<PAGE>
PROSPECTUS SUPPLEMENT
FILED PURSUANT TO RULE
424(B)(2)
REGISTRATION NO. 333-30905
AND
REGISTRATION NO. 333-39899
2,000,000 FELINE PRIDES-SM-
PROTECTIVE LIFE CORPORATION
PLC CAPITAL TRUST II
----------------
The securities offered hereby are 2,000,000 FELINE PRIDES-SM- ("FELINE
PRIDES" or the "Securities") of Protective Life Corporation, a Delaware
corporation ("Protective Life" or the "Company"), and PLC Capital Trust II, a
statutory business trust formed under the laws of the State of Delaware ("PLC
Capital" or the "Trust"). Each FELINE PRIDES offered hereby initially will
consist of a unit (referred to as an Income PRIDES-SM-) with a Stated Amount of
$50 (the "Stated Amount") comprised of (A) a stock purchase contract (a
"Purchase Contract") under which (I) the holder will purchase from the Company
on February 16, 2001 (the "Purchase Contract Settlement Date"), for an amount of
cash equal to the Stated Amount, a number of newly issued shares of common
stock, $.50 par value per share (the "Common Stock"), of the Company equal to
the Settlement Rate described herein, and (II) the Company will pay the holder
unsecured contract adjustment payments ("Contract Adjustment Payments") at the
rate of 0% of the Stated Amount per annum, provided that if such rate is 0%,
then the Company will not make any Contract Adjustment Payments, and (B)
beneficial ownership of a 6 1/2% Trust Originated Preferred Security (a
"Preferred Security"), having a stated liquidation amount per Preferred Security
equal to the Stated Amount, representing a preferred undivided beneficial
interest in the assets of
(CONTINUED ON NEXT PAGE)
--------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE S-22 OF THIS PROSPECTUS SUPPLEMENT FOR
CERTAIN INFORMATION RELEVANT TO AN INVESTMENT IN THE SECURITIES.
Prior to the offering made hereby there has been no public market for the
Securities. The Income PRIDES have been approved for listing on the New York
Stock Exchange ("NYSE") under the symbol "PLPrP", subject to official notice of
issuance. On November 20, 1997, the last reported sale price of the Common Stock
on the NYSE was $53 5/16 per share.
--------------------------
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 SUPPLEMENT OR THE PROSPECTUS TO WHICH IT RELATES.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) COMMISSION(2) THE COMPANY(3)
<S> <C> <C> <C>
Per Income PRIDES................................. $50.00 $1.50 $48.50
Total(4).......................................... $100,000,000 $3,000,000 $97,000,000
</TABLE>
(1) Plus accrued distributions on the related Preferred Securities and Contract
Adjustment Payments, if any, from November 26, 1997. The purchase price of
each Income PRIDES will be allocated between the related Purchase Contract
and the related Preferred Security in proportion to their respective fair
market values at the time of purchase. See "Certain Federal Income Tax
Consequences -- Acquisition of Income PRIDES; Initial Basis in Preferred
Securities and Purchase Contracts."
(2) The Company and PLC Capital have agreed to indemnify the Underwriters
against certain liabilities under the Securities Act of 1933, as amended.
See "Underwriting."
(3) Before deducting estimated expenses payable by the Company estimated at
$600,000.
(4) The Company and PLC Capital have granted to the Underwriters a 30-day option
to purchase up to an additional 300,000 Income PRIDES, to cover
over-allotments, if any. If such option is exercised in full, the total
Price to Public, Underwriting Commission and Proceeds to the Company will be
$115,000,000, $3,450,000 and $111,550,000, respectively. See "Underwriting."
--------------------------
The Securities are offered by the several Underwriters, subject to prior
sale, when, as and if issued to and accepted by them, and subject to approval of
certain legal matters by counsel for the Underwriters and certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify
such offer and to reject orders in whole or in part. It is expected that
delivery of the Securities offered hereby will be made in New York, New York on
or about November 26, 1997.
--------------------------
MERRILL LYNCH & CO.
GOLDMAN, SACHS & CO.
FOX-PITT, KELTON INC.
THE ROBINSON-HUMPHREY COMPANY
--------------------------
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS NOVEMBER 20, 1997.
- ----------
- -SM-Service Mark of Merrill Lynch & Co. Inc.
<PAGE>
PLC Capital. The Company will, directly or indirectly, own all the common
securities (the "Common Securities" and, together with the Preferred Securities,
the "Trust Securities") representing undivided beneficial interests in the
assets of PLC Capital. PLC Capital exists for the sole purpose of issuing the
Trust Securities and investing the proceeds thereof in an equivalent amount of
6 1/2% Subordinated Debentures of the Company, due February 16, 2003, Series C
(the "Subordinated Debt Securities"). As long as the FELINE PRIDES are in the
form of Income PRIDES, the related Preferred Securities will be pledged to the
Collateral Agent (as defined herein), to secure the holder's obligation to
purchase Common Stock under the related Purchase Contracts.
Aggregate payments of 6 1/2% of the Stated Amount per annum will be made or
accrue on each Income PRIDES quarterly in arrears on March 31, June 30,
September 30 and December 31 of each year, commencing December 31, 1997, until
the Purchase Contract Settlement Date. These payments will consist of cumulative
cash distributions on the related Preferred Securities payable by PLC Capital at
the rate of 6 1/2% of the Stated Amount per annum, and Contract Adjustment
Payments payable by the Company at the rate of 0% of the Stated Amount per annum
(PROVIDED that if such rate is 0%, then the Company will not make any Contract
Adjustment Payments), in each case, subject to the Company's right to defer
payment of such amounts. The ability of PLC Capital to make the quarterly
distributions on the Preferred Securities will be solely dependent upon the
receipt of corresponding interest payments from the Company on the Subordinated
Debt Securities. The Company will have the right at any time, and from time to
time, limited to a period not extending beyond the maturity date of the
Subordinated Debt Securities, to defer the interest payments due on the
Subordinated Debt Securities, and to defer Contract Adjustment Payments, if any,
until the Purchase Contract Settlement Date. As a consequence of such deferral,
quarterly distributions on the Income PRIDES would be deferred, but would
continue to accrue with interest compounded quarterly.
The distribution rate on the Trust Securities and the interest rate on the
related Subordinated Debt Securities that remain outstanding after the Purchase
Contract Settlement Date will be reset on the Purchase Contract Settlement Date
to a rate per annum (the "Reset Rate") which will be equal to the sum of (x) a
spread amount (the "Reset Spread") to be determined by the Reset Agent (as
defined herein) on the fifth Business Day (as defined herein) prior to the
Purchase Contract Settlement Date and (y) the Treasury Rate (as defined herein)
on the Two-Year Benchmark Treasury (as defined herein) in effect on the Purchase
Contract Settlement Date. The Reset Spread will be the spread amount determined
by the Reset Agent to be equal to the amount that, when added to the Treasury
Rate, would be the distribution rate the Preferred Securities should bear in
order for a Preferred Security to have an approximate market value of 100.5% of
the Stated Amount on the Purchase Contract Settlement Date, PROVIDED that the
Reset Spread may not exceed 200 basis points (2%). Such market value may be less
than 100.5% if the Reset Spread is set at the maximum of 2%.
The payment of distributions and redemptions out of moneys held by PLC
Capital and payments on liquidation of PLC Capital will be guaranteed by the
Company (the "Preferred Securities Guarantee") to the extent described herein
and under "Description of the Preferred Securities Guarantee." The Preferred
Securities Guarantee covers payments of distributions and other payments on the
Preferred Securities only if and to the extent PLC Capital has funds available
therefor, which will not be the case unless the Company has made a payment of
principal or interest on the Subordinated Debt Securities held by PLC Capital as
its sole asset. The Preferred Securities Guarantee, when taken together with the
Company's obligations under the Subordinated Debt Securities, the Indenture (as
defined herein) and the Company's obligations under the Declaration (as defined
herein), provides a full and unconditional guarantee by the Company of amounts
due on the Preferred Securities.
The Company's obligations in respect of the Contract Adjustment Payments,
the Subordinated Debt Securities and the Preferred Securities Guarantee
generally will be (i) subordinate and junior in right of payment to all Senior
Indebtedness (as defined herein), (ii) PARI PASSU with respect to the Company's
guarantee of the Common Securities (the "Common Securities Guarantee"), the
Company's guarantee of PLC Capital L.L.C.'s 9% Cumulative Monthly Income
Preferred Securities, Series A (the "Series A Guarantee"), having an aggregate
liquidation amount of $55 million, the Company's 9% Subordinated
S-2
<PAGE>
Debentures, due 2024, Series A (the "Series A Subordinated Debentures"), having
an aggregate liquidation amount of $69.6 million, the Company's guarantee of PLC
Capital Trust I's 8 1/4% Trust Originated Preferred Securities (the "8 1/4%
Preferred Securities Guarantee"), having an aggregate liquidation amount of $75
million, the Company's guarantee of PLC Capital Trust I's 8 1/4% Trust
Originated Common Securities, having an aggregate liquidation amount of $2.3
million (the "8 1/4% Common Securities Guarantee" and together with the 8 1/4%
Preferred Securities Guarantee, the "8 1/4% TOPrS Guarantees") and the Company's
8 1/4% Subordinated Debentures due 2027, Series B (the "Series B Subordinated
Debentures"), having an aggregate liquidation amount of $77.3 million, and with
all unsecured trade creditors of the Company and any other liabilities or
obligations that may be PARI PASSU by their terms and (iii) senior to the
Company's common stock, the most senior preferred or preference stock now or
hereafter issued, from time to time, if any, by the Company and to any guarantee
now or hereafter entered into by the Company in respect of any preferred or
preference stock of any affiliate of the Company.
Each holder of an Income PRIDES will have the right to substitute for the
related Preferred Securities held by the Collateral Agent zero-coupon U.S.
Treasury Securities (CUSIP No. 912820 AZ0), which are principal strips of the
7 3/4% U.S. Treasury Securities which mature on the Business Day immediately
preceding the Purchase Contract Settlement Date (the "Treasury Securities"), in
an amount per Income PRIDES equal to the Stated Amount per Preferred Security.
Because Treasury Securities are issued in integral multiples of $1,000, holders
may make such substitutions only in integral multiples of 20 Income PRIDES. Such
Treasury Securities will be pledged with the Collateral Agent to secure the
holder's obligation to purchase Common Stock under the related Purchase
Contracts. FELINE PRIDES with respect to which Treasury Securities have been
substituted for the related Preferred Securities as collateral to secure such
obligation are referred to herein as Growth PRIDES-SM-. Each Growth PRIDES will
consist of a unit with a face amount of $50 comprised of (A) a Purchase Contract
under which (I) the holder will purchase from the Company on the Purchase
Contract Settlement Date, for an amount of cash equal to the Stated Amount of
such Growth PRIDES, a number of newly issued shares of Common Stock of the
Company equal to the Settlement Rate described herein and (II) the Company will
pay the holder Contract Adjustment Payments at the rate of 0% of the Stated
Amount per annum, PROVIDED that if such rate is 0%, then the Company will not
make any Contract Adjustment Payments, and (B) a 1/20 undivided beneficial
ownership interest in a related Treasury Security having a principal amount at
maturity equal to $1,000 and maturing on the Business Day immediately preceding
the Purchase Contract Settlement Date. Upon the substitution of Treasury
Securities for the related Preferred Securities as collateral, such Preferred
Securities will be released to the holder as described herein and thereafter
will trade separately from the resulting Growth PRIDES. Each such released
Preferred Security that is not re-pledged with the Collateral Agent in
connection with the recreation of Income PRIDES or in respect of which the
related Subordinated Debt Security is not put to the Company on the Purchase
Contract Settlement Date will remain outstanding following the Purchase Contract
Settlement Date until it is automatically redeemed in connection with the
maturity of the related Subordinated Debt Security on February 16, 2003.
Contract Adjustment Payments, if any, will be payable by the Company on the
Growth PRIDES on March 31, June 30, September 30 and December 31 of each year.
In addition, imputed interest will continue to accrete on the related Treasury
Securities. A holder of Growth PRIDES will have the right subsequently to
recreate Income PRIDES by delivering 20 Growth PRIDES to the Purchase Contract
Agent plus 20 Preferred Securities to the Collateral Agent in exchange for 20
Income PRIDES and the release of the related Treasury Security to such holder.
Such Preferred Securities will be pledged with the Collateral Agent to secure
the holder's obligation to purchase Common Stock under the related Purchase
Contracts.
In accordance with the terms of the Subordinated Debt Securities, holders of
Subordinated Debt Securities (including the Institutional Trustee and, following
the distribution of the Subordinated Debt Securities upon a dissolution of the
Trust as described in "Description of the Preferred Securities-- Distribution of
the Subordinated Debt Securities," any other holder) will have the right to put
their Subordinated Debt Securities to the Company on the Purchase Contract
Settlement Date, upon at least three Business Days' prior notice (or upon one
Business Day's prior notice under the limited circumstances described in the
next paragraph), at a price per Subordinated Debt Security equal to $50, plus
accrued and unpaid interest, if any, thereon. Holders of Trust Securities will
have the right, upon notice given prior to or on the third Business Day
immediately preceding the Purchase Contract Settlement Date,
S-3
<PAGE>
to require the Institutional Trustee, as holder of the related Subordinated Debt
Securities, to exercise such put right. Upon the repurchase by the Company of
such Subordinated Debt Securities pursuant to such exercise, the proceeds from
such repurchase shall simultaneously be applied to repay such Trust Securities
in cash, at a price per Trust Security equal to $50, plus accumulated and unpaid
distributions, if any, thereon. If such Trust Securities (or, in the event of a
distribution of the Subordinated Debt Securities, such Subordinated Debt
Securities) are components of Income PRIDES on the Business Day immediately
preceding the Purchase Contract Settlement Date and, on or prior to such
Business Day, the related Purchase Contracts have not been settled through the
delivery of cash in the manner described herein, then, instead of being paid
directly to the holder, the portion of the proceeds of such repayment or
repurchase, as the case may be, equal to the aggregate stated liquidation amount
of such Trust Securities or to the aggregate principal amount of such
Subordinated Debt Securities, as the case may be, will automatically be applied
to satisfy in full the obligation to purchase Common Stock under the related
Purchase Contracts, and the remainder will be paid to such holder in cash.
On the Business Day immediately preceding the Purchase Contract Settlement
Date, unless (a) the holder of the related Subordinated Debt Securities has
previously notified the Company that it is exercising its right to put such
Subordinated Debt Securities to the Company, (b) a holder of FELINE PRIDES has
either (i) settled the related Purchase Contracts through the early delivery of
cash to the Purchase Contract Agent in the manner described herein, or (ii)
settled the related Purchase Contracts with separate cash on the Business Day
immediately preceding the Purchase Contract Settlement Date in the manner
provided herein or (c) an event described under "Description of the Purchase
Contracts-- Termination" has occurred, then (x) in the case of Income PRIDES,
(A) the holder of the related Preferred Securities will be deemed to have
requested the Institutional Trustee, as the holder of the related Subordinated
Debt Securities, to exercise its right to put such related Subordinated Debt
Securities to the Company on the Purchase Contract Settlement Date, and, upon
the repurchase of such related Subordinated Debt Securities, the proceeds will
be applied to repay such related Preferred Securities, and the portion of the
proceeds equal to the aggregate stated liquidation amount of such Preferred
Securities will automatically be applied to satisfy in full the obligation to
purchase Common Stock under the related Purchase Contracts, and the remainder
will be paid to such holder in cash, or (B) in the event that the Subordinated
Debt Securities have been distributed, the holder of the Subordinated Debt
Securities will be deemed to have exercised its right to put such Subordinated
Debt Securities to the Company on the Purchase Contract Settlement Date, and,
upon the repurchase of such Subordinated Debt Securities, the portion of the
proceeds equal to the aggregate principal amount of such Subordinated Debt
Securities will automatically be applied to satisfy in full the obligation to
purchase Common Stock under the related Purchase Contracts, and the remainder
will be paid to such holder in cash, and (y) in the case of Growth PRIDES, the
principal amount of the related Treasury Securities, when paid at maturity, will
automatically be applied to satisfy in full such holder's obligation to purchase
Common Stock under the related Purchase Contracts.
In the event that a holder of either Income PRIDES or Growth PRIDES effects
the early settlement of the related Purchase Contracts through the delivery of
cash or settles such Purchase Contracts with cash on the Business Day
immediately preceding the Purchase Contract Settlement Date, the related
Preferred Securities or Treasury Securities, as the case may be, will be
released to the holder as described herein. Each such released Preferred
Security that is not repaid as a result of the put of the related Subordinated
Debt Security to the Company on the Purchase Contract Settlement Date will
remain outstanding until it is automatically redeemed in connection with the
maturity of the related Subordinated Debt Security on February 16, 2003.
S-4
<PAGE>
The Company will have the right at any time to dissolve the Trust and cause
the Subordinated Debt Securities to be distributed to the holders of the Trust
Securities. If the Subordinated Debt Securities are distributed to the holders
of the Trust Securities, the Company will use its best efforts to cause the
Subordinated Debt Securities to be listed on such exchange on which the
Preferred Securities are then listed, if any, including, if applicable, the
NYSE. See "Risk Factors--Possible Illiquidity of the Secondary Market."
------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES. SUCH
TRANSACTIONS MAY INCLUDE STABILIZING TRANSACTIONS, THE PURCHASE OF SECURITIES TO
COVER SYNDICATE SHORT POSITIONS AND THE IMPOSITION OF PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
S-5
<PAGE>
PROSPECTUS SUPPLEMENT SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS
INCLUDED ELSEWHERE IN, OR INCORPORATED BY REFERENCE IN, THE ACCOMPANYING
PROSPECTUS OR THIS PROSPECTUS SUPPLEMENT. A LISTING OF THE PAGES ON WHICH APPEAR
CERTAIN DEFINITIONS OF CAPITALIZED TERMS USED IN THIS PROSPECTUS SUPPLEMENT
SUMMARY AND ELSEWHERE IN THIS PROSPECTUS SUPPLEMENT IS SET FORTH IN THE "INDEX
OF TERMS FOR PROSPECTUS SUPPLEMENT" HEREIN. UNLESS THE CONTEXT OTHERWISE
REQUIRES, (I) AS USED IN THIS PROSPECTUS SUPPLEMENT, "PROTECTIVE LIFE" AND THE
"COMPANY" REFER TO THE CONSOLIDATED GROUP OF PROTECTIVE LIFE CORPORATION AND ITS
SUBSIDIARIES AND (II) ALL INFORMATION HEREIN ASSUMES NO EXERCISE OF THE
UNDERWRITERS' OVER-ALLOTMENT OPTION.
THE COMPANY
Protective Life, a Delaware corporation incorporated in 1981, is an
insurance holding company that, through its subsidiary life insurance companies,
produces, distributes and services a diverse array of life insurance, retirement
savings and investment products and specialty insurance products. Protective
Life markets individual life insurance, dental insurance, credit life and
disability insurance, guaranteed investment contracts and annuities throughout
the United States. The Company also maintains a separate line of business
devoted exclusively to the acquisition of insurance policies from other
companies and participates in a joint venture which owns a life insurance
company in Hong Kong. Protective Life Insurance Company ("Protective Life
Insurance"), founded in 1907, is Protective Life's principal operating
subsidiary. Protective Life Insurance is currently assigned a rating of A+
(Superior) by A.M. Best Company, Inc. (2nd highest rating of 15), a
claims-paying ability rating of AA (Excellent) by Standard & Poor's (3rd highest
rating of 18) and an insurance financial strength rating of A1 by Moody's
Investors Service (5th highest rating of 15). Protective Life's principal
executive offices are located at 2801 Highway 280 South, Birmingham, Alabama
35223 (telephone: (205) 879-9230).
For the year ended December 31, 1996 and the nine months ended Septemer 30,
1997, Protective Life reported revenues of approximately $1.0 billion and $0.8
billion, respectively, and net income of $89.0 million and $82.7 million,
respectively. At September 30, 1997, Protective Life had total assets of
approximately $10.2 billion and stockholders' equity of $710.9 million. At
December 31, 1996, Protective Life had life insurance in force of $69.3 billion.
Over the five-year period ended December 31, 1996, Protective Life's total
assets have grown from $3.1 billion to approximately $8.3 billion, a compound
annual growth rate of 21.5%. In the same five-year period, Protective Life's net
income has grown from $35.8 million to $89.0 million, a compound annual growth
rate of 20.0%, and its return on equity has averaged 17.7%.
The Company's operating strategy has been to acquire and consolidate
selected books of insurance business and smaller insurance companies, grow its
core business through the generation of new sales, and identify and enter higher
growth specialty segments of the insurance industry. The Company believes that
its diverse product mix supports this strategy by giving the Company broad
exposure to attractive market opportunities and a more diverse base of earnings.
The Company also emphasizes discipline in the allocation of capital, the pricing
of products and the management of expenses.
S-6
<PAGE>
SUMMARY FINANCIAL INFORMATION
The following selected consolidated financial information as of and for the
years ended December 31, 1996, 1995, 1994, 1993 and 1992 has been derived from
previously published audited consolidated financial statements of Protective
Life, prepared in accordance with generally accepted accounting principles,
which have been examined and reported upon by Coopers & Lybrand L.L.P.,
independent auditors. The selected consolidated financial information at and for
the nine-month periods ending on September 30, 1997 and September 30, 1996 have
been derived from the third quarter 1997 and 1996 unaudited quarterly
consolidated financial statements of Protective Life. The consolidated financial
information should be read in conjunction with, and is qualified in its entirety
by reference to, the consolidated financial statements from which it has been
derived and the accompanying notes thereto incorporated by reference herein. See
also, "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the Consolidated Financial Statements and accompanying notes
included herein.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
1997 1996
---------- ----------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C>
INCOME STATEMENT DATA
Premiums and policy fees................ $ 363,817 $ 366,533
Net investment income................... 426,001 384,149
Realized investment gains (losses)...... 786 5,882
Other income............................ 21,890 15,509
---------- ----------
Total revenues.................. 812,494 772,073
---------- ----------
Benefits and expenses................... 680,891 670,854
Income tax expense...................... 44,745 34,415
Minority interest....................... 4,111 2,413
Change in accounting principle.......... -- --
---------- ----------
Net income...................... $ 82,747 $ 64,391
---------- ----------
---------- ----------
PER SHARE DATA(1)
Net income(2)........................... $ 2.65 $ 2.15
Cash dividends.......................... $ 0.58 $ 0.52
Weighted average number of shares
outstanding........................... 31,219,799 29,995,190
Stockholders' equity.................... $ 23.07 $ 18.58
Stockholders' equity excluding net
unrealized gains and losses on
investments........................... $ 21.85 $ 19.14
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
1996 1995 1994 1993 1992
------------ ------------ ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Premiums and policy fees................ $ 494,153 $ 432,576 $ 402,772 $ 370,758 $ 323,136
Net investment income................... 517,483 475,924 417,825 362,130 284,069
Realized investment gains (losses)...... 5,510 1,612 6,298 5,054 (14)
Other income............................ 20,857 11,768 21,553 21,695 18,835
------------ ------------ ------------ ------------ ----------
Total revenues.................. 1,038,003 921,880 848,448 759,637 626,026
------------ ------------ ------------ ------------ ----------
Benefits and expenses................... 898,262 800,846 742,275 674,593 566,079
Income tax expense...................... 47,512 41,152 33,976 28,475 17,384
Minority interest....................... 3,217 3,217 1,796 19 90
Change in accounting principle.......... -- -- -- -- 1,053
------------ ------------ ------------ ------------ ----------
Net income...................... $ 89,012 $ 76,665 $ 70,401 $ 56,550 $ 41,420
------------ ------------ ------------ ------------ ----------
------------ ------------ ------------ ------------ ----------
PER SHARE DATA(1)
Net income(2)........................... $ 2.94 $ 2.68 $ 2.57 $ 2.07 $ 1.52
Cash dividends.......................... $ .70 $ .62 $ .55 $ .505 $ .45
Weighted average number of shares
outstanding........................... 30,285,911 28,627,345(3) 27,392,936(3) 27,381,578(3) 27,315,986
Stockholders' equity.................... $ 19.98 $ 18.30 $ 9.86 $ 13.17 $ 10.28
Stockholders' equity excluding net
unrealized gains and losses on
investments........................... $ 19.76 $ 16.29 $ 13.78 $ 11.74 $ 10.16
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------------
1997 1996
----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA
Total assets........................... $10,155,520 $7,986,781
Long-term debt......................... 127,100 139,000
Total debt............................. 138,600 139,000
Guaranteed Preferred Beneficial
Interests in Company's Subordinated
Debentures
Monthly Income Preferred Securities,
Series A(4)........................ 55,000 55,000
8 1/4% Trust Originated Preferred
Securities......................... 75,000 --
Stockholders' equity................... 710,928 572,217
Stockholders' equity excluding
unrealized gains and losses on
investments.......................... $ 673,174 $ 589,540
CONSOLIDATED STATUTORY FINANCIAL DATA
(5)
Net income............................. $ 84,885 $ 79,490
Total capital and surplus.............. $ 417,227 $ 458,900
<CAPTION>
DECEMBER 31,
------------------------------------------------------------------
1996 1995 1994 1993 1992
------------ ------------ ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Total assets........................... $ 8,263,205 $ 7,231,257 $ 6,130,284 $ 5,316,005 $4,006,667
Long-term debt......................... 168,200 115,500 98,000 137,598 31,014
Total debt............................. 181,000 115,500 98,000 147,118 88,248
Guaranteed Preferred Beneficial
Interests in Company's Subordinated
Debentures
Monthly Income Preferred Securities,
Series A(4)........................ 55,000 55,000 55,000 -- --
8 1/4% Trust Originated Preferred
Securities......................... -- -- -- -- --
Stockholders' equity................... 615,316 526,557 270,373 360,733 281,400
Stockholders' equity excluding
unrealized gains and losses on
investments.......................... $ 608,628 $ 468,694 $ 377,905 $ 321,449 $ 278,244
CONSOLIDATED STATUTORY FINANCIAL DATA
(5)
Net income............................. $ 102,337 $ 115,259 $ 68,945 $ 53,138 $ 32,426
Total capital and surplus.............. $ 456,320 $ 324,416 $ 306,858 $ 265,075 $ 208,476
</TABLE>
S-7
<PAGE>
- ------------------------
(1) Prior periods have been restated to reflect a two-for-one stock split on
June 1, 1995.
(2) Net income per share is computed using the weighted average number of shares
outstanding during each period.
(3) Excludes contingently issuable shares of 266,293, 199,189, 208,233, 231,253,
262,730, and 257,272 at September 30, 1997 and 1996, and at December 31,
1996, 1995, 1994, and 1993, respectively. The dilutive effect of such shares
on earnings per share is less than three percent.
(4) Historically the Series A Preferred Securities have been reported as
"minority interest in consolidated subsidiaries" in the Company's financial
statements. In the Company's future financial statements, the Series A
Preferred Securities, the 8 1/4% Trust Originated Preferred Securities and
the Preferred Securities will all be reported under "Guaranteed Preferred
Beneficial Interests in the Company's Subordinated Debt Securities."
(5) Of Protective Life's insurance subsidiaries prepared in conformity with
statutory accounting practices prescribed or permitted by insurance
regulatory authorities. Statutory accounting practices differ in some
respects from generally accepted accounting principles. For example, (a)
acquisition costs of obtaining new businesses are expensed as incurred, (b)
benefit liabilities are computed using methods statutorily mandated and are
not adjusted for actual experience, (c) income tax expense is computed on
taxable earnings and (d) furniture and equipment, agents' debt balances and
prepaid expenses are charged directly against surplus rather than reported
as assets.
THE TRUST
PLC Capital is a statutory business trust formed under Delaware law pursuant
to (i) a declaration of trust, dated as of July 1, 1997, executed by Protective
Life, as sponsor (the "Sponsor"), and the trustees of PLC Capital (the "PLC
Capital Trustees") and (ii) a certificate of trust filed with the Secretary of
State of the State of Delaware on July 1, 1997. Such declaration will be amended
and restated in its entirety (as so amended and restated, the "Declaration")
substantially in the form filed as an exhibit to the Registration Statement of
which this Prospectus Supplement forms a part. The Declaration will be qualified
as an indenture under the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act"). PLC Capital exists for the exclusive purposes of (i) issuing
the Trust Securities representing undivided beneficial interests in the assets
of the Trust, (ii) investing the gross proceeds of the Trust Securities in the
Subordinated Debt Securities and (iii) engaging in only those other activities
necessary or incidental thereto. See "The Trust."
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THE OFFERING
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Securities Offered............ 2,000,000 Income PRIDES.
Issuers....................... Protective Life Corporation and PLC Capital Trust II.
Stated Amount................. $50 per Income PRIDES.
Components of FELINE PRIDES... Each FELINE PRIDES offered hereby initially will consist of
a unit (referred to as an "Income PRIDES") comprised of (a)
a stock purchase contract (a "Purchase Contract") under
which (i) the holder will purchase from the Company on
February 16, 2001 (the "Purchase Contract Settlement Date"),
for an amount of cash equal to the Stated Amount, a number
of newly issued shares of Common Stock of the Company equal
to the Settlement Rate (as defined herein), and (ii) the
Company will pay Contract Adjustment Payments, if any, to
the holder, and (b) beneficial ownership of a 6 1/2% Trust
Originated Preferred Security (a "Preferred Security"),
having a stated liquidation amount equal to the Stated
Amount, representing a preferred, undivided beneficial
interest in the assets of the Trust. The purchase price of
each Income PRIDES will be allocated between the related
Purchase Contract and the related Preferred Security in
proportion to their respective fair market values at the
time of purchase. See "Certain Federal Income Tax
Consequences -- Acquisition of Income PRIDES; Initial Basis
in Preferred Securities and Purchase Contracts." The Company
will, directly or indirectly, own all of the Common
Securities. The Trust exists for the sole purpose of issuing
the Preferred Securities and the Common Securities,
investing the proceeds thereof in an equivalent amount of
6 1/2% Subordinated Debentures of the Company, due February
16, 2003, Series C (the "Subordinated Debt Securities") and
engaging in only those other activities that are incidental
thereto.
The distribution rate on the Trust Securities and the
interest rate on the related Subordinated Debt Securities
that remain outstanding after the Purchase Contract
Settlement Date will be reset on the Purchase Contract
Settlement Date to the Reset Rate, to be determined by a
nationally recognized investment banking firm chosen by the
Company (the "Reset Agent"). See "Description of the
Preferred Securities -- Market Rate Reset."
The Company will have the right at any time to dissolve the
Trust and, after satisfaction of liabilities to creditors of
the Trust, if any, cause the Subordinated Debt Securities to
be distributed to the holders of the Trust Securities.
References herein to Preferred Securities, unless the
context otherwise requires, mean (i) the Preferred
Securities or (ii) the Subordinated Debt Securities which
have been delivered to the holders upon dissolution of the
Trust. The distribution rate and the payment dates for the
Preferred Securities will correspond to the interest rate
and the payment dates for the Subordinated Debt Securities,
which will be the sole assets of the
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Trust. As long as a FELINE PRIDES is in the form of an
Income PRIDES, the related Preferred Securities will be
pledged with The Chase Manhattan Bank as collateral agent
for the Company (together with any successor thereto in such
capacity, the "Collateral Agent") to secure the holder's
obligation to purchase Common Stock under the related
Purchase Contracts. See "Risk Factors."
Purchase Contract Agreement... The FELINE PRIDES will be issued under a Purchase Contract
Agreement, to be dated as of November 26, 1997 (the
"Purchase Contract Agreement"), between the Company and The
Bank of New York, as agent for the holders of the FELINE
PRIDES (together with any successor thereto in such
capacity, the "Purchase Contract Agent").
Substitution of Pledged
Securities.................. Each holder of an Income PRIDES will have the right to
substitute for the related Preferred Securities held by the
Collateral Agent zero-coupon U.S. Treasury Securities (CUSIP
No. 912820 AZ0), which are principal strips of the 7 3/4%
U.S. Treasury Securities which mature on February 15, 2001
(the "Treasury Securities"), in an amount per Income PRIDES
equal to the Stated Amount per Preferred Security. Because
Treasury Securities are issued in integral multiples of
$1,000, holders of Income PRIDES may make such substitutions
only in integral multiples of 20 Income PRIDES. Such
Treasury Securities will be pledged with the Collateral
Agent to secure the holder's obligation to purchase Common
Stock under the related Purchase Contracts. FELINE PRIDES
with respect to which Treasury Securities have been
substituted for the related Preferred Securities as
collateral to secure such obligation will be referred to as
Growth PRIDES. Each Growth PRIDES will consist of a unit
with a face amount of $50 comprised of (a) a Purchase
Contract under which (i) the holder will purchase from the
Company on the Purchase Contract Settlement Date or earlier
for an amount of cash equal to the Stated Amount of such
Growth PRIDES a number of newly issued shares of Common
Stock of the Company equal to the Settlement Rate described
herein and (ii) the Company will pay the holder Contract
Adjustment Payments, if any, and (b) a 1/20 undivided
beneficial ownership interest in a related Treasury Security
having a principal amount at maturity equal to $1,000 and
maturing on the Business Day immediately preceding the
Purchase Contract Settlement Date. Upon the substitution of
Treasury Securities for the related Preferred Securities as
collateral, such Preferred Securities will be released to
the holder as described herein and thereafter will trade
separately from the resulting Growth PRIDES. Each such
released Preferred Security that is not re-pledged with the
Collateral Agent in connection with the recreation of Income
PRIDES, or in respect of which the related Subordinated Debt
Security is not put to the Company on the Purchase Contract
Settlement Date, will remain outstanding following the
Purchase Contract Settlement Date, until it is automatically
redeemed in connection with the maturity of the related
Subordinated Debt Security on February 16, 2003. See
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"Description of the FELINE PRIDES -- Substitution of Pledged
Securities."
Holders who elect to substitute Pledged Securities (as
defined in "Description of the Purchase Contracts -- Pledged
Securities and Pledge Agreement"), thereby creating Growth
PRIDES or recreating Income PRIDES (as discussed below),
will be responsible for any fees or expenses payable in
connection therewith. See "Certain Provisions of the
Purchase Contract Agreement and the Pledge Agreement --
Miscellaneous."
Recreating Income PRIDES...... A holder of Growth PRIDES will have the right subsequently
to recreate Income PRIDES by delivering 20 Growth PRIDES to
the Purchase Contract Agent plus 20 Preferred Securities to
the Collateral Agent in exchange for 20 Income PRIDES and
the release of the related Treasury Security to such holder.
Such Preferred Securities will be pledged with the
Collateral Agent to secure the holder's obligation to
purchase Common Stock under the related Purchase Contracts.
See "Description of the FELINE PRIDES -- Recreating Income
PRIDES."
Current Payments.............. Holders of Income PRIDES will be entitled to receive
aggregate cash distributions at a rate of 6 1/2% of the
Stated Amount per annum from and after November 26, 1997,
payable quarterly in arrears, consisting of cumulative cash
distributions on the related Preferred Securities payable by
the Trust at the rate of 6 1/2% of the Stated Amount per
annum, and Contract Adjustment Payments payable by the
Company at the rate of 0% of the Stated Amount per annum
(PROVIDED that if such rate is 0%, then the Company will not
make any Contract Adjustment Payments), in each case subject
to the Company's right to defer the payment of such amounts.
The ability of the Trust to make the quarterly distributions
on the related Preferred Securities will be solely dependent
upon the receipt of corresponding interest payments from the
Company on the Subordinated Debt Securities. The Company's
obligations with respect to the Subordinated Debt Securities
and to the Contract Adjustment Payments, if any, will be
subordinate and junior in right of payment to all Senior
Indebtedness of the Company. See "Description of the FELINE
PRIDES -- Current Payments."
In the event that a holder of Income PRIDES substitutes
Treasury Securities for the related Preferred Securities,
such holder would receive on the resulting Growth PRIDES
only the quarterly distributions of Contract Adjustment
Payments, if any, subject to the Company's rights of
deferral described herein. In addition, imputed interest
would continue to accrete on the related Treasury
Securities. See "Risk Factors -- Right to Defer Current
Payments."
Contract Adjustment
Payments.................... Contract Adjustment Payments will be fixed at a rate per
annum of 0% of the Stated Amount per Purchase Contract,
PROVIDED that if such rate is 0%, then the Company will not
make any Contract Adjustment Payments. Contract Adjustment
Payments will be specified as a positive component of the
distributions on the Income
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PRIDES only if and to the extent that the rate of
distributions on the Preferred Securities, as determined on
the date on which the Income PRIDES are priced for sale, is
less than the aggregate distribution rate required on such
date for the offer and sale of the Income PRIDES at the
price to the public specified on the cover page of this
Prospectus Supplement. Accordingly, the final Prospectus
Supplement will indicate whether and to what extent Contract
Adjustment Payments will be required to be made by the
Company. See "Description of the Purchase Contracts --
Contract Adjustment Payments."
Option to Extend Distribution
Payment Periods............. The Company has the right at any time, and from time to
time, limited to a period not extending beyond the maturity
date of the Subordinated Debt Securities, to defer the
interest payments due on the Subordinated Debt Securities.
As a consequence of such deferral, quarterly distributions
to holders of Income PRIDES (or any Preferred Securities
outstanding after the Purchase Contract Settlement Date or
after a substitution of collateral resulting in the creation
of Growth PRIDES) would be deferred (but despite such
deferral, would continue to accumulate quarterly and would
accrue interest thereon compounded quarterly at the rate of
6 1/2% per annum through and including February 16, 2001,
and at the Reset Rate thereafter). The Company also has the
right to defer the payment of Contract Adjustment Payments,
if any, on the related Purchase Contracts until no later
than the Purchase Contract Settlement Date; however, such
deferred Contract Adjustment Payments, if any, will bear
additional Contract Adjustment Payments at the rate of 0%
per annum (such deferred Contract Adjustment Payments
together with the additional Contract Adjustment Payments
shall be referred to as the "Deferred Contract Adjustment
Payments"). See "Description of the Purchase Contracts --
Contract Adjustment Payments." If interest payments on the
Subordinated Debt Securities or the Contract Adjustment
Payments, if any, are deferred, the Company has agreed,
among other things (subject to certain exceptions), not to
declare or pay any dividend on or repurchase its capital
stock during the period of such deferral.
In the event that the Company elects to defer the payment of
Contract Adjustment Payments, if any, on the related
Purchase Contracts until the Purchase Contract Settlement
Date, each holder of the related Income PRIDES or Growth
PRIDES will receive on the Purchase Contract Settlement Date
in respect of such Deferred Contract Adjustment Payments, in
lieu of a cash payment, a number of shares of Common Stock
equal to (x) the aggregate amount of Deferred Contract
Adjustment Payments payable to such holder divided by (y)
the Applicable Market Value (as defined herein). See
"Description of the Purchase Contracts -- Option to Defer
Contract Adjustment Payments."
Payment Dates................. Subject to the deferral provisions described herein, the
current payments described above in respect of the FELINE
PRIDES will be
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payable quarterly in arrears on March 31, June 30, September
30 and December 31 of each year, commencing December 31,
1997, through and including (i) in the case of the Contract
Adjustment Payments, if any, the Purchase Contract
Settlement Date or the most recent such quarterly date on or
prior to any early settlement of the related Purchase
Contracts and (ii) in the case of Preferred Securities,
through and including the most recent such quarterly date on
or prior to the earlier of the Purchase Contract Settlement
Date and the date the liquidation amount of a Preferred
Security, together with all accumulated and unpaid
distributions thereon, is paid in full (each, a "Payment
Date").
Purchase Contract Settlement
Date........................ February 16, 2001.
Settlement of Purchase
Contracts................... On the Business Day immediately preceding the Purchase
Contract Settlement Date, unless (a) the holder of the
related Subordinated Debt Securities has previously notified
the Company that it is exercising its right to put such
Subordinated Debt Securities to the Company, (b) a holder of
FELINE PRIDES has either (i) settled the related Purchase
Contracts through the early delivery of cash to the Purchase
Contract Agent in the manner described herein, or (ii)
settled the related Purchase Contracts with separate cash on
the Business Day immediately preceding the Purchase Contract
Settlement Date in the manner provided herein or (c) an
event described under "Description of the Purchase
Contracts-- Termination" has occurred, then (x) in the case
of Income PRIDES, (A) the holder of the related Preferred
Securities will be deemed to have requested the
Institutional Trustee, as the holder of the related
Subordinated Debt Securities, to exercise its right to put
such related Subordinated Debt Securities to the Company on
the Purchase Contract Settlement Date, and, upon the
repurchase of such related Subordinated Debt Securities, the
proceeds will be applied to repay such related Preferred
Securities, and the portion of the proceeds equal to the
aggregate stated liquidation amount of such Preferred
Securities will automatically be applied to satisfy in full
the obligation to purchase Common Stock under the related
Purchase Contracts, and the remainder will be paid to such
holder in cash, or (B) in the event that the Subordinated
Debt Securities have been distributed, the holder of the
Subordinated Debt Securities will be deemed to have
exercised its right to put such Subordinated Debt Securities
to the Company on the Purchase Contract Settlement Date,
and, upon the repurchase of such Subordinated Debt
Securities, the portion of the proceeds equal to the
aggregate principal amount of such Subordinated Debt
Securities will automatically be applied to satisfy in full
the obligation to purchase Common Stock under the related
Purchase Contracts, and the remainder will be paid to such
holder in cash, and (y) in the case of Growth PRIDES, the
principal amount of the related Treasury Securities, when
paid at maturity, will automatically be applied to satisfy
in full such holder's obligation to
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purchase Common Stock under the related Purchase Contracts.
See "Description of the Subordinated Debt Securities -- Put
Option."
In the event that a holder of either Income PRIDES or Growth
PRIDES effects the early settlement of the related Purchase
Contracts through the delivery of cash or settles such
Purchase Contracts with cash on the Business Day immediately
preceding the Purchase Contract Settlement Date, the related
Preferred Securities or Treasury Securities, as the case may
be, will be released to the holder as described herein. Each
such released Preferred Security in respect of which the
related Subordinated Debt Security is not put to the Company
on the Purchase Contract Settlement Date will remain
outstanding following the Purchase Contract Settlement Date
until it is automatically redeemed in connection with the
maturity of the related Subordinated Debt Security on
February 16, 2003.
Settlement Rate............... The number of newly issued shares of Common Stock issuable
upon settlement of each Purchase Contract on the Purchase
Contract Settlement Date (the "Settlement Rate") will be
calculated as follows (subject to adjustment under certain
circumstances): (a) if the Applicable Market Value is equal
to or greater than $65.04 (the "Threshold Appreciation
Price," which is approximately 22% above the last reported
sale price of the Common Stock set forth on the cover page
of the final Prospectus Supplement (the "Reference Price")),
the Settlement Rate (which will be equal to the Stated
Amount divided by the Threshold Appreciation Price) will be
0.769; accordingly, if, between the date of this Prospectus
Supplement and the period during which the Applicable Market
Value is measured, the market price for the Common Stock
increases to an amount that is higher than the Threshold
Appreciation Price, the aggregate market value of the shares
of Common Stock issued upon settlement of each Purchase
Contract (assuming that such market value is the same as the
Applicable Market Value of such Common Stock) will be higher
than the Stated Amount, and if such market price is equal to
the Threshold Appreciation Price, the aggregate market value
of such shares (assuming that such market value is the same
as the Applicable Market Value of such Common Stock) will be
equal to the Stated Amount; (b) if the Applicable Market
Value is less than the Threshold Appreciation Price but
greater than the Reference Price, the Settlement Rate will
be equal to the Stated Amount divided by the Applicable
Market Value; accordingly, if the market price for the
Common Stock increases between the date of this Prospectus
Supplement and the period during which the Applicable Market
Value is measured but such market price is less than the
Threshold Appreciation Price, the aggregate market value of
the shares of Common Stock issued upon settlement of each
Purchase Contract (assuming that such market value is the
same as the Applicable Market Value of such Common Stock)
will be equal to the Stated Amount; and (c) if the
Applicable Market Value is less than or equal to the
Reference Price, the Settlement Rate (which will be equal to
the Stated Amount divided by the Reference Price) will be
0.938; accordingly, if the market price for the Common Stock
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decreases between the date of this Prospectus Supplement and
the period during which the Applicable Market Value is
measured, the aggregate market value of the shares of Common
Stock issued upon settlement of each Purchase Contract
(assuming that such market value is the same as the
Applicable Market Value of such Common Stock) will be less
than the Stated Amount, and if such market price stays the
same, the aggregate market value of such shares (assuming
that such market value is the same as the Applicable Market
Value of such Common Stock) will be equal to the Stated
Amount.
"Applicable Market Value" means the average of the closing
price per share of Common Stock on each of the thirty
consecutive trading days ending on the second trading day
immediately preceding the Purchase Contract Settlement Date.
Early Settlement.............. A holder of Income PRIDES or Growth PRIDES may settle (an
"Early Settlement") the related Purchase Contracts prior to
the Purchase Contract Settlement Date in the manner
described herein, but only in integral multiples of 20
Income PRIDES or Growth PRIDES. Upon such Early Settlement,
(a) the holder will pay to the Company through the Purchase
Contract Agent in immediately available funds an amount
equal to the Stated Amount for each Purchase Contract to be
settled and deliver the Income PRIDES or Growth PRIDES, as
the case may be, to the Purchase Contract Agent, (b) the
related Preferred Securities or Treasury Securities, as
applicable, within three Business Days of the date of Early
Settlement, will be transferred to the holder free and clear
of the Company's security interest therein, and (c) the
Company, within three Business Days of the date of Early
Settlement, will deliver newly issued shares of Common Stock
to the holder for each Purchase Contract so settled. Upon
Early Settlement, (i) the holder's rights to receive
Deferred Contract Adjustment Payments, if any, on the
Purchase Contracts being settled will be forfeited, (ii) the
holder's right to receive additional Contract Adjustment
Payments, if any, in respect of such Purchase Contracts will
terminate and (iii) no adjustment will be made to or for the
holder on account of Deferred Contract Adjustment Payments,
if any, or any amount accrued in respect of Contract
Adjustment Payments, if any.
Termination................... The Purchase Contracts (including the right thereunder to
receive accrued or Deferred Contract Adjustment Payments, if
any, and the obligation to purchase Common Stock) will
automatically terminate upon the occurrence of certain
events of bankruptcy, insolvency or reorganization with
respect to the Company. Upon such termination, the
Collateral Agent will release the related Preferred
Securities or, if substituted, the related Treasury
Securities, held by it to the Purchase Contract Agent for
distribution to the holders, although there may be a limited
delay before such release and distribution. In the event
that the Company becomes the subject of a case under the
United States Bankruptcy Code of 1978, as amended (the
"Bankruptcy Code"), such delay may occur as a result of the
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automatic stay under the Bankruptcy Code and continue until
such automatic stay has been lifted.
Voting and Certain Other
Rights...................... Holders of Preferred Securities will not be entitled to vote
to appoint, remove or replace, or to increase or decrease
the number of Regular Trustees and will generally have no
voting rights except in the limited circumstances described
under "Description of Preferred Securities -- Voting
Rights." Holders of Purchase Contracts forming part of the
Income PRIDES or Growth PRIDES in their capacities as such
holders will have no voting or other rights in respect of
the Common Stock.
Listing of the
Income PRIDES............... The Income PRIDES have been approved for listing on the New
York Stock Exchange (the "NYSE") under the symbol "PLPrP",
subject to official notice of issuance. The Growth PRIDES
and the Preferred Securities will not be listed or traded on
any securities exchange. See "Risk Factors--Possible
Illiquidity of the Secondary Market" and "Underwriting."
NYSE Symbol of
Common Stock................ "PL"
PREFERRED SECURITIES
The Trust..................... PLC Capital Trust II, a Delaware business trust. The sole
assets of the Trust will consist of the Subordinated Debt
Securities. The Company will directly or indirectly own all
of the Common Securities representing undivided beneficial
interests in the assets of the Trust.
Preferred Securities.......... 2,000,000 of 6 1/2% Trust Originated Preferred Securities
(liquidation amount $50 per Preferred Security),
representing preferred, undivided beneficial interests in
the assets of the Trust.
Distributions................. Distributions on the Preferred Securities, which will
constitute all or a portion of the distributions on the
Income PRIDES, will be cumulative, will accrue from the
first date of issuance of the Preferred Securities and will
be payable initially at the annual rate of 6 1/2% of the
liquidation amount of $50 per Preferred Security to but
excluding the Purchase Contract Settlement Date, and, in the
case of Preferred Securities that remain outstanding after
the Purchase Contract Settlement Date, from the Purchase
Contract Settlement Date to but excluding February 16, 2003,
at the Reset Rate, in each case, when, as and if funds are
available for payment. Subject to the distribution deferral
provisions, distributions will be payable quarterly in
arrears on each March 31, June 30, September 30 and December
31, commencing December 31, 1997.
Market Rate Reset............. The quarterly distribution rate on the Trust Securities and
the interest rate on the Subordinated Debt Securities that
remain outstanding after the Purchase Contract Settlement
Date will be reset on the Purchase Contract Settlement Date
to the Reset Rate, which will be equal to the sum of the
Treasury Rate and the Reset Spread. The Reset Spread will be
the spread amount determined by
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the Reset Agent to be equal to the amount that, when added
to the Treasury Rate, would be the rate the Preferred
Securities should bear in order for a Preferred Security to
have an approximate market value of 100.5% of the Stated
Amount on the Purchase Contract Settlement Date, PROVIDED,
that in no event will the Reset Spread be greater than 200
basis points (2%). Such market value may be less than 100.5%
if the Reset Spread is set at the maximum of 2%. It is
currently anticipated that Merrill Lynch & Co. will be the
Reset Agent. See "Description of the Preferred Securities --
Market Rate Reset."
Distribution Deferral
Provisions.................. The ability of the Trust to pay distributions on the Trust
Securities will be solely dependent on the receipt of
interest payments from the Company on the Subordinated Debt
Securities. The Company will have the right at any time, and
from time to time, to defer the interest payments due on the
Subordinated Debt Securities for successive extension
periods (each, an "Extension Period") limited, in the
aggregate, to a period not extending beyond the maturity
date of the Subordinated Debt Securities. The corresponding
quarterly distributions on the Trust Securities would be
deferred by the Trust (but would continue to accumulate
quarterly and would accrue interest, compounded quarterly,
at the rate of 6 1/2% per annum through and including
February 15, 2001, and at the Reset Rate thereafter) until
the end of any such Extension Period. If a deferral of an
interest payment occurs, the holders of the Preferred
Securities will accrue interest income for United States
federal income tax purposes in advance of the receipt of any
corresponding cash distribution with respect to such
deferred interest payment. See "Risk Factors -- Right to
Defer Current Payments," "Description of the Preferred
Securities -- Distributions" and "Certain Federal Income Tax
Consequences -- Interest Income and Original Issue Discount
on Preferred Securities."
Rights Upon Deferral of
Distribution................ During any period in which interest payments on the
Subordinated Debt Securities are deferred, interest will
accrue on the Subordinated Debt Securities (compounded
quarterly) and quarterly distributions on the Trust
Securities will continue to accumulate with interest thereon
at the rate of 6 1/2% per annum through and including
February 15, 2001, and at the Reset Rate thereafter,
compounded quarterly.
Liquidation Preference........ In the event of any liquidation of the Trust, and after
satisfaction of liabilities to creditors of the Trust, if
any, holders of Trust Securities will be entitled to receive
Subordinated Debt Securities in an aggregate principal
amount equal to the aggregate stated liquidation amount of
the Trust Securities.
Put Option.................... In accordance with the terms of Subordinated Debt
Securities, holders of Subordinated Debt Securities
(including the Institutional Trustee and, following the
distribution of the Subordinated Debt Securities upon a
dissolution of the Trust as described in
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"Description of the Preferred Securities--Distribution of
the Subordinated Debt Securities," any other holder) will
have the right to put their Subordinated Debt Securities to
the Company on the Purchase Contract Settlement Date, upon
at least three Business Days' prior notice (or upon one
Business Day's prior notice under the limited circumstances
described in the next paragraph), at a price per
Subordinated Debt Security equal to $50, plus accrued and
unpaid interest, if any, thereon. Holders of Trust
Securities will have the right, upon notice given prior to
or on the third Business Day immediately preceding the
Purchase Contract Settlement Date, to require the
Institutional Trustee, as the holder of the related
Subordinated Debt Securities, to exercise such put right.
Upon the repurchase by the Company of such related
Subordinated Debt Securities, the proceeds from such
repurchase shall simultaneously be applied to repay such
Trust Securities in cash, at a price per Trust Security
equal to $50, plus accumulated and unpaid distributions, if
any, thereon. If such Trust Securities (or, in the event of
a distribution of the Subordinated Debt Securities, such
Subordinated Debt Securities) are components of Income
PRIDES on the Business Day immediately preceding the
Purchase Contract Settlement Date and, on or prior to such
Business Day, the related Purchase Contracts have not been
settled through the delivery of cash in the manner described
herein, then, instead of being paid directly to the holder,
the proceeds of such repayment or repurchase, as the case
may be, equal to the aggregate stated liquidation amount of
such Trust Securities or, the aggregate principal amount of
such Subordinated Debt Securities, as the case may be, will
automatically be applied to satisfy in full the obligation
to purchase Common Stock under the related Purchase
Contracts, and the remainder will be paid to such holder in
cash.
On the Business Day immediately preceding the Purchase
Contract Settlement Date, in the case of Income PRIDES,
unless (a) the holder of the related Subordinated Debt
Securities has previously notified the Company that it is
exercising its right to put such Subordinated Debt
Securities to the Company, (b) the holder of such Income
PRIDES has either (i) settled the related Purchase Contracts
through the early delivery of cash to the Purchase Contract
Agent in the manner described herein, or (ii) settled the
related Purchase Contracts with separate cash on the
Business Day immediately preceding the Purchase Contract
Settlement Date in the manner provided herein or (c) an
event described under "Description of the Purchase
Contracts--Termination" has occurred, then the holder of the
related Preferred Securities will be deemed to have
requested the Institutional Trustee, as the holder of the
related Subordinated Debt Securities, to exercise its right
to put such related Subordinated Debt Securities to the
Company on the Purchase Contract Settlement Date (or, in the
event of a distribution of the Subordinated Debt Securities,
the holder of such Subordinated Debt Securities will be
deemed to have exercised its right to put such Subordinated
Debt Securities to the Company on the Purchase Contract
Settlement
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Date) for a price per Subordinated Debt Security equal to
$50, plus accrued and unpaid interest, if any, thereon (a
"Put Option"). Upon the repurchase of such related
Subordinated Debt Securities by the Company pursuant to such
Put Option, (i) the proceeds will be applied to repay the
related Preferred Securities, and the portion of the
proceeds equal to the aggregate stated liquidation amount of
such Preferred Securities will automatically be applied to
satisfy in full the obligation to purchase Common Stock
under the related Purchase Contracts and the remainder will
be paid to such holder in cash, or (ii) in the event the
Subordinated Debt Securities have been distributed, upon the
repurchase of such Subordinated Debt Securities, the portion
of the proceeds equal to the aggregate principal amount of
such Subordinated Debt Securities will automatically be
applied to satisfy in full the obligation to purchase Common
Stock under the related Purchase Contracts, and the
remainder will be paid to such holder in cash.
To the extent that holders of Income PRIDES exercise their
right of Early Settlement or settle their related Purchase
Contracts with cash on the Business Day immediately
preceding the Purchase Contract Settlement Date, such
holders will not be deemed to have requested the Trust to
put the related Subordinated Debt Securities to the Company
and the related Preferred Securities will not be repaid on
the Purchase Contract Settlement Date as stated above.
Distribution of the
Subordinated Debt
Securities.................. The Company will have the right at any time to dissolve the
Trust with the result that, after satisfaction of
liabilities to creditors of the Trust, if any, Subordinated
Debt Securities with an aggregate principal amount equal to
the aggregate stated liquidation amount of the Trust
Securities would be distributed to the holders of the Trust
Securities on a PRO RATA basis. In such event, the Preferred
Securities will no longer be deemed to be outstanding, and
an Income PRIDES would thereafter consist of a Subordinated
Debt Security with a principal amount equal to the Stated
Amount of such Income PRIDES and the related Purchase
Contract, and a holder could, on the Purchase Contract
Settlement Date, cause the Subordinated Debt Security to be
repaid and the proceeds thereof applied to satisfy in full
such holder's obligation to purchase Common Stock under the
related Purchase Contract as described herein.
Redemption.................... The Company will not have the ability to redeem the
Subordinated Debt Securities prior to their stated maturity
date.
Preferred Securities
Guarantee................... The Company will irrevocably and unconditionally guarantee
(the "Preferred Securities Guarantee"), on a subordinated
basis and to the extent described herein, the payment in
full of (i) distributions on the Preferred Securities to the
extent the Trust has funds available therefor, (ii) the
repayment price of Preferred Securities in respect of which
the related Subordinated Debt Securities have been
repurchased by the Company on the Purchase Contract
Settlement Date, to the extent the Trust has funds available
therefor, and (iii) generally, the liquidation amount of the
Preferred Securities to the
</TABLE>
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extent the Trust has assets available for distribution to
holders of Preferred Securities in the event of a
dissolution of the Trust. The Preferred Securities Guarantee
will be unsecured and (i) will be subordinate and junior in
right of payment to all Senior Indebtedness of the Company,
(ii) will rank PARI PASSU in right of payment with the
Contract Adjustment Payments, the Subordinated Debt
Securities, the Common Securities Guarantee, the Series A
Guarantee, the Series A Subordinated Debentures, the 8 1/4%
TOPrS Guarantees, the Series B Subordinated Debentures, and
with all unsecured trade creditors of the Company and any
other liabilities or obligations that may be PARI PASSU by
their terms and (iii) senior to the Company's common stock,
the most senior preferred or preference stock now or
hereafter issued, from time to time, if any, by the Company
and to any guarantee now or hereafter entered into by the
Company in respect of any preferred or preference stock of
any affiliate of the Company. See "Risk Factors--Ranking of
Contract Adjustment Payments and Subordinated Obligations
under the Preferred Securities Guarantee and the
Subordinated Debt Securities; Holding Company Structure."
Subordinated Debt
Securities.................. The Subordinated Debt Securities will mature on February 16,
2003, and will bear, initially, interest at the rate of
6 1/2% per annum, payable quarterly in arrears on each March
31, June 30, September 30 and December 31 commencing
December 31, 1997. The interest rate on the Subordinated
Debt Securities and distribution rate on the Trust
Securities that remain outstanding after the Purchase
Contract Settlement Date will be reset on the Purchase
Contract Settlement Date to the Reset Rate determined by the
Reset Agent. See "Description of Subordinated Debt
Securities -- Interest." Interest payments on the
Subordinated Debt Securities may be deferred from time to
time by the Company for successive Extension Periods not
extending, in the aggregate, beyond the stated maturity date
of the Subordinated Debt Securities. During any Extension
Period, interest at the rate of 6 1/2% per annum through and
including February 15, 2001, and at the Reset Rate
thereafter, would continue to accrue and compound quarterly.
Upon the termination of any Extension Period and the payment
of all amounts then due, the Company may commence a new
Extension Period, PROVIDED, that such new Extension Period
does not extend beyond the stated maturity date of the
Subordinated Debt Securities. No interest shall be due
during an Extension Period until the end of such period.
During an Extension Period, with certain limited exceptions,
the Company will be prohibited from paying dividends on or
purchasing any of its capital stock and making certain other
restricted payments until quarterly interest payments are
resumed and all amounts then due on the Subordinated Debt
Securities are paid. The Subordinated Debt Securities (i)
will be subordinate in right of payment of principal and
interest to all Senior Indebtedness of the Company, (ii)
will rank PARI PASSU in right of payment with the Contract
Adjustment Payments, the Preferred Securities Guarantee, the
Common Securities Guarantee, the Series A Guarantee, the
Series A Subordinated Debentures, the 8 1/4% TOPrS
Guarantees, the Series B Debentures and with all unsecured
trade creditors of the Company and any other
</TABLE>
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<S> <C>
liabilities or obligations that may be PARI PASSU by their
terms and (iii) senior to the the Company's common stock,
the most senior preferred or preference stock issued, from
time to time, if any, by the Company and to any guarantee
now or hereafter entered into by the Company in respect of
any preferred or preference stock of any affiliate of the
Company. See "Description of the Subordinated Debt
Securities."
Federal Income Tax
Consequences................ The Subordinated Debt Securities may be issued with original
issue discount ("OID"), in which case a holder will be
required to include such OID in income on an economic
accrual basis, or if the Company exercises its right to
defer payments of interest on the Subordinated Debt
Securities, such Subordinated Debt Securities will be
treated as reissued with OID. Contract Adjustment Payments,
if any, and Deferred Contract Adjustment Payments (whether
payable in cash or additional shares of Common Stock), if
any, may constitute income to a holder when received or
accrued, in accordance with such holder's method of
accounting. Holders should consult their advisors concerning
the treatment of Contract Adjustment Payments and Deferred
Contract Adjustment Payments, if any, including the
possibility that any such payment may be treated as a loan,
purchase price adjustment, rebate or payment analogous to a
option premium, rather than being includible in income on a
current basis. A holder of Growth PRIDES will continue to
include in income any interest, OID or market discount or
amortize any bond premium otherwise includible or
deductible, respectively, with respect to Treasury
Securities held by the Collateral Agent. See "Certain
Federal Income Tax Consequences."
Use of Proceeds............... The portion of the purchase price for the Income PRIDES, of
which the Preferred Securities are a component, that is
allocated to the Preferred Securities will be invested by
the Trust in Subordinated Debt Securities of the Company,
and the remainder of such purchase price, if any, will be
paid to the Company. The net proceeds from the sale of the
FELINE PRIDES (after deducting the underwriting discount and
estimated expenses and assuming that the over-allotment
option granted to the Underwriters is not exercised),
estimated to equal approximately $96.4 million, will be
primarily invested by Protective Life in its insurance
company subsidiaries. Pending such use, the net proceeds
will be invested in short-term securities. A significant
portion of the proceeds is expected to be used over time by
such subsidiaries to finance acquisitions of additional
blocks of insurance policies or otherwise support the
continued growth of the business.
</TABLE>
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RISK FACTORS
POTENTIAL PURCHASERS OF THE FELINE PRIDES OFFERED HEREBY SHOULD CAREFULLY
CONSIDER THE RISK FACTORS SET FORTH HEREIN UNDER "RISK FACTORS" AS WELL AS OTHER
INFORMATION CONTAINED IN OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS
SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS. THIS PROSPECTUS SUPPLEMENT, THE
ACCOMPANYING PROSPECTUS AND THE INFORMATION INCORPORATED HEREIN AND THEREIN BY
REFERENCE INCLUDE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A
OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED, THAT REFLECT THE COMPANY'S CURRENT VIEWS WITH
RESPECT TO FUTURE EVENTS AND FINANCIAL PERFORMANCE. THESE FORWARD-LOOKING
STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES, INCLUDING THOSE
IDENTIFIED IN "RISK FACTORS," WHICH WOULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM HISTORICAL RESULTS OR THOSE ANTICIPATED. FORWARD-LOOKING
STATEMENTS CAN BE IDENTIFIED BY THE USE OF WORDS SUCH AS "EXPECT," "ESTIMATE,"
"PROJECT," "BUDGET," "FORECAST," "ANTICIPATED," "PLAN" AND SIMILAR EXPRESSIONS.
READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING
STATEMENTS, WHICH SPEAK ONLY AS OF THEIR DATES. THE COMPANY UNDERTAKES NO
OBLIGATION TO PUBLICLY UPDATE OR REVISE ANY FORWARD-LOOKING STATEMENTS, WHETHER
AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE.
THE SECURITIES
INVESTMENT IN FELINE PRIDES WILL BECOME INVESTMENT IN COMMON STOCK; RISK OF
DECLINE IN EQUITY VALUE
Although holders of the FELINE PRIDES will be the beneficial owners of the
related Preferred Securities or Treasury Securities, as the case may be, prior
to the Purchase Contract Settlement Date, unless a holder of FELINE PRIDES
settles the related Purchase Contracts through the delivery of cash to the
Purchase Contract Agent in the manner described below or the Purchase Contracts
are terminated (upon the occurrence of certain events of bankruptcy, insolvency
or reorganization with respect to the Company), the proceeds of the repurchase
by the Company of the related Subordinated Debt Securities or the principal of
the related Treasury Securities, when paid at maturity, as the case may be, will
automatically be applied to the purchase of a specified number of shares of
Common Stock on behalf of such holder. Thus, unless a holder of Income PRIDES
has cash settled, following the Purchase Contract Settlement Date, holders will
own shares of Common Stock rather than a beneficial interest in Preferred
Securities. See "Description of the Purchase Contracts--General." There can be
no assurance that the market value of the Common Stock receivable by the holder
on the Purchase Contract Settlement Date will be equal to or greater than the
Stated Amount of the FELINE PRIDES held by such holder. If the Applicable Market
Value of the Common Stock is less than the Reference Price, the aggregate market
value of the Common Stock issued to the holder in settlement of each Purchase
Contract on the Purchase Contract Settlement Date (assuming that such market
value is the same as the Applicable Market Value of such Common Stock) will be
less than the Stated Amount paid for the FELINE PRIDES and the market value per
share of such Common Stock will be less than the effective price per share paid
by each holder for such Common Stock, in which case an investment in the
Securities will result in a loss. Accordingly, a holder of the FELINE PRIDES
assumes the risk that the market value of the Common Stock may decline, and that
such decline could be substantial.
LIMITATIONS ON OPPORTUNITY FOR EQUITY APPRECIATION
The opportunity for equity appreciation afforded by an investment in the
FELINE PRIDES is less than the opportunity for equity appreciation afforded by a
direct investment in the Common Stock because the market value of the Common
Stock to be received by a holder of Purchase Contracts on the Purchase Contract
Settlement Date (assuming that such market value is the same as the Applicable
Market Value of such Common Stock) will only exceed the Stated Amount if the
Applicable Market Value of the Common Stock exceeds the Threshold Appreciation
Price (which represents an appreciation of 22% over the Reference Price).
Moreover, in such event, holders of FELINE PRIDES would receive on the Purchase
Contract Settlement Date only approximately 82% (the percentage equal to the
Reference Price divided
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<PAGE>
by the Threshold Appreciation Price) of the shares of Common Stock that such
holders would have received if they had made a direct investment in the Common
Stock on the date hereof, and therefore would receive on the Purchase Contract
Settlement Date only approximately 82% of the appreciation in the value of the
Common Stock in excess of the Threshold Appreciation Price that such holders
would have received if they had made a direct investment in the Common Stock on
the date hereof.
