shall be made within the thirty-day period after they vest.
(b) Forfeitures. A Participant shall forfeit all unpaid accumulated
dividends and all shares of Restricted Stock which have not vested prior to
the date that his employment with the Company is terminated for any reason.
(c) Certificates Deposited With Company. Each certificate issued in
respect of shares of Restricted Stock awarded under the Plan shall be
registered in the name of the Participant and deposited with the Company.
Each such certificate shall bear the following (or a similar) legend:
"The transferability of this certificate and the shares of stock
represented hereby are subject to the terms and conditions (including
forfeiture) relating to Restricted Stock contained in the EVEREN
Capital Corporation 1995 Stock plan and an Agreement entered into
between the registered owner and EVEREN Capital Corporation. Copies of
such Plan and Agreement are on file at the principal office of EVEREN
Capital Corporation.
This certificate and the shares represented hereby are also
subject to transfer restrictions contained in an agreement dated
_____________, 199_ by and among the Company and certain of its
shareholders, a copy of which is on file with the Secretary of the
Company. The agreement is binding upon the heirs, personal
representatives, successors and assigns of the registered holder
hereof."
(d) Stockholder Rights. Subject to the foregoing restrictions, each
Participant shall have all the rights of a stockholder with respect to his
shares of Restricted Stock including, but not limited to, the right to vote
and to receive dividends on such shares.
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<PAGE>
10. Terms and Conditions of Phantom Stock
-------------------------------------
The Committee may, in its discretion, award Phantom Stock to any
Participant under the Plan. Each Award of Phantom Stock shall be evidenced by
an agreement between the Company and the Participant. An Award of Phantom Stock
shall entitle the Participant to whom it is awarded the right to elect at any
time, so long as such Phantom Stock is vested and subject to such limitations as
the Committee shall have imposed, to surrender, in whole or in part, any then
vested portion of the Phantom Stock awarded and receive from the Company in
exchange the then Fair Market Value of the Common Stock or Nonvoting Common
Stock to which the surrendered Phantom Stock relates, payable either in cash or
in shares of Common Stock or Nonvoting Common Stock as the Committee may
determine. The Committee may at the time of awarding any Phantom Stock add such
additional conditions and limitations to the Phantom Stock as it shall deem
advisable, including, but not limited to, limitations on the period or periods
within which the Phantom Stock may be surrendered, and the maximum amount of
appreciation to be recognized with regard to such Phantom Stock.
11. Terms and Conditions of Performance Units
-----------------------------------------
Performance Units which are awarded hereunder shall be credited to a
Performance Unit Account to be maintained for the Participant receiving the
Award. Every Award of Performance Units shall be memorialized in a written
agreement (an "Award Agreement"). Subject to the next succeeding sentence, and
unless otherwise provided in a Participant's Award Agreement, each Performance
Unit shall be deemed to be equivalent in value to one share of Common Stock or
Nonvoting Common Stock as specified in the Award (measured as of the date the
Performance Unit is granted). The terms and conditions of any particular Award
of Performance Units may be varied without limitation, by the Committee, except
as otherwise provided herein. The Committee may also, in its sole discretion,
substitute other forms of awards (such as Restricted Stock) for Performance
Units if, in the Committee's opinion, such substitution will not result in any
significant increase in the cost of the Plan to the Company. No award or
Performance Units under the Plan shall entitle any recipient to any dividend,
voting or any other shareholder rights with respect to such Performance Units.
Payment for Performance Units shall be in cash and/or shares of Common
or Nonvoting Common Stock (as determined by the Committee and described in the
Award). A Participant shall no right to receive payment for any part of the
-11-
<PAGE>
Participant's Performance Units and all of the Participant's Performance Units
shall be forfeited unless the Performance Units become vested pursuant to
Section 13 below. The extent to which a Participant receives payment of all or
part of the Performance Units granted in an Award shall be determined by the
degree to which the cumulative annual growth in the Company's consolidated
earnings per share ("EPS") and/or where appropriate, subsidiary, group or
division performance, meets certain objectives (specified in the Award
Agreement) during the Award period to which the grant applies.
The extent to which any one measure of performance will affect a
Participant's payment may vary according to the Participant's assigned
responsibilities during the Award period. However, depending on the particular
terms of a Participant's Award Agreement, a portion of the payment of a
Performance Unit Award for any Participant may depend upon performance against
the Company's EPS objectives. The Committee shall have the right to add, delete
or approve different EPS growth objectives for each Plan Period and/or for any
Performance Unit Award.
No payments will be made to Participants prior to the end of an Award
period (as defined in the Participant's Award Agreement). Payment of
Performance Units shall be made as soon as practicable after the end of the
period which determines a Participant's right to receive such payment.
The Committee may at the time of awarding any Performance Units add
such additional conditions and limitations to the Performance Units as it shall
then deem advisable.
12. Manner of Exercise of Options
-----------------------------
To exercise a Participant's Options in whole or in part, a Participant
(or, after his death, his executor or administrator) must give written notice to
the Committee, stating the number of shares with respect to which he intends to
exercise the Options. The Company will issue the shares with respect to which
the Option(s) is or are exercised upon payment in full or the Option Price. The
Committee may permit the Option Price to be paid in cash or shares of Common
Stock (or if the Option relates to Nonvoting Common Stock, in shares of
Nonvoting Common Stock) held by the Participant having an aggregate Fair Market
Value, as determined on the date of delivery, equal to the Option Price. The
Committee may also permit the Option Price to be paid by any other method
permitted by law, including by delivery to the Committee from the Participant of
an election directing the Company to
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<PAGE>
withhold from the shares of Common Stock or Nonvoting Common Stock the
Participant would have otherwise received upon exercise of the Participant's
Options the number of shares of Common Stock or Nonvoting Common Stock having an
aggregate Fair Market Value on the exercise date equal to the Option Price. If
a Participant pays the Option Price with shares of Common Stock or Nonvoting
Common Stock which were received by the Participant upon exercise of one or more
ISOs, and such Common Stock or Nonvoting Common Stock has not been held by the
Participant for at least the greater of:
(a) two years from the date the ISOs were granted, or
(b) one year after the transfer of the shares of Common Stock or
Nonvoting Common Stock to the Participant,
the use of the shares shall constitute a disqualifying disposition and the ISO
underlying the shares used to pay the Option Price shall no longer satisfy all
of the requirements of Code Section 422.
13. Vesting
-------
A Participant may not exercise an Option or surrender a Phantom Stock
share, a SAR or a Performance Unit until it has become vested. Similarly, no
share of Restricted Stock may be sold, transferred, reassigned, pledged or
otherwise encumbered or disposed of until it is vested. The portion of an Award
of Options, SARs, Restricted Stock, Phantom Stock and/or Performance Units that
is vested depends upon the period that has elapsed since the Award Date. The
following vesting schedules apply to any Award of Options, SARs, Restricted
Stock, Phantom Stock and/or Performance Units under the Plan unless the
Committee establishes a different vesting schedule on the Award Date:
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<TABLE>
<CAPTION>
Vested Percentage (Where
Participant Has Been Employed by
the Company (or an Affiliated
Number of December 31 Predecessor Corporation) (As
Calendar Year Ends ("Year Determined by the Committee) on
Ends") Which Have Occurred Less Than Five Consecutive Year
Since Award Date Ends as of the Award Date)
- -------------------------- ---------------------------------
<S> <C>
Fewer than two 0%
Two but fewer than three 25%
Three but fewer than four 50%
Four but fewer than five 75%
Five or more 100%
</TABLE>
<TABLE>
<CAPTION>
Vested Percentage (Where
Participant Has Been Employed by
the Company (or an Affiliated
Predecessor Corporation) (As
Number of Year Ends Determined by the Committee) on
Which Have Occurred Five or More Consecutive Year
Since Award Date Ends as of the Award Date)
- -------------------------- ---------------------------------
<S> <C>
Fewer than two 0%
Two but fewer than three 25%
Three or more 100%
</TABLE>
Notwithstanding anything herein to the contrary, unless otherwise provided in a
Participant's Award, all Awards will become vested and exercisable upon the
effective date of a "change of control" and will remain exercisable during the
thirty (30) days following the effective date of the change of control. For
purposes of this Plan, a "change of control" of the Company shall be deemed to
have occurred upon the first to occur of any of the following events (or any
other event recognized in writing by the Committee as constituting a "change in
control"):
(a) any consolidation or merger of the Company in which the Company is
not the continuing or surviving corporation or pursuant to which shares of
the Company's Common Stock would be converted into cash, securities or
other property, other than any consolidation or merger of the Company in
which the holders of the Company's Common Stock immediately prior to the
consolidation or merger have the same proportionate ownership of common
stock of the surviving corporation immediately after the consolidation or
merger; or
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<PAGE>
(b) any sale, lease, exchange or other transfer (in one transaction or
a series of related transactions) of all, or substantially all, of the
assets of the Company, other than any sale, lease, exchange or other
transfer to any entity where the Company owns, directly or indirectly, at
least eighty percent (80%) of the outstanding voting securities of such
entity after any such transfer; or
(c) any liquidation or dissolution of the Company; or
(d) the date any person (as such term is used in Section 13(d) of the
Securities Exchange Act of 1934, hereinafter the "1934 Act"), other than or
more trusts established by the Company or a Subsidiary for the benefit of
employees of the Company or its Subsidiaries, shall become the beneficial
owner (within the meaning of Rule 13d-3 under the 1934 Act) of twenty
percent (20%) or more of the Company's outstanding Common Stock; or
(e) the failure, during any period of twenty-four (24) consecutive
months, of those individuals who at the beginning of such period constitute
the entire Board for any reason to constitute a majority thereof unless the
election, or the nomination for election by the Company's stockholders, of
each new director comprising the majority was approved by a vote of at
least a majority of the Continuing Directors as hereinafter defined, in
office on the date of such election or nomination for election of the new
director. For purposes hereof, a "Continuing Director" shall mean:
(1) any member of the Board immediately following the
consummation of the "KSOP Purchase" (as defined in the prospectus
included in the Registration Statement on Form S-1 filed by the
Company with the Securities and Exchange Commission (File No. 33-
92686) or
(2) any director elected, or nominated for election by the
Company's stockholders to fill any vacancy or newly created
directorship on the Board by a majority of the Continuing Directors
then still in office.
If a Participant terminates employment with the Company for any reason, he
forfeits any Awards that are not yet vested. A transfer from the Company to a
Subsidiary or affiliate, or vice versa, is not a termination of employment for
purposes of this Plan.
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<PAGE>
14. Nontransferability of Awards
----------------------------
Awards granted under the Plan shall not be transferable other than by
will or the laws of descent and distribution and each Award shall be exercisable
during the Participant's lifetime only by the Participant or the Participant's
guardian or legal representative. Notwithstanding the foregoing, at the
discretion of the Committee, an Award may permit its transfer by the Participant
solely to members of the Participant's immediate family (as defined by the
Committee) or trusts or family partnerships for the benefit of such persons
subject to such terms and conditions as may be established by the Committee.
15. Rights as Stockholder
---------------------
No Common Stock or Nonvoting Common Stock may be delivered upon the
exercise of any Option until full payment has been made. A Participant has no
rights whatsoever as a stockholder with respect to any shares covered by an
Option until the date of the issuance of a stock certificate for the shares.
16. Withholding Tax
---------------
The Company shall be entitled to withhold the amount of any tax
attributable to any payments made under the Plan after giving the Award
recipient notice as far in advance as practicable and the Company may defer
making delivery as to any Award if any such tax is payable until indemnified to
its satisfaction. The Committee may, in its discretion and subject to rules
which it may adopt, permit a Participant to pay all or a portion of the taxes
arising in connection with any Award under the Plan by making a direct payment
to the Company or by electing to have the Company withhold shares of Common
Stock or Nonvoting Common Stock from the shares otherwise deliverable to the
Participant, having a Fair Market Value equal to the amount to be withheld.
17. No Right to Employment
----------------------
Participation in the Plan will not give any Participant a right to be
retained as an employee of the Company, or any right or claim to any benefit
under the Plan, unless the right or claim has specifically accrued under the
Plan.
-16-
<PAGE>
18. Amendment of the Plan
---------------------
The Board of Directors may from time to time amend or revise the terms
of this Plan in whole or in part and may, without limitation, adopt any
amendment deemed necessary; provided, however, that (a) no change in any Award
previously granted to a Participant may be made that would impair the rights of
the Participant without the Participant's consent, (b) no amendment may extend
the period in which a Participant may exercise an ISO beyond the period set
forth in Section 6(a)(ii), and (c) the Board of Directors may not, without
approval by the holders of a majority of the shares of the Company present at a
stockholders meeting, (i) change the aggregate number of shares that may be
granted outright as Common Stock or Nonvoting Common Stock or pursuant to
Options, Restricted Stock, SARs and Phantom Stock awarded under the Plan (except
in accordance with the provisions of Section 14), (ii) change the class of
eligible employees who may receive Awards under the Plan, (iii) adopt any
amendment affecting the Option Price at which Options may be granted, or (iv)
materially increase benefits accruing to Participants under the Plan.
19. Stockholder Approval
--------------------
Operation of the Plan shall be subject to approval by the stockholders
of the Company within twelve months before or after the date the Plan is adopted
by the Board of Directors in accordance with Rule 16b-3(b) of the Exchange Act.
If such stockholder approval is obtained at duly held stockholders' meeting, it
may be obtained by the affirmative vote of the holders of a majority of the
shares of the Company present at the meeting or represented and entitled to vote
thereon.
If such stockholder approval is obtained by written consent, it must
be obtained by the unanimous written consent of all stockholders of the Company.
20. Conditions Upon Issuance of Shares
----------------------------------
An Option shall not be exercisable, a share of Common Stock or
Nonvoting Common Stock shall not be issued pursuant to an outright grant or the
exercise of an Option, or the settlement of a SAR of Phantom Stock and
Restricted Stock shall not be awarded (Level too high) until such time as the
Plan has been approved by the stockholders of the Company and (Level too high)
unless the award of Common Stock, Nonvoting Common Stock or Restricted Stock, or
the exercise of such Option, the settlement of a SAR or share of Phantom Stock
and
-17-
<PAGE>
the issuance and delivery of such share pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange, if any, upon which the
share of Common Stock or Nonvoting Common Stock may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the share of Common Stock (or, if applicable, Nonvoting
Common Stock) is being purchased only for investment and without any present
intention to sell or distribute such share if, in the opinion of counsel for the
Company, such a representation is required by any of the aforementioned relevant
provisions of law.
21. Effective Date and Termination Date
-----------------------------------
21.01. Effective Date. This Plan is effective as of the later of the
date of its adoption by the Board of Directors, or the date it is approved by
the stockholders of the Company, pursuant to Section 20.
21.02. Termination of the Plan. The Board of Directors may terminate
the Plan at any time with respect to shares that are not then subject to
outright grants, Options, Restricted Stock, SARs or Phantom Stock. Termination
of the Plan will not affect the rights and obligations of any Participant with
respect to Awards before termination.
-18-
<PAGE>
EXHIBIT 10.7
DIRECTOR INDEMNIFICATION AGREEMENT
----------------------------------
This INDEMNIFICATION AGREEMENT made and entered into this ____ day of
___ 1996 ("Agreement"), by and between EVEREN Capital Corporation, a Delaware
corporation ("Company"), and __________________ ("Indemnitee");
WHEREAS, highly competent persons are becoming more reluctant to serve
in publicly-held corporations as directors or in other capacities unless they
are provided with adequate protection through insurance and indemnification
against inordinate risk of claims and actions against them arising out of their
service to and activities on behalf of the corporation; and
WHEREAS, the current difficulties or virtual impossibility of
obtaining adequate insurance and uncertainties relating to indemnification have
increased the difficulty of attracting and retaining such persons;
WHEREAS, The Board of Directors has determined that the inability to
attract and retain such persons is detrimental to the best interests of the
Company's stockholders and that the Company should act to assure such persons
that there will be increased certainty of such protection in the future; and
WHEREAS, it is reasonable, prudent and necessary for the Company
contractually to obligate itself to indemnify such persons to the fullest extent
permitted by applicable law so that they will serve or continue to serve the
Company free from undue concern that they will not be so indemnified; and
WHEREAS, Indemnitee is willing to serve, continue to serve and to take
on additional service for or on behalf of the Company on the condition that the
Indemnitee be so indemnified;
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Company and Indemnitee do hereby covenant and agree as
follows:
Section 1. Services by Indemnitee. Indemnitee agrees to serve as a
director of the Company and agrees to the indemnification provisions provided
for herein. Indemnitee may at any time and for any reason resign from such
position (subject to any other contractual obligation or other obligation
imposed by operation of law), in which event the Company shall have no
obligation under this Agreement to continue Indemnitee in any such position.
Section 2. Indemnification. The Company shall indemnify Indemnitee
to the fullest extent permitted by applicable law in effect on the date hereof
or as such laws may from time to time be amended. Without diminishing the scope
of the indemnification of Indemnitee provided by this Section 2, the
<PAGE>
2
rights of indemnification of Indemnitee provided hereunder shall include but
shall not be limited to those rights set forth hereinafter, except to the extent
expressly prohibited by applicable law.
Except as provided hereunder with respect to proceedings to enforce
all rights to indemnification and advancement of expenses, the Company shall
indemnify Indemnitee in connection with a proceeding (or part hereof) initiated
by such Indemnitee only if such proceeding (or part hereof) was authorized by
the Board of Directors of the Company.
Section 3. Action of Proceeding Other Than an Action by or in the
Right of the Company. Indemnitee shall be entitled to the indemnification
rights provided in this section if the Indemnitee is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of the Company) by reason of the fact that he is or
was a director, officer, employee or agent of the Company or is or was serving
at the request of the Company as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise.
Pursuant to this section Indemnitee shall be indemnified against expenses
(including attorney's fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Company, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful.
Section 4. Actions by or in the Right of the Company. Indemnitee
shall be entitled to the indemnification rights provided in this section if the
Indemnitee is a person who was or is made a party or is threatened to be made a
party to any threatened, pending or completed action or suit by him by or in the
right of the Company to procure a judgment in its favor by reason of the fact
that he is or was a director, officer, employee or agent of the Company, or is
or was serving at the request of the Company as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise. Pursuant to this section Indemnitee shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Company and except that no indemnification shall be made
in respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Company unless and only to the extent that the
Court of Chancery of the State of Delaware or the court in which such action or
suit was brought shall determine upon application that, despite such
adjudication of liability but in view of all the
<PAGE>
3
circumstances of the case, such person is fairly and reasonably entitled to
Indemnification of such expenses as such court shall deem proper.
Section 5. Indemnification for Costs, Charges and Expenses of
Successful Party. Notwithstanding the other provisions of this Agreement, to
the extent that Indemnitee has served as a witness on behalf of the Company or
has been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Sections 3 and 4 hereof, or in defense of any claim,
issue or matter therein, he shall be indemnified against all expenses (including
attorneys' fees) actually and reasonably incurred by him in connection
therewith.
Section 6. Partial Indemnification. If Indemnitee is only partially
successful in the defense of any action, suit or proceeding described in
Sections 3 or 4 hereof, and as a result is not entitled under Section 5 hereof
to indemnification by the Company for the total amount of the expenses
(including attorneys' fees) actually and reasonably incurred, the Company shall
nevertheless indemnify him, as a matter of right pursuant to Section 5 hereof,
to the extent he has been partially successful.
Section 7. Determination of Entitlement to Indemnification. Upon
written request by Indemnitee for Indemnification pursuant to Section 3 or 4
hereof, the entitlement of Indemnitee to indemnification pursuant to the terms
of this Agreement shall be determined by the following person or persons who
shall be empowered to make such determination: (a) the Board of Directors of
the Company by a majority vote of the Disinterested Directors (as hereinafter
defined), even if less than a quorum; or (b) if such a quorum is not obtainable,
or, even if obtainable, if such Disinterested Directors so direct, by
Independent Counsel (as hereinafter defined) in a written opinion; or (c) by the
stockholders. Such Independent Counsel shall be selected by the Board of
Directors and approved by Indemnitee. Upon failure of the Board to so select
such Independent Counsel or upon failure of Indemnitee to so approve, such
Independent Counsel shall be selected by the Chancellor of the State of Delaware
or such other person as the Chancellor shall designate to make such selection.