FACTORS AFFECTING TRADING PRICES
The trading prices of Income PRIDES and Growth PRIDES in the secondary
market will be directly affected by the trading prices of the Common Stock in
the secondary market, the general level of interest rates and the credit quality
of the Company. It is impossible to predict whether the price of Common Stock or
interest rates will rise or fall. Trading prices of Common Stock will be
influenced by the Company's operating results and prospects and by economic,
financial and other factors and market conditions that can affect the capital
markets generally, including the level of, and fluctuations in, the trading
prices of stocks generally and sales of substantial amounts of Common Stock in
the market subsequent to the offering of the Securities or the perception that
such sales could occur. Fluctuations in interest rates may give rise to
opportunities of arbitrage based upon changes in the relative value of the
Common Stock underlying the Purchase Contracts and of the other components of
the FELINE PRIDES. Any such arbitrage could, in turn, affect the trading prices
of the Income PRIDES, Growth PRIDES, Preferred Securities and Common Stock.
VOTING AND CERTAIN OTHER RIGHTS
Holders of Preferred Securities will not be entitled to vote to appoint,
remove or replace or to increase or decrease the number of PLC Capital Trustees,
and generally will have no voting rights except in the limited circumstances
described under "Description of the Preferred Securities--Voting Rights."
Holders of FELINE PRIDES will not be entitled to any rights with respect to the
Common Stock (including, without limitation, voting rights and rights to receive
any dividends or other distributions in respect thereof) unless and until such
time as the Company shall have delivered shares of Common Stock for FELINE
PRIDES on the Purchase Contract Settlement Date or as a result of Early
Settlement, as the case may be, and unless the applicable record date, if any,
for the exercise of such rights occurs after such date. For example, in the
event that an amendment is proposed to the Certificate of Incorporation or By-
Laws of the Company and the record date for determining the stockholders of
record entitled to vote on such amendment occurs prior to such delivery, holders
of FELINE PRIDES will not be entitled to vote on such amendment.
DILUTION OF COMMON STOCK
The number of shares of Common Stock that holders of the FELINE PRIDES are
entitled to receive on the Purchase Contract Settlement Date or as a result of
Early Settlement is subject to adjustment for certain events arising from stock
splits and combinations, stock dividends and certain other actions of the
Company that modify its capital structure. See "Description of the Purchase
Contracts--Anti-Dilution Adjustments." Such number of shares of Common Stock to
be received by such holders on the Purchase Contract Settlement Date or as a
result of Early Settlement will not be adjusted for other events, such as
offerings of Common Stock for cash or in connection with acquisitions. The
Company is not restricted from issuing additional Common Stock during the term
of either the Purchase Contracts or the Preferred Securities and has no
obligation to consider the interests of the holders of FELINE PRIDES for any
reason. Additional issuances may materially and adversely affect the price of
the Common Stock and, because of the relationship of the number of shares to be
received on the Purchase Contract Settlement Date to the price of the Common
Stock, such other events may adversely affect the trading price of Income PRIDES
or Growth PRIDES.
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<PAGE>
POSSIBLE ILLIQUIDITY OF THE SECONDARY MARKET
It is not possible to predict how Income PRIDES, Growth PRIDES or Preferred
Securities will trade in the secondary market or whether such market will be
liquid or illiquid. There is currently no secondary market for either Income
PRIDES or Growth PRIDES. The Income PRIDES have been approved for listing on the
NYSE, subject to official notice of issuance. The Growth PRIDES and the
Preferred Securities will not be listed or traded on any securities exchange.
The Company and the Trust have been advised by the Underwriters that they
presently intend to make a market for the Growth PRIDES and the Preferred
Securities; however, they are not obligated to do so and any market making may
be discontinued at any time. There can be no assurance as to the liquidity of
any market that may develop for the Income PRIDES, the Growth PRIDES or the
Preferred Securities, the ability of holders to sell such securities, the price
at which holders would be able to sell such securities or whether a trading
market, if it develops, will continue. In addition, in the event that holders of
Income PRIDES were to substitute Treasury Securities for Preferred Securities,
thereby converting their Income PRIDES to Growth PRIDES, the liquidity of Income
PRIDES could be adversely affected. There can be no assurance that the Income
PRIDES will not be delisted from the NYSE or that trading in the Income PRIDES
will not be suspended as a result of the election by holders to create Growth
PRIDES through the substitution of collateral, which could cause the number of
Income PRIDES to fall below the requirement for listing securities on the NYSE
that at least 1,000,000 Income PRIDES be outstanding at any time.
PLEDGED SECURITIES ENCUMBERED
Although holders of FELINE PRIDES will be beneficial owners of the related
Preferred Securities or Treasury Securities (together, the "Pledged
Securities"), as applicable, those Pledged Securities will be pledged with the
Collateral Agent to secure the obligations of the holders under the related
Purchase Contracts. Thus, rights of the holders to their Pledged Securities will
be subject to the Company's security interest. Additionally, notwithstanding the
automatic termination of the Purchase Contracts, in the event that the Company
becomes the subject of a case under the Bankruptcy Code, the delivery of the
Pledged Securities to holders of the FELINE PRIDES may be delayed by the
imposition of the automatic stay of Section 362 of the Bankruptcy Code.
DISTRIBUTION OF SUBORDINATED DEBT SECURITIES
The Company will have the right at any time to dissolve the Trust with the
result that Subordinated Debt Securities with an aggregate principal amount
equal to the aggregate stated liquidation amount of the Trust Securities would
be distributed to the holders of the Trust Securities on a PRO RATA basis. See
"Description of the Preferred Securities--Distribution of the Subordinated Debt
Securities." Under current United States federal income tax law, a distribution
of Subordinated Debt Securities upon the dissolution of the Trust would not be a
taxable event to holders of the Preferred Securities. See "Certain Federal
Income Tax Consequences--Distribution of Subordinated Debt Securities to U.S.
Holders of Preferred Securities."
There can be no assurance as to the impact on the market prices for Income
PRIDES of a distribution of the Subordinated Debt Securities in exchange for
Preferred Securities upon a dissolution of the Trust. Because Income PRIDES will
consist of Subordinated Debt Securities and related Purchase Contracts upon the
occurrence of the dissolution of the Trust, prospective purchasers of Income
PRIDES are also making an investment decision with regard to the Subordinated
Debt Securities and should carefully review all the information regarding the
Subordinated Debt Securities contained herein. See "Description of the Preferred
Securities--Distribution of the Subordinated Debt Securities" and "Description
of the Subordinated Debt Securities--General."
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<PAGE>
RIGHT TO DEFER CURRENT PAYMENTS
The Company may, at its option, defer the payment of Contract Adjustment
Payments, if any, on the Purchase Contracts until the Purchase Contract
Settlement Date. However, deferred installments of Contract Adjustment Payments,
if any, will bear Deferred Contract Adjustment Payments at the rate of 6 1/2%
per annum (compounding on each succeeding Payment Date) until paid. If the
Purchase Contracts are settled early or terminated (upon the occurrence of
certain events of bankruptcy, insolvency or reorganization with respect to the
Company), the right to receive Contract Adjustment Payments (other than any
accrued but unpaid Contract Adjustment Payments that have not been deferred), if
any, and Deferred Contract Adjustment Payments, if any, will also terminate.
In the event that the Company elects to defer the payment of any Contract
Adjustment Payments on the Purchase Contracts until the Purchase Contract
Settlement Date, each holder of Purchase Contracts will receive on the Purchase
Contract Settlement Date in respect of the Deferred Contract Adjustment
Payments, in lieu of a cash payment, a number of shares of Common Stock equal to
(x) the aggregate amount of Deferred Contract Adjustment Payments payable to a
holder of FELINE PRIDES divided by (y) the Applicable Market Value. See
"Description of the Purchase Contracts--Contract Adjustment Payments."
The Company also will have the right under the Indenture to defer payments
of interest on the Subordinated Debt Securities by extending the interest
payment period at any time, and from time to time, on the Subordinated Debt
Securities. As a consequence of such an extension, quarterly distributions on
the Preferred Securities, held either as a component of the Income PRIDES or
held separately, would be deferred (but despite such deferrals would accrue
interest at a rate of 6 1/2% per annum through and including February 15, 2001,
and at the Reset Rate thereafter, compounded on a quarterly basis) by the Trust
during any such Extension Period. Such right to extend the interest payment
period for the Subordinated Debt Securities will be limited such that an
Extension Period may not extend beyond the maturity date of the Subordinated
Debt Securities. During any such Extension Period, (a) Protective Life shall not
declare or pay dividends on, or make a distribution with respect to, or redeem,
purchase or acquire, or make a liquidation payment with respect to, any of its
capital stock (other than (i) purchases or acquisitions of shares of the
Company's capital stock in connection with the satisfaction by the Company of
its obligations under any employee benefit plans or the satisfaction by the
Company of its obligations pursuant to any contract or security requiring the
Company to purchase shares of its capital stock, (ii) as a result of a
reclassification of the Company's stock or the exchange or conversion of one
class or series of the Company's capital stock for another class or series of
the Company's capital stock, (iii) the purchase of fractional interests in
shares of the Company's capital stock pursuant to an acquisition or the
conversion or exchange provisions of such capital stock or the securities being
converted or exchanged, (iv) dividends or distributions in capital stock of the
Company and (v) redemptions or purchases pursuant to the Company's Rights
Agreement (together with any successor thereto, the "Rights Agreement"), dated
as of August 7, 1995, between Protective Life and AmSouth Bank (as successor by
merger to AmSouth Bank of Alabama, successor by conversion of charter to AmSouth
Bank N.A.) ("AmSouth Bank"), as Rights Agent), (b) the Company shall not make
any payment of interest, principal or premium, if any, on or repay, repurchase
or redeem any debt securities (including guarantees) issued by Protective Life
that rank PARI PASSU with or junior to the Subordinated Debt Securities and (c)
the Company shall not make any Guarantee Payments (as defined herein) with
respect to the foregoing (other than pursuant to the Preferred Securities
Guarantee, the Common Securities Guarantee, the 8 1/4% TOPrS Guarantees and the
Series A Guarantee). Upon the termination of any Extension Period and the
payment of all amounts then due, the Company may commence a new Extension
Period, subject to the above requirements. See "Description of the Preferred
Securities--Distributions" and "Description of the Subordinated Debt
Securities--Option to Extend Interest Payment Period."
The Company believes, and intends to take the position, that as of the issue
date of the Subordinated Debt Securities, the likelihood that it will exercise
its right to defer payments of interest on the
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Subordinated Debt Securities is remote and that, therefore, the Subordinated
Debt Securities should not be considered to be issued with original issue
discount as a result of the Company's right to defer payments of interest on the
Subordinated Debt Securities unless it actually exercises such deferral right.
There is no assurance that the Internal Revenue Service will agree with such
position. See "Certain Federal Income Tax Consequences."
Should the Company exercise its right to defer payments of interest by
extending the interest payment period, each holder of Preferred Securities held
either as a component of the Income PRIDES or held separately would be required
to accrue original issue discount in its gross income for United States federal
income tax purposes even though the Company would not make actual cash payments
during an Extension Period. As a result, each such holder of Preferred
Securities would recognize income for United States federal income tax purposes
in advance of the receipt of cash and would not receive the cash from the Trust
related to such income if such holder disposes of its Preferred Securities prior
to the record date for the date on which distributions of such amounts are made.
The Company has no current intention of exercising its right to defer payments
of interest by extending the interest payment period on the Subordinated Debt
Securities. However, should the Company determine to exercise such right in the
future, the market price of the Preferred Securities is likely to be affected. A
holder that disposes of its Preferred Securities during an Extension Period,
therefore, might not receive the same return on its investment as a holder that
continues to hold its Preferred Securities. In addition, as a result of the
existence of the Company's right to defer interest payments, the market price of
the Preferred Securities (which represent an undivided beneficial interest in
the assets of the Trust) may be more volatile than the market price of other
securities that are not subject to such deferral. See "Certain Federal Income
Tax Consequences."
RANKING OF CONTRACT ADJUSTMENT PAYMENTS AND SUBORDINATED OBLIGATIONS UNDER
THE PREFERRED SECURITIES GUARANTEE AND THE SUBORDINATED DEBT SECURITIES;
HOLDING COMPANY STRUCTURE
The Company's obligations with respect to the Contract Adjustment Payments
and under the Preferred Securities Guarantee and Subordinated Debt Securities
rank (i) subordinate and junior in right of payment to all Senior Indebtedness,
(ii) PARI PASSU with the Common Securities Guarantee, the Series A Guarantee,
the Series A Subordinated Debentures, the 8 1/4% TOPrS Guarantees, the Series B
Subordinated Debentures and with all unsecured trade creditors of the Company
and any other liabilities or obligations that may be PARI PASSU by their terms
and (iii) senior to the Company's common stock, the most senior preferred or
preference stock now or hereafter issued, from time to time, if any, by the
Company and to any guarantee now or hereafter entered into by the Company in
respect of any preferred or preference stock of any affiliate of the Company. No
payment of principal (including redemption payments, if any) or interest on the
Subordinated Debt Securities may be made if (i) any Senior Indebtedness of
Protective Life is not paid when due and any applicable grace period with
respect to such default has ended with such default not having been cured or
waived or ceasing to exist or (ii) the maturity of any Senior Indebtedness has
been accelerated because of a default. As of September 30, 1997, Senior
Indebtedness of Protective Life aggregated approximately $138.6 million. There
are no terms in the Preferred Securities, the Subordinated Debt Securities or
the Preferred Securities Guarantee that limit the Company's ability to incur
additional indebtedness, including indebtedness that ranks senior to the
Subordinated Debt Securities and the Preferred Securities Guarantee. Protective
Life's ability to pay principal and interest on the Subordinated Debt Securities
is affected by the ability of its insurance company subsidiaries, Protective
Life's principal sources of cash flow, to declare and distribute dividends and
to make payments on surplus notes (i.e., deeply subordinated intercompany notes
owed by insurance company subsidiaries to Protective Life that are treated as
equity capital of such insurance company subsidiaries for statutory accounting
purposes), both of which may be limited by regulatory restrictions and, in the
case of payments on surplus notes, by certain financial covenants. In addition,
because Protective Life is a holding company, the Company's obligations with
respect to the Contract Adjustment Payments and the Subordinated Debt Securities
are effectively subordinated to all existing and future
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liabilities of the Company's subsidiaries, including obligations to
policyholders. See "The Company-- Holding Company Structure," "Description of
the Preferred Securities Guarantee," "Description of the Subordinated Debt
Securities" and "Description of Debt Securities of Protective Life" in the
accompanying Prospectus.
PURCHASE CONTRACT AGREEMENT NOT QUALIFIED UNDER TRUST INDENTURE ACT; LIMITED
OBLIGATIONS OF PURCHASE CONTRACT AGENT
Although the Preferred Securities constituting a part of the Income PRIDES
will be issued pursuant to a Declaration qualified under the Trust Indenture
Act, the Purchase Contract Agreement will not be qualified as an indenture under
the Trust Indenture Act, and the Purchase Contract Agent will not be required to
qualify as a trustee thereunder. Accordingly, holders will not have the benefit
of the protection of the Trust Indenture Act. The protections generally afforded
the holder of a security issued under an indenture that has been qualified under
the Trust Indenture Act include disqualification of the indenture trustee for
"conflicting interests" as defined under the Trust Indenture Act, provisions
preventing a trustee that is also a creditor of the issuer from improving its
own credit position at the expense of the security holders immediately prior to
or after a default under an indenture and the requirement that the indenture
trustee deliver reports at least annually with respect to certain matters
concerning the indenture trustee and the securities. Under the terms of the
Purchase Contract Agreement, the Purchase Contract Agent will not be required to
resign as agent in the event of a "conflicting interest," will not be obligated
to establish a separate account for the benefit of holders in the case of a
credit relationship with the Company at the time of a default under the Purchase
Contract Agreement and will not be required to furnish any annual reports. A
holder of a Preferred Security, as a part of an Income PRIDES or otherwise, will
have the protections of the Declaration, which will be qualified under the Trust
Indenture Act.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
No statutory, judicial or administrative authority directly addresses the
treatment of the FELINE PRIDES or instruments similar to the FELINE PRIDES for
United States federal income tax purposes. As a result, certain United States
federal income tax consequences of the purchase, ownership and disposition of
FELINE PRIDES are not entirely clear, including in particular the treatment of
any Contract Adjustment Payments or Deferred Contract Adjustment Payments and
the consequences of an acquisition or disposition of FELINE PRIDES at a time
when the Purchase Contracts have negative value. See "Certain Federal Income Tax
Consequences."
RIGHTS UNDER THE PREFERRED SECURITIES GUARANTEE
The Preferred Securities Guarantee will be qualified as an indenture under
the Trust Indenture Act. The Preferred Securities Guarantee Trustee (as defined
herein) will act as indenture trustee under the Preferred Securities Guarantee
for the purposes of compliance with the provisions of the Trust Indenture Act.
The Preferred Securities Guarantee Trustee will hold the Preferred Securities
Guarantee for the benefit of the holders of the Preferred Securities.
The Preferred Securities Guarantee guarantees to the holders of the
Preferred Securities the payment of (i) any accumulated and unpaid distributions
that are required to be paid on the Preferred Securities, to the extent the
Trust has funds available therefor, (ii) the repayment price, including all
accumulated and unpaid distributions to the date of repayment, of Preferred
Securities in respect of which the related Subordinated Debt Securities have
been repurchased by the Company on the Purchase Contract Settlement Date, to the
extent the Trust has funds available therefor, and (iii) upon a voluntary or
involuntary dissolution of the Trust (other than in connection with the
distribution of Subordinated Debt Securities to the holders of Preferred
Securities), the lesser of (a) the aggregate of the liquidation amount and all
accumulated and unpaid distributions on the Preferred Securities to the date of
payment to the extent the Trust has funds available therefor or (b) the amount
of assets of the Trust remaining available for
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distribution to holders of the Preferred Securities in liquidation of the Trust.
The holders of a majority in liquidation amount of the Preferred Securities will
have the right to direct the time, method and place of conducting any proceeding
for any remedy available to the Preferred Securities Guarantee Trustee or to
direct the exercise of any trust or power conferred upon the Guarantee Trustee
under the Preferred Securities Guarantee. Notwithstanding the foregoing, any
holder of Preferred Securities may institute a legal proceeding directly against
the Company to enforce such holder's rights under the Preferred Securities
Guarantee without first instituting a legal proceeding against the Trust, the
Preferred Securities Guarantee Trustee or any other person or entity. If the
Company were to default on its obligation to pay amounts payable on the
Subordinated Debt Securities or otherwise, the Trust would lack funds for the
payment of distributions or amounts payable on redemption of the Preferred
Securities or otherwise, and, in such event, holders of the Preferred Securities
would not be able to rely upon the Preferred Securities Guarantee for payment of
such amounts. Instead, holders of the Preferred Securities would rely on the
enforcement (1) by the Institutional Trustee (as defined herein) of its rights
as registered holder of the Subordinated Debt Securities against the Company
pursuant to the terms of the Indenture and the Subordinated Debt Securities or
(2) by such holder of the Institutional Trustee's or such holder's own rights
against the Company to enforce payments on the Subordinated Debt Securities. See
"--Enforcement of Certain Rights by Holders of Preferred Securities,"
"Description of the Subordinated Debt Securities" and "Description of the
Preferred Securities Guarantee." The Declaration provides that each holder of
Preferred Securities, by acceptance thereof, agrees to the provisions of the
Preferred Securities Guarantee, including the subordination provisions thereof,
and the Indenture.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF PREFERRED SECURITIES
If a Declaration Event of Default (as defined herein) occurs and is
continuing, the holders of Preferred Securities would rely on the enforcement by
the Institutional Trustee of its rights as registered holder of the Subordinated
Debt Securities against the Company. In addition, the holders of a majority in
liquidation amount of the Preferred Securities will have the right to direct the
time, method, and place of conducting any proceeding for any remedy available to
the Institutional Trustee or to direct the exercise of any trust or power
conferred upon the Institutional Trustee under the Declaration, including the
right to direct the Institutional Trustee to exercise the remedies available to
it as the holder of the Subordinated Debt Securities. The Indenture provides
that the Debt Trustee (as defined herein) shall give holders of Subordinated
Debt Securities notice of all defaults or events of default within 30 days after
occurrence. However, except in the cases of a default or an event of default in
payment on the Subordinated Debt Securities, the Debt Trustee will be protected
in withholding such notice if its officers or directors in good faith determine
that withholding of such notice is in the interest of such holders.
If the Company fails to pay interest or principal on the Subordinated Debt
Securities (a "Debt Payment Failure") on the date such interest or principal is
otherwise payable and such Debt Payment Failure constitutes an Indenture Event
of Default (as defined herein), and such Debt Payment Failure is continuing, a
holder of Preferred Securities may directly institute a proceeding for
enforcement of payment to such holder of the principal of or interest on the
Subordinated Debt Securities having a principal amount equal to the aggregate
stated liquidation amount of the Preferred Securities of such holder (a "Direct
Action") after the respective due date specified in the Subordinated Debt
Securities. In connection with such Direct Action, Protective Life, as holder of
the Common Securities, will be subrogated to the rights of such holder of
Preferred Securities under the Declaration to the extent of any payment made by
Protective Life to such holder of Preferred Securities in such Direct Action.
The holders of Preferred Securities will not be able to exercise directly any
other remedy available to the holders of the Subordinated Debt Securities. See
"Description of the Preferred Securities--Declaration Events of Default."
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<PAGE>
LIMITED RIGHTS OF ACCELERATION
The Institutional Trustee, as holder of the Subordinated Debt Securities,
may accelerate payment of the principal and accrued and unpaid interest on the
Subordinated Debt Securities only upon the occurrence and continuation of an
Indenture Event of Default, which generally are limited to: (i) certain failures
to pay interest on, or principal of, the Subordinated Debt Securities, (ii)
failure to comply in any material respect with any agreements or covenants in,
or provisions of, the Indenture, (iii) a default under certain agreements
relating to the issuance of the Company's debt and (iv) certain events of
bankruptcy, insolvency and reorganization of the Company. See "Description of
the Subordinated Debt Securities-- Indenture Events of Default." Accordingly,
there is no right to acceleration with respect to the Subordinated Debt
Securities upon default by the Company of its payment obligations under the
Preferred Securities Guarantee.
TRADING PRICE OF THE PREFERRED SECURITIES
The Preferred Securities may trade at a price that does not fully reflect
the value of accrued but unpaid interest with respect to the underlying
Subordinated Debt Securities. A holder who uses the accrual method of accounting
for tax purposes (and a cash method holder, if the Subordinated Debt Securities
are deemed to be issued with OID) and who disposes of his Preferred Securities
between record dates for payments of distributions thereon will be required to
include accrued but unpaid interest on the Subordinated Debt Securities through
the date of disposition in income as ordinary income (I.E., interest or,
possibly, OID), and to add such amount to his adjusted tax basis in his pro rata
share of the underlying Subordinated Debt Securities deemed disposed of. To the
extent the selling price is less than the holder's adjusted tax basis, a holder
will recognize a loss. See "Certain Federal Income Consequences--Interest Income
and Original Issue Discount on Preferred Securities" and "--Sales or Redemptions
of Preferred Securities."
THE INDUSTRY
MATURE INDUSTRY; COMPETITION
Life and health insurance is a mature industry. In recent years, the
industry has experienced virtually no growth in life insurance sales, though the
aging population has increased the demand for retirement savings products. Life
insurance is a highly competitive industry and Protective Life encounters
significant competition in all lines of business from other insurance companies,
many of which have greater financial resources than Protective Life, as well as
competition from other providers of financial services.
Management believes that Protective Life's ability to compete is dependent
upon, among other things, its ability to attract and retain distribution
channels to market its insurance and investment products, its ability to develop
competitive and profitable products, its ability to maintain low unit costs, and
its maintenance of strong claims-paying and financial strength ratings from
ratings agencies.
The Company competes against other insurance companies and financial
institutions in the origination of commercial mortgage loans.
RATINGS
Ratings are an important factor in the competitive position of insurance
companies. Rating organizations periodically review the financial performance
and condition of insurers, including Protective Life's insurance subsidiaries. A
downgrade in the ratings of Protective Life's insurance subsidiaries could
adversely affect its ability to sell its products and its ability to compete for
attractive acquisition opportunities. See "Prospectus Supplement Summary--The
Company" and "The Company." Rating organizations assign ratings based upon
several factors. While most of the considered factors relate to the rated
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company, some of the factors relate to general economic conditions and
circumstances outside the rated company's control.
Rating downgrades have exceeded upgrades for the past several years, and
public pronouncements by the rating agencies indicate that this trend is
expected to continue for the near future.
POLICY CLAIMS FLUCTUATIONS
The Company's results of operations may fluctuate from year to year on
account of fluctuations in policy claims received by the Company.
LIQUIDITY AND INVESTMENT PORTFOLIO
Many of the products offered by Protective Life's insurance subsidiaries
allow policyholders and contractholders to withdraw their funds under defined
circumstances. Protective Life's insurance subsidiaries design products and
configure investment portfolios so as to provide and maintain sufficient
liquidity to support anticipated withdrawal demands and contract benefits and
maturities. Formal asset/liability management programs and procedures are used
continuously to monitor the relative duration of the Company's assets and
liabilities. While Protective Life's insurance subsidiaries own a significant
amount of liquid assets, many of their assets are relatively illiquid.
Significant unanticipated withdrawal or surrender activity could, under some
circumstances, compel Protective Life's insurance subsidiaries to dispose of
illiquid assets on unfavorable terms, which could have a material adverse effect
on Protective Life.
INTEREST RATE FLUCTUATIONS
Sudden and/or significant changes in interest rates expose life insurance
companies to the risk of not earning anticipated spreads between the returns
earned on investments and the credited rates paid on outstanding policies. Both
rising and declining interest rates can negatively affect the Company's spread
income. For example, certain of Protective Life's insurance products guarantee a
minimum credited interest rate. While Protective Life develops and maintains
asset/liability management programs and procedures designed to preserve spread
income in rising or falling interest rate environments, no assurance can be
given that significant changes in interest rates will not materially affect such
spreads.
Lower interest rates may result in lower sales of the Company's life
insurance and investment products.
REGULATION AND TAXATION
Protective Life's insurance subsidiaries are subject to government
regulation in each of the states, in which they conduct business. Such
regulation is vested in state agencies having broad administrative power over
all aspects of the insurance business, including premium rates, marketing
practices, advertising, policy forms and capital adequacy, and is concerned
primarily with the protection of policyholders rather than stockholders.
Protective Life cannot predict the form of any future regulatory initiatives.
Under the Internal Revenue Code of 1986, as amended, (the "Code") income tax
payable by policyholders on investment earnings is deferred during the
accumulation period of certain life insurance and annuity products. This
favorable tax treatment may give certain of Protective Life's products a
competitive advantage over other non-insurance products. To the extent that the
Code is revised to reduce the tax-deferred status of life insurance and annuity
products, or to increase the tax deferred status of competing products, all life
insurance companies, including Protective Life, would be adversely affected.
LITIGATION
A number of civil jury verdicts have been returned against life and health
insurers in the jurisdictions in which Protective Life does business involving
insurers' sales practices, alleged agent misconduct, failure
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to properly supervise agents, and other matters. Increasingly these lawsuits
have resulted in the award of substantial judgments against the insurer,
including material amounts of punitive damages that are disproportionate to the
actual damages. In some states (including Alabama), juries have substantial
discretion in awarding punitive damages which creates the potential for
unpredictable material adverse judgments in any given punitive damages suit.
Protective Life and its subsidiaries, like other life and health insurers, in
the ordinary course of business are involved in such litigation. The outcome of
any litigation cannot be predicted with certainty. In addition, in some class
action and other lawsuits involving insurers' sales practices, insurers have
made material settlement payments.
INVESTMENT RISKS
Protective Life's invested assets are subject to customary risks of credit
defaults and changes in market values. The value of the Company's commercial
mortgage portfolio depends in part on the creditworthiness of the tenants
occupying the properties which the Company has financed. Factors that may affect
the overall default rate on, and market value of, the Company's invested assets
include interest rate levels, financial market performance and general economic
conditions, as well as particular circumstances affecting the businesses of
individual borrowers and tenants.
CONTINUING SUCCESS OF ACQUISITION STRATEGY
The Company has actively pursued a strategy of acquiring blocks of insurance
policies and small insurance companies. This acquisition strategy has increased
the Company's earnings in part by allowing the Company to position itself to
realize certain operating efficiencies associated with economies of scale. There
can be no assurance, however, that suitable acquisitions, presenting
opportunities for continued growth and operating efficiencies, will continue to
be available to the Company, or that the Company will realize the anticipated
financial results from its acquisitions.
RELIANCE ON THE PERFORMANCE OF OTHERS
The Company has entered into various ventures involving other parties.
Examples include, but are not limited to: many of the Company's products are
sold through independent distribution channels; the Investment Products
Division's variable annuity deposits are invested in funds managed by four
unaffiliated investment managers; a portion of the sales in the Financial
Institutions, Dental and Consumer Benefits, and Individual Life Divisions comes
from arrangements with unrelated marketing organizations; and the Company has
entered the Hong Kong insurance market in a joint venture. Therefore the
Company's results may be affected by the performance of others.
REINSURANCE
As is customary in the insurance industry, Protective Life's insurance
subsidiaries cede insurance to other insurance companies. However, the ceding
insurance company remains liable with respect to ceded insurance should any
reinsurer fail to meet the obligations assumed by it. Additionally, Protective
Life assumes policies of other insurers. Any regulatory or other development
affecting the ceding insurer could also have an adverse effect on Protective
Life.
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<PAGE>
THE COMPANY
Protective Life Corporation, a Delaware corporation incorporated in 1981, is
an insurance holding company that, through its subsidiary life insurance
companies, produces, distributes and services a diverse array of life insurance,
retirement savings and investment products and specialty insurance products.
Protective Life markets individual life insurance, dental insurance, credit life
and disability insurance, guaranteed investment contracts and annuities
throughout the United States. The Company also maintains a separate line of
business devoted exclusively to the acquisition of insurance policies from other
companies and participates in a joint venture which owns a life insurance
company in Hong Kong. Protective Life Insurance, founded in 1907, is Protective
Life's principal operating subsidiary. Protective Life Insurance is currently
assigned a rating of A+ (Superior) by A.M. Best Company, Inc. (2nd highest
rating of 15), a claims-paying ability rating of AA (Excellent) by Standard &
Poor's (3rd highest rating of 18) and an insurance financial strength rating of
A1 by Moody's Investors Service (5th highest rating of 15). Protective Life's
principal executive offices are located at 2801 Highway 280 South, Birmingham,
Alabama 35223 (Telephone: (205) 879-9230).
For the year ended December 31, 1996 and the nine months ended September 30,
1997, Protective Life reported revenues of approximately $1.0 billion and $0.8
billion, respectively, and net income of $89.0 million and $82.7 million,
respectively. At September 30, 1997, Protective Life had total assets of
approximately $10.2 billion and stockholders' equity of $710.9 million. At
December 31, 1996, Protective Life had life insurance in force of $69.3 billion.
Over the five-year period ended December 31, 1996, Protective Life's total
assets have grown from $3.1 billion to approximately $8.3 billion, a compound
annual growth rate of 21.5%. In the same five-year period, Protective Life's net
income has grown from $35.8 million to $89.0 million, a compound annual growth
rate of 20.0%, and its return on equity has averaged 17.7%.
STRATEGY
The Company's operating strategy has been to acquire and consolidate
selected books of insurance business and smaller insurance companies, grow its
core business through the generation of new sales and identify and enter higher
growth specialty segments of the insurance industry. The Company believes that
its diverse product mix supports this strategy by giving the Company broad
exposure to attractive market opportunities and a more diverse base of earnings.
The Company also emphasizes discipline in the allocation of capital, the pricing
of products and the management of expenses.
Protective Life is organized around six primary divisions: the Acquisitions
Division, the Guaranteed Investment Contracts Division, the Individual Life
Insurance Division, the Dental and Consumer Benefits Division, the Investment
Products Division and the Financial Institutions Division.
Set forth below are the operating earnings (unaudited), realized investment
gains (losses) and related amortization of deferred policy acquisition costs
(unaudited), and income before income tax for each of the Company's Divisions
and a Corporate and Other segment, and unallocated realized investment gains
(losses) for the nine month periods ended September 30, 1997 and 1996 and each
of the years ended December 31, 1996, 1995, 1994, 1993 and 1992.
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<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED
SEPTEMBER 30,(1) DECEMBER 31,(1)
--------------------- -----------------------------------------------
1997 1996 1996 1995 1994 1993
--------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
OPERATING EARNINGS(2)(3)
Acquisitions...................................... $ 45,033 $ 38,252 $ 52,670 $ 48,490 $ 36,796 $ 27,415(4)
Dental and Consumer Benefits...................... 14,103 2,821 5,138 10,060 10,139 8,501
Financial Institutions............................ 9,197 6,893 9,531 8,375 9,024 7,137
Guaranteed Investment Contracts................... 21,922 30,069 40,082 31,557 26,005 22,070
Individual Life................................... 14,778 10,378 14,027 13,490 13,933 18,005(4)
Investment Products............................... 8,419 7,391 9,624 6,352 120 (748)(4)
Corporate and Other (5)........................... 17,796 3,840 7,020 2,663 2,183 (2,390)(4)
--------- --------- --------- --------- --------- -----------
Total Operating Earnings.......................... 131,248 99,644 138,092 120,987 98,200 79,990
REALIZED INVESTMENT GAINS (LOSSES)
Acquisitions...................................... 0 0 0 0 532 0
Guaranteed Investment Contracts................... (1,840) (7,770) (7,963) (3,908) 3,000 1,175
Individual Life................................... 0 3,098 3,098 0 0 0
Investment Products............................... 589 4,764 3,858 4,937 (2,500) 2,003
Unallocated Realized Investment Gains (Losses).... 2,037 5,790 6,517 583 5,266 1,876
RELATED AMORTIZATION OF DEFERRED POLICY
ACQUISITION COSTS
Individual Life................................... 0 (1,974) (1,974) 0 0 0
Investment Products............................... (431) (2,333) (1,887) (1,565) 1,675 0
--------- --------- --------- --------- --------- -----------
Total Net......................................... 355 1,575 1,649 47 7,973 5,054
INCOME BEFORE INCOME TAX (3)
Acquisitions...................................... 45,033 38,252 52,670 48,490 37,328 27,415(4)
Dental and Consumer Benefits...................... 14,103 2,821 5,138 10,060 10,139 8,501
Financial Institutions............................ 9,197 6,893 9,531 8,375 9,024 7,137
Guaranteed Investment Contracts................... 20,082 22,299 32,119 27,649 29,005 23,245
Individual Life................................... 14,778 11,502 15,151 13,490 13,933 18,005(4)
Investment Products............................... 8,577 9,822 11,595 9,724 (705) 1,255(4)
Corporate and Other (5)........................... 17,796 3,840 7,020 2,663 2,183 (2,390)(4)
Unallocated Realized Investment Gains (Losses).... 2,037 5,790 6,517 583 5,266 1,876
--------- --------- --------- --------- --------- -----------
Total Income before Income Tax................ $ 131,603 $ 101,219 $ 139,741 $ 121,034 $ 106,173 $ 85,044
<CAPTION>
1992
--------
<S> <C>
OPERATING EARNINGS(2)(3)
Acquisitions...................................... $ 18,785
Dental and Consumer Benefits...................... 6,723
Financial Institutions............................ 4,907
Guaranteed Investment Contracts................... 12,438
Individual Life................................... 11,875
Investment Products............................... 3,217
Corporate and Other (5)........................... 2,016
--------
Total Operating Earnings.......................... 59,961
REALIZED INVESTMENT GAINS (LOSSES)
Acquisitions...................................... 0
Guaranteed Investment Contracts................... 962
Individual Life................................... 0
Investment Products............................... 473
Unallocated Realized Investment Gains (Losses).... (1,449)
RELATED AMORTIZATION OF DEFERRED POLICY
ACQUISITION COSTS
Individual Life................................... 0
Investment Products............................... 0
--------
Total Net......................................... (14)
INCOME BEFORE INCOME TAX (3)
Acquisitions...................................... 18,785
Dental and Consumer Benefits...................... 6,723
Financial Institutions............................ 4,907
Guaranteed Investment Contracts................... 13,400
Individual Life................................... 11,875
Investment Products............................... 3,690
Corporate and Other (5)........................... 2,016
Unallocated Realized Investment Gains (Losses).... (1,449)
--------
Total Income before Income Tax................ $ 59,947
</TABLE>
- ------------------------------
(1) The selected financial data for the periods ended September 30, 1997 and
1996 is unaudited. The selected financial data for the years ended December
31, 1996, 1995, 1994, 1993 and 1992 have been derived from previously
audited consolidated financial statements of Protective Life.
(2) Income before Income Tax excluding realized investment gains and losses and
related amortization of deferred policy acquisition costs.
(3) Certain reclassifications have been made in the previously reported results
relating to the allocation of corporate overhead to make prior period
results comparable to those of the current year. Such reclassifications had
no effect on previously reported net income, total assets or stockholders'
equity.
(4) In 1993 Protective Life changed the method used to apportion net investment
income within Protective Life. The change resulted in increased income
attributable to the Acquisitions, Individual Life Insurance, and Investment
Products business segments of approximately $2,600, $3,000 and $2,000,
respectively, while decreasing income of the Corporate and Other segment.
(5) Pre-tax income for the Corporate and Other segment has not been reduced by
pre-tax minority interest of $6,325 and $3,713 in the periods ended
September 30, 1997 and 1996, respectively, $4,950 in 1996, $4,950 in 1995,
$2,764 in 1994, $19 in 1993 and $90 in 1992. Such minority interest in 1997,
1996, 1995 and 1994 arises from payments made on Monthly Income Preferred
Securities issued in 1994 and Trust Originated Preferred Securities issued
in 1997.
ACQUISITIONS DIVISION
Protective Life is an active participant in the consolidation of the life
and health insurance industry. The Acquisitions Division focuses solely on
acquiring, converting and servicing business acquired from other companies. The
Company has long been an active acquiror of blocks of insurance policies and the
Division has closed a total of 39 acquisitions over the last 27 years, including
12 since 1989. In 1990, the
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Company became more focused on the acquisitions business and, since that year,
the Division has invested $335.1 million in acquired blocks of policies and
small insurance companies. Blocks of policies acquired through the Acquisition
Division are usually administered as "closed" blocks, i.e., no new policies are
sold after the closing of the transaction. However, in the case of the most
recent acquisition closed by the Division (West Coast Life Insurance Company
("West Coast"), which is discussed below) the Company has elected to continue
the marketing of new policies. In the future, as in this transaction, if the
Company should continue marketing new policies through the acquired company, the
results of the acquisition may be included in one of the Company's other
divisions. Protective Life believes that its highly focused and disciplined
approach to the acquisitions process and its extensive experience in the
assimilation, conservation and servicing of purchased books of business give it
a significant competitive advantage over many other companies that attempt to
make similar acquisitions. The Company expects acquisition opportunities to
continue to be available as the life insurance industry continues to
consolidate; however, management believes that the Company may face increased
competition for some future acquisitions. In the five-year period ended December
31, 1996, pretax operating earnings from the Acquisitions Division increased
from $18.8 million to $52.7 million.
GUARANTEED INVESTMENT CONTRACTS DIVISION
Protective Life's Guaranteed Investment Contracts ("GIC") Division markets
GICs to 401(k) and other qualified retirement savings plans. The Division also
offers guaranteed funding agreements and annuity contracts. Protective Life
entered the GIC business in 1989. The Division's emphasis is on a consistent and
disciplined approach to product pricing and asset/liability management, careful
underwriting of early withdrawal risks and maintaining low distribution and
administration costs. In the five-year period ended December 31, 1996, the
Division's operating earnings increased from $12.4 million to $40.1 million.
INDIVIDUAL LIFE DIVISION
The Individual Life Division markets universal and other life insurance
products on a national basis through a network of independent insurance agents.
The Division has grown sales by developing niche marketing strategies. The
strategies include marketing specialty products through insurance brokerage
channels and traditional life insurance products through regional stock brokers.
The Division has also developed a unit to distribute life insurance products on
a "private label" basis through other insurance companies. In the five-year
period ended December 31, 1996, the Division's sales (as measured by new
annualized premium) have grown from $27.7 million to $45.4 million. Over the
same period, the U.S. life insurance industry has experienced virtually no
growth in annualized new premium sales.
On June 3, 1997, Protective Life Insurance acquired all of the outstanding
capital stock of West Coast from Nationwide Corporation, a member of the
Nationwide Insurance Enterprise, for approximately $157 million in cash (a $100
million dividend was also paid to the seller prior to closing). Headquartered in
San Francisco, West Coast sells universal life and traditional ordinary life
products. The acquisition was financed from funds internally generated at
Protective Life Insurance. West Coast is included in the Individual Life
Division because Protective Life intends to continue the marketing of new
policies through this company.
DENTAL AND CONSUMER BENEFITS DIVISION
The Dental and Consumer Benefits Division's strategic emphasis is on
indemnity and managed-care dental products. At September 30, 1997, the Company
had approximately 537,000 members in its dental HMOs and over 1,139,000 lives
covered in total by its dental programs.
The Dental and Consumer Benefits Division was a pioneer in developing
indemnity dental products for the voluntary payroll deduction market. In the
first quarter of 1995, Protective Life entered the dental
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managed care segment when it acquired a dental managed care company which
transacts business under the trade name "DentiCare." The acquisition combined
DentiCare's high quality service and product capabilities with the Dental and
Consumer Benefits Division's marketing strength and capacity to distribute
dental products through a much broader geographic distribution framework. The
Division's strategy is to promote a "dual choice" option by offering DentiCare's
products through Protective Life's existing indemnity dental distribution
channels. The Division has developed an innovative system for prospecting and
selling dental insurance products by telephone. The Division also plans to grow
the dental business through acquisitions. In 1996, the Division extended the
geographic reach of its dental managed care operations into Oklahoma, Arkansas
and Missouri and added approximately 38,000 new members through the acquisition
of two dental managed care plans licensed to do business in those states. In
1997, the Division has acquired three dental health maintenance organizations:
one with approximately 18,000 members in Wisconsin, a second with approximately
14,000 members in Texas and a third with 57,576 members in Georgia. The
Company's dental annualized new premium and premium equivalent sales were $27.0
million in 1995 and $38.4 million in 1996. In 1996 the Division's operating
earnings were reduced by a one-time charge of $6.8 million related to a refund
of cancer premiums and related expenses. In the five-year period ended December
31, 1996, the Dental and Consumer Benefits Division's operating earnings
increased from $6.7 million to $11.9 million excluding the one-time charge
described above.
The Dental and Consumer Benefits Division also actively markets group life
and disability coverages, typically to employee groups of 25 to 1,000. As part
of its strategy to focus primarily on dental products, the Dental and Consumer
Benefits Division recently exited the traditional group major medical business.
The decision is not expected to have a significant effect on the Dental and
Consumer Benefits Division's operating results. The Division also markets an
individual cancer insurance policy.
The Company recently launched Network Plans, which offers discounted
fee-for-service dental programs to individual consumers and to groups. Enrolled
consumers have access to a contracted network of dental providers who have
agreed to a discounted fee schedule.
INVESTMENT PRODUCTS DIVISION
The Investment Products Division markets fixed and variable annuity
products. Annuity products are primarily used by consumers as a source of
retirement savings. Overall industry sales of annuity products have grown in
recent years as the "baby-boom" generation has increased its level of retirement
savings. The Division's annuity products are sold through broker-dealers,
financial institutions and the Individual Life Insurance Division's agent sales
force. In 1994, the Division introduced a variable annuity product which offers
the policyholder the opportunity to invest in mutual funds. The variable annuity
account balance was $624.7 million at December 31, 1996. Variable annuity
products represented 45.9% of the Division's 1996 sales.
The Division has recently launched Network Plans, which is a referral or
access plan that offers discounted fee-for-service dental programs to individual
consumers and groups. Enrolled Consumers have access to a contracted network of
dental providers who have agreed to a discounted fee schedule.
FINANCIAL INSTITUTIONS DIVISION
The Company's Financial Institutions Division specializes in marketing
credit life and disability insurance products through commercial banks, savings
and loan associations, mortgage bankers and automobile dealers. The majority of
these policies cover consumer loans made by financial institutions located
primarily in the southeastern United States and automobile dealers throughout
the United States. The Division markets through employee field representatives,
independent brokers and a wholly-owned subsidiary. The Division also offers
certain products through direct mail solicitation to customers of financial
institutions. The Company believes it has been a beneficiary of a "flight to
quality," as financial
S-35
<PAGE>
institutions and automobile dealers increasingly prefer to do business with
insurers having quality products, strong balance sheets and high-quality
training and service capabilities.
In 1992, the Company acquired the credit insurance business of Durham Life
Insurance Company, which more than doubled the size of the Division. In 1996,
the Division coinsured a closed block of credit insurance policies.
In 1995, the Division entered into a reinsurance arrangement whereby most of
the Division's new credit insurance sales are being ceded to a reinsurer. In the
second quarter of 1995, the Division also ceded a block of older policies. In
the five-year period ended December 31, 1996, the Division's sales and operating
earnings have increased from $68.4 million and $4.9 million to $146.7 million
and $9.5 million respectively.
On September 30, 1997, the Division acquired Western Diversified Group from
John Alden Financial Corporation. The Western Diversified Group markets credit
insurance and related products through automobile dealers. In addition, on
October 1, 1997, the Division acquired a closed block of credit policies.
CORPORATE AND OTHER
The Corporate and Other segment consists of earnings from the Company's
fifty-percent-owned joint venture in Hong Kong, unallocated net investment
income on capital, interest expense on substantially all debt, charitable
contributions, and earnings from several small insurance and noninsurance
subsidiaries. In 1996, its second year of operations, the Hong Kong joint
venture company, Lippo Protective Life Insurance Company, had new premium sales
of $12.7 million, an increase of $6.9 million from its $5.8 million of
annualized new premium sales in 1995.
INVESTMENT PORTFOLIO
Protective Life believes its investment strategy is a key component of its
financial success. The Company targets three primary asset categories:
mortgage-backed securities, corporate bonds and a specialized class of
commercial mortgage loans. The types of assets in which the Company may invest
are influenced by state laws which prescribe qualified investment assets. Within
the parameters of these laws, the Company's investment portfolio is actively
managed to support the liabilities of Protective Life's lines of business,
giving consideration to such factors as liquidity needs, investment quality,
investment return, matching of assets and liabilities and the composition of the
portfolio by asset type and credit exposure. The following table shows the
composition of Protective Life's invested assets at September 30, 1997:
<TABLE>
<CAPTION>
PERCENT OF
ASSET TOTAL
VALUE INVESTMENTS
--------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Fixed Maturities:
Bonds:
Mortgage-backed securities................................. $2,909,143 36.7%
United States Government and government agencies and
authorities.............................................. 60,100 0.8
States, municipalities, and political subdivisions......... 23,071 0.3
Public utilities........................................... 481,236 6.1
Convertibles and bonds with warrants attached.............. 585 --
All other corporate bonds.................................. 2,653,729 33.5
Bank loan participations....................................... 23,758 0.3
Redeemable preferred stocks.................................... 5,966 0.1
--------- -----
Total fixed maturities..................................... 6,157,588 77.8
--------- -----
Equity securities:
Common stocks--industrial, miscellaneous, and all other........ 8,176 0.1
Nonredeemable preferred stocks................................. 10,444 0.1
--------- -----
Total equity securities.................................... 18,620 0.2
</TABLE>
S-36
<PAGE>
<TABLE>
<CAPTION>
PERCENT OF
ASSET TOTAL
VALUE INVESTMENTS
--------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Mortgage loans on real estate...................................... 1,261,809 15.9
Investment real estate............................................. 14,770 0.2
Policy loans....................................................... 194,190 2.5
Other long-term investments........................................ 66,630 0.8
Short-term investments............................................. 202,463 2.6
--------- -----
Total investments.................................................. $7,916,070 100.0%
</TABLE>
In its mortgage-backed securities portfolio, Protective Life has focused on
sequential and planned amortization class securities, which tend to be less
volatile than other classes of mortgage-backed securities, and on strict
underwriting and constant monitoring of the portfolio through the use of
state-of-the-art technology.
In its approach to commercial mortgage loans, the Company has, for 26 years,
specialized in originating small loans (average new loan size of $2.9 million)
to finance shopping centers, typically in smaller communities. The Company
provides a high level of service to the developers of such properties and
generally does not attempt to compete for business solely by offering the lowest
interest rates available. Such loans provide attractive yields to the Company
and historically have performed very well. On a cumulative basis, the Company
has had no significant loss of principal on its commercial mortgage loan
portfolio over the last 20 years. As of September 30, 1997, 1.9% of the
commercial loan portfolio was classified as 90 days past due, foreclosed or
restructured, which the Company believes to be well below the June 30, 1997 life
insurance industry average of 8.13%. The Company believes that its many years of
specialization in this subsegment of the real estate industry helps it to
maintain the quality of its loan underwriting and loan approval process.
HOLDING COMPANY STRUCTURE
Protective Life's ability to pay principal and interest on the Subordinated
Debt Securities is affected by the ability of its insurance company
subsidiaries, Protective Life's principal sources of cash flow, to declare and
distribute dividends and to make payments on surplus notes (I.E., deeply
subordinated intercompany notes owed by insurance company subsidiaries to
Protective Life that are treated as equity capital of such insurance company
subsidiaries for statutory accounting purposes), both of which may be limited by
regulatory restrictions and, in the case of payments on surplus notes, by
certain financial covenants. Protective Life's cash flow is also dependent on
revenues from investment, data processing, legal and management services
rendered to its subsidiaries. Insurance company subsidiaries of Protective Life
are subject to various state statutory and regulatory restrictions, applicable
to insurance companies generally, that limit the amount of cash dividends, loans
and advances that those subsidiaries may pay to Protective Life. Under Tennessee
insurance laws, Protective Life Insurance generally may pay dividends to
Protective Life only out of its unassigned surplus as reflected in its statutory
financial statements filed in that State. In addition, the Tennessee
Commissioner of Insurance must approve (or not disapprove within 30 days of
notice) payment of an "extraordinary" dividend from Protective Life Insurance,
which generally under Tennessee insurance laws is a dividend that exceeds,
together with all dividends paid by Protective Life Insurance within the
previous 12 months, the greater of (i) 10% of Protective Life Insurance's
surplus as regards policyholders at the preceding December 31 or (ii) the net
gain from operations of Protective Life Insurance for the 12 months ended on
such December 31. No assurance can be given that more stringent restrictions
will not be adopted from time to time by states in which Protective Life's
insurance subsidiaries are domiciled, which restrictions could have the effect,
under certain circumstances, of significantly reducing dividends or other
amounts payable to Protective Life by such subsidiaries without affirmative
prior approval by state insurance regulatory authorities.
In the event of the insolvency, liquidation, reorganization, dissolution or
other winding-up of an insurance subsidiary of Protective Life, all creditors of
such subsidiary, including holders of life and health
S-37
<PAGE>
insurance policies, would be entitled to payment in full out of the assets of
such subsidiary before Protective Life, as shareholder or holder of surplus
notes, would be entitled to any payment, and thus such creditors would have to
be paid in full before the creditors of Protective Life (including holders of
Subordinated Debt Securities) would be entitled to receive any payment from the
assets of such subsidiary.
THE TRUST
PLC Capital is a statutory business trust formed under Delaware law pursuant
to the (i) Declaration and (ii) a certificate of trust filed with the Secretary
of State of the State of Delaware on July 1, 1997. The Declaration will be
amended and restated in its entirety substantially in the form filed as an
exhibit to the Registration Statement of which this Prospectus Supplement and
the accompanying Prospectus form a part. The Declaration will be qualified as an
indenture under the Trust Indenture Act. Although the holders of Income PRIDES
will be the beneficial owners of the related Preferred Securities upon their
issuance, such Preferred Securities will be pledged with the Collateral Agent to
secure the obligations of the holders under the related Purchase Contracts. See
"Description of the Purchase Contracts--Pledged Securities and Pledge Agreement"
and "Description of the Preferred Securities--Book-Entry Only Issuance--The
Depository Trust Company." Protective Life will directly or indirectly acquire
all the Common Securities, which will represent an aggregate liquidation amount
equal to at least 3% of the total capital of PLC Capital. PLC Capital exists for
the exclusive purposes of (i) issuing the Trust Securities representing
undivided beneficial interests in the assets of the Trust, (ii) investing the
gross proceeds of the Trust Securities in the Subordinated Debt Securities and
(iii) engaging in only those other activities necessary or incidental thereto.
PLC Capital has a term of approximately seven years, but may terminate earlier
as provided in the Declaration.
Pursuant to the Declaration, the number of PLC Capital Trustees will
initially be three. Two of the PLC Capital Trustees (the "Regular Trustees")
will be persons who are employees or officers of, or who are affiliated with,
Protective Life. The third trustee will be a financial institution that is
unaffiliated with Protective Life, which trustee will serve as institutional or
property trustee under the Declaration and as indenture trustee for the purposes
of compliance with the provisions of the Trust Indenture Act (the "Institutional
Trustee"). Initially, Wilmington Trust Company, a Delaware banking corporation,
will be the Institutional Trustee until removed or replaced by the holder of the
Common Securities. For purposes of compliance with the provisions of the Trust
Indenture Act, Wilmington Trust Company will also act as the Preferred
Securities Guarantee Trustee under the Preferred Securities Guarantee and as
trustee resident in the State of Delaware (the "Delaware Trustee") for purposes
of the Delaware Business Trust Act (the "Trust Act"). See "Description of the
Preferred Securities Guarantee" and "Description of the Preferred
Securities--Voting Rights."
The Institutional Trustee will hold title to the Subordinated Debt
Securities for the benefit of the holders of the Trust Securities and in such
capacity will have the power to exercise all rights, powers and privileges under
the Subordinated Indenture. In addition, the Institutional Trustee will maintain
exclusive control of a segregated non-interest-bearing bank account (the
"Institutional Account") to hold all payments made in respect of the
Subordinated Debt Securities for the benefit of the holders of the Trust
Securities. The Institutional Trustee will make payments of distributions and
payments on liquidation, redemption and otherwise to the holders of the Trust
Securities out of funds from the Institutional Account. The Preferred Securities
Guarantee Trustee will hold the Preferred Securities Guarantee for the benefit
of the holders of the Preferred Securities. Protective Life, as the direct or
indirect holder of all the Common Securities, will have the right to appoint,
remove or replace any PLC Capital Trustee and to increase or decrease the number
of PLC Capital Trustees. Protective Life, as issuer of the Subordinated Debt
Securities, will pay all fees and expenses related to PLC Capital and the
offering of the Trust Securities. See "Description of the Subordinated Debt
Securities--Miscellaneous."
S-38
<PAGE>
The rights of the holders of the Preferred Securities, including economic
rights, rights to information and voting rights, are set forth in the
Declaration, the Trust Act and the Trust Indenture Act. See "Description of the
Preferred Securities."
The office of the Delaware Trustee for PLC Capital in the State of Delaware
is Wilmington Trust Company, Rodney Square North, 1100 North Market Street,
Wilmington, Delaware 19890-0001, Attention: Corporate Trust Administration. PLC
Capital's offices are located at 2801 Highway 280 South, Birmingham, Alabama
35223 (Telephone: (205) 879-9230).
USE OF PROCEEDS
The portion of the purchase price for the Income PRIDES, of which the
Preferred Securities are a component, that is allocated to the Preferred
Securities will be invested by the Trust in the Subordinated Debt Securities of
the Company, and the remainder of such purchase price, if any, will be paid to
the Company. The net proceeds from the sale of the FELINE PRIDES (after
deducting the underwriting discount and estimated expenses and assuming that the
over-allotment option granted to the Underwriters is not exercised), estimated
to equal approximately $96.4 million, will be primarily invested by Protective
Life in its insurance company subsidiaries. Pending such use, the net proceeds
will be invested in short-term securities. A significant portion of the proceeds
is expected to be used over time by such subsidiaries to finance acquisitions of
additional blocks of insurance policies or otherwise support the continued
growth of the business.
S-39
<PAGE>
THIRD QUARTER RESULTS
The Company's operating income, which excludes realized investment gains and
losses and related amortization, was $.97 per share in the 1997 third quarter,
compared to $.63 per share for the same period in 1996. Consolidated net income
for the third quarter of 1997 was $30.4 million or $.97 per share, compared to
$20.0 million or $.64 per share reported for the 1996 third quarter. In the 1997
third quarter, the Company had approximately $.08 per share of unusual
investment income. In the 1996 third quarter, the Company had a one-time charge
of $.15 per share relating to a refund of premiums. Excluding both items, the
Company's operating income was $.89 per share in the 1997 third quarter, a 14%
increase over the $.78 per share in the 1996 third quarter.
The Company's operating income was $2.64 per share in the first nine months
of 1997, compared to the $2.12 per share reported for the first nine months of
1996. Consolidated net income in the first nine months of 1997 was $82.7 million
or $2.65 per share, compared to $64.4 million or $2.15 per share last year.
At September 30, 1997, the Company's assets were $10.2 billion.
Stockholders' equity per share was $21.85 (excluding $1.22 per share of
unrealized investment gains resulting from marking the Company's securities to
market values).
Operating return on average equity for the twelve months ending September
30, 1997, was 17.0%. (Average equity excludes the effect of unrealized gains and
losses on stockholders' equity.)
Premiums and policy fees decreased $2.7 million or 0.7% in the first nine
months of 1997 over the first nine months of 1996. The coinsurance by the
Acquisitions Division of a block of policies and the acquisition of a small life
insurance company in the fourth quarter of 1996 resulted in a $6.1 million
increase in premiums and policy fees. Decreases in older acquired blocks
resulted in a $6.0 million decrease in premiums and policy fees. The Dental and
Consumer Benefits Division's exit from the group major medical business resulted
in a $22.4 million decrease in premiums and policy fees. Premiums and policy
fees related to the Dental and Consumer Benefits Division's other businesses
increased $26.2 million in the first nine months of 1997 as compared to the same
period in 1996. Premiums and policy fees from the Financial Institutions
Division decreased $27.1 million in the first nine months of 1997 as compared to
the first nine months of 1996. Decreases of $12.8 million resulted from a
reinsurance arrangement begun in 1995 whereby most of the Financial Institutions
Division's new credit insurance sales are being ceded to a reinsurer. Decreases
of $14.3 million related to the normal decrease in premiums on a closed block of
credit insurance policies reinsured in 1996. The Individual Life Division's
premium and policy fees increased $16.0 million, including $6.4 million from the
acquisition of West Coast in the second quarter of 1997. The increase in
premiums and policy fees from the Investment Products Divisions was $2.7
million.
Net investment income in the first nine months of 1997 was $41.9 million or
10.9% higher than the corresponding period of the preceding year primarily due
to increases in the average amount of invested assets and an increase in
participating mortgage loan income. Invested assets have increased primarily due
to receiving annuity deposits and due to acquisitions. The coinsurance of a
block of policies and the acquisition of a small life insurance company in the
fourth quarter of 1996 and the acquisition of West Coast in the second quarter
of 1997 resulted in an increase in net investment income of $24.9 million in the
first nine months of 1997 as compared to the same period in 1996.
Net realized investment gains were $0.8 million for the first nine months of
1997 compared to $5.9 million for the corresponding period of 1996. In the 1996
first quarter, the Company reported a $6.1 million gain relating to a
securitization transaction.
Other income consists primarily of revenues of the Company's broker-dealer
subsidiary, fees from variable insurance products, revenues of the Company's
wholly-owned insurance marketing organizations and small noninsurance
subsidiaries, and the results of the Company's 50%-owned joint venture in Hong
Kong. Other income in the first nine months of 1997 was $6.4 million higher than
the corresponding period
S-40
<PAGE>
of 1996. Revenues from the Company's broker-dealer subsidiary increased $4.1
million in the first nine months of 1997 as compared to the same period in 1996.
Other income from all other sources increased $2.3 million in the first nine
months of 1997 as compared with the first nine months of 1996.
Pretax earnings from the Acquisitions Division increased $6.8 million in the
first nine months of 1997 as compared to the same period of 1996. Earnings from
the Acquisitions Division are normally expected to decline over time (due to the
lapsing of policies resulting from deaths of insureds or terminations of
coverage) unless new acquisitions are made. The Division's most recent
acquisitions resulted in a $3.3 million increase in pretax earnings. In
addition, the Division's mortality experience was approximately $7.2 million
more favorable in the first nine months of 1997 as compared to the same period
last year.
Dental and Consumer Benefit Divisions pretax earnings were $4.5 million
higher in the first nine months of 1997 as compared to the first nine months of
1996 excluding a $6.8 million refund of premiums and related expenses in the
1996 third quarter. Dental earnings were $8.3 million, an increase of $1.6
million, before expenses of $1.8 million to develop a new discounted
fee-for-service dental program. $1.8 million of the increase was a one-time
release of reserves associated with exiting the group major medical business.
Lower cancer earnings partially offset improved results in other lines.
Pretax earnings of the Financial Institutions Division were $2.3 million
higher in the first nine months of 1997 as compared to the same period in 1996.
Included in the Division's results are earnings from the coinsurance of a block
of policies in the second quarter of 1996.
The GIC Division had pretax earnings of $21.9 million in the first nine
months of 1997 and $30.1 million in the corresponding period of 1996. The
decline largely reflects a reallocation of investment income from the GIC
Division to the Company's other divisions and Corporate and Other segment. In
December, 1996, the Company sold a major portion of its bank loan participations
in a securitization transaction which has reduced the Division's earnings. The
decrease was partially offset by a related improvement in earnings in the
Corporate and Other segment. In addition, the Company has shortened the duration
of the GIC Division's invested assets which also reduced earnings and lengthened
the duration of the other division's invested assets to better match assets to
liabilities on a divisional level. Realized investment losses associated with
this Division in the first nine months of 1997 were $1.8 million as compared to
$7.8 million in the same period last year. As a result, total pretax earnings
were $20.1 million in the first nine months of 1997 compared to $22.3 million
for the same period last year.
The Individual Life Division's results include West Coast which the Company
acquired on June 3. The Division's pretax operating earnings of $14.8 million in
the first nine months of 1997 were $4.4 million above the same period of 1996.
West Coast represents $3.0 million of the increase. Mortality returned to normal
levels in the 1997 third quarter after experiencing record high mortality in the
previous quarter which reduced earnings approximately $4.3 million. Realized
investment gains, net of related amortization of deferred policy acquisition
costs, associated with this Division were $1.1 million in 1996. As a result,
total pretax earnings were $14.8 million in the first nine months of 1997 as
compared to $11.5 million in the first nine months of 1996.
Investment Products Division pretax earnings of $8.4 million were $1.0
million higher in the first nine months of 1997 compared to the same period of
1996. The Division's 1996 results included a one-time $0.9 million addition to
earnings. Realized investment gains associated with the Division, net of related
amortization of deferred policy acquisition costs, were $0.2 million in the
first nine months of 1997 as compared to $2.4 million in 1996, resulting in
total pretax earnings of $8.6 million in the first nine months of 1997 as
compared to $9.8 million in the same period of 1996.
The Corporate and Other segment consists primarily of net investment income
on capital, interest expense on substantially all debt, the Company's 50%-owned
joint venture in Hong Kong, several small insurance lines of business, and the
operations of several small noninsurance subsidiaries. Pretax earnings for this
segment increased $14.0 million in the first nine months of 1997 as compared to
the first nine
S-41
<PAGE>
months of 1996. In the 1997 second quarter the Company sold its interest in a
money management joint venture resulting in a gain of $4.1 million. In the 1997
third quarter the segment had $3.0 million of income from the Company's
participation commercial mortgage loan program. In addition, the segment's
results include a decrease in interest expense of $2.6 million representing the
dividends on the Company's Trust Originated Preferred Securities which are
reported as "minority interest in net income of consolidated subsidiaries"
rather than as expenses of the Corporate and Other segment. The remaining
increase in earnings relates primarily to increased net investment income on
capital and income from securitization transactions.
The effective income tax rate for the full year of 1996 was 34%.
Management's estimate of the effective income tax rate for 1997 is also 34%.
Compared to the same period in 1996, net income per share in the first nine
months of 1997 increased 23.3%, reflecting improved operating earnings in the
Acquisitions, Dental and Consumer Benefits, Financial Institutions, and
Individual Life and Investment Products Divisions and the Corporate and Other
segment, which were partially offset by lower operating earnings in the GICs and
lower realized investment gains (net of related amortization of deferred policy
acquisition costs.)
The Company's investments in debt and equity securities are reported at
market value, and investments in mortgage loans are reported at amortized cost.
At September 30, 1997, the fixed maturity investments (bonds, bank loan
participations, and redeemable preferred stocks) had a market value of $6,157.6
million, which is 1.4% above amortized cost (less allowances for uncollectible
amounts on investments) of $6,072.0 million. The Company had $1,261.8 million in
mortgage loans at September 30, 1997. While the Company's mortgage loans do not
have quoted market values, at September 30, 1997, the Company estimates the
market value of its mortgage loans to be $1,339.8 million (using discounted cash
flows from the next call date) which is 6.2% in excess of amortized book value.
Most of the Company's mortgage loans have significant prepayment penalties.
These assets are invested for terms approximately corresponding to anticipated
future benefit payments. Thus, market value fluctuations should not adversely
affect liquidity.
For several years the Company has offered a type of commercial loan under
which the Company will permit a slightly higher loan-to-value ratio in exchange
for a participating interest in the cash flows from the underlying real estate.
Approximately $487.7 million of the Company's mortgage loans have this
participation feature.
At September 30, 1997, mortgage loans more than 90 days delinquent and
foreclosed real estate were 0.2% of assets. Bonds rated less than investment
grade were 1.9% of assets. Additionally, the Company had bank loan
participations that were less than investment grade representing 0.2% of assets.
The Company does not expect these investments to adversely affect its liquidity
or ability to maintain proper matching of assets and liabilities. The Company's
allowance for uncollectible amounts on investments was $24.7 million at
September 30, 1997.
Policy loans at September 30, 1997, were $194.2 million, a decrease of $3.4
million from December 31, 1996 (after excluding approximately $30.9 million of
policy loans associated with an acquisition in the second quarter of 1997).
Policy loan rates are generally in the 4.5% to 8.0% range and are at least equal
the assumed interest rates used for future policy benefits.