Such determination of entitlement to indemnification shall be made no later than
60 days after receipt by the Company of a written request for Indemnification.
Such request shall include documentation or information which is necessary for
such determination and which is reasonably available to Indemnitee. Any costs
or expenses (including attorneys' fees) incurred by Indemnitee in connection
with the Indemnitee's request for indemnification hereunder shall be borne by
the Company. The Company hereby indemnifies and agrees to hold indemnitee
harmless therefrom irrespective of the outcome of the determination of
Indemnitee's entitlement to Indemnification. If the person making such
determination shall determine that Indemnitee is
<PAGE>
4
entitled to indemnification as to part (but not all) of the application for
indemnification, such person shall reasonably prorate such partial
indemnification among such claims, issues or matters.
Section 8. Presumptions and Effect of Certain Proceedings. The
Secretary of the Company shall, promptly upon receipt of Indemnitee's request
for indemnification, advise in writing the Board of Directors or such other
person or persons empowered to make the determination as provided in Section 7
that Indemnitee has made such request for Indemnification. Upon making such
request for indemnification, Indemnitee shall be presumed to be entitled to
indemnification hereunder and the Company shall have the burden of proof in the
making of any determination contrary to such presumption. If the person or
persons so empowered to make such determination shall have failed to make the
requested indemnification within 60 days after receipt by the Company of such
request, the requisite determination of entitlement to indemnification shall be
deemed to have been made and Indemnitee shall be absolutely entitled to such
indemnification, absent actual and material fraud in the request for
indemnification. The termination of any action, suit, or proceeding described
in sections 3 or 4 hereof by judgment, order, settlement or conviction, or upon
a plea of nolo contendere or its equivalent, shall not, of itself create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Company, and, with respect to any criminal action or proceeding, had reasonable
cause to believe that his conduct was unlawful.
Section 9. Advancement of Expenses and Costs. All reasonable
expenses (including attorney's fees) incurred by Indemnitee in defending any
civil, criminal, administrative or investigative action, suit or proceeding
shall be paid by the Company in advance of the final disposition of such action,
suit or proceeding at the request of Indemnitee within twenty days after the
receipt by the Company of a statement or statements from Indemnitee requesting
such advance or advances from time to time. Indemnitee's entitlement to such
expenses shall include those incurred in connection with any proceeding by
Indemnitee seeking an adjudication pursuant to this Agreement. Such statement
or statements shall reasonably evidence the expenses and costs incurred in
connection therewith and shall include or be accompanied by an undertaking by or
on behalf of Indemnitee to repay such amount if it is ultimately determined that
Indemnitee is not entitled to be indemnified against such expenses and costs by
the Company as provided by this Agreement or otherwise.
Section 10. Remedies of Indemnitee in cases of Determination not to
Indemnify or to Advance Expenses. In the event that a determination is made
that the Indemnitee is not entitled to indemnification hereunder or if payment
has not been timely made following a determination of entitlement to
<PAGE>
5
indemnification pursuant to Sections 7 and 8, or if expenses are not advanced
pursuant to Section 9, Indemnitee shall be entitled to a final adjudication in
an appropriate court of the State of Delaware or any other court of competent
jurisdiction of the Indemnitee's entitlement to such indemnification or advance.
The Company shall not oppose Indemnitee's right to seek any such adjudication or
any other claim. Such judicial proceeding shall be made de novo and Indemnitee
shall not be prejudiced by reason of a determination (if so made) that the
Indemnitee is not entitled to indemnification. If a determination is made or
deemed to have been made pursuant to the terms of Section 7 or Section 8 hereof
that Indemnitee is entitled to indemnification, the Company shall be bound by
such determination and is precluded from asserting that such determination has
not been made or that the procedure by which such determination was made is not
valid, binding and enforceable. The Company further agrees to stipulate in any
such court that the Company is bound by all the provisions of this agreement and
is precluded from making any assertion to the contrary. If the court shall
determine that Indemnitee is entitled to any Indemnification hereunder, the
Company shall pay all reasonable expenses (including attorneys' fees) and costs
actually incurred by Indemnitee in connection with such adjudication (including,
but not limited to, any appellate proceedings).
In any suit brought by the Indemnitee to enforce a right to
indemnification or to an advancement of expenses hereunder, or by the Company to
recover an advancement of expenses pursuant to the terms of an undertaking, the
burden of proving that the Indemnitee is not entitled to be indemnified, or to
such advancement of expenses, under this Agreement shall be on the Company.
Section 11. Other Rights to Indemnification. The Indemnification
and advancement of expenses provided by this Agreement shall not be deemed
exclusive of any other rights to which Indemnitee may be entitled under any
bylaw, agreement, vote of stockholders or Disinterested Directors or otherwise,
both as to action in his official capacity and as to action in another capacity
while holding such office.
Section 12. Attorneys' Fees and Other Expenses to Enforce Agreement.
In the event that Indemnitee is subject to or intervenes in any proceeding in
which the validity or enforceability of this Agreement is at issue or seeks an
adjudication or award in arbitration to enforce the Indemnitee's rights under,
or to recover damages for breach of, this Agreement, Indemnitee, if the
Indemnitee prevails in whole or in part in such action, shall be entitled to
recover from the Company and shall be indemnified by the Company against, any
actual expenses for attorneys' fees and disbursements reasonably incurred.
<PAGE>
6
Section 13. Duration of Agreement. This Agreement shall continue
until and terminate upon the later of: (a) ten years after Indemnitee has ceased
to occupy any of the positions or have any of the relationships described in
Sections 3 or 4 of this Agreement; (b) the final termination of all pending or
threatened actions, suits, proceedings or investigations with respect to
Indemnitee. This Agreement shall be binding upon the Company and its successors
and assigns and shall inure to the benefit of Indemnitee and Indemnitee's
spouse, assigns, heirs, devisees, executors, administrators or other legal
representatives.
Section 14. Severability. If any provision or provisions of this
Agreement shall be held to be invalid, illegal or unenforceable for any reason
whatsoever: (a) the validity, legality and enforceability of the remaining
provisions of this Agreement (including without limitation, all portions of any
paragraphs of this Agreement containing any such provisions held to be invalid,
illegal or unenforceable, that are not themselves invalid, illegal or
unenforceable) shall not in any way be affected or impaired thereby; and (b) to
the fullest extent possible, the provisions of this Agreement (including,
without limitation, all portions of any paragraph of this Agreement containing
any such provision held to be invalid, illegal or unenforceable, that are not
themselves invalid, illegal or unenforceable) shall be construed so as to give
effect to the intent manifested by the provision held invalid, illegal or
unenforceable.
Section 15. Identical Counterparts. This Agreement may be executed
in one or more counterparts, each of which shall for all purposes be deemed to
be an original but all of which together shall constitute one and the same
Agreement. Only one such counterpart signed by the party against whom
enforceability is sought needs to be produced to evidence the existence of this
Agreement.
Section 16. Headings. The headings of the paragraphs of this
Agreement are inserted for convenience only and shall not be deemed to
constitute part of this Agreement or to affect the construction thereof.
Section 17. Definitions. For purposes of this Agreement:
(a) "Disinterested Director" shall mean a director of the Company who
is not or was not a party to the action, suit, investigation or proceeding in
respect of which indemnification is being sought by Indemnitee.
(b) "Independent Counsel" shall mean a law firm or a member of a law
firm that neither is presently nor in the past five years has been retained to
represent: (i) the Company or Indemnitee in any matter material to either such
party, or (ii)
<PAGE>
7
any other party to the action, suit, investigation or proceeding giving rise to
a claim for indemnification hereunder. Notwithstanding the foregoing, the term
"Independent Counsel" shall not include any person who, under the applicable
standards of professional conduct then prevailing, would have a conflict of
interest in representing either the Company or Indemnitee in an action to
determine Indemnitee's right to indemnification under this Agreement.
Section 18. Modification. No supplement, modification or amendment
of this Agreement shall be binding unless executed in writing by both of the
parties hereto. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provisions hereof (whether or
not similar) nor shall such waiver constitute a continuing waiver.
Section 19. Notice by Indemnitee. Indemnitee agrees promptly to
notify the Company in writing upon being served with any summons, citation,
subpoena, complaint, indictment, information or other document relating to any
matter which may be subject to indemnification covered hereunder, either civil,
criminal or investigative.
Section 20. Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if (i) delivered by hand and receipted for by the party to whom said
notice or other communication shall have been directed or if (ii) mailed by
certified or registered mail with postage prepaid, on the third business day
after the date on which it is so mailed.
(a) If to Indemnitee to:
_____________________
_____________________
_____________________
(b) If to the Company, to:
EVEREN Capital Corporation
77 West Wacker Drive
Chicago, Illinois 60601
Attention: General Counsel
or to such other address as may have been furnished to Indemnitee by the Company
or to the Company by Indemnitee, as the case may be.
Section 21. Governing Law. The parties agree that this Agreement
shall be governed by, and construed and enforced in accordance with, the laws of
the State of Delaware.
<PAGE>
8
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
INDEMNITEE EVEREN CAPITAL CORPORATION
__________________________ By:________________________
Its:
<PAGE>
EXHIBIT 10.9
EVEREN CAPITAL CORPORATION
1995 NON-EMPLOYEE DIRECTORS PLAN
(AS AMENDED AND RESTATED EFFECTIVE AS OF THE ADOPTION DATE)
1. Preamble
WHEREAS, EVEREN Capital Corporation (the "Company") established the EVEREN
Capital Corporation 1995 Non-employee Directors Plan (the "Prior Plan") as a
means whereby (but subject to the terms set forth below) the Company may,
through awards of (i) Common Stock and (ii) nonqualified stock options ("NSOs"):
(a) provide non-employee directors of the Company's Board of Directors
("Non-employee Directors") with additional incentive to promote the success
of the Company's business;
(b) enable Non-employee Directors to acquire proprietary interests in
the Company; and
(c) provide a method to attract and retain Non-employee Directors and
reinforce their role in enhancing shareholder value.
WHEREAS, Section 15 of the "Prior Plan" provided that the Board of
Directors could from time to time amend and revise the Prior Plan, provided
that:
(a) no change of any Award previously granted to a Participant would
impair the rights of the Participant without the Participant's consent; and
(b) the Board of Directors could not, without a described shareholder
approval,
(i) change the aggregate number of shares of Common Stock that
could be granted outright or pursuant to Options under the
Prior Plan,
(ii) change the class of eligible Directors who could receive
awards under the Prior Plan,
(iii) adopt any amendment affecting the Options Price at which
Options could be granted or
(iv) materially increase benefits accruing to Participants
under the Prior Plan.
WHEREAS, the Board of Directors now wishes to amend, revise and restate the
Prior Plan in a manner (i) which will not require the consent of any Participant
and (ii) as to which shareholder approval as described in Section 15 of the
Prior Plan will be obtained.
NOW, THEREFORE, the Prior Plan is hereby amended and restated in its
entirety, effective as of the Prior Plan's original adoption date (with the
amended, revised and restated Prior Plan being known hereafter as the "Plan").
The provisions of the Plan do not apply to or affect any Common Stock option, or
other forms of stock-based compensation heretofore or hereafter granted under
any other stock-based plan of the Company or any Subsidiary, and all forms of
stock-based compensation
<PAGE>
continue to be governed by and subject to the applicable provisions of the plan
under which they were granted.
2. Definitions
2.1 "Award" means the grant of Common Stock or Options to a Participant.
2.2 "Award Date" means the dated upon which a share of Common Stock or an
Option is awarded to a Participant under the Plan.
2.3 "Board" or "Board of Directors" means the board of directors of the
Company.
2.4 "Code" means the Internal Revenue Code of 1986, as it exists now and
as it may be amended from time to time.
2.5 "Committee" means the Board of Directors.
2.6 "Common Stock" means the common stock of the Company, par value $.01
per share.
2.7 "Company" means EVEREN Capital Corporation, a Delaware corporation,
and any successor thereto.
2.8 "Director" means a member of the Company's Board of Directors.
2.9 "Employee" means an employee of the Company and its Subsidiaries.
2.10 "Exchange Act" shall mean the Securities Exchange Act of 1934, as it
exists now or from time to time may hereafter be amended.
2.11 "Fair Market Value" means as of any day a good faith determination of
the fair market value of Common Stock as of the close of business on that day
(but not less than the fair market value of such stock most recently determined
by the independent financial advisor to the EVEREN Capital Corporation 401(k)
and Employee Stock Ownership Trust).
2.12 "Non-employee Director" means a non-employee director of the Company's
Board.
2.13 "NSO" means nonqualified stock options, which are not intended to
qualify under Section 422 of the Code.
2.14 "Option" means the right of a Participant, pursuant to the terms of an
Award of NSOs, to purchase a specified number of shares of Common Stock, subject
to the terms and conditions of the Plan and the agreement memorializing the
Participant's Award.
2.15 "Option Price" means the price per share of Common Stock at which an
Option may be exercised.
2.16 "Participant" means an individual to whom an Award has been granted
under the Plan.
2.17 "Plan" means the EVEREN Capital Corporation 1995 Non-employee
Directors Plan, as set forth herein and from time to time amended.
<PAGE>
2.18 "Stock Payment" means the portion of a Non-employee Director's annual
retainer or meeting fee to be paid in shares of Common Stock, as provided in
Section 7 hereof.
2.19 "Subsidiary" means any subsidiary of the Company.
2.20 Rules of Construction
2.21 Governing Law. The construction and operation of this Plan are
governed by the laws of the State of Illinois.
2.22 Undefined Terms. Unless the context requires another meaning, any
term not specifically defined in this Plan is used in the sense given to it by
the Code.
2.23 Headings. All headings in this Plan are for reference only and are not
to be utilized in construing the Plan.
2.24 NSOs Not Incentive Stock Options. The NSOs issued under this Plan are
not intended to qualify as incentive stock options described in Section 422 of
the Code and all provisions of the Plan relating to NSOs shall be construed in
conformity with this intention.
2.25 Gender. Unless clearly inappropriate, all nouns of whatever gender
refer indifferently to persons or objects of any gender.
2.26 Singular and Plural. Unless clearly inappropriate, singular terms
refer also to the plural and vice versa.
2.27 Severability. If any provision of this Plan is determined to be
illegal or invalid for any reason, the remaining provisions are to continue in
full force and effect and to be construed and enforced as if the illegal or
invalid provision did not exist, unless the continuance of the Plan in such
circumstances is not consistent with its purposes.
3. Stock Subject to the Plan
-------------------------
(a) Except as otherwise provided in Section 3(b) below, no more than
60,000 shares of Common Stock may be granted outright or issued upon the
exercise of Options awarded under the Plan. Reserved shares may be either
authorized but unissued shares or treasury shares, in the Board's
discretion. If any Awards of Options hereunder shall terminate or expire,
as to any number of shares, new Options may thereafter be awarded with
respect to such shares.
(b) If there is a change in the corporate structure or shares of the
Company, the Committee may make any adjustments necessary to prevent
accretion, or to protect against dilution, in the number and kind of shares
authorized by the Plan and, with respect to outstanding Awards, in the
number and kind of shares covered thereby and in the applicable Option
Price. For the purpose of this Section 3(b), a change in the corporate
structure or shares of the Company includes, without limitation, any change
resulting from a recapitalization, stock split, stock dividend,
consolidation, rights offering, separation, reorganization, or liquidation
and any transaction in which shares of Common Stock are changed into or
exchanged for a different number or kind of shares of stock or other
securities of the Company or another corporation.
<PAGE>
4. Administration
--------------
The Plan is administered by the Committee. In addition to any other powers
set forth in this Plan, the Committee has the following powers:
(a) to construe and interpret the Plan;
(b) to establish, amend and rescind appropriate rules and regulations
relating to the Plan;
(c) to provide automatic Awards to Non-employee Directors (as more
fully described in Sections 6 and 7 below), without discretion as to either
the eligibility or selection of Non-employee Director Participants, the
calculation of individual Awards (other than the determination of the
portion of each Non-employee Director's annual retainer which shall be paid
with such Awards, which determination shall be made on a uniform basis for
all Participants hereunder), the times at which Awards will be made or the
number of shares of Common Stock which will be subject to the Awards so
made.
(d) to contest on behalf of the Company or Participants, at the
expense of the Company, any ruling or decision on any matter relating to
the Plan or to any Awards;
(e) generally, to administer the Plan, and to take all such steps and
make all such determinations in connection with the Plan and the Awards
granted thereunder as it may deem necessary or advisable; and
(f) to determine the form in which tax withholding under Section 13
of the Plan will be made (i.e., cash, Common Stock or a combination
thereof).
5. Participating Directors
-----------------------
All Non-employee Directors shall participate in the Plan.
6. Determination of Retainer-related Awards for Non-employee Directors and
-----------------------------------------------------------------------
Transfer of NSOs Following Annual Board Meeting
-----------------------------------------------
Each Award granted under the Plan shall be evidenced by a written
instrument in such form as the Board may approve and shall be subject to the
following terms and conditions:
(a) subject to the provisions of the Plan, the Committee shall from
time to time determine the portion of each Non-employee Director's annual
retainer which shall be paid with Awards, which determination shall be made
on a uniform basis for all Participants hereunder, and not more frequently
than once every six (6) months or such other period necessary to comply
with the requirements of Rule 16b-3 of the Exchange Act.
(b) immediately following each annual meeting of the Board, each Non-
employee Director who attended the meeting shall receive NSOs to purchase
1,500 shares of Common Stock. The NSOs shall be subject to both the terms
and conditions of Section 8 below and the provisions of this Plan
pertaining to Options;
(c) all NSOs granted to Non-employee Directors shall be subject to the
NSO terms and conditions outlined in Section 8 below and to the vesting
schedule described in Section 10 below; and
<PAGE>
(d) the manner of exercise for all NSOs granted hereunder shall be in
accordance with the provisions outlined in Section 9 below.
7. Determination of Retainer-related Stock Payments to Non-employee Directors
and Transfer of NSOs Following Annual Board Meeting
(a) Subject to the remaining provisions of this Section 7, immediately
following each meeting of the Board, each Non-employee Director who
attended the meeting shall receive an Award of Common Stock in payment of
the $2,500 per- meeting equity fee payable to the Director, which Award
shall be payable as a portion of Director's total compensation for serving
on the Board.
(b) The number of shares to be issued to a Non-employee Director as
Common Stock under a meeting fee Award shall be determined by dividing (i)
the per share Fair Market Value for a share of Common Stock as of the date
of the Board meeting (or any other reference date chosen by the Board on a
uniform basis) into (ii) $2,500 (provided that no fractional shares shall
be issued).
(c) Certificates evidencing the shares of Common Stock so awarded to a
Participant shall be registered in his/her name and issued to the
Participant as soon as practicable following the respective Board meeting.
(d) Any person who is not (or ceases to be) a Non-employee Director at
the time the Common Stock so awarded would be paid following a Board
meeting shall not receive an Award of Common Stock shares with respect to
such meeting and shall only receive shares of Common Stock as a portion of
his/her total Board compensation if he or she is a Non-employee Director at
the time Common Stock shares are awarded hereunder following the meeting.
The number of shares issued to a Participant for attending a meeting shall
in no event be affected by either the number of months between Board
meetings or the length of time the Participant was a non-employee with
respect to the Company and its affiliates prior to the meeting.
(e) Subject to the terms of the Stock Transfer Restriction Agreement
referenced in Section 17 below, no Non-employee Director shall be required
to forfeit or otherwise return to the Company shares of Common Stock
granted pursuant to the Plan, notwithstanding any change in status of such
Non-employee Director, subsequent to the grant of such Common Stock, which
renders the Non-employee Director ineligible to continue as a Participant
in the Plan.
8. Terms and Conditions of Nonqualified Stock Options
Each NSO agreement, in such form as is approved by the Committee, shall be
subject to the following express terms and conditions and to such other terms
and conditions, not inconsistent with the Plan, as the Committee may deem
appropriate:
8.1 Option Period. Unless the Committee specifies otherwise in any Award,
each NSO will expire as of the earliest of:
(a) the date on which it is forfeited under the provisions of Section
10 below;
(b) ten (10) years from the Award Date;
<PAGE>
(c) three (3) months after the termination of the Participant's
directorship with the Company and its parent and Subsidiaries for any
reason other than death;
(d) twelve (12) months after the Participant's death; or
(e) any other date (within the limits of the Code) specified by the
Committee when the NSO is granted.
8.2 Option Price. At the time granted, the Committee will fix the Option
Price, which (unless the Committee specifies otherwise in any Award) will be no
less than eighty-five percent (85%) of the Fair Market Value of the shares
subject to the NSO on the Award Date.
8.3 Other Option Provisions. The form of NSO authorized by the Plan may
contain such other provisions as the Committee may from time to time determine.
9. Manner of Exercise of Options
To exercise a Participant's Options in whole or in part, a Participant (or,
after his death, his executor or administrator) must give written notice to the
Committee, stating the number of shares with respect to which he intends to
exercise the Options. The Company will issue the shares with respect to which
the Option(s) is or are exercised upon payment in full of the Option Price. The
Committee may permit the Option Price to be paid in cash or shares of Common
Stock held by the Participant having an aggregate Fair Market Value, as
determined on the date of delivery, equal to the Option Price. The Committee may
also permit the Option Price to be paid by any other method permitted by law,
including by delivery to the Committee from the Participant of an election
directing the Company to withhold from the shares of Common Stock the
Participant would have otherwise received upon exercise of the Participant's
Options the number of shares of Common Stock having an aggregate Fair Market
Value on the exercise date equal to the Option Price.
10. Vesting
All shares of Common Stock awarded to Participants hereunder shall be fully
(100%) vested on the date of grant. A Participant may not exercise an Option
until it has become vested. The portion of an Award of Options that is vested
depends upon the period that has elapsed since the Award Date. The following
schedules apply to any Award of Options hereunder unless the Committee
establishes a different vesting schedule on the Award Date:
<TABLE>
<CAPTION>
<S> <C>
Vested Percentage (Where Participant Has
Been a Non-Employee Director Member of
the Board of Directors of the Company (or
Number of December 31 an Affiliated Predecessor Corporation) (As
Calendar Year Ends ("Year Determined by the Committee) on Less Than
Ends") Which Have Occurred Five Consecutive Year Ends as of the Award
Since Award Date Date)
- ---------------------------- -------------------------------------------
Fewer than two 0%
Two but fewer than three 25%
Three but fewer than four 50%
Four but fewer than five 75%
Five or more 100%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Vested Percentage (Where Participant Has
Been a Non-Employee Director Member of
the Board of Directors of the Company (or
an Affiliated Predecessor Corporation) (As
Determined by the Committee) on Five or
Number of Year Ends More Consecutive Year Ends as of the
Which Have Occurred Award Date)
Since Award Date -------------------------------------------
- ----------------------------
Fewer than two 0%
Two but fewer than three 25%
Three or more 100%
</TABLE>
Notwithstanding anything herein to the contrary, unless otherwise provided in a
Participant's Award, all Awards will become vested and exercisable upon the
effective date of a "change of control" and will remain exercisable during the
thirty (30) days following the effective date of the change of control. For
purposes of this Plan, a "change of control" of the Company shall be deemed to
have occurred upon the first to occur of any of the following events (or any
other event recognized in writing by the Committee as constituting a "change in
control"):
(a) any consolidation or merger of the Company in which the Company is
not the continuing or surviving corporation or pursuant to which shares of
the Company's Common Stock would be converted into cash, securities or
other property, other than any consolidation or merger of the Company in
which the holders of the Company's Common Stock immediately prior to the
consolidation or merger have the same proportionate ownership of common
stock of the surviving corporation immediately after the consolidation or
merger; or
(b) any sale, lease, exchange or other transfer (in one transaction or
a series of related transactions) of all, or substantially all, of the
assets of the Company, other than any sale, lease, exchange or other
transfer to any entity where the Company owns, directly or indirectly, at
least eighty percent (80%) of the outstanding voting securities of such
entity after any such transfer; or
(c) any liquidation or dissolution of the Company; or
(d) the date any person (as such term is used in Section 13(d) of the
Securities Exchange Act of 1934, hereinafter the "1934 Act"), other than
one or more trusts established by the Company or a Subsidiary for the
benefit of employees of the Company or its Subsidiaries, shall become the
beneficial owner (within the meaning of Rule 13d-3 under the 1934 Act) of
twenty percent (20%) or more of the Company's outstanding Common Stock; or
(e) the failure, during any period of twenty-four (24) consecutive
months, of those individuals who at the beginning of such period constitute
the entire Board for any reason to constitute a majority thereof unless
the election, or the nomination for election by the Company's
stockholders, of each new director comprising the majority was approved by
a vote of at least a majority of the Continuing Directors as hereinafter
defined, in office on the date of such election or nomination for election
of the new director. For purposes hereof, a "Continuing Director" shall
mean:
<PAGE>
(1) any member of the Board immediately following the
consummation of the "KSOP Purchase" (as defined in the prospectus
included in the Registration Statement on Form S-1 filed by the
Company with the Securities and Exchange Commission (File No. 33-
92686) or
(2) any director elected, or nominated for election by the
Company's stockholders to fill any vacancy or newly created
directorship on the Board by a majority of the Continuing Directors
then still in office.
If a Participant terminates his or her directorship with the Company for any
reason, he forfeits any Awards that are not yet vested. A transfer from the
Company to a Subsidiary or affiliate, or vice versa, is not a termination of
directorship for purposes of this Plan.
11. Nontransferability of Awards
Awards granted under the Plan shall not be transferable other than by will
or the laws of descent and distribution and each Award shall be exercisable
during the Participant's lifetime only by the Participant or the Participant's
guardian or legal representative. Notwithstanding the foregoing, at the
discretion of the Committee, the terms of an Award may permit its transfer by
the Participant solely to members of the Participant's immediate family (as
defined by the Committee) or trusts or family partnerships for the benefit of
such persons subject to such terms and conditions as may be established by the
Committee.
12. Rights as Stockholder
No Common Stock may be delivered upon the exercise of any Option until full
payment of the Option Price has been made. A Participant has no rights
whatsoever as a stockholder with respect to any shares covered by an Option
until the date of the issuance of a stock certificate for the shares. Each
certificate issued in respect of shares of Common Stock awarded outright or
issued upon the exercise of NSOs awarded under the Plan shall be registered in
the name of the Participant and bear the following (or a similar) legend:
"This certificate and the shares represented hereby are subject to transfer
restrictions contained in an agreement dated __________________, 199__ by
and among the Company and certain of its shareholders, a copy of which is
on file with the Secretary of the Company. The agreement is binding upon
the heirs, personal representatives, successors and assigns of the
registered holder hereof."
13. Withholding Tax
To the extent the Company ever has a tax withholding obligation with
respect to any payments made under the Plan, it shall be entitled to withhold
the amount of any tax attributable to any such payments after giving the Award
recipient notice as far in advance as practicable and the Company may, in such
case, defer making delivery as to any Award if any such tax is payable until
indemnified to its satisfaction. The Committee may, in its discretion and
subject to rules which it may adopt, permit a Participant to pay all or a
portion of any taxes for which withholding is ever so required in connection
with any Award under the Plan by making a direct payment to the Company or by
electing to have the Company withhold shares of Common Stock from the shares
otherwise deliverable to the Participant, having a Fair Market Value equal to
the amount to be withheld.
<PAGE>
14. No Right to Directorship or Employment
--------------------------------------
Participation in the Plan will not give any Participant a right to be
retained as a director or as an employee of the Company, or any right or claim
to any benefit under the Plan, unless the right or claim has specifically
accrued under the Plan.
15. Amendment of the Plan
---------------------
The Board of Directors may from time to time amend or revise the terms
of this Plan in whole or in part and may, without limitation, adopt any
amendment deemed necessary; provided, however, that (a) no change in any Award
previously granted to a Participant may be made that would impair the rights of
the Participant without the Participant's consent and (b) the Board of Directors
may not, without approval by the holders of a majority of the shares of the
Company present at a stockholders meeting, (i) change the aggregate number of
shares of Common Stock that may be granted outright or pursuant to Options
awarded hereunder (except in accordance with the provisions of Section 3(b),
(ii) change the class of eligible Directors who may receive Awards under the
Plan, (iii) adopt any amendment affecting the Option Price at which Options may
be granted, or (iv) materially increase benefits accruing to Participants under
the Plan.
16. Stockholder Approval
--------------------
Operation of the Plan shall be subject to approval by the stockholders
of the Company within twelve months before or after the date the Plan is adopted
by the Board of Directors in accordance with Rule 16b-3(b) of the Exchange Act.
If such stockholder approval is obtained at duly held stockholders' meeting, it
may be obtained by the affirmative vote of the holders of a majority of the
shares of the Company present at the meeting or represented and entitled to vote
thereon.
If such stockholder approval is obtained by written consent, it must
be obtained by the unanimous written consent of all stockholders of the Company.
17. Conditions Upon Issuance of Shares
----------------------------------
An Option shall not be exercisable, a share of Common Stock shall not
be issued pursuant to the exercise of an Option, and shares of Common Stock
shall not be awarded (i) until such time as the Plan has been approved by the
stockholders of the Company, (ii) unless the award of Common Stock or the
exercise of an Option and the issuance and delivery of Common Stock shares
pursuant thereto shall comply with all relevant provisions of law, including,
without limitation, the Securities Act of 1933, as amended, the Exchange Act,
the rules and regulations promulgated thereunder, and the requirements of any
stock exchange upon which the share of Common Stock may then be listed, and
shall be further subject to the approval of counsel for the Company with respect
to such compliance, and (iii) unless the recipient of any shares of Common Stock
to be transferred in connection with any Award made hereunder shall have entered
into a stock transfer restriction agreement with the Company (substantially in
the form of the agreement attached hereto as Exhibit 17) (the "Stock Transfer
Restriction Agreement").
As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the share of Common Stock is being purchased only for
investment and without any present intention to sell or distribute such share
if, in the opinion of counsel for the Company, such a representation is required
by any of the aforementioned relevant provisions of law.
<PAGE>
18. Effective Date and Termination Date
-----------------------------------
18.1 Effective Date. This Plan is effective as of the later of the date
of its adoption by the Board of Directors, or the date it is approved by the
stockholders of the Company, pursuant to Section 16.
18.2 Termination of the Plan. The Board of Directors may terminate the
Plan at any time with respect to shares that are not then subject to Awards or
Options. Termination of the Plan will not affect the rights and obligations of
any Participant with respect to Awards before termination.
<PAGE>
EXHIBIT 10.26
- --------------------------------------------------------------------------------
EVEREN CAPITAL CORPORATION
and
------------------
as Rights Agent
Rights Agreement
Dated as of __________, 1996
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C> <C>
Section 1. Certain Definitions..................................... 2
Section 2. Appointment of Rights Agent............................. 8
Section 3. Issue of Right Certificates............................. 8
Section 4. Form of Right Certificates.............................. 11
Section 5. Countersignature and Registration....................... 11
Section 6. Transfer, Split Up, Combination and Exchange of
Right Certificates; Mutilated, Destroyed,
Lost or Stolen Right Certificates..................... 13
Section 7. Exercise of Rights, Purchase Price; Expiration
Date of Rights........................................ 14
Section 8. Cancellation and Destruction of Right
Certificates.......................................... 17
Section 9. Availability of Shares of Preferred Stock............... 18
Section 10. Preferred Stock Record Date............................. 20
Section 11. Adjustment of Purchase Price, Number of Shares
and Number of Rights.................................. 21
Section 12. Certificate of Adjusted Purchase Price or
Number of Shares...................................... 40
Section 13. Consolidation, Merger or Sale or Transfer of
Assets or Earnings Power.............................. 41
Section 14. Fractional Rights and Fractional Shares................. 49
Section 15. Rights of Action........................................ 51
Section 16. Agreement of Right Holders.............................. 52
Section 17. Right Certificate Holder Not Deemed a
Stockholder........................................... 53
Section 18. Concerning the Rights Agent............................. 53
Section 19. Merger or Consolidation or Change of Name of
Rights Agent.......................................... 54
Section 20. Duties of Rights Agent.................................. 55
Section 21. Change of Rights Agent.................................. 60
Section 22. Issuance of New Right Certificates...................... 62
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Section 23. Redemption.............................................. 62
Section 24. Exchange................................................ 64
Section 25. Notice of Certain Events................................ 67
Section 26. Notices................................................. 68
Section 27. Supplements and Amendments.............................. 69
Section 28. Successors.............................................. 71
Section 29. Benefits of this Agreement.............................. 71
Section 30. Severability............................................ 71
Section 31. Governing Law........................................... 71
Section 32. Counterparts............................................ 72
Section 33. Descriptive Headings.................................... 72
</TABLE>
-ii-
<PAGE>
RIGHTS AGREEMENT
----------------
Agreement, dated as of ________, 1996, between EVEREN CAPITAL
CORPORATION, a Delaware corporation (the "Company"), and ______________ (the
"Rights Agent").
The Board of Directors of the Company has authorized and declared a
dividend of one preferred share purchase right (a "Right") for each share of
Common Stock (as hereinafter defined) of the Company outstanding as of the close
of business (as defined below) on _______, 1996 (the "Record Date"), each Right
representing the right to purchase one one-hundredth (subject to adjustment) of
a share of Preferred Stock (as hereinafter defined), upon the terms and subject
to the conditions herein set forth, and has further authorized and directed the
issuance of one Right (subject to adjustment as provided herein) with respect to
each share of Common Stock that shall become outstanding between the Record Date
and the earliest of the Distribution Date, the Redemption Date and the Final
Expiration Date (as such terms are hereinafter defined); provided, however, that
Rights may be issued with respect to shares of Common Stock that shall become
outstanding after the Distribution Date and prior to the Redemption Date and the
Final Expiration Date in accordance with Section 22.
Accordingly, in consideration of the premises and the mutual
agreements herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this Agreement, the
following terms have the meaning indicated:
<PAGE>
2
(a) "Acquiring Person" shall mean any Person (as such term is
hereinafter defined) who or which shall be the Beneficial Owner (as such
term is hereinafter defined) of 15% or more of the shares of Common Stock
then outstanding, but shall not include an Exempt Person (as such term is
hereinafter defined); provided, however, that if the Board of Directors of
the Company determines in good faith that a Person who would otherwise be
an "Acquiring Person" has become such inadvertently (including, without
limitation, because (i) such Person was unaware that it beneficially owned
a percentage of Common Stock that would otherwise cause such Person to be a
"Acquiring Person" or (ii) such Person was aware of the extent of its
Beneficial Ownership of Common Stock but had no actual knowledge of the
consequences of such Beneficial Ownership under this Rights Agreement) and
without any intention of changing or influencing control of the Company,
and such Person, as promptly as practicable divested or divests himself or
itself of Beneficial Ownership of a sufficient number of shares of Common
Stock so that such Person would no longer be an Acquiring Person, then such
Person shall not be deemed to be or to have become an "Acquiring Person"
for any purposes of this Agreement. Notwithstanding the foregoing, no
Person shall become an "Acquiring Person" as the result of an acquisition
of shares of Common Stock by the Company which, by reducing the number of
shares outstanding, increases the proportionate number of shares
beneficially
<PAGE>
3
owned by such Person to 15% or more of the shares of Common Stock then
outstanding, provided, however, that if a Person shall become the
Beneficial Owner of 15% or more of the shares of Common Stock then
outstanding by reason of such share acquisitions by the Company and
thereafter become the Beneficial Owner of any additional shares of Common
Stock, then such Person shall be deemed to be an "Acquiring Person" unless
upon the consummation of the acquisition of such additional shares of
Common Stock such Person does not own 15% or more of the shares of Common
Stock then outstanding. The phrase "then outstanding", when used with
reference to a Person's Beneficial Ownership of securities of the Company,
shall mean the number of such securities then issued and outstanding
together with the number of such securities not then actually issued and
outstanding which such Person would be deemed to own beneficially
hereunder.
(b) "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
as in effect on the date of this Agreement.
(c) A Person shall be deemed the "Beneficial Owner" of, shall be
deemed to have "Beneficial Ownership" of and shall be deemed to
"beneficially own" any securities:
(i) which such Person or any of such Person's Affiliates or
Associates is deemed to beneficially own, directly or indirectly
within the meaning of Rule 13d-3
<PAGE>
4
of the General Rules and Regulations under the Exchange Act as in
effect on the date of this Agreement;
(ii) which such Person or any of such Person's Affiliates or
Associates has (A) the right to acquire (whether such right is
exercisable immediately or only after the passage of time) pursuant to
any agreement, arrangement or understanding (other than customary
agreements with and between underwriters and selling group members
with respect to a bona fide public offering of securities), or upon
the exercise of conversion rights, exchange rights, rights, warrants
or options, or otherwise; provided, however, that a Person shall not
be deemed the Beneficial Owner of, or to beneficially own, (x)
securities tendered pursuant to a tender or exchange offer made by or
on behalf of such Person or any of such Person's Affiliates or
Associates until such tendered securities are accepted for purchase,
(y) securities which such Person has a right to acquire on the
exercise of Rights at any time prior to the time a Person becomes an
Acquiring Person or (z) securities issuable upon exercise of Rights
from and after the time a Person becomes an Acquiring Person if such
Rights were acquired by such Person or any of such Person's Affiliates
or Associates prior to the Distribution Date or pursuant to Section
3(a) or Section 22 hereof ("original Rights") or pursuant to Section
11(i) or Section 11(n) with respect to an
<PAGE>
5
adjustment to original Rights; or (B) the right to vote pursuant to
any agreement, arrangement or understanding; provided, however, that a
Person shall not be deemed the Beneficial Owner of, or to beneficially
own, any security by reason of such agreement, arrangement or
understanding if the agreement, arrangement or understanding to vote
such security (1) arises solely from a revocable proxy or consent
given to such Person in response to a public proxy or consent
solicitation made pursuant to, and in accordance with, the applicable
rules and regulations promulgated under the Exchange Act and (2) is
not also then reportable on Schedule 13D under the Exchange Act (or
any comparable or successor report); or
(iii) which are beneficially owned, directly or indirectly, by
any other Person with which such Person or any of such Person's
Affiliates or Associates has any agreement, arrangement or
understanding (other than customary agreements with and between
underwriters and selling group members with respect to a bona fide
public offering of securities) for the purpose of acquiring, holding,
voting (except to the extent contemplated by the proviso to Section
1(c)(ii)(B)) or disposing of any securities of the Company.
(d) "Business Day" shall mean any day other than a Saturday, a Sunday,
or a day on which banking institutions in the State of New York, or the
State in which the
<PAGE>
6
principal office of the Rights Agent is located, are authorized or obligated by
law or executive order to close.
(e) "close of business" on any given date shall mean 5:00 P.M., New York
City time, on such date; provided, however, that if such date is not a Business
Day it shall mean 5:00 P.M., New York City time, on the next succeeding Business
Day.
(f) "Common Stock" when used with reference to the Company shall mean the
Voting Common Stock, par value $.01 per share, of the Company. "Common Stock"
when used with reference to any Person other than the Company shall mean the
capital stock (or, in the case of an unincorporated entity, the equivalent
equity interest) with the greatest voting power of such other Person or, if such
other Person is a subsidiary of another Person, the Person or Persons which
ultimately control such first-mentioned Person.
(g) "Distribution Date" shall have the meaning set forth in Section 3
hereof.
(h) "Exempt Person" shall mean the Company, any Subsidiary (as such term
is hereinafter defined) of the Company, any employee benefit plan of the Company
(including the Company's 401(k) and Employee Stock Ownership Plan) or of any
Subsidiary of the Company, or any entity or trustee holding Common Stock for or
pursuant to the terms of any such plan or for the purpose of funding any such
plan or funding other employee benefits for employees of the Company or of any
Subsidiary of the Company.
<PAGE>
7
(i) "Final Expiration Date" shall have the meaning set forth in
Section 7 hereof.
(j) "New York Stock Exchange" shall mean the New York Stock Exchange,
Inc.
(k) "Person" shall mean any individual, firm, corporation or other
entity, and shall include any successor (by merger or otherwise) of such
entity.
(l) "Preferred Stock" shall mean the Series A Junior Participating
Preferred Stock, par value $.01 per share, of the Company having the rights
and preferences set forth in the Form of Certificate of Designations
attached to this Agreement as Exhibit A.
(m) "Redemption Date" shall have the meaning set forth in Section 7
hereof.
(n) "Securities Act" shall mean the Securities Act of 1933, as
amended.