The Company does not use derivative financial instruments for trading
purposes. Combinations of futures contracts, interest rate options, and interest
rate swaps are sometimes used as hedges for asset/ liability management of
certain investments, primarily mortgage loans on real estate, mortgage-backed
securities, and liabilities arising from interest-sensitive products such as
GICs and annuities. Realized investment gains and losses of such contracts are
deferred and amortized over the life of the hedged asset. At September 30, 1997,
open option contracts with a notional amount of $1.2 billion were in a $1.1
million unrealized loss position.
S-42
<PAGE>
The Company may also sometimes use interest rate swap contracts and options
to enter into interest rate swap contracts ("swaptions") to convert certain
investments from a variable to a fixed rate of interest and from a fixed to a
variable rate of interest, and to convert a portion of its Senior Notes,
Medium-Term Notes, Monthly Income Preferred Securities, and Trust Originated
Preferred Securities from a fixed rate to a variable rate of interest. The
proceeds from the sale of swaptions are deferred and amortized over the life of
the related debt. At September 30, 1997, related open interest rate swap
contracts with a notional amount of $460.3 million were in a $0.9 million net
unrealized gain position.
In anticipation of receiving GIC and annuity deposits, the life insurance
subsidiaries were committed at September 30, 1997 to fund mortgage loans and to
purchase fixed maturity and other long-term investments in the amount of $426.0
million. The Company's subsidiaries held $199.8 million in cash and short-term
investments at September 30, 1997. Protective Life had an additional $2.9
million in cash and short-term investments available for general corporate
purposes.
On September 25, 1997, the Company sold approximately $445 million of its
commercial mortgage loans in a securitization transaction. Proceeds from the
sale consisted of cash of approximately $328 million, net of expenses, and
securities issued in the securitization transaction of approximately $110
million.
At September 30, 1997, Protective Life had borrowed $7.1 million of a $70
million revolving line of credit bearing an interest rate of approximately 6.1%
and an additional $11.5 million at a rate of 5.9%.
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
The Common Stock is listed and traded on the NYSE under the symbol "PL." The
following table sets forth, for the periods indicated, the highest and lowest
closing prices per share of the Common Stock as reported by the NYSE.
<TABLE>
<CAPTION>
RANGE
--------------------
HIGH LOW DIVIDENDS
--------- --------- -------------
<S> <C> <C> <C>
1995
First Quarter.............................................. $ 24.25 $ 21.44 $ .14
Second Quarter............................................. 27.50 21.63 .16
Third Quarter.............................................. 29.63 27.38 .16
Fourth Quarter............................................. 31.25 26.88 .16
1996
First Quarter.............................................. 36.50 30.50 .16
Second Quarter............................................. 38.38 33.13 .18
Third Quarter.............................................. 37.75 31.38 .18
Fourth Quarter............................................. 41.63 34.50 .18
1997
First Quarter.............................................. 44.63 37.63 .18
Second Quarter............................................. 50.75 40.63 .20
Third Quarter.............................................. 53.50 47.63 .20
Fourth Quarter
(through November 20, 1997).............................. 55.25 50.13 .20
</TABLE>
A recent closing sale price for the Common Stock as reported on the NYSE
Composite Transactions Tape is set forth on the cover page of this Prospectus
Supplement.
S-43
<PAGE>
CAPITALIZATION OF PROTECTIVE LIFE
The following table sets forth the unaudited summary capitalization of
Protective Life at September 30, 1997 and as adjusted to give effect to the
issuance of the FELINE PRIDES and the application of the estimated net proceeds
received by the Company in connection therewith as set forth under "Use of
Proceeds." The table below should be read in conjunction with Protective Life's
consolidated financial statements and notes thereto and other financial data
incorporated by reference herein. See also, the Consolidated Financial
Statements and accompanying notes included herein and "Incorporation of Certain
Documents by Reference" in the accompanying Prospectus.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
1997
--------------------
ACTUAL ADJUSTED
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt....................................................... $ 11,500 $ 11,500
Long-term debt
Notes payable to banks............................................ 7,100 7,100
7.95% Senior Notes due July 1, 2004............................... 75,000 75,000
Medium-term Notes................................................. 45,000 45,000
--------- ---------
Total long-term debt.............................................. 127,100 127,100
Guaranteed Preferred Beneficial Interests in the Company's
Subordinated Debt Securities
Cumulative Monthly Income Preferred Securities, Series A
Subordinated Debentures......................................... 55,000 55,000
Trust Originated Preferred Securities, Series B Subordinated
Debentures...................................................... 75,000 75,000
Trust Originated Preferred Securities, Series C Subordinated
Debentures...................................................... -- 100,000
Stockholders' equity
Preferred Stock ($1 par value shares authorized: 3,600,000;
issued: none)................................................... -- --
Junior Participating Cumulative Preferred Stock ($1 par value
shares authorized: 400,000; issued: none........................ -- --
Common equity ($.50 par value shares authorized: 80,000,000;
issued and outstanding: 30,814,136)............................. 710,928 710,928
--------- ---------
Total stockholders' equity........................................ 710,928 710,928
--------- ---------
Total capitalization.......................................... $ 979,528 $1,079,528
--------- ---------
--------- ---------
</TABLE>
ACCOUNTING TREATMENT
The financial statements of the Trust will be reflected in the Company's
consolidated financial statements, with the Preferred Securities shown on the
Company's balance sheet under the caption "Guaranteed Preferred Beneficial
Interests in the Company's Subordinated Debt Securities." The financial
statement footnotes to the Company's consolidated financial statements will
reflect that the sole asset of the Trust will be the Subordinated Debt
Securities due February 16, 2003 of the Company. Dividends on the Preferred
Securities will be reflected as a change to the Company's consolidated income,
identified as Minority Interest in Net Income of Consolidated Subsidiaries,
whether paid or accrued.
The Purchase Contracts are forward transactions in Protective Life's Common
Stock. Upon settlement of a Purchase Contract, Protective Life will receive the
Stated Amount on such Purchase Contract and will issue the requisite number of
shares of Common Stock. The Stated Amount thus received will be credited to
shareholders' equity allocated between the common stock and paid in capital
accounts. The present value of the Contract Adjustment Payments, if any, will
initially be charged to equity, with an offsetting credit to liabilities.
Subsequent Contract Adjustment Payments, if any, will be allocated between
S-44
<PAGE>
this liability account and interest expense based on a constant rate calculation
over the life of the transaction.
Prior to the issuance of shares of Common Stock upon settlement of the
Purchase Contracts, it is anticipated that the FELINE PRIDES will be reflected
in the Company's earnings per share calculations using the treasury stock
method. Under this method, the number of shares of Common Stock used in
calculating earnings per share is deemed to be increased by the excess, if any,
of the number of shares issuable upon settlement of the Purchase Contracts over
the number of shares that could be purchased by the Company in the market (at
the average market price during the period) using the proceeds receivable upon
settlement. Consequently, it is anticipated there will be no dilutive effect on
the Company's earnings per share except during periods when the average market
price of Common Stock is above the Threshold Appreciation Price.
S-45
<PAGE>
SELECTED FINANCIAL INFORMATION OF THE COMPANY
The following selected consolidated financial information as of and for the
years ended December 31, 1996, 1995, 1994, 1993 and 1992 has been derived from
previously published audited consolidated financial statements of Protective
Life, prepared in accordance with generally accepted accounting principles,
which have been examined and reported upon by Coopers & Lybrand L.L.P.,
independent auditors. The selected consolidated financial information at and for
the nine-month periods ending on September 30, 1997 and September 30, 1996 have
been derived from the third quarter 1997 and 1996 unaudited quarterly
consolidated financial statements of Protective Life. The consolidated financial
information should be read in conjunction with, and is qualified in its entirety
by reference to, the consolidated financial statements from which it has been
derived and the accompanying notes thereto incorporated by reference herein. See
also, "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the Consolidated Financial Statements and accompanying notes
included herein.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
1997 1996
------------- -------------
(DOLLARS IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Income Statement Data
Premiums and policy fees...... $ 363,817 $ 366,533
Net investment income......... 426,001 384,149
Realized investment gains
(losses).................... 786 5,882
Other income.................. 21,890 15,509
------------- -------------
Total revenues............ 812,494 772,073
------------- -------------
Benefits and expenses......... 680,891 670,854
Income tax expense............ 44,745 34,415
Minority interest............. 4,111 2,413
Change in accounting
principle................... -- --
------------- -------------
Net income.................. $ 82,747 $ 64,391
------------- -------------
------------- -------------
PER SHARE DATA(1)
Net income(2)................. $ 2.65 $ 2.15
Cash dividends................ $ 0.58 $ 0.52
Weighted average number of
shares outstanding.......... 31,219,799 29,995,190
Stockholders' equity.......... $ 23.07 $ 18.58
Stockholders' equity excluding
net unrealized gains and
losses on investments....... $ 21.85 $ 19.14
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Income Statement Data
Premiums and policy fees...... $ 494,153 $ 432,576 $ 402,772 $ 370,758 $ 323,136
Net investment income......... 517,483 475,924 417,825 362,130 284,069
Realized investment gains
(losses).................... 5,510 1,612 6,298 5,054 (14)
Other income.................. 20,857 11,768 21,553 21,695 18,835
------------- ------------- ------------- ------------- -------------
Total revenues............ 1,038,003 921,880 848,448 759,637 626,026
------------- ------------- ------------- ------------- -------------
Benefits and expenses......... 898,262 800,846 742,275 674,593 566,079
Income tax expense............ 47,512 41,152 33,976 28,475 17,384
Minority interest............. 3,217 3,217 1,796 19 90
Change in accounting
principle................... -- -- -- -- 1,053
------------- ------------- ------------- ------------- -------------
Net income.................. $ 89,012 $ 76,665 $ 70,401 $ 56,550 $ 41,420
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
PER SHARE DATA(1)
Net income(2)................. $ 2.94 $ 2.68 $ 2.57 $ 2.07 $ 1.52
Cash dividends................ $ .70 $ .62 $ .55 $ .505 $ .45
Weighted average number of
shares outstanding.......... 30,285,911(3) 28,627,345(3) 27,392,936(3) 27,381,578(3) 27,315,986
Stockholders' equity.......... $ 19.98 $ 18.30 $ 9.86 $ 13.17 $ 10.28
Stockholders' equity excluding
net unrealized gains and
losses on investments....... $ 19.76 $ 16.29 $ 13.78 $ 11.74 $ 10.16
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
--------------------- -----------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Total assets.................. $10,155,520 $7,986,781 $8,263,205 $7,231,257 $6,130,284 $5,316,005 $4,006,667
Long-term debt................ 127,100 139,000 168,200 115,500 98,000 137,598 31,014
Total debt.................... 138,600 139,000 181,000 115,500 98,000 147,118 88,248
Guaranteed Preferred
Beneficial Interests in
Company's Subordinated
Debentures
Monthly Income Preferred
Securities,
Series A(4)............... 55,000 55,000 55,000 55,000 55,000 -- --
8 1/4% Trust Originated
Preferred Securities...... 75,000 -- -- -- -- -- --
Stockholders' equity.......... 710,928 572,217 615,316 526,557 270,373 360,733 281,400
Stockholders' equity excluding
unrealized gains and losses
on investments.............. $ 673,174 $ 589,540 $ 608,628 $ 468,694 $ 377,905 $ 321,449 $ 278,244
CONSOLIDATED STATUTORY
FINANCIAL DATA(5)
Net income.................... $ 84,885 $ 79,490 $ 102,337 $ 115,259 $ 68,945 $ 53,138 $ 32,426
Total capital and surplus..... $ 417,227 $ 458,900 $ 456,320 $ 324,416 $ 306,858 $ 265,075 $ 208,476
</TABLE>
S-46
<PAGE>
- ------------------------------
(1) Prior periods have been restated to reflect a two-for-one stock split on
June 1, 1995.
(2) Net income per share is computed using the weighted average number of shares
outstanding during each period.
(3) Excludes contingently issuable shares of 266,293, 199,189, 208,233, 231,253,
262,730, and 257,272 at September 30, 1997 and 1996, and at December 31,
1996, 1995, 1994, and 1993, respectively. The dilutive effect of such shares
on earnings per share is less than three percent.
(4) Historically the Series A Preferred Securities have been reported as
"minority interest in consolidated subsidiaries" in the Company's financial
statements. In the Company's future financial statements, the Series A
Preferred Securities, the 8 1/4% Trust Originated Preferred Securities, and
the Preferred Securities will all be reported under "Guaranteed Preferred
Beneficial Interests in the Company's Subordinated Debt Securities."
(5) Of Protective Life's insurance subsidiaries prepared in conformity with
statutory accounting practices prescribed or permitted by insurance
regulatory authorities. Statutory accounting practices differ in some
respects from generally accepted accounting principles. For example, (a)
acquisition costs of obtaining new businesses are expensed as incurred, (b)
benefit liabilities are computed using methods statutorily mandated and are
not adjusted for actual experience, (c) income tax expense is computed on
taxable earnings and (d) furniture and equipment, agents' debt balances and
prepaid expenses are charged directly against surplus rather than reported
as assets.
S-47
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion is based on Management's Discussion and Analysis
included in Protective Life's Annual Report on Form 10-K for the year ending
December 31, 1996 and a more extensive discussion and analysis of Protective
Life is contained therein. For additional information see "Recent
Developments--Third Quarter Results" and "Risk Factors--The Industry" herein,
and "Incorporation of Certain Documents by Reference" in the accompanying
Prospectus.
RESULTS OF OPERATIONS
PREMIUMS AND POLICY FEES
The following table sets forth for the periods shown the amount of premiums
and policy fees and the percentage change from the prior period:
PREMIUMS AND POLICY FEES
<TABLE>
<CAPTION>
YEAR ENDED PERCENTAGE
DECEMBER 31 AMOUNT INCREASE
------------- ----------- -------------
(IN
THOUSANDS)
<S> <C> <C>
1994.............................................. $ 402,772 8.6%
1995.............................................. 432,576 7.4
1996.............................................. 494,153 14.2
</TABLE>
Premiums and policy fees increased $29.8 million or 7.4% in 1995 over 1994.
The 1994 assumptions of two blocks of policies by the Acquisitions Division
resulted in an $11.1 million increase in premiums and policy fees in 1995. On
June 15, 1995, the Division coinsured a block of policies which resulted in an
$8.3 million increase in premiums and policy fees. Decreases in older acquired
blocks of policies represented a $7.2 million decrease in premiums and policy
fees. Premiums and policy fees from the Financial Institutions Division
decreased $32.4 million. This resulted from a reinsurance arrangement begun in
the 1995 first quarter whereby most of the Division's new credit insurance sales
are being ceded to a reinsurer. Increases in premiums and policy fees from the
Dental and Consumer Benefits Division and the Individual Life Division represent
increases of $32.3 million and $14.1 million, respectively. On March 20, 1995,
the Company completed its acquisition of National Health Care Systems of
Florida, Inc. ("NHCS", also known as "DentiCare"), based in Jacksonville,
Florida. DentiCare operates prepaid dental plans (also referred to as dental
health maintenance organizations or dental capitation plans). The acquisition
represented $20.9 million of the increase in Group Division premiums and policy
fees. Policy fees from the Investment Products Division increased $2.9 million.
Premiums and policy fees increased $61.6 million or 14.2% in 1996 over 1995.
The coinsurance by the Acquisitions Division of three blocks of policies in the
first and fourth quarters of 1996 resulted in a $19.2 million increase in
premiums and policy fees. Decreases in older acquired blocks resulted in an
$11.1 million decrease in premiums and policy fees. Premiums and policy fees
from the Financial Institutions Division increased $7.8 million. This resulted
from the coinsurance of a block of policies in the second quarter of 1996
representing a $32.6 million increase in premiums and policy fees. This increase
was largely offset by decreases resulting from the reinsurance arrangement begun
in 1995. Premiums and policy fees from the Dental and Consumer Benefits Division
increased $25.3 million. Premiums and policy fees related to the Dental and
Consumer Benefits Division's dental business increased $33.7 million. This
increase was partially offset by a reduction to premiums related to a refund of
premiums to certain cancer insurance policyholders and to decreases in
traditional group health premiums. Increases in premiums and policy fees from
the Individual Life and Investment Product Divisions were $17.7 million and $3.6
million, respectively.
On October 7, 1996, the Company announced that it would make voluntary
refunds to certain of its cancer insurance policyholders and would reduce
premium rates charged to such policyholders until certain conditions are met.
The estimated refunds reduced the Dental and Consumer Benefits Division's
premiums and policy fees, as noted above.
S-48
<PAGE>
NET INVESTMENT INCOME
The following table sets forth for the periods shown the amount of net
investment income, the percentage change from the prior period, and the
percentage earned on average cash and investments:
NET INVESTMENT INCOME
<TABLE>
<CAPTION>
PERCENTAGE
EARNED
PERCENTAGE ON AVERAGE CASH
DECEMBER 31 AMOUNT INCREASE AND INVESTMENTS
------------- ----------- ------------- -----------------
(IN
THOUSANDS)
<S> <C> <C> <C>
1994................................ $ 417,825 15.4% 8.3%
1995................................ 475,924 13.9 8.2
1996................................ 517,483 8.7 8.1
</TABLE>
Net investment income in 1995 was $58.1 million or 13.9% higher, and in 1996
was $41.6 million or 8.7% higher than the preceding year, primarily due to
increases in the average amount of invested assets. Invested assets have
increased primarily due to receiving annuity and GIC deposits and to
acquisitions. The assumption of two blocks of policies in 1994 and one block of
policies in the second quarter of 1995 resulted in an increase in net investment
income of $8.9 million in 1995. The assumption of four blocks of policies during
1996 resulted in an increase in net investment income of $18.4 million.
The percentage earned on average cash and investments in 1995 was 8.2%, and
in 1996 was 8.1%, each slightly below that of the preceding year due to a
general decline in interest rates.
REALIZED INVESTMENT GAINS (LOSSES)
The Company generally purchases its investments with the intent to hold such
investments to maturity by purchasing investments that match future cash flow
needs. However, the Company may sell any of its investments to maintain proper
matching of assets and liabilities. Accordingly, the Company has classified its
fixed maturities and certain other securities as "available for sale." The sales
of investments that have occurred generally result from portfolio management
decisions to maintain proper matching of assets and liabilities. The following
table sets forth realized investment gains for the periods shown:
REALIZED INVESTMENT GAINS (LOSSES)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31 AMOUNT
------------- -------------
(IN
THOUSANDS)
<S> <C>
1994........................................................ $ 6,298
1995........................................................ 1,612
1996........................................................ 5,510
</TABLE>
The Company maintains an allowance for uncollectible amounts on investments.
The allowance totaled $33.4 million at December 31, 1995 and $31.6 million at
December 31, 1996.
Realized investment gains in 1995 of $21.6 million were largely offset by
realized investment losses of $20.0 million. Realized investment losses in 1995
were reduced by a $2.5 million reduction to the allowance for uncollectible
amounts on investments. Realized investment gains in 1996 of $19.3 million were
largely offset by realized investment losses of $13.8 million. In the 1996 first
quarter, the Company sold $554 million of its commercial mortgage loans in a
securitization transaction, resulting in a $6.1 million realized investment
gain. Realized investment losses in 1996 were reduced by a $1.8 million
reduction to the allowance for uncollectible amounts on investments.
S-49
<PAGE>
OTHER INCOME
The following table sets forth other income for the periods shown:
OTHER INCOME
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31 AMOUNT
------------- -----------
(IN
THOUSANDS)
<S> <C>
1994........................................................ $ 21,553
1995........................................................ 11,768
1996........................................................ 20,857
</TABLE>
Other income consists primarily of revenues of the Company's broker-dealer
subsidiary, fees from variable insurance products and
administrative-services-only types of group accident and health insurance
contracts, revenues of the Company's insurance marketing organizations and small
noninsurance subsidiaries, and the results of the Company's 50%-owned joint
venture in Hong Kong. In 1994 the Company received $8.2 million in settlement of
litigation. Other income from all other sources decreased $1.6 million in 1995.
In 1996, revenues from the Company's broker-dealer subsidiary increased $4.2
million. Other income from all other sources increased $4.9 million.
INCOME BEFORE INCOME TAX
The following table sets forth income or loss before income tax by business
segment for the periods shown:
INCOME (LOSS) BEFORE INCOME TAX
YEAR ENDED DECEMBER 31
<TABLE>
<CAPTION>
BUSINESS SEGMENT 1994 1995 1996
- ------------------------------------------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Acquisitions............................... $ 37,328 $ 48,490 $ 52,670
Financial Institutions..................... 9,024 8,375 9,531
Dental and Consumer Benefits (formerly
known as the Group Division)............... 10,139 10,060 5,138
Guaranteed Investment Contracts............ 29,005 27,649 32,119
Individual Life............................ 13,933 13,490 15,151
Investment Products........................ (705) 9,724 11,595
Corporate and Other*....................... 2,183 2,663 7,020
Unallocated Realized Investment Gains
(Losses)................................... 5,266 583 6,517
--------- --------- ---------
$ 106,173 $ 121,034 $ 139,741
--------- --------- ---------
</TABLE>
- ------------------------
* Income before income tax for the Corporate and Other segment has not been
reduced by pretax minority interest of $2,764 in 1994 and $4,950 in 1995 and
1996.
In the 1996 first quarter the Company changed the way it allocates certain
expenses to its operating divisions. Accordingly, prior period division results
have been restated to reflect the change.
Earnings from the Acquisitions Division are normally expected to decline
over time (due to the lapsing of policies resulting from deaths of insureds or
terminations of coverage) unless new acquisitions are made. In the ordinary
course of business, the Acquisitions Division regularly considers acquisitions
of smaller insurance companies or blocks of policies. 1995 pretax earnings from
the Acquisitions Division increased $11.2 million to $48.5 million. The two
blocks of policies coinsured during 1994 and the block of
S-50
<PAGE>
policies coinsured during the second quarter of 1995 represent $10.4 million of
the increase. The Division's 1996 pretax earnings increased $4.2 million to
$52.7 million. The Division's most recent acquisitions resulted in a $4.7
million increase in pretax earnings.
The Financial Institutions Division's 1995 pretax earnings of $8.4 million
were $0.6 million lower than 1994. In 1995 the Division entered into a
reinsurance arrangement whereby all of the Division's new credit insurance sales
are being ceded to a reinsurer. The Division also ceded a block of older
policies. Though the Division's reported earnings were reduced by approximately
$2.0 million, these reinsurance transactions are expected to improve the
Division's return on investment. The Division's pretax earnings increased $1.1
million to $9.5 million in 1996. Included in the Division's 1996 results are
earnings from the coinsurance of a block of policies in the second quarter of
1996. The reinsurance arrangement begun in the first quarter of 1995 reduced the
Division's reported earnings by approximately $3.3 million, which was
contemplated when the arrangement was entered into.
The Dental and Consumer Benefits Division's 1995 pretax earnings of $10.1
million were equal to pretax earnings in 1994. Total dental earnings were $4.6
million, up $4.5 million. DentiCare represented $1.9 million of the increase.
Lower traditional group life and health earnings offset higher dental earnings.
The Division's 1996 pretax earnings of $5.1 million were lower than 1995. The
previously discussed refund of cancer premiums and related expenses resulted in
a $6.8 million decrease in the Division's pretax earnings. Dental earnings
improved $4.9 million and traditional group health earnings declined by $1.9
million.
The GIC Division had pretax earnings of $31.6 million in 1995 and $40.1
million in 1996. Operating earnings in 1995 were benefited by lower expenses and
a favorable interest rate environment. This increase was also partially due to
the growth in GIC deposits. The 1996 increase was due to improved operating
spreads and to the growth in GIC deposits. Realized investment losses associated
with this Division in 1995 were $4.0 million as compared to $8.0 million in
1996. As a result, total pretax earnings were $27.6 million in 1995 and $32.1
million in 1996. The rate of growth in GIC deposits has decreased as the amount
of maturing contracts has increased.
The Individual Life Division had 1995 pretax earnings of $13.5 million, $0.4
million lower than 1994. The Division had 1996 pretax earnings of $14.0 million,
$0.5 million above 1995. Realized investment gains, net of related amortization
of deferred policy acquisition costs, associated with this Division were $1.2
million in 1996. As a result, total pretax earnings were $15.2 million in 1996
which was $1.7 million higher than 1995 in which there were no realized
investment gains.
The Investment Products Division's 1995 pretax earnings of $6.4 million were
$6.2 million higher than 1994. During 1994 the Division completed the
amortization of the deferred policy acquisition costs related to its book value
annuities. Accordingly, 1995 operating earnings were $7.2 million higher due to
lower amortization. The Division also benefited from a favorable interest rate
environment. The Division's 1996 pretax operating earnings were $9.6 million
which was $3.2 million higher than 1995. Earnings increased primarily due to
growth in variable annuity deposits. Realized investment gains, net of related
amortization of deferred policy acquisition costs, were $3.3 million in 1995 as
compared with $2.0 million in 1996. As a result, total pretax earnings were $9.7
million in 1995 and $11.6 million in 1996.
The Corporate and Other segment consists primarily of net investment income
on capital, interest expense on substantially all debt, the Company's 50%-owned
joint venture in Hong Kong, several small insurance lines of business, and the
operations of several small noninsurance subsidiaries. 1995 pretax income for
this segment was $2.7 million. The segment's 1995 and 1996 results reflect $2.4
million and $2.2 million, respectively, of additional dividends with respect to
Series A Preferred Securities reported as "minority interest in net income of
consolidated subsidiaries" rather than expenses of the Corporate and Other
segment. 1996 pretax earnings for this segment increased $4.3 million to $7.0
million due to improved operating results from the Company's joint venture in
Hong Kong and increased net investment income on capital.
S-51
<PAGE>
INCOME TAX EXPENSE
The following table sets forth the effective income tax rates for the
periods shown:
INCOME TAX EXPENSE
<TABLE>
<CAPTION>
EFFECTIVE
YEAR ENDED INCOME TAX
DECEMBER 31 RATES
- -------------------------------------------------------------- ---------------
<S> <C>
1994.......................................................... 32%
1995.......................................................... 34
1996.......................................................... 34
</TABLE>
Management's current estimate of the effective tax rate for 1997 is also
34%.
NET INCOME
The following table sets forth net income and net income per share for the
periods shown (all references to prior period per share amounts have been
restated to reflect a two-for-one stock split on June 1, 1995):
NET INCOME
<TABLE>
<CAPTION>
YEAR ENDED PER PERCENTAGE
DECEMBER 31 AMOUNT SHARE INCREASE
------------- ----------- --------- -------------
(IN
THOUSANDS)
<S> <C> <C> <C>
1994....................................... $ 70,401 $ 2.57 24.4%
1995....................................... 76,665 2.68 4.3
1996....................................... 89,012 2.94 9.7
</TABLE>
Net income per share in 1995 increased 4.3%, reflecting improved operating
earnings in the Acquisitions, GIC, and Investment Products Divisions and the
Corporate and Other segment, which were partially offset by lower realized
investment gains and lower earnings in the Financial Institutions, Dental and
Consumer Benefits, and Individual Life Divisions. Net income per share in 1996
was 9.7% higher than 1995, reflecting improved operating earnings in the
Acquisitions, Financial Institutions, GIC, Individual Life, and Investment
Products Divisions and Corporate and Other segment, and higher realized
investment gains partially offset by lower earnings in the Dental and Consumer
Benefits Division.
KNOWN TRENDS AND UNCERTAINTIES
The operating results of companies in the insurance industry have
historically been subject to significant fluctuations due to competition,
economic conditions, interest rates, investment performance, maintenance of
insurance ratings, and other factors. For a discussion of certain known trends
and uncertainties which may affect future results of the Company, see "Risk
Factors."
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1996 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities." This statement is
effective for transactions entered into after January 1, 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operations usually produce a positive cash flow. This cash
flow is used to fund an investment portfolio to finance future benefit payments.
Since future benefit payments largely represent
S-52
<PAGE>
medium and long-term obligations reserved using certain assumed interest rates,
the Company's investments are predominantly in medium and long-term, fixed-rate
investments such as bonds and mortgage loans.
Many of the Company's products contain surrender charges and other features
which reward persistency and penalize the early withdrawal of funds. Surrender
charges for these products are generally sufficient to cover the Company's
unamortized deferred policy acquisition costs with respect to the policy being
surrendered. GICs and certain annuity contracts have market value adjustments
that protect the Company against investment losses if interest rates are higher
at the time of surrender than at the time of issue.
The Company's investments in debt and equity securities are reported at
market value, and investments in mortgage loans are reported at amortized cost.
At December 31, 1996, the fixed maturity investments (bonds, bank loan
participations, and redeemable preferred stocks) had a market value of $4,686.1
million, which is less than 1% below amortized cost (less allowances for
uncollectible amounts on investments) of $4,671.6 million. The Company had
$1,503.1 million in mortgage loans at December 31, 1996. While the Company's
mortgage loans do not have quoted market values, at December 31, 1996, the
Company estimates the market value of its mortgage loans to be $1,581.7 million
(using discounted cash flows from the next call date) which is 5.2% above
amortized cost. Most of the Company's mortgage loans have significant prepayment
penalties. These assets are invested for terms approximately corresponding to
anticipated future benefit payments. Thus, market fluctuations should not
adversely affect liquidity.
For several years the Company has offered a type of commercial loan under
which the Company will permit a slightly higher loan-to-value ratio in exchange
for a participating interest in the cash flows from the underlying real estate.
Approximately $498 million of the Company's mortgage loans have this
participation feature.
At December 31, 1996, delinquent mortgage loans and foreclosed properties
were 0.3% of assets. Bonds rated less than investment grade were 1.4% of assets.
Additionally, the Company had bank loan participations that were less than
investment grade, representing 0.5% of assets. The Company does not expect these
investments to adversely affect its liquidity or ability to maintain proper
matching of assets and liabilities. The Company's allowance for uncollectible
amounts on investments was $31.6 million at December 31, 1996.
Policy loans at December 31, 1996, were $166.7 million, a decrease of $0.8
million from December 31, 1995, (after excluding the $24.1 million of policy
loans obtained through acquisitions). Policy loan rates are generally in the
4.5% to 8.0% range. Such rates at least equal the assumed interest rates used
for future policy benefits.
The Company believes its asset/liability management programs and procedures
and certain product features provide significant protection for the Company
against the effects of changes in interest rates. However, approximately
one-fourth of the Company's liabilities relates to products (primarily whole
life insurance) the profitability of which may be affected by changes in
interest rates. The effect of such changes in any one year is not expected to be
material. Additionally, the Company believes its asset/liability management
programs and procedures provide sufficient liquidity to enable it to fulfill its
obligation to pay benefits under its various insurance and deposit contracts.
The Company's asset/liability management programs and procedures involve the
monitoring of asset and liability durations for various product lines; cash flow
testing under various interest rate scenarios; and the continuous rebalancing of
assets and liabilities with respect to yield, risk, and cash flow
characteristics. It is the Company's general policy to maintain asset and
liability durations within one-half year of one another, although from time to
time a broader interval may be allowed.
S-53
<PAGE>
The Company does not use derivative financial instruments for trading
purposes. Combinations of futures contracts and options on treasury notes are
sometimes used as hedges for asset/liability management of certain investments,
primarily mortgage loans on real estate, mortgage-backed securities, and
liabilities arising from interest-sensitive products such as GICs and annuities.
Realized investment gains and losses of such contracts are deferred and
amortized over the life of the hedged asset. Net realized losses, incurred due
to a decline in interest rates, of $0.2 million were deferred in 1996. At
December 31, 1996, open futures contracts with a notional amount of $805.0
million were in a $1.9 million net unrealized loss position.
The Company may also sometimes use interest rate swap contracts and options
to enter into swaptions to convert certain investments from a variable rate of
interest to a fixed rate of interest and from a fixed rate to a variable rate of
interest, and to convert its Senior Notes, Medium Term Notes, Trust Originated
Preferred Securities and Monthly Income Preferred Securities from a fixed rate
to a variable rate of interest. The proceeds from the sale of swaptions are
deferred and amortized over the life of the related debt. Proceeds from the sale
of swaptions totaling $1.6 million were deferred in 1996. At December 31, 1996
related open interest rate swap contracts and swaptions with a notional amount
of $280.3 million were in a $0.2 million net unrealized loss position.
Withdrawals related to GIC contracts were approximately $786 million during
1996. Withdrawals related to GIC contracts are estimated to be approximately
$600 million in 1997. The Company's asset/ liability matching practices take
into account maturing contracts. Accordingly, the Company does not expect
maturing contracts to have an unusual effect on the future operations and
liquidity of the Company.
On March 22, 1996, the Company sold approximately $554 million of its
commercial mortgage loans in a securitization transaction. Proceeds from the
sale consisted of cash of approximately $400 million, net of expenses, and
securities issued in the securitization transaction of approximately $161
million. The sale resulted in a realized gain of approximately $6.1 million. The
cash proceeds were reinvested in fixed maturity and short-term investments. On
December 17, 1996, the Company sold approximately $315 million of its bank loan
participations in a larger securitization transaction. The sale resulted in a
realized gain of approximately $0.5 million. The proceeds were reinvested in
fixed maturity and short-term investments. In a related transaction, the Company
purchased $23 million of the securities issued in the securitization
transaction. The Company is investigating other securitization opportunities.
In anticipation of receiving GIC and annuity deposits, the life insurance
subsidiaries were committed at December 31, 1996, to fund mortgage loans and to
purchase fixed maturity and other long-term investments in the amount of $331.5
million. The Company's subsidiaries held $234.3 million in cash and short-term
investments at December 31, 1996. Protective Life had an additional $1.0 million
in cash and short-term investments available for general corporate purposes.
While the Company generally anticipates that the cash flow of its
subsidiaries will be sufficient to meet their investment commitments and
operating cash needs, the Company recognizes that investment commitments
scheduled to be funded may from time to time exceed the funds then available.
Therefore, the Company has arranged sources of credit for its insurance
subsidiaries to use when needed. The Company expects that the rate received on
its investments will equal or exceed its borrowing rate. Additionally, the
Company may from time to time sell short-duration GICs to complement its cash
management practices.
During 1996, the Company issued $45 million (in four separate offerings) of
Medium-Term Notes. Net proceeds of $43.8 million were used to repay bank
borrowings. The notes bear interest rates ranging from 7.00% to 7.45% and mature
in 2011.
At December 31, 1996, Protective Life had borrowed $48.2 million of its
$70.0 million revolving line of credit bearing interest rates averaging 5.9%.
The Company's bank borrowings have increased $20.5 million since December 31,
1995. Proceeds have been primarily used to contribute additional statutory
capital to
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the Company's insurance subsidiaries, and for general corporate purposes
including the acquisition of a small dental managed care organization, an
additional investment in the Hong Kong joint venture.
Protective Life's cash flow is dependent on cash dividends and payments on
surplus notes from its subsidiaries, revenues from investment, data processing,
legal and investment income. At December 31, 1996, approximately $173 million of
consolidated stockholders' equity, excluding net unrealized investment gains and
losses, represented net assets of the Company's insurance subsidiaries that
cannot be transferred to the Company in loans or advances to the parent company.
In addition, the states in which the Company's insurance subsidiaries are
domiciled impose certain restrictions on the insurance subsidiaries' ability to
pay dividends to Protective Life. Also, distributions, including cash dividends
to Protective Life from its life insurance subsidiaries, in excess of
approximately $439 million, would be subject to federal income tax at rates then
effective. The Company does not anticipate involuntarily making distributions
that would be subject to tax.
Due to the expected growth of the Company's insurance sales, the Company
plans to retain substantial portions of the earnings of its life insurance
subsidiaries in those companies primarily to support their future growth.
Protective Life's cash disbursements have from time to time exceeded its cash
receipts, and these shortfalls have been funded through various external
financings. Therefore, Protective Life may from time to time require additional
external financing.
A life insurance company's statutory capital is computed according to rules
prescribed by the National Association of Insurance Commissioners ("NAIC"), as
modified by the insurance company's state of domicile. Statutory accounting
rules are different from generally accepted accounting principles and are
intended to reflect a more conservative view by, for example, requiring
immediate expensing of policy acquisition costs. The achievement of long-term
growth will require growth in the statutory capital of the Company's insurance
subsidiaries. The subsidiaries may secure additional statutory of the Company's
insurance subsidiaries. The subsidiaries may secure additional statutory capital
through various sources, such as retained statutory earnings or equity
contributions by the Company.
On March 20, 1995, in connection with the acquisition of DentiCare, the
Company reissued 1,316,458 (adjusted for the two-for-one stock split on June 1,
1995) shares of its Common Stock previously held as Treasury Stock.
On May 30, 1996, the Company completed a public offering of 2 million shares
of its Common Stock. Net proceeds of approximately $70.5 million were primarily
invested in the Company's insurance subsidiaries to support future growth.
Under insurance guaranty fund laws in most states, insurance companies doing
business in a participating state can be assessed up to prescribed limits for
policyholder losses incurred by insolvent companies. The Company does not
believe that any such assessments will be materially different from amounts
already reflected in the financial statements.
The Company is not aware of any material pending or threatened regulatory
action with respect to the Company or any of its subsidiaries.
IMPACT OF INFLATION
Inflation increases the need for life insurance. Many policyholders who once
had adequate insurance programs may increase their life insurance coverage to
provide the same relative financial benefits and protection. Inflation increases
the cost of health care. The adequacy of premium rates in relation to the level
of accident and health claims is constantly monitored, and where appropriate,
premium rates on such policies are increased as policy benefits increase.
Failure to make such increases commensurate with healthcare cost increases may
result in a loss from health insurance.
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The higher interest rates that have traditionally accompanied inflation may
also affect the Company's investment operation. Policy loans increase as policy
loan interest rates become relatively more attractive. As interest rates
increase, disintermediation of GIC and annuity deposits and individual life
policy cash values may increase, the market value of the Company's fixed-rate,
long-term investments may decrease, and the Company may be unable to implement
fully the interest rate reset and call provisions of its mortgage loans. The
difference between the interest rate earned on investments and the interest rate
credited to life insurance and investment products may also be adversely
affected by rising interest rates.
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DESCRIPTION OF FELINE PRIDES
THE FOLLOWING DESCRIPTIONS OF CERTAIN TERMS OF THE FELINE PRIDES OFFERED
HEREBY SUPPLEMENTS, AND TO THE EXTENT INCONSISTENT THEREWITH REPLACES, THE
DESCRIPTION OF THE GENERAL TERMS AND PROVISIONS OF THE FELINE PRIDES SET FORTH
IN THE ACCOMPANYING PROSPECTUS, TO WHICH REFERENCE IS HEREBY MADE. ALTHOUGH THE
MATERIAL PROVISIONS OF DOCUMENTS DESCRIBED IN THIS PROSPECTUS SUPPLEMENT HAVE
BEEN SUMMARIZED, STATEMENTS CONTAINED HEREIN CONCERNING THE PROVISIONS OF ANY
SUCH DOCUMENTS ARE NOT NECESSARILY COMPLETE, AND IN EACH INSTANCE REFERENCE IS
MADE TO THE COPY OF SUCH DOCUMENT FILED AS AN EXHIBIT TO THE REGISTRATION
STATEMENT OR INCORPORATED HEREIN BY REFERENCE. EACH SUCH STATEMENT IS QUALIFIED
IN ITS ENTIRETY BE SUCH REFERENCE. CAPITALIZED TERMS NOT DEFINED HEREIN HAVE THE
MEANINGS ASSIGNED TO SUCH TERMS IN THE ACCOMPANYING PROSPECTUS.
Each FELINE PRIDES will be issued under the Purchase Contract Agreement
between the Company and the Purchase Contract Agent. Each FELINE PRIDES offered
hereby initially will consist of a unit (referred to as an Income PRIDES) with a
Stated Amount of $50 comprised of (a) a Purchase Contract under which (i) the
holder will purchase from the Company on the Purchase Contract Settlement Date,
for an amount of cash equal to the Stated Amount, a number of newly issued
shares of Common Stock equal to the Settlement Rate described below under
"Description of the Purchase Contracts--General," and (ii) the Company will pay
Contract Adjustment Payments, if any, to the holder, and (b) (i) beneficial
ownership of a related Preferred Security, having a stated liquidation amount
per Preferred Security equal to the Stated Amount, representing a preferred,
undivided beneficial interest in the assets of the Trust, which will consist
solely of the Subordinated Debt Securities, or (ii) in the case of a
distribution of the Subordinated Debt Securities upon the dissolution of the
Trust, Subordinated Debt Securities having a principal amount equal to the
Stated Amount. The purchase price of each Income PRIDES will be allocated
between the related Purchase Contract and the related Preferred Security in
proportion to their respective fair market values at the time of purchase. See
"Certain Federal Income Tax Consequences -- Acquisition of Income PRIDES;
Initial Basis in Preferred Securities and Purchase Contracts." As long as a
FELINE PRIDES is in the form of an Income PRIDES, the related Preferred
Securities will be pledged to the Collateral Agent, to secure the holder's
obligation to purchase Common Stock under the related Purchase Contract.
SUBSTITUTION OF PLEDGED SECURITIES
Each holder of an Income PRIDES will have the right, at any time, to
substitute for the related Preferred Securities held by the Collateral Agent
Treasury Securities in an aggregate principal amount equal to the aggregate
stated liquidation amount of such Preferred Securities. Because Treasury
Securities are issued in integral multiples of $1,000, holders of Income PRIDES
may make such substitution only in integral multiples of 20 Income PRIDES. Such
Treasury Securities will be pledged with the Collateral Agent to secure the
holder's obligation to purchase Common Stock under the related Purchase
Contracts. FELINE PRIDES with respect to which Treasury Securities have been
substituted for the related Preferred Securities as collateral to secure such
holder's obligation under the related Purchase Contracts will be referred to as
Growth PRIDES. To create 20 Growth PRIDES, the Income PRIDES holder will (a)
deposit with the Collateral Agent a Treasury Security having a principal amount
at maturity of $1,000 and (b) transfer 20 Income PRIDES to the Purchase Contract
Agent accompanied by a notice stating that the Income PRIDES holder has
deposited a Treasury Security with the Collateral Agent and requesting that the
Purchase Contract Agent instruct the Collateral Agent to release to such holder
the 20 Preferred Securities relating to such 20 Income PRIDES. Upon such deposit
and receipt of an instruction from the Purchase Contract Agent, the Collateral
Agent will effect the release of the related 20 Preferred Securities from the
pledge under the Pledge Agreement, free and clear of the Company's security
interest therein, to the Purchase Contract Agent, which will (i) cancel the 20
Income PRIDES, (ii) transfer the 20 related Preferred Securities to such holder
and (iii) deliver 20 Growth PRIDES to the holder. The substituted Treasury
Security will be pledged with the Collateral Agent to secure the holder's
obligation to purchase Common Stock under the related Purchase Contracts. Each
Growth PRIDES will consist of a unit with a
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Stated Amount of $50 comprised of (a) a Purchase Contract with respect to which
(i) the holder will purchase from the Company on the Purchase Contract
Settlement Date or earlier for an amount of cash equal to the Stated Amount of
such Growth PRIDES, a number of newly issued shares of Common Stock of the
Company equal to the Settlement Rate described herein, and (ii) the Company will
pay the holder Contract Adjustment Payments, if any, and (b) a 1/20 undivided
beneficial ownership interest in a related Treasury Security having a principal
amount at maturity equal to $1,000 and maturing on the Business Day immediately
preceding the Purchase Contract Settlement Date. The related Preferred
Securities released to the holder thereafter will trade separately from the
resulting Growth PRIDES. Each such released Preferred Security that is not
re-pledged with the Collateral Agent in connection with the recreation of Income
PRIDES, or in respect of which the related Subordianted Debt Security is not put
to the Company on the Purchase Contract Settlement Date, will remain outstanding
until it is automatically redeemed in connection with the maturity of the
related Subordinated Debt Security on February 16, 2003. Contract Adjustment
Payments, if any, will be payable by the Company on the Growth PRIDES on each
Payment Date from the later of December 31, 1997 and the last Payment Date on
which Contract Adjustment Payments, if any, were paid. In addition, imputed
interest would accrete on the related Treasury Securities. Distributions on such
released Preferred Securities will continue to be payable by the Trust at the
rate of 6 1/2% of the Stated Amount per annum through and including February 15,
2001, and the Reset Rate thereafter, subject to the Company's deferral rights
described in "-- Current Payments."
Holders who elect to substitute Pledged Securities, thereby creating Growth
PRIDES or recreating Income PRIDES (as discussed below), shall be responsible
for any fees or expenses payable in connection with such substitution. See
"Certain Provisions of the Purchase Contract Agreement and the Pledge Agreement
- --Miscellaneous."
RECREATING INCOME PRIDES
A holder of Growth PRIDES may recreate Income PRIDES by (a) depositing with
the Collateral Agent 20 Preferred Securities and (b) transferring 20 Growth
PRIDES to the Purchase Contract Agent accompanied by a notice stating that the
Growth PRIDES holder has deposited 20 Preferred Securities with the Collateral
Agent and requesting that the Purchase Contract Agent instruct the Collateral
Agent to release to such holder the related Treasury Security. Upon such deposit
and receipt of instructions from the Purchase Contract Agent, the Collateral
Agent will effect the release of the related Treasury Security from the pledge
of the Pledge Agreement, free and clear of the Company's security interest
therein, to the Purchase Contract Agent, which will (i) cancel the 20 Growth
PRIDES, (ii) transfer such Treasury Security to such holder and (iii) deliver 20
Income PRIDES to such holder. The substituted Preferred Securities will be
pledged with the Collateral Agent to secure the holder's obligation to purchase
Common Stock under the related Purchase Contracts.
CURRENT PAYMENTS
Holders of Income PRIDES are entitled to receive aggregate cash
distributions at a rate of 6 1/2% of the Stated Amount per annum from and after
November 26, 1997, payable quarterly in arrears. The quarterly payments on the
Income PRIDES will consist of (i) cumulative cash distributions on the related
Preferred Securities payable by the Trust initially at the rate of 6 1/2% of the
Stated Amount per annum through and including February 15, 2001, and, in the
case of Preferred Securities that remain outstanding after the Purchase Contract
Settlement Date, at the Reset Rate thereafter, and (ii) Contract Adjustment
Payments payable by the Company at the rate of 0% of the Stated Amount per annum
(PROVIDED, that if such rate is 0%, then the Company will not make any Contract
Adjustment Payments), in each case subject to the Company's right of deferral as
described herein.
The ability of the Trust to make the quarterly distributions on the
Preferred Securities is solely dependent upon the receipt of corresponding
interest payments from the Company on the Subordinated Debt Securities. The
Company has the right at any time, and from time to time, limited to a period
not
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extending beyond the maturity of the Subordinated Debt Securities, to defer the
interest payments on the Subordinated Debt Securities. As a consequence of such
deferral, quarterly distributions to holders of Income PRIDES (or any Preferred
Securities outstanding after the Purchase Contract Settlement Date or after a
substitution of collateral resulting in the creation of Growth PRIDES) would be
deferred (but despite such deferral, would continue to accumulate quarterly and
would accrue interest thereon compounded quarterly at the rate of 6 1/2% per
annum through and including February 15, 2001, and at the Reset Rate
thereafter). The Company also has the right to defer the payment of Contract
Adjustment Payments, if any, on the related Purchase Contracts until the
Purchase Contract Settlement Date; however, deferred Contract Adjustment
Payments, if any, will bear additional Contract Adjustment Payments at the rate
of 6 1/2% per annum (such deferred installments of Contract Adjustment Payments,
if any, together with the additional Contract Adjustment Payments, if any, shall
be referred to as the "Deferred Contract Adjustment Payments"). See "Description
of the Purchase Contracts -- Contract Adjustment Payments" and "Description of
the Preferred Securities -- Distributions."
The Company's obligations with respect to the Subordinated Debt Securities
and the Contract Adjustment Payments, if any, will be (i) subordinate and junior
in right of payment to all Senior Indebtedness, (ii) PARI PASSU with respect to
the Preferred Securities Guarantee, the Common Securities Guarantee, the Series
A Guarantee, the Series A Subordinated Debentures, the 8 1/4% TOPrS Guarantees,
the Series B Subordinated Debentures and with all unsecured trade creditors of
the Company and any other liabilities or obligations that may be PARI PASSU by
their terms and (iii) senior to the Company's common stock, the most senior
preferred or preference stock now or hereafter issued, from time to time, if
any, by the Company and to any guarantee now or hereafter entered into by the
Company in respect of any preferred or preference stock of any affiliate of the
Company. See "Risk Factors -- Ranking of Contract Adjustment Payments and
Subordinated Obligations under the Preferred Securities Guarantee and the
Subordinated Debt Securities; Holding Company Structure."
In the event a holder of Income PRIDES has substituted Treasury Securities
for the related Preferred Securities, such holder would receive on the resulting
Growth PRIDES only quarterly Contract Adjustment Payments, if any, subject to
the Company's rights of deferral. In addition, imputed interest would accrete on
the related Treasury Securities.
VOTING AND CERTAIN OTHER RIGHTS
Holders of Preferred Securities, in their capacities as such holders, will
not be entitled to vote to appoint, remove or replace, or to increase or
decrease the number of Regular Trustees and will generally have no voting rights
except in the limited circumstances described under "Description of the
Preferred Securities -- Voting Rights." Holders of Purchase Contracts relating
to the Income PRIDES or Growth PRIDES, in their capacities as such holders, will
have no voting or other rights in respect of the Common Stock.
LISTING OF THE SECURITIES
The Income PRIDES have been approved for listing on the NYSE under the
symbol "PLPrP", subject to official notice of issuance. The Growth PRIDES and
the Preferred Securities will not be listed or traded on any securities
exchange.
NYSE SYMBOL OF COMMON STOCK
The Common Stock is listed on the NYSE under the symbol "PL".
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DESCRIPTION OF THE PURCHASE CONTRACTS
GENERAL
Each Purchase Contract underlying a FELINE PRIDES (unless earlier
terminated, or earlier settled at the holder's option) will obligate the holder
of such Purchase Contract to purchase, and the Company to sell, on the Purchase
Contract Settlement Date, for an amount in cash equal to the Stated Amount of
such FELINE PRIDES, a number of newly issued shares of Common Stock equal to the
Settlement Rate. The Settlement Rate will be calculated as follows (subject to
adjustment under certain circumstances): (a) if the Applicable Market Value is
equal to or greater than $65.04 (the "Threshold Appreciation Price," which is
approximately 22% above the last reported sale price of the Common Stock set
forth on the cover page of the final Prospectus Supplement (the "Reference
Price")), the Settlement Rate (which will be equal to the Stated Amount divided
by the Threshold Appreciation Price) will be 0.769; accordingly, if, between the
date of this Prospectus Supplement and the period during which the Applicable
Market Value is measured, the market price for the Common Stock increases to an
amount that is higher than the Threshold Appreciation Price, the aggregate
market value of the shares of Common Stock issued upon settlement of each
Purchase Contract (assuming that such market value is the same as the Applicable
Market Value of such Common Stock) will be higher than the Stated Amount, and if
such market price is equal to the Threshold Appreciation Price, the aggregate
market value of such shares will be equal to the Stated Amount; (b) if the
Applicable Market Value is less than the Threshold Appreciation Price but
greater than the Reference Price, the Settlement Rate will be equal to the
Stated Amount divided by the Applicable Market Value; accordingly, if the market
price for the Common Stock increases between the date of this Prospectus
Supplement and the period during which the Applicable Market Value is measured
but such market price is less than the Threshold Appreciation Price, the
aggregate market value of the shares of Common Stock issued upon settlement of
each Purchase Contract (assuming that such market value is the same as the
Applicable Market Value of such Common Stock) will be equal to the Stated
Amount; and (c) if the Applicable Market Value is less than or equal to the
Reference Price, the Settlement Rate (which will be equal to the Stated Amount
divided by the Reference Price) will be 0.938; accordingly, if the market price
for the Common Stock decreases between the date of this Prospectus Supplement
and the period during which the Applicable Market Value is measured, the
aggregate market value of the shares of Common Stock issued upon settlement of
each Purchase Contract (assuming that such market value is the same as the
Applicable Market Value of such Common Stock) will be less than the Stated
Amount, and if such market price stays the same, the aggregate market value of
such shares will be equal to the Stated Amount. "Applicable Market Value" means
the average of the closing price per share of Common Stock on each of the thirty
consecutive trading days ending on the second trading day immediately preceding
the Purchase Contract Settlement Date.
No fractional shares of Common Stock will be issued by the Company pursuant
to the Purchase Contracts. In lieu of fractional shares otherwise issuable
(calculated on an aggregate basis) in respect of Purchase Contracts being
settled by a holder of Income PRIDES or Growth PRIDES, the holder will be
entitled to receive an amount of cash equal to such fraction of a share times
the Applicable Market Value.
On the Business Day immediately preceding the Purchase Contract Settlement
Date, unless (a) the holder of the related Subordinated Debt Securities has
previously notified the Company that it is exercising its right to put such
Subordinated Debt Securities to the Company, (b) a holder of FELINE PRIDES has
either (i) settled the related Purchase Contracts through the early delivery of
cash to the Purchase Contract Agent in the manner described herein, or (ii)
settled the related Purchase Contracts with separate cash on the Business Day
immediately preceding the Purchase Contract Settlement Date or (c) an event
described under "--Termination" has occurred, then (x) in the case of Income
PRIDES, (A) the holder of the related Preferred Securities will be deemed to
have requested the Institutional Trustee, as the holder of the related
Subordinated Debt Securities, to exercise its right to put such related
Subordinated Debt Securities to the Company on the Purchase Contract Settlement
Date, and, upon the repurchase of such related Subordinated Debt Securities, the
proceeds will be applied to repay such
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related Preferred Securities, and an amount equal to the aggregate stated
liquidation amount of such Preferred Securities will automatically be applied to
satisfy in full the obligation to purchase Common Stock under the related
Purchase Contracts and the remainder will be paid to such holder in cash, or (B)
in the event the Subordinated Debt Securities have been distributed, the holder
of the Subordinated Debt Securities will be deemed to have exercised its right
to put such Subordinated Debt Securities to the Company on the Purchase Contract
Settlement Date, and, upon the put of such Subordinated Debt Securities, the
portion of the proceeds equal to the aggregate principal amount of such
Subordinated Debt Securities will automatically be applied to satisfy in full
the obligation to purchase Common Stock under the related Purchase Contracts and
the remainder will be paid to such holder in cash, and (y) in the case of Growth
PRIDES, the principal amount of the related Treasury Securities, when paid at
maturity, will automatically be applied to satisfy in full such holder's
obligation to purchase Common Stock under the related Purchase Contracts. Such
Common Stock will then be issued and delivered to such holder or such holder's
designee, upon presentation and surrender of the certificate evidencing such
FELINE PRIDES (a "FELINE PRIDES Certificate") and payment by the holder of any
transfer or similar taxes payable in connection with the issuance of the Common
Stock to any person other than such holder. In the event that a holder of either
Income PRIDES or Growth PRIDES effects the early settlement of the related
Purchase Contract through the delivery of cash or settles the related Purchase
Contract with cash on the Business Day immediately preceding the Purchase
Contract Settlement Date, the related Preferred Securities or Treasury
Securities, as the case may be, will be released to the holder as described
herein. Each such released Preferred Security in respect of which the related
Subordinated Debt Security is not put to the Company on the Purchase Contract
Settlement Date will remain outstanding until it is automatically redeemed in
connection with the maturity of the related Subordinated Debt Security on
February 16, 2003. The funds received by the Collateral Agent on the Business
Day immediately preceding the Purchase Contract Settlement Date, either upon
cash settlement of a Purchase Contract or, upon payment at maturity of the
Treasury Securities, will be promptly invested in overnight permitted
investments and paid to the Company on the Purchase Contract Settlement Date.
Any funds received by the Collateral Agent in respect of the interest earned
from the overnight investment in permitted investments will be distributed to
the Purchase Contract Agent for payment to the holders.
Prior to the date on which shares of Common Stock are issued in settlement
of Purchase Contracts, the Common Stock underlying the related Purchase
Contracts will not be deemed to be outstanding for any purpose and the holders
of such Purchase Contracts will not have any voting rights, rights to dividends
or other distributions or other rights or privileges of a stockholder of the
Company by virtue of holding such Purchase Contracts. See "Description of the
Preferred Securities -- Voting Rights."
Each holder of Income PRIDES or Growth PRIDES, by acceptance thereof, will
under the terms of the Purchase Contract Agreement and the related Purchase
Contracts be deemed to have (a) irrevocably agreed to be bound by the terms of
the related Purchase Contracts and the Pledge Agreement for so long as such
holder remains a holder of such FELINE PRIDES, and (b) duly appointed the
Purchase Contract Agent as such holder's attorney-in-fact to enter into and
perform the related Purchase Contracts on behalf of and in the name of such
holder. In addition, each beneficial owner of Income PRIDES or Growth PRIDES, by
acceptance of such interest, will be deemed to have agreed to treat (i) itself
as the owner of the related Preferred Securities or Treasury Securities, as the
case may be, and (ii) the Subordinated Debt Securities as indebtedness of the
Company, in each case, for United States federal, state and local income and
franchise tax purposes.
EARLY SETTLEMENT
A holder of Income PRIDES or Growth PRIDES may settle the related Purchase
Contracts prior to the Purchase Contract Settlement Date by presenting and
surrendering the FELINE PRIDES Certificate evidencing such Income PRIDES or
Growth PRIDES at the offices of the Purchase Contract Agent with the form of
"Election to Settle Early" on the reverse side of such certificate completed and
executed as
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indicated, accompanied by payment (in the form of a certified or cashier's check
payable to the order of the Company or in immediately available funds) of an
amount equal to the Stated Amount times the number of Purchase Contracts being
settled. So long as the FELINE PRIDES are evidenced by one or more global
security certificates deposited with the Depositary (as defined below),
procedures for early settlement will also be governed by standing arrangements
between the Depositary and the Purchase Contract Agent. HOLDERS MAY SETTLE
PURCHASE CONTRACTS EARLY ONLY IN INTEGRAL MULTIPLES OF 20 INCOME PRIDES OR 20
GROWTH PRIDES.
Upon Early Settlement of the Purchase Contracts related to any Income PRIDES
or Growth PRIDES, (a) the holder will receive 0.769 newly issued shares of
Common Stock per Income PRIDES or Growth PRIDES (regardless of the market price
of the Common Stock on the date of such Early Settlement), subject to adjustment
under the circumstances described in "-- Anti-Dilution Adjustments" below, (b)
the Preferred Securities or Treasury Securities, as the case may be, related to
such Income PRIDES or Growth PRIDES will thereupon be transferred to the holder
free and clear of the Company's security interest therein, (c) the holder's
right to receive Deferred Contract Adjustment Payments, if any, on the Purchase
Contracts being settled will be forfeited, (d) the holder's right to receive
future Contract Adjustment Payments, if any, will terminate and (e) no
adjustment will be made to or for the holder on account of Deferred Contract
Adjustment Payments, if any, or any amounts accrued in respect of Contract
Adjustment Payments.
If the Purchase Contract Agent receives a FELINE PRIDES Certificate,
accompanied by the completed "Election to Settle Early" and requisite check or
immediately available funds, from a holder of FELINE PRIDES by 5:00 p.m., New
York City time, on a Business Day, that day will be considered the settlement
date. If the Purchase Contract Agent receives the foregoing after 5:00 p.m., New
York City time, on a Business Day or at any time on a day that is not a Business
Day, the next Business Day will be considered the settlement date.
Upon Early Settlement of Purchase Contracts in the manner described above,
presentation and surrender of the FELINE PRIDES Certificate evidencing the
related Income PRIDES or Growth PRIDES and payment of any transfer or similar
taxes payable by the holder in connection with the issuance of the related
Common Stock to any person other than the holder of such Income PRIDES or Growth
PRIDES, the Company will cause the shares of Common Stock being purchased to be
issued, and the related Preferred Securities or Treasury Securities, as the case
may be, securing such Purchase Contracts to be released from the pledge under
the Pledge Agreement (described in "-- Pledged Securities and Pledge Agreement")
and transferred, within three Business Days following the settlement date, to
the purchasing holder or such holder's designee. Each such released Preferred
Security that is not repaid as a result of the put of the related Subordinated
Debt Security to the Company on the Purchase Contract Settlement Date will
remain outstanding following the Purchase Contract Settlement Date until it is
automatically redeemed in connection with the maturity of the related
Subordinated Debt Security on February 16, 2003.
NOTICE TO SETTLE WITH CASH
A holder of an Income PRIDES or Growth PRIDES wishing to settle the related
Purchase Contract with separate cash on the Business Day immediately preceding
the Purchase Contract Settlement Date (i) must notify the Purchase Contract
Agent by presenting and surrendering the FELINE PRIDES Certificate evidencing
such Income PRIDES or Growth PRIDES at the offices of the Purchase Contract
Agent with the form of "Notice to Settle by Separate Cash" on the reverse side
of the certificate completed and executed as indicated on or prior to 5:00 p.m.,
New York City time, on the second Business Day immediately preceding the
Purchase Contract Settlement Date and (ii) must deliver payment (in the form of
a certified or cashier's check payable to the order of the Company or in
immediately available funds) of an amount equal to the Stated Amount times the
number of Purchase Contracts being settled to the
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Collateral Agent on or prior to 12:00 p.m., New York City time, on the Business
Day immediately preceding the Purchase Contract Settlement Date.
CONTRACT ADJUSTMENT PAYMENTS
Contract Adjustment Payments will be fixed at a rate per annum of 0% of the
Stated Amount per Purchase Contract, PROVIDED that if such rate is 0%, then the
Company will not make any Contract Adjustment Payments. Contract Adjustment
Payments that are not paid when due (after giving effect to any permitted
deferral thereof) will bear interest thereon at the rate per annum of 6 1/2%
thereof, compounded quarterly, until paid. Contract Adjustment Payments, if any,
payable for any period will be computed on the basis of a 360-day year of twelve
30 day-months. Contract Adjustment Payments, if any, will accrue from November
26, 1997 and will be payable quarterly in arrears on March 31, June 30,
September 30 and December 31 of each year, commencing December 31, 1997.
Contract Adjustment Payments will be specified as a positive component of the
distributions on the Income PRIDES only if and to the extent that the rate of
distributions on the Preferred Securities, as determined on the date on which
the Income PRIDES are priced for sale, is less than the aggregate distribution
rate required on such date for the offer and sale of the Income PRIDES at the
price to the public specified on the cover page of this Prospectus Supplement.
Accordingly, the final Prospectus Supplement will indicate whether and to what
extent Contract Adjustment Payments will be required to be made by the Company.
Contract Adjustment Payments, if any, will be payable to the holders of
Purchase Contracts as they appear on the books and records of the Purchase
Contract Agent on the relevant record dates, which, as long as the Income PRIDES
or Growth PRIDES remain in book-entry only form, will be one Business Day prior
to the relevant payment dates. Such distributions will be paid through the
Purchase Contract Agent who will hold amounts received in respect of the
Contract Adjustment Payments, if any, for the benefit of the holders of the
Purchase Contracts relating to such Income PRIDES or Growth PRIDES. Subject to
any applicable laws and regulations, each such payment will be made as described
under "Book-Entry System" below. In the event that the Income PRIDES or Growth
PRIDES do not continue to remain in book-entry only form, the relevant record
dates shall be March 15, June 15, September 15 and December 15. In the event
that any date on which Contract Adjustment Payments, if any, are to be made on
the Purchase Contracts related to the Income PRIDES or Growth PRIDES is not a
Business Day, then payment of the Contract Adjustment Payments payable on such
date will be made on the next succeeding day which is a Business Day (and
without any interest or other payment in respect of any such delay), except
that, if such Business Day is in the next succeeding calendar year, such payment
shall be made on the immediately preceding Business Day, in each case with the
same force and effect as if made on such payment date. A "Business Day" shall
mean any day other than Saturday, Sunday or any other day on which banking
institutions in New York City (in the State of New York) are permitted or
required by any applicable law to close.
The Company's obligations with respect to Contract Adjustment Payments, if
any, will be (i) subordinate and junior in right of payment to all Senior
Indebtedness, (ii) PARI PASSU with respect to the Preferred Securities
Guarantee, the Subordinated Debt Securities, the Common Securities Guarantee,
the Series A Guarantee, the Series A Subordinated Debentures, the 8 1/4% TOPrS
Guarantees, and the Series B Subordinated Debentures and with all unsecured
trade creditors of the Company and any other liabilities or obligations that may
be PARI PASSU by their terms and (iii) senior to the Company's common stock, the
most senior preferred or preference stock now or hereafter issued, from time to
time, if any, by the Company and to any guarantee now or hereafter entered into
by the Company in respect of any preferred or preference stock of any affiliate
of the Company. See "Risk Factors--Ranking of Contract Adjustment Payments and
Subordinated Obligations under the Preferred Securities Guarantee and the
Subordinated Debt Securities; Holding Company Structure."
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OPTION TO DEFER CONTRACT ADJUSTMENT PAYMENTS
The Company may, at its option and upon prior written notice to the holders
of the FELINE PRIDES and the Purchase Contract Agent, defer the payment of
Contract Adjustment Payments, if any, on the Purchase Contracts until no later
than the Purchase Contract Settlement Date. However, Deferred Contract
Adjustment Payments, if any, will bear additional Contract Adjustment Payments
at the rate of 6 1/2% per annum (compounding on each succeeding Payment Date)
until paid. If the Purchase Contracts are terminated (upon the occurrence of
certain events of bankruptcy, insolvency or reorganization with respect to the
Company), the right to receive Contract Adjustment Payments (other than any
accrued but unpaid Contract Adjustment Payments that have not been deferred), if
any, and Deferred Contract Adjustment Payments, if any, will also terminate.
In the event that the Company elects to defer the payment of Contract
Adjustment Payments, if any, on the Purchase Contracts until the Purchase
Contract Settlement Date, each holder of FELINE PRIDES will receive on the
Purchase Contract Settlement Date in respect of the Deferred Contract Adjustment
Payments, in lieu of a cash payment, a number of shares of Common Stock equal to
(x) the aggregate amount of Deferred Contract Adjustment Payments payable to
such holder divided by (y) the Applicable Market Value.
No fractional shares of Common Stock will be issued by the Company with
respect to the payment of Deferred Contract Adjustment Payments, if any, on the
Purchase Contract Settlement Date. In lieu of fractional shares otherwise
issuable (calculated on an aggregate basis after taking into account all of the
FELINE PRIDES held by a particular holder) with respect to such payment of
Deferred Contract Adjustment Payments, the holder will be entitled to receive an
amount in cash equal to such fraction of a share times the Applicable Market
Value.