(o) "Stock Acquisition Date" shall mean the first date of public
announcement (which for purposes of this definition, shall include, without
limitation, a report filed pursuant to Section 13(d) of the Exchange Act) by the
Company or an Acquiring Person that an Acquiring Person has become such or such
earlier date as a majority of the Board of Directors shall become aware of the
existence of an Acquiring Person.
(p) "Subsidiary" of any Person shall mean any corporation or other entity
of which securities or other ownership interests having ordinary voting power
sufficient
<PAGE>
8
to elect a majority of the board of directors or other persons performing
similar functions are beneficially owned, directly or indirectly, by such
Person, and any corporation or other entity that is otherwise controlled by
such Person.
Section 2. Appointment of Rights Agent. The Company hereby appoints
the Rights Agent to act as agent for the Company and the holders of the Rights
(who, in accordance with Section 3 hereof, shall prior to the Distribution Date
also be the holders of Common Stock) in accordance with the terms and conditions
hereof, and the Rights Agent hereby accepts such appointment. The Company may
from time to time appoint such co-Rights Agents as it may deem necessary or
desirable.
Section 3. Issue of Right Certificates. (a) Until the earlier of (i)
the tenth day after the Stock Acquisition Date or (ii) the tenth business day
(or such later date as may be determined by action of the Board of Directors
prior to such time as any Person becomes an Acquiring Person) after the date of
the commencement by any Person (other than an Exempt Person) of, or of the first
public announcement of the intention of such Person (other than an Exempt
Person) to commence, a tender or exchange offer the consummation of which would
result in any Person becoming the Beneficial Owner of shares of Common Stock
aggregating 15% or more of the Common Stock then outstanding (including any such
date which is after the date of this Agreement and prior to the issuance of the
Rights; the earlier of such dates being herein referred to as the "Distribution
Date"), (x) the Rights will be evidenced (subject to the provisions of
<PAGE>
9
Section 3(b) hereof) by the certificates for Common Stock registered in the
names of the holders thereof and not by separate Right Certificates, and (y) the
Rights will be transferable only in connection with the transfer of Common
Stock. As soon as practicable after the Distribution Date, the Company will
prepare and execute, the Rights Agent will countersign, and the Company will
send or cause to be sent (and the Rights Agent will, if requested, send) by
first-class, insured, postage-prepaid mail, to each record holder of Common
Stock as of the close of business on the Distribution Date (other than any
Acquiring Person or any Associate or Affiliate of an Acquiring Person), at the
address of such holder shown on the records of the Company, a Right Certificate,
in substantially the form of Exhibit B hereto (a "Right Certificate"),
evidencing one Right (subject to adjustment as provided herein) for each share
of Common Stock so held. As of the Distribution Date, the Rights will be
evidenced solely by such Right Certificates.
(b) Certificates issued for Common Stock after the Record Date but
prior to the earliest of the Distribution Date, the Redemption Date or the Final
Expiration Date shall have impressed on, printed on, written on or otherwise
affixed to them the following legend:
This certificate also evidences and entitles the holder hereof to
certain rights as set forth in a Rights Agreement between EVEREN
CAPITAL CORPORATION and _____________, dated as of ________, 1996 as
the same may be amended from time to time (the "Rights Agreement"),
the terms of which are hereby incorporated herein by reference and a
copy of which is on file at the principal executive offices of EVEREN
CAPITAL
<PAGE>
10
CORPORATION. Under certain circumstances, as set forth in the Rights
Agreement, such Rights will be evidenced by separate certificates and
will no longer be evidenced by this certificate. The Everen Financial
Group, Inc. will mail to the holder of this certificate a copy of the
Rights Agreement without charge after receipt of a written request
therefor. Under certain circumstances, as set forth in the Rights
Agreement, Rights owned by or transferred to any Person who becomes an
Acquiring Person (as defined in the Rights Agreement) and certain
transferees thereof will become null and void and will no longer be
transferable.
With respect to such certificates containing the foregoing legend, until the
Distribution Date, the Rights associated with the Common Stock represented by
such certificates shall be evidenced by such certificates alone, and the
surrender for transfer of any such certificate, except as otherwise provided
herein, shall also constitute the transfer of the Rights associated with the
Common Stock represented thereby. In the event that the Company purchases or
otherwise acquires any Common Stock after the Record Date but prior to the
Distribution Date, any Rights associated with such Common Stock shall be deemed
cancelled and retired so that the Company shall not be entitled to exercise any
Rights associated with the Common Stock which are no longer outstanding.
Notwithstanding this paragraph (b), the omission of a legend shall not
affect the enforceability of any part of this Agreement or the rights of any
holder of the Rights.
Section 4. Form of Right Certificates. The Right Certificates (and
the forms of election to purchase shares and of assignment to be printed on the
reverse thereof) shall be
<PAGE>
11
substantially in the form set forth in Exhibit B hereto and may have such marks
of identification or designation and such legends, summaries or endorsements
printed thereon as the Company may deem appropriate and as are not inconsistent
with the provisions of this Agreement, or as may be required to comply with any
applicable law or with any rule or regulation made pursuant thereto or with any
rule or regulation of the New York Stock Exchange or of any other stock exchange
or automated quotation system on which the Rights may from time to time be
listed, or to conform to usage. Subject to the provisions of Sections 11, 13
and 22 hereof, the Right Certificates shall entitle the holders thereof to
purchase such number of one one-hundredths of a share of Preferred Stock as
shall be set forth therein at the price per one one-hundredth of a share of
Preferred Stock set forth therein (the "Purchase Price"), but the number of such
one one-hundredths of a share of Preferred Stock and the Purchase Price shall be
subject to adjustment as provided herein.
Section 5. Countersignature and Registration. (a) The Right
Certificates shall be executed on behalf of the Company by the Chairman of the
Board of Directors, the President, any of the Vice Presidents, the Treasurer or
the Controller of the Company, either manually or by facsimile signature, shall
have affixed thereto the Company's seal or a facsimile thereof, and shall be
attested by the Secretary or an Assistant Secretary of the Company, either
manually or by facsimile signature. The Right Certificates shall be manually
countersigned by the Rights
<PAGE>
12
Agent and shall not be valid for any purpose unless countersigned. In case any
officer of the Company who shall have signed any of the Right Certificates shall
cease to be such officer of the Company before countersignature by the Rights
Agent and issuance and delivery by the Company, such Right Certificates,
nevertheless, may be countersigned by the Rights Agent and issued and delivered
by the Company with the same force and effect as though the Person who signed
such Right Certificates had not ceased to be such officer of the Company; and
any Right Certificate may be signed on behalf of the Company by any Person who,
at the actual date of the execution of such Right Certificate, shall be a proper
officer of the Company to sign such Right Certificate, although at the date of
the execution of this Agreement any such Person was not such an officer.
(b) Following the Distribution Date, the Rights Agent will keep or
cause to be kept, at an office or agency designated for such purpose, books for
registration and transfer of the Right Certificates issued hereunder. Such books
shall show the names and addresses of the respective holders of the Right
Certificates, the number of Rights evidenced on its face by each of the Right
Certificates and the date of each of the Right Certificates.
Section 6. Transfer, Split Up, Combination and Exchange of Right
Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates. (a)
Subject to the provisions of Sections 7(e), 11(a)(ii) and 14 hereof, at any time
after the
<PAGE>
13
close of business on the Distribution Date, and prior to the close of business
on the earlier of the Redemption Date or the Final Expiration Date, any Right
Certificate or Right Certificates may be transferred, split up, combined or
exchanged for another Right Certificate or Right Certificates, entitling the
registered holder to purchase a like number of one one-hundredths of a share of
Preferred Stock as the Right Certificate or Right Certificates surrendered then
entitled such holder to purchase. Any registered holder desiring to transfer,
split up, combine or exchange any Right Certificate or Right Certificates shall
make such request in writing delivered to the Rights Agent, and shall surrender
the Right Certificate or Right Certificates to be transferred, split up,
combined or exchanged at the office or agency of the Rights Agent designated for
such purpose. Thereupon the Rights Agent shall countersign and deliver to the
Person entitled thereto a Right Certificate or Right Certificates, as the case
may be, as so requested. The Company may require payment of a sum sufficient to
cover any tax or governmental charge that may be imposed in connection with any
transfer, split up, combination or exchange of Right Certificates.
(b) Subject to the provisions of Section 11(a)(ii) hereof, at any time
after the Distribution Date and prior to the close of business on the earlier of
the Redemption Date or the Final Expiration Date, upon receipt by the Company
and the Rights Agent of evidence reasonably satisfactory to them of the loss,
theft, destruction or mutilation of a Right Certificate, and, in
<PAGE>
14
case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to them, and, at the Company's request, reimbursement to the
Company and the Rights Agent of all reasonable expenses incidental thereto, and
upon surrender to the Rights Agent and cancellation of the Right Certificate if
mutilated, the Company will make and deliver a new Right Certificate of like
tenor to the Rights Agent for delivery to the registered holder in lieu of the
Right Certificate so lost, stolen, destroyed or mutilated.
Section 7. Exercise of Rights, Purchase Price; Expiration Date of
Rights. (a) Except as otherwise provided herein, the Rights shall become
exercisable on the Distribution Date, and thereafter the registered holder of
any Right Certificate may, subject to Section 11(a)(ii) hereof and except as
otherwise provided herein, exercise the Rights evidenced thereby in whole or in
part upon surrender of the Right Certificate, with the form of election to
purchase on the reverse side thereof duly executed, to the Rights Agent at the
office or agency of the Rights Agent designated for such purpose, together with
payment of the Purchase Price for each one one-hundredth of a share of Preferred
Stock as to which the Rights are exercised, at any time which is both after the
Distribution Date and prior to the earliest of (i) the close of business on
________, 2006 (the "Final Expiration Date"), (ii) the time at which the Rights
are redeemed as provided in Section 23 hereof (the "Redemption Date") or (iii)
the time at which such Rights are exchanged as provided in Section 24 hereof.
<PAGE>
15
(b) The Purchase Price shall be initially $_______ for each one one-
hundredth of a share of Preferred Stock purchasable upon the exercise of a
Right. The Purchase Price and the number of one one-hundredths of a share of
Preferred Stock or other securities or property to be acquired upon exercise of
a Right shall be subject to adjustment from time to time as provided in Sections
11 and 13 hereof and shall be payable in lawful money of the United States of
America in accordance with paragraph (c) of this Section 7.
(c) Except as otherwise provided herein, upon receipt of a Right
Certificate representing exercisable Rights, with the form of election to
purchase duly executed, accompanied by payment of the aggregate Purchase Price
for the shares of Preferred Stock to be purchased and an amount equal to any
applicable transfer tax required to be paid by the holder of such Right
Certificate in accordance with Section 9 hereof, in cash or by certified check,
cashier's check or money order payable to the order of the Company, the Rights
Agent shall thereupon promptly (i) (A) requisition from any transfer agent of
the Preferred Stock certificates for the number of shares of Preferred Stock to
be purchased and the Company hereby irrevocably authorizes its transfer agent to
comply with all such requests, or (B) requisition from the depositary agent
depositary receipts representing interests in such number of one one-hundredths
of a share of Preferred Stock as are to be purchased (in which case certificates
for the Preferred Stock represented by such receipts shall be deposited by the
transfer agent with the depositary
<PAGE>
16
agent) and the Company hereby directs the depositary agent to comply with such
request, (ii) when appropriate, requisition from the Company the amount of cash
to be paid in lieu of issuance of fractional shares in accordance with Section
14 hereof, (iii) promptly after receipt of such certificates or depositary
receipts, cause the same to be delivered to or upon the order of the registered
holder of such Right Certificate, registered in such name or names as may be
designated by such holder and (iv) when appropriate, after receipt, promptly
deliver such cash to or upon the order of the registered holder of such Right
Certificate.
(d) Except as otherwise provided herein, in case the registered holder
of any Right Certificate shall exercise less than all the Rights evidenced
thereby, a new Right Certificate evidencing Rights equivalent to the exercisable
Rights remaining unexercised shall be issued by the Rights Agent to the
registered holder of such Right Certificate or to his duly authorized assigns,
subject to the provisions of Section 14 hereof.
(e) Notwithstanding anything in this Agreement to the contrary,
neither the Rights Agent nor the Company shall be obligated to undertake any
action with respect to a registered holder of Rights upon the occurrence of any
purported transfer or exercise of Rights pursuant to Section 6 hereof or this
Section 7 unless such registered holder shall have (i) completed and signed the
certificate contained in the form of assignment or election to purchase set
forth on the reverse side of the Rights Certificate surrendered for such
transfer or exercise and (ii)
<PAGE>
17
provided such additional evidence of the identity of the Beneficial Owner (or
former Beneficial Owner) thereof as the Company shall reasonably request.
Section 8. Cancellation and Destruction of Right Certificates. All
Right Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall, if surrendered to the Company or to any of its
agents, be delivered to the Rights Agent for cancellation or in cancelled form,
or, if surrendered to the Rights Agent, shall be cancelled by it, and no Right
Certificates shall be issued in lieu thereof except as expressly permitted by
any of the provisions of this Agreement. The Company shall deliver to the Rights
Agent for cancellation and retirement, and the Rights Agent shall so cancel and
retire, any other Right Certificate purchased or acquired by the Company
otherwise than upon the exercise thereof. The Rights Agent shall deliver all
cancelled Right Certificates to the Company, or shall, at the written request of
the Company, destroy such cancelled Right Certificates, and in such case shall
deliver a certificate of destruction thereof to the Company.
Section 9. Availability of Shares of Preferred Stock. (a) The Company
covenants and agrees that it will cause to be reserved and kept available out of
its authorized and unissued shares of Preferred Stock or any shares of Preferred
Stock held in its treasury, the number of shares of Preferred Stock that will be
sufficient to permit the exercise in full of all outstanding Rights.
<PAGE>
18
(b) So long as the shares of Preferred Stock (and, following the time
that a Person becomes an Acquiring Person, shares of Common Stock and other
securities) issuable upon the exercise of Rights may be listed or admitted to
trading on the New York Stock Exchange or listed on any other national
securities exchange or quotation system, the Company shall use its best efforts
to cause, from and after such time as the Rights become exercisable, all shares
reserved for such issuance to be listed or admitted to trading on the New York
Stock Exchange or listed on any other exchange or quotation system upon official
notice of issuance upon such exercise.
(c) From and after such time as the Rights become exercisable, the
Company shall use its best efforts, if then necessary to permit the issuance of
shares of Preferred Stock (and following the time that a Person first becomes an
Acquiring Person, shares of Common Stock and other securities) upon the exercise
of Rights, to register and qualify such shares of Preferred Stock (and following
the time that a Person first becomes an Acquiring Person, shares of Common Stock
and other securities) under the Securities Act and any applicable state
securities or "Blue Sky" laws (to the extent exemptions therefrom are not
available), cause such registration statement and qualifications to become
effective as soon as possible after such filing and keep such registration and
qualifications effective until the earlier of the date as of which the Rights
are no longer exercisable for such securities and the Final Expiration Date. The
Company may temporarily suspend, for a period of time
<PAGE>
19
not to exceed 90 days, the exercisability of the Rights in order to prepare and
file a registration statement under the Securities Act and permit it to become
effective. Upon any such suspension, the Company shall issue a public
announcement stating that the exercisability of the Rights has been temporarily
suspended, as well as a public announcement at such time as the suspension is no
longer in effect. Notwithstanding any provision of this Agreement to the
contrary, the Rights shall not be exercisable in any jurisdiction unless the
requisite qualification in such jurisdiction shall have been obtained and until
a registration statement under the Securities Act (if required) shall have been
declared effective.
(d) The Company covenants and agrees that it will take all such
action as may be necessary to ensure that all shares of Preferred Stock (and,
following the time that a Person becomes an Acquiring Person, shares of Common
Stock and other securities) delivered upon exercise of Rights shall, at the time
of delivery of the certificates therefor (subject to payment of the Purchase
Price), be duly and validly authorized and issued and fully paid and
nonassessable shares.
(e) The Company further covenants and agrees that it will pay when
due and payable any and all federal and state transfer taxes and charges which
may be payable in respect of the issuance or delivery of the Right Certificates
or of any shares of Preferred Stock (or shares of Common Stock or other
securities) upon the exercise of Rights. The Company shall not, however, be
required to pay any transfer tax which may be payable
<PAGE>
20
in respect of any transfer or delivery of Right Certificates to a Person other
than, or the issuance or delivery of certificates or depositary receipts for the
Preferred Stock (or shares of Common Stock or other securities) in a name other
than that of, the registered holder of the Right Certificate evidencing Rights
surrendered for exercise or to issue or deliver any certificates or depositary
receipts for Preferred Stock (or shares of Common Stock or other securities)
upon the exercise of any Rights until any such tax shall have been paid (any
such tax being payable by that holder of such Right Certificate at the time of
surrender) or until it has been established to the Company's reasonable
satisfaction that no such tax is due.
Section 10. Preferred Stock Record Date. Each Person in whose name any
certificate for Preferred Stock is issued upon the exercise of Rights shall for
all purposes be deemed to have become the holder of record of the shares of
Preferred Stock represented thereby on, and such certificate shall be dated, the
date upon which the Right Certificate evidencing such Rights was duly
surrendered and payment of the Purchase Price (and any applicable transfer
taxes) was made; provided, however, that if the date of such surrender and
payment is a date upon which the Preferred Stock transfer books of the Company
are closed, such Person shall be deemed to have become the record holder of such
shares on, and such certificate shall be dated, the next succeeding Business Day
on which the Preferred Stock transfer books of the Company are open. Prior to
the exercise of the Rights evidenced thereby, the holder of a Right Certificate
shall
<PAGE>
21
not be entitled to any rights of a holder of Preferred Stock for which the
Rights shall be exercisable, including, without limitation, the right to vote or
to receive dividends or other distributions, and shall not be entitled to
receive any notice of any proceedings of the Company, except as provided herein.
Section 11. Adjustment of Purchase Price, Number of Shares and Number
of Rights. The Purchase Price, the number of shares of Preferred Stock or other
securities or property purchasable upon exercise of each Right and the number of
Rights outstanding are subject to adjustment from time to time as provided in
this Section 11.
(a) (i) In the event the Company shall at any time after the date of
this Agreement (A) declare a dividend on the Preferred Stock payable
in shares of Preferred Stock, (B) subdivide the outstanding Preferred
Stock, (C) combine the outstanding Preferred Stock into a smaller
number of Preferred Stock or (D) issue any shares of its capital stock
in a reclassification of the Preferred Stock (including any such
reclassification in connection with a consolidation or merger in which
the Company is the continuing or surviving corporation), except as
otherwise provided in this Section 11(a), the Purchase Price in effect
at the time of the record date for such dividend or of the effective
date of such subdivision, combination or reclassification, and the
number and kind of shares of capital stock issuable on such date,
shall be
<PAGE>
22
proportionately adjusted so that the holder of any Right exercised
after such time shall be entitled to receive the aggregate number and
kind of shares of capital stock which, if such Right had been
exercised immediately prior to such date and at a time when the
Preferred Stock transfer books of the Company were open, the holder
would have owned upon such exercise and been entitled to receive by
virtue of such dividend, subdivision, combination or reclassification;
provided, however, that in no event shall the consideration to be paid
upon the exercise of one Right be less than the aggregate par value of
the shares of capital stock of the Company issuable upon exercise of
one Right.