In the event the Company exercises its option to defer the payment of
Contract Adjustment Payments, if any, then, until the Deferred Contract
Adjustment Payments have been paid, the Company shall not declare or pay
dividends on, or make a distribution with respect to, or redeem, purchase or
acquire, or make a liquidation payment with respect to, any of its capital stock
or make guarantee payments with respect to the foregoing (other than (i)
purchases or acquisitions of shares of the Company's capital stock in connection
with the satisfaction by the Company of its obligations under any employee
benefit plans or the satisfaction by the Company of its obligations pursuant to
any contract or security requiring the Company to purchase shares of its capital
stock, (ii) as a result of a reclassification of the Company's capital stock or
the exchange or conversion of one class or series of the Company's capital stock
for another class or series of the Company's capital stock, (iii) the purchase
of fractional interests in shares of the Company's capital stock pursuant to an
acquisition or the conversion or exchange provisions of such capital stock or
the securities being converted or exchanged, (iv) dividends or distributions in
capital stock of the Company and (v) redemptions or purchases pursuant to the
Rights Agreement.
ANTI-DILUTION ADJUSTMENTS
The formula for determining the Settlement Rate will be subject to
adjustment (without duplication) upon the occurrence of certain events,
including: (a) the payment of dividends (and other distributions) of Common
Stock on Common Stock; (b) the issuance to all holders of Common Stock of
rights, warrants or options entitling them, for a period of up to 45 days, to
subscribe for or purchase Common Stock at less than the Current Market Price (as
defined) thereof; (c) subdivisions, splits and combinations of Common Stock; (d)
distributions to all holders of Common Stock of evidences of indebtedness of the
Company, shares of capital stock, securities, cash or property (excluding any
dividend or distribution covered by clause (a) or (b) above and any dividend or
distribution paid exclusively in cash); (e) distributions consisting exclusively
of cash to all holders of Common Stock in an aggregate amount that, together
with (i) other all-cash distributions made within the preceding 12 months and
(ii) any cash and the fair market value, as of the expiration of the tender or
exchange offer referred to below, of consideration payable in
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respect of any tender or exchange offer by the Company or a subsidiary thereof
for the Common Stock concluded within the preceding 12 months, exceeds 15% of
the Company's aggregate market capitalization (such aggregate market
capitalization being the product of the current market price of the Common Stock
multiplied by the number of shares of Common Stock then outstanding) on the date
of such distribution; and (f) the successful completion of a tender or exchange
offer made by the Company or any subsidiary thereof for the Common Stock which
involves an aggregate consideration that, together with (i) any cash and the
fair market value of other consideration payable in respect of any tender or
exchange offer by the Company or a subsidiary thereof for the Common Stock
concluded within the preceding 12 months and (ii) the aggregate amount of any
all-cash distributions to all holders of the Company's Common Stock made within
the preceding 12 months, exceeds 15% of the Company's aggregate market
capitalization on the expiration of such tender or exchange offer.
In the case of certain reclassifications, consolidations, mergers, sales or
transfers of assets or other transactions pursuant to which the Common Stock is
converted into the right to receive other securities, cash or property, each
Purchase Contract then outstanding would, without the consent of the holders of
the related Income PRIDES or Growth PRIDES, as the case may be, become a
contract to purchase only the kind and amount of securities, cash and other
property receivable upon consummation of the transaction by a holder of the
number of shares of Common Stock which would have been received by the holder of
the related Income PRIDES or Growth PRIDES immediately prior to the date of
consummation of such transaction if such holder had then settled such Purchase
Contract.
If at any time the Company makes a distribution of property to its
stockholders which would be taxable to such stockholders as a dividend for
United States federal income tax purposes (i.e., distributions of evidences of
indebtedness or assets of the Company, but generally not stock dividends or
rights to subscribe to capital stock) and, pursuant to the Settlement Rate
adjustment provisions of the Purchase Contract Agreement, the Settlement Rate is
increased, such increase may give rise to a taxable dividend to holders of
FELINE PRIDES. See "Certain Federal Income Tax Consequences -- Adjustment to
Settlement Rate."
In addition, the Company may make such increases in the Settlement Rate as
the Board of Directors of the Company deems advisable to avoid or diminish any
income tax to holders of its capital stock resulting from any dividend or
distribution of capital stock (or rights to acquire capital stock) or from any
event treated as such for income tax purposes or for any other reasons.
Adjustments to the Settlement Rate will be calculated to the nearest
1/10,000th of a share. No adjustment in the Settlement Rate shall be required
unless such adjustment would require an increase or decrease of at least one
percent in the Settlement Rate: PROVIDED, HOWEVER, that any adjustments which by
reason of the foregoing are not required to be made shall be carried forward and
taken into account in any subsequent adjustment.
The Company will be required, within ten Business Days following the
occurrence of an event that requires or permits an adjustment in the Settlement
Rate, to provide written notice to the Purchase Contract Agent of the occurrence
of such event and a statement in reasonable detail setting forth the method by
which the adjustment to the Settlement Rate was determined and setting forth the
revised Settlement Rate.
Each adjustment to the Settlement Rate will result in a corresponding
adjustment to the number of shares of Common Stock issuable upon early
settlement of a Purchase Contract.
TERMINATION
The Purchase Contracts, and the rights and obligations of the Company and of
the holders of the FELINE PRIDES thereunder (including the right thereunder to
receive accrued Contract Adjustment Payments or Deferred Contract Adjustment
Payments and the right and obligation to purchase Common
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Stock), will automatically terminate upon the occurrence of certain events of
bankruptcy, insolvency or reorganization with respect to the Company. Upon such
termination, the Collateral Agent will release the related Preferred Securities
or Treasury Securities, as the case may be, held by it to the Purchase Contract
Agent for distribution to the holders. Upon such termination, however, such
release and termination may be subject to a limited delay. In the event that the
Company becomes the subject of a case under the Bankruptcy Code, such delay may
occur as a result of the automatic stay under the Bankruptcy Code and continue
until such automatic stay has been lifted.
PLEDGED SECURITIES AND PLEDGE AGREEMENT
The Preferred Securities related to the Income PRIDES or, if substituted,
the Treasury Securities related to the Growth PRIDES (together, the "Pledged
Securities") will be pledged to the Collateral Agent, for the benefit of the
Company, pursuant to a pledge agreement, to be dated as of November 26, 1997
(the "Pledge Agreement"), to secure the obligations of holders of FELINE PRIDES
to purchase Common Stock under the related Purchase Contracts. The rights of
holders of FELINE PRIDES to the related Pledged Securities will be subject to
the Company's security interest therein created by the Pledge Agreement. No
holder of Income PRIDES or Growth PRIDES will be permitted to withdraw the
Pledged Securities related to such Income PRIDES or Growth PRIDES from the
pledge arrangement except (i) to substitute Treasury Securities for the related
Preferred Securities, (ii) to substitute Preferred Securities for the related
Treasury Securities (for both (i) and (ii), as provided for under "Description
of FELINE PRIDES -- Substitution of Pledged Securities") or (iii) upon the
termination or Early Settlement of the related Purchase Contracts. Subject to
such security interest and the terms of the Purchase Contract Agreement and the
Pledge Agreement, each holder of Income PRIDES will be entitled through the
Purchase Contract Agent and the Collateral Agent to all of the proportional
rights and preferences of the related Preferred Securities (including
distribution, voting, redemption, repayment and liquidation rights) and each
holder of Growth PRIDES will retain beneficial ownership of the related Treasury
Securities pledged in respect of the related Purchase Contracts. The Company
will have no interest in the Pledged Securities other than its security
interest.
Except as described in "Description of the Purchase Contracts -- General,"
the Collateral Agent will, upon receipt of distributions on the Pledged
Securities, distribute such payments to the Purchase Contract Agent, which will
in turn distribute those payments, together with Contract Adjustment Payments,
if any, received from the Company, to the persons in whose names the related
Income PRIDES or Growth PRIDES are registered at the close of business on the
Record Date immediately preceding the date of such distribution.
The quarterly payments on the Income PRIDES will consist of (i) cumulative
cash distributions on the Preferred Securities payable by the Trust at the rate
of 6 1/2% of the Stated Amount per annum through and including February 15, 2001
and with respect to Preferred Securities that remain outstanding, at the Reset
Rate thereafter, and (ii) Contract Adjustment Payments payable by the Company at
the rate of 0% of the Stated Amount per annum (PROVIDED, that if such rate is
0%, then the Company will not make any Contract Adjustment Payments), in each
case subject to the Company's right to defer the payment of such amounts.
The ability of the Trust to make quarterly distributions on the related
Preferred Securities is solely dependent upon the receipt of corresponding
interest payments from the Company on the Subordinated Debt Securities. The
Company has the right at any time, and from time to time, limited to a period
not extending beyond the maturity of the Subordinated Debt Securities, to defer
the interest payments on the Subordinated Debt Securities. As a consequence of
such deferral, quarterly distributions to holders would be deferred (but despite
such deferral, would continue to accrue with interest thereon, compounded
quarterly, at the rate of 6 1/2% per annum through and including February 15,
2001, and, with respect to Preferred Securities that remain outstanding after
the Purchase Contract Settlement Date, at the Reset Rate thereafter). See
"Description of the Purchase Contracts -- Contract Adjustment Payments" and
"Description of the Preferred Securities -- Distributions."
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In the event a holder of Income PRIDES substituted Treasury Securities for
the related Preferred Securities, such holder would receive on the resulting
Growth PRIDES only the quarterly Contract Adjustment Payments, if any, subject
to the Company's rights of deferral. In addition, imputed interest would
continue to accrete on the related Treasury Securities.
BOOK ENTRY-SYSTEM
The Depository Trust Company (the "Depositary") will act as securities
depositary for the FELINE PRIDES. The FELINE PRIDES will be issued only as
fully-registered securities registered in the name of Cede & Co. (the
Depositary's nominee). One or more fully-registered global security certificates
("Global Security Certificates"), representing the total aggregate number of
FELINE PRIDES, will be issued and will be deposited with the Depositary and will
bear a legend regarding the restrictions on exchanges and registration of
transfer thereof referred to below.
The laws of some jurisdictions require that certain purchasers of securities
take physical delivery of securities in definitive form. Such laws may impair
the ability to transfer beneficial interests in the FELINE PRIDES so long as
such FELINE PRIDES are represented by Global Security Certificates.
The Depositary is a limited-purpose trust company organized under the New
York Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). The Depositary holds
securities that its participants ("Participants") deposit with the Depositary.
The Depositary also facilitates the settlement among Participants of securities
transactions, such as transfers and pledges, in deposited securities through
electronic computerized book-entry changes in Participants' accounts, thereby
eliminating the need for physical movement of securities certificates. Direct
Participants include securities brokers and dealers, banks, trust companies,
clearing corporations and certain other organizations ("Direct Participants").
The Depositary is owned by a number of its Direct Participants and by the NYSE,
the American Stock Exchange, Inc., and the National Association of Securities
Dealers, Inc. Access to the Depositary system is also available to others, such
as securities brokers and dealers, banks and trust companies that clear
transactions through or maintain a direct or indirect custodial relationship
with a Direct Participant either directly or indirectly ("Indirect
Participants"). The rules applicable to the Depositary and its Participants are
on file with the Commission.
No FELINE PRIDES represented by Global Security Certificates may be
exchanged in whole or in part for FELINE PRIDES registered, and no transfer of
Global Security Certificates in whole or in part may be registered, in the name
of any person other than the Depositary or any nominee of the Depositary unless
the Depositary has notified the Company that it is unwilling or unable to
continue as depositary for such Global Security Certificates or has ceased to be
qualified to act as such as required by the Purchase Contract Agreement or there
shall have occurred and be continuing a default by the Company in respect of its
obligations under one or more Purchase Contracts. All FELINE PRIDES represented
by one or more Global Security Certificates or any portion thereof will be
registered in such names as the Depositary may direct.
As long as the Depositary or its nominee is the registered owner of the
Global Security Certificates, such Depositary or such nominee, as the case may
be, will be considered the sole owner and holder of the Global Security
Certificates and all FELINE PRIDES represented thereby for all purposes under
the FELINE PRIDES and the Purchase Contract Agreement. Except in the limited
circumstances referred to above, owners of beneficial interests in Global
Security Certificates will not be entitled to have such Global Security
Certificates or the FELINE PRIDES represented thereby registered in their names,
will not receive or be entitled to receive physical delivery of FELINE PRIDES
Certificates in exchange therefor and will not be considered to be owners or
holders of such Global Security Certificates or any FELINE
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PRIDES represented thereby for any purpose under the FELINE PRIDES or the
Purchase Contract Agreement. All payments on the FELINE PRIDES represented by
the Global Security Certificates and all transfers and deliveries of Preferred
Securities, Treasury Securities and Common Stock with respect thereto will be
made to the Depositary or its nominee, as the case may be, as the holder
thereof.
Ownership of beneficial interests in the Global Security Certificates will
be limited to Participants or persons that may hold beneficial interests through
institutions that have accounts with the Depositary or its nominee. Ownership of
beneficial interests in Global Security Certificates will be shown only on, and
the transfer of those ownership interests will be effected only through, records
maintained by the Depositary or its nominee (with respect to Participants'
interests) or any such Participant (with respect to interests of persons held by
such Participants on their behalf). Procedures for settlement of Purchase
Contracts on the Purchase Contract Settlement Date or upon Early Settlement will
be governed by arrangements among the Depositary, Participants and persons that
may hold beneficial interests through Participants designed to permit such
settlement without the physical movement of certificates. Payments, transfers,
deliveries, exchanges and other matters relating to beneficial interests in
Global Security Certificates may be subject to various policies and procedures
adopted by the Depositary from time to time. None of the Company, the Purchase
Contract Agent or any agent of the Company or the Purchase Contract Agent will
have any responsibility or liability for any aspect of the Depositary's or any
Participant's records relating to, or for payments made on account of,
beneficial interests in Global Security Certificates, or for maintaining,
supervising or reviewing any of the Depositary's records or any Participant's
records relating to such beneficial ownership interests.
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CERTAIN PROVISIONS OF THE PURCHASE CONTRACT AGREEMENT
AND THE PLEDGE AGREEMENT
GENERAL
Distributions on the FELINE PRIDES will be payable, Purchase Contracts (and
documents related thereto) will be settled and transfers of the FELINE PRIDES
will be registrable at the office of the Purchase Contract Agent in The City of
New York. In addition, in the event that the FELINE PRIDES do not remain in
book-entry form, payment of distributions on the FELINE PRIDES may be made, at
the option of the Company, by check mailed to the address of the person entitled
thereto as shown on the Security Register.
Shares of Common Stock will be delivered on the Purchase Contract Settlement
Date, or, if the Purchase Contracts have terminated, the related Pledged
Securities will be delivered potentially after a limited delay as a result of
the imposition of the automatic stay under the Bankruptcy Code (see "Description
of the Purchase Contracts -- Termination"), in each case upon presentation and
surrender of the FELINE PRIDES Certificate at the office of the Purchase
Contract Agent.
If a holder of outstanding Income PRIDES or Growth PRIDES fails to present
and surrender the FELINE PRIDES Certificate evidencing such Income PRIDES or
Growth PRIDES to the Purchase Contract Agent on the Purchase Contract Settlement
Date, the shares of Common Stock issuable in settlement of the related Purchase
Contract and in payment of any Deferred Contract Adjustment Payments will be
registered in the name of the Purchase Contract Agent and, together with any
distributions thereon, shall be held by the Purchase Contract Agent as agent for
the benefit of such holder, until such FELINE PRIDES Certificate is presented
and surrendered or the holder provides satisfactory evidence that such
certificate has been destroyed, lost or stolen, together with any indemnity that
may be required by the Purchase Contract Agent and the Company.
If the Purchase Contracts have terminated prior to the Purchase Contract
Settlement Date, the related Pledged Securities have been transferred to the
Purchase Contract Agent for distribution to the holders entitled thereto and a
holder fails to present and surrender the FELINE PRIDES Certificate evidencing
such holder's Income PRIDES or Growth PRIDES to the Purchase Contract Agent, the
related Pledged Securities delivered to the Purchase Contract Agent and payments
thereon shall be held by the Purchase Contract Agent as agent for the benefit of
such holder, until such FELINE PRIDES Certificate is presented or the holder
provides the evidence and indemnity described above.
The Purchase Contract Agent will have no obligation to invest or to pay
interest on any amounts held by the Purchase Contract Agent pending
distribution, as described above.
No service charge will be made for any registration of transfer or exchange
of the FELINE PRIDES, except for any tax or other governmental charge that may
be imposed in connection therewith.
MODIFICATION
The Purchase Contract Agreement and the Pledge Agreement will contain
provisions permitting the Company and the Purchase Contract Agent or Collateral
Agent, as the case may be, with the consent of the holders of not less than
66 2/3% of the Purchase Contracts at the time outstanding, to modify the terms
of the Purchase Contracts, the Purchase Contract Agreement and the Pledge
Agreement, except that no such modification may, without the consent of the
holder of each outstanding Purchase Contract affected thereby, (a) change any
Payment Date, (b) change the amount or type of Pledged Securities related to
such Purchase Contract, impair the right of the holder of any Pledged Securities
to receive distributions on such Pledged Securities (except for the rights of
holders of Income PRIDES to substitute Treasury Securities for the related
Preferred Securities or the rights of holders of Growth PRIDES to substitute
Preferred Securities for the related Treasury Securities) or otherwise adversely
affect the holder's rights in or to such Pledged Securities, (c) change the
place or currency of payment or reduce any Contract Adjustment
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Payments or any Deferred Contract Adjustment Payments, (d) impair the right to
institute suit for the enforcement of such Purchase Contract, (e) reduce the
amount of Common Stock purchasable under such Purchase Contract, increase the
price to purchase Common Stock on settlement of such Purchase Contract, change
the Purchase Contract Settlement Date or otherwise adversely affect the holder's
rights under such Purchase Contract or (f) reduce the above-stated percentage of
outstanding Purchase Contracts the consent of whose holders is required for the
modification or amendment of the provisions of the Purchase Contracts, the
Purchase Contract Agreement or the Pledge Agreement; PROVIDED, that if any
amendment or proposal referred to above would adversely affect only the Income
PRIDES or the Growth PRIDES, then only the affected class of holder will be
entitled to vote on such amendment or proposal and such amendment or proposal
shall not be effective except with the consent of the holders of not less than
66 2/3% of such class.
NO CONSENT TO ASSUMPTION
Each holder of Income PRIDES or Growth PRIDES, by acceptance thereof, will
under the terms of the Purchase Contract Agreement and the Income PRIDES or
Growth PRIDES, as applicable, be deemed expressly to have withheld any consent
to the assumption (i.e., affirmance) of the related Purchase Contracts by the
Company or its trustee in the event that the Company becomes the subject of a
case under the Bankruptcy Code.
CONSOLIDATION, MERGER, SALE OR CONVEYANCE
The Company will covenant in the Purchase Contract Agreement that it will
not merge or consolidate with any other entity or sell, assign, transfer, lease
or convey all or substantially all of its properties and assets to any person,
firm or corporation unless the Company is the continuing corporation or the
successor corporation is a corporation organized under the laws of the United
States of America or a state thereof and such corporation expressly assumes the
obligations of the Company under the Purchase Contracts, the Subordinated Debt
Securities, the Purchase Contract Agreement and the Pledge Agreement, and the
Company or such successor corporation is not, immediately after such merger,
consolidation, sale, assignment, transfer, lease or conveyance, in default in
the performance of any of its obligations thereunder.
TITLE
The Company, the Purchase Contract Agent and the Collateral Agent may treat
the registered owner of any FELINE PRIDES as the absolute owner thereof for the
purpose of making payment and settling the related Purchase Contracts and for
all other purposes.
REPLACEMENT OF FELINE PRIDES CERTIFICATES
In the event that physical certificates have been issued, any mutilated
FELINE PRIDES Certificate will be replaced by the Company at the expense of the
holder upon surrender of such certificate to the Purchase Contract Agent. FELINE
PRIDES Certificates that become destroyed, lost or stolen will be replaced by
the Company at the expense of the holder upon delivery to the Company and the
Purchase Contract Agent of evidence of the destruction, loss or theft thereof
satisfactory to the Company and the Purchase Contract Agent. In the case of a
destroyed, lost or stolen FELINE PRIDES Certificate, an indemnity satisfactory
to the Purchase Contract Agent and the Company may be required at the expense of
the holder of the FELINE PRIDES evidenced by such certificate before a
replacement will be issued.
Notwithstanding the foregoing, the Company will not be obligated to issue
any Income PRIDES or Growth PRIDES on or after the Purchase Contract Settlement
Date or after the Purchase Contracts have terminated. The Purchase Contract
Agreement will provide that in lieu of the delivery of a replacement FELINE
PRIDES Certificate following the Purchase Contract Settlement Date, the Purchase
Contract
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Agent, upon delivery of the evidence and indemnity described above, will deliver
the Common Stock issuable pursuant to the Purchase Contracts included in the
Income PRIDES or Growth PRIDES evidenced by such certificate, or, if the
Purchase Contracts have terminated prior to the Purchase Contract Settlement
Date, transfer the principal amount of the Pledged Securities included in the
Income PRIDES or Growth PRIDES evidenced by such certificate.
GOVERNING LAW
The Purchase Contract Agreement, the Pledge Agreement and the Purchase
Contracts will be governed by, and construed in accordance with, the laws of the
State of New York.
INFORMATION CONCERNING THE PURCHASE CONTRACT AGENT
The Bank of New York will be the Purchase Contract Agent. The Purchase
Contract Agent will act as the agent for the holders of Income PRIDES and Growth
PRIDES from time to time. The Purchase Contract Agreement will not obligate the
Purchase Contract Agent to exercise any discretionary actions in connection with
a default under the terms of the Income PRIDES and Growth PRIDES or the Purchase
Contract Agreement.
The Purchase Contract will contain provisions limiting the liability of the
Purchase Contract Agent. The Purchase Contract Agreement will contain provisions
under which the Purchase Contract Agent may resign or be replaced. Such
resignation or replacement would be effective upon the appointment of a
successor.
INFORMATION CONCERNING THE COLLATERAL AGENT
The Chase Manhattan Bank will be the Collateral Agent. The Collateral Agent
will act solely as the agent of the Company and will not assume any obligation
or relationship of agency or trust for or with any of the holders of the Income
PRIDES and Growth PRIDES except for the obligations owed by a pledgee of
property to the owner thereof under the Pledge Agreement and applicable law.
The Pledge Agreement will contain provisions limiting the liability of the
Collateral Agent. The Pledge Agreement will contain provisions under which the
Collateral Agent may resign or be replaced. Such resignation or replacement
would be effective upon the appointment of a successor.
MISCELLANEOUS
The Purchase Contract Agreement will provide that the Company will pay all
fees and expenses related to (i) the offering of the FELINE PRIDES, (ii) the
retention of the Collateral Agent and (iii) the enforcement by the Purchase
Contract Agent of the rights of the holders of the FELINE PRIDES; PROVIDED,
HOWEVER, that holders who elect to substitute the related Pledged Securities,
thereby creating Growth PRIDES or recreating Income PRIDES, shall be responsible
for any fees or expenses payable in connection with such substitution, as well
as any commissions, fees or other expenses incurred in acquiring the Pledged
Securities to be substituted, and the Company shall not be responsible for any
such fees or expenses.
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DESCRIPTION OF THE PREFERRED SECURITIES
THE PREFERRED SECURITIES, WHICH FORM A COMPONENT OF THE INCOME PRIDES, AND
WHICH, UNDER CERTAIN CIRCUMSTANCES, WILL TRADE SEPARATELY, WILL BE ISSUED
PURSUANT TO THE TERMS OF THE DECLARATION. SEE "DESCRIPTION OF FELINE PRIDES --
SUBSTITUTION OF PLEDGED SECURITIES." THE DECLARATION WILL BE QUALIFIED AS AN
INDENTURE UNDER THE TRUST INDENTURE ACT. THE INSTITUTIONAL TRUSTEE, WILMINGTON
TRUST COMPANY, AN INDEPENDENT TRUSTEE, WILL ACT AS INDENTURE TRUSTEE FOR THE
PREFERRED SECURITIES UNDER THE DECLARATION FOR PURPOSES OF COMPLIANCE WITH THE
PROVISIONS OF THE TRUST INDENTURE ACT. THE TERMS OF THE PREFERRED SECURITIES
WILL INCLUDE THOSE STATED IN THE DECLARATION AND THOSE MADE PART OF THE
DECLARATION BY THE TRUST INDENTURE ACT. ALTHOUGH THE MATERIAL PROVISIONS OF THE
PREFERRED SECURITIES AND THE DECLARATION HAVE BEEN SUMMARIZED BELOW, STATEMENTS
CONTAINED HEREIN CONCERNING THE PROVISIONS OF THE PREFERRED SECURITIES AND THE
DECLARATION ARE NOT NECESSARILY COMPLETE, AND REFERENCE IS HEREBY MADE TO THE
COPY OF THE DECLARATION (INCLUDING THE DEFINITIONS THEREIN OF CERTAIN TERMS)
WHICH IS FILED AS AN EXHIBIT TO THE REGISTRATION STATEMENT OF WHICH THIS
PROSPECTUS SUPPLEMENT IS A PART OR INCORPORATED HEREIN BY REFERENCE, THE TRUST
ACT AND THE TRUST INDENTURE ACT. EACH SUCH STATEMENT IS QUALIFIED IN ITS
ENTIRETY BY SUCH REFERENCE. WHENEVER PARTICULAR DEFINED TERMS ARE REFERRED TO IN
THIS PROSPECTUS SUPPLEMENT, SUCH DEFINED TERMS ARE INCORPORATED HEREIN BY
REFERENCE.
GENERAL
The Declaration authorizes the Regular Trustees to issue on behalf of the
Trust the Trust Securities, which represent undivided beneficial interests in
the assets of the Trust. All of the Common Securities will be owned, directly or
indirectly, by the Company. The Common Securities rank PARI PASSU, and payments
will be made thereon on a pro rata basis, with the Preferred Securities, except
that upon the occurrence and during the continuance of a Declaration Event of
Default, the rights of the holders of the Common Securities to receive payment
of periodic distributions and payments upon liquidation, redemption and
otherwise will be subordinated to the rights of the holders of the Preferred
Securities. The Declaration does not permit the issuance by the Trust of any
securities other than the Trust Securities or the incurrence of any indebtedness
by the Trust. Pursuant to the Declaration, the Institutional Trustee will own
the Subordinated Debt Securities purchased by the Trust for the benefit of the
holders of the Trust Securities. The payment of distributions out of money held
by the Trust, and payments upon redemption of the Preferred Securities or
liquidation of the Trust, are guaranteed by the Company to the extent described
under "Description of the Preferred Securities Guarantee." The Preferred
Securities Guarantee, when taken together with the Company's obligations under
the Subordinated Debt Securities and the Indenture and its obligations under the
Declaration, including the obligations to pay costs, expenses, debts and
liabilities of the Trust (other than with respect to the Preferred Securities),
provides a full and unconditional guarantee of amounts due on the Preferred
Securities. The Preferred Securities Guarantee will be held by Wilmington Trust
Company, the Preferred Securities Guarantee Trustee, for the benefit of the
holders of the Preferred Securities. The Preferred Securities Guarantee does not
cover payment of distributions when the Trust does not have sufficient available
funds to pay such distributions. In such event, the remedy of a holder of
Preferred Securities is to vote to direct the Institutional Trustee to enforce
the Institutional Trustee's rights under the Subordinated Debt Securities
(except in the limited circumstances in which the holder may take direct
action). See "-- Declaration Events of Default" and
"-- Voting Rights."
DISTRIBUTIONS
Distributions on the Preferred Securities will be fixed initially at a rate
per annum of 6 1/2% of the stated liquidation amount of $50 per Preferred
Security. Distributions on Preferred Securities that remain outstanding after
the Purchase Contract Settlement Date will be reset on the Purchase Contract
Settlement Date. See "-- Market Rate Reset." Distributions in arrears for more
than one quarter will bear interest thereon at the rate of 6 1/2% per annum
through and including February 15, 2001 and at the Reset Rate thereafter,
compounded quarterly. The term "distribution" as used herein includes any such
interest
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payable unless otherwise stated. The amount of distributions payable for any
period will be computed on the basis of a 360-day year of twelve 30-day months.
Distributions on the Preferred Securities will be cumulative and will accrue
from November 26, 1997 and will be payable quarterly in arrears on March 31,
June 30, September 30 and December 31 of each year, commencing December 31,
1997, when, as and if funds are available for payment. Distributions will be
made by the Institutional Trustee, except as otherwise described below.
The Company has the right under the Indenture to defer payments of interest
on the Subordinated Debt Securities by extending the interest payment period
from time to time on the Subordinated Debt Securities, which right, if
exercised, would defer quarterly distributions on the Preferred Securities
(though such distributions would continue to accrue with interest at the rate of
6 1/2% per annum through and including February 15, 2001, and at the Reset Rate
thereafter) during any such extended interest payment period. Such right to
extend the interest payment period for the Subordinated Debt Securities is
limited to a period, in the aggregate, not extending beyond the maturity date of
the Subordinated Debt Securities. In the event that the Company exercises this
right, then (a) the Company shall not declare or pay dividends on, make
distributions with respect to, or redeem, purchase or acquire, or make a
liquidation payment with respect to, any of its capital stock (other than (i)
purchases or acquisitions of shares of the Company's capital stock in connection
with the satisfaction by the Company of its obligations under any employee
benefit plans or the satisfaction by the Company of its obligations pursuant to
any contract or security requiring the Company to purchase shares of its capital
stock, (ii) as a result of a reclassification of the Company's capital stock or
the exchange or conversion of one class or series of the Company's capital stock
for another class or series of the Company's capital stock, (iii) the purchase
of fractional interests in shares of the Company's capital stock pursuant to an
acquisition or the conversion or exchange provisions of such capital stock or
the security being converted or exchanged, (iv) dividends or distributions in
capital stock of the Company and (v) redemptions or purchases pursuant to the
Rights Agreement), (b) the Company shall not make any payment of interest,
principal or premium, if any, on or repay, repurchase or redeem any debt
securities (including guarantees) issued by the Company that rank PARI PASSU
with or junior to such Subordinated Debt Securities, and (c) the Company shall
not make any Guarantee Payments with respect to the foregoing (other than
pursuant to the Preferred Securities Guarantee, the Common Securities Guarantee,
the 8 1/4% TOPrS Guarantees and the Series A Guarantee). Prior to the
termination of any such Extension Period, the Company may further extend the
interest payment period; PROVIDED, that such Extension Period, together with all
such previous and further extensions thereof, may not extend beyond the maturity
date of the Subordinated Debt Securities. Upon the termination of any Extension
Period and the payment of all amounts then due, the Company may select a new
Extension Period, subject to the above requirements. See "Description of the
Subordinated Debt Securities -- Interest" and "-- Option to Extend Interest
Payment Period." If distributions are deferred, the deferred distributions and
accrued interest thereon shall be paid to holders of record of the Preferred
Securities as they appear on the books and records of the Trust on the record
date immediately preceding the termination of such Extension Period.
Distributions on the Preferred Securities must be paid on the dates payable
to the extent that the Trust has funds available in the Institutional Account
for the payment of such distributions. The Trust's funds available for
distribution to the holders of the Preferred Securities will be limited to
payments received from the Company on the Subordinated Debt Securities. See
"Description of the Subordinated Debt Securities." The payment of distributions
out of moneys held by the Trust is guaranteed by the Company to the extent set
forth under "Description of the Preferred Securities Guarantee." Distributions
on the Preferred Securities will be payable to the holders thereof, including
the Collateral Agent, as they appear on the books and records of the Trust on
the relevant record dates, which, as long as the Preferred Securities are in
book-entry only form, will be one Business Day prior to the relevant payment
dates. Such distributions will be paid through the Institutional Trustee who
will hold amounts received in respect of the Subordinated Debt Securities in the
Institutional Account for the benefit of the holders of the Preferred
Securities. Subject to any applicable laws and regulations and the provisions of
the Declaration, each such
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payment will be made as described under "--Book-Entry Only Issuance -- The
Depository Trust Company" below. In the event that the Preferred Securities are
not in book-entry form, the record dates for payment of distributions will be
March 15, June 15, September 15 and December 15. In the event that any date on
which distributions are to be made on the Preferred Securities is not a Business
Day, then payment of the distributions payable on such date will be made on the
next succeeding day which is a Business Day (and without any interest or other
payment in respect of any such delay), except that, if such Business Day is in
the next succeeding calendar year, such payment shall be made on the immediately
preceding Business Day, in each case with the same force and effect as if made
on such record date.
MARKET RATE RESET
The quarterly distribution rate on the Preferred Securities and the interest
rate on the related Subordinated Debt Securities that remain outstanding after
the Purchase Contract Settlement Date will be reset on the Purchase Contract
Settlement Date to the Reset Rate, which will be equal to the sum of the Reset
Spread and the Treasury Rate on the Two-Year Benchmark Treasury in effect on the
Purchase Contract Settlement Date. The Reset Spread, which will be determined by
the Reset Agent on the fifth business day prior to the Purchase Contract
Settlement Date, will be the spread amount determined by the Reset Agent to be
equal to the amount that, when added to the Treasury Rate, would be the rate the
Preferred Securities should bear in order for a Preferred Security to have an
approximate market value on the Purchase Contract Settlement Date of 100.5% of
the Stated Amount, PROVIDED that in no event will the Reset Spread be greater
than 200 basis points (2%). Such market value may be less than 100.5% if the
Reset Spread is set at the maximum of 2%. The "Two-Year Benchmark Treasury"
shall mean direct obligations of the United States (which may be obligations
traded on a when-issued basis only) having a maturity comparable to the
remaining term to maturity of the Preferred Securities, as agreed upon by the
Company and the Reset Agent. "Treasury Rate" shall mean the bid side rate for
the Two-Year Benchmark Treasury displayed at 10:00 A.M., New York City time, on
the Purchase Contract Settlement Date in the Telerate system (or if the Telerate
system is (a) no longer available on the Purchase Contract Settlement Date or
(b) in the opinion of the Reset Agent (after consultation with the Company) no
longer an appropriate system from which to obtain such rate, such other
nationally recognized quotation system as, in the opinion of the Reset Agent
(after consultation with the Company) is appropriate). If such rate is not so
displayed, the Treasury Rate shall be, as calculated by the Reset Agent, the
yield to maturity for the Treasury Rate, expressed as a bond equivalent on the
basis of a year of 365 or 366 days, as applicable, and applied on a daily basis,
and computed by taking the arithmetic mean of the secondary market bid rates, as
of 10:30 A.M., New York City time, on the Purchase Contract Settlement Date of
three leading United States government securities dealers selected by the Reset
Agent (after consultation with the Company) (which may include the Reset Agent
or an affiliate thereof). In no event will the Reset Rate be higher than the
Treasury Rate on the Purchase Contract Settlement Date plus 200 basis points
(2%). It is currently anticipated that Merrill Lynch & Co. will be the
investment banking firm acting as the Reset Agent.
On the fifth business day prior to the Purchase Contract Settlement Date,
the Two-Year Benchmark Treasury to be used to determine the Reset Rate on the
Purchase Contract Settlement Date will be selected and the Reset Spread to be
added to the Treasury Rate in effect on the Purchase Contract Settlement Date
will be established by the Reset Agent, and the Reset Spread and the Two-Year
Benchmark Treasury will be announced by the Company (the "Reset Announcement
Date"). The Company will cause a notice of the Reset Spread and such Two-Year
Benchmark Treasury to be published on the Business Day following the Reset
Announcement Date by publication in a daily newspaper in the English language of
general circulation in The City of New York, which is expected to be The Wall
Street Journal. The Company will request, not later than 7 nor more than 15
calendar days prior to the Reset Announcement Date, that the Depositary notify
its participants holding Preferred Securities, Income PRIDES or Growth PRIDES of
such Reset Announcement Date and of the procedures that must be followed if any
owner of FELINE PRIDES wishes to settle the related Purchase Contract with cash
on the Purchase Contract Settlement Date.
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MATURITY; PUT OPTION
Subject to the requirement that the Trust put the Subordinated Debt
Securities to the Company under certain circumstances, the Subordinated Debt
Securities will mature on February 16, 2003. Upon the repayment of the
Subordinated Debt Securities at maturity, the proceeds from such repayment shall
simultaneously be applied to repay Trust Securities having an aggregate stated
liquidation amount equal to the aggregate principal amount of the Subordinated
Debt Securities so repaid. See "Description of the Subordinated Debt
Securities."
In accordance with the terms of the Subordinated Debt Securities, holders of
Subordinated Debt Securities (including the Institutional Trustee and, following
the distribution of the Subordinated Debt Securities upon a dissolution of the
Trust as described in "Description of the Preferred Securities-- Distribution of
the Subordinated Debt Securities," any other holder) will have the right to put
their Subordinated Debt Securities to the Company on the Purchase Contract
Settlement Date, upon at least three Business Days' prior notice (or upon one
Business Day's prior notice under the limited circumstances described in the
next paragraph), at a price per Subordinated Debt Security equal to $50, plus
accrued and unpaid interest, if any, thereon. Holders of Trust Securities will
have the right, upon notice given prior to or on the third Business Day
immediately preceding the Purchase Contract Settlement Date, to require the
Institutional Trustee, as the holder of the related Subordinated Debt
Securities, to exercise such put right. Upon the repurchase by the Company of
such Subordinated Debt Securities pursuant to such exercise, the proceeds from
such repurchase shall simultaneously be applied to repay such Trust Securities
in cash, at a price per Trust Security equal to $50, plus accumulated and unpaid
distributions, if any, thereon. If such Trust Securities (or, in the event of a
distribution of the Subordinated Debt Securities, such Subordinated Debt
Securities) are components of Income PRIDES on the Business Day immediately
preceding the Purchase Contract Settlement Date and, on or prior to such
Business Day, the related Purchase Contracts have not been settled through the
delivery of cash in the manner described herein, then, instead of being paid
directly to the holder, the portion of the proceeds of such repayment or
repurchase, as the case may be, equal to the aggregate stated liquidation amount
of such Trust Securities or the aggregate principal amount of such Subordinated
Debt Securities, as the case may be, will automatically be applied to satisfy in
full the obligation to purchase Common Stock under the related Purchase
Contracts, and the remainder will be paid to such holder in cash.
On the Business Day immediately preceding the Purchase Contract Settlement
Date, in the case of Income PRIDES, unless (a) the holder of the related
Subordinated Debt Securities has previously notified the Company that it is
exercising its right to put such Subordinated Debt Securities to the Company,
(b) the holder of such Income PRIDES has either (i) settled the related Purchase
Contracts through the early delivery of cash to the Purchase Contract Agent in
the manner described herein, or (ii) settled the related Purchase Contracts with
separate cash on the Business Day immediately preceding the Purchase Contract
Settlement Date in the manner provided herein or (c) an event described under
"Description of the Purchase Contracts--Termination" has occurred, then the
holder of the related Preferred Securities will be deemed to have requested the
Institutional Trustee, as the holder of the related Subordinated Debt
Securities, to exercise its right to put such related Subordinated Debt
Securities to the Company on the Purchase Contract Settlement Date for a price
per Subordinated Debt Security equal to $50, plus accrued and unpaid interest,
if any, thereon. Upon the repurchase of such related Subordinated Debt
Securities by the Company pursuant to such Put Option, (i)(A) the proceeds will
be applied to repay such related Preferred Securities, and the portion of the
proceeds equal to the aggregate stated liquidation amount of such Preferred
Securities will automatically be applied to satisfy in full the obligation to
purchase Common Stock under the related Purchase Contracts, and the remainder
will be paid to such holder in cash, or (B) in the event that the Subordinated
Debt Securities have been distributed, the holder of the Subordinated Debt
Securities will be deemed to have requested the Collateral Agent to exercise its
right to put such Subordinated Debt Securities to the Company on the Purchase
Contract Settlement Date, and, upon the repurchase of such Subordinated Debt
Securities, the portion of the proceeds equal to the aggregate principal amount
of such Subordinated Debt Securities will automatically be applied to satisfy in
full the
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obligation to purchase Common Stock under the related Purchase Contracts, and
the remainder will be paid to such holder in cash. See "Description of the
Purchase Contracts--General."
DISTRIBUTION OF THE SUBORDINATED DEBT SECURITIES
The Company will have the right at any time to dissolve the Trust and, after
satisfaction of liabilities of creditors of the Trust as provided by applicable
law, cause the Subordinated Debt Securities to be distributed to the holders of
the Trust Securities. As of the date of any distribution of Subordinated Debt
Securities upon dissolution of the Trust, (i) the Preferred Securities will no
longer be deemed to be outstanding, (ii) the Depositary (as defined herein) or
its nominee, as the record holder of the Preferred Securities, will receive a
registered global certificate or certificates representing the Subordinated Debt
Securities to be delivered upon such distribution and (iii) any certificates
representing Preferred Securities not held by the Depositary or its nominee will
be deemed to represent Subordinated Debt Securities having an aggregate
principal amount equal to the aggregate stated liquidation amount of, with an
interest rate identical to the distribution rate of, and accrued and unpaid
interest equal to accrued and unpaid distributions on, such Preferred Securities
until such certificates are presented to the Company or its agent for transfer
or reissuance. Subordinated Debt Securities distributed to the Collateral Agent
in liquidation of the interest of the holders of the Preferred Securities in the
Trust would be pledged (in lieu of the Preferred Securities) to secure Income
PRIDES holders' obligations to purchase Common Stock under the Purchase
Contracts.
There can be no assurance as to the market prices for either the Preferred
Securities or the Subordinated Debt Securities that may be distributed in
exchange for the Preferred Securities if a dissolution of the Trust were to
occur. Accordingly, the Preferred Securities or such Subordinated Debt
Securities that an investor may receive if a dissolution of the Trust were to
occur may trade at a discount to the price that the investor paid to purchase
the Preferred Securities forming a part of the Income PRIDES offered hereby.
Subject to applicable law (including, without limitation, United States
federal securities laws) the Company or its subsidiaries may at any time, and
from time to time, purchase outstanding Preferred Securities by tender, in the
open market or by private agreement.
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
In the event of any voluntary or involuntary dissolution of the Trust, the
then holders of the Preferred Securities will be entitled to receive out of the
assets of the Trust, after satisfaction of liabilities to creditors,
Subordinated Debt Securities in an aggregate principal amount equal to the
aggregate stated liquidation amount of, with an interest rate identical to the
distribution rate of, and accrued and unpaid interest equal to accrued and
unpaid distributions on, the Preferred Securities on a PRO RATA basis in
exchange for such Preferred Securities.
The holders of the Common Securities will be entitled to receive
distributions upon any such dissolution PRO RATA with the holders of the
Preferred Securities, except that if a Declaration Event of Default has occurred
and is continuing, the Preferred Securities shall have a preference over the
Common Securities with regard to such distributions.
Pursuant to the Declaration, the Trust shall dissolve (i) on November 26,
2004, the expiration of the term of the Trust, (ii) upon the bankruptcy of the
Company or the holder of the Common Securities, (iii) upon the filing of a
certificate of dissolution or its equivalent with respect to the Company or the
revocation of the charter of the Company and the expiration of 90 days after the
date of revocation without a reinstatement thereof, (iv) after the filing of a
certificate of dissolution or its equivalent with respect to the Trust, after
obtaining the consent of the holders of at least a majority in liquidation
amount of the Trust Securities affected thereby voting together as a single
class to file such certificate of cancellation, (v) upon the distribution of
Subordinated Debt Securities, (vi) upon the entry of a decree of a judicial
dissolution of
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the holder of the Common Securities, the Company or the Trust or (vii) at the
election of the Company at any time.
DECLARATION EVENTS OF DEFAULT
An event of default under the Indenture (an "Indenture Event of Default")
constitutes an event of default under the Declaration with respect to the Trust
Securities (a "Declaration Event of Default"); PROVIDED, that pursuant to the
Declaration, the holder of the Common Securities will be deemed to have waived
any Declaration Event of Default with respect to the Common Securities until all
Declaration Events of Default with respect to the Preferred Securities have been
cured, waived or otherwise eliminated. Until such Declaration Events of Default
with respect to the Preferred Securities have been so cured, waived or otherwise
eliminated, the Institutional Trustee will be deemed to be acting solely on
behalf of the holders of the Preferred Securities and only the holders of the
Preferred Securities will have the right to direct the Institutional Trustee
with respect to certain matters under the Declaration and, therefore, the
Indenture. If a Declaration Event of Default with respect to the Preferred
Securities is waived by holders of Preferred Securities, such waiver will also
constitute the waiver of such Declaration Event of Default with respect to the
Common Securities without any further act, vote or consent of the holders of the
Common Securities. Notwithstanding the foregoing, if a Declaration Event of
Default has occurred and is continuing and such event is attributable to the
failure of the Company to pay interest or principal on the Subordinated Debt
Securities on the date such interest or principal is otherwise payable (after
giving effect to any right of deferral), then a holder of Preferred Securities
may directly institute a proceeding after the respective due date specified in
the Subordinated Debt Securities for enforcement of payment (a "Direct Action")
to such holder directly of the principal of or interest on the Subordinated Debt
Securities having a principal amount equal to the aggregate liquidation amount
of the Preferred Securities of such holder. In connection with such Direct
Action, the Company shall be subrogated to the rights of such holder of
Preferred Securities under the Declaration to the extent of any payment made by
the Company to such holder of Preferred Securities in such Direct Action. The
holders of Preferred Securities will not be able to exercise directly any other
remedy available to the holders of the Subordinated Debt Securities. See "Effect
of Obligations Under the Subordinated Debt Securities and the Preferred
Securities Guarantee."
Upon the occurrence of a Declaration Event of Default, the Institutional
Trustee as the sole holder of the Subordinated Debt Securities will have the
right under the Indenture to declare the principal of and interest on the
Subordinated Debt Securities to be immediately due and payable. The Company and
the Trust are each required to file annually with the Institutional Trustee an
officer's certificate as to its compliance with all conditions and covenants
under the Declaration.
VOTING RIGHTS
Except as described herein, under the Trust Act and the Trust Indenture Act
and under "Description of the Preferred Securities Guarantee -- Modification of
the Preferred Securities Guarantee; Assignment," and as otherwise required by
law and the Declaration, the holders of the Preferred Securities will have no
voting rights.
Subject to the requirement of the Institutional Trustee obtaining a tax
opinion in certain circumstances set forth in the last sentence of this
paragraph, the holders of a majority in aggregate stated liquidation amount of
the Preferred Securities have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Institutional Trustee,
or direct the exercise of any trust or power conferred upon the Institutional
Trustee under the Declaration, including the right to direct the Institutional
Trustee, as holder of the Subordinated Debt Securities, to (i) exercise the
remedies available under the Indenture with respect to the Subordinated Debt
Securities, (ii) waive any past Indenture Event of Default that is waivable
under Section 5.7 of the Indenture, (iii) exercise any right to rescind or annul
a declaration that the principal of all the Subordinated Debt Securities shall
be due and
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payable or (iv) consent to any amendment, modification or termination of the
Indenture or the Subordinated Debt Securities where such consent shall be
required; PROVIDED, HOWEVER, that, where a consent or action under the Indenture
would require the consent or act of holders of more than a majority in principal
amount of the Subordinated Debt Securities (a "Super-Majority") affected
thereby, only the holders of at least such Super-Majority in aggregate stated
liquidation amount of the Preferred Securities may direct the Institutional
Trustee to give such consent or take such action. The Institutional Trustee
shall notify all holders of the Preferred Securities of any notice of default
received from the Debt Trustee (as defined below) with respect to the
Subordinated Debt Securities. Such notice in the case of an event of default
shall state that such Indenture Event of Default also constitutes a Declaration
Event of Default. Except with respect to directing the time, method and place of
conducting a proceeding for a remedy, the Institutional Trustee shall not take
any of the actions described in clauses (i), (ii) or (iii) above unless the
Institutional Trustee has obtained an opinion of a nationally recognized tax
counsel experienced in such matters to the effect that, as a result of such
action, the Trust will not fail to be classified as a grantor trust for United
States federal income tax purposes.
In the event the consent of the Institutional Trustee, as the holder of the
Subordinated Debt Securities, is required under the Indenture with respect to
any amendment, modification or termination of the Indenture or the Subordinated
Debt Securities, the Institutional Trustee shall request the direction of the
holders of the Preferred Securities and the Common Securities with respect to
such amendment, modification or termination and shall vote with respect to such
amendment, modification or termination as directed by a majority in stated
liquidation amount of the Preferred Securities and the Common Securities voting
together as a single class; PROVIDED, HOWEVER, that where a consent under the
Indenture would require the consent of a Super-Majority, the Institutional
Trustee may only give such consent at the direction of the holders of at least
the proportion in stated liquidation amount of the Preferred Securities and the
Common Securities which the relevant Super-Majority represents of the aggregate
principal amount of the Subordinated Debt Securities outstanding; PROVIDED
FURTHER, in the case of a consent under the Indenture which requires the consent
of holders of all the Subordinated Debt Securities outstanding, the
Institutional Trustee may only give such consent at the direction of the holders
of all the Trust Securities. The Institutional Trustee shall not take any such
action in accordance with the directions of the holders of the Preferred
Securities and the Common Securities unless the Institutional Trustee has
obtained an opinion of a nationally recognized tax counsel experienced in such
matters to the effect that, as a result of such action, the Trust will not fail
to be classified as a grantor trust for United States federal income tax
purposes.
A waiver of an Indenture Event of Default will constitute a waiver of the
corresponding Declaration Event of Default.
Any required approval or direction of holders of Preferred Securities may be
given at a separate meeting of holders of Preferred Securities convened for such
purpose, at a meeting of all of the holders of Trust Securities or pursuant to
written consent. The Regular Trustees will cause a notice of any meeting at
which holders of Preferred Securities are entitled to vote, or of any matter
upon which action by written consent of such holders is to be taken, to be
mailed to each holder of record of Preferred Securities. Each such notice will
include a statement setting forth the following information: (i) the date of
such meeting or the date by which such action is to be taken, (ii) a description
of any resolution proposed for adoption at such meeting on which such holders
are entitled to vote or of such matter upon which written consent is sought and
(iii) instructions for the delivery of proxies or consents. No vote or consent
of the holders of Preferred Securities will be required for the Trust to cancel
Preferred Securities or distribute Subordinated Debt Securities in accordance
with the Declaration.
Notwithstanding that holders of Preferred Securities are entitled to vote or
consent under any of the circumstances described above, any of the Preferred
Securities that are owned at such time by the Company or any entity directly or
indirectly controlling or controlled by, or under direct or indirect common
control with, the Company, shall not be entitled to vote or consent and shall,
for purposes of such vote or consent, be treated as if such Preferred Securities
were not outstanding.
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The procedures by which holders of Preferred Securities may exercise their
voting rights are described below. See "-- Book-Entry Only Issuance -- The
Depository Trust Company" below.
Holders of the Preferred Securities will have no rights to appoint or remove
the PLC Capital Trustees, who may be appointed, removed or replaced solely by
the Company as the indirect or direct holder of all of the Common Securities.
MODIFICATION OF THE DECLARATION
The Declaration may be modified and amended if approved by the Regular
Trustees (or, if more than two, a majority) (and, in certain circumstances, the
Institutional Trustee or the Delaware Trustee), PROVIDED, that if any proposed
amendment provides for, or the Regular Trustees otherwise propose to effect, (i)
any action that would adversely affect the powers, preferences or special rights
of the Trust Securities, whether by way of amendment to the Declaration or
otherwise or (ii) the dissolution of the Trust other than pursuant to the terms
of the Declaration, then the holders of the Trust Securities voting together as
a single class will be entitled to vote on such amendment or proposal and such
amendment or proposal shall not be effective except with the approval of at
least a majority in such stated liquidation amount of the Trust Securities
affected thereby; PROVIDED, that if any amendment or proposal referred to in
clause (i) above would adversely affect only the Preferred Securities or the
Common Securities, then only the affected class will be entitled to vote on such
amendment or proposal and such amendment or proposal shall not be effective
except with the approval of a majority in stated liquidation amount of such
class of securities.
Notwithstanding the foregoing, no amendment or modification may be made to
the Declaration if such amendment or modification would (i) cause the Trust to
be classified as other than a grantor trust for purposes of United States
federal income taxation, (ii) reduce or otherwise adversely affect the powers of
the Institutional Trustee or (iii) cause the Trust to be deemed an "investment
company" which is required to be registered under the Investment Company Act of
1940 (the "1940 Act").
MERGERS, CONSOLIDATIONS OR AMALGAMATIONS
The Trust may not consolidate, amalgamate, merge with or into, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety, to any corporation or other body, except as
described below. The Trust may, with the consent of a majority of the Regular
Trustees and without the consent of the holders of the Trust Securities, the
Institutional Trustee or the Delaware Trustee, consoli-
date, amalgamate, merge with or into, or be replaced by a trust organized as
such under the laws of any State of the United States; PROVIDED, that (i) if the
Trust is not the surviving entity, such successor entity either (x) expressly
assumes all of the obligations of the Trust under the Trust Securities or (y)
substitutes for the Trust Securities other securities having substantially the
same terms as the Trust Securities (the "Successor Securities"), so long as the
Successor Securities rank the same as the Trust Securities with respect to
distributions and payments upon liquidation, redemption and otherwise, (ii) the
Company expressly acknowledges a trustee of such successor entity possessing the
same powers and duties as the Institutional Trustee as the holder of the
Subordinated Debt Securities, (iii) if the Preferred Securities are listed, any
Successor Securities will be listed upon notification of issuance, on any
national securities exchange or with another organization on which the Preferred
Securities are then listed or quoted, (iv) such merger, consolidation,
amalgamation or replacement does not cause the Preferred Securities (including
any Successor Securities) to be downgraded by any nationally recognized
statistical rating organization, (v) such merger, consolidation, amalgamation or
replacement does not adversely affect the rights, preferences and privileges of
the holders of the Trust Securities (including any Successor Securities) in any
material respect (other than with respect to any dilution of the holders'
interest in the new entity), (vi) such successor entity has a purpose identical
to that of the Trust, (vii) prior to such merger, consolidation, amalgamation or
replacement, the Company has received an opinion of a nationally recognized
independent counsel to the Trust experienced in such matters to the effect that,
(A) such merger, consolidation, amalgamation or replacement does not adversely
effect the rights, preferences and privileges of the
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holders of the Trust Securities (including any Successor Securities) in any
material respect (other than with respect to any dilution of the holders'
interest in the new entity), (B) following such merger, consolidation,
amalgamation or replacement, neither the Trust nor such successor entity will be
required to register as an investment company under the 1940 Act and (C)
following such merger, consolidation, amalgamation or replacement, the Trust (or
the successor entity) will continue to be classified as a grantor trust for
United States federal income tax purposes, and (viii) the Company guarantees the
obligations of such successor entity under the Successor Securities at least to
the extent provided by the Preferred Securities Guarantee and the Common
Securities Guarantee. Notwithstanding the foregoing the Trust shall not, except
with the consent of holders of 100% in stated liquidation amount of the Trust
Securities, consolidate, amalgamate, merge with or into, or be replaced by any
other entity or permit any other entity to consolidate, amalgamate, merge with
or into, or replace it, if such consolidation, amalgamation, merger or
replacement would cause the Trust or the successor entity to be classified as
other than a grantor trust for United States federal income tax purposes.
BOOK-ENTRY ONLY ISSUANCE -- THE DEPOSITORY TRUST COMPANY
In the event that the Preferred Securities are issued as one or more
fully-registered global Preferred Securities certificates representing the total
aggregate number of Preferred Securities, the Depositary will act as securities
depositary. In such event, the Preferred Securities will be issued only as
fully-registered securities registered in the name of Cede & Co. (the
Depositary's nominee). However, under certain circumstances, the Regular
Trustees with the consent of the Company may decide not to use the system of
book-entry transfers through DTC with respect to the Preferred Securities. In
that event, certificates of the Preferred Securities, will be printed and
delivered to the holders.
The laws of some jurisdictions require that certain purchasers of securities
take physical delivery of securities in definitive form. Such laws may impair
the ability to transfer beneficial interests in the global Preferred Securities
as represented by a global certificate.
Purchases of Preferred Securities within the Depositary's system must be
made by or through Direct Participants, which will receive a credit for the
Preferred Securities on the Depositary's records. The ownership interest of each
actual purchaser of each Preferred Security (a "Beneficial Owner") is in turn to
be recorded on the Direct and Indirect Participants' records. Beneficial Owners
will not receive written confirmation from the Depositary of their purchases,
but Beneficial Owners are expected to receive written confirmations providing
details of the transaction, as well as periodic statements of their holdings,
from the Direct or Indirect Participants through which the Beneficial Owners
purchased Preferred Securities. Transfers of ownership interests in the
Preferred Securities are to be accomplished by entries made on the books of
Participants acting on behalf of Beneficial Owners. Beneficial owners will not
receive certificates representing their ownership interests in the Preferred
Securities, except in the event that use of the book-entry system for the
Preferred Securities is discontinued.
To facilitate subsequent transfers, all the Preferred Securities deposited
by Participants with the Depositary will be registered in the name of the
Depositary's nominee, Cede & Co. The deposit of Preferred Securities with the
Depositary and their registration in the name of Cede & Co. effect no change in
beneficial ownership. The Depositary has no knowledge of the actual Beneficial
Owners of Preferred Securities. The Depositary's records reflect only the
identity of the Direct Participants to whose accounts such Preferred Securities
are credited, which may or may not be the Beneficial Owners. The Participants
will remain responsible for keeping account of their holdings on behalf of their
customers.
So long as the Depositary or its nominee is the registered owner or holder
of a global certificate, the Depositary or such nominee, as the case may be,
will be considered the sole owner or holder of the Preferred Securities
represented thereby for all purposes under the Declaration and the Trust
Preferred Securities. No beneficial owner of an interest in a global certificate
will be able to transfer that interest except in accordance with the Depositary
applicable procedures, in addition to those provided for under the Declaration.
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The Depositary has advised the Company that it will take any action
permitted to be taken by a holder of Preferred Securities (including the
presentation of Preferred Securities for exchange as described below) only at
the direction of one or more Participants to whose account the Depositary's
interests in the global certificates are credited and only in respect of such
portion of the stated liquidation amount of Preferred Securities as to which
such Participant or Participants has or have given such directions. However, if
there is a Declaration Event of Default under the Preferred Securities, the
Depositary will exchange the global certificates for certificated securities,
which it will distribute to its Participants.
Conveyance of notices and other communications by the Depositary to Direct
Participants and Indirect Participants and by Direct Participants and Indirect
Participants to Beneficial Owners will be governed by arrangements among them,
subject to any statutory or regulatory requirements that may be in effect from
time to time.
Although voting with respect to Preferred Securities issued in the form of
one or more global certificates is limited, in those cases where a vote is
required, neither the Depositary nor Cede & Co. will itself consent or vote with
respect to Preferred Securities. Under its usual procedures, the Depositary
would mail an Omnibus Proxy to the Trust as soon as possible after the record
date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to
those Direct Participants to whose accounts the Preferred Securities are
credited on the record date (identified in a listing attached to the Omnibus
Proxy). The Company and the Trust believe that the arrangements among the
Depositary, Direct and Indirect Participants, and Beneficial Owners will enable
the Beneficial Owners to exercise rights equivalent in substance to the rights
that can be directly exercised by a record holder of a beneficial interest in
the Trust.
Distribution payments on the Preferred Securities issued in the form of one
or more global certificates will be made to the Depositary in immediately
available funds. The Depositary's practice is to credit Direct Participants'
accounts on the relevant payment date in accordance with their respective
holdings shown on the Depositary's records unless the Depositary has reason to
believe that it will not receive payments on such payment date. Payments by
Direct and Indirect Participants to Beneficial Owners will be governed by
standing instructions and customary practices, as is the case with securities
held for the account of customers in bearer form or registered in "street name,"
and such payments will be the responsibility of such Direct and Indirect
Participant and not of the Depositary, the Trust or the Company, subject to any
statutory or regulatory requirements to the contrary that may be in effect from
time to time. Payment of distributions to the Depositary is the responsibility
of the Trust, disbursement of such payments to Direct Participants is the
responsibility of the Depositary, and disbursement of such payments to the
Beneficial Owners is the responsibility of Direct and Indirect Participants.
Except as provided herein, a Beneficial Owner in a global Preferred Security
certificate will not be entitled to receive physical delivery of Preferred
Securities. Accordingly, each Beneficial Owner must rely on the procedures of
the Depositary to exercise any rights under the Preferred Securities.
Although the Depositary has agreed to the foregoing procedure in order to
facilitate transfer of interests in the global certificates among Participants,
the Depositary is under no obligation to perform or continue to perform such
procedures and such procedures may be discontinued at any time. None of the
Company, the Trust or any PLC Capital Trustee will have any responsibility for
the performance by the Depositary or its Participants or Indirect Participants
under the rules and procedures governing the Depositary. The Depositary may
discontinue providing its services as securities depositary with respect to
Preferred Securities at any time by giving reasonable notice to the Trust. Under
such circumstances, in the event that a successor securities depositary is not
obtained, Preferred Securities certificates are required to be printed and
delivered to holders. Additionally, the Regular Trustees (with the consent of
the Company) may decide to discontinue use of the system of book-entry transfers
through the Depositary (or any successor depositary) with respect to Preferred
Securities. In that event, certificates for the Preferred Securities will be
printed and delivered to holders. In each of the above circumstances, the
Company will, appoint a paying agent with respect to the Preferred Securities.
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The information in this section concerning the Depositary and the
Depositary's book-entry system has been obtained from sources that the Company
and the Trust believe to be reliable, but neither the Company nor the Trust
takes responsibility for the accuracy hereof.
REGISTRAR, TRANSFER AGENT AND PAYING AGENT
Payments in respect of Preferred Securities represented by global
certificates shall be made to the Depositary, which shall credit the relevant
accounts at the Depositary on the applicable distribution dates, or, in the case
of certificated securities, such payments shall be made by check mailed to the
address of the holder entitled thereto as such address shall appear on the
Register. The Paying Agent shall be permitted to resign as Paying Agent upon 30
days' written notice to the PLC Capital Trustees. In the event that the
Institutional Trustee shall no longer be the Paying Agent, the Regular Trustees
shall appoint a successor to act as the Paying Agent (which shall be a bank or
trust company).
The Institutional Trustee will act as registrar, transfer agent and paying
agent for the Preferred Securities.
Registration of transfers of Preferred Securities will be effected without
charge by or on behalf of the Trust, but upon payment (and the giving of such
indemnity as the Trust or the Company may require) in respect of any tax or
other government charge which may be imposed in relation to it.
INFORMATION CONCERNING THE INSTITUTIONAL TRUSTEE
The Institutional Trustee prior to the occurrence of a default with respect
to the Trust Securities and after the curing of any defaults that may have
occurred, undertakes to perform only such duties as are specifically set forth
in the Declaration and, after default, shall exercise the same degree of care as
a prudent individual would exercise in the conduct of his or her own affairs.
Subject to such provisions, the Institutional Trustee is under no obligation to
exercise any of the powers vested in it by the Declaration at the request of any
holder of Preferred Securities, unless offered reasonable indemnity by such
holder against the costs, expenses and liabilities which might be incurred
thereby. The holders of Preferred Securities will not be required to offer such
indemnity in the event such holders, by exercising their voting rights, direct
the Institutional Trustee to take any action it is empowered to take under the
Declaration following a Declaration Event of Default. The Institutional Trustee
also serves as trustee under the Preferred Securities Guarantee.
GOVERNING LAW
The Declaration and the Preferred Securities will be governed by, and
construed in accordance with, the internal laws of the State of Delaware.
MISCELLANEOUS
The Regular Trustees are authorized and directed to conduct the affairs of
and to operate the Trust in such a way so that the Trust will not be required to
register as an "investment company" under the 1940 Act or be characterized as
other than a grantor trust for United States federal income tax purposes and so
that the Subordinated Debt Securities will be treated as indebtedness of the
Company for United States federal income tax purposes. In this connection, the
Regular Trustees are authorized to take any action not inconsistent with
applicable law, the Declaration of Trust or the certificate of trust of the
Trust, that the Regular Trustees determine in their discretion to be necessary
or desirable to achieve such end, as long as such action does not materially
adversely affect the interests of the holders of the Preferred Securities.
Holders of the Preferred Securities have no preemptive rights.
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DESCRIPTION OF
THE PREFERRED SECURITIES GUARANTEE
SET FORTH BELOW IS A SUMMARY OF INFORMATION CONCERNING THE PREFERRED
SECURITIES GUARANTEE WHICH WILL BE EXECUTED AND DELIVERED BY THE COMPANY FOR THE
BENEFIT OF THE HOLDERS FROM TIME TO TIME OF PREFERRED SECURITIES. THE PREFERRED
SECURITIES GUARANTEE WILL BE QUALIFIED AS AN INDENTURE UNDER THE TRUST INDENTURE
ACT. WILMINGTON TRUST COMPANY, AN INDEPENDENT TRUSTEE, WILL ACT AS INDENTURE
TRUSTEE UNDER THE PREFERRED SECURITIES GUARANTEE (THE "PREFERRED SECURITIES
GUARANTEE TRUSTEE") FOR THE PURPOSES OF COMPLIANCE WITH THE PROVISIONS OF THE
TRUST INDENTURE ACT. THE TERMS OF THE PREFERRED SECURITIES GUARANTEE WILL BE
THOSE SET FORTH IN THE PREFERRED SECURITIES GUARANTEE AND THOSE MADE PART OF THE
PREFERRED SECURITIES GUARANTEE BY THE TRUST INDENTURE ACT. ALTHOUGH THE MATERIAL
PROVISIONS OF THE PREFERRED SECURITIES GUARANTEE HAVE BEEN SUMMARIZED BELOW,
STATEMENTS CONTAINED IN SUCH SUMMARY ARE NOT NECESSARILY COMPLETE, AND REFERENCE
IS HEREBY MADE TO THE COPY OF THE FORM OF PREFERRED SECURITIES GUARANTEE
(INCLUDING THE DEFINITIONS THEREIN OF CERTAIN TERMS) WHICH IS FILED AS AN
EXHIBIT TO THE REGISTRATION STATEMENT OF WHICH THIS PROSPECTUS SUPPLEMENT FORMS
A PART OR INCORPORATED HEREIN BY REFERENCE, AND TO THE TRUST INDENTURE ACT. EACH
SUCH STATEMENT IS QUALIFIED IN ITS ENTIRETY BY SUCH REFERENCE. WHENEVER
PARTICULAR DEFINED TERMS OF THE PREFERRED SECURITIES GUARANTEE ARE REFERRED TO
IN THIS PROSPECTUS SUPPLEMENT, SUCH DEFINED TERMS ARE INCORPORATED HEREIN BY
REFERENCE. THE PREFERRED SECURITIES GUARANTEE WILL BE HELD BY THE PREFERRED
SECURITIES GUARANTEE TRUSTEE FOR THE BENEFIT OF THE HOLDERS OF THE PREFERRED
SECURITIES.