(ii) Subject to Section 24 of this Agreement and except as
otherwise provided in this Section 11(a)(ii), in the event any Person
becomes an Acquiring Person, each holder of a Right shall thereafter
have the right to receive, upon exercise thereof at a price equal to
the then current Purchase Price multiplied by the number of one one-
hundredths of a share of Preferred Stock for which a Right is then
exercisable, in accordance with the terms of this Agreement and in
lieu of shares of Preferred Stock, such number of shares of Common
Stock (or at the option of the Company, such number of one one-
hundredths of shares of Preferred Stock) as shall equal the result
obtained by (x)
<PAGE>
23
multiplying the then current Purchase Price by the number of one one-
hundredths of a share of Preferred Stock for which a Right is then
exercisable and dividing that product by (y) 50% of the then current
per share market price of the Company's Common Stock (determined
pursuant to Section 11(d) hereof) on the date of the occurrence of
such event; provided, however, that the Purchase Price and the number
of shares of Common Stock so receivable upon exercise of a Right shall
thereafter be subject to further adjustment as appropriate in
accordance with Section 11(f) hereof. Notwithstanding anything in
this Agreement to the contrary, however, from and after the time (the
"invalidation time") when any Person first becomes an Acquiring
Person, any Rights that are beneficially owned by (x) any Acquiring
Person (or any Affiliate or Associate of any Acquiring Person), (y) a
transferee of any Acquiring Person (or any such Affiliate or
Associate) who becomes a transferee after the invalidation time or (z)
a transferee of any Acquiring Person (or any such Affiliate or
Associate) who became a transferee prior to or concurrently with the
invalidation time pursuant to either (I) a transfer from the Acquiring
Person to holders of its equity securities or to any Person with whom
it has any continuing agreement, arrangement or understanding
regarding the transferred Rights or (II) a transfer
<PAGE>
24
which the Board of Directors has determined is part of a plan,
arrangement or understanding which has the purpose or effect of
avoiding the provisions of this paragraph, and subsequent transferees
of such Persons, shall be void without any further action and any
holder of such Rights shall thereafter have no rights whatsoever with
respect to such Rights under any provision of this Agreement. The
Company shall use all reasonable efforts to ensure that the provisions
of this Section 11(a)(ii) are complied with, but shall have no
liability to any holder of Right Certificates or other Person as a
result of its failure to make any determinations with respect to an
Acquiring Person or its Affiliates, Associates or transferees
hereunder. From and after the invalidation time, no Right Certificate
shall be issued pursuant to Section 3 or Section 6 hereof that
represents Rights that are or have become void pursuant to the
provisions of this paragraph, and any Right Certificate delivered to
the Rights Agent that represents Rights that are or have become void
pursuant to the provisions of this paragraph shall be cancelled. From
and after the occurrence of an event specified in Section 13(a)
hereof, any Rights that theretofore have not been exercised pursuant
to this Section 11(a)(ii) shall thereafter be exercisable only in
accordance with Section 13 and not pursuant to this Section 11(a)(ii).
<PAGE>
25
(iii) The Company may at its option substitute for a share of
Common Stock issuable upon the exercise of Rights in accordance with
the foregoing subparagraph (ii) such number or fractions of shares of
Preferred Stock having an aggregate current market value equal to the
current per share market price of a share of Common Stock. In the
event that there shall not be sufficient shares of Common Stock issued
but not outstanding or authorized but unissued to permit the exercise
in full of the Rights in accordance with the foregoing subparagraph
(ii), the Board of Directors shall, to the extent permitted by
applicable law and any material agreements then in effect to which the
Company is a party (A) determine the excess of (1) the value of the
shares of Common Stock issuable upon the exercise of a Right in
accordance with the foregoing subparagraph (ii) (the "Current Value")
over (2) the then current Purchase Price multiplied by the number of
one one-hundredths of shares of Preferred Stock for which a Right was
exercisable immediately prior to the time that the Acquiring Person
became such (such excess, the "Spread"), and (B) with respect to each
Right (other than Rights which have become void pursuant to Section
11(a)(ii)), make adequate provision to substitute for the shares of
Common Stock issuable in accordance with subparagraph (ii) upon
exercise of the Right and payment of the applicable Purchase Price,
(1) cash, (2)
<PAGE>
26
a reduction in the Purchase Price, (3) shares of Preferred Stock or
other equity securities of the Company (including, without limitation,
shares or fractions of shares of preferred stock which, by virtue of
having dividend, voting and liquidation rights substantially
comparable to those of the shares of Common Stock, are deemed in good
faith by the Board of Directors to have substantially the same value
as the shares of Common Stock (such shares of Preferred Stock and
shares or fractions of shares of preferred stock are hereinafter
referred to as "Common Stock equivalents"), (4) debt securities of the
Company, (5) other assets, or (6) any combination of the foregoing,
having a value which, when added to the value of the shares of Common
Stock actually issued upon exercise of such Right, shall have an
aggregate value equal to the Current Value (less the amount of any
reduction in the Purchase Price), where such aggregate value has been
determined by the Board of Directors upon the advice of a nationally
recognized investment banking firm selected in good faith by the Board
of Directors; provided, however, if the Company shall not make
adequate provision to deliver value pursuant to clause (B) above
within thirty (30) days following the date that the Acquiring Person
became such (the "Section 11(a)(ii) Trigger Date"), then the Company
shall be obligated to deliver, to the extent permitted by
<PAGE>
27
applicable law and any material agreements then in effect to which the
Company is a party, upon the surrender for exercise of a Right and
without requiring payment of the Purchase Price, shares of Common
Stock (to the extent available), and then, if necessary, such number
or fractions of shares of Preferred Stock (to the extent available)
and then, if necessary, cash, which shares and/or cash have an
aggregate value equal to the Spread. If, upon the date any Person
becomes an Acquiring Person, the Board of Directors shall determine in
good faith that it is likely that sufficient additional shares of
Common Stock could be authorized for issuance upon exercise in full of
the Rights, then, if the Board of Directors so elects, the thirty (30)
day period set forth above may be extended to the extent necessary,
but not more than ninety (90) days after the Section 11(a)(ii) Trigger
Date, in order that the Company may seek stockholder approval for the
authorization of such additional shares (such thirty (30) day period,
as it may be extended, is herein called the "Substitution Period").
To the extent that the Company determines that some action need be
taken pursuant to the second and/or third sentence of this Section
11(a)(iii), the Company (x) shall provide, subject to Section
11(a)(ii) hereof and the last sentence of this Section 11(a)(iii)
hereof, that such action shall apply uniformly to all outstanding
Rights
<PAGE>
28
and (y) may suspend the exercisability of the Rights until the
expiration of the Substitution Period in order to seek any
authorization of additional shares and/or to decide the appropriate
form of distribution to be made pursuant to such second sentence and
to determine the value thereof. In the event of any such suspension,
the Company shall issue a public announcement stating that the
exercisability of the Rights has been temporarily suspended, as well
as a public announcement at such time as the suspension is no longer
in effect. For purposes of this Section 11(a)(iii), the value of the
shares of Common Stock shall be the current per share market price (as
determined pursuant to Section 11(d)(i)) on the Section 11(a)(ii)
Trigger Date and the per share or fractional value of any "Common
Stock equivalent" shall be deemed to equal the current per share
market price of the Common Stock. The Board of Directors of the
Company may, but shall not be required to, establish procedures to
allocate the right to receive shares of Common Stock upon the exercise
of the Rights among holders of Rights pursuant to this Section
11(a)(iii).
(b) In case the Company shall fix a record date for the issuance of
rights, options or warrants to all holders of Preferred Stock entitling
them (for a period expiring within 45 calendar days after such record date)
to subscribe for or purchase Preferred Stock (or shares having the same
<PAGE>
29
rights, privileges and preferences as the Preferred Stock ("equivalent
preferred shares")) or securities convertible into Preferred Stock or
equivalent preferred shares at a price per share of Preferred Stock or
equivalent preferred shares (or having a conversion price per share, if a
security convertible into shares of Preferred Stock or equivalent preferred
shares) less than the then current per share market price of the Preferred
Stock (determined pursuant to Section 11(d) hereof) on such record date,
the Purchase Price to be in effect after such record date shall be
determined by multiplying the Purchase Price in effect immediately prior to
such record date by a fraction, the numerator of which shall be the number
of shares of Preferred Stock and equivalent preferred shares outstanding on
such record date plus the number of shares of Preferred Stock and
equivalent preferred shares which the aggregate offering price of the total
number of shares of Preferred Stock and/or equivalent preferred shares so
to be offered (and/or the aggregate initial conversion price of the
convertible securities so to be offered) would purchase at such current
market price, and the denominator of which shall be the number of shares of
Preferred Stock and equivalent preferred shares outstanding on such record
date plus the number of additional shares of Preferred Stock and/or
equivalent preferred shares to be offered for subscription or purchase (or
into which the convertible securities so to be offered are initially
convertible); provided, however,
<PAGE>
30
that in no event shall the consideration to be paid upon the exercise of
one Right be less than the aggregate par value of the shares of capital
stock of the Company issuable upon exercise of one Right. In case such
subscription price may be paid in a consideration part or all of which
shall be in a form other than cash, the value of such consideration shall
be as determined in good faith by the Board of Directors of the Company,
whose determination shall be described in a statement filed with the Rights
Agent. Shares of Preferred Stock and equivalent preferred shares owned by
or held for the account of the Company shall not be deemed outstanding for
the purpose of any such computation. Such adjustment shall be made
successively whenever such a record date is fixed; and in the event that
such rights, options or warrants are not so issued, the Purchase Price
shall be adjusted to be the Purchase Price which would then be in effect if
such record date had not been fixed.
(c) In case the Company shall fix a record date for the making of a
distribution to all holders of the Preferred Stock (including any such
distribution made in connection with a consolidation or merger in which the
Company is the continuing or surviving corporation) of evidences of
indebtedness or assets (other than a regular quarterly cash dividend or a
dividend payable in Preferred Stock) or subscription rights or warrants
(excluding those referred to in Section 11(b) hereof), the Purchase Price
to be in effect after such record date shall be determined by multiplying
<PAGE>
31
the Purchase Price in effect immediately prior to such record date by a
fraction, the numerator of which shall be the then current per share market
price of the Preferred Stock (determined pursuant to Section 11(d) hereof)
on such record date, less the fair market value (as determined in good
faith by the Board of Directors of the Company whose determination shall be
described in a statement filed with the Rights Agent) of the portion of the
assets or evidences of indebtedness so to be distributed or of such
subscription rights or warrants applicable to one share of Preferred Stock,
and the denominator of which shall be such current per share market price
(determined pursuant to Section 11(d) hereof) of the Preferred Stock;
provided, however, that in no event shall the consideration to be paid upon
the exercise of one Right be less than the aggregate par value of the
shares of capital stock of the Company to be issued upon exercise of one
Right. Such adjustments shall be made successively whenever such a record
date is fixed; and in the event that such distribution is not so made, the
Purchase Price shall again be adjusted to be the Purchase Price which would
then be in effect if such record date had not been fixed.
(d) (i) Except as otherwise provided herein, for the purpose of any
computation hereunder, the "current per share market price" of any security
(a "Security" for the purpose of this Section 11(d)(i)) on any date shall
be deemed to be the average of the daily closing prices per share of such
<PAGE>
32
Security for the 30 consecutive Trading Days (as such term is hereinafter
defined) immediately prior to such date; provided, however, that in the
event that the current per share market price of the Security is determined
during a period following the announcement by the issuer of such Security
of (A) a dividend or distribution on such Security payable in shares of
such Security or securities convertible into such shares, or (B) any
subdivision, combination or reclassification of such Security, and prior to
the expiration of 30 Trading Days after the ex-dividend date for such
dividend or distribution, or the record date for such subdivision,
combination or reclassification, then, and in each such case, the current
per share market price shall be appropriately adjusted to reflect the
current market price per share equivalent of such Security. The closing
price for each day shall be the last sale price, regular way, or, in case
no such sale takes place on such day, the average of the closing bid and
asked prices, regular way, in either case as reported by the principal
consolidated transaction reporting system with respect to securities listed
or admitted to trading on the New York Stock Exchange or, if the Security
is not listed or admitted to trading on the New York Stock Exchange, as
reported in the principal consolidated transaction reporting system with
respect to securities listed on the principal national securities exchange
on which the Security is listed or admitted to trading or, if the Security
is not listed or admitted to
<PAGE>
33
trading on any national securities exchange, the last quoted price or, if
not so quoted, the average of the high bid and low asked prices in the
over-the-counter market, as reported by NASDAQ or such other system then in
use, or, if on any such date the Security is not quoted by any such
organization, the average of the closing bid and asked prices as furnished
by a professional market maker making a market in the Security selected by
the Board of Directors of the Company. The term "Trading Day" shall mean a
day on which the principal national securities exchange on which the
Security is listed or admitted to trading is open for the transaction of
business or, if the Security is not listed or admitted to trading on any
national securities exchange, a Business Day.
(ii) For the purpose of any computation hereunder, if the Preferred
Stock is publicly traded, the "current per share market price" of the
Preferred Stock shall be determined in accordance with the method set forth
in Section 11(d)(i). If the Preferred Stock is not publicly traded but the
Common Stock is publicly traded, the "current per share market price" of
the Preferred Stock shall be conclusively deemed to be the current per
share market price of the Common Stock as determined pursuant to Section
11(d)(i) multiplied by one hundred (appropriately adjusted to reflect any
stock split, stock dividend or similar transaction occurring after the date
hereof). If neither the Common Stock nor the Preferred Stock is publicly
traded,
<PAGE>
34
"current per share market price" shall mean the fair value per share as
determined in good faith by the Board of Directors of the Company, whose
determination shall be described in a statement filed with the Rights
Agent.
(e) No adjustment in the Purchase Price shall be required unless such
adjustment would require an increase or decrease of at least 1% in the
Purchase Price; provided, however, that any adjustments which by reason of
this Section 11(e) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment. All calculations under
this Section 11 shall be made to the nearest cent or to the nearest one
ten-thousandth of a share of Preferred Stock or share of Common Stock or
other share or security as the case may be. Notwithstanding the first
sentence of this Section 11(e), any adjustment required by this Section 11
shall be made no later than the earlier of (i) three years from the date of
the transaction which requires such adjustment or (ii) the date of the
expiration of the right to exercise any Rights.
(f) If as a result of an adjustment made pursuant to Section 11(a)
hereof, the holder of any Right thereafter exercised shall become entitled
to receive any shares of capital stock of the Company other than the
Preferred Stock, thereafter the Purchase Price and the number of such other
shares so receivable upon exercise of a Right shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent
as practicable to the provisions
<PAGE>
35
with respect to the Preferred Stock contained in Sections 11(a), 11(b),
11(c), 11(e), 11(h), 11(i) and 11(m), and the provisions of Sections 7, 9,
10, 13 and 14 hereof with respect to the Preferred Stock shall apply on
like terms to any such other shares.
(g) All Rights originally issued by the Company subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of one one-hundredths
of a share of Preferred Stock purchasable from time to time hereunder upon
exercise of the Rights, all subject to further adjustment as provided
herein.
(h) Unless the Company shall have exercised its election as provided
in Section 11(i), upon each adjustment of the Purchase Price as a result of
the calculations made in Sections 11(b) and (c), each Right outstanding
immediately prior to the making of such adjustment shall thereafter
evidence the right to purchase, at the adjusted Purchase Price, that number
of one one-hundredths of a share of Preferred Stock (calculated to the
nearest one ten-thousandth of a share of Preferred Stock) obtained by (i)
multiplying (x) the number of one one-hundredths of a share covered by a
Right immediately prior to such adjustment by (y) the Purchase Price in
effect immediately prior to such adjustment of the Purchase Price and (ii)
dividing the product so obtained by the Purchase Price in effect
immediately after such adjustment of the Purchase Price.
<PAGE>
36
(i) The Company may elect on or after the date of any adjustment of
the Purchase Price to adjust the number of Rights, in substitution for any
adjustment in the number of one one-hundredths of a share of Preferred
Stock purchasable upon the exercise of a Right. Each of the Rights
outstanding after such adjustment of the number of Rights shall be
exercisable for the number of one one-hundredths of a share of Preferred
Stock for which a Right was exercisable immediately prior to such
adjustment. Each Right held of record prior to such adjustment of the
number of Rights shall become that number of Rights (calculated to the
nearest one ten-thousandth) obtained by dividing the Purchase Price in
effect immediately prior to adjustment of the Purchase Price by the
Purchase Price in effect immediately after adjustment of the Purchase
Price. The Company shall make a public announcement of its election to
adjust the number of Rights, indicating the record date for the adjustment,
and, if known at the time, the amount of the adjustment to be made. This
record date may be the date on which the Purchase Price is adjusted or any
day thereafter, but, if the Right Certificates have been issued, shall be
at least 10 days later than the date of the public announcement. If Right
Certificates have been issued, upon each adjustment of the number of Rights
pursuant to this Section 11(i), the Company may, as promptly as
practicable, cause to be distributed to holders of record of Right
Certificates on such record date Right Certificates
<PAGE>
37
evidencing, subject to Section 14 hereof, the additional Rights to which
such holders shall be entitled as a result of such adjustment, or, at the
option of the Company, shall cause to be distributed to such holders of
record in substitution and replacement for the Right Certificates held by
such holders prior to the date of adjustment, and upon surrender thereof,
if required by the Company, new Right Certificates evidencing all the
Rights to which such holders shall be entitled after such adjustment.
Right Certificates so to be distributed shall be issued, executed and
countersigned in the manner provided for herein and shall be registered in
the names of the holders of record of Right Certificates on the record date
specified in the public announcement.
(j) Irrespective of any adjustment or change in the Purchase Price or
the number of one one-hundredths of a share of Preferred Stock issuable
upon the exercise of the Rights, the Right Certificates theretofore and
thereafter issued may continue to express the Purchase Price and the number
of one one-hundredths of a share of Preferred Stock which were expressed in
the initial Right Certificates issued hereunder.
(k) Before taking any action that would cause an adjustment reducing
the Purchase Price below the then par value, if any, of the Preferred Stock
or other shares of capital stock issuable upon exercise of the Rights, the
Company shall take any corporate action which may, in the
<PAGE>
38
opinion of its counsel, be necessary in order that the Company may validly
and legally issue fully paid and nonassessable shares of Preferred Stock or
other such shares at such adjusted Purchase Price.
(l) In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date for
a specified event, the Company may elect to defer until the occurrence of
such event the issuing to the holder of any Right exercised after such
record date of the Preferred Stock and other capital stock or securities of
the Company, if any, issuable upon such exercise over and above the
Preferred Stock and other capital stock or securities of the Company, if
any, issuable upon such exercise on the basis of the Purchase Price in
effect prior to such adjustment; provided, however, that the Company shall
deliver to such holder a due bill or other appropriate instrument
evidencing such holder's right to receive such additional shares upon the
occurrence of the event requiring such adjustment.
(m) Anything in this Section 11 to the contrary notwithstanding, the
Company shall be entitled to make such reductions in the Purchase Price, in
addition to those adjustments expressly required by this Section 11, as and
to the extent that it in its sole discretion shall determine to be
advisable in order that any consolidation or subdivision of the Preferred
Stock, issuance wholly for cash of any shares of Preferred Stock at less
than the current market
<PAGE>
39
price, issuance wholly for cash or Preferred Stock or securities which by
their terms are convertible into or exchangeable for Preferred Stock,
dividends on Preferred Stock payable in shares of Preferred Stock or
issuance of rights, options or warrants referred to hereinabove in Section
11(b), hereafter made by the Company to holders of its Preferred Stock
shall not be taxable to such stockholders.
(n) Anything in this Agreement to the contrary notwithstanding, in the
event that at any time after the date of this Agreement and prior to the
Distribution Date, the Company shall (i) declare or pay any dividend on the
Common Stock payable in Common Stock or (ii) effect a subdivision,
combination or consolidation of the Common Stock (by reclassification or
otherwise than by payment of a dividend payable in Common Stock) into a
greater or lesser number of Common Stock, then in any such case, the number
of Rights associated with each share of Common Stock then outstanding, or
issued or delivered thereafter, shall be proportionately adjusted so that
the number of Rights thereafter associated with each share of Common Stock
following any such event shall equal the result obtained by multiplying the
number of Rights associated with each share of Common Stock immediately
prior to such event by a fraction the numerator of which shall be the total
number of shares of Common Stock outstanding immediately prior to the
occurrence of the event and the denominator of which shall
<PAGE>
40
be the total number of shares of Common Stock outstanding immediately
following the occurrence of such event.
(o) The Company agrees that, after the earlier of the Distribution
Date or the Stock Acquisition Date, it will not, except as permitted by
Sections 23, 24 or 27 hereof, take (or permit any Subsidiary to take) any
action if at the time such action is taken it is reasonably foreseeable
that such action will diminish substantially or eliminate the benefits
intended to be afforded by the Rights.