GENERAL
Pursuant to the Preferred Securities Guarantee, the Company will irrevocably
and unconditionally agree, to the extent set forth therein, to pay in full, to
the holders of the Preferred Securities issued by the Trust, the Preferred
Securities Guarantee Payments (as defined herein) (except to the extent paid by
the Trust), as and when due, regardless of any defense, right of set-off or
counterclaim which the Trust may have or assert. The following payments or
distributions with respect to Preferred Securities issued by the Trust to the
extent not paid by or on behalf of the Trust (the "Preferred Securities
Guarantee Payments"), will be subject to the Preferred Securities Guarantee
thereon (without duplication): (i) any accrued and unpaid distributions which
are required to be paid on the Preferred Securities, to the extent the Trust
shall have funds available therefor, (ii) the redemption price, including all
accumulated and unpaid distributions to the date of redemption, of Preferred
Securities in respect of which the related Subordinated Debt Securities have
been repurchased by the Company on the Purchase Contract Settlement Date, to the
extent the Trust shall have funds available therefor and (iii) upon a voluntary
or involuntary dissolution of the Trust (other than in connection with the
distribution of Subordinated Debt Securities to the holders of Preferred
Securities), the lesser of (a) the aggregate of the stated liquidation amount
and all accrued and unpaid distributions on such Preferred Securities to the
date of payment, to the extent the Trust has funds available therefor, and (b)
the amount of assets of the Trust remaining available for distribution to
holders of the Preferred Securities in liquidation of the Trust. The Company's
obligation to make a Preferred Securities Guarantee Payment may be satisfied by
direct payment of the required amounts by the Company to the holders of
Preferred Securities or by causing the Trust to pay such amounts to such
holders.
The Preferred Securities Guarantee will be a full and unconditional
guarantee with respect to the Preferred Securities issued by the Trust, but will
not apply to any payment of distributions except to the extent the Trust shall
have funds available therefor. If the Company does not make interest payments on
the Subordinated Debt Securities purchased by the Trust, the Trust will not pay
distributions on the Preferred Securities and will not have funds available
therefor. See "Effect of Obligations Under the Subordinated Debt Securities and
the Preferred Securities Guarantee."
The Preferred Securities Guarantee, when taken together with the Company's
obligations under the Subordinated Debt Securities, the Indenture, and the
Declaration, will have the effect of providing a full and unconditional
guarantee on a subordinated basis by the Company of payments due on the
Preferred Securities.
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The Company has also agreed separately to irrevocably and unconditionally
guarantee the obligations of the Trust with respect to the Common Securities to
the same extent as the Preferred Securities Guarantee, except that upon an
Indenture Event of Default, holders of Preferred Securities shall have priority
over holders of Common Securities with respect to distributions and payments on
liquidation, redemption or otherwise.
CERTAIN COVENANTS OF THE COMPANY
In the Preferred Securities Guarantee, the Company will covenant that, so
long as any Preferred Securities issued by the Trust remain outstanding, if
there shall have occurred any event that would constitute an event of default
under the Preferred Securities Guarantee or the Declaration, then (a) the
Company shall not declare or pay any dividend on, make any distributions with
respect to, or redeem, purchase, acquire or make a liquidation payment with
respect to, any of its capital stock (other than (i) purchases or acquisitions
of the Company's capital stock in connection with the satisfaction by the
Company of its obligations under any employee benefit plans or the satisfaction
by the Company of its obligations pursuant to any contract or security
outstanding on the date of such event requiring the Company to purchase shares
of its capital stock, (ii) as a result of a reclassification of the Company's
capital stock or the exchange or conversion of one class or series of the
Company's capital stock for another class or series of the Company's capital
stock, (iii) the purchase of fractional interests in shares of the Company's
capital stock pursuant to an acquisition or the conversion or exchange
provisions of such capital stock or the security being converted or exchanged,
(iv) dividends or distributions in capital stock of the Company and (v)
redemptions or purchases pursuant to the Rights Agreement), (b) the Company
shall not make any payment of interest, principal or premium, if any, on or
repay, repurchase or redeem any debt securities issued by the Company which rank
PARI PASSU with or junior to the Subordinated Debt Securities and (c) the
Company shall not make any guarantee payments with respect to the foregoing
(other than payments pursuant to the Preferred Securities Guarantee, the Common
Securities Guarantee, the 8 1/4% TOPrS Guarantees or the Series A Guarantee).
MODIFICATION OF THE PREFERRED SECURITIES GUARANTEE; ASSIGNMENT
Except with respect to any changes which do not adversely affect the rights
of holders of Preferred Securities (in which case no vote will be required), the
Preferred Securities Guarantee may be amended only with the prior approval of
the holders of not less than a majority in stated liquidation amount of the
outstanding Preferred Securities issued by the Trust. All guarantees and
agreements contained in the Preferred Securities Guarantee shall bind the
successors, assigns, receivers, trustees and representatives of the Company and
shall inure to the benefit of the holders of the Preferred Securities then
outstanding.
TERMINATION
The Preferred Securities Guarantee will terminate (a) upon distribution of
the Subordinated Debt Securities held by the Trust to the holders of the
Preferred Securities, (b) upon full payment of the redemption price of all the
Preferred Securities in the event that all of the Subordinated Debt Securities
are repurchased by the Company on the Purchase Contract Settlement Date or (c)
upon full payment of the amounts payable in accordance with the Declaration upon
liquidation of the Trust. The Preferred Securities Guarantee will continue to be
effective or will be reinstated, as the case may be, if at any time any holder
of Preferred Securities must restore payment of any sums paid under the
Preferred Securities or the Preferred Securities Guarantee.
EVENTS OF DEFAULT
An event of default under the Preferred Securities Guarantee will occur upon
the failure of the Company to perform any of its payment or other obligations
thereunder.
The holders of a majority in stated liquidation amount of the Preferred
Securities have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Preferred Securities Guarantee
Trustee in respect of the Preferred Securities Guarantee or to direct the
exercise of
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any trust or power conferred upon the Preferred Securities Guarantee Trustee
under the Preferred Securities Guarantee. If the Preferred Securities Guarantee
Trustee fails to enforce the Preferred Securities Guarantee, any holder of
Preferred Securities may institute a legal proceeding directly against the
Company to enforce such holder's rights under the Preferred Securities
Guarantee, without first instituting a legal proceeding against the Trust, the
Preferred Securities Guarantee Trustee or any other person or entity.
Notwithstanding the foregoing, if the Company has failed to make a guarantee
payment, a holder of Preferred Securities may directly institute a proceeding
against the Company for enforcement of the Preferred Securities Guarantee for
such payment. The Company waives any right or remedy to require that any action
be brought first against the Trust or any other person or entity before
proceeding directly against the Company.
STATUS OF THE PREFERRED SECURITIES GUARANTEE
The Preferred Securities Guarantee will constitute an unsecured obligation
of the Company and will rank (i) subordinate and junior in right of payment to
all Senior Indebtedness of the Company, (ii) PARI PASSU with the Contract
Adjustment Payments, the Subordinated Debt Securities, the Common Securities
Guarantee, the Series A Guarantee, the Series A Subordinated Debentures, the
8 1/4% TOPrS Guarantees, the Series B Subordinated Debentures and with all
unsecured trade creditors of the Company and any other liabilities or
obligations that may be PARI PASSU by their terms; and (iii) senior to the
Company's common stock, the most senior preferred or preference stock now or
hereafter issued, from time to time, if any, by the Company and to any guarantee
now or hereafter entered into by the Company in respect of any preferred or
preference stock of any affiliate of the Company. The terms of the Preferred
Securities provide that each holder of Preferred Securities issued by the Trust
by acceptance thereof agrees to the subordination provisions and other terms of
the Preferred Securities Guarantee.
The Preferred Securities Guarantee will constitute a guarantee of payment
and not of collection (that is, the guaranteed party may institute a legal
proceeding directly against the guarantor to enforce its rights under the
guarantee without instituting a legal proceeding against any other person or
entity).
INFORMATION CONCERNING THE PREFERRED SECURITIES GUARANTEE TRUSTEE
The Preferred Securities Guarantee Trustee, prior to the occurrence of a
default with respect to the Preferred Securities Guarantee , undertakes to
perform only such duties as are specifically set forth in the Preferred
Securities Guarantee and, after default, shall exercise the same degree of care
as a prudent individual would exercise in the conduct of his or her own affairs.
Subject to such provisions, the Preferred Securities Guarantee Trustee is under
no obligation to exercise any of the powers vested in it by the Preferred
Securities Guarantee at the request of any holder of Preferred Securities,
unless offered reasonable indemnity against the costs, expenses and liabilities
which might be incurred thereby; but the foregoing shall not relieve the
Preferred Securities Guarantee Trustee, upon the occurrence of an event of
default under the Preferred Securities Guarantee, from exercising the rights and
powers vested in it by the Preferred Securities Guarantee.
GOVERNING LAW
The Preferred Securities Guarantee will be governed by and construed in
accordance with the internal laws of the State of New York.
DESCRIPTION OF THE SUBORDINATED DEBT SECURITIES
Set forth below is a description of the specific terms of the Subordinated
Debt Securities in which the Trust will invest the proceeds from the issuance
and sale of the Trust Securities. Although the material provisions of the
Subordinated Debt Securities have been summarized below, statements contained in
such summary concerning the Subordinated Debt Securities are not necessarily
complete, and are subject to, and qualified in their entirety by reference to
the description in the Subordinated Indenture, dated as of June 1, 1994 (the
"Base Indenture"), between Protective Life and AmSouth Bank, as supplemented by
(i) Supplemental Indenture No. 1, dated as of June 9, 1994, (ii) Supplemental
Indenture No. 2, dated as of
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August 2, 1994, (iii) Supplemental Indenture No. 3, dated as of April 29, 1997
and Supplemental Indenture No. 4, to be dated as of November 20, 1997 (the Base
Indenture, as so supplemented, is hereinafter referred to as the "Indenture")
which is filed as an exhibit to the Registration Statement of which this
Prospectus Supplement forms a part, and to the Trust Indenture Act. Each such
statement is qualified in its entirety by such reference. Certain capitalized
terms used herein are defined in the Indenture.
Under certain circumstances involving the dissolution of the Trust,
Subordinated Debt Securities may be distributed to the holders of the Trust
Securities in liquidation of the Trust. See "Description of the Preferred
Securities--Distribution of the Subordinated Debt Securities."
GENERAL
The Subordinated Debt Securities will be issued as unsecured subordinated
debt under the Indenture. The Subordinated Debt Securities will be limited in
aggregate principal amount to approximately $103.1 million, such amount being
the sum of the aggregate stated liquidation amounts of the Preferred Securities
and the Common Securities.
The Subordinated Debt Securities will not be subject to a sinking fund
provision. The entire principal amount of the Subordinated Debt Securities will
mature and become due and payable, together with any accrued and unpaid interest
thereon including Compound Interest (as defined herein) and Additional Interest
(as defined herein), if any, on February 16, 2003.
The Company will have the right at any time to dissolve the Trust and cause
the Subordinated Debt Securities to be distributed to the holders of the Trust
Securities. If Subordinated Debt Securities are distributed to holders of Trust
Securities in liquidation of such holders' interests in the Trust, such
Subordinated Debt Securities will initially be issued as a global security (as
defined herein). As described herein, under certain limited circumstances,
Subordinated Debt Securities may be issued in certificated form in exchange for
a Global Security. See "-- Book-Entry and Settlement" below. In the event that
Subordinated Debt Securities are issued in certificated form, such Subordinated
Debt Securities will be in denominations of $50 and integral multiples thereof
and may be transferred or exchanged at the offices described below. Payments on
Subordinated Debt Securities issued as a Global Security will be made to the
Depositary, a successor depositary or, in the event that no depositary is used,
to a Paying Agent for the Subordinated Debt Securities. In the event
Subordinated Debt Securities are issued in certificated form, principal and
interest will be payable, the transfer of the Subordinated Debt Securities will
be registrable and Subordinated Debt Securities will be exchangeable for
Subordinated Debt Securities of other denominations of a like aggregate
principal amount, at the corporate trust office or agency of the Institutional
Trustee in Wilmington, Delaware; PROVIDED, that at the option of the Company,
payment of interest may be made by check mailed to the address of the holder
entitled thereto or by wire transfer to an account appropriately designated by
the holder entitled thereto. Notwithstanding the foregoing, so long as the
holder of any Subordinated Debt Securities is the Institutional Trustee, the
payment of principal and interest on the Subordinated Debt Securities held by
the Institutional Trustee will be made at such place and to such account as may
be designated by the Institutional Trustee.
The Indenture does not contain provisions that afford holders of the
Subordinated Debt Securities protection in the event of a highly leveraged
transaction or other similar transaction involving the Company that may
adversely affect such holders.
SUBORDINATION
The Indenture provides that the Subordinated Debt Securities are
subordinated and junior in right of payment to all Senior Indebtedness of the
Company. If (i) the Company defaults in the payment of any principal, or
premium, if any, or interest on any Senior Indebtedness when the same becomes
due and payable, whether at maturity or at a date fixed for prepayment or
declaration or otherwise or (ii) an event of default occurs with respect to any
Senior Indebtedness permitting the holders thereof to accelerate the maturity
thereof and written notice of such event of default (requesting that payments on
Subordinated Debt Securities cease) is given to the Company by the holders of
Senior Indebtedness, then unless and
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until such default in payment or event of default shall have been cured or
waived or shall have ceased to exist, no direct or indirect payment (in cash,
property or securities, by set-off or otherwise) shall be made or agreed to be
made on account of the Subordinated Debt Securities or interest thereon or in
respect of any repayment, redemption, retirement, purchase or other acquisition
of Subordinated Debt Securities.
In the event of (i) any insolvency, bankruptcy, receivership, liquidation,
reorganization, readjustment, composition or other similar proceeding relating
to the Company, its creditors or its property, (ii) any proceeding for the
liquidation, dissolution or other winding-up of the Company, voluntary or
involuntary, whether or not involving insolvency or bankruptcy proceedings,
(iii) any assignment by the Company for the benefit of creditors or (iv) any
other marshalling of the assets of the Company, all present and future Senior
Indebtedness (including, without limitation, interest accruing after the
commencement of any such proceeding, assignment or marshalling of assets) shall
first be paid in full before any payment or distribution, whether in cash,
securities or other property, shall be made by the Company on account of
Subordinated Debt Securities. In any such event, any payment or distribution,
whether in cash, securities or other property (other than securities of
Protective Life or any other corporation provided for by a plan of
reorganization or a readjustment, the payment of which is subordinate, at least
to the extent provided in the subordination provisions of the Indenture, to the
payment of all Senior Indebtedness at the time outstanding and to any securities
issued in respect thereof under any such plan of reorganization or
readjustment), which would otherwise (but for the subordination provisions) be
payable or deliverable in respect of Subordinated Debt Securities (including any
such payment or distribution which may be payable or deliverable by reason of
the payment of any other indebtedness of Protective Life being subordinated to
the payment of Subordinated Debt Securities) shall be paid or delivered directly
to the holders of Senior Indebtedness, or to their representative or trustee, in
accordance with the priorities then existing among such holders until all Senior
Indebtedness shall have been paid in full. No present or future holder of any
Senior Indebtedness shall be prejudiced in the right to enforce subordination of
the indebtedness evidenced by Subordinated Debt Securities by any act or failure
to act on the part of Protective Life.
Senior Indebtedness shall not be deemed to have been paid in full unless the
holders thereof shall have received cash, securities or other property equal to
the amount of such Senior Indebtedness then outstanding. After all Senior
Indebtedness is paid in full and until the Subordinated Debt Securities are paid
in full, the holders of Subordinated Debt Securities shall be subrogated
(equally and ratably with all other indebtedness as to which the right to
receive payments is PARI PASSU with the Subordinated Debt Securities) to all the
rights of any holders of Senior Indebtedness to receive distributions applicable
to the Senior Indebtedness to the extent that distributions otherwise payable to
the holders of Subordinated Debt Securities have been applied to the payment of
Senior Indebtedness, and such payments or distributions received by any holder
of Subordinated Debt Securities, by reason of such subrogation, of cash,
securities or other property which otherwise would be paid or distributed to the
holders of Senior Indebtedness, shall, as between the Company and its creditors
other than the holders of Senior Indebtedness, on the one hand, and the holders
of Subordinated Debt Securities, on the other, be deemed to be a payment by the
Company on account of Senior Indebtedness, and not on account of the
Subordinated Debt Securities.
The term "Senior Indebtedness" is defined as the principal, premium, if any,
and interest on (i) all indebtedness of Protective Life, whether outstanding on
the date of the issuance of Subordinated Debt Securities or thereafter created,
incurred or assumed, which is for money borrowed, or which is evidenced by a
note or similar instrument given in connection with the acquisition of any
business, properties or assets, including securities, (ii) any indebtedness of
others of the kinds described in the preceding clause (i) for the payment of
which Protective Life is responsible or liable as guarantor or otherwise and
(iii) amendments, renewals, extensions and refundings of any such indebtedness,
unless in any instrument or instruments evidencing or securing such indebtedness
or pursuant to which the same is outstanding, or in any such amendment, renewal,
extension or refunding, it is expressly provided that such indebtedness is not
superior in right of payment to Subordinated Debt Securities. The Senior
Indebtedness shall continue to be Senior Indebtedness and entitled to the
benefits of the subordination provisions irrespective of any
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amendment, modification or waiver of any term of the Senior Indebtedness or
extension or renewal of the Senior Indebtedness.
The Indenture does not limit the aggregate amount of Senior Indebtedness
that may be issued by the Company. As of September 30, 1997, Senior Indebtedness
of the Company aggregated approximately $138.6 million. In addition, because
Protective Life is a holding company, the Subordinated Debt Securities are
effectively subordinated to all existing and future liabilities of the Company's
subsidiaries. In addition, the Subordinated Debt Securities and the Preferred
Securities Guarantee will rank PARI PASSU with the Common Securities Guarantee,
the Series A Guarantee, the Series A Subordinated Debentures, the 8 1/4% TOPrS
Guarantees and the Series B Subordinated Debentures. See "Description of the
Preferred Securities Guarantees--Status of the Preferred Securities Guarantees"
in the accompanying Prospectus.
CERTAIN COVENANTS OF THE COMPANY
If (i) there shall have occurred any event that would constitute an
Indenture Event of Default or (ii) the Company shall be in default with respect
to its payment of any obligations under the related Preferred Securities
Guarantee or Common Securities Guarantee, or (iii) the Company shall have given
notice to its election to defer payments of interest on such Subordinated Debt
Securities by extending the interest payment period as provided in the Indenture
and such period, or any extension thereof, shall be continuing, then (a) the
Company shall not declare or pay any dividend on, make any distributions with
respect to, or redeem, purchase or make a liquidation payment with respect to,
any of its capital stock (other than (i) purchases or acquisitions of shares of
the Company's capital stock in connection with the satisfaction by the Company
of its obligations under any employee benefit plans or the satisfaction by the
Company of its obligations pursuant to any contract or security requiring the
Company to purchase shares of its capital stock, (ii) as a result of a
reclassification of the Company's capital stock or the exchange or conversion of
one class or series of the Company's capital stock for another class or series
of the Company's capital stock, (iii) the purchase of fractional interests in
shares of the Company's capital stock pursuant to an acquisition or the
conversion or exchange provisions of such capital stock or the securities being
converted or exchanged, (iv) dividends or distributions in capital stock of the
Company and (v) redemptions or purchases pursuant to the Rights Agreement, (b)
the Company shall not make any payments of interest, principal or premium, if
any, on or repay, repurchase or redeem any debt securities (including
guarantees) issued by the Company that rank PARI PASSU with or junior to the
Subordinated Debt Securities and (c) the Company shall not make any Guarantee
Payments with respect to the foregoing (other than pursuant to the Preferred
Securities Guarantee, the Common Securities Guarantee, the 8 1/4% TOPrS
Guarantees and the Series A Guarantee).
The Company will covenant (i) to directly or indirectly maintain 100%
ownership of the Common Securities of PLC Capital; provided, however, that any
permitted successor of the Company under the Indenture may succeed to the
Company's ownership of such Common Securities, (ii) not to voluntarily
terminate, wind-up or liquidate the Trust, except (a) in connection with a
distribution of Subordinated Debt Securities to the holders of the Preferred
Securities in liquidation of the Trust, or (b) in connection with certain
mergers, consolidations or amalgamations permitted by the Declaration and (iii)
to use its reasonable best efforts, consistent with the terms and provisions of
the Declaration, to cause the Trust to remain a grantor trust and not to be
classified as an association taxable as a corporation for U.S. federal income
tax purposes.
INTEREST
Each Subordinated Debt Security shall bear interest initially at the rate of
6 1/2% per annum from the original date of issuance, payable quarterly in
arrears on March 31, June 30, September 30 and December 31 of each year (each an
"Interest Payment Date"), commencing December 31, 1997, to the person in whose
name such Subordinated Debt Security is registered, subject to certain
exceptions, at the close of business on the Business Day next preceding such
Interest Payment Date. The interest rate on the
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Subordinated Debt Securities and the distribution rate on the related Trust
Securities that are to remain outstanding after the Purchase Contract Settlement
Date will be reset on the Purchase Contract Settlement Date to the Reset Rate,
which will be equal to the sum of the Reset Spread and the Treasury Rate in
effect on the Purchase Contract Settlement Date. The Reset Spread, which will be
determined by the Reset Agent on the fifth Business Day prior to the Purchase
Contract Settlement Date, will be the spread amount determined by the Reset
Agent to be equal to the amount that, when added the Treasury Rate would be the
rate the Preferred Securities should bear in order for a Preferred Security to
have an approximate market value on the Purchase Contract Settlement Date of
100.5% of the Stated Amount, PROVIDED that in no event will the Reset Spread be
greater than 200 basis points (2%). Such market value may be less than 100.5% if
the Reset Spread is set at the permitted maximum of 2%. The Two-Year Benchmark
Treasury shall mean direct obligations of the United States (which may be
obligations traded on a when-issued basis only) having a maturity comparable to
the remaining term of the Preferred Securities, as agreed upon by the Company
and the Reset Agent. Treasury Rate shall mean the bid side rate for the Two-Year
Benchmark Treasury displayed at 10:00 A.M., New York City time, on the Purchase
Contract Settlement Date in the Telerate system (or if the Telerate system is
(a) no longer available on the Purchase Contract Settlement Date or (b) in the
opinion of the Reset Agent, no longer an appropriate system from which to obtain
such rate, such other nationally recognized quotation system as, in the opinion
of the Reset Agent (after consultation with the Company) is appropriate). If
such rate is not so displayed, the Treasury Rate shall be, as calculated by the
Reset Agent, the yield to maturity for the Two-Year Benchmark Treasury,
expressed as a bond equivalent on the basis of a year of 365 or 366 days, as
applicable, and applied on a daily basis, and computed by taking the arithmetic
mean of the secondary market bid rates, as of 10:30 A.M., New York City time, on
the Purchase Contract Settlement Date of three leading United States government
securities dealers selected by the Reset Agent (after consultation with the
Company) (which may include the Reset Agent or an affiliate thereof). It is
currently anticipated that Merrill Lynch & Co. will be the investment banking
firm acting as the Reset Agent.
On the Reset Announcement Date, the Two-Year Benchmark Treasury will be
selected and the Reset Spread to be added to the rate on the Two-Year Benchmark
Treasury in effect on the Purchase Contract Settlement Date will be established
by the Reset Agent, and the Reset Spread and the Two-Year Benchmark Treasury
will be announced by the Company. The Company will cause a notice of the Reset
Spread and such Two-Year Benchmark Treasury to be published on the Business Day
following the Reset Announcement Date by publication in a daily newspaper in the
English language of general circulation in The City of New York, which is
expected to be THE WALL STREET JOURNAL. In the event that the Income PRIDES or
Growth PRIDES do not continue to remain in book-entry only form, the Company
shall have the right to select relevant record dates, which shall be March 15,
June 15, September 15 and December 15.
The amount of interest payable for any period will be computed on the basis
of a 360-day year consisting of twelve 30-day months. The amount of interest
payable for any period shorter than a full quarterly period for which interest
is computed will be computed on the basis of the actual number of days elapsed
in such 90-day period. In the event that any date on which interest is payable
on the Subordinated Debt Securities is not a Business Day, then payment of the
interest payable on such date will be made on the next succeeding day that is a
Business Day (and without any interest or other payment in respect of any such
delay), except that, if such Business Day is in the next succeeding calendar
year, then such payment shall be made on the immediately preceding Business Day,
in each case with the same force and effect as if made on such date.
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REDEMPTION
The Company will not have the ability to redeem the Subordinated Debt
Securities prior to their stated maturity date. However, the Company will be
able to defease the Subordinated Debt Securities by making an irrevocable
deposit with the Debt Trustee of money and/or U.S. governmental obligations that
will provide money in an amount sufficient, in the opinion of a nationally
recognized independent accounting firm, to pay each payment of principal and
interest on their Subordinated Debt Securities.
PUT OPTION
In accordance with the terms of the Subordinated Debt Securities, holders of
Subordinated Debt Securities (including the Institutional Trustee and, following
the distribution of the Subordinated Debt Securities upon a dissolution of the
Trust as described in "Description of the Preferred Securities-- Distribution of
the Subordinated Debt Securities," any other holder) will have the right to put
their Subordinated Debt Securities to the Company on the Purchase Contract
Settlement Date, upon at least three Business Days' prior notice (or upon one
Business Day's prior notice under the limited circumstances described in the
next paragraph), at a price per Subordinated Debt Security equal to $50, plus
accrued and unpaid interest, if any, thereon. Holders of Trust Securities will
have the right, upon notice given prior to or on the third Business Day
immediately preceding the Purchase Contract Settlement Date, to require the
Institutional Trustee, as the holder of the related Subordinated Debt
Securities, to exercise such put right. Upon the repurchase by the Company of
such Subordinated Debt Securities pursuant to such exercise, the proceeds from
such repurchase shall simultaneously be applied to repay such Trust Securities
in cash, at a price per Trust Security equal to $50, plus accumulated and unpaid
distributions, if any, thereon. If such Trust Securities (or, in the event of a
distribution of the Subordinated Debt Securities, such Subordinated Debt
Securities) are components of Income PRIDES on the Business Day immediately
preceding the Purchase Contract Settlement Date and, on or prior to such
Business Day, the related Purchase Contracts have not been settled through the
delivery of cash in the manner described herein, then, instead of being paid
directly to the holder, the portion of the proceeds of such repayment or
repurchase, as the case may be, equal to the aggregate stated liquidation amount
of such Trust Securities or the aggregate principal amount of such Subordinated
Debt Securities, as the case may be, will automatically be applied to satisfy in
full the obligation to purchase Common Stock under the related Purchase
Contracts, and the remainder will be paid to such holder in cash.
On the Business Day immediately preceding the Purchase Contract Settlement
Date, in the case of Income PRIDES, unless (a) the holder of the related
Subordinated Debt Securities has previously notified the Company that it is
exercising its right to put such Subordinated Debt Securities to the Company,
(b) the holder of such Income PRIDES has either (i) settled the related Purchase
Contracts through the early delivery of cash to the Purchase Contract Agent in
the manner described herein, or (ii) settled the related Purchase Contracts with
separate cash on the Business Day immediately preceding the Purchase Contract
Settlement Date in the manner provided herein, or (c) an event described under
"Description of the Purchase Contracts--Termination" has occurred, then the
holder of the related Preferred Securities will be deemed to have requested the
Institutional Trustee, as the holder of the related Subordinated Debt
Securities, to exercise its right to put such related Subordinated Debt
Securities to the Company on the Purchase Contract Settlement Date for a price
per Subordinated Debt Security equal to $50, plus accrued and unpaid interest,
if any, thereon. Upon the repurchase of such related Subordinated Debt
Securities by the Company pursuant to such Put Option, (i) the proceeds will be
applied to repay such related Preferred Securities, and the portion of the
proceeds equal to the aggregate stated liquidation amount of such Preferred
Securities will automatically be applied to satisfy in full the obligation to
purchase Common Stock under the related Purchase Contracts, and the remainder
will be paid to such holder in cash or (ii) in the event the Subordinated Debt
Securities have been distributed, the holder of the Subordinated Debt Securities
will be deemed to have exercised its right to put such Subordinated Debt
Securities to the Company on the Purchase Contract Settlement Date, and, upon
the repurchase of such Subordinated Debt Securities, the portion of the proceeds
equal to the aggregate principal amount of such Subordinated Debt
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Securities will automatically be applied to satisfy in full the obligation to
purchase Common Stock under the related Purchase Contracts, and the remainder
will be paid to such holder in cash. See "Description of the Purchase
Contracts--General."
OPTION TO EXTEND INTEREST PAYMENT PERIOD
The Company shall have the right at any time, and from time to time, during
the term of the Subordinated Debt Securities, to defer payments of interest by
extending the interest payment period for a period not extending beyond the
maturity date of the Subordinated Debt Securities (an "Extension Period"), at
the end of which Extension Period, the Company shall pay all interest then
accrued and unpaid (including any Additional Interest, as herein defined)
together with interest thereon compounded quarterly at the rate of 6 1/2% per
annum through and including February 15, 2001, and with respect to Trust
Securities which are to remain outstanding, at the Reset Rate thereafter, to the
extent permitted by applicable law ("Compound Interest"); provided, that during
any such Extension Period, (a) the Company shall not declare or pay dividends or
make any distribution with respect to, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of its capital stock (other than (i)
purchases or acquisitions of shares of the Company's capital stock in connection
with the satisfaction by the Company of its obligations under any employee
benefit plans or the satisfaction by the Company of its obligations pursuant to
any contract or security requiring the Company to purchase shares of its capital
stock, (ii) as a result of a reclassification of the Company's capital stock or
the exchange or conversion of one class or series of the Company's capital stock
for another class or series of the Company's capital stock, (iii) the purchase
of fractional interests in shares of the Company's capital stock pursuant to an
acquisition or the conversion or exchange provisions of such capital stock or
the securities being converted or exchanged, (iv) dividends or distributions in
capital stock of the Company and (v) redemptions or repurchases pursuant to the
Rights Agreement), (b) the Company shall not make any payment of interest,
principal or premium, if any, on or repay, repurchase or redeem any debt
securities issued by the Company that rank PARI PASSU with or junior to the
Subordinated Debt Securities, and (c) the Company shall not make any Guarantee
Payments with respect to the foregoing (other than payments pursuant to the
Preferred Securities Guarantee, the Common Securities Guarantee or the 8 1/4%
TOPrS Guarantees and the Series A Guarantee). Prior to the termination of any
such Extension Period, the Company may further defer payments of interest by
extending the interest payment period; PROVIDED, HOWEVER, that such Extension
Period, including all such previous and further extensions, may not extend
beyond the maturity of the Subordinated Debt Securities. Upon the termination of
any Extension Period and the payment of all amounts then due, the Company may
commence a new Extension Period, subject to the terms set forth in this section.
No interest during an Extension Period, except at the end thereof, shall be due
and payable, but the Company, at its option, may prepay on any Interest Payment
Date all of the interest accrued during the then elapsed portion of an Extension
Period. The Company has no present intention of exercising its right to defer
payments of interest by extending the interest payment period on the
Subordinated Debt Securities. If the Institutional Trustee shall be the sole
holder of the Subordinated Debt Securities, the Company shall give the Regular
Trustees and the Institutional Trustee notice of its selection of such Extension
Period one Business Day prior to the earlier of (i) the date distributions on
the Preferred Securities are payable or (ii) the date the Regular Trustees are
required to give notice, if applicable, to the NYSE (or other applicable
self-regulatory organization) or to holders of the Preferred Securities of the
record or payment date of such distribution. The Regular Trustees shall give
notice of the Company's selection of such Extension Period to the holders of the
Preferred Securities. If the Institutional Trustee shall not be the sole holder
of the Subordinated Debt Securities, the Company shall give the holders of the
Subordinated Debt Securities notice of its selection of such Extension Period
ten Business Days prior to the earlier of (i) the Interest Payment Date or (ii)
the date upon which the Company is required to give notice, if applicable, to
the NYSE (or other applicable self-regulatory organization) or to holders of the
Subordinated Debt Securities of the record or payment date of such related
interest payment.
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ADDITIONAL INTEREST
If at any time the Trust shall be required to pay any taxes, duties,
assessments or governmental charges of whatever nature (other than withholding
taxes) imposed by the United States, or any other taxing authority, then, in any
such case, the Company will pay as additional interest ("Additional Interest")
on the Subordinated Debt Securities such additional amounts as shall be required
so that the net amounts received and retained by the Trust after paying any such
taxes, duties, assessments or other governmental charges will be not less than
the amounts the Trust would have received had no such taxes, duties, assessments
or other governmental charges been imposed.
INDENTURE EVENTS OF DEFAULT
If any Indenture Event of Default shall occur and be continuing, the
Institutional Trustee, as the holder of the Subordinated Debt Securities, will
have the right to declare the principal of and the interest on the Subordinated
Debt Securities (including any Compound Interest and Additional Interest, if
any) and any other amounts payable under the Indenture to be forthwith due and
payable and to enforce its other rights as a creditor with respect to the
Subordinated Debt Securities. See "Description of Debt Securities of Protective
Life--Events of Default, Notice and Certain Rights on Default," in the
accompanying Prospectus.
The following are Events of Default under the Indenture with respect to the
Subordinated Debt Securities: (1) failure to pay interest on the Subordinated
Debt Securities when due, continued for 30 days; however, if the Company is
permitted by the terms of the Subordinated Debt Securities to defer the payment
in question, the date on which such payment is due and payable shall be the date
on which the Company is required to make payment following such deferral, if
such deferral has been elected pursuant to the terms of the Subordinated Debt
Securities; (2) failure to pay the principal of (or premium, if any, on) the
Subordinated Debt Securities when due and payable at Maturity, upon redemption
or otherwise; however, if the Company is permitted by the terms of the
Subordinated Debt Securities to defer the payment in question, the date on which
such payment is due and payable shall be the date on which the Company is
required to make payment following such deferral, if such deferral has been
elected pursuant to the terms of the Subordinated Debt Securities; (3) failure
to comply in any material respect with any agreement or covenant in, or any of
the provisions of, the Indenture, continued for a period of 60 days after
written notice has been given by registered or certified mail to the Company by
the Debt Trustee or holders of at least 25% in aggregate principal amount of the
outstanding Subordinated Debt Securities; (4) default in payment of principal
relating to indebtedness of the Company and its consolidated subsidiaries for
borrowed money having an aggregate principal amount exceeding $25 million (after
the expiration of any applicable grace period with respect thereto), or other
default resulting in acceleration of indebtedness of the Company and its
consolidated subsidiaries for borrowed money where the aggregate principal
amount so accelerated exceeds $25 million and such acceleration is not rescinded
or annulled within 30 days after written notice requiring the Company to cause
such acceleration to be rescinded or annulled or to pay in full such debt has
been given by registered or certified mail thereof to the Company by the Debt
Trustee or to the Company and the Debt Trustee by the holders of 25% in
aggregate principal amount of the Subordinated Debt Securities then outstanding;
PROVIDED that such Event of Default will be remedied, cured or waived if the
default that resulted in such Event of Default is remedied, cured or waived;
PROVIDED, FURTHER, that the foregoing shall not apply to any secured debt under
which the obligee has recourse only to the collateral pledged for repayment so
long as the fair market value of such collateral does not exceed 2% of total
assets (as defined in the Indenture) at the time of the default and (5) certain
events of bankruptcy, insolvency or reorganization of the Company or Protective
Life Insurance.
The Indenture provides that the Debt Trustee shall, within 90 days after the
occurrence of any Default or Event of Default with respect to the Subordinated
Debt Securities, give the holders of the Subordinated Debt Securities notice of
all uncured Defaults or Events of Default known to it (the term "Default"
includes any event which after notice or passage of time or both would be an
Event of Default); PROVIDED, HOWEVER, that, except in the case of an Event of
Default or a Default in a payment on the Subordinated
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Debt Securities, the Debt Trustee may withhold such notice so long as the board
of directors, the executive committee or a committee of Responsible Officers (as
such term is defined in the Indenture) in good faith determine that the
withholding of such notice is in the interest of the holders of the Subordinated
Debt Securities; and PROVIDED, FURTHER, that in the case of any Default due to a
failure to comply in any material respect with any agreement or covenant in, or
any of the provisions of the Indenture, no notice shall be given until at least
30 days after the occurrence thereof.
If an Event of Default with respect to the Subordinated Debt Securities
occurs and is continuing, the Debt Trustee or the holders of at least 25% in
aggregate principal amount of the outstanding Subordinated Debt Securities, by
notice in writing to the Company (and to the Debt Trustee if given by the
holders of at least 25% in aggregate principal amount of the Subordinated Debt
Securities), may declare the unpaid principal of and accrued interest to the
date of acceleration on all the outstanding Subordinated Debt Securities to be
due and payable immediately and, upon any such declaration, the Subordinated
Debt Securities shall become immediately due and payable.
In addition, in the case of the Subordinated Debt Securities held by the
Trust, if an Event of Default has occurred and is continuing and such event is
attributable to the failure of the Company to pay interest or principal, then a
holder of Preferred Securities may directly institute a proceeding against the
Company for payment.
Any such declaration with respect to the Subordinated Debt Securities may be
annulled and past Events of Default and Defaults (except, unless theretofore
cured, an Event of Default or a Default in payment of principal of or interest
on the Subordinated Debt Securities) may be waived by the holders of a majority
of the principal amount of the outstanding Subordinated Debt Securities, upon
the conditions provided in the Indenture.
The Indenture provides that the Company shall periodically file statements
with the Debt Trustee regarding compliance by the Company with certain of the
respective covenants thereof and shall specify any Event of Default or Defaults
with respect to the Subordinated Debt Securities in performing such covenants,
of which the signers may have knowledge.
An event of default under the Indenture constitutes an event of default
under the Declaration with respect to the Trust Securities; PROVIDED that,
pursuant to the Declaration, the holder of the Common Securities will be deemed
to have waived any Declaration Event of Default with respect to the Common
Securities until all Declaration Events of Default with respect to the Preferred
Securities have been so cured, waived or otherwise eliminated. Until such
Declaration Events of Default with respect to the Preferred Securities have been
cured, waived, or otherwise eliminated, the Institutional Trustee will be deemed
to be acting solely on behalf of the holders of the Preferred Securities and
only the holders of the Preferred Securities will have the right to direct the
Institutional Trustee with respect to certain matters under the Declaration,
and, therefore, the Indenture.
If a Declaration Event of Default has occurred and is continuing and such
event is attributable to the failure of the Company to make a timely interest,
principal or redemption payment, a holder of Preferred Securities may directly
institute a proceeding for enforcement of payment to such holder directly of the
principal of, or interest on, the Subordinated Debt Securities having a
principal amount equal to the aggregate liquidation amount of the Preferred
Securities of such holder after the respective due date specified in the
Subordinated Debt Securities. In connection with such Direct Action, the Company
will be subrogated to the rights of the holder of Preferred Securities under the
Declaration to the extent of any payment made by the Company to such holder of
Preferred Securities in such Direct Action. The holders of Preferred Securities
will not be able to exercise directly any other remedy available to the holders
of the Subordinated Debt Securities.
Upon the occurrence of a Declaration Event of Default, the Institutional
Trustee as the sole holder of the Subordinated Debt Securities will have the
right under the Indenture to declare the principal of and interest on the
Subordinated Debt Securities to be immediately due and payable. The Company and
the
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Trust are each required to file annually with the Institutional Trustee an
officer's certificate as to its compliance with all conditions and covenants
under the Declaration.
BOOK-ENTRY AND SETTLEMENT
If distributed to holders of Preferred Securities in connection with the
involuntary or voluntary dissolution of the Trust, the Subordinated Debt
Securities will be issued in the form of one or more global certificates (each a
"Global Security") registered in the name of the Depositary or its nominee.
Except under the limited circumstances described below, Subordinated Debt
Securities represented by the Global Security will not be exchangeable for, and
will not otherwise be issuable as, Subordinated Debt Securities in certificated
form. The Global Securities described above may not be transferred except by the
Depositary to a nominee of the Depositary or by a nominee of the Depositary to
the Depositary or another nominee of the Depositary or to a successor depositary
or its nominee.
The laws of some jurisdictions require that certain purchasers of securities
take physical delivery of such securities in certificated form. Such laws may
impair the ability to transfer beneficial interests in such a Global Security.
Except as provided below, owners of beneficial interests in such a Global
Security will not be entitled to receive physical delivery of Subordinated Debt
Securities in certificated form and will not be considered the holders (as
defined in the Indenture) thereof for any purpose under the Indenture, and no
Global Security representing Subordinated Debt Securities shall be exchangeable,
except for another Global Security of like denomination and tenor to be
registered in the name of the Depositary or its nominee or to a successor
Depositary or its nominee. Accordingly, each Beneficial Owner must rely on the
procedures of the Depositary or if such person is not a Participant, on the
procedures of the Participant through which such person owns its interest to
exercise any rights of a holder under the Indenture.
THE DEPOSITARY
If Subordinated Debt Securities are distributed to holders of Preferred
Securities in liquidation of such holders' interests in the Trust, the
Depositary will act as securities depositary for the Subordinated Debt
Securities. For a description of the Depositary and the specific terms of the
depositary arrangements, see "Description of the Preferred
Securities--Book-Entry Only Issuance--The Depository Trust Company." As of the
date of this Prospectus Supplement, the description therein of the Depositary's
book-entry system and the Depositary's practices as they relate to purchases,
transfers, notices and payments with respect to the Preferred Securities apply
in all material respects to any debt obligations represented by one or more
Global Securities held by the Depositary. The Company may appoint a successor to
the Depositary or any successor depositary in the event the Depositary or such
successor depositary is unable or unwilling to continue as a depositary for the
Global Securities.
None of the Company, the Trust, the Institutional Trustee, any paying agent
and any other agent of the Company or the Debt Trustee will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in a Global Security
for such Subordinated Debt Securities or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests.
A Global Security shall be exchangeable for Subordinated Debt Securities
registered in the names of persons other than the Depositary or its nominee only
if (i) the Depositary notifies the Company that it is unwilling or unable to
continue as a depositary for such Global Security and no successor depositary
shall have been appointed, (ii) the Depositary at any time, ceases to be a
clearing agency registered under the Exchange Act at which time the Depositary
is required to be so registered to act as such depositary and no successor
depositary shall have been appointed, (iii) the Company, in its sole discretion,
determines that such Global Security shall be so exchangeable or (iv) there
shall have occurred an Indenture Event of Default with respect to such
Subordinated Debt Securities. Any Global Security that is exchangeable pursuant
to the preceding sentence shall be exchangeable for Subordinated Debt Securities
registered in
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such names as the Depositary shall direct. It is expected that such instructions
will be based upon directions received by the Depositary from its Participants
with respect to ownership of beneficial interests in such Global Security.
NOTICES
Notices to holders of registered Subordinated Debt Securities will be given
by mail to the addresses of such holders as they may appear in the Register.
TITLE
The Company, the Debt Trustee and any agent of Protective Life or the Debt
Trustee may treat the Person in whose name a Subordinated Debt Security is
registered as the absolute owner thereof (whether or not such Subordinated Debt
Security may be overdue) for the purpose of receiving payment and for all other
purposes.
GOVERNING LAW
The Indenture and the Subordinated Debt Securities will be governed by, and
construed in accordance with, the internal laws of the State of New York.
MISCELLANEOUS
The Company will pay all fees and expenses related to (i) the offering of
the Trust Securities and the Subordinated Debt Securities, (ii) the
organization, maintenance and dissolution of the Trust, (iii) the retention of
the PLC Capital Trustees and (iv) the enforcement by the Institutional Trustee
of the rights of the holders of the Preferred Securities.
Protective Life will have the right at all times to assign any of its
respective rights or obligations under the Indenture to a direct or indirect
wholly-owned subsidiary of Protective Life; provided that, in the event of any
such assignment, Protective Life will remain liable for all of their respective
obligations. Subject to the foregoing, the Indenture will be binding upon and
inure to the benefit of the parties thereto and their respective successors and
assigns. The Indenture provides that it may not otherwise be assigned by the
parties thereto.
So long as PLC Capital is the holder of the Subordinated Debt Securities,
the Subordinated Debt Securities may be amended by mutual consent of Protective
Life and the Trust in the manner they shall agree; provided, however, that, so
long as any of the Preferred Securities remain outstanding, no such amendment
shall be made that adversely affects the holders of the Preferred Securities, no
termination of the Subordinated Debt Securities shall occur, and no Event of
Default or compliance with any covenant under the Subordinated Debt Securities
may be waived by PLC Capital, without the prior approval of the holders of at
least 66 2/3% in liquidation preference of all Preferred Securities then
outstanding, in writing or at a duly constituted meeting of such holders.
If the Trust is liquidated and the Subordinated Debt Securities are
distributed to the holders of the Trust Securities, the Indenture and the terms
of the Subordinated Debt Securities may, thereafter, be modified or amended with
the consent of not less than 66 2/3% in principal amount of the Subordinated
Debt Securities at any time outstanding, provided, however, that no such
modification or amendment may, without the consent of the holder of each
Subordinated Debt Security affected thereby, (a) reduce the principal amount
thereof or reduce the rate or extend the time of payment thereon (other than as
described under "Description of the Subordinated Debt Securities--Option to
Extend Interest Payment Period"), or reduce any amount payable on redemption
thereof or change the currency in which the principal thereof or interest
thereon is payable or impair the right to institute suit for the enforcement of
any payment on any Subordinated Debt Security when due or (b) reduce the
aforesaid principal amount of the Subordinated Debt Securities, the consent of
the holders of which is required for any such modification.
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EFFECT OF OBLIGATIONS UNDER THE
SUBORDINATED DEBT SECURITIES AND THE PREFERRED SECURITIES GUARANTEE
As set forth in the Declaration, the sole purpose of the Trust is to issue
the Trust Securities evidencing undivided beneficial interests in the assets of
the Trust, and to invest the proceeds from such issuance and sale in the
Subordinated Debt Securities and engage in only those other activities necessary
or incidental thereto.
As long as payments of interest and other payments are made when due on the
Subordinated Debt Securities, such payments will be sufficient to cover
distributions and payments due on the Trust Securities because of the following
factors: (i) the aggregate principal amount of Subordinated Debt Securities will
be equal to the sum of the aggregate stated liquidation amount of the Trust
Securities; (ii) the interest rate and the interest and other payment dates on
the Subordinated Debt Securities will match the distribution rate and
distribution and other payment dates for the Trust Securities; (iii) the Company
shall pay, and the Trust shall not be obligated to pay, directly or indirectly,
all costs, expenses, debts, and obligations of the Trust (other than with
respect to the Trust Securities) and (iv) the Declaration further provides that
the PLC Capital Trustees shall not take or cause or permit the Trust to, among
other things, engage in any activity that is not consistent with the purposes of
the Trust.
Payments of distributions (to the extent funds therefor are available) and
other payments due on the Preferred Securities (to the extent funds therefor are
available) are guaranteed on a subordinated basis by the Company as and to the
extent set forth under "Description of the Preferred Securities Guarantee," and
under "Description of the Preferred Securities Guarantees" in the accompanying
Prospectus. If the Company does not make interest payments on the Subordinated
Debt Securities purchased by the Trust, the Trust will not have sufficient funds
to pay distributions on the Preferred Securities. The Preferred Securities
Guarantee does not apply to any payment of distributions unless and until the
Trust has sufficient funds for the payment of such distributions.
If the Company fails to make interest or other payments on the Subordinated
Debt Securities when due (taking account of any Extension Period), the
Declaration provides a mechanism whereby the holders of the Preferred
Securities, using the procedures described in "Description of the Preferred
Securities-- Book-Entry Only Issuance--The Depository Trust Company" and
"--Voting Rights," may direct the Institutional Trustee to enforce its rights
under the Indenture. If a Declaration Event of Default has occurred and is
continuing and such event is attributable to the failure of the Company to pay
interest or principal on the Subordinated Debt Securities on the date such
interest or principal is otherwise payable, then a holder of Preferred
Securities may directly institute a proceeding against the Company for payment.
The Company, under the Preferred Securities Guarantee, acknowledges that the
Preferred Securities Guarantee Trustee shall enforce the Preferred Securities
Guarantee on behalf of the holders of the Preferred Securities. If the Company
fails to make payments under the Preferred Securities Guarantee, the Preferred
Securities Guarantee provides a mechanism whereby the holders of the Preferred
Securities may direct the Preferred Securities Guarantee Trustee to enforce its
rights thereunder. Notwithstanding the foregoing, if the Company has failed to
make a payment under the Preferred Securities Guarantee, and the Preferred
Securities Guarantee Trustee fails to enforce such holder's rights under the
Preferred Securities Guarantee, then any holder of Preferred Securities may
institute a legal proceeding directly against the Company to enforce its rights
under the Preferred Securities Guarantee without first instituting a legal
proceeding against the Trust, the Preferred Securities Guarantee Trustee, or any
other person or entity.
The Preferred Securities Guarantee, when taken together with the Company's
obligations under the Subordinated Debt Securities and the Indenture and its
obligations under the Declaration, including its obligations to pay costs,
expenses, debts and liabilities of the Trust (other than with respect to the
Trust Securities), has the effect of providing a full and unconditional
guarantee of amounts due on the Preferred Securities. See "Description of the
Preferred Securities Guarantee."
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material United States federal income tax
consequences of the purchase, ownership and disposition of FELINE PRIDES,
Preferred Securities and Common Stock acquired under a Purchase Contract. This
summary applies only to a beneficial owner of FELINE PRIDES that acquires Income
PRIDES at the closing of the initial offering for an amount equal to the Stated
Amount thereof and that is for United States federal income tax purposes (i) an
individual citizen or resident of the United States, (ii) a corporation created
or organized in or under the laws of the United States or any state thereof or
the District of Columbia, (iii) a domestic partnership, (iv) an estate the
income of which is subject to United States federal income taxation, regardless
of its source or (v) a trust if a court within the United States is able to
exercise primary supervision over the administration of such trust and one or
more United States persons have the authority to control all substantial
decisions of such trust, in each case holding FELINE PRIDES, Preferred
Securities or Common Stock acquired under a Purchase Contract as a capital asset
(for purposes of this summary, a "U.S. Holder"). The statements of law or legal
conclusion in this summary represent the opinion of Debevoise & Plimpton,
special counsel to the Company ("Tax Counsel").
This summary is based upon the Internal Revenue Code of 1986, as amended
(the "Code"), Treasury regulations (including proposed Treasury regulations)
issued thereunder, Internal Revenue Service ("IRS") rulings and pronouncements
and judicial decisions now in effect, all of which are subject to change at any
time. Such changes may be applied retroactively in a manner that could adversely
affect a U.S. Holder. This summary does not address all potential tax
consequences that may be applicable to a particular U.S. Holder, and is not
intended to be wholly applicable to all categories of U.S. Holders (including,
for example, (a) insurance companies, banks, tax-exempt organizations or
dealers, (b) persons holding FELINE PRIDES, Preferred Securities or Common Stock
as a part of a straddle, hedge, conversion transaction or other integrated
investment or (c) persons whose functional currency is not the U.S. dollar),
some of which may be subject to special rules, nor does it address alternative
minimum taxes or state, local or foreign taxes. PROSPECTIVE INVESTORS THAT ARE
NOT UNITED STATES PERSONS (WITHIN THE MEANING OF SECTION 7701 (a) (30) OF THE
CODE) ARE URGED TO CONSULT THEIR TAX ADVISORS REGARDING THE UNITED STATES
FEDERAL INCOME TAX CONSEQUENCES OF AN INVESTMENT IN FELINE PRIDES, INCLUDING THE
POTENTIAL APPLICATION OF UNITED STATES WITHHOLDING TAXES.
No statutory, judicial or administrative authority directly addresses the
treatment of FELINE PRIDES or instruments similar to FELINE PRIDES for United
States federal income tax purposes. As a result, no assurance can be given that
the IRS will agree with the tax consequences described herein. PROSPECTIVE
INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISORS REGARDING THE UNITED STATES
FEDERAL INCOME TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF
THE FELINE PRIDES IN LIGHT OF THEIR OWN PARTICULAR CIRCUMSTANCES, AS WELL AS THE
EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS AND THE POSSIBLE EFFECTS OF
CHANGES IN UNITED STATES FEDERAL OR OTHER TAX LAWS.
OWNERSHIP OF PREFERRED SECURITIES AND TREASURY SECURITIES
A U.S. Holder will be treated as owning the Preferred Securities or Treasury
Securities constituting a part of the FELINE PRIDES. The Company and, by
acquiring FELINE PRIDES, each U.S. Holder agree to treat such U.S. Holder as the
owner, for United States federal, state and local income and franchise tax
purposes, of the Preferred Securities or Treasury Securities constituting a part
of the FELINE PRIDES beneficially owned by such U.S. Holder. The remainder of
this summary will assume that U.S. Holders of FELINE PRIDES will be treated as
the owners of the Preferred Securities or Treasury Securities constituting a
part of such FELINE PRIDES for United States federal income tax purposes.
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ACQUISITION OF INCOME PRIDES; INITIAL BASIS IN PREFERRED SECURITIES AND PURCHASE
CONTRACTS
A U.S. Holder's acquisition of Income PRIDES will be treated as an
acquisition of the Preferred Security and the Purchase Contract constituting
such Income PRIDES. The purchase price of each Income PRIDES will be allocated
between the Preferred Security and the Purchase Contract constituting such
Income PRIDES in proportion to their respective fair market values at the time
of purchase. Such allocation will establish the U.S. Holder's initial tax basis
in the Preferred Security and the Purchase Contract.
The Company intends to take the position that, at the time of issuance of
the Income PRIDES, the fair market value of each Preferred Security equals $50
and the fair market value of each Purchase Contract equals $0. The Company's
position will be binding upon each U.S. Holder (but not on the IRS) unless such
U.S. Holder explicitly discloses a contrary position on a statement attached to
such U.S. Holder's timely filed United States federal income tax return for the
taxable year in which an Income PRIDES is acquired. Thus, absent such
disclosure, a U.S. Holder should allocate the purchase price for an Income
PRIDES (i.e., the Stated Amount) in accordance with the foregoing.
CLASSIFICATION OF THE TRUST
In connection with the issuance of the Preferred Securities, Tax Counsel
will render its opinion to the effect that, under current law and assuming
compliance with the terms of the Declaration, and based on certain assumptions
described in such opinion, the Trust will be classified as a grantor trust and
not as an association taxable as a corporation for United States federal income
tax purposes. Accordingly, each U.S. Holder of an Income PRIDES will be
considered the owner of an undivided interest in the Subordinated Debt
Securities and will take into account its pro rata share of all items of income,
gain, loss or deduction of the Trust. Any amount included in a U.S. Holder's
gross income will increase such U.S. Holder's tax basis in its Preferred
Securities, and the amount of distributions to a U.S. Holder will reduce such
U.S. Holder's tax basis in its Preferred Securities.
CLASSIFICATION OF THE SUBORDINATED DEBT SECURITIES
The Company, the Trust and, by acquiring FELINE PRIDES, each U.S. Holder
agree to treat the Subordinated Debt Securities as indebtedness of the Company
for all United States federal, state and local income and franchise tax
purposes. There is no authority addressing the tax classification of instruments
similar to the Subordinated Debt Securities issued as part of an instrument
similar to FELINE PRIDES. Nevertheless, in connection with the issuance of the
Subordinated Debt Securities, Tax Counsel will render its opinion to the effect
that, under current law and assuming compliance with the terms of the Indenture
and certain other documents, and based on certain assumptions and advice
described in such opinion, the Subordinated Debt Securities will be classified
as indebtedness of the Company for United States federal income tax purposes.
The remainder of this summary will assume that the Subordinated Debt Securities
will be treated as indebtedness of the Company for United States federal income
tax purposes.
INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT ON PREFERRED SECURITIES
Subject to the discussion below regarding the Company's right to defer
payments of interest on the Subordinated Debt Securities, the Subordinated Debt
Securities should be treated as "reset bonds" under applicable Treasury
Regulations, and interest on the Subordinated Debt Securities should not
constitute contingent interest for purposes of the "original issue discount"
("OID") rules. Under the Treasury Regulations applicable to reset bonds, the
Subordinated Debt Securities should be treated, solely for purposes of
calculating the accrual of OID, as maturing on the day immediately preceding the
Purchase Contract Settlement Date for an amount equal to 100.5% of the Stated
Amount (the "Reset Amount") and as having been reissued on the Purchase Contract
Settlement Date for the Reset Amount. If the amount of the initial purchase
price for the FELINE PRIDES allocated to the Preferred Security is less
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than the Reset Amount, the Subordinated Debt Securities should be treated as
having been issued with OID equal to the difference between the Reset Amount and
the amount so allocated to the Preferred Security, unless such difference is
less than three-fourths of one-percent of the Reset Amount. Based upon the fair
market value of each Preferred Security and the fair market value of each
Purchase Contract at the time of issuance of the Income PRIDES set forth above,
the Subordinated Debt Securities should not be treated as having been issued
with OID. If the Subordinated Debt Securities were treated as issued with OID, a
U.S. Holder would be required to include such OID in income on an economic
accrual basis over the period between the issue date and the day immediately
preceding the Purchase Contract Settlement Date regardless of such U.S. Holder's
method of tax accounting. Consequently, each U.S. Holder (including those using
the cash basis of accounting) would be required to include OID in its gross
income even though the Company will not actually make current cash payments with
respect to such OID. In addition, a U.S. Holder should include stated interest
on the Subordinated Debt Securities in income as ordinary income when paid to
the Trust or accrued, in accordance with such U.S. Holder's regular method of
accounting.
Under the Indenture, the Company has the right to defer payments of interest
on the Subordinated Debt Securities. The Company's right to defer payments of
interest could cause the Subordinated Debt Securities to be subject to the OID
rules. The Company, however, believes, and intends to take the position, that as
of the issue date, the terms and conditions of the Subordinated Debt Securities
(in particular the restrictions on the Company's ability to pay dividends during
an Extension Period) make the likelihood that the Company would exercise its
option to defer the payment of interest a "remote" contingency for these
purposes. If so treated, except as provided below, the Subordinated Debt
Securities would not be subject to the OID rules as a result of the Company's
right to defer payments of interest on the Subordinated Debt Securities.
If the Company were to exercise its right to defer payments of interest, the
Subordinated Debt Securities would at that time be treated, solely for purposes
of the OID rules, as reissued with OID. In such event, all of a U.S. Holder's
taxable interest income with respect to the Subordinated Debt Securities would
thereafter be accounted for on an economic accrual basis regardless of such U.S.
Holder's method of tax accounting, and actual distributions of stated interest
would not be reported as taxable income. Consequently, each U.S. Holder
(including those using the cash basis of accounting) would be required to
include OID in its gross income even though the Company would not make actual
cash payments during an Extension Period.
The IRS could take the position that the likelihood that the Company would
exercise its right to defer payments of interest is not a "remote" contingency
for these purposes, in which case U.S. Holders would be required to accrue OID
on the Subordinated Debt Securities on an economic accrual basis under the OID
rules described in the preceding paragraph.
Corporate U.S. Holders will not be entitled to a dividends-received
deduction with respect to any income recognized with respect to the Preferred
Securities.
INCOME FROM CONTRACT ADJUSTMENT PAYMENTS AND DEFERRED CONTRACT ADJUSTMENT
PAYMENTS
There is no direct authority addressing the treatment of the Contract
Adjustment Payments and Deferred Contract Adjustment Payments, if any, under
current law, and such treatment is unclear. Contract Adjustment Payments and
Deferred Contract Adjustment Payments (whether payable in cash or in additional
shares of Common Stock), if any, may constitute taxable income to each U.S.
Holder when received or accrued, in accordance with the U.S. Holder's method of
accounting. To the extent the Company is required to file information returns
with respect to Contract Adjustment Payments or Deferred Contract Adjustment
Payments, it intends to treat such payments as taxable income to each U.S.
Holder. U.S. Holders should consult their tax advisors concerning the treatment
of Contract Adjustment Payments and Deferred Contract Adjustment Payments,
including the possibility that any such payment
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may be treated as a loan, purchase price adjustment, rebate or payment analogous
to an option premium, rather than being includible in income on a current basis.
The Company does not intend to deduct the Contract Adjustment Payments or
Deferred Contract Adjustment Payments, if any, because it views them as a cost
of issuing the Common Stock. The treatment of Contract Adjustment Payments and
Deferred Contract Adjustment Payments could affect a U.S. Holder's tax basis in
a Purchase Contract or Common Stock received under a Purchase Contract or the
amount realized by a U.S. Holder upon the sale or disposition of a FELINE PRIDES
or the termination of a Purchase Contract. See "-- Acquisition of Common Stock
Under a Purchase Contract," "-- Sale or Disposition of FELINE PRIDES" and "--
Termination of Purchase Contract" below.
DISTRIBUTION OF SUBORDINATED DEBT SECURITIES TO U.S. HOLDERS OF PREFERRED
SECURITIES
Under current law, a distribution by the Trust of the Subordinated Debt
Securities as described under the caption "Description of the Preferred
Securities -- Liquidation Distribution Upon Dissolution" will be nontaxable to
U.S. Holders. In such event, a U.S. Holder will have an aggregate tax basis in
the Subordinated Debt Securities received in the liquidation equal to the
aggregate tax basis such U.S. Holder had in its Preferred Securities surrendered
therefor, and the holding period of such Subordinated Debt Securities would
include the period during which such U.S. Holder had held the Preferred
Securities. A U.S. Holder will continue to include interest (or OID) in respect
of Subordinated Debt Securities received from the Trust in the manner described
under "-- Interest Income and Original Issue Discount on Preferred Securities."
ACQUISITION OF COMMON STOCK UNDER A PURCHASE CONTRACT
A U.S. Holder generally will not recognize gain or loss on the purchase of
Common Stock under a Purchase Contract, except with respect to any cash paid in
lieu of a fractional share of Common Stock. Subject to the following discussion,
a U.S. Holder's aggregate initial tax basis in the Common Stock received under a
Purchase Contract (including any Common Stock received as a Deferred Contract
Adjustment Payment) generally should equal the purchase price paid for such
Common Stock (i.e., the Stated Amount) plus such U.S. Holder's tax basis in the
Purchase Contract (if any), less the portion of such purchase price and tax
basis allocable to the fractional share. Payments of Contract Adjustment
Payments or Deferred Contract Adjustment Payments that have been received in
cash by a U.S. Holder but not included in income by such U.S. Holder should
reduce such U.S. Holder's tax basis in the Purchase Contract or the Common Stock
to be received thereunder. Any Contract Adjustment Payments or Deferred Contract
Adjustment Payments included in a U.S. Holder's income but not paid in cash
should increase such U.S. Holder's tax basis in the Purchase Contract or the
Common Stock. See "-- Income from Contract Adjustment Payments and Deferred
Contract Adjustment Payments" above. The holding period for Common Stock
received under a Purchase Contract will commence on the day after the
acquisition of such Common Stock.
SUBSTITUTION OF TREASURY SECURITIES TO CREATE GROWTH PRIDES
A U.S. Holder of an Income PRIDES that delivers Treasury Securities to the
Collateral Agent in substitution for Preferred Securities generally will not
recognize gain or loss upon the delivery of such Treasury Securities or the
release of the Preferred Securities to such U.S. Holder. Such U.S. Holder will
continue to include in income any interest, OID or market discount or amortize
any bond premium otherwise includible or deductible, respectively, by such U.S.
Holder with respect to such Treasury Securities and Preferred Securities, and
such U.S. Holder's tax basis in the Treasury Securities, the Preferred
Securities and the Purchase Contract will not be affected by such delivery and
release. U.S. Holders should consult their tax advisors concerning the tax
consequences of purchasing, owning and disposing of Treasury Securities.
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SUBSTITUTION OF PREFERRED SECURITIES TO RECREATE INCOME PRIDES
A U.S. Holder of a Growth PRIDES that delivers Preferred Securities to the
Collateral Agent to recreate an Income PRIDES generally will not recognize gain
or loss upon the delivery of such Preferred Securities or the release of the
Treasury Securities to the U.S. Holder. Such U.S. Holder will continue to
include in income any interest, OID or market discount or amortize any bond
premium otherwise includible or deductible, respectively, by such U.S. Holder
with respect to such Treasury Securities and Preferred Securities, and such U.S.
Holder's tax basis in the Treasury Securities, the Preferred Securities and the
Purchase Contract will not be affected by such delivery and release.
SALE OR DISPOSITION OF FELINE PRIDES
If a U.S. Holder sells, exchanges or otherwise disposes of FELINE PRIDES,
such U.S. Holder will be treated as having sold, exchanged or disposed of the
Purchase Contract and the Preferred Securities or, in the case of Growth PRIDES,
the Treasury Securities, that constitute such FELINE PRIDES. Gain or loss from
such sale, exchange or other disposition generally will equal the difference
between the portion of the proceeds to such U.S. Holder allocable to the
Purchase Contract and the Preferred Securities or Treasury Securities, as the
case may be, (except to the extent that such U.S. Holder is treated as having
received an amount with respect to accrued interest on the Preferred Securities,
which will be treated as ordinary interest income, or to the extent such U.S.
Holder is treated as having received an amount with respect to accrued Contract
Adjustment Payments or Deferred Contract Adjustment Payments, which may be
treated as ordinary income, in each case to the extent not previously included
in income) and such U.S. Holder's respective adjusted tax bases in the Purchase
Contract and the Preferred Securities or Treasury Securities. Such gain or loss
generally will be long-term capital gain or loss if the U.S. Holder held the
FELINE PRIDES (or, in the case of gain or loss with respect to the Preferred
Securities or Treasury Securities, such Preferred Securities or Treasury
Securities) for more than one year at the time of disposition. Under recently
enacted legislation, the maximum tax rate on capital gains for an individual
U.S. Holder has been reduced if such U.S. Holder's holding period is more than
eighteen months. The deductibility of capital losses is subject to limitations.
If the sale, exchange or other disposition of FELINE PRIDES occurs when the
Purchase Contract has negative value, the U.S. Holder might be considered to
have received additional consideration for the Preferred Securities or Treasury
Securities in an amount equal to such negative value, and to have paid such
amount to be released from the U.S. Holder's obligation under the Purchase
Contract. U.S. Holders should consult their tax advisors regarding a sale,
exchange or other disposition of the FELINE PRIDES at a time when the Purchase
Contract has negative value.