Section 12. Certificate of Adjusted Purchase Price or Number of
Shares. Whenever an adjustment is made as provided in Section 11 or 13 hereof,
the Company shall promptly (a) prepare a certificate setting forth such
adjustment, and a brief statement of the facts accounting for such adjustment,
(b) file with the Rights Agent and with each transfer agent for the Common Stock
or the Preferred Stock a copy of such certificate and (c) mail a brief summary
thereof to each holder of a Right Certificate in accordance with Section 25
hereof (if so required under Section 25 hereof). The Rights Agent shall be
fully protected in relying on any such certificate and on any adjustment therein
contained and shall not be deemed to have knowledge of any such adjustment
unless and until it shall have received such certificate.
Section 13. Consolidation, Merger or Sale or Transfer of Assets or
Earnings Power. (a) In the event, directly or indirectly, at any time after any
Person has become an Acquiring Person, (i) the Company shall merge with and into
any other Person, (ii) any Person shall consolidate with the Company, or
<PAGE>
41
any Person shall merge with and into the Company and the Company shall be the
continuing or surviving corporation of such merger and, in connection with such
merger, all or part of the Common Stock shall be changed into or exchanged for
stock or other securities of any other Person (or of the Company) or cash or any
other property, or (iii) the Company shall sell or otherwise transfer (or one or
more of its Subsidiaries shall sell or otherwise transfer), in one or more
transactions, assets or earning power aggregating 50% or more of the assets or
earning power of the Company and its Subsidiaries (taken as a whole) to any
other Person (other than the Company or one or more of its wholly-owned
Subsidiaries), then upon the first occurrence of such event, proper provision
shall be made so that: (A) each holder of record of a Right (other than Rights
which have become void pursuant to Section 11(a)(ii)) shall thereafter have the
right to receive, upon the exercise thereof at a price equal to the then current
Purchase Price multiplied by the number of one one-hundredths of a share of
Preferred Stock for which a Right was exercisable (whether or not such Right was
then exercisable) immediately prior to the time that any Person first became an
Acquiring Person (each as subsequently adjusted thereafter pursuant to Sections
11(a)(i), 11(b), 11(c), 11(h), 11(i) and 11(m)), in accordance with the terms of
this Agreement and in lieu of Preferred Stock, such number of validly issued,
fully paid and non-assessable and freely tradeable shares of Common Stock of the
Principal Party (as defined herein) not subject to any liens, encumbrances,
rights of first refusal or other adverse
<PAGE>
42
claims, as shall be equal to the result obtained by (1) multiplying the then
current Purchase Price by the number of one one-hundredths of a share of
Preferred Stock for which a Right was exercisable immediately prior to the time
that any Person first became an Acquiring Person (as subsequently adjusted
thereafter pursuant to Sections 11(a)(i), 11(b), 11(c), 11(h), 11(i) and 11(m))
and (2) dividing that product by 50% of the then current per share market price
of the Common Stock of such Principal Party (determined pursuant to Section
11(d)(i) hereof) on the date of consummation of such consolidation, merger, sale
or transfer; provided that the Purchase Price and the number of shares of Common
Stock of such Principal Party issuable upon exercise of each Right shall be
further adjusted as provided in Section 11(f) of this Agreement to reflect any
events occurring in respect of such Principal Party after the date of the such
consolidation, merger, sale or transfer; (B) such Principal Party shall
thereafter be liable for, and shall assume, by virtue of such consolidation,
merger, sale or transfer, all the obligations and duties of the Company pursuant
to this Agreement; (C) the term "Company" shall thereafter be deemed to refer to
such Principal Party; and (D) such Principal Party shall take such steps
(including, but not limited to, the reservation of a sufficient number of its
shares of Common Stock in accordance with Section 9 hereof) in connection with
such consummation of any such transaction as may be necessary to assure that the
provisions hereof shall thereafter be applicable, as nearly as reasonably may
be, in relation to the shares of its Common Stock
<PAGE>
43
thereafter deliverable upon the exercise of the Rights; provided that, upon the
subsequent occurrence of any consolidation, merger, sale or transfer of assets
or other extraordinary transaction in respect of such Principal Party, each
holder of a Right shall thereupon be entitled to receive, upon exercise of a
Right and payment of the Purchase Price as provided in this Section 13(a), such
cash, shares, rights, warrants and other property which such holder would have
been entitled to receive had such holder, at the time of such transaction, owned
the Common Stock of the Principal Party receivable upon the exercise of a Right
pursuant to this Section 13(a), and such Principal Party shall take such steps
(including, but not limited to, reservation of shares of stock) as may be
necessary to permit the subsequent exercise of the Rights in accordance with the
terms hereof for such cash, shares, rights, warrants and other property.
(b) "Principal Party" shall mean
(i) in the case of any transaction described in (i) or (ii) of
the first sentence of Section 13(a) hereof: (A) the Person that is the
issuer of the securities into which the shares of Common Stock are
converted in such merger or consolidation, or, if there is more than one
such issuer, the issuer the shares of Common Stock of which have the
greatest aggregate market value of shares outstanding, or (B) if no
securities are so issued, (x) the Person that is the other party to the
merger, if such Person survives said merger, or, if there is more than one
such Person, the
<PAGE>
44
Person the shares of Common Stock of which have the greatest aggregate
market value of shares outstanding or (y) if the Person that is the other
party to the merger does not survive the merger, the Person that does
survive the merger (including the Company if it survives) or (z) the Person
resulting from the consolidation; and
(ii) in the case of any transaction described in (iii) of the
first sentence in Section 13(a) hereof, the Person that is the party
receiving the greatest portion of the assets or earning power transferred
pursuant to such transaction or transactions, or, if each Person that is a
party to such transaction or transactions receives the same portion of the
assets or earning power so transferred or if the Person receiving the
greatest portion of the assets or earning power cannot be determined,
whichever of such Persons as is the issuer of Common Stock having the
greatest aggregate market value of shares outstanding;
provided, however, that in any such case described in the foregoing clause
(b)(i) or (b)(ii), if the Common Stock of such Person is not at such time or has
not been continuously over the preceding 12-month period registered under
Section 12 of the Exchange Act, then (1) if such Person is a direct or indirect
Subsidiary of another Person the Common Stock of which is and has been so
registered, the term "Principal Party" shall refer to such other Person, or (2)
if such Person is a Subsidiary, directly or indirectly, of more than one Person,
the Common Stock of all of which is and has been so registered, the term
<PAGE>
45
"Principal Party" shall refer to whichever of such Persons is the issuer of
Common Stock having the greatest aggregate market value of shares outstanding,
or (3) if such Person is owned, directly or indirectly, by a joint venture
formed by two or more Persons that are not owned, directly or indirectly, by the
same Person, the rules set forth in clauses (1) and (2) above shall apply to
each of the owners having an interest in the venture as if the Person owned by
the joint venture was a Subsidiary of both or all of such joint venturers, and
the Principal Party in each such case shall bear the obligations set forth in
this Section 13 in the same ratio as its interest in such Person bears to the
total of such interests.
(c) The Company shall not consummate any consolidation, merger, sale
or transfer referred to in Section 13(a) hereof unless prior thereto the Company
and the Principal Party involved therein shall have executed and delivered to
the Rights Agent an agreement confirming that the requirements of Sections 13(a)
and (b) hereof shall promptly be performed in accordance with their terms and
that such consolidation, merger, sale or transfer of assets shall not result in
a default by the Principal Party under this Agreement as the same shall have
been assumed by the Principal Party pursuant to Sections 13(a) and (b) hereof
and providing that, as soon as practicable after executing such agreement
pursuant to this Section 13, the Principal Party will:
(i) prepare and file a registration statement under the
Securities Act, if necessary, with respect to the
<PAGE>
46
Rights and the securities purchasable upon exercise of the Rights on an
appropriate form, use its best efforts to cause such registration statement
to become effective as soon as practicable after such filing and use its
best efforts to cause such registration statement to remain effective (with
a prospectus at all times meeting the requirements of the Securities Act)
until the Final Expiration Date, and similarly comply with applicable state
securities laws;
(ii) use its best efforts, if the Common Stock of the Principal
Party shall be listed or admitted to trading on the New York Stock Exchange
or on another national securities exchange, to list or admit to trading (or
continue the listing of) the Rights and the securities purchasable upon
exercise of the Rights on the New York Stock Exchange or such securities
exchange, or, if the Common Stock of the Principal Party shall not be
listed or admitted to trading on the New York Stock Exchange or a national
securities exchange, to cause the Rights and the securities receivable upon
exercise of the Rights to be reported by such other system then in use;
(iii) deliver to holders of the Rights historical financial
statements for the Principal Party which comply in all respects with the
requirements for registration on Form 10 (or any successor form) under the
Exchange Act; and
(iv) obtain waivers of any rights of first refusal or preemptive
rights in respect of the Common Stock
<PAGE>
47
of the Principal Party subject to purchase upon exercise of outstanding
Rights.
(d) In case the Principal Party has provision in any of its authorized
securities or in its certificate of incorporation or by-laws or other instrument
governing its corporate affairs, which provision would have the effect of (i)
causing such Principal Party to issue (other than to holders of Rights pursuant
to this Section 13), in connection with, or as a consequence of, the
consummation of a transaction referred to in this Section 13, shares of Common
Stock of such Principal Party at less than the then current market price per
share thereof (determined pursuant to Section 11(d) hereof) or securities
exercisable for, or convertible into, Common Stock of such Principal Party at
less than such then current market price, or (ii) providing for any special
payment, tax or similar provision in connection with the issuance of the Common
Stock of such Principal Party pursuant to the provisions of Section 13, then, in
such event, the Company hereby agrees with each holder of Rights that it shall
not consummate any such transaction unless prior thereto the Company and such
Principal Party shall have executed and delivered to the Rights Agent a
supplemental agreement providing that the provision in question of such
Principal Party shall have been cancelled, waived or amended, or that the
authorized securities shall be redeemed, so that the applicable provision will
have no effect in connection with, or as a consequence of, the consummation of
the proposed transaction.
<PAGE>
48
(e) The Company covenants and agrees that it shall not, at any time
after a Person first becomes an Acquiring Person, enter into any transaction of
the type contemplated by (i) - (iii) of Section 13(a) hereof if (x) at the time
of or immediately after such consolidation, merger, sale, transfer or other
transaction there are any rights, warrants or other instruments or securities
outstanding or agreements in effect which would substantially diminish or
otherwise eliminate the benefits intended to be afforded by the Rights, (y)
prior to, simultaneously with or immediately after such consolidation, merger,
sale, transfer of other transaction, the stockholders of the Person who
constitutes, or would constitute, the Principal Party for purposes of Section
13(a) hereof shall have received a distribution of Rights previously owned by
such Person or any of its Affiliates or Associates or (z) the form or nature of
organization of the Principal Party would preclude or limit the exercisability
of the Rights.
Section 14. Fractional Rights and Fractional Shares. (a) The
Company shall not be required to issue fractions of Rights or to distribute
Right Certificates which evidence fractional Rights. In lieu of such fractional
Rights, there shall be paid to the registered holders of the Right Certificates
with regard to which such fractional Rights would otherwise be issuable, an
amount in cash equal to the same fraction of the current market value of a whole
Right. For the purposes of this Section 14(a), the current market value of a
whole Right shall be the closing price of the Rights for the Trading Day
immediately
<PAGE>
49
prior to the date on which such fractional Rights would have been otherwise
issuable. The closing price for any day shall be the last sale price, regular
way, or, in case no such sale takes place on such day, the average of the
closing bid and asked prices, regular way, in either case as reported in the
principal consolidated transaction reporting system with respect to securities
listed or admitted to trading on the New York Stock Exchange or, if the Rights
are not listed or admitted to trading on the New York Stock Exchange, as
reported in the principal consolidated transaction reporting system with respect
to securities listed on the principal national securities exchange on which the
Rights are listed or admitted to trading or, if the Rights are not listed or
admitted to trading on any national securities exchange, the last quoted price
or, if not so quoted, the average of the high bid and low asked prices in the
over-the-counter market, as reported by NASDAQ or such other system then in use
or, if on any such date the Rights are not quoted by any such organization, the
average of the closing bid and asked prices as furnished by a professional
market maker making a market in the Rights selected by the Board of Directors of
the Company. If on any such date no such market maker is making a market in the
Rights, the fair value of the Rights on such date as determined in good faith by
the Board of Directors of the Company shall be used.
(b) The Company shall not be required to issue fractions of Preferred
Stock (other than fractions which are integral multiples of one one-hundredth of
a share of Preferred
<PAGE>
50
Stock) upon exercise of the Rights or to distribute certificates which evidence
fractional shares of Preferred Stock (other than fractions which are integral
multiples of one one-hundredth of a share of Preferred Stock). Interests in
fractions of Preferred Stock in integral multiples of one one-hundredth of a
share of Preferred Stock may, at the election of the Company, be evidenced by
depositary receipts, pursuant to an appropriate agreement between the Company
and a depositary selected by it; provided, that such agreement shall provide
that the holders of such depositary receipts shall have all the rights,
privileges and preferences to which they are entitled as beneficial owners of
the Preferred Stock represented by such depositary receipts. In lieu of
fractional shares of Preferred Stock that are not integral multiples of one one-
hundredth of a share of Preferred Stock, the Company shall pay to the registered
holders of Right Certificates at the time such Rights are exercised as herein
provided an amount in cash equal to the same fraction of the current market
value of one share of Preferred Stock. For the purposes of this Section 14(b),
the current market value of a share of Preferred Stock shall be the closing
price of a share of Preferred Stock (as determined pursuant to Section 11(d)(i)
hereof) for the Trading Day immediately prior to the date of such exercise.
(c) The holder of a Right by the acceptance of the Right expressly
waives his right to receive any fractional Rights or any fractional shares upon
exercise of a Right (except as provided above).
<PAGE>
51
Section 15. Rights of Action. All rights of action in respect of this
Agreement, excepting the rights of action given to the Rights Agent under
Section 18 hereof, are vested in the respective registered holders of the Right
Certificates (and, prior to the Distribution Date, the registered holders of the
Common Stock); and any registered holder of any Right Certificate (or, prior to
the Distribution Date, of the Common Stock), without the consent of the Rights
Agent or of the holder of any other Right Certificate (or, prior to the
Distribution Date, of the Common Stock), on his own behalf and for his own
benefit, may enforce, and may institute and maintain any suit, action or
proceeding against the Company to enforce, or otherwise act in respect of, his
right to exercise the Rights evidenced by such Right Certificate (or, prior to
the Distribution Date, such Common Stock) in the manner provided in such Right
Certificate and in this Agreement. Without limiting the foregoing or any
remedies available to the holders of Rights, it is specifically acknowledged
that the holders of Rights would not have an adequate remedy at law for any
breach of this Agreement and will be entitled to specific performance of the
obligations under, and injunctive relief against actual or threatened violations
of, the obligations of any Person subject to this Agreement.
Section 16. Agreement of Right Holders. Every holder of a Right, by
accepting the same, consents and agrees with the Company and the Rights Agent
and with every other holder of a Right that:
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52
(a) prior to the Distribution Date, the Rights will be transferable
only in connection with the transfer of the Common Stock;
(b) after the Distribution Date, the Right Certificates are
transferable only on the registry books of the Rights Agent if surrendered
at the office or agency of the Rights Agent designated for such purpose,
duly endorsed or accompanied by a proper instrument of transfer; and
(c) the Company and the Rights Agent may deem and treat the Person in
whose name the Right Certificate (or, prior to the Distribution Date, the
Common Stock certificate) is registered as the absolute owner thereof and
of the Rights evidenced thereby (notwithstanding any notations of ownership
or writing on the Right Certificates or the Common Stock certificate made
by anyone other than the Company or the Rights Agent) for all purposes
whatsoever, and neither the Company nor the Rights Agent shall be affected
by any notice to the contrary.
Section 17. Right Certificate Holder Not Deemed a Stockholder. No
holder, as such, of any Right Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of the Preferred Stock or any
other securities of the Company which may at any time be issuable on the
exercise of the Rights represented thereby, nor shall anything contained herein
or in any Right Certificate be construed to confer upon the holder of any Right
Certificate, as such, any of the rights of a stockholder of the Company or any
right to vote for the
<PAGE>
53
election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting stockholders (except as
provided in this Agreement), or to receive dividends or subscription rights, or
otherwise, until the Rights evidenced by such Right Certificate shall have been
exercised in accordance with the provisions hereof.
Section 18. Concerning the Rights Agent. (a) The Company agrees to
pay to the Rights Agent reasonable compensation for all services rendered by it
hereunder and, from time to time, on demand of the Rights Agent, its reasonable
expenses and counsel fees and other disbursements incurred in the administration
and execution of this Agreement and the exercise and performance of its duties
hereunder. The Company also agrees to indemnify the Rights Agent for, and to
hold it harmless against, any loss, liability or expense, incurred without
negligence, bad faith or willful misconduct on the part of the Rights Agent, for
anything done or omitted by the Rights Agent in connection with the acceptance
and administration of this Agreement, including the costs and expenses of
defending against any claim of liability arising therefrom, directly or
indirectly.
(b) The Rights Agent shall be protected and shall incur no liability
for, or in respect of any action taken, suffered or omitted by it in connection
with, its administration of this Agreement in reliance upon any Right
Certificate or certificate for the Preferred Stock or Common Stock or for other
<PAGE>
54
securities of the Company, instrument of assignment or transfer, power of
attorney, endorsement, affidavit, letter, notice, direction, consent,
certificate, statement, or other paper or document believed by it to be genuine
and to be signed, executed and, where necessary, verified or acknowledged, by
the proper Person or Persons, or otherwise upon the advice of counsel as set
forth in Section 20 hereof.
Section 19. Merger or Consolidation or Change of Name of Rights
Agent. (a) Any corporation into which the Rights Agent or any successor Rights
Agent may be merged or with which it may be consolidated, or any corporation
resulting from any merger or consolidation to which the Rights Agent or any
successor Rights Agent shall be a party, or any corporation succeeding to the
stock transfer or corporate trust powers of the Rights Agent or any successor
Rights Agent, shall be the successor to the Rights Agent under this Agreement
without the execution or filing of any paper or any further act on the part of
any of the parties hereto; provided, that such corporation would be eligible for
appointment as a successor Rights Agent under the provisions of Section 21
hereof. In case at the time such successor Rights Agent shall succeed to the
agency created by this Agreement, any of the Right Certificates shall have been
countersigned but not delivered, any such successor Rights Agent may adopt the
countersignature of the predecessor Rights Agent and deliver such Right
Certificates so countersigned; and in case at that time any of the Right
Certificates shall not have been countersigned, any successor Rights Agent may
countersign such
<PAGE>
55
Right Certificates either in the name of the predecessor Rights Agent or in the
name of the successor Rights Agent; and in all such cases such Right
Certificates shall have the full force provided in the Right Certificates and in
this Agreement.
(b) In case at any time the name of the Rights Agent shall be changed
and at such time any of the Right Certificates shall have been countersigned but
not delivered the Rights Agent may adopt the countersignature under its prior
name and deliver Right Certificates so countersigned; and in case at that time
any of the Right Certificates shall not have been countersigned, the Rights
Agent may countersign such Right Certificates either in its prior name or in its
changed name and in all such cases such Right Certificates shall have the full
force provided in the Right Certificates and in this Agreement.
Section 20. Duties of Rights Agent. The Rights Agent undertakes the
duties and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Right Certificates,
by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may be legal
counsel for the Company), and the opinion of such counsel shall be full and
complete authorization and protection to the Rights Agent as to any action
taken or omitted by it in good faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this Agreement the
Rights Agent shall deem it necessary or
<PAGE>
56
desirable that any fact or matter be proved or established by the Company
prior to taking or suffering any action hereunder, such fact or matter
(unless other evidence in respect thereof be herein specifically
prescribed) may be deemed to be conclusively proved and established by a
certificate signed by any one of the Chairman of the Board of Directors,
the President, any Vice President, the Treasurer, the Controller or the
Secretary of the Company and delivered to the Rights Agent; and such
certificate shall be full authorization to the Rights Agent for any action
taken or suffered in good faith by it under the provisions of this
Agreement in reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder to the Company and any
other Person only for its own negligence, bad faith or wilful misconduct.
(d) The Rights Agent shall not be liable for or by reason of any of
the statements of fact or recitals contained in this Agreement or in the
Right Certificates (except its countersignature thereof) or be required to
verify the same, but all such statements and recitals are and shall be
deemed to have been made by the Company only.
(e) The Rights Agent shall not be under any responsibility in respect
of the validity of this Agreement or the execution and delivery hereof
(except the due execution hereof by the Rights Agent) or in respect of the
validity or execution of any Right Certificate (except its
<PAGE>
57
countersignature thereof); nor shall it be responsible for any breach by the
Company of any covenant or condition contained in this Agreement or in any Right
Certificate; nor shall it be responsible for any change in the exercisability of
the Rights (including the Rights becoming void pursuant to Section 11(a)(ii)
hereof) or any adjustment in the terms of the Rights (including the manner,
method or amount thereof) provided for in Sections 3, 11, 13, 23 and 24, or the
ascertaining of the existence of facts that would require any such change or
adjustment (except with respect to the exercise of Rights evidenced by Right
Certificates after receipt of a certificate furnished pursuant to Section 12,
describing such change or adjustment); nor shall it by any act hereunder be
deemed to make any representation or warranty as to the authorization or
reservation of any shares of Preferred Stock or other securities to be issued
pursuant to this Agreement or any Right Certificate or as to whether any shares
of Preferred Stock or other securities will, when issued, be validly authorized
and issued, fully paid and nonassessable.
(f) The Company agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all such
further and other acts, instruments and assurances as may reasonably be required
by the Rights Agent for the carrying out or performing by the Rights Agent of
the provisions of this Agreement.
<PAGE>
58
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from any
person reasonably believed by the Rights Agent to be one of the Chairman of the
Board of Directors, the President, the Chief Financial Officer or the Secretary
of the Company, and to apply to such officers for advice or instructions in
connection with its duties, and it shall not be liable for any action taken or
suffered by it in good faith in accordance with instructions of any such officer
or for any delay in acting while waiting for those instructions. Any application
by the Rights Agent for written instructions from the Company may, at the option
of the Rights Agent, set forth in writing any action proposed to be taken or
omitted by the Rights Agent under this Agreement and the date on and/or after
which such action shall be taken or such omission shall be effective. The Rights
Agent shall not be liable for any action taken by, or omission of, the Rights
Agent in accordance with a proposal included in any such application on or after
the date specified in such application (which date shall not be less than five
Business Days after the date any officer of the Company actually receives such
application, unless any such officer shall have consented in writing to an
earlier date) unless, prior to taking any such action (or the effective date in
the case of an omission), the Rights Agent shall have received written
instructions in response to such application specifying the action to be taken
or omitted.
<PAGE>
59
(h) The Rights Agent and any stockholder, director, officer or employee of
the Rights Agent may buy, sell or deal in any of the Rights or other securities
of the Company or become pecuniarily interested in any transaction in which the
Company may be interested, or contract with or lend money to the Company or
otherwise act as fully and freely as though it were not Rights Agent under this
Agreement. Nothing herein shall preclude the Rights Agent from acting in any
other capacity for the Company or for any other legal entity.
(i) The Rights Agent may execute and exercise any of the rights or powers
hereby vested in it or perform any duty hereunder either itself or by or through
its attorneys or agents, and the Rights Agent shall not be answerable or
accountable for any act, default, neglect or misconduct of any such attorneys or
agents or for any loss to the Company resulting from any such act, default,
neglect or misconduct, provided reasonable care was exercised in the selection
and continued employment thereof.
(j) If, with respect to any Rights Certificate surrendered to the Rights
Agent for exercise or transfer, the certificate contained in the form of
assignment or the form of election to purchase set forth on the reverse thereof,
as the case may be, has not been completed to certify the holder is not an
Acquiring Person (or an Affiliate or Associate thereof), a Rights Agent shall
not take any further action with respect to such requested
<PAGE>
60
exercise or transfer without first consulting with the Company.
Section 21. Change of Rights Agent. The Rights Agent or any successor
Rights Agent may resign and be discharged from its duties under this Agreement
upon 30 days' notice in writing mailed to the Company and to each transfer agent
of the Common Stock or Preferred Stock by registered or certified mail, and,
following the Distribution Date, to the holders of the Right Certificates by
first-class mail. The Company may remove the Rights Agent or any successor
Rights Agent upon 30 days' notice in writing, mailed to the Rights Agent or
successor Rights Agent, as the case may be, and to each transfer agent of the
Common Stock or Preferred Stock by registered or certified mail, and, following
the Distribution Date, to the holders of the Right Certificates by first-class
mail. If the Rights Agent shall resign or be removed or shall otherwise become
incapable of acting, the Company shall appoint a successor to the Rights Agent.
If the Company shall fail to make such appointment within a period of 30 days
after giving notice of such removal or after it has been notified in writing of
such resignation or incapacity by the resigning or incapacitated Rights Agent or
by the holder of a Right Certificate (who shall, with such notice, submit his
Right Certificate for inspection by the Company), then the registered holder of
any Right Certificate may apply to any court of competent jurisdiction for the
appointment of a new Rights Agent. Any successor Rights Agent, whether appointed
by the Company or by such a court, shall be a corporation organized and
<PAGE>
61
doing business under the laws of the United States or any State thereof, which
is authorized under such laws to exercise corporate trust or stock transfer
powers and is subject to supervision or examination by federal or state
authority and which has at the time of its appointment as Rights Agent a
combined capital and surplus of at least $50 million. After appointment, the
successor Rights Agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named as Rights Agent without
further act or deed; but the predecessor Rights Agent shall deliver and transfer
to the successor Rights Agent any property at the time held by it hereunder, and
execute and deliver any further assurance, conveyance, act or deed necessary for
the purpose. Not later than the effective date of any such appointment the
Company shall file notice thereof in writing with the predecessor Rights Agent
and each transfer agent of the Common Stock or Preferred Stock, and, following
the Distribution Date, mail a notice thereof in writing to the registered
holders of the Right Certificates. Failure to give any notice provided for in
this Section 21, however, or any defect therein, shall not affect the legality
or validity of the resignation or removal of the Rights Agent or the appointment
of the successor Rights Agent, as the case may be.
Section 22. Issuance of New Right Certificates. Notwithstanding any of
the provisions of this Agreement or of the Rights to the contrary, the Company
may, at its option, issue new Right Certificates evidencing Rights in such forms
as may be approved by its Board of Directors to reflect any adjustment or
<PAGE>
62
change in the Purchase Price and the number or kind or class of shares or other
securities or property purchasable under the Right Certificates made in
accordance with the provisions of this Agreement. In addition, in connection
with the issuance or sale of Common Stock following the Distribution Date and
prior to the earlier of the Redemption Date and the Final Expiration Date, the
Company may with respect to shares of Common Stock so issued or sold pursuant to
(i) the exercise of stock options, (ii) under any employee plan or arrangement,
(iii) upon the exercise, conversion or exchange of securities notes or
debentures issued by the Company or (iv) a contractual obligation of the Company
in each case existing prior to the Distribution Date, issue Rights Certificates
representing the appropriate number of Rights in connection with such issuance
or sale.
Section 23. Redemption. (a) The Board of Directors of the Company may,
at any time prior to such time as any Person first becomes an Acquiring Person,
redeem all but not less than all the then outstanding Rights at a redemption
price of $.01 per Right, appropriately adjusted to reflect any stock split,
stock dividend or similar transaction occurring after the date hereof (the
redemption price being hereinafter referred to as the "Redemption Price"). The
redemption of the Rights may be made effective at such time, on such basis and
with such conditions as the Board of Directors in its sole discretion may
establish.
(b) Immediately upon the action of the Board of Directors ordering the
redemption of the Rights pursuant to paragraph (a) of this Section 23 (or at
such later time as the
<PAGE>
63
Board of Directors may establish for the effectiveness of such redemption), and
without any further action and without any notice, the right to exercise the
Rights will terminate and the only right thereafter of the holders of Rights
shall be to receive the Redemption Price. The Company shall promptly give public
notice of any such redemption; provided, however, that the failure to give, or
any defect in, any such notice shall not affect the validity of such redemption.
Within 10 days after such action of the Board of Directors ordering the
redemption of the Rights (or such later time as the Board of Directors may
establish for the effectiveness of such redemption), the Company shall mail a
notice of redemption to all the holders of the then outstanding Rights at their
last addresses as they appear upon the registry books of the Rights Agent or,
prior to the Distribution Date, on the registry books of the transfer agent for
the Common Stock. Any notice which is mailed in the manner herein provided shall
be deemed given, whether or not the holder receives the notice. Each such notice
of redemption shall state the method by which the payment of the Redemption
Price will be made.
Section 24. Exchange. (a) The Board of Directors of the Company may,
at its option, at any time after any Person first becomes an Acquiring Person,
exchange all or part of the then outstanding and exercisable Rights (which shall
not include Rights that have become void pursuant to the provisions of Section
11(a)(ii) hereof) for shares of Common Stock at an exchange ratio of one share
of Common Stock per Right, (such
<PAGE>
64
exchange ratio being hereinafter referred to as the "Exchange Ratio").
Notwithstanding the foregoing, the Board of Directors shall not be empowered to
effect such exchange at any time after (1) any Person (other than an Exempt
Person), together with all Affiliates and Associates of such Person, becomes the
Beneficial Owner of shares of Common Stock aggregating 50% or more of the shares
of Common Stock then outstanding or (2) the occurrence of an event specified in
Section 13(a) hereof.
(b) Immediately upon the action of the Board of Directors of the
Company ordering the exchange of any Rights pursuant to paragraph (a) of this
Section 24 and without any further action and without any notice, the right to
exercise such Rights shall terminate and the only right thereafter of a holder
of such Rights shall be to receive that number of shares of Common Stock equal
to the number of such Rights held by such holder multiplied by the Exchange
Ratio. The Company shall promptly give public notice of any such exchange;
provided, however, that the failure to give, or any defect in, such notice shall
not affect the validity of such exchange. The Company shall promptly mail a
notice of any such exchange to all of the holders of the Rights so exchanged at
their last addresses as they appear upon the registry books of the Rights Agent.
Any notice which is mailed in the manner herein provided shall be deemed given,
whether or not the holder receives the notice. Each such notice of exchange will
state the method by which the exchange of the shares of Common Stock for Rights
will be effected and, in the event of any partial exchange, the number of
<PAGE>
65
Rights which will be exchanged. Any partial exchange shall be effected pro rata
based on the number of Rights (other than Rights which have become void pursuant
to the provisions of Section 11(a)(ii) hereof) held by each holder of Rights.
(c) In the event that there shall not be sufficient shares of Common
Stock issued but not outstanding or authorized but unissued to permit any
exchange of Rights as contemplated in accordance with this Section 24, the
Company may, in its discretion, take such action as may be necessary to
authorize additional shares of Common Stock for issuance upon exchange of the
Rights. In the event that the Company shall determine not to take such action or
shall, after good faith effort, be unable to take such action as may be
necessary to authorize such additional shares of Common Stock, the Company shall
substitute, to the extent of such insufficiency, for each share of Common Stock
that would otherwise be issuable upon exchange of a Right, a number of shares of
Preferred Stock or fractions thereof (or equivalent preferred shares as such
term is defined in Section 11(b)) having an aggregate current per share market
price (determined pursuant to Section 11(d) hereof) equal to the current per
share market price of one share of Common Stock (determined pursuant to Section
11(d) hereof) as of the date of issuance of such shares of Preferred Stock or
fractions thereof (or equivalent preferred shares).
(d) The Company shall not, in connection with any exchange pursuant to
this Section 24, be required to issue fractions of shares of Common Stock or to
distribute certificates
<PAGE>
66
which evidence fractional shares of Common Stock. In lieu of such fractional
shares of Common Stock, the Company shall pay to the registered holders of the
Right Certificates with regard to which such fractional shares of Common Stock
would otherwise be issuable an amount in cash equal to the same fraction of the
current market value of a whole share of Common Stock. For the purposes of this
paragraph (d), the current market value of a whole share of Common Stock shall
be the closing price of a share of Common Stock (as determined pursuant to the
second sentence of Section 11(d)(i) hereof) for the Trading Day immediately
prior to the date of exchange pursuant to this Section 24.
Section 25. Notice of Certain Events. (a) In case the Company shall
at any time after the earlier of the Distribution Date or the Stock Acquisition
Date propose (i) to pay any dividend payable in stock of any class to the
holders of its Preferred Stock or to make any other distribution to the holders
of its Preferred Stock (other than a regular quarterly cash dividend), (ii) to
offer to the holders of its Preferred Stock rights or warrants to subscribe for
or to purchase any additional shares of Preferred Stock or shares of stock of
any class or any other securities, rights or options, (iii) to effect any
reclassification of its Preferred Stock (other than a reclassification involving
only the subdivision of outstanding Preferred Stock), (iv) to effect the
liquidation, dissolution or winding up of the Company, or (v) to declare or pay
any dividend on the Common Stock payable in Common Stock or to effect a
subdivision, combination or consolidation of the Common Stock (by
<PAGE>
67
reclassification or otherwise than by payment of dividends in Common Stock),
then, in each such case, the Company shall give to each holder of a Right
Certificate, in accordance with Section 26 hereof, a notice of such proposed
action, which shall specify the record date for the purposes of such stock
dividend, or distribution of rights or warrants, or the date on which such
liquidation, dissolution or winding up is to take place and the date of
participation therein by the holders of the Common Stock and/or Preferred Stock,
if any such date is to be fixed, and such notice shall be so given in the case
of any action covered by clause (i) or (ii) above at least 10 days prior to the
record date for determining holders of the Preferred Stock for purposes of such
action, and in the case of any such other action, at least 10 days prior to the
date of the taking of such proposed action or the date of participation therein
by the holders of the Common Stock and/or Preferred Stock, whichever shall be
the earlier.
(b) In case any event described in Section 11(a)(ii) or Section 13
shall occur then the Company shall as soon as practicable thereafter give to
each holder of a Right Certificate (or if occurring prior to the Distribution
Date, the holders of the Common Stock) in accordance with Section 26 hereof, a
notice of the occurrence of such event, which notice shall describe such event
and the consequences of such event to holders of Rights under Section 11(a)(ii)
and Section 13 hereof.
Section 26. Notices. Notices or demands authorized by this Agreement
to be given or made by the Rights Agent or by the
<PAGE>
68
holder of any Right Certificate to or on the Company shall be sufficiently given
or made if sent by first-class mail, postage prepaid, addressed (until another
address is filed in writing with the Rights Agent) as follows:
EVEREN CAPITAL CORPORATION
77 West Wacker Drive
Chicago, Illinois 60601-1694
Attention: Corporate Secretary
Subject to the provisions of Section 21 hereof, any notice or demand authorized
by this Agreement to be given or made by the Company or by the holder of any
Right Certificate to or on the Rights Agent shall be sufficiently given or made
if sent by first-class mail, postage prepaid, addressed (until another address
is filed in writing with the Company) as follows:
-----------
[address]
Attention:
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Right Certificate shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to such holder at the address of such holder as shown on the registry
books of the Company.
Section 27. Supplements and Amendments. Except as provided in the
penultimate sentence of this Section 27, for so long as the Rights are then
redeemable, the Company may in its sole and absolute discretion, and the Rights
Agent shall if the Company so directs, supplement or amend any provision of this
Agreement in any respect without the approval of any holders of the Rights. At
any time when the Rights are no longer
<PAGE>
69
redeemable, except as provided in the penultimate sentence of this Section 27,
the Company may, and the Rights Agent shall, if the Company so directs,
supplement or amend this Agreement without the approval of any holders of Rights
Certificates in order to (i) cure any ambiguity, (ii) correct or supplement any
provision contained herein which may be defective or inconsistent with any other
provisions herein, (iii) shorten or lengthen any time period hereunder, or (iv)
change or supplement the provisions hereunder in any manner which the Company
may deem necessary or desirable; provided that no such supplement or amendment
shall adversely affect the interests of the holders of Rights as such (other
than an Acquiring Person or an Affiliate or Associate of an Acquiring Person),
and no such amendment may cause the Rights again to become redeemable or cause
the Agreement again to become amendable other than in accordance with this
sentence. Notwithstanding anything contained in this Agreement to the contrary,
no supplement or amendment shall be made which changes the Redemption Price.
Upon the delivery of a certificate from an appropriate officer of the Company
which states that the proposed supplement or amendment is in compliance with the
terms of this Section 27, the Rights Agent shall execute such supplement or
amendment.
Section 28. Successors. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Rights Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
<PAGE>
70
Section 29. Benefits of this Agreement. Nothing in this Agreement
shall be construed to give to any Person other than the Company, the Rights
Agent and the registered holders of the Right Certificates (and, prior to the
Distribution Date, the Common Stock) any legal or equitable right, remedy or
claim under this Agreement; but this Agreement shall be for the sole and
exclusive benefit of the Company, the Rights Agent and the registered holders of
the Right Certificates (and, prior to the Distribution Date, the Common Stock).
Section 30. Severability. If any term, provision, covenant or
restriction of this Agreement or applicable to this Agreement is held by a court
of competent jurisdiction or other authority to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.
Section 31. Governing Law. This Agreement and each Right Certificate
issued hereunder shall be deemed to be a contract made under the laws of the
State of Delaware and for all purposes shall be governed by and construed in
accordance with the laws of such State applicable to contracts to be made and
performed entirely within such State.
Section 32. Counterparts. This Agreement may be executed in any
number of counterparts and each of such counterparts shall for all purposes be
deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.
<PAGE>
71
Section 33. Descriptive Headings. Descriptive headings of the
several Sections of this Agreement are inserted for convenience only and shall
not control or affect the meaning or construction of any of the provisions
hereof.
<PAGE>
72
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and attested, all as of the day and year first above written.
Attest: EVEREN CAPITAL CORPORATION
By___________________________ By___________________________
Name: Name:
Title: Title:
Attest:
By__________________________ By____________________________
Name: Name:
Title: Title:
<PAGE>
Exhibit A
---------
FORM
OF
CERTIFICATE OF DESIGNATIONS
OF
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
OF
EVEREN CAPITAL CORPORATION
(Pursuant to Section 151 of the
General Corporation Law of the State of Delaware)
___________________
EVEREN CAPITAL CORPORATION, a corporation organized and existing under
the General Corporation Law of the State of Delaware (hereinafter called the
"Company"), hereby certifies that the following resolution was duly adopted by
the Board of Directors of the Company as required by Section 151 of the General
Corporation Law of the State of Delaware at a meeting duly called and held on
_______ __, 1996:
RESOLVED, that pursuant to the authority granted to and vested in the
Board of Directors of the Company (hereinafter called the "Board of Directors"
or the "Board") in accordance with the provisions of the Company's Amended and
Restated Certificate of Incorporation (hereinafter called the "Certificate of
Incorporation"), the Board of Directors hereby creates a series of Preferred
Stock, par value $.01 per share (the "Preferred Stock"), of the Company and
hereby states the designation and number of shares, and fixes the relative
rights, powers and preferences thereof, and the limitations thereof, as follows:
Section 1. Designation and Amount. The shares of such series shall
be designated as "Series A Junior Participating Preferred Stock" (the "Series A
Preferred Stock") and the number of shares constituting the Series A Preferred
Stock shall be 400,000. Such number of shares may be increased or decreased by
resolution of the Board of Directors; provided, that no decrease shall reduce
the number of shares of Series A Preferred Stock to a number less than the
number of shares then outstanding plus the number of shares reserved for
issuance upon the exercise of outstanding options, rights or warrants or upon
the conversion of any outstanding securities issued by the Company convertible
into Series A Preferred Stock.
A-1
<PAGE>
Section 2. Dividends and Distributions.