Payments to a U.S. Holder of Contract Adjustment Payments or Deferred
Contract Adjustment Payments that have not previously been included in the
income of such U.S. Holder should either reduce such U.S. Holder's tax basis in
the Purchase Contract or result in an increase in the amount realized on the
disposition of the Purchase Contract. Any Contract Adjustment Payments or
Deferred Contract Adjustment Payments included in a U.S. Holder's income but not
paid should increase such U.S. Holder's tax basis in the Purchase Contract. See
"-- Income from Contract Adjustment Payments and Deferred Contract Adjustment
Payments" above.
SALES OR REDEMPTIONS OF PREFERRED SECURITIES
Gain or loss will be recognized by a U.S. Holder on a sale or redemption of
a Preferred Security (including a redemption for cash) in an amount equal to the
difference between the amount realized by the U.S. Holder on the sale or
redemption (except to the extent that such amount realized is attributable to
accrued interest, which will be taxable as ordinary income to the extent not
previously included in income) and the U.S. Holder's adjusted tax basis in the
Preferred Security sold or redeemed. Gain or loss recognized by a U.S. Holder on
Preferred Securities held for more than one year generally will be taxable as
long-term capital gain or loss. Under recently enacted legislation, the maximum
tax rate on capital gains
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for an individual U.S. Holder has been reduced if such U.S. Holder's holding
period is more than eighteen months. The deductibility of capital losses is
subject to limitations.
OWNERSHIP OF COMMON STOCK ACQUIRED UNDER THE PURCHASE CONTRACT
Any dividend on Common Stock paid by the Company out of its current or
accumulated earnings and profits (as determined for United States federal income
tax purposes) will be includable in income by the U.S. Holder when received. Any
such dividend will be eligible for the dividends received deduction if received
by an otherwise qualifying corporate U.S. Holder that meets the holding period
and other requirements for the dividends received deduction.
SALE OR DISPOSITION OF COMMON STOCK
Upon a sale, exchange or other disposition of Common Stock, a U.S. Holder
generally will recognize gain or loss equal to the difference between the amount
realized and such U.S. Holder's adjusted tax basis in the Common Stock. Such
gain or loss will be capital gain or loss and will be long-term capital gain or
loss if the U.S. Holder held the Common Stock for more than one year at the time
of such disposition. Under recently enacted legislation, the maximum tax rate on
capital gains for an individual U.S. Holder has been reduced if such U.S.
Holder's holding period is more than eighteen months. The deductibility of
capital losses is subject to limitations.
EARLY SETTLEMENT OF PURCHASE CONTRACT
A U.S. Holder will not recognize gain or loss on the receipt of such U.S.
Holder's proportionate share of Preferred Securities or Treasury Securities upon
Early Settlement of a Purchase Contract and will have the same tax basis in such
Preferred Securities or Treasury Securities as before such Early Settlement.
TERMINATION OF PURCHASE CONTRACT
If a Purchase Contract terminates, a U.S. Holder will recognize gain or loss
equal to the difference between the amount realized (if any) upon such
termination and such U.S. Holder's adjusted tax basis (if any) in the Purchase
Contract at the time of such termination. Payments of Contract Adjustment
Payments or Deferred Contract Adjustment Payments, if any, received by a U.S.
Holder but not included in income by such U.S. Holder should either reduce such
U.S. Holder's tax basis in the Purchase Contract or result in an amount realized
on the termination of the Purchase Contract. Any Contract Adjustment Payments or
Deferred Contract Adjustment Payments included in a U.S. Holder's income but not
paid should increase such U.S. Holder's tax basis in the Purchase Contract. See
"-- Income from Contract Adjustment Payments and Deferred Contract Adjustment
Payments" above. Any such gain or loss should be capital gain or loss and should
be long-term capital gain or loss if the U.S. Holder held such Purchase Contract
for more than one year at the time of such termination. Under recently enacted
legislation, the maximum tax rate on capital gains for an individual U.S. Holder
has been reduced if such Holder's holding period is more than eighteen months.
The deductibility of capital losses is subject to limitations. A U.S. Holder
will not recognize gain or loss on the receipt of such U.S. Holder's
proportionate share of the Preferred Securities or Treasury Securities upon
termination of the Purchase Contract and will have the same tax basis in such
Preferred Securities or Treasury Securities as before such distribution.
ADJUSTMENT TO SETTLEMENT RATE
U.S. Holders of FELINE PRIDES might be treated as receiving a constructive
distribution from the Company if (i) the Settlement Rate is adjusted and as a
result of such adjustment the proportionate interest of U.S. Holders of FELINE
PRIDES in the assets, earnings and profits of the Company is increased and (ii)
the adjustment is not made pursuant to a bona fide, reasonable anti-dilution
formula. An adjustment in the Settlement Rate would not be considered made
pursuant to such a formula if the
S-102
<PAGE>
adjustment were made to compensate a U.S. Holder for certain taxable
distributions with respect to the Common Stock. Thus, under certain
circumstances, an increase in the Settlement Rate might give rise to a taxable
dividend to U.S. Holders of FELINE PRIDES even though such U.S. Holders would
not receive any cash related thereto.
SECONDARY HOLDERS OF FELINE PRIDES
U.S. Holders should be aware that certain United States federal income tax
consequences of the purchase, ownership and disposition of FELINE PRIDES to an
investor that does not acquire Income PRIDES in the initial offering (a
"Secondary Holder") are not clear. In particular, if the Purchase Contract
constituting a part of the FELINE PRIDES has negative value at the time of such
purchase, it is not clear whether a Secondary Holder's tax basis in the
Preferred Securities or Treasury Securities constituting a part of such FELINE
PRIDES will be limited to its cash purchase price or whether it will also
include an amount equal to such negative value. U.S. Holders should consult
their tax advisors regarding the United States federal income tax consequences
to Secondary Holders of the purchase, ownership and disposition of FELINE
PRIDES.
BACKUP WITHHOLDING TAX AND INFORMATION REPORTING
Payments under the FELINE PRIDES, Preferred Securities or Common Stock
acquired under a Purchase Contract, the proceeds received with respect to a
fractional share of Common Stock upon the settlement of a Purchase Contract, and
the sale of FELINE PRIDES, Preferred Securities or Common Stock acquired under a
Purchase Contract, may be subject to information reporting and United States
federal backup withholding tax at the rate of 31% if the U.S. Holder thereof
fails to supply an accurate taxpayer identification number or otherwise fails to
comply with applicable United States information reporting or certification
requirements. Any amounts so withheld will be allowed as a credit against such
U.S. Holder's United States federal income tax liability.
S-103
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in an Underwriting Agreement
(the "Underwriting Agreement") among the Company and Merrill Lynch, Pierce,
Fenner & Smith Incorporated, Goldman, Sachs & Co., Fox-Pitt, Kelton Inc. and The
Robinson-Humphrey Company, LLC, as representatives (the "Representatives") of
the several underwriters named therein (the "Underwriters"), the Company and the
Trust have agreed to sell to the Underwriters, and each of the Underwriters
severally has agreed to purchase from the Company and the Trust, the number of
Income PRIDES set forth opposite each Underwriter's name. In the Underwriting
Agreement, the several Underwriters severally have agreed, subject to the terms
and conditions set forth therein, to purchase all of the Income PRIDES offered
hereby if any of the Income PRIDES are purchased. In the event of default by an
Underwriter, the Underwriting Agreement provides that, in certain circumstances,
the purchase commitments of the nondefaulting Underwriters may be increased or
the Underwriting Agreement may be terminated.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS INCOME PRIDES
- ------------------------------------------------------------------------------------------------- ---------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated........................................................................... 666,667
Goldman, Sachs & Co. ............................................................................ 666,667
Fox-Pitt, Kelton Inc. ........................................................................... 333,333
The Robinson-Humphrey Company, LLC .............................................................. 333,333
---------------
Total.................................................................................. 2,000,000
---------------
---------------
</TABLE>
The Underwriters have advised the Company and the Trust that they propose
initially to offer the Income PRIDES to the public at the public offering price
set forth on the cover page of this Prospectus Supplement and to certain dealers
at such price less a concession not in excess of $.90 per Income PRIDES. The
Underwriters may allow, and such dealers may reallow, a discount not in excess
of $.10 per Income PRIDES on sales to certain other dealers. After the initial
public offering, the public offering price, concession and discount may be
changed.
Until the distribution of the Securities is completed, rules of the
Commission may limit the ability of the Underwriters and any selling group
members to bid for and purchase the Securities or shares of Common Stock. As an
exception to these rules, the Underwriters are permitted to engage in certain
transactions that stabilize the price of the Securities or the Common Stock.
Such transactions consist of bids or purchases for the purpose of pegging,
fixing or maintaining the price of the Securities or the Common Stock.
If the Underwriters create a short position in the Securities in connection
with this offering, i.e., if they sell more Securities than are set forth on the
cover page of this Prospectus, the Underwriters may reduce that short position
by purchasing Securities in the open market. The Underwriters may also elect to
reduce any short position by exercising all or part of the over-allotment option
described below.
The Underwriters may also impose a penalty bid on certain Underwriters and
selling group members. This means that if the Underwriters purchase Securities
in the open market to reduce the Underwriters' short position or to stabilize
the price of the Securities, they may reclaim the amount of the selling
concession from any Underwriter and any selling group members who sold those
Securities as part of this offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security.
S-104
<PAGE>
Neither the Company, the Trust nor any of the Underwriters makes any
representation or prediction as to the direction or magnitude of any effect that
the transactions described above may have on the price of the Securities or the
Common Stock. In addition, neither the Company, the Trust nor any of the
Underwriters makes any representation that the Underwriters will engage in such
transaction or that such transactions, once commenced, will not be discontinued
without notice.
The Company and the Trust have granted to the Underwriters an option,
exercisable for 30 days following the date of this Prospectus Supplement, to
purchase up to an aggregate of an additional 300,000 Income PRIDES from the
Company and the Trust at the Price to Public set forth on the cover page of this
Prospectus Supplement. In the event that such option is exercised, the Company
will pay to the Underwriters the Underwriting Commission per Income PRIDES set
forth on the cover page of this Prospectus Supplement. The Underwriters may
exercise this option only to cover over-allotments, if any, made on the sale of
the Income PRIDES offered hereby. If the Underwriters exercise their
over-allotment option, each of the Underwriters has severally agreed, subject to
certain conditions, to effect the foregoing transactions with respect to
approximately the same percentage of such Income PRIDES that the respective
number of Income PRIDES set forth opposite its name in the foregoing table bears
to the Income PRIDES offered hereby.
The Company and the Trust have agreed, for a period of 90 days after the
date of this Prospectus Supplement, to not, without the prior written consent of
Merrill Lynch, Pierce, Fenner and Smith Incorporated, directly or indirectly,
sell, offer to sell, grant any option for the sale of, or otherwise dispose of,
or enter into any agreement to sell, any Income PRIDES, Purchase Contracts,
Preferred Securities or Common Stock, as the case may be, or any securities of
the Company similar to the Income PRIDES, Purchase Contracts, Preferred
Securities or Common Stock or any security convertible into or exchangeable or
exercisable for Income PRIDES, Purchase Contracts or Preferred Securities or
Common Stock other than (i) to the Underwriters pursuant to the Underwriting
Agreement, (ii) shares of Common Stock or options for shares of Common Stock
issued pursuant to, or sold in connection with, any employee benefit, dividend
reinvestment and stock option and stock purchase plans of the Company and its
subsidiaries, (iii) any securities issued pursuant to a merger or acquisition,
(iv) the Growth PRIDES or Income PRIDES to be created or recreated upon
substitution of the collateral related to the purchase contracts that are part
of such securities, or shares of Common Stock issuable upon early settlement of
the Income PRIDES or Growth PRIDES or (v) upon exercise of stock options.
Prior to this offering, there has been no public market for the Income
PRIDES. The public offering price for the Income PRIDES was determined in
negotiations between the Company, the Trust and the Underwriters. In determining
the terms of the Income PRIDES, including the public offering price, the
Company, the Trust and the Underwriters considered the market price of the
Common Stock and also considered the Company's recent results of operations, the
future prospects of the Company and the industry in general, market prices and
terms of, and yields on, securities of other companies considered to be
comparable to the Company and prevailing conditions in the securities markets.
The Income PRIDES have been approved for listing on the NYSE under the symbol
"PLPrP", subject to official notice of issuance. The Growth PRIDES and the
Preferred Securities will not be listed or traded on any securities exchange.
The Company and the Trust have been advised by the Underwriters that they
presently intend to make a market for the Growth PRIDES and the Preferred
Securities; however, they are not obligated to do so and any market making may
be discontinued at any time. There can be no assurance that an active trading
market will develop for the Income PRIDES, the Growth PRIDES or the Preferred
Securities or that the Income PRIDES will trade in the public market subsequent
to the offering at or above the initial public offering price.
The Company and the Trust have agreed to indemnify the Underwriters against,
or to contribute to payments that the Underwriters may be required to make in
respect of, certain liabilities, including liabilities under the Securities Act
of 1933, as amended.
S-105
<PAGE>
Certain of the Underwriters engage in transactions with, and, from time to
time, have performed services for, the Company and its subsidiaries in the
ordinary course of business.
LEGAL MATTERS
The validity of the Purchase Contracts, the Common Stock issuable upon
settlement thereof and the Subordinated Debt Securities will be passed upon for
the Company and the Trust by Debevoise & Plimpton, New York, New York, and
certain matters of Delaware law with respect to the validity of the Preferred
Securities offered hereby will be passed upon for the Company and the Trust by
Richards, Layton & Finger, P.A., special Delaware counsel to the Company. The
validity of the Purchase Contracts, the Common Stock issuable upon settlement
thereof, the Subordinated Debt Securities and the Preferred Securities will be
passed upon for the Underwriters by Skadden, Arps, Slate, Meagher & Flom LLP,
New York, New York.
S-106
<PAGE>
INDEX OF TERMS FOR PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
TERM PAGE
- --------------------------------------------------------------------------------------------------- -------------
<S> <C>
1940 Act........................................................................................... S-79
8 1/4% Common Securities Guarantee................................................................. S-3
8 1/4% Preferred Securities Guarantee.............................................................. S-3
8 1/4% TOPrS Guarantees............................................................................ S-3
Additional Interest................................................................................ S-92
Applicable Market Value............................................................................ S-15, S-60
Base Indenture..................................................................................... S-85
Beneficial Owner................................................................................... S-80
Code............................................................................................... S-30, S-97
Collateral Agent................................................................................... S-10
Common Securities.................................................................................. S-2
Common Securities Guarantee........................................................................ S-2
Common Stock....................................................................................... S-1
Compound Interest.................................................................................. S-91
Contract Adjustment Payments....................................................................... S-1
Debt Payment Failure............................................................................... S-28
Declaration........................................................................................ S-8
Declaration Event of Default....................................................................... S-77
Default............................................................................................ S-92
Deferred Contract Adjustment Payments.............................................................. S-12, S-59
Delaware Trustee................................................................................... S-38
Depositary......................................................................................... S-67
Direct Action...................................................................................... S-28, S-77
Direct Participants................................................................................ S-67
Early Settlement................................................................................... S-15
Events of Default.................................................................................. S-92
Extension Period................................................................................... S-17, S-91
FELINE PRIDES Certificate.......................................................................... S-61
Global Security.................................................................................... S-94
Global Security Certificates....................................................................... S-67
Growth PRIDES...................................................................................... S-3
Income PRIDES...................................................................................... S-1, S-9
Indenture.......................................................................................... S-86
Indenture Event of Default......................................................................... S-77
Indirect Participants.............................................................................. S-67
Institutional Account.............................................................................. S-38
Institutional Trustee.............................................................................. S-38
Interest Payment Date.............................................................................. S-88
Participants....................................................................................... S-67
Payment Date....................................................................................... S-13
PLC Capital Trustees............................................................................... S-8
Pledge Agreement................................................................................... S-66
Pledged Securities................................................................................. S-24, S-66
Preferred Securities Guarantee..................................................................... S-2, S-19
Preferred Securities Guarantee Trustee............................................................. S-83
Preferred Security................................................................................. S-1, S-9
Purchase Contract.................................................................................. S-1, S-9
</TABLE>
S-107
<PAGE>
<TABLE>
<CAPTION>
TERM PAGE
- --------------------------------------------------------------------------------------------------- -------------
<S> <C>
Purchase Contract Agent............................................................................ S-10
Purchase Contract Agreement........................................................................ S-10
Purchase Contract Settlement Date.................................................................. S-1, S-9
Put Option......................................................................................... S-19
Reference Price.................................................................................... S-14, S-60
Regular Trustees................................................................................... S-38
Reset Agent........................................................................................ S-9
Reset Amount....................................................................................... S-98
Reset Announcement Date............................................................................ S-74
Reset Rate......................................................................................... S-2
Reset Spread....................................................................................... S-2
Secondary Holder................................................................................... S-103
Securities......................................................................................... S-1
Senior Indebtedness................................................................................ S-87
Series A Guarantee................................................................................. S-2
Series A Subordinated Debentures................................................................... S-3
Series B Subordinated Debentures................................................................... S-3
Settlement Rate.................................................................................... S-14
Sponsor............................................................................................ S-8
Stated Amount...................................................................................... S-1
Subordinated Debt Securities....................................................................... S-2, S-9
Successor Securities............................................................................... S-79
Super-Majority..................................................................................... S-78
Tax Counsel........................................................................................ S-97
Threshold Appreciation Price....................................................................... S-14, S-60
Treasury Rate...................................................................................... S-74
Treasury Securities................................................................................ S-3, S-10
Trust Act.......................................................................................... S-38
Trust Indenture Act................................................................................ S-8
Trust Securities................................................................................... S-2
Two-Year Benchmark Treasury........................................................................ S-74, S-89
</TABLE>
S-108
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
PROTECTIVE LIFE CORPORATION
Report of Independent Accountants........................................................................ F-2
Consolidated Statements of Income For the Years Ended December 31, 1996, 1995 and 1994................... F-3
Consolidated Balance Sheets as of December 31, 1996 and 1995............................................. F-4
For the Years Ended December 31, 1996, 1995 and 1994:
Consolidated Statements of Stockholders' Equity........................................................ F-6
Consolidated Statements of Cash Flows.................................................................. F-7
Notes to Consolidated Financial Statements............................................................. F-8
</TABLE>
F-1
<PAGE>
Report of Independent Accountants
To the Directors and Stockholders
Protective Life Corporation
Birmingham, Alabama
We have audited the accompanying consolidated balance sheets of Protective
Life Corporation and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the three years in the period ended December 31, 1996 included on
Pages F-3 through F-30 of this Prospectus Supplement. 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 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 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Protective Life
Corporation and subsidiaries as of December 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
As discussed in Note A to the Consolidated Financial Statements, the Company
changed its method of accounting for stock-based employee compensation plans in
1995.
Coopers & Lybrand L.L.P.
Birmingham, Alabama
February 11, 1997
F-2
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31
<TABLE>
<CAPTION>
1996 1995 1994
------------ ---------- ----------
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS EXCEPT PER
SHARE AMOUNTS)
REVENUES
Premiums and policy fees (net of reinsurance ceded:
1996--$308,174; 1995--$333,173; 1994--$172,575).......................... $ 494,153 $ 432,576 $ 402,772
Net investment income...................................................... 517,483 475,924 417,825
Realized investment gains (losses)......................................... 5,510 1,612 6,298
Other income............................................................... 20,857 11,768 21,553
------------ ---------- ----------
Total revenues....................................................... 1,038,003 921,880 848,448
------------ ---------- ----------
BENEFITS AND EXPENSES
Benefits and settlement expenses (net of reinsurance ceded: 1996--
$215,424; 1995--$247,229; 1994--$112,922)................................ 645,040 565,027 517,110
Amortization of deferred policy acquisition costs.......................... 91,030 82,733 88,122
Other operating expenses (net of reinsurance ceded: 1996--$81,839;
1995--$84,855; 1994--$14,326)............................................ 162,192 153,086 137,043
------------ ---------- ----------
Total benefits and expenses.......................................... 898,262 800,846 742,275
------------ ---------- ----------
INCOME BEFORE INCOME TAX................................................... 139,741 121,034 106,173
------------ ---------- ----------
INCOME TAX EXPENSE
Current.................................................................... 47,522 44,862 37,318
Deferred................................................................... (10) (3,710) (3,342)
------------ ---------- ----------
Total income tax expense............................................. 47,512 41,152 33,976
------------ ---------- ----------
INCOME BEFORE MINORITY INTEREST 92,229 79,882 72,197
MINORITY INTEREST IN INCOME OF CONSOLIDATED SUBSIDIARIES................... 3,217 3,217 1,796
------------ ---------- ----------
NET INCOME................................................................. $ 89,012 $ 76,665 $ 70,401
------------ ---------- ----------
NET INCOME PER SHARE....................................................... $ 2.94 $ 2.68 $ 2.57
------------ ---------- ----------
CASH DIVIDENDS PAID PER SHARE.............................................. $ .70 $ .62 $ .55
------------ ---------- ----------
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
CONSOLIDATED BALANCE SHEETS
DECEMBER 31
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
(DOLLARS IN THOUSANDS)
ASSETS
Investments:
Fixed maturities, at market (amortized cost: 1996--$4,671,600;
1995--$3,790,002)................................................................. $ 4,686,072 $ 3,892,008
Equity securities, at market (cost: 1996--$31,669; 1995--$35,448)................... 35,250 38,711
Mortgage loans on real estate....................................................... 1,503,080 1,834,357
Investment real estate, net of accumulated depreciation (1996--$2,268;
1995--$2,388)..................................................................... 14,305 20,921
Policy loans........................................................................ 166,704 143,372
Other long-term investments......................................................... 32,506 42,096
Short-term investments.............................................................. 114,258 53,591
------------ ------------
Total investments............................................................... 6,552,175 6,025,056
Cash.................................................................................. 121,051 11,392
Accrued investment income............................................................. 70,544 61,007
Accounts and premiums receivable, net of allowance for uncollectible amounts
(1996--$2,525; 1995--$2,342)........................................................ 47,371 38,722
Reinsurance receivables............................................................... 332,614 271,018
Deferred policy acquisition costs..................................................... 488,384 410,396
Property and equipment, net........................................................... 36,091 36,578
Other assets.......................................................................... 64,278 52,184
Assets related to separate accounts................................................... 550,697 324,904
------------ ------------
Total assets.................................................................... $ 8,263,205 $ 7,231,257
------------ ------------
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
CONSOLIDATED BALANCE SHEETS
DECEMBER 31
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
(DOLLARS IN
THOUSANDS)
LIABILITIES
Policy liabilities and accruals
Future policy benefits and claims.................................. $2,448,449 $1,928,154
Unearned premiums.................................................. 260,937 196,332
--------- ---------
Total policy liabilities and accruals.......................... 2,709,386 2,124,486
Guaranteed investment contract deposits.............................. 2,474,728 2,451,693
Annuity deposits..................................................... 1,331,067 1,280,069
Other policyholders' funds........................................... 142,221 134,380
Other liabilities.................................................... 170,442 152,042
Accrued income taxes................................................. (4,521) (2,894)
Deferred income taxes................................................ 37,869 69,520
Short-term debt...................................................... 12,800
Long-term debt....................................................... 168,200 115,500
Liabilities related to separate accounts............................. 550,697 324,904
Minority interest in consolidated subsidiaries....................... 55,000 55,000
--------- ---------
Total liabilities.............................................. 7,647,889 6,704,700
COMMITMENTS AND CONTINGENT LIABILITIES
- --Note G
STOCKHOLDERS' EQUITY
Preferred Stock, $1 par value
Shares authorized: 3,600,000
Issued: none
Junior Participating Cumulative Preferred Stock, $1 par value
Shares authorized: 400,000
Issued: none
Common Stock, $.50 par value......................................... 16,668 15,668
Shares authorized: 80,000,000
Issued: 1996--33,336,462; 1995--31,336,462
Additional paid-in capital........................................... 166,713 96,371
Net unrealized gains (losses) on investment (net of income tax:
1996--$3,601; 1995--$31,157)....................................... 6,688 57,863
Retained earnings.................................................... 442,046 373,922
Treasury stock, at cost (1996--2,532,856 shares; 1995--2,561,344
shares)............................................................ (11,874) (12,008)
Unallocated stock in Employee Stock Ownership Plan (1996--743,464
shares; 1995--793,804 shares)...................................... (4,925) (5,259)
--------- ---------
Total stockholders' equity..................................... 615,316 526,557
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........................... $8,263,205 $7,231,257
--------- ---------
</TABLE>
F-5
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
NET
UNREALIZED
GAINS
ADDITIONAL (LOSSES) UNALLOCATED TOTAL
COMMON PAID-IN ON RETAINED TREASURY STOCK IN STOCKHOLDERS'
STOCK CAPITAL INVESTMENTS EARNINGS STOCK ESOP EQUITY
----------- ----------- ----------- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
Balance, December 31, 1993.......... $ 15,668 $ 70,469 $ 39,284 $ 259,527 $ (18,359) $ (5,856) $ 360,733
Net income for 1994............... 70,401 70,401
Cash dividends ($0.55 per
share).......................... (15,071) (15,071)
Decrease in net unrealized gains
on investments.................. (146,816) (146,816)
Purchase of treasury stock (8,412
shares)......................... (191) (191)
Reissuance of treasury stock to
ESOP (136 shares)............... 3 (3) 0
Allocation of stock to employee
accounts (39,990 shares)........ 267 267
Reissuance of treasury stock
(48,306 shares)................. 823 227 1,050
----------- ----------- ----------- ----------- ----------- ------------- -------------
Balance, December 31, 1994.......... 15,668 71,295 (107,532) 314,857 (18,323) (5,592) 270,373
Net income for 1995............... 76,665 76,665
Cash dividends ($0.62 per
share).......................... (17,600) (17,600)
Increase in net unrealized gains
on investments.................. 165,395 165,395
Purchase of treasury stock (124
shares)......................... (3) (3)
Reissuance of treasury stock to
ESOP (16,158 shares)............ 275 75 (350) 0
Allocation of stock to employee
accounts (66,500 shares)........ 683 683
Reissuance of treasury stock
(1,332,566 shares).............. 24,801 6,243 31,044
----------- ----------- ----------- ----------- ----------- ------------- -------------
Balance, December 31, 1995.......... 15,668 96,371 57,863 373,922 (12,008) (5,259) 526,557
Net income for 1996............... 89,012 89,012
Issuance of common stock
(2,000,000 shares).............. 1,000 69,546 70,546
Cash dividends ($0.70 per
share).......................... (20,888) (20,888)
Decrease in net unrealized gains
on investments.................. (51,175) (51,175)
Reissuance of treasury stock to
ESOP (19,847 shares)............ 576 93 (669) 0
Allocation of stock to employee
accounts (70,189 shares)........ 1,003 1,003
Reissuance of treasury stock
(8,641 shares).................. 220 41 261
----------- ----------- ----------- ----------- ----------- ------------- -------------
Balance, December 31, 1996--
Note H............................ $ 16,668 $ 166,713 $ 6,688 $ 442,046 $ (11,874) $ (4,925) $ 615,316
----------- ----------- ----------- ----------- ----------- ------------- -------------
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................................................. $ 89,012 $ 76,665 $ 70,401
Adjustments to reconcile net income to net cash provided by operating
activities:
Amortization of deferred policy acquisition costs......................... 91,030 84,533 88,122
Capitalization of deferred policy acquisition costs....................... (77,078) (89,267) (127,566)
Depreciation expense...................................................... 7,484 5,524 5,601
Deferred income taxes..................................................... 8,458 (5,443) (4,310)
Accrued income taxes...................................................... (14,603) 3,344 (12,619)
Interest credited to universal life and investment products............... 280,377 286,710 260,081
Policy fees assessed on universal life and investment products............ (116,401) (100,840) (85,532)
Change in accrued investment income and other receivables................. (74,116) (160,523) (28,073)
Change in policy liabilities and other policyholders' funds of traditional
life and health products................................................ 134,441 201,364 61,322
Change in other liabilities............................................... 17,301 4,245 29,949
Other, net................................................................ (15,699) (4,888) (14,461)
---------- ---------- ----------
Net cash provided by operating activities................................... 330,206 301,424 242,915
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Maturities and principal reductions of investments:
Investments available for sale............................................ 1,377,723 2,051,061 386,498
Other..................................................................... 168,898 78,568 153,945
Sale of investments:
Investments available for sale............................................ 1,591,669 1,533,604 630,660
Other..................................................................... 568,218 141,184 59,550
Cost of investments acquired:
Investments available for sale............................................ (3,903,403) (3,667,448) (1,807,756)
Other..................................................................... (400,322) (540,648) (220,839)
Acquisitions and bulk reinsurance assumptions............................... 264,126 (7,550) 106,435
Purchase of property and equipment.......................................... (7,848) (5,919) (6,743)
Sale of property and equipment.............................................. 856 309 484
---------- ---------- ----------
Net cash used in investing activities....................................... (340,083) (416,839) (697,766)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under line of credit arrangements and long-term debt............. 1,107,372 1,215,000 663,587
Principal payments on line of credit arrangements and long-term debt........ (1,042,372) (1,197,500) (712,704)
Issuance of Monthly Income Preferred Securities............................. 55,000
Purchase of treasury stock.................................................. (3) (191)
Dividends to stockholders................................................... (20,888) (17,600) (15,071)
Issuance of common stock.................................................... 70,546
Investment product deposits and change in universal life deposits........... 949,122 908,064 1,417,980
Investment product withdrawals.............................................. (944,244) (785,622) (976,401)
---------- ---------- ----------
Net cash provided by financing activities................................... 119,536 122,339 432,200
---------- ---------- ----------
INCREASE (DECREASE) IN CASH................................................. 109,659 6,924 (22,651)
CASH AT BEGINNING OF YEAR................................................... 11,392 4,468 27,119
---------- ---------- ----------
CASH AT END OF YEAR......................................................... $ 121,051 $ 11,392 $ 4,468
---------- ---------- ----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year:
Interest on debt.......................................................... $ 11,024 $ 9,320 $ 7,745
Income taxes.............................................................. $ 47,741 $ 41,532 $ 49,935
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Reissuance of treasury stock to ESOP........................................ $ 669 $ 350 $ 3
Unallocated stock in ESOP................................................... $ 334 $ 333 $ 264
Reissuance of treasury stock................................................ $ 261 $ 363 $ 1,050
Acquisitions and bulk reinsurance assumptions:
Assets acquired........................................................... $ 296,935 $ 10,394 $ 117,349
Liabilities assumed....................................................... (364,862) (25,651) (166,595)
Reissuance of treasury stock.............................................. (30,681)
---------- ---------- ----------
Net......................................................................... $ (67,927) $ (45,938) $ (49,246)
---------- ---------- ----------
</TABLE>
See Notes to Consolidated Financial Statements.
F-7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE A. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements of Protective Life
Corporation and subsidiaries (the Company) are prepared on the basis of
generally accepted accounting principles. Such accounting principles differ from
statutory reporting practices used by insurance companies in reporting to state
regulatory authorities. (See also Note B.)
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make various estimates
that affect the reported amounts of assets and liabilities, disclosures of
contingent assets and liabilities, as well as the reported amounts of revenues
and expenses.
All references to prior period number of shares and per share amounts have
been restated to reflect a two-for-one stock split on June 1, 1995.
ENTITIES INCLUDED
The consolidated financial statements include the accounts, after
intercompany eliminations, of Protective Life Corporation and its wholly owned
subsidiaries. Protective Life Insurance Company (Protective Life) is the
Company's principal operating subsidiary.
Additionally, the financial statements include the accounts of
majority-owned subsidiaries. The ownership interest of the other stockholders of
these subsidiaries is called a minority interest and is reported as a liability
of the Company and as an adjustment to income.
NATURE OF OPERATIONS
The Company markets individual life insurance; group life, health, dental,
and cancer insurance; annuities and investment products; credit life and
disability insurance; and guaranteed investment contracts. Its products are
distributed nationally through independent agents and brokers; through
stockbrokers and financial institutions to their customers; through Company
sales representatives; and through other insurance companies. The Company also
seeks to acquire blocks of insurance policies from other insurers.
The operating results of companies in the insurance industry have
historically been subject to significant fluctuations due to competition,
economic conditions, interest rates, investment performance, maintenance of
insurance ratings, and other factors.
RECENTLY ISSUED ACCOUNTING STANDARDS
In 1995 the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 114, "Accounting by Creditors for Impairment of a Loan," and SFAS No.
118, "Accounting by Creditors for Impairment of a Loan--Income Recognition and
Disclosures." Under these new standards, a loan is considered impaired, based on
current information and events, if it is probable that the Company will be
unable to collect the scheduled payments of principal or interest when due
according to the contractual terms of the loan agreement. The measurement of
impaired loans is generally based on the present value of expected future cash
flows discounted at the historical effective interest rate, except that all
collateral-dependent loans are measured for impairment based on the fair value
of the collateral. The adoption of this accounting standard did not have a
material effect on the Company's financial statements.
In 1995 the Company also adopted SFAS No. 123, "Accounting for Stock-Based
Compensation," which changes the way stock-based compensation expense is
measured and requires additional disclosures
F-8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE A. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
relating to the Company's stock-based compensation plans. The adoption of this
accounting standard did not have a material effect on the Company's financial
statements.
In 1996 the Company adopted SFAS No. 120, "Accounting and Reporting by
Mutual Life Insurance Enterprises and by Insurance Enterprises for Certain
Long-Duration Contracts;" SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of;" and SFAS No.
122, "Accounting for Mortgage Servicing Rights." The adoption of these
accounting standards did not have a material effect on the Company's financial
statements.
INVESTMENTS
The Company has classified all of its investments in fixed maturities,
equity securities, and short-term investments as "available for sale."
Investments are reported on the following bases less allowances for
uncollectible amounts on investments, if applicable:
- Fixed maturities (bonds, bank loan participations, and redeemable
preferred stocks)--at current market value.
- Equity securities (common and nonredeemable preferred stocks)--at current
market value.
- Mortgage loans on real estate--at unpaid balances, adjusted for loan
origination costs, net of fees, and amortization of premium or discount.
- Investment real estate--at cost, less allowances for depreciation computed
on the straight-line method. With respect to real estate acquired through
foreclosure, cost is the lesser of the loan balance plus foreclosure costs
or appraised value.
- Policy loans--at unpaid balances.
- Other long-term investments--at a variety of methods similar to those
listed above, as deemed appropriate for the specific investment.
- Short-term investments--at cost, which approximates current market value.
Substantially all short-term investments have maturities of three months or
less at the time of acquisition and include approximately $3.4 million in bank
deposits voluntarily restricted as to withdrawal.
As prescribed by SFAS No. 115, "Accounting for Certain Investments in Debt
and Equity Securities," certain investments are recorded at their market values
with the resulting unrealized gains and losses reduced by a related adjustment
to deferred policy acquisition costs, net of income tax, reported as a component
of stockholders' equity. The market values of fixed maturities increase or
decrease as interest rates fall or rise. Therefore, although the adoption of
SFAS No. 115 does not affect the Company's operations, its reported
stockholders' equity will fluctuate significantly as interest rates change.
F-9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE A. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company's balance sheets at December 31, prepared on the basis of
reporting investments at amortized cost rather than at market values, are as
follows:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Total investments..................................................................... $ 6,534,122 $ 5,919,787
Deferred policy acquisition costs..................................................... 496,148 426,645
All other assets...................................................................... 1,222,646 795,805
------------ ------------
$ 8,252,916 $ 7,142,237
------------ ------------
Deferred income taxes................................................................. $ 34,268 $ 38,364
All other liabilities................................................................. 7,610,020 6,635,179
------------ ------------
7,644,288 6,673,543
------------ ------------
Stockholders' equity.................................................................. 608,628 468,694
------------ ------------
$ 8,252,916 $ 7,142,237
------------ ------------
</TABLE>
Realized gains and losses on sales of investments are recognized in net
income using the specific identification basis.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company does not use derivative financial instruments for trading
purposes. Combinations of futures contracts and options on treasury notes are
currently being used as hedges for asset/liability management of certain
investments, primarily mortgage loans on real estate, mortgage-backed
securities, and liabilities arising from interest-sensitive products such as
guaranteed investment contracts and annuities. Realized investment gains and
losses on such contracts are deferred and amortized over the life of the hedged
asset. Net realized losses of $0.2 million and $15.2 million were deferred in
1996 and 1995, respectively. At December 31, 1996 and 1995, options and open
futures contracts with notional amounts of $805.0 million and $25.0 million,
respectively, had net unrealized losses of $1.9 million and $0.6 million,
respectively.
The Company uses interest rate swap contracts to convert certain investments
from a variable to a fixed rate of interest. At December 31, 1996, related open
interest rate swap contracts with a notional amount of $150.3 million were in a
$0.7 million net unrealized loss position. At December 31, 1995, related open
interest rate swap contracts with a notional amount of $170.3 million were in a
$1.3 million net unrealized gain position. The Company also uses interest rate
swap contracts and options to enter into interest rate swaps (swaptions) to
convert its Senior Notes, Medium-Term Notes and Monthly Income Preferred
Securities from a fixed rate to a variable rate of interest. The proceeds from
the sale of swaptions are deferred and amortized over the life of the related
debt. Proceeds from the sale of swaptions totaling $1.6 million were deferred in
1996. At December 31, 1996, related open interest rate swap contracts and
swaptions with a notional amount of $130.0 million were in a $0.5 million net
unrealized gain position. At December 31, 1995, related open interest rate swap
contracts with a notional amount of $55.0 million were in a $4.4 million net
unrealized gain position.
CASH
Cash includes all demand deposits reduced by the amount of outstanding
checks and drafts.
F-10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE A. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are reported at cost. The Company uses both
accelerated and straight-line methods of depreciation based upon the estimated
useful lives of the assets. Major repairs or improvements are capitalized and
depreciated over the estimated useful lives of the assets. Other repairs are
expensed as incurred. The cost and related accumulated depreciation of property
and equipment sold or retired are removed from the accounts, and resulting gains
or losses are included in income.
Property and equipment consisted of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Home Office building........................................................................ $ 36,586 $ 35,284
Data processing equipment................................................................... 23,649 20,462
Other, principally furniture and equipment.................................................. 21,188 19,111
--------- ---------
81,423 74,857
Accumulated depreciation.................................................................... 45,332 38,279
--------- ---------
$ 36,091 $ 36,578
--------- ---------
</TABLE>
SEPARATE ACCOUNTS
The Company operates separate accounts, some in which the Company bears the
investment risk and others in which the investment risk rests with the
contractholder. The assets and liabilities related to separate accounts in which
the Company does not bear the investment risk are valued at market and reported
separately as assets and liabilities related to separate accounts in the
accompanying consolidated financial statements.
REVENUES, BENEFITS, CLAIMS, AND EXPENSES
TRADITIONAL LIFE AND HEALTH INSURANCE PRODUCTS. Traditional life insurance
products consist principally of those products with fixed and guaranteed
premiums and benefits and include whole life insurance policies, term life
insurance policies, limited payment life insurance policies, and certain
annuities with life contingencies. Life insurance and immediate annuity premiums
are recognized as revenue when due. Health insurance premiums are recognized as
revenue over the terms of the policies. Benefits and expenses are associated
with earned premiums so that profits are recognized over the life of the
contracts. This is accomplished by means of the provision for liabilities for
future policy benefits and the amortization of deferred policy acquisition
costs.
Liabilities for future policy benefits on traditional life insurance
products have been computed using a net level method including assumptions as to
investment yields, mortality, persistency, and other assumptions based on the
Company's experience, modified as necessary to reflect anticipated trends and to
include provisions for possible adverse deviation. Reserve investment yield
assumptions are graded and range from 2.5% to 7.0%. The liability for future
policy benefits and claims on traditional life and health insurance products
includes estimated unpaid claims that have been reported to the Company and
claims incurred but not yet reported. Policy claims are charged to expense in
the period in which the claims are incurred.
F-11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE A. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Activity in the liability for unpaid claims is summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ---------
<S> <C> <C> <C>
Balance beginning of year...................................................... $ 73,642 $ 79,462 $ 77,191
Less reinsurance............................................................. 3,330 5,024 3,973
---------- ---------- ---------
Net balance beginning of year.................................................. 70,312 74,438 73,218
---------- ---------- ---------
Incurred related to:
Current year................................................................... 288,816 217,366 203,453
Prior year..................................................................... (2,417) (8,337) (6,683)
---------- ---------- ---------
Total incurred................................................................. 286,399 209,029 196,770
---------- ---------- ---------
Paid related to:
Current year................................................................... 197,163 164,321 148,548
Prior year..................................................................... 57,812 48,834 47,002
---------- ---------- ---------
Total paid..................................................................... 254,975 213,155 195,550
---------- ---------- ---------
Net balance end of year........................................................ 101,736 70,312 74,438
Plus reinsurance............................................................. 6,423 3,330 5,024
---------- ---------- ---------
Balance end of year............................................................ $ 108,159 $ 73,642 $ 79,462
---------- ---------- ---------
</TABLE>
UNIVERSAL LIFE AND INVESTMENT PRODUCTS. Universal life and investment
products include universal life insurance, guaranteed investment contracts,
deferred annuities, and annuities without life contingencies. Revenues for
universal life and investment products consist of policy fees that have been
assessed against policy account balances for the costs of insurance, policy
administration, and surrenders. Benefit reserves for universal life and
investment products represent policy account balances before applicable
surrender charges plus certain deferred policy initiation fees that are
recognized in income over the term of the policies. Policy benefits and claims
that are charged to expense include benefit claims incurred in the period in
excess of related policy account balances and interest credited to policy
account balances. Interest credit rates for universal life and investment
products ranged from 3.0% to 9.4% in 1996.
At December 31, 1996, the Company estimates the market value of its
guaranteed investment contracts to be $2,462.0 million using discounted cash
flows. The surrender value of the Company's annuities which approximates market
value was $1,322.3 million.
POLICY ACQUISITION COSTS. Commissions and other costs of acquiring
traditional life and health insurance, universal life insurance, and investment
products that vary with and are primarily related to the production of new
business have been deferred. Traditional life and health insurance acquisition
costs are being amortized over the premium-payment period of the related
policies in proportion to the ratio of annual premium income to total
anticipated premium income. Acquisition costs for universal life and investment
products are amortized over the lives of the policies in relation to the present
value of estimated gross profits from surrender charges and investment,
mortality, and expense margins. Under SFAS No. 97, "Accounting and Reporting by
Insurance Enterprises for Certain Long-Duration Contracts and for Realized Gains
and Losses from the Sale of Investments," the Company makes certain assumptions
regarding the mortality, persistency, expenses, and interest rates it expects to
experience in future periods. These assumptions are to be best estimates and are
to be periodically updated whenever actual experience and/or expectations for
the future change from initial assumptions. Additionally, relating to SFAS No.
115, these costs have been adjusted by an amount equal to the amortization that
would have
F-12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE A. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
been recorded if unrealized gains or losses on investments associated with the
Company's universal life and investment products had been realized.
The cost to acquire blocks of insurance representing the present value of
future profits from such blocks of insurance is also included in deferred policy
acquisition costs. For acquisitions occurring after 1988, the Company amortizes
the present value of future profits over the premium payment period, including
accrued interest at approximately 8%. The unamortized present value of future
profits for such acquisitions was approximately $138.2 million and $102.5
million at December 31, 1996 and 1995, respectively. During 1996 $57.6 million
of present value of future profits on acquisitions made during the year was
capitalized, and $10.8 million was amortized. The unamortized present value of
future profits for all acquisitions was $155.9 million at December 31, 1996, and
$123.9 million at December 31, 1995.
PARTICIPATING POLICIES
Participating business comprises approximately 1% of the individual life
insurance in force and 2% of the individual life insurance premium income.
Policyholder dividends totaled $4.1 million in 1996 and $2.6 million in 1995 and
1994.
INCOME TAXES
The Company uses the asset and liability method of accounting for income
taxes. Income tax provisions are generally based on income reported for
financial statement purposes. Deferred federal income taxes arise from the
recognition of temporary differences between the bases of assets and liabilities
determined for financial reporting purposes and the bases determined for income
tax purposes. Such temporary differences are principally related to the deferral
of policy acquisition costs and the provision for future policy benefits and
expenses.
INCOME PER SHARE OF COMMON STOCK
Per share data are based on the weighted average number of shares of Common
Stock, including Common Stock equivalents, outstanding which was 30,285,911,
28,627,345, and 27,392,936, in 1996, 1995, and 1994, respectively.
RECLASSIFICATIONS
Certain reclassifications have been made in the previously reported
financial statements and accompanying notes to make the prior year amounts
comparable to those of the current year. Such reclassifications had no effect on
previously reported net income, total assets, or stockholders' equity.
NOTE B. RECONCILIATION WITH STATUTORY REPORTING PRACTICES
Financial statements prepared in conformity with generally accepted
accounting principles (GAAP) differ in some respects from the statutory
accounting practices prescribed or permitted by insurance regulatory
authorities. The most significant differences are as follows: (a) quisition
costs of obtaining new business are deferred and amortized over the approximate
life of the policies rather than charged to operations as incurred; (b) benefit
liabilities are computed using a net level method and are based on realistic
estimates of expected mortality, interest, and withdrawals as adjusted to
provide for possible unfavorable deviation from such assumptions; (c) deferred
income taxes are provided for temporary differences between financial and
taxable earnings; (d) the Asset Valuation Reserve and Interest Maintenance
Reserve are restored to stockholders' equity; (e) furniture and equipment,
agents' debit balances, and prepaid expenses are reported as assets rather than
being charged directly to surplus (referred to as
F-13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE B. RECONCILIATION WITH STATUTORY REPORTING PRACTICES (CONTINUED)
nonadmitted items); (f) certain items of interest income, principally accrual of
mortgage and bond discounts, are amortized differently; and (g) bonds are stated
at market instead of amortized cost.
The reconciliations of net income and stockholders' equity prepared in
conformity with statutory reporting practices to that reported in the
accompanying consolidated financial statements are as follows:
<TABLE>
<CAPTION>
NET INCOME STOCKHOLDERS' EQUITY
--------------------------------- -------------------------------------
1996 1995 1994 1996 1995 1994
---------- ---------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
In conformity with statutory reporting
practices:
Protective Life Insurance Company............... $ 97,779 $ 105,744 $ 54,812 $ 454,320 $ 322,416 $ 304,858
American Foundation Life Insurance Company...... 2,558 3,330 3,072 18,031 18,781 20,327
Capital Investors Life Insurance Company........ 81 182 170 1,458 1,315 1,125
Empire General Life Assurance Corporation....... 905 1,003 690 20,509 20,685 21,270
Protective Life Insurance Corporation of
Alabama....................................... 484 546 69 2,660 2,675 2,133
Wisconsin National Life Insurance Company....... 15,011 10,954 10,132 66,577 62,529 57,268
Protective Life Insurance Company of Kentucky... 19 3,030
Community National Assurance Company............ 5,100
Consolidation elimination....................... (14,500) (6,500) (115,365) (103,985) (100,123)
---------- ---------- --------- ----------- ----------- -----------
102,337 115,259 68,945 456,320 324,416 306,858
Additions (deductions) by adjustment:
Deferred policy acquisition costs, net of
amortization.................................. (2,830) (765) 41,686 488,384 410,396 434,444
Policy liabilities and accruals................. (6,895) (53,272) (34,632) (192,351) (189,319) (140,298)
Deferred income tax............................. 10 3,711 3,342 (37,869) (69,520) 14,095
Asset Valuation Reserve......................... 64,233 105,769 24,925
Interest Maintenance Reserve.................... (2,142) (1,235) (1,716) 17,682 14,412 3,583
Nonadmitted items............................... 21,610 20,603 21,445
Timing and valuation differences on mortgage
loans on real estate and fixed maturity
investments................................... 5,913 (618) (961) (1,708) 27,158 6,258
Net unrealized gains and losses on
investments................................... 4,361 55,765 (106,913)
Realized investment gains (losses).............. (468) 6,781 (6,664)
Noninsurance affiliates......................... 1,328 12,882 5,877 434,237 213,789 149,750
Minority interest in consolidated
subsidiaries.................................. (3,217) (3,217) (1,796)
Consolidation elimination....................... (632,601) (381,988) (436,053)
Other adjustments, net.......................... (5,024) (2,861) (3,680) (6,982) (4,924) (7,721)
---------- ---------- --------- ----------- ----------- -----------
In conformity with generally accepted accounting
principles.................................... $ 89,012 $ 76,665 $ 70,401 $ 615,316 $ 526,557 $ 270,373
---------- ---------- --------- ----------- ----------- -----------
</TABLE>
F-14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE C. INVESTMENT OPERATIONS
Major categories of net investment income for the years ended December 31
are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Fixed maturities......................................... $ 313,096 $ 276,847 $ 242,510
Equity securities........................................ 2,124 1,338 2,435
Mortgage loans on real estate............................ 153,463 162,135 141,751
Investment real estate................................... 1,954 1,908 2,000
Policy loans............................................. 10,377 8,958 8,397
Other, principally short-term investments................ 50,679 39,223 34,088
---------- ---------- ----------
531,693 490,409 431,181
Investment expenses...................................... 14,210 14,485 13,356
---------- ---------- ----------
$ 517,483 $ 475,924 $ 417,825
---------- ---------- ----------
</TABLE>
Realized investment gains (losses) for the years ended December 31 are
summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Fixed maturities.............................................. $ (7,101) $ 6,075 $ (8,646)
Equity securities............................................. 1,733 44 7,735
Mortgage loans and other investments.......................... 10,878 (4,507) 7,209
--------- --------- ---------
$ 5,510 $ 1,612 $ 6,298
--------- --------- ---------
</TABLE>
The Company has established an allowance for uncollectible amounts on
investments. The allowance totaled $31.6 million and $33.4 million at December
31, 1996 and 1995, respectively. Additions and reductions to the allowance are
included in realized investment gains (losses). Without such additions/
reductions, the Company had net realized investment gains of $3.7 million in
1996, net realized investment losses of $0.9 million in 1995, and net realized
investment gains of $6.3 million in 1994.
In 1996 gross gains on the sale of investments available for sale (fixed
maturities, equity securities, and short-term investments) were $6.9 million,
and gross losses were $11.8 million. In 1995 gross gains were $18.0 million, and
gross losses were $11.8 million. In 1994 gross gains were $15.2 million, and
gross losses were $16.4 million.
F-15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE C. INVESTMENT OPERATIONS (CONTINUED)
The amortized cost and estimated market values of the Company's investments
classified as available for sale at December 31 are as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
1996 COST GAINS LOSSES VALUES
- ----------------------------------------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
Fixed maturities:
Bonds:
Mortgage-backed securities........... $ 2,192,978 $ 29,925 $ 20,810 $ 2,202,093
United States Government and
authorities........................ 348,318 661 1,377 347,602
States, municipalities, and political
subdivisions....................... 5,515 47 9 5,553
Public utilities..................... 364,692 2,205 337 366,560
Convertibles and bonds with
warrants........................... 679 0 158 521
All other corporate bonds............ 1,702,351 33,879 29,388 1,706,842
Bank loan participations............... 49,829 0 0 49,829
Redeemable preferred stocks............ 7,238 60 226 7,072
------------ ----------- ----------- ------------
4,671,600 66,777 52,305 4,686,072
Equity securities........................ 31,669 9,570 5,989 35,250
Short-term investments................... 114,258 0 0 114,258
------------ ----------- ----------- ------------
$ 4,817,527 $ 76,347 $ 58,294 $ 4,835,580
------------ ----------- ----------- ------------
</TABLE>
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
1995 COST GAINS LOSSES VALUES
- ----------------------------------------------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
Fixed maturities:
Bonds:
Mortgage-backed securities................. $ 2,006,858 $ 46,934 $ 4,017 $ 2,049,775
United States Government and authorities... 105,388 2,290 101 107,577
States, municipalities, and political
subdivisions............................. 10,888 702 0 11,590
Public utilities........................... 322,110 5,904 770 327,244
Convertibles and bonds with warrants....... 638 0 145 493
All other corporate bonds.................. 1,117,452 59,045 7,573 1,168,924
Bank loan participations..................... 220,811 0 0 220,811
Redeemable preferred stocks.................. 5,857 61 324 5,594
------------ ----------- ----------- ------------
3,790,002 114,936 12,930 3,892,008
Equity securities.............................. 35,448 6,438 3,175 38,711
Short-term investments......................... 53,591 0 0 53,591
------------ ----------- ----------- ------------
$ 3,879,041 $ 121,374 $ 16,105 $ 3,984,310
------------ ----------- ----------- ------------
</TABLE>
F-16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE C. INVESTMENT OPERATIONS (CONTINUED)
The amortized cost and estimated market values of fixed maturities at
December 31, by expected maturity, are shown as follows. Expected maturities are
derived from rates of prepayment that may differ from actual rates of
prepayment.
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED MARKET
1996 COST VALUES
- ------------------------------------------------------------------ ------------ ------------
<S> <C> <C>
Due in one year or less........................................... $ 417,472 $ 420,779
Due after one year through five years............................. 1,547,842 1,546,297
Due after five years through ten years............................ 2,113,163 2,118,825
Due after ten years............................................... 593,123 600,171
------------ ------------
$ 4,671,600 $ 4,686,072
------------ ------------
</TABLE>
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED MARKET
1995 COST VALUES
- ------------------------------------------------------------------ ------------ ------------
<S> <C> <C>
Due in one year or less........................................... $ 409,523 $ 411,839
Due after one year through five years............................. 1,087,757 1,101,226
Due after five years through ten years............................ 1,477,837 1,524,631
Due after ten years............................................... 814,885 854,312
------------ ------------
$ 3,790,002 $ 3,892,008
------------ ------------
</TABLE>
The approximate percentage distribution of the Company's fixed maturity
investments by quality rating at December 31 is as follows:
<TABLE>
<CAPTION>
RATING 1996 1995
- ----------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
AAA.......................................................................... 48.3% 56.1%
AA........................................................................... 4.4 4.5
A............................................................................ 22.6 12.6
BBB
Bonds...................................................................... 21.1 19.0
Bank loan participations................................................... 0.1 0.4
BB or less
Bonds...................................................................... 2.5 2.0
Bank loan participations................................................... 0.9 5.3
Redeemable preferred stocks.................................................. 0.1 0.1
--------- ---------
100.0% 100.0%
--------- ---------
</TABLE>
At December 31, 1996 and 1995, the Company had bonds which were rated less
than investment grade of $117.5 million and $75.7 million, respectively, having
an amortized cost of $137.0 million and $82.2 million, respectively.
Additionally, the Company had bank loan participations which were rated less
than investment grade of $43.6 million and $206.0 million, respectively, having
an amortized cost of $43.6 million and $206.0 million, respectively.
F-17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE C. INVESTMENT OPERATIONS (CONTINUED)
The change in unrealized gains (losses), net of income tax, on fixed
maturity and equity securities for the years ended December 31 is summarized as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- -----------
<S> <C> <C> <C>
Fixed maturities......................................... $ (56,897) $ 199,395 $ (175,725)
Equity securities........................................ 207 2,740 (5,342)
</TABLE>
At December 31, 1996, all of the Company's mortgage loans were commercial
loans of which 78% were retail, 8% were office buildings, and 7% were
warehouses. The Company specializes in making mortgage loans on either
credit-oriented or credit-anchored commercial properties, most of which are
strip shopping centers in smaller towns and cities. No single tenant's leased
space represents more than 4% of mortgage loans. Approximately 84% of the
mortgage loans are on properties located in the following states listed in
decreasing order of significance: South Carolina, Florida, Georgia, Tennessee,
Texas, North Carolina, Alabama, Virginia, Mississippi, Kentucky, Ohio,
California, Indiana, Arizona, and Washington.
Many of the mortgage loans have call provisions after 5 to 7 years. Assuming
the loans are called at their next call dates, approximately $126.7 million
would become due in 1997, $761.8 million in 1998 to 2001, and $250.8 million in
2002 to 2006.
At December 31, 1996, the average mortgage loan was $1.7 million, and the
weighted average interest rate was 9.3%. The largest single mortgage loan was
$13.6 million. While the Company's mortgage loans do not have quoted market
values, at December 31, 1996 and 1995, the Company estimates the market value of
its mortgage loans to be $1,581.7 million and $2,001.1 million, respectively,
using discounted cash flows from the next call date.
At December 31, 1996 and 1995, the Company's problem mortgage loans and
foreclosed properties totaled $23.7 million and $26.1 million, respectively.
Since the Company's mortgage loans are collateralized by real estate, any
assessment of impairment is based upon the estimated fair value of the real
estate. Based on the Company's evaluation of its mortgage loan portfolio, the
Company does not expect any material losses on its mortgage loans.
Certain investments, principally real estate, with a carrying value of $18.8
million, were nonincome producing for the twelve months ended December 31, 1996.
The Company believes it is not practicable to determine the market value of
its policy loans since there is no stated maturity, and policy loans are often
repaid by reductions to policy benefits. Policy loan interest rates generally
range from 4.5% to 8.0%. The market values of the Company's other long-term
investments approximate cost.
F-18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE D. FEDERAL INCOME TAXES
The Company's effective income tax rate varied from the maximum federal
income tax rate as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Statutory federal income tax rate applied to pretax income.............. 35.0% 35.0% 35.0%
Amortization of nondeductible goodwill.................................. 0.3 0.2
Dividends received deduction and tax-exempt interest.................... (0.4) (0.6) (0.4)
Low-income housing credit............................................... (0.6) (0.7) (0.7)
Tax differences arising from prior acquisitions and other adjustments... (0.3) 0.1 (1.9)
--- --- ---
34.0% 34.0% 32.0%
--- --- ---
</TABLE>
The provision for federal income tax differs from amounts currently payable
due to certain items reported for financial statement purposes in periods which
differ from those in which they are reported for income tax purposes.
Details of the deferred income tax provision for the years ended December 31
are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Deferred policy acquisition costs......................... $ 15,542 $ (11,606) $ 34,561
Benefit and other policy liability changes................ (16,321) 52,496 (52,288)
Temporary differences of investment income................ 2,922 (34,174) 15,524
Other items............................................... (2,153) (10,426) (1,139)
---------- ---------- ----------
$ (10) $ (3,710) $ (3,342)
---------- ---------- ----------
</TABLE>
The components of the Company's net deferred income tax liability as of
December 31 were as follows:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Deferred income tax assets:
Policy and policyholder liability reserves............................ $ 80,151 $ 63,830
Other................................................................. 2,356 203
--------- ---------
82,507 64,033
--------- ---------
Deferred income tax liabilities:
Deferred policy acquisition costs..................................... 117,696 102,154
Unrealized gain on investments........................................ 2,680 31,399
--------- ---------
120,376 133,553
--------- ---------
Net deferred income tax liability....................................... $ 37,869 $ 69,520
--------- ---------
</TABLE>
Under pre-1984 life insurance company income tax laws, a portion of the
Company's gain from operations which was not subject to current income taxation
was accumulated for income tax purposes in a memorandum account designated as
Policyholders' Surplus. The aggregate accumulation in this account at December
31, 1996, was approximately $50.7 million. Should the accumulation in the
Policyholders' Surplus account of the life insurance subsidiaries exceed certain
stated maximums, or should distributions including cash dividends be made to
Protective Life Corporation in excess of approximately $439 million,
F-19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE D. FEDERAL INCOME TAXES (CONTINUED)
such excess would be subject to federal income taxes at rates then effective.
Deferred income taxes have not been provided on amounts designated as
Policyholders' Surplus. The Company does not anticipate involuntarily paying
income tax on amounts in the Policyholders' Surplus accounts.
NOTE E. DEBT AND PREFERRED SECURITIES
Short-term and long-term debt at December 31 is summarized as follows:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Short-term debt:
Note payable to bank................................................ $ 12,800
----------
$ 12,800
----------
Long-term debt:
Notes payable to banks.............................................. $ 48,200 $ 40,500
Senior Notes........................................................ 75,000 75,000
Medium-Term Notes................................................... 45,000
---------- ----------
$ 168,200 $ 115,500
---------- ----------
</TABLE>
Under a three-year revolving line of credit arrangement with several banks,
the Company can borrow up to $70 million on an unsecured basis. No compensating
balances are required to maintain the line of credit. At December 31, 1996, the
Company had borrowed $48.2 million under this credit arrangement at an interest
rate of 5.9%. Additionally, the Company had a $12.8 million short-term note
payable to a bank at an interest rate of 5.8%.
The aforementioned revolving line of credit arrangement contains, among
other provisions, requirements for maintaining certain financial ratios and
restrictions on indebtedness incurred by the Company and its subsidiaries.
Additionally, the Company, on a consolidated basis, cannot incur debt in excess
of 50% of its total capital.
The Company believes the market value of its bank borrowings approximates
book value due to the debt being either short-term or variable rate.
In 1994, the Company issued $75 million of 7.95% Senior Notes due July 1,
2004. The notes are not redeemable by the Company prior to maturity. During
1996, the Company issued $45 million of Medium-Term Notes with interest rates
ranging from 7.00% to 7.45%. These notes are due in 2011 and $35 million of the
notes are redeemable by the Company after five years.
As discussed in Note A, the Company uses interest rate swaps and swaptions
to convert its Senior Notes and Medium-Term Notes from a fixed interest rate to
a floating interest rate. The effective interest rate for the Senior Notes was
7.3% and 7.4% in 1996 and 1995, respectively. The effective interest rate for
the Medium-Term Notes was 7.3% in 1996.
Future maturities of the long-term debt are $48.2 million in 1999, $75
million in 2004, and $45 million in 2011.
Interest expense on debt totaled $10.1 million, $9.6 million, and $7.8
million in 1996, 1995, and 1994, respectively.
F-20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE E. DEBT AND PREFERRED SECURITIES (CONTINUED)
In 1994 a special purpose finance subsidiary of the Company, PLC Capital
L.L.C. (PLC Capital), issued $55 million of 9% Cumulative Monthly Income
Preferred Securities, Series A (MIPS), guaranteed by the Company. PLC Capital
was formed solely to issue MIPS and other securities and lend the proceeds
thereof to the Company in exchange for subordinated debentures of the Company.
The Company has the right under the subordinated debentures to extend
interest-payment periods up to 60 months, and, as a consequence, monthly
dividends on the MIPS may be deferred (but will continue to accumulate, together
with additional dividends on any accumulated but unpaid dividends at the
dividend rate) by PLC Capital during any such extended interest payment period.
The MIPS are redeemable by PLC Capital at any time on or after June 30, 1999.
The MIPS and dividends thereon are reported in the accompanying financial
statements as "minority interest in consolidated subsidiaries." In related
transactions, the Company entered into interest rate swap agreements which
effectively converted the MIPS from a fixed dividend rate to the floating,
30-day LIBOR plus 60.5 basis points, approximately 6.2% and 6.3% at December 31,
1996 and 1995, respectively.
Dividends, net of tax, on the MIPS were $3.2 million in 1996 and 1995 and
$1.8 million in 1994 before consideration of the interest rate swap agreements.
On a swap-adjusted basis, dividends were $2.2 million, $2.4 million, and $1.1
million in 1996, 1995, and 1994, respectively.
NOTE F. ACQUISITIONS
On March 20, 1995, the Company acquired National Health Care Systems of
Florida, Inc. (also known as "DentiCare"). The purchase price was $38.3 million
and was paid with a combination of the Company's Common Stock ($30.7 million)
and cash ($7.6 million). In connection with the acquisition, the Company
reissued 1,316,458 shares of its Common Stock previously held as Treasury Stock.
The Company recorded $32.4 million of goodwill in connection with this
acquisition, which is being amortized using the straight line method over forty
years.
In June 1995 the Company acquired through coinsurance a block of term life
insurance policies. In January 1996 the Company acquired through coinsurance a
block of life insurance policies. In March 1996 the Company acquired a small
dental managed care company. In June 1996 the Company acquired through
coinsurance a block of credit life insurance policies. In December 1996 the
Company acquired a small life insurance company and acquired through coinsurance
a block of life insurance policies.
These transactions have been accounted for as purchases, and the results of
the transactions have been included in the accompanying financial statements
since the effective dates of the agreements.
NOTE G. COMMITMENTS AND CONTINGENT LIABILITIES
The Company is contingently liable to obtain a $20 million letter of credit
under indemnity agreements with its directors. Such agreements provide insurance
protection in excess of the directors' and officers' liability insurance in
force at the time up to $20 million. Should certain events occur constituting a
change in control of the Company, the Company must obtain the letter of credit
upon which directors may draw for defense or settlement of any claim relating to
performance of their duties as directors. The Company has similar agreements
with certain of its officers providing up to $10 million in indemnification
which are not secured by the obligation to obtain a letter of credit.
Under insurance guaranty fund laws, in most states, insurance companies
doing business therein can be assessed up to prescribed limits for policyholder
losses incurred by insolvent companies. The Company does not believe such
assessments will be materially different from amounts already provided for in
the
F-21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE G. COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
financial statements. Most of these laws do provide, however, that an assessment
may be excused or deferred if it would threaten an insurer's own financial
strength.
A number of civil jury verdicts have been returned against life and health
insurers in the jurisdictions in which the Company does business involving the
insurers' sales practices, alleged agent misconduct, failure to properly
supervise agents, and other matters. Increasingly these lawsuits have resulted
in the award of substantial judgments against the insurer that are
disproportionate to the actual damages, including material amounts of punitive
damages. In some states, juries have substantial discretion in awarding punitive
damages which creates the potential for unpredictable material adverse judgments
in any given punitive damage suit. The Company and its subsidiaries, like other
life and health insurers, from time to time are involved in such litigation.
Pending litigation includes a class action filed in Jefferson County
(Birmingham), Alabama with respect to cancer premium refunds. Although the
outcome of any litigation cannot be predicted with certainty, the Company
believes that at the present time there are no pending or threatened lawsuits
that are reasonably likely to have a material adverse effect on the financial
position, results of operations, or liquidity of the Company.
NOTE H. STOCKHOLDERS' EQUITY AND RESTRICTIONS
On May 1, 1995, the Company's Board of Directors approved a two-for-one
split of the Company's Common Stock in the form of a 100% stock dividend on June
1, 1995. Stockholders' equity has been restated to give retroactive recognition
to the stock split for all periods presented by reclassifying from retained
earnings to common stock the par value of the additional shares arising from the
stock split. In addition, all references to number of shares and per share
amounts included herein have been restated to reflect the stock split.
The Company has a Rights Agreement that provides rights to holders of the
Company's Common Stock to purchase Series A Junior Participating Cumulative
Preferred Stock, or in certain circumstances, either Common Stock or common
stock of an acquiring company at one half the market price of such Common Stock
or common stock, as the case may be. The rights will become exercisable if
certain events occur with respect to the Company, including the acquisition by a
person or group of 15% or more of the Company's Common Stock. The Company can
redeem the rights at $.01 per right in certain circumstances including until ten
business days following a public announcement that 15% or more of the Company's
Common Stock has been acquired by a person or group.
Stockholders have authorized 4,000,000 shares of Preferred Stock, $1.00 par
value. Other terms, including preferences, voting, and conversion rights, may be
established by the Board of Directors. In connection with the Rights Agreement,
400,000 of these shares have been designated as Series A Junior Participating
Cumulative Preferred Stock, $1.00 par value, and were unissued at December 31,
1996. The remaining 3,600,000 shares of Preferred Stock, $1.00 par value, were
also unissued at December 31, 1996.
The Company has an Employee Stock Ownership Plan (ESOP). In 1990 shares of
the Company's Common Stock, which had been held by Protective Life and accounted
for as treasury shares, were transferred to the ESOP in exchange for a note. The
stock is used to match employee contributions to the Company's 401(k) Plan and
to provide other employee benefits. The stock held by the ESOP that has not yet
been used is the unallocated stock shown as a reduction to stockholders' equity.
The ESOP shares are dividend-paying and therefore are considered outstanding for
earnings per share calculations. Dividends on the shares are used to pay the
ESOP's note to Protective Life. If certain events associated with a change
F-22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE H. STOCKHOLDERS' EQUITY AND RESTRICTIONS (CONTINUED)
in control of the Company occur, any unallocated shares held by the ESOP will
become allocable to employee 401(k) accounts.
The Company may from time to time transfer or buy in the open market
additional shares of Common Stock to complete its 401(k) employer match
obligation. Accordingly, in 1995, the Company transferred 16,158 shares of
Common Stock to the ESOP and transferred another 19,847 shares during 1996.
Since 1973 the Company has had a Performance Share Plan to motivate senior
management to focus on the Company's long-range earnings performance. The
criterion for payment of performance share awards is based upon a comparison of
the Company's average return on average equity over a four year award period
(earlier upon the death, disability or retirement of the executive, or in
certain circumstances, of a change in control of the Company) to that of a
comparison group of publicly held life insurance companies, multiline insurers,
and insurance holding companies. If the Company's results are below the median
of the comparison group, no portion of the award is earned. If the Company's
results are at or above the 90th percentile, the award maximum is earned. Under
the plan approved by stockholders in 1992, up to 1,200,000 shares may be issued
in payment of awards. The number of shares granted in 1996, 1995, and 1994 were
52,290, 72,610, and 62,140 shares, respectively, having an approximate market
value on the grant date of $1.8 million, $1.6 million, and $1.4 million,
respectively. At December 31, 1996, outstanding awards measured at target and
maximum payouts were 279,648 and 375,470 shares, respectively. The expense
recorded by the Company for the Performance Share Plan was $3.0 million, $2.9
million, and $3.6 million in 1996, 1995, and 1994, respectively.
During 1996, stock appreciation rights (SARs) were granted to certain
executives of the Company to provide long-term incentive compensation based on
the performance of the Company's Common Stock. Under this arrangement the
Company will pay (in shares of Company Common Stock) an amount equal to the
difference between the specified base price of the Company's Common Stock and
the market value at the exercise date. The SARs are exercisable after five years
(earlier upon the death, disability or retirement of the executive, or in
certain circumstances, of a change in control of the Company) and expire in 2006
or upon termination of employment. The number of SARs granted during 1996 and
outstanding at December 31, 1996 was 337,500. The SARs have a base price of
$34.875 per share of Company Common Stock (the market price on the grant date
was $35.00 per share). The estimated fair value of the SARs on the grant date
was $3.0 million. This estimate was derived using the Roll-Geske variation of
the Black-Sholes option pricing model. Assumptions used in the pricing model are
as follows: expected volatility rate of 15% (approximately equal to that of the
S & P Life Insurance Index), a risk free interest rate of 6.35%, a dividend
yield rate of 1.97%, and an expected exercise date of August 15, 2002. The
expense recorded by the Company for the SARs was $0.2 million in 1996.
The Company has established deferred compensation plans for directors and
officers, and others. Compensation deferred is credited to the participants in
cash or Common Stock equivalents or a combination thereof. The Company may from
time to time issue or buy in the open market shares of Common Stock to fulfill
its obligation under the plans. At December 31, 1996, the plans had 347,358
shares of Common Stock equivalents credited to participants.
At December 31, 1996, approximately $173 million of consolidated
stockholders' equity, excluding net unrealized gains on investments, represented
net assets of the Company's insurance subsidiaries that cannot be transferred in
the form of dividends, loans, or advances to the parent company. In addition,
the company's insurance subsidiaries are subject to various state statutory and
regulatory restrictions on the
F-23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE H. STOCKHOLDERS' EQUITY AND RESTRICTIONS (CONTINUED)
insurance subsidiaries' ability to pay dividends to Protective Life Corporation.
In general, dividends up to specified levels are considered ordinary and may be
paid thirty days after written notice to the insurance commissioner of the state
of domicile unless such commissioner objects to the dividend prior to the
expiration of such period. Dividends in larger amounts are considered
extraordinary and are subject to affirmative prior approval by such
commissioner. The maximum amount that would qualify as ordinary dividends to the
Company by its insurance subsidiaries in 1997 is estimated to be $117 million.
NOTE I. RELATED PARTY MATTERS
Certain corporations with which the Company's directors were affiliated paid
the Company premiums and policy fees for various types of group insurance. Such
premiums and policy fees amounted to $31.2 million, $21.2 million, and $21.1
million in 1996, 1995, and 1994, respectively. The Company paid commissions,
interest, and service fees to these same corporations totaling $5.0 million,
$5.3 million, and $4.9 million, in 1996, 1995, and 1994, respectively.
NOTE J. BUSINESS SEGMENTS
The Company operates predominantly in the life and accident and health
insurance industry. The following table sets forth revenues, income before
income tax, and identifiable assets of the Company's business segments. The
primary components of revenues are premiums and policy fees, net investment
income, and realized investment gains and losses. Premiums and policy fees are
attributed directly to each business segment. Net investment income is allocated
based on directly related assets required for transacting that segment of
business. In the 1996 first quarter the Company changed the way it allocates
certain expenses to its business segments. Accordingly, prior period segment
results have been restated to reflect the change.
Realized investment gains (losses) and expenses are allocated to the
segments in a manner which most appropriately reflects the operations of that
segment. Unallocated realized investment gains (losses) are deemed not to be
associated with any specific segment.
Assets are allocated based on policy liabilities and deferred policy
acquisition costs directly attributable to each segment.
F-24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE J. BUSINESS SEGMENTS (CONTINUED)
There are no significant intersegment transactions.
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS)
TOTAL REVENUES
Acquisitions............................................................ $ 213,199 $ 193,544 $ 171,259
Financial Institutions.................................................. 88,872 76,326 108,693
Group................................................................... 207,364 180,262 148,835
Guaranteed Investment Contracts......................................... 206,406 199,468 184,212
Individual Life......................................................... 180,917 147,580 131,925
Investment Products..................................................... 114,721 106,977 79,199
Corporate and Other..................................................... 20,007 17,140 19,059
Unallocated Realized Investment Gains (Losses).......................... 6,517 583 5,266
------------ ------------ ------------
$ 1,038,003 $ 921,880 $ 848,448
------------ ------------ ------------
Acquisitions............................................................ 20.5% 21.0% 20.2%
Financial Institutions.................................................. 8.6 8.3 12.8
Group................................................................... 20.0 19.5 17.5
Guaranteed Investment Contracts......................................... 20.0 21.6 21.7
Individual Life......................................................... 17.4 16.0 15.6
Investment Products..................................................... 11.0 11.6 9.3
Corporate and Other..................................................... 1.9 1.9 2.3
Unallocated Realized Investment Gains (Losses).......................... 0.6 0.1 0.6
------------ ------------ ------------
100.0% 100.0% 100.0%
------------ ------------ ------------
INCOME BEFORE INCOME TAX
Acquisitions............................................................ $ 52,670 $ 48,490 $ 37,328
Financial Institutions.................................................. 9,531 8,375 9,024
Group................................................................... 5,138 10,060 10,139
Guaranteed Investment Contracts......................................... 32,119 27,649 29,005
Individual Life......................................................... 15,151 13,490 13,933
Investment Products..................................................... 11,595 9,724 (705)
Corporate and Other*.................................................... 7,020 2,663 2,183
Unallocated Realized Investment Gains (Losses).......................... 6,517 583 5,266
------------ ------------ ------------
$ 139,741 $ 121,034 $ 106,173
------------ ------------ ------------
Acquisitions............................................................ 37.7% 40.1% 35.2%
Financial Institutions.................................................. 6.8 6.9 8.5
Group................................................................... 3.7 8.3 9.5
Guaranteed Investment Contracts......................................... 23.0 22.8 27.3
Individual Life......................................................... 10.8 11.2 13.1
Investment Products..................................................... 8.3 8.0 (0.7)
Corporate and Other..................................................... 5.0 2.2 2.1
Unallocated Realized Investment Gains (Losses).......................... 4.7 0.5 5.0
------------ ------------ ------------
100% 100.0% 100.0%
------------ ------------ ------------
</TABLE>
F-25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE J. BUSINESS SEGMENTS (CONTINUED)
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
IDENTIFIABLE ASSETS
Acquisitions............................................................ $ 1,579,253 $ 1,255,542 $ 1,204,883
Financial Institutions.................................................. 352,021 268,782 215,878
Group................................................................... 278,926 278,094 215,997
Guaranteed Investment Contracts......................................... 2,608,149 2,537,045 2,211,181
Individual Life......................................................... 1,037,386 890,198 731,026
Investment Products..................................................... 1,873,119 1,580,519 1,286,744
Corporate and Other..................................................... 534,351 421,077 264,575
------------ ------------ ------------
$ 8,263,205 $ 7,231,257 $ 6,130,284
------------ ------------ ------------
Acquisitions............................................................ 19.1% 17.4% 19.7%
Financial Institutions.................................................. 4.3 3.7 3.5
Group................................................................... 3.4 3.8 3.5
Guaranteed Investment Contracts......................................... 31.5 35.1 36.1
Individual Life......................................................... 12.5 12.3 11.9
Investment Products..................................................... 22.7 21.9 21.0
Corporate and Other..................................................... 6.5 5.8 4.3
------------ ------------ ------------
100.0% 100.0% 100.0%
------------ ------------ ------------
</TABLE>
- ------------------------
* Income before income tax for the Corporate and Other segment has not been
reduced by pretax minority interest of $4,950 in 1996 and 1995, and $2,764
in 1994.
F-26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE K. EMPLOYEE BENEFIT PLANS
The Company has a defined benefit pension plan covering substantially all of
its employees. The benefits are based on years of service and the employee's
highest thirty-six consecutive months of compensation. The Company's funding
policy is to contribute amounts to the plan sufficient to meet the minimum
funding requirements of ERISA plus such additional amounts as the Company may
determine to be appropriate from time to time. Contributions are intended to
provide not only for benefits attributed to service to date but also for those
expected to be earned in the future.
The actuarial present value of benefit obligations and the funded status of
the plan at December 31 are as follows:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Accumulated benefit obligation, including vested benefits of $14,720 in
1996 and $16,676 in 1995.............................................. $ 15,475 $ 17,415
--------- ---------
Projected benefit obligation for service rendered to date............... $ 25,196 $ 24,877
Plan assets at fair value (group annuity contract with Protective
Life)................................................................. 19,779 18,254
--------- ---------
Plan assets less than the projected benefit obligation.................. (5,417) (6,623)
Unrecognized net loss from past experience different from that
assumed............................................................... 3,559 4,882
Unrecognized prior service cost......................................... 705 805
Unrecognized net transition asset....................................... (67) (84)
--------- ---------
Net pension liability recognized in balance sheet....................... $ (1,220) $ (1,020)
--------- ---------
--------- ---------
</TABLE>
Net pension cost includes the following components for the years ended
December 31:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Service cost--benefits earned during the year................... $ 1,908 $ 1,540 $ 1,433
Interest cost on projected benefit obligation................... 1,793 1,636 1,520
Actual return on plan assets.................................... (1,674) (1,358) (1,333)
Net amortization and deferral................................... 374 114 210
--------- --------- ---------
Net pension cost................................................ $ 2,401 $ 1,932 $ 1,830
--------- --------- ---------
</TABLE>
Assumptions used to determine the benefit obligations as of December 31 were
as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Weighted average discount rate....................................... 7.75% 7.25% 8.00%
Rates of increase in compensation level.............................. 5.75% 5.25% 6.00%
Expected long-term rate of return on assets.......................... 8.50% 8.50% 8.50%
--- --- ---
</TABLE>
Assets of the pension plan are included in the general assets of Protective
Life. Upon retirement, the amount of pension plan assets vested in the retiree
are used to purchase a single premium annuity from Protective Life in the
retiree's name. Therefore, amounts presented above as plan assets exclude assets
relating to retirees.
F-27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE K. EMPLOYEE BENEFIT PLANS (CONTINUED)
The Company also sponsors an unfunded Excess Benefits Plan, which is a
nonqualified plan that provides defined pension benefits in excess of limits
imposed by federal tax law. At December 31, 1996 and 1995, the projected benefit
obligation of this plan totaled $7.2 million and $5.7 million, respectively.
In addition to pension benefits, the Company provides limited healthcare
benefits to eligible retired employees until age 65. The postretirement benefit
is provided by an unfunded plan. At December 31, 1996 and 1995, the liability
for such benefits totaled $1.4 million and $1.5 million, respectively. The
expense recorded by the Company was $0.1 million in 1996 and $0.2 million in
1995 and 1994. The Company's obligation is not materially affected by a 1%
change in the healthcare cost trend assumptions used in the calculation of the
obligation.
Life insurance benefits for retirees are provided through the purchase of
life insurance policies upon retirement equal to the employees' annual
compensation. This plan is partially funded at a maximum of $50,000 face amount
of insurance.
The Company sponsors a defined contribution retirement plan which covers
substantially all employees. Employee contributions are made on a before-tax
basis as provided by Section 401(k) of the Internal Revenue Code. The Company
has established an Employee Stock Ownership Plan (ESOP)to match voluntary
employee contributions to the Company's 401(k) Plan. In 1994 a stock bonus was
added to the 401(k) Plan for employees who are not otherwise under a bonus plan.
Expense related to the ESOP consists of the cost of the shares allocated to
participating employees plus the interest expense on the ESOP's note payable to
the Company less dividends on shares held by the ESOP. All shares held by the
ESOP are treated as outstanding for purposes of computing the Company's earnings
per share. At December 31, 1996, the Company had committed 52,388 shares to be
released to fund employee benefits. The expense recorded by the Company for
these employee benefits was $1.0 million, $0.7 million, and $0.6 million in
1996, 1995, and 1994, respectively.
NOTE L. REINSURANCE
The Company assumes risks from, and reinsures certain parts of its risks
with other insurers under yearly renewable term, coinsurance, and modified
coinsurance agreements. Yearly renewable term and coinsurance agreements are
accounted for by passing a portion of the risk to the reinsurer. Generally, the
reinsurer receives a proportionate part of the premiums less commissions and is
liable for a corresponding part of all benefit payments. Modified coinsurance is
accounted for similarly to coinsurance except that the liability for future
policy benefits is held by the original company, and settlements are made on a
net basis between the companies. While the amount retained on an individual life
will vary based upon age and mortality prospects of the risk, the Company
generally will not carry more than $500,000 individual life insurance on a
single risk.
The Company has reinsured approximately $18.8 billion, $17.5 billion, and
$8.6 billion in face amount of life insurance risks with other insurers
representing $113.5 million, $116.1 million, and $46.0 million of premium income
for 1996, 1995, and 1994, respectively. The Company has also reinsured accident
and health risks representing $194.7 million, $217.1 million, and $126.5 million
of premium income for 1996, 1995, and 1994, respectively. In 1996 and 1995,
policy and claim reserves relating to insurance ceded of $325.9 million and
$266.9 million, respectively, are included in reinsurance receivables. Should
any of the reinsurers be unable to meet its obligation at the time of the claim,
obligation to pay such claim would remain with the Company. At December 31, 1996
and 1995, the Company had paid $6.7 million and $4.1 million, respectively, of
ceded benefits which are recoverable from reinsurers.
F-28
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE L. REINSURANCE (CONTINUED)
During 1995 the Company entered into a reinsurance agreement whereby all of
the Company's new credit insurance sales are being ceded to a reinsurer.
Included in the preceding paragraph are credit life and credit accident and
health insurance premiums of $47.7 million and $55.3 million, respectively, and
reserves of $135.8 million which were ceded during 1996. Also included are
credit life and credit accident and health insurance premiums of $68.2 million
and $57.6 million, respectively, and reserves totaling $100.8 million which were
ceded during 1995.
NOTE M. ESTIMATED MARKET VALUES OF FINANCIAL INSTRUMENTS
The carrying amounts and estimated market values of the Company's financial
instruments at December 31 are as follows:
<TABLE>
<CAPTION>
1996 1995
-------------------------- --------------------------
<S> <C> <C> <C> <C>
ESTIMATED ESTIMATED
CARRYING MARKET CARRYING MARKET
AMOUNTS VALUES AMOUNTS VALUES
------------ ------------ ------------ ------------
Assets (see Notes A and C):
Investments:
Fixed maturities....................................... $ 4,686,072 $ 4,686,072 $ 3,892,008 $ 3,892,008
Equity securities...................................... 35,250 35,250 38,711 38,711
Mortgage loans on real estate.......................... 1,503,080 1,581,694 1,834,357 2,001,081
Short-term investments................................. 114,258 114,258 53,591 53,591
Cash..................................................... 121,051 121,051 11,392 11,392
Liabilities (see Notes A and E):
Debt:
Notes payable to banks................................. 61,000 61,000 40,500 40,500
Senior Notes........................................... 75,000 75,000 75,000 75,000
Medium-Term Notes...................................... 45,000 45,000
Monthly Income Preferred Securities...................... 55,000 57,200 55,000 58,300
Other (see Note A):
Futures contracts...................................... (1,708) (633)
Interest rate swaps.................................... (333) 5,658
Options................................................ (54)
</TABLE>
NOTE N. CONSOLIDATED QUARTERLY RESULTS--UNAUDITED
Protective Life Corporation's unaudited consolidated quarterly operating
data for the years ended December 31, 1996 and 1995, are presented below. In the
opinion of management, all adjustments (consisting of normal recurring accruals)
necessary for a fair presentation of quarterly results have been reflected in
the data which follow. It is also management's opinion, however, that quarterly
operating data for insurance enterprises are not indicative of results to be
achieved in succeeding quarters or years. In
F-29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE N. CONSOLIDATED QUARTERLY RESULTS--UNAUDITED (CONTINUED)
order to obtain a more accurate indication of performance, there should be a
review of operating results, changes in stockholders' equity, and cash flows for
a period of several quarters.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1996 QUARTER QUARTER QUARTER QUARTER
- ---------------------------------------------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Premiums and policy fees............................ $ 115,586 $ 132,251 $ 118,696 $ 127,620
Net investment income............................... 124,280 130,560 129,309 133,334
Realized investment gains (losses).................. 4,421 600 861 (372)
Other income........................................ 5,458 4,972 5,079 5,348
------------- ------------- ------------- -------------
Total revenues...................................... 249,745 268,383 253,945 265,930
Benefits and expenses............................... 216,605 231,860 222,389 227,408
------------- ------------- ------------- -------------
Income before income tax............................ 33,140 36,523 31,556 38,522
Income tax expense.................................. 11,268 12,417 10,730 13,097
Minority interest................................... 804 805 804 804
------------- ------------- ------------- -------------
Net income.......................................... $ 21,068 $ 23,301 $ 20,022 $ 24,621
------------- ------------- ------------- -------------
Net income per share................................ $ .73 $ .78 $ .64 $ .79
------------- ------------- ------------- -------------
Average shares outstanding.......................... 29,020,360 29,805,228 31,147,723 31,151,755
------------- ------------- ------------- -------------
</TABLE>
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1995 QUARTER QUARTER QUARTER QUARTER
- ---------------------------------------------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Premiums and policy fees............................ $ 104,022 $ 113,610 $ 107,300 $ 107,644
Net investment income............................... 112,663 118,046 123,894 121,321
Realized investment gains (losses).................. 2,619 (555) 1,337 (1,789)
Other income........................................ 2,525 2,780 2,660 3,803
------------- ------------- ------------- -------------
Total revenues...................................... 221,829 233,881 235,191 230,979
Benefits and expenses............................... 192,257 206,011 201,487 201,091
------------- ------------- ------------- -------------
Income before income tax............................ 29,572 27,870 33,704 29,888
Income tax expense.................................. 9,759 9,197 12,034 10,162
Minority interest................................... 804 804 804 805
------------- ------------- ------------- -------------
Net income.......................................... $ 19,009 $ 17,869 $ 20,866 $ 18,921
------------- ------------- ------------- -------------
Net income per share................................ $ .69 $ .62 $ .72 $ .65
------------- ------------- ------------- -------------
Average shares outstanding.......................... 27,599,922 28,766,664 28,775,118 28,934,174
------------- ------------- ------------- -------------
</TABLE>
F-30
<PAGE>
PROSPECTUS
PROTECTIVE LIFE CORPORATION
DEBT SECURITIES
PREFERRED STOCK
COMMON STOCK
STOCK PURCHASE CONTRACTS
STOCK PURCHASE UNITS
PLC CAPITAL TRUST II
PLC CAPITAL TRUST III
PLC CAPITAL TRUST IV
PREFERRED SECURITIES
GUARANTEED TO THE EXTENT SET FORTH HEREIN BY
PROTECTIVE LIFE CORPORATION
------------------------
Protective Life Corporation, a Delaware corporation ("Protective Life" or
the "Company"), may from time to time offer (a) its debt securities ("Debt
Securities"), in one or more series, which may be either senior debt securities
("Senior Debt Securities") or subordinated debt securities ("Subordinated Debt
Securities"), (b) shares of its preferred stock, par value $1.00 per share
("Preferred Stock"), in one or more series, (c) shares of its common stock, par
value $.50 per share ("Common Stock"), (d) its stock purchase contracts ("Stock
Purchase Contracts") to purchase Common Stock and/or (e) its stock purchase
units ("Stock Purchase Units"), each representing ownership of a Stock Purchase
Contract and Debt Securities or Preferred Securities or debt obligations of
third parties, including U.S. Treasury Securities (as hereinafter defined), and
PLC Capital Trust II, PLC Capital Trust III and PLC Capital Trust IV (each, a
"PLC Capital Trust"), may from time to time offer their preferred securities
which may be designated as preferred securities or capital securities
("Preferred Securities"), in each case in amounts, at prices and on terms to be
determined at the time or times of offering. The Debt Securities, Preferred
Stock, Common Stock, Stock Purchase Contracts, Stock Purchase Units and
Preferred Securities are referred to herein collectively as the "Offered
Securities". The aggregate initial offering price of the Offered Securities in
respect of which this Prospectus is being delivered will not exceed U.S.
$200,000,000 (or its equivalent (based on the applicable exchange rate at the
time of issue), in one or more foreign currencies or currency units as shall be
designated by Protective Life).
The PLC Capital Trusts, which are each statutory business trusts formed
under the laws of the State of Delaware, were formed by Protective Life solely
to issue their Preferred Securities, representing preferred undivided beneficial
interests in the assets of the respective PLC Capital Trust, and their common
securities ("Common Securities") and loan the proceeds thereof to Protective
Life. Accordingly, the proceeds of an offering of Preferred Securities, together
with all capital contributions made in respect of Common Securities, will be
loaned to Protective Life in exchange for Subordinated Debt Securities of
Protective Life having the terms described herein. Interest and principal
payments on the Subordinated
(CONTINUED ON NEXT PAGE)
------------------------------
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
CONTRARY IS A CRIMINAL OFFENSE.
------------------------
THE DATE OF THIS PROSPECTUS IS JULY 18, 1997.
<PAGE>
(CONTINUED FROM PREVIOUS PAGE)
Debentures are intended to fund the payment of periodic distributions
("distributions") and redemption and liquidation distributions on the Preferred
Securities and the Common Securities. The payment of distributions with respect
to Preferred Securities of each of the PLC Capital Trusts out of moneys held by
each of the PLC Capital Trusts, and payment on liquidation, redemption or
otherwise with respect to such Preferred Securities, will be guaranteed by
Protective Life to the extent described herein (each a "Preferred Securities
Guarantee"). See "Description of the Preferred Securities Guarantees" below.
Protective Life's obligations under the Preferred Securities Guarantees will
rank (i) subordinate and junior in right of payment to all present and future
Senior Indebtedness (as such term is defined in the Subordinated Indenture (as
hereinafter defined)), (ii) PARI PASSU with the Company's guarantees (each, a
"Common Guarantee") with respect to the Common Securities of the PLC Capital
Trusts, Subordinated Debt Securities, the Company's guarantee (the "Series A
Guarantee") of PLC Capital L.L.C.'s 9% Cumulative Monthly Income Preferred
Securities, Series A (the "Series A Preferred Securities"), the Company's 9%
Subordinated Debentures, due 2024, Series A (the "Series A Subordinated
Debentures"), the Company's guarantee of PLC Capital Trust I's 8 1/4% Trust
Originated Preferred Securities (the "Trust I Preferred Securities"), the
Company's guarantee (the "8 1/4% Common Guarantee, " and together with the
8 1/4% Preferred Guarantee, the "8 1/4% TOPrS Guarantees") of PLC Capital Trust
I's 8 1/4% Trust Originated Common Securities (the "Trust I Common Securities,"
and together with the Trust I Preferred Securities, the "Trust I TOPrS"), the
Company's 8 1/4% Subordinated Debentures, due 2027, Series B (the "Series B
Subordinated Dentures") and any other liabilities or obligations that may be
PARI PASSU by their terms and (iii) senior to the Company's Common Stock, the
most senior preferred or preference stock now or hereafter issued by the Company
and with any guarantee now or hereafter entered into by Protective Life in
respect to any preferred or preference stock of any affiliate of the Company.
Subordinated Debt Securities may be issued and sold from time to time in one or
more series to a PLC Capital Trust, or a trustee of such PLC Capital Trust, in
connection with the investment of the proceeds from the offering of Preferred
Securities and Common Securities of such PLC Capital Trust. The Subordinated
Debt Securities purchased by an PLC Capital Trust may be subsequently
distributed pro rata to holders of Preferred Securities and Common Securities in
connection with the dissolution of such PLC Capital Trust upon the occurrence of
certain events as may be described in an accompanying Prospectus Supplement.
Specific terms of the particular Offered Securities in respect of which this
Prospectus is being delivered will be set forth in an accompanying Prospectus
Supplement (the "Prospectus Supplement"), which will describe, without
limitation and where applicable, the following: (i) in the case of Debt
Securities, the specific designation, aggregate principal amount, denominations,
maturity, premium, if any, interest rate (which may be fixed or variable) or
method of calculating interest, if any, place or places where principal,
premium, if any, and interest, if any, will be payable, currency in which
principal, premium, if any, and interest, if any, will be payable, any terms of
redemption, any sinking fund provisions, any listing on a securities exchange,
initial public offering or purchase price, conversion rights, methods of
distribution and other special terms, (ii) in the case of Preferred Stock and
Preferred Securities, the designation, number of securities, liquidation
preference per security, initial public offering price, any listing on a
securities exchange, dividend rate (or method of calculation thereof), dates on
which dividends shall be payable and dates from which dividends shall accrue,
any voting rights, any redemption, exchange or sinking fund provisions, any
other rights, preferences, privileges, limitations or restrictions relating to
the Preferred Stock or Preferred Securities of a specific series and, in the
case of Preferred Securities, the terms upon which the proceeds of the sale of
the Preferred Securities will be used to purchase a specific series of
Subordinated Debt Securities of Protective Life, (iii) in the case of Stock
Purchase Contracts, the designation and number of shares of Common Stock
issuable thereunder, the purchase price of Common Stock, the date or dates on
which the Common Stock is required to be purchased by the holders of the Stock
Purchase Contracts, any periodic payments required to be made by the Company to
the holders of the Stock Purchase Contract or vice versa, and the terms of the
offering and sale thereof, (iv) in the case of Stock Purchase Units, the
specific terms of the Stock Purchase Contracts and any Debt Securities or
Preferred Securities or debt obligations of third parties securing the holder's
obligation to purchase the
2
<PAGE>
Common Stock under the Stock Purchase Contracts, and the terms of the offering
and sale thereof, and (v) in the case of Common Stock, the number of shares
offered, the methods of distribution and the public offering or purchase price.
Protective Life's Common Stock is listed on the New York Stock Exchange under
the trading symbol "PL". Any Common Stock sold pursuant to a Prospectus
Supplement will be listed on such exchange, subject to official notice of
issuance.
The Prospectus Supplement will also contain information, as applicable,
about certain United States federal income tax considerations relating to the
Offered Securities in respect of which this Prospectus is being delivered.
The Debt Securities will be unsecured. Unless otherwise specified in a
Prospectus Supplement, the Senior Debt Securities will rank equally with all
other unsecured and unsubordinated indebtedness of Protective Life. The
Subordinated Debt Securities will be subordinated in right of payment to all
present and future Senior Indebtedness (as defined herein) of Protective Life to
the extent described herein and in the Prospectus Supplement relating thereto.
The Debt Securities may be denominated in United States dollars or, at the
option of Protective Life if so specified in the applicable Prospectus
Supplement, in one or more foreign currencies or currency units. The Debt
Securities may be issued in registered form or bearer form, or both. If so
specified in the applicable Prospectus Supplement, Debt Securities of a series
may be issued in whole or in part in the form of one or more temporary or
permanent global securities.
The Offered Securities may be sold to or through underwriters, through
dealers or agents or directly to purchasers. See "Plan of Distribution". The
names of any underwriters, dealers or agents involved in the sale of the Offered
Securities in respect of which this Prospectus is being delivered and any
applicable fee, commission or discount arrangements with them will be set forth
in a Prospectus Supplement.
This Prospectus may not be used to consummate sales of Offered Securities
unless accompanied by a Prospectus Supplement.
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus, any accompanying
Prospectus Supplement or the documents incorporated or deemed incorporated by
reference herein, and any information or representations not contained herein or
therein must not be relied upon as having been authorized by Protective Life or
the PLC Capital Trusts or by any agent, dealer or underwriter. This Prospectus
and any accompanying Prospectus Supplement do not constitute an offer to sell or
a solicitation of an offer to buy the securities in any circumstances in which
such offer or solicitation is unlawful. The delivery of this Prospectus or any
Prospectus Supplement at any time does not imply that the information herein or
therein is correct as of any time subsequent to the date of such information.
AVAILABLE INFORMATION
Protective Life is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith, files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities of the Commission at Room 1024, 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549 and at the regional offices of the
Commission located at 7 World Trade Center, 13th Floor, Suite 1300, New York,
New York 10048 and Suite 1400, Citicorp Center, 14th Floor, 500 West Madison
Street, Chicago, Illinois 60661. Copies of such material can also be obtained at
prescribed rates by writing to the Public Reference Section of the Commission at
450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549. In addition,
such reports, proxy statements and other information concerning Protective Life
can be inspected at the offices of the New York Stock Exchange, Inc., 20 Broad
Street, New York, New York 10005. The Commission maintains an Internet Website
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. The address
of the Commission's site is http://www.sec.gov.
This Prospectus constitutes a part of a registration statement on Form S-3
(together with all amendments and exhibits, the "Registration Statement") filed
by Protective Life and the PLC Capital
3
<PAGE>
Trusts with the Commission under the Securities Act of 1933, as amended (the
"Securities Act"). This Prospectus does not contain all the information set
forth in the Registration Statement, certain portions of which have been omitted
as permitted by the rules and regulations of the Commission. For further
information with respect to Protective Life, the PLC Capital Trusts and the
Offered Securities, reference is made to the Registration Statement. The
Registration Statement may be inspected by anyone without charge at the
principal office of the Commission in Washington, D.C. and copies of all or part
of it may be obtained from the Commission upon payment of the prescribed fees.
No separate financial statements of the PLC Capital Trusts have been
included herein or incorporated herein by reference. Protective Life and the PLC
Capital Trusts do not consider that such financial statements would be material
to holders of the Preferred Securities because (i) all of the voting securities
of each of the PLC Capital Trusts will be owned, directly or indirectly, by
Protective Life, a reporting company under the Exchange Act, (ii) each of the
PLC Capital Trusts has no independent operations but exists for the sole purpose
of issuing securities representing undivided beneficial interests in the assets
of such PLC Capital Trust and investing the proceeds thereof in Subordinated
Debt Securities issued by Protective Life and (iii) Protective Life's
obligations described herein and in any accompanying Prospectus Supplement,
under the Declaration (as defined herein) of each PLC Capital Trust, the
Preferred Securities Guarantees issued with respect to Preferred Securities
issued by that PLC Capital Trust and the related back-up undertakings, the
Subordinated Debt Securities purchased by that PLC Capital Trust and the related
Subordinated Indenture, taken together, constitute a full and unconditional
guarantee of payments due on the Preferred Securities. See "Description of Debt
Securities of Protective Life--Subordination Under the Subordinated Indenture"
and "Description of the Preferred Securities Guarantees of the PLC Capital
Trusts."
The PLC Capital Trusts are not currently subject to the information
reporting requirements of the Exchange Act. The PLC Capital Trusts will become
subject to such requirements upon the effectiveness of the Registration
Statement, although they intend to seek and expect to receive exemptions
therefrom.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Protective Life's Quarterly report on form 10-Q for the three month period
ended March 31, 1997, Annual Report on Form 10-K for the year ended December 31,
1996, and Current Reports on Form 8-K dated April 23, 1997 and February 11,
1997, as filed with the Commission pursuant to the Exchange Act (File No.
1-12332), and the description of Protective Life's Common Stock contained in its
Registration Statement on Form 10 filed pursuant to Section 12 of the Exchange
Act on September 4, 1981, as amended by an amendment thereto filed on Form 8 on
October 27, 1981 and the description of Protective Life's Rights to Purchase
Series A Junior Participating Cumulative Preferred Stock contained in its Form
8-A filed on August 7, 1995 including any amendment or report filed for the
purpose of updating such descriptions prior to the termination of the offering,
are incorporated herein by reference.
Each document or report subsequently filed by Protective Life pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date hereof and
prior to the termination of the offering described herein shall be deemed to be
incorporated by reference into this Prospectus and to be a part of this
Prospectus from the date of filing of such document. Any statement contained
herein, or in a document all or a portion of which is incorporated or deemed to
be incorporated by reference herein, shall be deemed to be modified or
superseded for purposes of the Registration Statement and this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of the Registration Statement or this Prospectus.
Protective Life will provide without charge to any person to whom this
Prospectus is delivered, on the written or oral request of such person, a copy
of any or all of the foregoing documents incorporated by reference, other than
certain exhibits to such documents. Requests should be directed to: Stockholder
Relations, Protective Life Corporation, P.O. Box 2606, Birmingham, Alabama 35202
(telephone: (205) 868-3573; facsimile (205) 868-3541).
4
<PAGE>
PROTECTIVE LIFE CORPORATION
Protective Life, a Delaware corporation incorporated in 1981, is an
insurance holding company that, through its subsidiary life insurance companies,
produces, distributes and services a diverse array of insurance and investment
products. Protective Life markets individual life insurance, dental insurance,
group life and health insurance, credit life and disability insurance,
guaranteed investment contracts and annuities throughout the United States. The
Company also maintains a separate line of business devoted exclusively to the
acquisition of insurance policies from other companies and participates in a
joint venture which owns a life insurance company in Hong Kong. Protective Life
Insurance Company ("Protective Life Insurance"), founded in 1907, is Protective
Life's principal operating subsidiary. Protective Life's principal executive
offices are located at 2801 Highway 280 South, Birmingham, Alabama 35223, and
its telephone number is (205) 879-9230.
Protective Life's ability to pay principal and interest on any Debt
Securities or dividends on any Preferred Stock or Common Stock is affected by
the ability of its insurance company subsidiaries, Protective Life's principal
sources of cash flow, to declare and distribute dividends and to make payments
on surplus notes (i.e., deeply subordinated intercompany notes owed by insurance
company subsidiaries to Protective Life that are treated as equity capital of
such insurance company subsidiaries for statutory accounting purposes), both of
which may be limited by regulatory restrictions and, in the case of payments on
surplus notes, by certain financial covenants. Protective Life's cash flow is
also dependent on revenues from investment, data processing, legal and
management services rendered to its subsidiaries. Insurance company subsidiaries
of Protective Life are subject to various state statutory and regulatory
restrictions, applicable to insurance companies generally, that limit the amount
of cash dividends, loans and advances that those subsidiaries may pay to
Protective Life. Under Tennessee insurance laws, Protective Life Insurance
generally may pay dividends to Protective Life only out of its unassigned
surplus as reflected in its statutory financial statements filed in that State.
In addition, the Tennessee Commissioner of Insurance must approve (or not
disapprove within 30 days of notice) payment of an "extraordinary" dividend from
Protective Life Insurance, which generally under Tennessee insurance laws is a
dividend that exceeds, together with all dividends paid by Protective Life
Insurance within the previous 12 months, the greater of (i) 10% of Protective
Life Insurance's surplus as regards policyholders at the preceding December 31
or (ii) the net gain from operations of Protective Life Insurance for the 12
months ended on such December 31. No assurance can be given that more stringent
restrictions will not be adopted from time to time by states in which Protective
Life's insurance subsidiaries are domiciled, which restrictions could have the
effect, under certain circumstances, of significantly reducing dividends or
other amounts payable to Protective Life by such subsidiaries without
affirmative prior approval by state insurance regulatory authorities.
In the event of the insolvency, liquidation, reorganization, dissolution or
other winding-up of an insurance subsidiary of Protective Life, all creditors of
such subsidiary, including holders of life and health insurance policies, would
be entitled to payment in full out of the assets of such subsidiary before
Protective Life, as shareholder or holder of surplus notes, would be entitled to
any payment, and thus such creditors would have to be paid in full before the
creditors of Protective Life (including holders of Debt Securities) would be
entitled to receive any payment from the assets of such subsidiary.
5
<PAGE>
THE PLC CAPITAL TRUSTS
Each of the PLC Capital Trusts is a statutory business trust formed under
Delaware law pursuant to (i) a separate declaration of trust (each a
"Declaration") executed by the Company, as sponsor for such trust (the
"Sponsor") and the PLC Capital Trustees (as defined herein) for such trust and
(ii) the filing of a certificate of trust with the Delaware Secretary of State
on July 1, 1997. Each PLC Capital Trust exists for the exclusive purposes of (i)
issuing the Preferred Securities and Common Securities (together, the "Trust
Securities"), (ii) investing the gross proceeds of the Trust Securities in
Subordinated Debt Securities and (iii) engaging in only those other activities
necessary or incidental thereto. All of the Common Securities will be directly
or indirectly owned by the Company. The Common Securities will rank PARI PASSU,
and payments will be made thereon pro rata, with the Preferred Securities except
that upon an event of default under the applicable Declaration, the rights of
the holders of the Common Securities to payment in respect of distributions and
payments upon liquidation, redemption and otherwise will be subordinated to the
rights of the holders of the Preferred Securities. The Company will, directly or
indirectly, acquire Common Securities in an aggregate liquidation amount equal
to at least 3% of the total capital of each PLC Capital Trust. Each PLC Capital
Trust has a term of approximately 55 years, but may earlier terminate as
provided in its Declaration. Each PLC Capital Trust's business and affairs will
be conducted by the trustees (the "PLC Capital Trustees") appointed by the
Company, as the direct or indirect holder of all the Common Securities. The
holder of the Common Securities will be entitled to appoint, remove or replace
any of, or increase or reduce the number of, the PLC Capital Trustees of each
PLC Capital Trust. The duties and obligations of the PLC Capital Trustees shall
be governed by the Declaration of such PLC Capital Trust. A majority of the PLC
Capital Trustees (the "Regular Trustees") of each PLC Capital Trust will be
persons who are employees or officers of or affiliated with the Company. One PLC
Capital Trustee of each PLC Capital Trust will be a financial institution which
will be unaffiliated with the Company and which shall act as property trustee
and as indenture trustee for purposes of the Trust Indenture Act of 1939 (the
"Trust Indenture Act"), pursuant to the terms set forth in a Prospectus
Supplement (the "Property Trustee" or the "Institutional Trustee"). In addition,
unless the Property Trustee maintains a principal place of business in the State
of Delaware, and otherwise meets the requirements of applicable law, one PLC
Capital Trustee of each PLC Capital Trust will have its principal place of
business or reside in the State of Delaware (the "Delaware Trustee"). The
Company will pay all fees and expenses related to the PLC Capital Trusts and the
offering of Trust Securities, the payment of which will be guaranteed by the
Company. The office of the Delaware Trustee for each PLC Capital Trust in the
State of Delaware is Wilmington Trust Company, Rodney Square North, 1100 North
Market Street, Wilmington, Delaware 19890. Each PLC Capital Trust's offices are
located at 2801 Highway 280 South, Birmingham, Alabama 35223 (Telephone: (205)
879-9230).
USE OF PROCEEDS
Except as otherwise described in the applicable Prospectus Supplement, the
proceeds from the sale by any PLC Capital Trust of any Preferred Securities
(together with any capital contributed in respect of Common Securities) will be
loaned to Protective Life in exchange for Subordinated Debt Securities.
Protective Life will use borrowings from PLC Capital Trusts, and the net
proceeds from any sale of Debt Securities, Preferred Stock, Common Stock, Stock
Purchase Contracts and Stock Purchase Units for general corporate purposes,
including, but not limited to, repayments of indebtedness of Protective Life or
its subsidiaries. Pending such use, the proceeds may be invested temporarily in
short-term marketable securities. A more detailed description of the use of
proceeds of any specific offering of Offered Securities shall be set forth in
the Prospectus Supplement pertaining to such offering.
6
<PAGE>
CONSOLIDATED EARNINGS RATIOS
The following table sets forth Protective Life's ratios of consolidated
earnings to fixed charges, consolidated earnings to combined fixed charges and
distributions on Series A Preferred Securities and consolidated earnings to
combined fixed charges, distributions on Series A Preferred Securities and
interest credited on investment products for the years and periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1992 1993 1994 1995 1996
--------- --------- --------- --------- ---------
Ratio of Consolidated Earnings to Fixed Charges (1)...................... 13.5 14.4 14.7 13.6 14.9
Ratio of Consolidated Earnings to Combined Fixed Charges and
Distributions on Series A Preferred Securities(2)...................... 13.5 14.4 10.8 9.0 10.0
Ratio of Consolidated Earnings to Combined Fixed Charges, Distributions
on Series A Preferred Securities and Interest Credited on Investment
Products(3)............................................................ 1.3 1.4 1.4 1.4 1.5
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
<S> <C> <C>
1996 1997
--------- ---------
Ratio of Consolidated Earnings to Fixed Charges (1)...................... 13.2 11.8
Ratio of Consolidated Earnings to Combined Fixed Charges and
Distributions on Series A Preferred Securities(2)...................... 9.1 8.8
Ratio of Consolidated Earnings to Combined Fixed Charges, Distributions
on Series A Preferred Securities and Interest Credited on Investment
Products(3)............................................................ 1.4 1.8
</TABLE>
- ------------------------
(1) The ratio of consolidated earnings to fixed charges is calculated by
dividing the sum of income before income tax (excluding pre-tax minority
interest but not excluding distributions on Series A Preferred Securities
reported as minority interest) and interest expense on debt, by interest
expense on debt.
(2) The ratio of consolidated earnings to combined fixed charges and
distributions on Series A Preferred Securities is calculated by dividing the
sum of income before income tax (excluding pre-tax minority interest but not
excluding distributions on Series A Preferred Securities reported as
minority interest) and interest expense on debt, by interest expense on debt
and distributions on Series A Preferred Securities. The ratio of
consolidated earnings to combined fixed charges and distributions on Series
A Preferred Securities does not include distributions on the Trust I TOPrS
issued in April 1997.
(3) The ratio of consolidated earnings to interest on debt, distributions on
Series A Preferred Securities, and interest credited on investment products
is calculated by dividing the sum of income before income tax (excluding
pre-tax minority interest but not excluding distributions on Series A
Preferred Securities reported as minority interest), interest expense on
debt and interest credited on investment products, by the sum of interest
expense on debt, distributions on Series A Preferred Securities and interest
credited on investment products. Investment products include products such
as guaranteed investment contracts and annuities. The ratio of consolidated
earnings to combined fixed charges, distributions on Series A Preferred
Securities and interest credited on investment products does not include
distributions on the Trust I TOPrS issued in April 1997.
7
<PAGE>
DESCRIPTION OF DEBT SECURITIES OF PROTECTIVE LIFE
The Senior Debt Securities offered hereby are to be issued in one or more
series under the Senior Indenture, dated as of June 1, 1994, between Protective
Life and The Bank of New York, as trustee (the "Senior Trustee"), as
supplemented by Supplemental Indenture No. 1, dated as of July 1, 1994,
Supplemental Indenture No. 2, dated as of August 1, 1996, Supplemental Indenture
No. 3, dated as of September 15, 1996, Supplemental Indenture No. 4, dated as of
November 15, 1996 and Supplemental Indenture No. 5, dated as of December 1, 1996
(as so supplemented, the "Senior Indenture"). The Subordinated Debt Securities
offered hereby are to be issued under the Subordinated Indenture, dated as of
June 1, 1994, between Protective Life and AmSouth Bank (successor by merger to
AmSouth Bank of Alabama, successor by conversion of charter, to AmSouth Bank
N.A.) (hereinafter referred to as "AmSouth Bank"), as trustee (the "Subordinated
Trustee," and together with the Senior Trustee, the "Trustees"), as amended and
supplemented by Supplemental Indenture No. 1, dated as of June 9, 1994,
Supplemental Indenture No. 2, dated as of August 1, 1994 and Supplemental
Indenture No.3, dated as of April 29, 1997 (as so supplemented and amended, the
"Subordinated Indenture" and, together with the Senior Indenture, the
"Indentures"), copies of which have been filed as exhibits to the Registration
Statement of which this Prospectus forms a part.
The statements herein relating to the Debt Securities and the following
summaries of certain provisions of the Indentures do not purport to be complete
and are subject to, and are qualified in their entirety by reference to, all the
provisions of the Indentures (as they may be amended or supplemented from time
to time), including the definitions therein of certain terms capitalized in this
Prospectus. Whenever particular Sections or defined terms of the Indentures (as
they may be amended or supplemented from time to time) are referred to herein or
in a Prospectus Supplement, such Sections or defined terms are incorporated
herein or therein by reference.
GENERAL
The Debt Securities will be unsecured obligations of Protective Life. The
Senior Debt Securities will be unsecured and will rank PARI PASSU with all other
unsecured and unsubordinated obligations of Protective Life. The Subordinated
Debt Securities will be subordinate and junior in right of payment to the extent
and in the manner set forth in the Subordinated Indenture to all present and
future Senior Indebtedness of Protective Life. See "-- Subordination under the
Subordinated Indenture". The Indentures do not limit the aggregate amount of
Debt Securities which may be issued thereunder. Except as otherwise provided in
the applicable Prospectus Supplement, the Indentures, as they apply to any
series of Debt Securities, also do not limit the incurrence or issuance of other
secured or unsecured debt of Protective Life.
Reference is made to the applicable Prospectus Supplement which will
accompany this Prospectus for a description of the specific series of Debt
Securities being offered thereby, including: (1) the title of such Debt
Securities; (2) any limit upon the aggregate principal amount of such Debt
Securities; (3) the date or dates on which the principal of and premium, if any,
on such Debt Securities will mature or the method of determining such date or
dates; (4) the rate or rates (which may be fixed or variable) at which such Debt
Securities will bear interest, if any, or the method of calculating such rate or
rates; (5) the date or dates from which interest, if any, will accrue or the
method by which such date or dates will be determined; (6) the date or dates on
which interest, if any, will be payable and the record date or dates therefor;
(7) the place or places where principal of, premium, if any, and interest, if
any, on such Debt Securities will be payable; (8) the period or periods within
which, the price or prices at which, the currency or currencies (including
currency unit or units) in which, and the terms and conditions upon which, such
Debt Securities may be redeemed, in whole or in part, at the option of
Protective Life; (9) the obligation, if any, of Protective Life to redeem or
purchase such Debt Securities pursuant to any sinking fund or analogous
provisions or upon the happening of a specified event or at the option of a
holder thereof and the period or periods within which, the price or prices at
which and the other terms and conditions upon which, such Debt Securities shall
be redeemed or purchased, in whole or in part, pursuant to such obligations;
(10) the
8
<PAGE>
denominations in which such Debt Securities are authorized to be issued; (11)
the currency or currency unit for which Debt Securities may be purchased or in
which Debt Securities may be denominated and/or the currency or currencies
(including currency unit or units) in which principal of, premium, if any, and
interest, if any, on such Debt Securities will be payable and whether Protective
Life or the holders of any such Debt Securities may elect to receive payments in
respect of such Debt Securities in a currency or currency unit other than that
in which such Debt Securities are stated to be payable; (12) if the amount of
principal of, or any premium or interest on, any of such Debt Securities may be
determined with reference to an index or pursuant to a formula, the manner in
which such amounts will be determined; (13) if other than the principal amount
thereof, the portion of the principal amount of such Debt Securities which will
be payable upon declaration of the acceleration of the maturity thereof or the
method by which such portion shall be determined; (14) if the principal amount
payable at the Stated Maturity of any of such Debt Securities will not be
determinable as of any one or more dates prior to the Stated Maturity, the
amount which will be deemed to be such principal amount as of any such date for
any purpose, including the principal amount thereof which will be due and
payable upon any maturity other than the Stated Maturity or which will be deemed
to be Outstanding as of any such date (or, in any such case, the manner in which
such deemed principal amount is to be determined); (15) the person to whom any
interest on any such Debt Security shall be payable if other than the person in
whose name such Debt Security is registered on the applicable record date; (16)
any addition to, or modification or deletion of, any Event of Default or any
covenant of Protective Life specified in the Indenture with respect to such Debt
Securities; (17) the application, if any, of such means of defeasance or
covenant defeasance as may be specified for such Debt Securities; (18) whether
such Debt Securities are to be issued in whole or in part in the form of one or
more temporary or permanent global securities and, if so, the identity of the
depository for such global security or securities; (19) in the case of the
Subordinated Indenture, the terms, if any, upon which such Debt Securities may
be converted or exchanged, at the option of the holders thereof, into or for
Common Stock of Protective Life or other securities or property; and (20) any
other terms not inconsistent with the terms of the Indentures pertaining to such
Debt Securities. (Section 3.1 of each Indenture.) Unless otherwise specified in
the applicable Prospectus Supplement, the Debt Securities will not be listed on
any securities exchange.
Unless otherwise specified in the applicable Prospectus Supplement, Debt
Securities will be issued in fully-registered form without coupons. Where Debt
Securities of any series are issued in bearer form, the special restrictions and
considerations, including special offering restrictions and special federal
income tax considerations, applicable to any such Debt Securities and to payment
on and transfer and exchange of such Debt Securities will be described in the
applicable Prospectus Supplement. Bearer debt securities will be transferable by
delivery. (Section 3.5 of each Indenture.)
Debt Securities may be sold at a substantial discount below their stated
principal amount, bearing no interest or interest at a rate which at the time of
issuance is below market rates. Certain federal income tax consequences and
special considerations applicable to any such Debt Securities will be described
in the applicable Prospectus Supplement.
If the purchase price of any of the Debt Securities is payable in one or
more foreign currencies or currency units or if any Debt Securities are
denominated in one or more foreign currencies or currency units or if the
principal of, premium, if any, or interest, if any, on any Debt Securities is
payable in one or more foreign currencies or currency units, the restrictions,
elections, certain federal income tax considerations, specific terms and other
information with respect to such issue of Debt Securities and such foreign
currency or currency units will be set forth in the applicable Prospectus
Supplement.
If any index is used to determine the amount of payments of principal of,
premium, if any, or interest on any series of Debt Securities, special federal
income tax, accounting and other considerations applicable thereto will be
described in the applicable Prospectus Supplement.
9
<PAGE>
The general provisions of the Indentures do not afford holders of the Debt
Securities protection in the event of a highly leveraged or other transaction
involving Protective Life that may adversely affect holders of the Debt
Securities.
PAYMENT, REGISTRATION, TRANSFER AND EXCHANGE
Unless otherwise provided in the applicable Prospectus Supplement, payments
in respect of the Debt Securities will be made in the designated currency at the
office or agency of Protective Life maintained for that purpose as Protective
Life may designate from time to time, except that, at the option of Protective
Life, interest payments, if any, on Debt Securities in registered form may be
made (i) by checks mailed to the holders of Debt Securities entitled thereto at
their registered addresses or (ii) by wire transfer to an account maintained by
the person entitled thereto as specified in the register. (Sections 3.7(a) and
9.2 of each Indenture.) Unless otherwise indicated in an applicable Prospectus
Supplement, payment of any installment of interest on Debt Securities in
registered form will be made to the person in whose name such Debt Security is
registered at the close of business on the regular record date for such
interest. (Section 3.7(a) of each Indenture.)
Payment in respect of Debt Securities in bearer form will be made in the
currency and in the manner designated in the Prospectus Supplement, subject to
any applicable laws and regulations, at such paying agencies outside the United
States as Protective Life may appoint from time to time. The paying agents
outside the United States initially appointed by Protective Life for a series of
Debt Securities will be named in the Prospectus Supplement. Protective Life may
at any time designate additional paying agents or rescind the designation of any
paying agents, except that, if Debt Securities of a series are issuable as
Registered Securities, Protective Life will be required to maintain at least one
paying agent in each Place of Payment for such series and, if Debt Securities of
a series are issuable as Bearer Securities, Protective Life will be required to
maintain a paying agent in a Place of Payment outside the United States where
Debt Securities of such series and any coupons appertaining thereto may be
presented and surrendered for payment. (Section 9.2 of each Indenture.)
All moneys paid by Protective Life to the Debt Trustees or a paying agent
for the payment of the principal of, or any premium or interest on, any Debt
Security which remain unclaimed at the end of two years after such principal,
premium or interest has become due and payable will be repaid to Protective
Life, and the holder of such Security thereafter may look only to Protective
Life for payment thereof. (Section 9.3 of each Indenture.)
Unless otherwise provided in the applicable Prospectus Supplement, Debt
Securities in registered form will be transferable or exchangeable at the agency
of Protective Life maintained for such purpose as designated by Protective Life
from time to time. (Sections 3.5 and 9.2 of each Indenture.) Debt Securities may
be transferred or exchanged without service charge, other than any tax or other
governmental charge imposed in connection therewith. (Section 3.5 of each
Indenture.)
GLOBAL DEBT SECURITIES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more fully registered global securities (a "Registered Global
Security"). Each Registered Global Security will be registered in the name of a
depository (the "Depository") or a nominee for the Depository identified in the
applicable Prospectus Supplement, will be deposited with such Depository or
nominee or a custodian therefor and will bear a legend regarding the
restrictions on exchanges and registration of transfer thereof referred to below
and any such other matters as may be provided for pursuant to each Indenture. In
such a case, one or more Registered Global Securities will be issued in a
denomination or aggregate denominations equal to the portion of the aggregate
principal amount of outstanding Debt Securities of the series to be represented
by such Registered Global Security or Securities. (Section 3.3 of each
Indenture.) Unless and until it is exchanged in whole or in part for Debt
Securities in definitive certificated form, a Registered Global Security may not
be transferred or exchanged except as a whole by the Depository for such
Registered Global Security to a nominee of such Depository or by a nominee of
such Depository to such
10
<PAGE>
Depository or another nominee of such Depository or by such Depository or any
such nominee to a successor Depository for such series or a nominee of such
successor Depository and except in the circumstances described in the applicable
Prospectus Supplement. (Section 3.5 of each Indenture.)
The specific terms of the depository arrangement with respect to any portion
of a series of Debt Securities to be represented by a Registered Global Security
will be described in the applicable Prospectus Supplement. Protective Life
expects that the following provisions will apply to depository arrangements.
Upon the issuance of any Registered Global Security, and the deposit of such
Registered Global Security with or on behalf of the Depository for such
Registered Global Security, the Depository will credit, on its book-entry
registration and transfer system, the respective principal amounts of the Debt
Securities represented by such Registered Global Security to the accounts of
institutions ("participants") that have accounts with the Depository or its
nominee. The accounts to be credited will be designated by the underwriters or
agents engaging in the distribution of such Debt Securities or by Protective
Life, if such Debt Securities are offered and sold directly by Protective Life.
Ownership of beneficial interests in a Registered Global Security will be
limited to participants or persons that may hold interests through participants.
Ownership of beneficial interests by participants in such Registered Global
Security will be shown on, and the transfer of such beneficial interests will be
effected only through, records maintained by the Depository for such Registered
Global Security or by its nominee. Ownership of beneficial interests in such
Registered Global Security by persons that hold through participants will be
shown on, and the transfer of such beneficial interests within such participants
will be effected only through, records maintained by such participants. The laws
of some jurisdictions require that certain purchasers of securities take
physical delivery of such securities in certificated form. The foregoing
limitations and such laws may impair the ability to transfer beneficial
interests in such Registered Global Securities.
So long as the Depository for a Registered Global Security, or its nominee,
is the registered owner of such Registered Global Security, such Depository or
such nominee, as the case may be, will be considered the sole owner or holder of
the Debt Securities represented by such Registered Global Security for all
purposes under each Indenture. (Section 3.8 of each Indenture.) Unless otherwise
specified in the applicable Prospectus Supplement and except as specified below,
owners of beneficial interests in such Registered Global Security will not be
entitled to have Debt Securities of the series represented by such Registered
Global Security registered in their names, will not receive or be entitled to
receive physical delivery of Debt Securities of such series in certificated form
and will not be considered the holders thereof for any purposes under the
relevant Indenture. (Section 3.5 of each Indenture.)
Ownership of beneficial interests in a Global Security will be limited to
participants and to persons that may hold beneficial interests through
participants. Accordingly, each person owning a beneficial interest in such
Registered Global Security must rely on the procedures of the Depository and, if
such person is not a participant, on the procedures of the participant through
which such person owns its interest, to exercise any rights of a holder under
the relevant Indenture. The Depository may grant proxies and otherwise authorize
participants to give or take any request, demand, authorization, direction,
notice, consent, waiver or other action which a holder is entitled to give or
take under the relevant Indenture. Protective Life understands that, under
existing industry practices, if Protective Life requests any action of holders
or any owner of a beneficial interest in such Registered Global Security desires
to give any notice or take any action a holder is entitled to give or take under
the relevant Indenture, the Depository would authorize the participants to give
such notice or take such action, and participants would authorize beneficial
owners owning through such participants to give such notice or take such action
or would otherwise act upon the instructions of beneficial owners owning through
them.
Unless otherwise specified in the applicable Prospectus Supplement, payments
with respect to principal, premium, if any, and interest, if any, on Debt
Securities represented by a Registered Global Security registered in the name of
a Depository or its nominee will be made to such Depository or its nominee, as
the case may be, as the registered owner of such Registered Global Security.
11
<PAGE>
Protective Life expects that the Depository for any Debt Securities
represented by a Registered Global Security, upon receipt of any payment of
principal, premium or interest, will immediately credit participants' accounts
with payments in amounts proportionate to their respective beneficial interests
in the principal amount of such Registered Global Security as shown on the
records of such Depository. Protective Life also expects that payments by
participants to owners of beneficial interests in such Registered Global
Security held through such participants will be governed by standing
instructions and customary practices, as is now the case with the securities
held for the accounts of customers registered in "street names", and will be the
responsibility of such participants. Nevertheless, payments, transfers,
exchanges and other matters relating to beneficial interests in a Registered
Global Security may be subject to various policies and procedures adopted by the
Depository from time to time. None of Protective Life, the respective Debt
Trustee or any agent of Protective Life or the respective Debt Trustee shall
have any responsibility or liability for any aspect of the records relating to
or payments made on account of beneficial interests of a Registered Global
Security, or for maintaining, supervising or reviewing any records relating to
such beneficial interests. (Section 3.8 of each Indenture.)
Unless otherwise specified in the applicable Prospectus Supplement, if the
Depository for any Debt Securities represented by a Registered Global Security
notifies Protective Life that it is unwilling or unable to continue as
Depository and a successor Depository is not appointed by Protective Life within
90 days, Protective Life will issue such Debt Securities in definitive
certificated form in exchange for such Registered Global Security. In addition,
Protective Life may at any time and in its sole discretion determine not to have
any of the Debt Securities of a series represented by one or more Registered
Global Securities and, in such event, will issue Debt Securities of such series
in definitive certificated form in exchange for all of the Registered Global
Security or Securities representing such Debt Securities. (Section 3.5 of each
Indenture.)
The Debt Securities of a series may also be issued in whole or in part in
the form of one or more bearer global securities (a "Bearer Global Security")
that will be deposited with a depository, or with a nominee for such depository,
identified in the applicable Prospectus Supplement. Any such Bearer Global
Securities may be issued in temporary or permanent form. (Section 3.4 of each
Indenture.) The specific terms and procedures, including the specific terms of
the depository arrangement, with respect to any portion of a series of Debt
Securities to be represented by one or more Bearer Global Securities will be
described in the applicable Prospectus Supplement.
CONSOLIDATION, MERGER OR SALE BY PROTECTIVE LIFE
Protective Life shall not consolidate with or merge into any other
corporation or sell its assets substantially as an entirety, unless (i) the
corporation formed by such consolidation or into which Protective Life is merged
or the corporation which acquires its assets is organized in the United States
and expressly assumes all of the obligations of Protective Life under each
Indenture, (ii) immediately after giving effect to such transaction, no Default
(as defined herein) or Event of Default shall have happened and be continuing
and (iii) if, as a result of such transaction, properties or assets of
Protective Life would become subject to a mortgage, pledge, lien, security
interest or other encumbrance not permitted by the Debt Securities of any
series, Protective Life or its successor shall take steps necessary to secure
such Debt Securities equally and ratably with all indebtedness secured thereby.
Upon any such consolidation, merger or sale, the successor corporation formed by
such consolidation, or into which Protective Life is merged or to which such
sale is made, shall succeed to, and be substituted for Protective Life under
each Indenture. (Section 7.1 of each Indenture.)
EVENTS OF DEFAULT, NOTICE AND CERTAIN RIGHTS ON DEFAULT
Each Indenture provides that, if an Event of Default specified therein
occurs with respect to the Debt Securities of any series and is continuing, the
Debt Trustee for such series or the holders of 25% in aggregate principal amount
of all of the outstanding Debt Securities of that series, by written notice to
Protective Life (and to the Debt Trustee for such series, if notice is given by
such holders of Debt
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<PAGE>
Securities), may declare the principal of (or, if the Debt Securities of that
series are Original Issue Discount Securities or Indexed Securities, such
portion of the principal amount specified in the Prospectus Supplement) and
accrued interest on all the Debt Securities of that series to be due and payable
(provided, with respect to any Debt Securities (including Subordinated
Debentures) issued under the Subordinated Indenture, that the payment of
principal and interest on such Debt Securities shall remain subordinated to the
extent provided in Article 12 of the Subordinated Indenture). (Section 5.2 of
each Indenture.)
Except as otherwise provided in a Prospectus Supplement relating to the Debt
Securities of a particular series, Events of Default with respect to Debt
Securities of any series are defined in each Indenture as being: (a) default for
30 days in payment of any interest on any Debt Security of that series or any
coupon appertaining thereto or any additional amount payable with respect to
Debt Securities of such series as specified in the applicable Prospectus
Supplement when due; (b) default in payment of principal, or premium, if any, at
maturity or on redemption or otherwise, or in the making of a mandatory sinking
fund payment of any Debt Securities of that series when due; (c) default for 60
days after notice to Protective Life by the Debt Trustee for such series, or by
the holders of 25% in aggregate principal amount of the Debt Securities of such
series then outstanding, in the performance of any other agreement in the Debt
Securities of that series, in the Indenture or in any supplemental indenture or
board resolution referred to therein under which the Debt Securities of that
series may have been issued; (d) default in payment of principal relating to
indebtedness of Protective Life and its consolidated subsidiaries for borrowed
money having an aggregate principal amount exceeding $25 million (after the
expiration of any applicable grace period with respect thereto), or other
default resulting in acceleration of indebtedness of Protective Life and its
consolidated subsidiaries for borrowed money where the aggregate principal
amount so accelerated exceeds $25 million and such acceleration is not rescinded
or annulled within 30 days after the written notice thereof to Protective Life
by the respective Debt Trustee or to Protective Life and the respective Debt
Trustee by the holders of 25% in aggregate principal amount of the Debt
Securities of such series then outstanding; PROVIDED that such Event of Default
will be remedied, cured or waived if the default that resulted in such Event of
Default is remedied, cured or waived; and (e) certain events of bankruptcy,
insolvency or reorganization of Protective Life or Protective Life Insurance.
(Section 5.1 of each Indenture.) Events of Default with respect to a specified
series of Debt Securities may be added to the Indenture and, if so added, will
be described in the applicable Prospectus Supplement. (Sections 3.1 and 5.1 (7)
of each Indenture.)
Each Indenture provides that the respective Debt Trustee will, within 90
days after the occurrence of a Default with respect to the Debt Securities of
any series, give to the holders of the Debt Securities of that series notice of
all Defaults known to it unless such Default shall have been cured or waived;
PROVIDED that except in the case of a Default in payment on the Debt Securities
of that series, the respective Debt Trustee may withhold the notice if and so
long as the Board of Directors of Protective Life, the executive committee
thereof or a committee of its Responsible Officers in good faith determines that
withholding such notice is in the interests of the holders of the Debt
Securities of that series. (Section 6.6 of each Indenture.) "Default" means any
event which is, or after notice or passage of time or both, would be, an Event
of Default. (Section 1.1 of each Indenture.)
Each Indenture provides that the holders of a majority in aggregate
principal amount of the Debt Securities of each series affected (with each such
series voting as a class) may, subject to certain limited conditions, direct the
time, method and place of conducting any proceeding for any remedy available to
the Debt Trustee for such series, or exercising any trust or power conferred on
such Debt Trustee. (Section 5.8 of each Indenture.)
Each Indenture includes a covenant that Protective Life will file annually
with the respective Debt Trustee a certificate as to Protective Life's
compliance with all conditions and covenants of such Indenture. (Section 9.6 of
each Indenture.)