(A) Subject to the rights of the holders of any shares of any series
of Preferred Stock of the Company (the "Preferred Stock") (or any similar stock)
ranking prior and superior to the Series A Preferred Stock with respect to
dividends, the holders of shares of Series A Preferred Stock, in preference to
the holders of Common Stock, par value $.01 per share, of the Company (the
"Common Stock") and of any other stock of the Company ranking junior to the
Series A Preferred Stock, shall be entitled to receive, when, as and if declared
by the Board of Directors out of funds legally available for the purpose,
quarterly dividends payable in cash on the last day of January, April, July, and
October in each year (each such date being referred to herein as a "Dividend
Payment Date"), commencing on the first Dividend Payment Date after the first
issuance of a share or fraction of a share of Series A Preferred Stock, in an
amount per share (rounded to the nearest cent) equal to the greater of (a) $1 or
(b) subject to the provision for adjustment hereinafter set forth, 100 times the
aggregate per share amount of all cash dividends, and 100 times the aggregate
per share amount (payable in kind) of all non-cash dividends or other
distributions other than a dividend payable in shares of Common Stock, declared
on the Common Stock since the immediately preceding Dividend Payment Date or,
with respect to the first Dividend Payment Date, since the first issuance of any
share or fraction of a share of Series A Preferred Stock. In the event the
Company shall at any time after _______, 1996, declare or pay any dividend on
the Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the amount to which holders of shares of Series A Preferred Stock were
entitled immediately prior to such event under clause (b) of the preceding
sentence shall be adjusted by multiplying such amount by a fraction, the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
(B) The Company shall declare a dividend or distribution on the Series
A Preferred Stock as provided in paragraph (A) of this Section immediately after
it declares a dividend or distribution on the Common Stock (other than a
dividend payable in shares of Common Stock); provided that, in the event no
dividend or distribution shall have been declared on the Common Stock during the
period between any Dividend Payment Date and the next subsequent Dividend
Payment Date, a dividend of $1 per share on the Series A Preferred Stock shall
nevertheless be payable, when, as and if declared, on such subsequent Dividend
Payment Date.
A-2
<PAGE>
(C) Dividends shall begin to accrue and be cumulative, whether or not
earned or declared, on outstanding shares of Series A Preferred Stock from the
Dividend Payment Date next preceding the date of issue of such shares, unless
the date of issue of such shares is prior to the record date for the first
Dividend Payment Date, in which case dividends on such shares shall begin to
accrue from the date of issue of such shares, or unless the date of issue is a
Dividend Payment Date or is a date after the record date for the determination
of holders of shares of Series A Preferred Stock entitled to receive a quarterly
dividend and before such Dividend Payment Date, in either of which events such
dividends shall begin to accrue and be cumulative from such Dividend Payment
Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on
the shares of Series A Preferred Stock in an amount less than the total amount
of such dividends at the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all such shares at the time
outstanding. The Board of Directors may fix a record date for the determination
of holders of shares of Series A Preferred Stock entitled to receive payment of
a dividend or distribution declared thereon, which record date shall be not more
than 60 days prior to the date fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of Series A Preferred
Stock shall have the following voting rights;
(A) Subject to the provision for adjustment hereinafter set forth and
except as otherwise provided in the Certificate of Incorporation or
required by law, each share of Series A Preferred Stock shall entitle the
holder thereof to 100 votes on all matters upon which the holders of the
Common Stock of the Company are entitled to vote. In the event the Company
shall at any time after _______, 1996, declare or pay any dividend on the
Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of
Common Stock) into a greater or lesser number of shares of Common Stock,
then in each such case the number of votes per share to which holders of
shares of Series A Preferred Stock were entitled immediately prior to such
event shall be adjusted by multiplying such number by a fraction, the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such
event.
(B) Except as otherwise provided herein, in the Certificate of
Incorporation or in any other Certificate of Designations creating a series
of Preferred Stock or any similar stock, and except as otherwise required
by law, the holders of shares of Series A Preferred Stock and the
A-3
<PAGE>
holders of shares of Common Stock and any other capital stock of the
Company having general voting rights shall vote together as one class on
all matters submitted to a vote of stockholders of the Company.
(C) Except as set forth herein, or as otherwise provided by law,
holders of Series A Preferred Stock shall have no special voting rights and
their consent shall not be required (except to the extent they are entitled
to vote with holders of Common Stock as set forth herein) for taking any
corporate action.
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Preferred Stock as provided in Section 2 are in
arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not earned or declared, on shares of Series A
Preferred Stock outstanding shall have been paid in full, the Company shall
not:
(i) declare or pay dividends, or make any other distributions,
on any shares of stock ranking junior (as to dividends) to the Series
A Preferred Stock;
(ii) declare or pay dividends, or make any other distributions,
on any shares of stock ranking on a parity (as to dividends) with the
Series A Preferred Stock, except dividends paid ratably on the Series
A Preferred Stock and all such parity stock on which dividends are
payable or in arrears in proportion to the total amounts to which the
holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred
Stock, provided that the Company may at any time redeem, purchase or
otherwise acquire shares of any such junior stock in exchange for
shares of any stock of the Company ranking junior (as to dividends and
upon dissolution, liquidation or winding up) to the Series A Preferred
Stock or rights, warrants or options to acquire such junior stock;
(iv) redeem or purchase or otherwise acquire for consideration
any shares of Series A Preferred Stock, or any shares of stock ranking
on a parity (either as to dividends or upon liquidation, dissolution
or winding up) with the Series A Preferred Stock, except in accordance
with a purchase offer made in writing or by publication (as determined
by the Board of
A-4
<PAGE>
Directors) to all holders of such shares upon such terms as the Board
of Directors, after consideration of the respective annual dividend
rates and other relative rights and preferences of the respective
series and classes, shall determine in good faith will result in fair
and equitable treatment among the respective series or classes.
(B) The Company shall not permit any subsidiary of the Company to
purchase or otherwise acquire for consideration any shares of stock of the
Company unless the Company could, under paragraph (A) of this Section 4,
purchase or otherwise acquire such shares at such time and in such manner.
Section 5. Reacquired Shares. Any shares of Series A Preferred Stock
purchased or otherwise acquired by the Company in any manner whatsoever shall be
retired and cancelled promptly after the acquisition thereof.
Section 6. Liquidation, Dissolution or Winding Up. Upon any
liquidation, dissolution or winding up of the Company, no distribution shall be
made (A) to the holders of the Common Stock or of shares of any other stock of
the Company ranking junior, upon liquidation, dissolution or winding up, to the
Series A Preferred Stock unless, prior thereto, the holders of shares of Series
A Preferred Stock shall have received $100 per share, plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not earned or
declared, to the date of such payment, provided that the holders of shares of
Series A Preferred Stock shall be entitled to receive an aggregate amount per
share, subject to the provision for adjustment hereinafter set forth, equal to
100 times the aggregate amount to be distributed per share to holders of shares
of Common Stock, or (B) to the holders of shares of stock ranking on a parity
upon liquidation, dissolution or winding up with the Series A Preferred Stock,
except distributions made ratably on the Series A Preferred Stock and all such
parity stock in proportion to the total amounts to which the holders of all such
shares are entitled upon such liquidation, dissolution or winding up. In the
event the Company shall at any time after _______, 1996 declare or pay any
dividend on the Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares of Common
Stock (by reclassification or otherwise than by payment of a dividend in shares
of Common Stock) into a greater or lesser number of shares of Common Stock, then
in each such case the aggregate amount to which holders of shares of Series A
Preferred Stock were entitled immediately prior to such event under the proviso
in clause (A) of the preceding sentence shall be adjusted by multiplying such
amount by a fraction the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding immediately prior to
such event.
A-5
<PAGE>
Section 7. Consolidation, Merger, etc. In case the Company shall
enter into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are converted into, exchanged for or changed into
other stock or securities, cash and/or any other property, then in any such case
each share of Series A Preferred Stock shall at the same time be similarly
converted into, exchanged for or changed into an amount per share (subject to
the provision for adjustment hereinafter set forth) equal to 100 times the
aggregate amount of stock, securities, cash and/or any other property (payable
in kind), as the case may be, into which or for which each share of Common Stock
is converted, exchanged or converted. In the event the Company shall at any
time after _______, 1996 declare or pay any dividend on the Common Stock payable
in shares of Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by reclassification or
otherwise than by payment of a dividend in shares of Common Stock) into a
greater or lesser number of shares of Common Stock, then in each such case the
amount set forth in the preceding sentence with respect to the conversion,
exchange or change of shares of Series A Preferred Stock shall be adjusted by
multiplying such amount by a fraction, the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 8. No Redemption. The shares of Series A Preferred Stock
shall not be redeemable from any holder.
Section 9. Rank. The Series A Preferred Stock shall rank, with
respect to the payment of dividends and the distribution of assets upon
liquidation, dissolution or winding up of the Company, junior to all other
series of Preferred Stock and senior to the Common Stock.
Section 10. Amendment. If any proposed amendment to the Certificate
of Incorporation (including this Certificate of Designations) would alter,
change or repeal any of the preferences, powers or special rights given to the
Series A Preferred Stock so as to affect the Series A Preferred Stock adversely,
then the holders of the Series A Preferred Stock shall be entitled to vote
separately as a class upon such amendment, and the affirmative vote of two-
thirds of the outstanding shares of the Series A Preferred Stock, voting
separately as a class, shall be necessary for the adoption thereof, in addition
to such other vote as may be required by the General Corporation Law of the
State of Delaware.
A-6
<PAGE>
IN WITNESS WHEREOF, this Certificate of Designations is executed on
behalf of the Company by its Chairman of the Board of Directors and attested by
its Secretary this _____ day of ___________, 1996.
________________________________________
Chairman of the Board of Directors
Attest:
______________________
Secretary
A-7
<PAGE>
Exhibit B
---------
Form of Right Certificate
Certificate No. R- ____ ___ Rights
NOT EXERCISABLE AFTER _________, 2006 OR EARLIER IF REDEMPTION OR EXCHANGE
OCCURS. THE RIGHTS ARE SUBJECT TO REDEMPTION AT $.01 PER RIGHT AND TO
EXCHANGE ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN
CIRCUMSTANCES, AS SET FORTH IN THE RIGHTS AGREEMENT, RIGHTS OWNED BY OR
TRANSFERRED TO ANY PERSON WHO BECOMES AN ACQUIRING PERSON (AS DEFINED IN
THE RIGHTS AGREEMENT) AND CERTAIN TRANSFEREES THEREOF WILL BECOME NULL AND
VOID AND WILL NO LONGER BE TRANSFERABLE.
Right Certificate
EVEREN CAPITAL CORPORATION
This certifies that ___________ or registered assigns, is the
registered owner of the number of Rights set forth above, each of which entitles
the owner thereof, subject to the terms, provisions and conditions of the Rights
Agreement, dated as of _________, 1996, as the same may be amended from time to
time (the "Rights Agreement"), between EVEREN CAPITAL CORPORATION, a Delaware
corporation (the "Company"), and _______________ (the "Rights Agent"), to
purchase from the Company at any time after the Distribution Date (as such term
is defined in the Rights Agreement) and prior to 5:00 P.M., New York City time,
on ______, 2006 at the office or agency of the Rights Agent designated for such
purpose, or of its successor as Rights Agent, one one-hundredth of a fully paid
non-assessable share of Series A Junior Participating Preferred Stock, par value
$.01 per share (the "Preferred Stock"), of the Company, at a purchase price of
$40.00 per one one-hundredth of a share of Preferred Stock (the "Purchase
Price"), upon presentation and surrender of this Right Certificate with the Form
of Election to Purchase duly executed. The number of Rights evidenced by this
Rights Certificate (and the number of one one-hundredths of a share of Preferred
Stock which may be purchased upon exercise hereof) set forth above, and the
Purchase Price set forth above, are the number and Purchase Price as of _______,
1996, based on the Preferred Stock as constituted at such date. As provided in
the Rights Agreement, the Purchase Price, the number of one one-hundredths of a
share of Preferred Stock (or other securities or property) which may be
purchased upon the exercise of the Rights and the number of Rights evidenced by
this Right Certificate are subject to modification and adjustment upon the
happening of certain events.
This Right Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the
B-1
<PAGE>
Right Certificates. Copies of the Rights Agreement are on file at the principal
executive offices of the Company and the above-mentioned office or agency of the
Rights Agent. The Company will mail to the holder of this Right Certificate a
copy of the Rights Agreement without charge after receipt of a written request
therefor.
This Right Certificate, with or without other Right Certificates, upon
surrender at the office or agency of the Rights Agent designated for such
purpose, may be exchanged for another Right Certificate or Right Certificates of
like tenor and date evidencing Rights entitling the holder to purchase a like
aggregate number of shares of Preferred Stock as the Rights evidenced by the
Right Certificate or Right Certificates surrendered shall have entitled such
holder to purchase. If this Right Certificate shall be exercised in part, the
holder shall be entitled to receive upon surrender hereof another Right
Certificate or Right Certificates for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights
evidenced by this Certificate (i) may be redeemed by the Company at a redemption
price of $.01 per Right or (ii) may be exchanged in whole or in part for shares
of Preferred Stock or shares of the Company's Common Stock, par value $.01 per
share.
No fractional shares of Preferred Stock will be issued upon the
exercise of any Right or Rights evidenced hereby (other than fractions which are
integral multiples of one one-hundredth of a share of Preferred Stock, which
may, at the election of the Company, be evidenced by depositary receipts), but
in lieu thereof a cash payment will be made, as provided in the Rights
Agreement.
No holder of this Right Certificate, as such, shall be entitled to
vote or receive dividends or be deemed for any purpose the holder of the
Preferred Stock or of any other securities of the Company which may at any time
be issuable on the exercise hereof, nor shall anything contained in the Rights
Agreement or herein be construed to confer upon the holder hereof, as such, any
of the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting stockholders (except as
provided in the Rights Agreement) or to receive dividends or subscription
rights, or otherwise, until the Right or Rights evidenced by this Right
certificate shall have been exercised as provided in the Rights Agreement.
This Right Certificate shall not be valid or obligatory for any
purpose until it shall have been countersigned by the Rights Agent.
B-2
<PAGE>
WITNESS the facsimile signature of the proper officers of the Company
and its corporate seal. Dated as of _____________.
ATTEST: EVEREN CAPITAL CORPORATION
By __________________ By __________________
Countersigned:
_______________________,
as Rights Agent
By _________________________
Authorized Signature
B-3
<PAGE>
Form of Reverse Side of Right Certificate
FORM OF ASSIGNMENT
------------------
(To be executed by the registered holder if such
holder desires to transfer the Right Certificate)
FOR VALUE RECEIVED _________________________ hereby sells, assigns and
transfer unto __________________________________________________________________
(Please print name and address of transferee)
________________________________________________________________________________
Rights represented by this Right Certificate, together with all right, title and
interest therein, and does hereby irrevocably constitute and appoint ___________
__________ Attorney, to transfer said Rights on the books of the
within-named Company, with full power of substitution.
Dated: _________________
______________________________
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered
national securities exchange, a member of the National Association of Securities
Dealers, Inc., or a commercial bank or trust company having an office or
correspondent in the United States.
- ----------------------------------------------------------------------------
(To be completed)
The undersigned hereby certifies that the Rights evidenced by this
Right Certificate are not beneficially owned by, were not acquired by the
undersigned from, and are not being assigned to, an Acquiring Person or an
Affiliate or Associate thereof (as defined in the Rights Agreement).
________________________
Signature
B-4
<PAGE>
Form of Reverse Side of Right Certificate - continued
FORM OF ELECTION TO PURCHASE
----------------------------
(To be executed if holder desires to exercise
Rights represented by the Rights Certificate)
To EVEREN CAPITAL CORPORATION:
The undersigned hereby irrevocably elects to exercise
__________________ Rights represented by this Right Certificate to purchase the
shares of Preferred Stock (or other securities or property) issuable upon the
exercise of such Rights and requests that certificates for such shares of
Preferred Stock (or such other securities) be issued in the name of:
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
If such number of Rights shall not be all the Rights evidenced by this Right
Certificate, a new Right Certificate for the balance remaining of such Rights
shall be registered in the name of and delivery to:
Please insert social security
or other identifying number
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
Dated: ____________________
________________________
Signature
(Signature must conform to holder specified on Right Certificate)
Signature Guaranteed:
Signature must be guaranteed by a member of firm of a registered
national securities exchange, a member of the National Association of Securities
Dealers, Inc., or a commercial bank or trust company having an office or
correspondent in the United States.
B-5
<PAGE>
Form of Reverse Side of Right Certificate -- continued
________________________________________________________________________________
(To be completed)
The undersigned certifies that the Rights evidenced by this Right
Certificate are not beneficially owned by, and were not acquired by the
undersigned from, an Acquiring Person or an Affiliate or Associate thereof (as
defined in the Rights Agreement)
______________________
Signature
________________________________________________________________________________
NOTICE
------
The signature in the Form of Assignment or Form of Election to
Purchase, as the case may be, must conform to the name as written upon the face
of this Right Certificate in every particular, without alteration or enlargement
or any change whatsoever.
In the event the certification set forth above in the Form of
Assignment or the Form of Election to Purchase, as the case may be, is not
completed, such Assignment or Election to Purchase will not be honored.
B-6
<PAGE>
EXHIBIT 10.27
AMENDMENT TO THE
EVEREN CAPITAL CORPORATION 1995 STOCK PLAN
R E C I T A L S
---------------
WHEREAS, EVEREN Capital Corporation (the Company) established the EVEREN
Capital Corporation 1995 Stock Plan (the "Plan") effective as of the later of
(a) the date of its adoption by the Company's Board of Directors (the "Board"),
or (b) the date it was approved by the stockholders of the Company (pursuant to
Section 20 of the Plan) (the "Effective Date"); and
WHEREAS, Section 18 of the Plan permits the Board to adopt any amendment to
the Plan deemed necessary even if it materially increases benefits accruing to
Participants under the Plan so long as the Board obtains the approval of the
holders of a majority of the shares of the Company present at a stockholders'
meeting; and
WHEREAS, the Board wishes to adopt an amendment to the Plan which will
materially increase benefits accruing to Participants under the Plan and the
desired amendment has been approved by a majority of the shares of the Company
present at a stockholders' meeting.
NOW, THEREFORE, the Plan is hereby amended and modified, effective as of
the Effective Date, as follows:
1. Paragraph (a) of Section 7 of the Plan is hereby deleted and the
following is substituted in its stead:
"(a) Option Period. Unless the Committee specifies otherwise in the
provisions of any Award, each NSO will expire as of the earliest of:
(i) the date on which it is forfeited under the provisions of
Section 13;
(ii) ten (10) years from the Award Date;
(iii) three (3) months after the Participant's termination of
employment with the Company and its parent and
Subsidiaries for any reason other than death, Disability
or normal retirement (being defined as termination of the
Participant's employment from both the Company and the
industry after (A) attaining age sixty-five (65) or (B)
attaining age fifty-five (55) and having been employed by
the Company or any predecessor of the Company for ten (10)
or more years ("Normal Retirement");
(iv) three (3) years after the Participant's Normal Retirement
or Disability;
(v) twelve (12) months after the Participant's death; or
(vi) any other date (within the limits of the Code) specified
by the Committee in the Participant's Award when the NSO
is granted."
2. Except as modified in this amendment, the Plan shall remain in full
force and effect.
<PAGE>
EXHIBIT 16
September 6, 1996
Securities and Exchange Commission
Mail Stop 9-5
450 5th Street, N.W.
Washington, D.C. 20549
Dear Sirs/Madams:
We have read the comments on page 69 under the caption "Change in
Independent Accountants" in the Registration Statement of EVEREN Capital
Corporation ("EVEREN") on Form S-1 dated July 30, 1996, and we agree with such
statements, except that we are not in a position to agree or disagree with
EVEREN's statements that the change was approved by the board of directors or
that Deloitte & Touche LLP was not consulted regarding the application of
accounting principles to a specified transaction, either completed or
proposed, or the type of audit opinion that might be rendered on EVEREN's
financial statements.
Very truly yours,
KPMG Peat Marwick LLP
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
To the Board of Directors of
EVEREN Capital Corporation
We consent to the use in this Registration Statement on Form S-1 of EVEREN
Capital Corporation ("EVEREN") of our report dated February 23, 1996 (March
28, 1996, as to the second paragraph of Note 23), appearing in the Prospectus,
which is part of this Registration Statement, and of our report dated February
23, 1996, relating to the 1995 financial statement schedule appearing
elsewhere in this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
Deloitte & Touche LLP
Chicago, Illinois
September 6, 1996
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
EVEREN Capital Corporation:
We consent to the use of our reports included herein, dated May 5, 1995
relating to the consolidated statement of financial condition of Kemper
Securities Holdings, Inc. and subsidiaries as of December 31, 1994, and the
related consolidated statements of operations, changes in stockholders'
equity, cash flows and financial statement schedules for each of the years in
the two-year period ended December 31, 1994 and to the reference to our firm
under the heading "Experts" in the prospectus.
KPMG Peat Marwick LLP
Chicago, Illinois
September 6, 1996