The holders of a majority in aggregate principal amount of any series of
Debt Securities by written notice to the Debt Trustee for such series may waive,
on behalf of the holders of all Debt Securities of such
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<PAGE>
series, any past Default or Event of Default with respect to that series and its
consequences except a Default or Event of Default in the payment of the
principal of, premium, if any, or interest, if any, on any Debt Security.
(Section 5.7 of each Indenture.)
MODIFICATION OF THE INDENTURES
Each Indenture contains provisions permitting Protective Life and the
respective Debt Trustee to enter into one or more supplemental indentures
without the consent of the holders of any of the Debt Securities in order (i) to
evidence the succession of another corporation to Protective Life and the
assumption of the covenants of Protective Life by a successor to Protective
Life; (ii) to add to the covenants of Protective Life or surrender any right or
power of Protective Life; (iii) to add additional Events of Default with respect
to any series of Debt Securities; (iv) to add or change any provisions to such
extent as necessary to permit or facilitate the issuance of Debt Securities in
bearer form; (v) to change or eliminate any provision affecting only Debt
Securities not yet issued; (vi) to secure the Debt Securities; (vii) to
establish the form or terms of Debt Securities; (viii) to evidence and provide
for successor Debt Trustees or to add or change any provisions to such extent as
necessary to permit or facilitate the appointment of a separate Debt Trustee or
Debt Trustees for specific series of Debt Securities; (ix) if allowed without
penalty under applicable laws and regulations, to permit payment in respect of
Debt Securities in bearer form in the United States; (x) to correct any defect
or supplement any inconsistent provisions or to make any other provisions with
respect to matters or questions arising under such Indenture or to cure any
ambiguity or correct any mistake, PROVIDED that any such action does not
adversely affect the interests of any holder of Debt Securities of any series
then outstanding; or (xi) in the case of the Subordinated Indenture, to modify
the subordination provisions thereof in a manner not adverse to the holders of
Subordinated Debentures of any series then outstanding (and in the case of
Subordinated Debentures issued in return for the proceeds of Preferred
Securities of any series then outstanding, not adverse to the holders of such
Preferred Securities). (Section 8.1 of each Indenture.)
Each Indenture also contains provisions permitting Protective Life and the
respective Debt Trustee, with the consent of the holders of a majority in
aggregate principal amount of the outstanding Debt Securities affected by such
supplemental indenture (with the Debt Securities of each series voting as a
class), to execute supplemental indentures adding any provisions to or changing
or eliminating any of the provisions of such Indenture or any supplemental
indenture or modifying the rights of the holders of Debt Securities of such
series, except that, without the consent of the holder of each Debt Security so
affected, no such supplemental indenture may: (i) change the time for payment of
principal or premium, if any, or interest on any Debt Security; (ii) reduce the
principal of, or any installment of principal of, or premium, if any, or
interest on any Debt Security, or change the manner in which the amount of any
of the foregoing is determined; (iii) reduce the interest rate, the amount of
principal or the amount of premium, if any, payable upon the redemption of any
Debt Security; (iv) reduce the amount of principal payable upon acceleration of
the maturity of any Original Issue Discount or Indexed Security; (v) change the
currency or currency unit in which any Debt Security or any premium or interest
thereon is payable; (vi) impair the right to institute suit for the enforcement
of any payment on or with respect to any Debt Security; (vii) reduce the
percentage in principal amount of the outstanding Debt Securities affected
thereby the consent of whose holders is required for modification or amendment
of such Indenture or for waiver of compliance with certain provisions of the
Indenture or for waiver of certain defaults; (viii) change the obligation of
Protective Life to maintain an office or agency in the places and for the
purposes specified in such Indenture; (ix) in the case of the Subordinated
Indenture, modify the subordination provisions thereof in a manner adverse to
the holders of Subordinated Debentures of any series then outstanding (and in
the case of Subordinated Debentures issued in return for the proceeds of
Preferred Securities of any series then outstanding, adverse to the holders of
such Preferred Securities); or (x) modify the provisions relating to waiver of
certain defaults or any of the foregoing provisions. (Section 8.2 of each
Indenture.)
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SUBORDINATION UNDER THE SUBORDINATED INDENTURE
In the Subordinated Indenture, Protective Life has covenanted and agreed
that any Subordinated Debt Securities issued thereunder are subordinate and
junior in right of payment to all present and future Senior Indebtedness to the
extent provided in the Subordinated Indenture. The Subordinated Indenture
defines the term "Senior Indebtedness" as the principal, premium, if any, and
interest on (i) all indebtedness of Protective Life, whether outstanding on the
date of the issuance of Subordinated Debt Securities or thereafter created,
incurred or assumed, which is for money borrowed, or which is evidenced by a
note or similar instrument given in connection with the acquisition of any
business, properties or assets, including securities, (ii) any indebtedness of
others of the kinds described in the preceding clause (i) for the payment of
which Protective Life is responsible or liable as guarantor or otherwise and
(iii) amendments, renewals, extensions and refundings of any such indebtedness,
unless in any instrument or instruments evidencing or securing such indebtedness
or pursuant to which the same is outstanding, or in any such amendment, renewal,
extension or refunding, it is expressly provided that such indebtedness is not
superior in right of payment to Subordinated Debt Securities. The Senior
Indebtedness shall continue to be Senior Indebtedness and entitled to the
benefits of the subordination provisions irrespective of any amendment,
modification or waiver of any term of the Senior Indebtedness or extension or
renewal of the Senior Indebtedness.
If (i) Protective Life defaults in the payment of any principal, or premium,
if any, or interest on any Senior Indebtedness when the same becomes due and
payable, whether at maturity or at a date fixed for prepayment or declaration or
otherwise or (ii) an event of default occurs with respect to any Senior
Indebtedness permitting the holders thereof to accelerate the maturity thereof
and written notice of such event of default (requesting that payments on
Subordinated Debt Securities cease) is given to Protective Life by the holders
of Senior Indebtedness, then unless and until such default in payment or event
of default shall have been cured or waived or shall have ceased to exist, no
direct or indirect payment (in cash, property or securities, by set-off or
otherwise) shall be made or agreed to be made on account of the Subordinated
Debt Securities or interest thereon or in respect of any repayment, redemption,
retirement, purchase or other acquisition of Subordinated Debt Securities.
In the event of (i) any insolvency, bankruptcy, receivership, liquidation,
reorganization, readjustment, composition or other similar proceeding relating
to Protective Life, its creditors or its property, (ii) any proceeding for the
liquidation, dissolution or other winding-up of Protective Life, voluntary or
involuntary, whether or not involving insolvency or bankruptcy proceedings,
(iii) any assignment by Protective Life for the benefit of creditors or (iv) any
other marshalling of the assets of Protective Life, all present and future
Senior Indebtedness (including, without limitation, interest accruing after the
commencement of any such proceeding, assignment or marshalling of assets) shall
first be paid in full before any payment or distribution, whether in cash,
securities or other property, shall be made by Protective Life on account of
Subordinated Debt Securities. In any such event, any payment or distribution,
whether in cash, securities or other property (other than securities of
Protective Life or any other corporation provided for by a plan of
reorganization or a readjustment, the payment of which is subordinate, at least
to the extent provided in the subordination provisions of the Subordinated
Indenture with respect to the indebtedness evidenced by Subordinated Debt
Securities, to the payment of all Senior Indebtedness at the time outstanding
and to any securities issued in respect thereof under any such plan of
reorganization or readjustment), which would otherwise (but for the
subordination provisions) be payable or deliverable in respect of Subordinated
Debt Securities (including any such payment or distribution which may be payable
or deliverable by reason of the payment of any other indebtedness of Protective
Life being subordinated to the payment of Subordinated Debt Securities) shall be
paid or delivered directly to the holders of Senior Indebtedness, or to their
representative or trustee, in accordance with the priorities then existing among
such holders until all present and future Senior Indebtedness shall have been
paid in full. No present or future holder of any Senior Indebtedness shall be
prejudiced in the right to enforce subordination of the indebtedness evidenced
by Subordinated Debt Securities by any act or failure to act on the part of
Protective Life.
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Senior Indebtedness shall not be deemed to have been paid in full unless the
holders thereof shall have received cash, securities or other property equal to
the amount of such Senior Indebtedness then outstanding. Upon the payment in
full of all present and future Senior Indebtedness, the holders of Subordinated
Debt Securities shall be subrogated to all the rights of any holders of Senior
Indebtedness to receive any further payments or distributions applicable to the
Senior Indebtedness until all Subordinated Debt Securities shall have been paid
in full, and such payments or distributions received by any holder of
Subordinated Debt Securities, by reason of such subrogation, of cash, securities
or other property which otherwise would be paid or distributed to the holders of
Senior Indebtedness, shall, as between Protective Life and its creditors other
than the holders of Senior Indebtedness, on the one hand, and the holders of
Subordinated Debt Securities, on the other, be deemed to be a payment by
Protective Life on account of Senior Indebtedness, and not on account of
Subordinated Debt Securities.
The Subordinated Indenture provides that the foregoing subordination
provisions, insofar as they relate to any particular issue of Subordinated Debt
Securities, may be changed prior to such issuance. Any such change would be
described in the Prospectus Supplement relating to such Subordinated Debt
Securities.
The Subordinated Indenture places no limitation on the amount of additional
Senior Indebtedness that may be incurred by Protective Life. Protective Life
expects from time to time to incur additional indebtedness constituting Senior
Indebtedness.
DEFEASANCE AND COVENANT DEFEASANCE
If indicated in the applicable Prospectus Supplement, Protective Life may
elect either (i) to defease and be discharged from any and all obligations with
respect to the Debt Securities of or within any series (except as otherwise
provided in the relevant Indenture) ("defeasance") or (ii) to be released from
its obligations with respect to certain covenants applicable to the Debt
Securities of or within any series ("covenant defeasance"), upon the deposit
with the relevant Debt Trustee (or other qualifying trustee), in trust for such
purpose, of money and/or government obligations which through the payment of
principal and interest in accordance with their terms will provide money in an
amount sufficient, without reinvestment, to pay the principal of and any premium
or interest on such Debt Securities to Maturity or redemption, as the case may
be, and any mandatory sinking fund or analogous payments thereon. As a condition
to defeasance or covenant defeasance, Protective Life must deliver to the
relevant Debt Trustee an Officer's Certificate and an Opinion of Counsel to the
effect that the Holders of such Debt Securities will not recognize income, gain
or loss for Federal income tax purposes as a result of such defeasance or
covenant defeasance and will be subject to federal income tax on the same
amounts and in the same manner and at the same times as would have been the case
if such defeasance or covenant defeasance had not occurred. Such Opinion of
Counsel, in the case of defeasance under clause (i) above, must refer to and be
based upon a ruling of the Internal Revenue Service or a change in applicable
federal income tax law occurring after the date of the relevant Indenture.
Additional conditions to defeasance include (x) delivery by Protective Life to
the relevant Debt Trustee of an Officer's Certificate to the effect that neither
such Debt Securities nor any other Debt Securities of the same series, if then
listed on any securities exchange, will be delisted as a result of such
defeasance, (y) no Event of Default with respect to such Debt Securities or any
other Debt Securities occurring or continuing at the time of such defeasance or,
in the case of certain bankruptcy Events of Default, at any time on or prior to
the 90th day after the date of such defeasance and (z) such defeasance not
resulting in the trust arising from the deposit of any moneys in respect of such
defeasance constituting an "investment company" within the meaning of the
Investment Company Act unless such trust shall be registered under such Act or
exempt from registration thereunder. (Article 4 of each Indenture.) If indicated
in the applicable Prospectus Supplement, in addition to obligations of the
United States or an agency or instrumentality thereof, Government Obligations
may include obligations of the government or an agency or instrumentality of the
government issuing the currency or currency unit in which Debt Securities of
such series are payable. (Sections 1.1 and 3.1 of each Indenture.)
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In addition, with respect to the Subordinated Indenture, in order to be
discharged (i) no event or condition shall exist that, pursuant to certain
provisions described under "--Subordination under the Subordinated Indenture"
above, would prevent Protective Life from making payments of principal of (and
premium, if any) and interest on Subordinated Debt Securities and coupons
appertaining thereto at the date of the irrevocable deposit referred to above or
at any time during the period ending on the 121st day after such deposit date,
and (ii) Protective Life shall deliver to the Trustee under the Subordinated
Indenture an opinion of counsel to the effect that (a) the trust funds will not
be subject to any rights of holders of Senior Indebtedness, and (b) after the
121st day following the deposit, the trust funds will not be subject to the
effect of any applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally except that if a court were to rule under
any such law in any case or proceeding that the trust refunds remained the
property of Protective Life, then the Trustee under the Subordinated Indenture
and the holders of Subordinated Debt Securities would be entitled to certain
rights as secured creditors in such trust funds. (Section 4.6 of the
Subordinated Indenture.)
Protective Life may exercise its defeasance option with respect to such Debt
Securities notwithstanding its prior exercise of its covenant defeasance option.
If Protective Life exercises its defeasance option, payment of such Debt
Securities may not be accelerated because of an Event of Default. If Protective
Life exercises its covenant defeasance option, payment of such Debt Securities
may not be accelerated by reason of a Default or an Event of Default with
respect to the covenants to which such covenant defeasance is applicable.
However, if such acceleration were to occur by reason of another Event of
Default, the realizable value at the acceleration date of the money and
Government Obligations in the defeasance trust could be less than the principal
and interest then due on such Debt Securities, in that the required deposit in
the defeasance trust is based upon scheduled cash flow rather than market value,
which will vary depending upon interest rates and other factors.
NOTICES
Notices to holders of registered Debt Securities will be given by mail to
the addresses of such holders as they may appear in the Register. (Section 1.6
of each Indenture)
TITLE
Protective Life, the Debt Trustees and any agent of Protective Life or the
Debt Trustees may treat the Person in whose name a Debt Security is registered
as the absolute owner thereof (whether or not such Debt Security may be overdue)
for the purpose of receiving payment and for all other purposes. (Section 3.8 of
each Indenture.)
GOVERNING LAW
The Indentures and the Debt Securities will be governed by, and construed in
accordance with, the laws of the State of New York. (Section 1.11 of each
Indenture.)
THE DEBT TRUSTEES
The Bank of New York is the Debt Trustee under the Senior Indenture. AmSouth
Bank is the Debt Trustee under the Subordinated Indenture. Protective Life may
also maintain banking and other commercial relationships with each of the Debt
Trustees and their affiliates in the ordinary course of business. The Indentures
contain certain limitations on the right of each Debt Trustee, should it become
a creditor of Protective Life, to obtain payment of claims in certain cases, or
to realize for its own account on certain property received in respect of any
such claim as security or otherwise. Each Debt Trustee will be permitted to
engage in certain other transactions; however, if it acquires any conflicting
interest and there is a default under the Debt Securities, it must eliminate
such conflict or resign.
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DESCRIPTION OF CAPITAL STOCK OF PROTECTIVE LIFE
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
The authorized capital stock of Protective Life is 84,000,000 shares,
consisting of:
(a) 3,600,000 shares of Preferred Stock, par value $1.00 per share, of
which no shares were outstanding as of March 31, 1997;
(b) 400,000 shares of Series A Junior Participating Cumulative Preferred
Stock, par value $1.00 per share (the "Junior Preferred Stock"), of which no
shares were outstanding as of March 31, 1997; and
(c) 80,000,000 shares of Common Stock, par value $.50 per share (the
"Common Stock"), of which 30,807,526 shares (as well as the same number of
Rights ("Rights") to purchase shares of Series A Junior Participating
Cumulative Preferred Stock pursuant to the Rights Agreement, dated August 7,
1995 (the "Rights Agreement"), between Protective Life and AmSouth Bank, as
Rights Agent) were outstanding as of March 31, 1997.
In general, the classes of authorized capital stock are afforded preferences
with respect to dividends and liquidation rights in the order listed above. The
Board of Directors of Protective Life is empowered, without approval of the
stockholders, to cause the Preferred Stock to be issued in one or more series,
with the numbers of shares of each series and the rights, preferences and
limitations of each series to be determined by it. The specific matters that may
be determined by the Board of Directors include the dividend rights, conversion
rights, redemption rights and liquidation preferences, if any, of any wholly
unissued series of Preferred Stock (or of the entire class of Preferred Stock if
none of such shares have been issued), the number of shares constituting any
such series and the terms and conditions of the issue thereof. The descriptions
set forth below do not purport to be complete and are qualified in their
entirety by reference to the (i) Restated Certificate of Incorporation of
Protective Life, as amended (the "Restated Certificate of Incorporation"), (ii)
the By-laws of Protective Life and (iii) the Rights Agreement, copies of each of
which are filed as exhibits to the Registration Statement of which this
Prospectus forms a part.
No holders of any class of Protective Life's capital stock are entitled to
preemptive rights.
DESCRIPTION OF PREFERRED STOCK OF PROTECTIVE LIFE
The particular terms of any series of Preferred Stock offered hereby
("Offered Preferred Stock") will be set forth in the Prospectus Supplement
relating thereto. The rights, preferences, privileges and restrictions,
including dividend rights, voting rights, terms of redemption and liquidation
preferences, of the Offered Preferred Stock of each series will be fixed or
designated pursuant to a certificate of designation adopted by the Board of
Directors or a duly authorized committee thereof. The description of the terms
of a particular series of Offered Preferred Stock that will be set forth in a
Prospectus Supplement does not purport to be complete and is qualified in its
entirety by reference to the certificate of designation relating to such series.
DESCRIPTION OF COMMON STOCK OF PROTECTIVE LIFE
GENERAL
Subject to the rights of the holders of any shares of Preferred Stock which
may at the time be outstanding, holders of Common Stock are entitled to such
dividends as the Board of Directors may declare out of funds legally available
therefor. The holders of Common Stock will possess exclusive voting rights in
Protective Life, except to the extent the Board of Directors specifies voting
power with respect to any Preferred Stock issued. Except as hereinafter
described, holders of Common Stock are entitled to one vote for each share of
Common Stock, but will not have any right to cumulate votes in the election of
directors. In the event of liquidation, dissolution or winding up of Protective
Life, the holders of Common
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Stock are entitled to receive, after payment of all of Protective Life's debts
and liabilities and of all sums to which holders of any Preferred Stock may be
entitled, the distribution of any remaining assets of Protective Life. Holders
of Common Stock will not be entitled to preemptive rights with respect to any
shares which may be issued. Any shares of Common Stock sold hereunder will be
fully paid and nonassessable. AmSouth Bank is the registrar and transfer agent
for the Common Stock. The Common Stock is listed on the New York Stock Exchange
under the symbol "PL."
CERTAIN PROVISIONS
The provisions of Protective Life's Restated Certificate of Incorporation
that are summarized below may be deemed to have an anti-takeover effect and may
delay, defer or prevent a tender offer or takeover attempt that a stockholder
might consider to be in such stockholder's best interests, including those
attempts that might result in a premium over the market price for the shares
held by stockholders.
ISSUANCE OF PREFERRED STOCK. Pursuant to the Restated Certificate of
Incorporation, the Board of Directors by resolution may establish one or more
series of Preferred Stock having such number of shares, designation, relative
voting rights, dividend rights, dividend rates, liquidation and other rights,
preferences and limitations as may be fixed by the Board of Directors without
any further stockholder approval. Such rights, preferences, privileges and
limitations as may be established could have the effect of impeding or
discouraging the acquisition of control of Protective Life.
BUSINESS COMBINATIONS. Protective Life's Restated Certificate of
Incorporation contains a "fair price" provision which generally requires that
certain "Business Combinations" (as defined herein) with a "Related Person"
(generally the beneficial owner of at least 20 percent of Protective Life's
voting stock) be approved by the holders of at least 80 percent of Protective
Life's voting stock and the holders of at least 67 percent of the voting stock
held by stockholders other than such Related Person, unless (a) at least a
majority of the "Continuing Directors" of Protective Life (i) has expressly
approved in advance the acquisition of Protective Life's voting stock that
caused the Related Person involved in the Business Combination to become a
Related Person or (ii) has approved the Business Combination, or (b) the
Business Combination is either a "Reorganization" or a Business Combination in
which Protective Life is the surviving corporation and, in either event, the
cash or fair market value of the property, securities or other consideration to
be received per share as a result of the Business Combination by holders of the
Common Stock of Protective Life other than the Related Person is not less than
the highest per share price (with appropriate adjustments for recapitalizations
and for stock splits, stock dividends and like distributions) paid by such
Related Person in acquiring any holdings of Protective Life's Common Stock
either in or subsequent to the transaction or series of transactions by reason
of which the Related Person became a Related Person. Protective Life's Restated
Certificate of Incorporation defines "Business Combination" as (i) any
Reorganization of Protective Life or a subsidiary of Protective Life with or
into a Related Person, (ii) any sale, lease, exchange, transfer or other
disposition, including without limitation a pledge, mortgage or any other
security device, of all or any "Substantial Part" (as defined herein) of the
assets either of Protective Life or of a subsidiary of Protective Life, or both,
to a Related Person, (iii) any Reorganization of a Related Person with or into
Protective Life or a subsidiary of Protective Life, (iv) any sale, lease,
exchange, transfer or other disposition of all or any Substantial Part of the
assets of a Related Person to Protective Life or a subsidiary of Protective
Life, (v) the issuance of any securities of Protective Life or any subsidiary of
Protective Life to a Related Person except if such issuance were a stock split,
stock dividend or other distribution PRO RATA to all holders of the same class
of voting stock, (vi) any reclassification of Protective Life's securities
(including any reverse stock split) or any other recapitalization that would
have the effect of increasing the voting power of a Related Person, and (vii)
any agreement, contract, plan or other arrangement providing for any of the
transactions described in the definition of Business Transaction. "Continuing
Director" is defined to mean a director who was a member of the Board of
Directors of Protective Life immediately prior to the time such Related Person
became a Related Person. "Substantial Part" is defined as more than 20 percent
of the fair market value of the total assets of the corporation in
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question, as determined in good faith by a majority of the Continuing Directors
as of the end of its most recent fiscal year ending prior to the time the
determination is being made. "Reorganization" is defined to mean a merger,
consolidation, plan of exchange, sale of all or substantially all of the assets
(including, as pertains to a subsidiary of Protective Life, bulk reinsurance or
cession of substantially all of its policies and contracts) or other form of
corporate reorganization pursuant to which shares of voting stock, or other
securities of the subject corporation, are to be converted or exchanged into
cash or other property, securities or other consideration. Under the Restated
Certificate of Incorporation, the amendment of, repeal of or adoption of any
provision inconsistent with provisions of the Restated Certificate of
Incorporation relating to Business Combinations with a Related Person requires
the affirmative vote of the holders of at least 80 percent of Protective Life's
voting stock and the holders of at least 67 percent of Protective Life's voting
stock held by holders other than such Related Person.
SHARE PURCHASE RIGHTS PLAN
On August 7, 1995, the Board of Directors of Protective Life declared a
dividend distribution of one Right for each outstanding share of Common Stock.
The distribution was payable on August 18, 1995 to the shareholders of record on
that date. Each Right entitles the registered holder to purchase from Protective
Life one one-hundredth of a share of Junior Preferred Stock at a price of $110
per one one-hundredth of a share of Junior Preferred Stock (the "Purchase
Price"), subject to adjustment.
Until the earlier to occur of (i) ten days following the time of a public
announcement or notice to Protective Life that a person or group of affiliated
or associated persons (an "Acquiring Person") acquired, or obtained the right to
acquire, beneficial ownership of 15% or more of the outstanding Common Stock of
Protective Life (the "Stock Acquisition Time") or (ii) ten days following the
commencement or announcement of an intention to make a tender offer or exchange
offer which, if successful, would cause the bidder to own 15% or more of the
outstanding Common Stock (the earlier of such dates being called the
"Distribution Date"), the Rights will be evidenced, with respect to any of the
Common Stock certificates outstanding as of August 18, 1995, by such Common
Stock certificate with a copy of a "Summary of Rights" attached thereto. The
Rights Agreement provides that, until the Distribution Date, the Rights will be
transferred with and only with the Common Stock. Until the Distribution Date (or
earlier redemption or expiration of the Rights), new Common Stock certificates
issued after August 18, 1995, upon transfer or new issuance of the Common Stock,
will contain a notation incorporating the Rights Agreement by reference. Until
the Distribution Date (or earlier redemption or expiration of the Rights), the
surrender for transfer of any of the Common Stock certificates outstanding as of
August 18, 1995, even without a copy of a "Summary of Rights" attached thereto,
will also constitute the transfer of the Rights associated with the Common
Shares represented by such certificate. As soon as practicable following the
Distribution Date, separate certificates evidencing the Rights ("Right
Certificates") will be mailed to holders of record of the Common Stock as of the
close of business on the Distribution Date and such separate Right Certificates
alone will evidence the Rights.
The Rights are not exercisable until the Distribution Date. The Rights will
expire on August 18, 2005, unless earlier redeemed by Protective Life as
described below or extended.
The Purchase Price payable, and the number of shares of Junior Preferred
Stock or other securities or property issuable upon exercise of the Rights are
subject to adjustment from time to time to prevent dilution (i) in the event of
a stock dividend on, or a subdivision, combination or reclassification of, the
Junior Preferred Stock, (ii) upon the fixing of a record date for the issuance
to holders of Junior Preferred Stock of certain rights, options or warrants to
subscribe for or purchase Junior Preferred Stock or convertible securities at
less than the current market price of Junior Preferred Stock or (iii) upon the
fixing of a record date for the making of a distribution to holders of Junior
Preferred Stock of evidences of indebtedness or assets (excluding regular
periodic cash dividends not exceeding 125% of the last regular periodic cash
dividend or dividends payable in Junior Preferred Stock) or of subscription
rights or warrants (other than those referred to above). The number of Rights
and number of shares of Junior Preferred
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Stock issuable upon the exercise of each Right are also subject to adjustment in
the event of a stock split, combination or stock dividend on the Common Stock
prior to the Distribution Date.
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. No fractional shares of Common Stock will be issued and, in
lieu thereof, an adjustment in cash will be made based on the market value of
the Common Stock on the last trading date prior to the date of exercise.
In the event that after the Stock Acquisition Time, Protective Life is
acquired in a merger or other business combination transaction or 50% or more of
its assets, cash flow or earning power are sold or otherwise transferred, the
Rights Agreement provides that proper provision shall be made so that each
holder of a Right (other than the Acquiring Person) upon the exercise thereof at
the then-current exercise price of the Right, shall thereafter be entitled to
receive that number of shares of common stock of the acquiring company which at
the time of such transaction would have a market value of two times the exercise
price of the Right. In the event that Protective Life were the surviving
corporation in a merger and its Common Stock was changed or exchanged, proper
provision shall be made so that each holder of a Right (other than the Acquiring
Person) will thereafter have the right to receive upon exercise, that number of
shares of the Common Stock having a market value of two times the exercise price
of the Right.
In the event that a person or group becomes an Acquiring Person (otherwise
than pursuant to a tender offer or exchange offer for all outstanding shares of
Common Stock at a price and on terms which are determined to be fair and in the
best interests of Protective Life and its stockholders by a majority of the
members of the Board of Directors of Protective Life who are not Acquiring
Persons or representatives or nominees of or affiliated or associated with an
Acquiring Person), proper provision shall be made so that each holder of a
Right, other than Rights that were beneficially owned by the Acquiring Person,
which will thereafter be void, will thereafter have the right to receive upon
exercise that number of shares of Common Stock having a market value (as defined
in the Rights Agreement) of two times the exercise price of the Right. A person
or group will not be deemed to be an Acquiring Person if the Board of Directors
of Protective Life determines that such person or group became an Acquiring
Person inadvertently and such person or group promptly divests itself of a
sufficient number of shares of Common Stock so that such person or group is no
longer an Acquiring Person.
At any time prior to the earlier of (i) the Stock Acquisition Time and (ii)
August 18, 2005, Protective Life, by resolution of its 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 the action of the Board of Directors
electing to redeem the Rights (or at such time subsequent to such action as the
Board of Directors may determine), the right to exercise the Rights will
terminate and the only right of the holders of Rights will be to receive the
Redemption Price.
At any time after a person becomes an Acquiring Person and prior to the
acquisition by such person of 50% or more of the outstanding Common Stock of
Protective Life, the Board of Directors of Protective Life may exchange the
Rights (other than Rights beneficially owned by such person which have become
void), in whole or in part, for Common Stock of Protective Life at an exchange
ratio of one share of Common Stock per Right (subject to adjustment). Protective
Life may at its option substitute shares of Junior Preferred Stock (or other
series of substantially similar preferred stock of Protective Life) for some or
all of the shares of Common Stock exchangeable for Rights, at an exchange ratio
of one one-hundredth of a share of Junior Preferred Stock (or such other series
of preferred stock) for each share of Common Stock to be exchanged.
Until a Right is exercised, the holder thereof, as such, will have no rights
as a stockholder of Protective Life, other than rights resulting from such
holder's ownership of shares of Common Stock, including, without limitation, the
right to vote or to receive dividends. Stockholders may, depending upon the
circumstances, recognize taxable income in the event that the Rights become
exercisable for Common
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Stock (or other consideration) of Protective Life or for common stock of the
acquiring company as set forth above.
The Rights and the Rights Agreement can be amended by the Board of Directors
of Protective Life in any respect (including, without limitation, any extension
of the period in which the Right Certificates may be redeemed) at any time prior
to the Stock Acquisition Time. From and after such time, without the approval of
the stockholders of Protective Life or the holders of the Rights, the Board of
Directors may only supplement or amend the Rights Agreement in order (i) to cure
any ambiguity, (ii) to correct or supplement any provision contained in the
Rights Agreement which may be defective or inconsistent with any other provision
in the Rights Agreement, (iii) to shorten or lengthen any time period under the
Rights Agreement or (iv) to make any changes or supplements which Protective
Life may deem necessary or desirable which shall not adversely affect the
interests of the holders of Right Certificates (other than an Acquiring Person
or an affiliate or associate of any such person), provided that any such action
by the Board of Directors must have the concurrence of a majority of the
Continuing Directors (as defined in the Rights Agreement) and provided that the
Continuing Directors constitute a majority of directors then in office, and
provided that the Rights Agreement may not be supplemented or amended to
lengthen (A) a time period relating to when the Rights may be redeemed or to
modify the ability (or inability) of Protective Life's Board of Directors to
redeem the Rights, in either case at such time as the Rights are not then
redeemable or (B) any other time period unless such lengthening is for a purpose
of protecting, enhancing or clarifying the Rights of or the benefits to the
holders of Rights (other than an Acquiring Person or an affiliate or associate
of any such person).
For purposes of the Rights Agreement, the term "Continuing Director" means
any member of the Board of Directors of Protective Life who was a member of the
Board prior to the Stock Acquisition Time, and any person who is subsequently
elected to the Board if such person is recommended or approved by a majority of
the Continuing Directors, but shall not include an Acquiring Person, or an
affiliate or associate of an Acquiring Person, or any representative of the
foregoing entities.
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire Protective
Life in a manner which causes the Rights to become exercisable unless the offer
is conditioned on the Rights being redeemed. This potential dilution may have
the effect of delaying, deferring or discouraging attempts to acquire control of
Protective Life which are not approved by Protective Life's Board of Directors.
However, the Rights should not interfere with any merger or other business
combination approved by Protective Life's Board of Directors.
The foregoing description of the Rights Agreement is qualified in its
entirety by reference to the complete terms of the Rights as set forth in the
Rights Agreement. The Rights Agreement is incorporated by reference as an
exhibit to the Registration Statement of which this Prospectus is a part. A copy
of the Rights Agreement can be obtained as described under "Available
Information".
DESCRIPTION OF JUNIOR PREFERRED STOCK
GENERAL. In connection with the Rights Agreement, 400,000 shares of Junior
Preferred Stock have been reserved and authorized for issuance by the Board of
Directors of Protective Life. No shares of Junior Preferred Stock are
outstanding as of the date of this Prospectus. The following statements with
respect to the Junior Preferred Stock do not purport to be complete and are
subject to the detailed provisions of the Restated Certificate of Incorporation
and the certificate of designation relating to the Junior Preferred Stock (the
"Certificate of Designation"), which are filed as exhibits to the Registration
Statement of which this Prospectus is a part.
RANKING. The Junior Preferred Stock shall rank junior to all other series
of Protective Life's Preferred Stock as to the payment of dividends and the
distribution of assets, unless the terms of any such series shall provide
otherwise.
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DIVIDENDS AND DISTRIBUTIONS. Subject to the prior and superior rights of
the holders of any share of any series of Preferred Stock ranking prior to and
superior to the shares of Junior Preferred Stock with respect to dividends, the
holders of shares of Junior Preferred Stock, in preference to the holders of
Common Stock and of any other junior stock which may be outstanding, shall be
entitled to receive, when, as and if declared by the Board of Directors out of
funds legally available for that purpose, quarterly dividends payable in cash on
the first day of January, April, July and October in each year (each such date
being referred to herein as a "Quarterly Dividend Payment Date") commencing on
the first Quarterly Dividend Payment Date after the first issuance of a share or
fraction of a share of Junior Preferred Stock, in an amount per share (rounded
to the nearest cent) equal to the greater of (a) $2.50 per share ($10.00 per
annum) or (b) (subject to adjustment upon certain dilutive events) 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 or a
subdivision of the outstanding shares of Common Stock (by reclassification or
otherwise), declared on the Common Stock, since the immediately preceding
Quarterly Dividend Payment Date, or, with respect to the first Quarterly
Dividend Payment Date, since the first issuance of any share or fraction of a
share of Junior Preferred Stock.
Protective Life shall declare a dividend or distribution on the Junior
Preferred Stock 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 Quarterly Dividend Payment Date and
the next subsequent Quarterly Dividend Payment Date, a dividend of $2.50 per
share ($10.00 per annum) on the Junior Preferred Stock shall nevertheless be
payable on such subsequent Quarterly Dividend Payment Date.
VOTING RIGHTS. The holders of shares of Junior Preferred Stock shall have
the following voting rights: (a) subject to adjustment upon certain dilutive
events, each share of Junior Preferred Stock shall entitle the holder thereof to
100 votes (and each one one-hundredth of a share of Junior Preferred Stock shall
entitle the holder thereof to one vote) on all matters submitted to a vote of
the stockholders of Protective Life; (b) except as otherwise provided by the
Certificate of Designation, the Restated Certificate of Incorporation, any other
certificate of designation creating a series of preferred stock or any similar
stock or by law, the holders of shares of Junior Preferred Stock and the holders
of shares of Common Stock shall vote together as one class on all matters
submitted to a vote of stockholders of Protective Life; and (c) except as
provided in the Certificate of Designation or by applicable law, holders of
Junior Preferred Stock shall have no special voting rights and their consent
shall not be required for authorizing or taking any corporate action.
LIQUIDATION, DISSOLUTION OR WINDING UP. Upon any liquidation (voluntary or
otherwise), dissolution or winding up of Protective Life, no distribution shall
be made to the holders of shares of stock ranking junior (either as to dividends
or upon liquidation, dissolution or winding up) to the Junior Preferred Stock
unless, prior thereto, the holders of shares of Junior Preferred Stock shall
have received the higher of (i) $10 per share, plus an amount equal to accrued
and unpaid dividends and distributions thereon, whether or not declared, to the
date of such payment, or (ii) an aggregate amount per share, subject to
adjustment upon certain dilutive events, equal to 100 times the aggregate amount
to be distributed per share to holders of Common Stock; nor shall any
distribution be made to the holders of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding-up) with the Junior
Preferred Stock, except distributions made ratably on the Junior Preferred Stock
and all other 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.
CONSOLIDATION, MERGER, ETC. In case Protective Life shall enter into any
consolidation, merger, combination or other transaction in which the shares of
Common Stock are exchanged for or changed into other stock or securities, cash
and/or any other property, or otherwise changed, then in any such case, each
share
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of Junior Preferred Stock shall at the same time be similarly exchanged or
changed into an amount per share (subject to adjustment upon certain dilutive
events) 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 changed or exchanged.
CERTAIN RESTRICTIONS. Whenever quarterly dividends or other dividends or
distributions payable on the Junior Preferred Stock are in arrears, thereafter
and until all accrued and unpaid dividends and distributions, whether or not
declared, on shares of Junior Preferred Stock outstanding shall have been paid
in full, Protective Life shall not: (i) declare or pay dividends on, or make any
other distributions on any shares or stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding-up) to the Junior
Preferred Stock; (ii) declare or pay dividends, or make any other distributions,
on any shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding-up) with the Junior Preferred Stock except
dividends paid ratably on the Junior Preferred Stock, and all such parity stock
on which the 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
on a parity (either as to dividends or upon liquidation, dissolution or
winding-up) with the Junior Preferred Stock, provided that Protective Life may
at any time redeem, purchase or otherwise acquire shares of any such parity
stock in exchange for shares of any stock of Protective Life ranking junior
(either as to dividends or upon liquidation, dissolution or winding up) to the
Junior Preferred Stock; or (iv) purchase or otherwise acquire for consideration
any shares of Junior Preferred Stock, or any shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or winding-up) with the
Junior Preferred Stock, except in accordance with a purchase offer made in
writing or by publication (as determined by the Board of 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 or classes, shall determine in good
faith will result in fair and equitable treatment among the respective series or
classes. Protective Life shall not permit any subsidiary of Protective Life to
purchase or otherwise acquire for consideration any shares of stock of
Protective Life unless Protective Life could, in accordance with the foregoing
restrictions, purchase or otherwise acquire such shares at such time and in such
manner.
REDEMPTION. The shares of Junior Preferred Stock are not redeemable.
CERTAIN LIMITATIONS ON DIVIDENDS AND OTHER PAYMENTS
Under the terms of the 9% Subordinated Debentures, Series A of Protective
Life and the 8 1/4% Subordinated Debentures, Series B of Protective Life
(together, the "A & B Debentures"), under certain conditions, Protective Life
has the right at any time to extend the interest payment period with respect to
the A & B Debentures. During any such extended interest period, or at any time
during which there is an uncured Default or Event of Default (as defined in the
Subordinated Indenture, see "Description of Debt Securities of Protective
Life--Events of Default, Notice and Certain Rights on Default") under the A & B
Debentures, Protective Life is prohibited from paying any dividends on, or
redeeming, purchasing, acquiring or making a liquidation payment with respect
to, any of its shares of capital stock or make any guarantee payments with
respect to the foregoing, with certain limited exceptions.
DESCRIPTION OF PREFERRED SECURITIES OF THE PLC CAPITAL TRUSTS
Each PLC Capital Trust may issue, from time to time, only one series of
Preferred Securities having terms described in the Prospectus Supplement
relating thereto. The Declaration of each PLC Capital Trust authorizes the
Regular Trustees of such PLC Capital Trust to issue on behalf of such PLC
Capital Trust one series of Preferred Securities. The Declarations will be
qualified as indentures under the Trust Indenture Act. The Institutional
Trustee, Wilmington Trust Company, an independent trustee, will act as indenture
trustee for the Preferred Securities, to be issued by each PLC Capital Trust,
for the purposes of compliance with the provisions of the Trust Indenture Act.
The Preferred Securities will have such terms, including
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distributions, redemption, voting, liquidation rights and such other preferred,
deferred or other special rights or such restrictions as shall be set forth in
the Declaration or made part of the Declaration by the Trust Indenture Act, and
which will mirror the terms of the Subordinated Debt Securities held by the PLC
Capital Trust and as described in the Prospectus Supplement related thereto.
Reference is made to the Prospectus Supplement relating to the Preferred
Securities of the respective PLC Capital Trust for specific terms, including (i)
the distinctive designation of such Preferred Securities; (ii) the number of
Preferred Securities issued by such PLC Capital Trust; (iii) the annual
distribution rate (or method of determining such rate) for Preferred Securities
issued by such PLC Capital Trust and the date or dates upon which such
distributions shall be payable; provided, however, that distributions on such
Preferred Securities shall be payable on a quarterly basis to holders of such
Preferred Securities as of a record date in each quarter during which such
Preferred Securities are outstanding; (iv) whether distributions on Preferred
Securities issued by such PLC Capital Trust shall be cumulative, and, in the
case of Preferred Securities having such cumulative distribution rights, the
date or dates or method of determining the date or dates from which
distributions on Preferred Securities issued by such PLC Capital Trust shall be
cumulative; (v) the amount or amounts which shall be paid out of the assets of
such PLC Capital Trust to the holders of Preferred Securities of such PLC
Capital Trust upon voluntary or involuntary dissolution, winding-up or
termination of such PLC Capital Trust; (vi) the obligation, if any, of such PLC
Capital Trust to purchase or redeem Preferred Securities issued by such PLC
Capital Trust and the price or prices at which, the period or periods within
which, and the terms and conditions upon which, Preferred Securities issued by
such PLC Capital Trust shall be purchased or redeemed, in whole or in part,
pursuant to such obligation (with such redemption price to be determined through
negotiations among the Company and the Underwriters based on, among other
factors, redemption prices of securities similar to the Preferred Securities and
market conditions generally); (vii) the voting rights, if any, of Preferred
Securities issued by such PLC Capital Trust in addition to those required by
law, including the number of votes per Preferred Security and any requirement
for the approval by the holders of Preferred Securities, or of Preferred
Securities issued by one or more PLC Capital Trusts, or of both, as a condition
to specified action or amendments to the Declaration of such PLC Capital Trust;
(viii) the terms and conditions, if any, upon which the Subordinated Debt
Securities may be distributed to holders of Preferred Securities; (ix) if
applicable, any securities exchange upon which the Preferred Securities shall be
listed; and (x) any other relevant rights, preferences, privileges, limitations
or restrictions of Preferred Securities issued by such PLC Capital Trust not
inconsistent with the Declaration of such PLC Capital Trust or with applicable
law. All Preferred Securities offered hereby will be guaranteed by the Company
to the extent set forth below under "Description of the Preferred Securities
Guarantees." The Preferred Securities Guarantee of Protective Life, when taken
together with Protective Life's obligations under the Subordinated Debt
Securities and the relevant Supplemental Indenture, and its obligations under
each Declaration, including obligations to pay costs, expenses, debts and
liabilities of the PLC Capital Trust (other than with respect to the Trust
Securities), would provide a full and unconditional guarantee of amounts due on
Preferred Securities issued by each of the PLC Capital Trusts. Any United States
federal income tax considerations applicable to any offering of Preferred
Securities will be described in the Prospectus Supplement relating thereto.
In connection with the issuance of Preferred Securities, each PLC Capital
Trust will issue one series of Common Securities. The Declaration of each PLC
Capital Trust authorizes the Regular Trustees of such trust to issue on behalf
of such PLC Capital Trust one series of Common Securities having such terms
including distributions, redemption, voting, liquidation rights or such
restrictions as shall be set forth therein. The terms of the Common Securities
issued by a PLC Capital Trust will be substantially identical to the terms of
the Preferred Securities issued by such trust and the Common Securities will
rank PARI PASSU, and payments will be made thereon pro rata, with the Preferred
Securities except that, upon an event of default under the Declaration, the
rights of the holders of the Common Securities to payment in respect of
distributions and payments upon liquidation, redemption and otherwise will be
subordinated to the rights of the holders of the Preferred Securities. Except in
certain limited circumstances, the Common Securities will also carry the right
to vote, and appoint, remove or replace any of the PLC Capital Trustees
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of a PLC Capital Trust. All of the Common Securities of each PLC Capital Trust
will be directly or indirectly owned by the Company.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF PREFERRED SECURITIES
If an Event of Default under the Declaration of a PLC Capital Trust occurs
and is continuing, then the holders of Preferred Securities of such PLC Capital
Trust would rely on the enforcement by the Property Trustee of its rights as a
holder of the applicable series of Subordinated Debt Securities against the
Company. In addition, the holders of a majority in liquidation amount of the
Preferred Securities of such PLC Capital Trust will have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Property Trustee or to direct the exercise of any trust or power conferred
upon the Property Trustee under the applicable Declaration, including the right
to direct the Property Trustee to exercise the remedies available to it as a
holder of the Subordinated Debt Securities. If an event of default under the
applicable Declaration has occurred and is continuing and such event is
attributable to the failure of Protective Life to pay interest or principal on
the applicable series of Subordinated Debt Securities (a "Debt Payment Failure")
on the date such interest or principal is otherwise payable (or in the case of
redemption, on the redemption date) and such Debt Payment Failure is continuing,
a holder of Preferred Securities of such PLC Capital Trust may directly
institute a proceeding for enforcement of payment to such holder of the
principal of or interest on the applicable series of Subordinated Debt
Securities having a principal amount equal to the aggregate liquidation amount
of the Preferred Securities of such holder (a "Direct Action") after the
respective due date specified in the applicable series of Subordinated Debt
Securities. In connection with such Direct Action, the Company will be
subrogated to the rights of such holder of Preferred Securities under the
applicable Declaration to the extent of any payment made by the Company to such
holder of Preferred Securities in such Direct Action.
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DESCRIPTION OF THE PREFERRED SECURITIES GUARANTEES
Set forth below is a summary of information concerning the Preferred
Securities Guarantees which will be executed and delivered by Protective Life
for the benefit of the holders from time to time of Preferred Securities. Each
Preferred Securities Guarantee will be qualified as an indenture under the Trust
Indenture Act. Wilmington Trust Company, an independent trustee, will act as
indenture trustee under each Preferred Securities Guarantee (the "Preferred
Guarantee Trustee") for the purposes of compliance with the provisions of the
Trust Indenture Act. The terms of each Preferred Securities Guarantee will be
those set forth in such Preferred Securities Guarantee and those made part of
such Preferred Securities Guarantee by the Trust Indenture Act. The following
summary does not purport to be complete and is subject in all respects to the
provisions of, and is qualified in its entirety by reference to, the form of
Preferred Securities Guarantee, which is filed as an exhibit to the Registration
Statement of which this Prospectus forms a part, and the Trust Indenture Act.
Each Preferred Securities Guarantee will be held by the Preferred Guarantee
Trustee for the benefit of the holders of the Preferred Securities of the
applicable PLC Capital Trust.
GENERAL
Pursuant to each Preferred Securities Guarantee, the Company will
irrevocably and unconditionally agree, to the extent set forth therein, to pay
in full, to the holders of the Preferred Securities issued by a PLC Capital
Trust, the Guarantee Payments (as defined herein) (except to the extent paid by
such PLC Capital Trust), as and when due, regardless of any defense, right of
set-off or counterclaim which such PLC Capital Trust may have or assert. The
following payments or distributions with respect to Preferred Securities issued
by a PLC Capital Trust to the extent not paid by such PLC Capital Trust (the
"Guarantee Payments"), will be subject to the Preferred Securities Guarantee
thereon (without duplication): (i) any accrued and unpaid distributions which
are required to be paid on such Preferred Securities, to the extent such PLC
Capital Trust shall have funds available therefor; (ii) the redemption price,
and all accrued and unpaid distributions to the date of redemption (the
"Redemption Price") to the extent such PLC Capital Trust has funds available
therefor with respect to any Preferred Securities called for redemption by such
PLC Capital Trust and (iii) upon a voluntary or involuntary dissolution,
winding-up or termination of such PLC Capital Trust (other than in connection
with the distribution of Subordinated Debt Securities to the holders of
Preferred Securities or the redemption of all of the Preferred Securities), the
lesser of (a) the aggregate of the liquidation amount and all accrued and unpaid
distributions on such Preferred Securities to the date of payment, to the extent
such PLC Capital Trust has funds available therefor and (b) the amount of assets
of such PLC Capital Trust remaining available for distribution to holders of
such Preferred Securities in liquidation of such PLC Capital Trust. The
Company's obligation to make a Guarantee Payment may be satisfied by direct
payment of the required amounts by the Company to the holders of Preferred
Securities or by causing the applicable PLC Capital Trust to pay such amounts to
such holders.
Each Preferred Securities Guarantee will be a guarantee with respect to the
Preferred Securities issued by the applicable PLC Capital Trust, but will not
apply to any payment of distributions except to the extent such PLC Capital
Trust shall have funds available therefor. If the Company does not make interest
payments on the Subordinated Debt Securities purchased by a PLC Capital Trust,
such PLC Capital Trust will not pay distributions on the Preferred Securities
issued by such PLC Capital Trust and will not have funds available therefor. The
Preferred Securities Guarantee, when taken together with Protective Life's
obligations under the Subordinated Debt Securities, the Subordinated Debt
Securities Indenture, and the Declaration will provide a full and unconditional
guarantee on a subordinated basis by the Company of payments due on the
Preferred Securities.
The Company will also agree separately, through the Common Guarantees, to
irrevocably and unconditionally guarantee the obligations of the PLC Capital
Trusts with respect to the Common Securities to the same extent as the Preferred
Securities Guarantees, except that upon an event of default under the
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Subordinated Debt Securities Indenture, holders of Preferred Securities shall
have priority over holders of Common Securities with respect to distributions
and payments on liquidation, redemption or otherwise.
CERTAIN COVENANTS OF THE COMPANY
In each Preferred Securities Guarantee, the Company will covenant that, so
long as any Preferred Securities issued by the applicable PLC Capital Trust
remain outstanding, if there shall have occurred any event that would constitute
an event of default under such Preferred Securities Guarantee or the Declaration
of such PLC Capital Trust, then (a) the Company shall not declare or pay any
dividend on, make any distributions with respect to, or redeem, purchase or make
a liquidation payment with respect to, any of its capital stock (other than (i)
purchases or acquisitions of shares of its common stock in connection with the
satisfaction by Protective Life of its obligations under any employee benefit
plans or the satisfaction by the Company of its obligation pursuant to any
contract or security requiring it to purchase shares of its common stock, (ii)
as a result of a reclassification of its capital stock or the exchange or
conversion of one class or series of Protective Life capital stock for another
class or series of Protective Life capital stock, (iii) the purchase of
fractional interests in shares of Protective Life capital stock pursuant to an
acquisition or the conversion or exchange provisions of such Protective Life
capital stock or the security being converted or exchanged and (iv) redemptions
or purchases pursuant to Protective Life's Rights Agreement, dated August 7,
1995, between Protective Life and AmSouth Bank as Rights Agent), (b) the Company
shall not make any payment of interest, principal or premium, if any, on or
repay, repurchase or redeem any debt securities (including guarantees) issued by
the Company which rank PARI PASSU with or junior to Subordinated Debt Securities
and (c) the Company shall not make any guarantee payments with respect to the
foregoing (other than pursuant to a Preferred Securities Guarantee, a Common
Guarantee, the 8 1/4% TOPrS Guarantees and the Series A Guarantee.
MODIFICATION OF THE PREFERRED SECURITIES GUARANTEES; ASSIGNMENT
Except with respect to any changes which do not adversely affect the rights
of holders of Preferred Securities (in which case no vote will be required),
each Preferred Securities Guarantee may be amended only with the prior approval
of the holders of not less than a majority in liquidation amount of the
outstanding Preferred Securities issued by the applicable PLC Capital Trust. All
guarantees and agreements contained in a Preferred Securities Guarantee shall
bind the successors, assigns, receivers, trustees and representatives of the
Company and shall inure to the benefit of the holders of the Preferred
Securities of the applicable PLC Capital Trust then outstanding.
TERMINATION
Each Preferred Securities Guarantee will terminate as to the Preferred
Securities issued by the applicable PLC Capital Trust (a) upon full payment of
the Redemption Price of all Preferred Securities of such PLC Capital Trust, (b)
upon distribution of the Subordinated Debt Securities held by such PLC Capital
Trust to the holders of the Preferred Securities of such PLC Capital Trust or
(c) upon full payment of the amounts payable in accordance with the Declaration
of such PLC Capital Trust upon liquidation of such PLC Capital Trust. Each
Preferred Securities Guarantee will continue to be effective or will be
reinstated, as the case may be, if at any time any holder of Preferred
Securities issued by the applicable PLC Capital Trust must restore payment of
any sums paid under such Preferred Securities or such Preferred Securities
Guarantee.
EVENTS OF DEFAULT
An event of default under a Preferred Securities Guarantee will occur upon
the failure of the Company to perform any of its payment or other obligations
thereunder.
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The holders of a majority in liquidation amount of the Preferred Securities
to which such Preferred Securities Guarantee relates have the right to direct
the time, method and place of conducting any proceeding for any remedy available
to the Preferred Guarantee Trustee in respect of the Preferred Securities
Guarantee or to direct the exercise of any trust or power conferred upon the
Preferred Guarantee Trustee under such Preferred Securities Guarantee. If the
Preferred Guarantee Trustee fails to enforce such Preferred Securities
Guarantee, any holder of Preferred Securities to which such Preferred Securities
Guarantee relates may institute a legal proceeding directly against the Company
to enforce such holder's rights under such Preferred Securities Guarantee,
without first instituting a legal proceeding against the relevant PLC Capital
Trust, the Preferred Guarantee Trustee or any other person or entity.
Notwithstanding the foregoing, if the Company has failed to make a guarantee
payment, a holder of Preferred Securities may directly institute a proceeding
against the Company for enforcement of the Preferred Securities Guarantee for
such payment. The Company waives any right or remedy to require that any action
be brought first against such PLC Capital Trust or any other person or entity
before proceeding directly against the Company.
STATUS OF THE PREFERRED SECURITIES GUARANTEES
The Preferred Securities Guarantees will constitute unsecured obligations of
the Company and will rank (i) subordinate and junior in right of payment to all
present and future Senior Indebtedness (as such term is defined in the
Subordinated Indenture), (ii) PARI PASSU with the Common Guarantees, the
Subordinated Debt Securities, the Series A Guarantee, the Series A Subordinated
Debentures, the 8 1/4% TOPrS Guarantees, the Series B Subordinated Debentures
and any other liabilities or obligations that may be PARI PASSU by their terms
and (iii) senior to the Company's common stock, the most senior preferred or
preference stock now or hereafter issued by the Company and with any guarantee
now or hereafter entered into by Protective Life in respect to any preferred or
preference stock of any affiliate of the Company. The terms of the Preferred
Securities provide that each holder of Preferred Securities issued by the
applicable PLC Capital Trust by acceptance thereof agrees to the subordination
provisions and other terms of the Preferred Securities Guarantee relating
thereto.
The Preferred Securities Guarantees will constitute a guarantee of payment
and not of collection (that is, the guaranteed party may institute a legal
proceeding directly against the guarantor to enforce its rights under the
guarantee without instituting a legal proceeding against any other person or
entity).
INFORMATION CONCERNING THE PREFERRED GUARANTEE TRUSTEE
The Preferred Guarantee Trustee, prior to the occurrence of a default with
respect to a Preferred Securities Guarantee, undertakes to perform only such
duties as are specifically set forth in such Preferred Securities Guarantee and,
after default, shall exercise the same degree of care as a prudent individual
would exercise in the conduct of his or her own affairs. Subject to such
provisions, the Preferred Guarantee Trustee is under no obligation to exercise
any of the powers vested in it by a Preferred Securities Guarantee at the
request of any holder of Preferred Securities, unless offered reasonable
indemnity against the costs, expenses and liabilities which might be incurred
thereby; but the foregoing shall not relieve the Preferred Guarantee Trustee,
upon the occurrence of an event of default under such Preferred Securities
Guarantee, from exercising the rights and powers vested in it by such Preferred
Securities Guarantee.
GOVERNING LAW
The Preferred Securities Guarantees will be governed by and construed in
accordance with the internal laws of the State of New York.
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EFFECT OF OBLIGATIONS UNDER THE SUBORDINATED DEBT SECURITIES
AND THE PREFERRED SECURITIES GUARANTEES
As set forth in the Declarations, the sole purpose of the PLC Capital Trusts
is to issue the Trust Securities evidencing undivided beneficial interests in
the assets of each of the PLC Capital Trusts, and to invest the proceeds from
such issuance and sale in Subordinated Debt Securities.
As long as payments of interest and other payments are made when due on the
Subordinated Debt Securities held by the PLC Capital Trusts, such payments will
be sufficient to cover distributions and payments due on the Trust Securities
because of the following factors: (i) the aggregate principal amount of such
Subordinated Debt Securities will be equal to the sum of the aggregate stated
liquidation amount of the Trust Securities; (ii) the interest rate and the
interest and other payment dates on such Subordinated Debt Securities will match
the distribution rate and distribution and other payment dates for the Preferred
Securities; (iii) Protective Life shall pay all, and the PLC Capital Trusts
shall not be obligated to pay, directly or indirectly, all costs, expenses,
debt, and obligations of PLC Capital (other than with respect to the Trust
Securities); and (iv) the Declaration further provides that the PLC Capital
Trustees shall not take or cause or permit the PLC Capital Trusts to, among
other things, engage in any activity that is not consistent with the purposes of
the applicable PLC Capital Trust.
Payments of distributions (to the extent funds therefore are available) and
other payments due on the Preferred Securities (to the extent funds therefore
are available) are guaranteed by Protective Life as and to the extent set forth
under "Description of Preferred Securities Guarantees." If Protective Life does
not make interest payments on the Subordinated Debt Securities purchased by the
applicable PLC Capital Trust, it is expected that the applicable PLC Capital
Trust will not have sufficient funds to pay distributions on the Preferred
Securities and the Preferred Securities Guarantee will not apply, since the
Preferred Securities Guarantee covers the payment of distributions and other
payments on the Preferred Securities only if and to the extent that Protective
Life has made a payment of interest or principal on the Subordinated Debt
Securities held by the applicable PLC Capital Trust as its sole asset. However,
the Preferred Securities Guarantee, when taken together with the Company's
obligations under the Subordinated Debt Securities and the Subordinated
Indenture and its obligations under the Declaration, including its obligations
to pay costs, expenses, debts and liabilities of PLC Capital (other than with
respect to the Trust Securities), provide a full and unconditional guarantee, on
a subordinated basis, by the Company of amounts due on the Preferred Securities.
If Protective Life fails to make interest or other payments on the
Subordinated Debt Securities when due (taking account of any Extension Period),
the Declarations provide a mechanism whereby the holders of the Preferred
Securities affected thereby, using the procedures described in any accompanying
Prospectus Supplement, may direct the Property Trustee to enforce its rights
under the Subordinated Debt Securities. If a Debt Payment Failure has occurred
and is continuing, a holder of Preferred Securities may institute a Direct
Action for payment after the respective due date specified in the Subordinated
Debt Securities. In connection with such Direct Action, Protective Life will be
subrogated to the rights of such holder of Preferred Securities under the
Declaration to the extent of any payment made by Protective Life to such holder
of Preferred Securities in such Direct Action. Protective Life, under the
Preferred Securities Guarantee, acknowledges that the Guarantee Trustee shall
enforce the Preferred Securities Guarantee on behalf of the holders of the
Preferred Securities. If Protective Life fails to make payments under the
Preferred Securities Guarantee, the Preferred Securities Guarantee provides a
mechanism whereby the holders of the Preferred Securities may direct the
Preferred Securities Guarantee Trustee to enforce its rights thereunder. Any
holder of Preferred Securities may institute a legal proceeding directly against
Protective Life to enforce the Preferred Securities Guarantee Trustee's rights
under the Preferred Securities Guarantee without first instituting a legal
proceeding against PLC Capital, the Preferred Securities Guarantee Trustee, or
any other person or entity.
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<PAGE>
Protective Life and each of the PLC Capital Trusts believe that the above
mechanisms and obligations, taken together, provide a full and unconditional
guarantee by Protective Life on a subordinated basis of payments due on the
Preferred Securities. See "Description of the Preferred Securities Guarantee--
General."
DESCRIPTION OF STOCK PURCHASE CONTRACTS
AND STOCK PURCHASE UNITS
Protective Life may issue Stock Purchase Contracts, representing contracts
obligating holders to purchase from the Company, and the Company to sell to the
holders, a specified number of shares of Common Stock at a future date or dates.
The price per share of Common Stock may be fixed at the time the Stock Purchase
Contracts are issued or may be determined by reference to a specific formula set
forth in the Stock Purchase Contracts. The Stock Purchase Contracts may be
issued separately or as a part of Stock Purchase Units consisting of a Stock
Purchase Contract and Debt Securities or Preferred Securities or debt
obligations of third parties, including U.S. Treasury Securities, securing the
holders' obligations to purchase the Common Stock under the Purchase Contracts.
The Stock Purchase Contracts may require Protective Life to make periodic
payments to the holders of the Stock Purchase Units or vice versa, and such
payments may be unsecured or prefunded on some basis. The Stock Purchase
Contracts may require holders to secure their obligations thereunder in a
specified manner.
The applicable Prospectus Supplement will describe the terms of any Stock
Purchase Contracts or Stock Purchase Units. The description in the Prospectus
Supplement will not purport to be complete and will be qualified in its entirety
by reference to the Stock Purchase Contracts, and, if applicable, collateral
arrangements and depositary arrangements, relating to such Stock Purchase
Contracts or Stock Purchase Units.
PLAN OF DISTRIBUTION
Protective Life may sell any of the Debt Securities, Preferred Stock, Common
Stock, Stock Purchase Contracts and Stock Purchase Units and the PLC Capital
Trusts may sell any of the Preferred Securities, being offered hereby in any one
or more of the following ways from time to time: (i) through agents; (ii) to or
through underwriters; (iii) through dealers; and (iv) directly by Protective
Life or the PLC Capital Trusts, as the case may be, to purchasers.
The distribution of the Offered Securities may be effected from time to time
in one or more transactions at a fixed price or prices, which may be changed, at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices.
Offers to purchase Offered Securities may be solicited by agents designated
by Protective Life or the PLC Capital Trusts, as the case may be, from time to
time. Any such agent involved in the offer or sale of the Offered Securities in
respect of which this Prospectus is delivered will be named, and any commissions
payable by Protective Life or the PLC Capital Trusts to such agent will be set
forth, in the applicable Prospectus Supplement. Unless otherwise indicated in
such Prospectus Supplement, any such agent will be acting on a reasonable best
efforts basis for the period of its appointment. Any such agent may be deemed to
be an underwriter, as that term is defined in the Securities Act, of the Offered
Securities so offered and sold.
If Offered Securities are sold by means of an underwritten offering,
Protective Life and/or the PLC Capital Trusts will execute an underwriting
agreement with an underwriter or underwriters at the time an agreement for such
sale is reached, and the names of the specific managing underwriter or
underwriters, as well as any other underwriters, and the terms of the
transaction, including commissions, discounts and any other compensation of the
underwriters and dealers, if any, will be set forth in the Prospectus Supplement
which will be used by the underwriters to make resales of the Offered Securities
in respect of which this
31
<PAGE>
Prospectus is delivered to the public. If underwriters are utilized in the sale
of the Offered Securities in respect of which this Prospectus is delivered, the
Offered Securities will be acquired by the underwriters for their own account
and may be resold from time to time in one or more transactions, including
negotiated transactions, at fixed public offering prices or at varying prices
determined by the underwriter at the time of sale. Offered Securities may be
offered to the public either through underwriting syndicates represented by
managing underwriters or directly by the managing underwriters. If any
underwriter or underwriters are utilized in the sale of the Offered Securities,
unless otherwise indicated in the Prospectus Supplement, the underwriting
agreement will provide that the obligations of the underwriters are subject to
certain conditions precedent and that the underwriters with respect to a sale of
Offered Securities will be obligated to purchase all such Offered Securities if
any are purchased.
If a dealer is utilized in the sale of the Offered Securities in respect of
which this Prospectus is delivered, Protective Life or the PLC Capital Trusts,
as the case may be, will sell such Offered Securities to the dealer as
principal. The dealer may then resell such Offered Securities to the public at
varying prices to be determined by such dealer at the time of resale. Any such
dealer may be deemed to be an underwriter, as such term is defined in the
Securities Act, of the Offered Securities so offered and sold. The name of the
dealer and the terms of the transaction will be set forth in the Prospectus
Supplement relating thereto.
Offers to purchase Offered Securities may be solicited directly by
Protective Life or the PLC Capital Trusts, as the case may be, and the sale
thereof may be made by Protective Life or the PLC Capital Trusts, as the case
may be, directly to institutional investors or others, who may be deemed to be
underwriters within the meaning of the Securities Act with respect to any resale
thereof. The terms of any such sales will be described in the Prospectus
Supplement relating thereto.
Agents, underwriters and dealers may be entitled under relevant agreements
with Protective Life and/ or the PLC Capital Trusts to indemnification by
Protective Life and/or the PLC Capital Trusts against certain liabilities,
including liabilities under the Securities Act, or to any contribution with
respect to payments which such agents, underwriters and dealers may be required
to make in respect thereof.
Each series of Offered Securities will be a new issue with no established
trading market, other than the Common Stock which is listed on the New York
Stock Exchange. Any Common Stock sold pursuant to a Prospectus Supplement will
be listed on such exchange, subject to official notice of issuance. Protective
Life may elect to list any series of Debt Securities, Preferred Stock, Stock
Purchase Contracts or Stock Purchase Units and the PLC Capital Trusts may elect
to list any series of Preferred Securities, on an exchange, but neither
Protective Life, nor the PLC Capital Trusts shall be obligated to do so. It is
possible that one or more underwriters may make a market in a series of Offered
Securities, but will not be obligated to do so and may discontinue any market
making at any time without notice. Therefore, no assurance can be given as to
the liquidity of the trading market for the Offered Securities.
Agents, underwriters and dealers may be customers of, engage in transactions
with, or perform services for, Protective Life and its subsidiaries (including
the PLC Capital Trusts) in the ordinary course of business.
Offered Securities may also be offered and sold, if so indicated in the
Prospectus Supplement, in connection with a remarketing upon their purchase, in
accordance with a redemption or repayment pursuant to their terms, or otherwise,
by one or more firms ("remarketing firms"), acting as principals for their own
accounts or as agents for Protective Life or the PLC Capital Trusts, as the case
may be. Any remarketing firm will be identified and the terms of its agreement,
if any, with Protective Life or the PLC Capital Trusts and its compensation will
be described in the Prospectus Supplement. Remarketing firms may be deemed to be
underwriters, as such term is defined in the Securities Act, in connection with
the Offered Securities remarketed thereby. Remarketing firms may be entitled
under agreements which may be entered into with Protective Life to
indemnification or contribution by Protective Life and/or the PLC Capital Trusts
against certain civil liabilities, including liabilities under the Securities
Act, and may be
32
<PAGE>
customers of, engage in transactions with or perform services for Protective
Life and its subsidiaries (including the PLC Capital Trusts) in the ordinary
course of business.
If so indicated in the applicable Prospectus Supplement, Protective Life or
the PLC Capital Trusts, as the case may be, may authorize agents, underwriters
or dealers to solicit offers by certain institutions to purchase Offered
Securities from Protective Life or the PLC Capital Trusts, as the case may be,
at the public offering prices set forth in the applicable Prospectus Supplement
pursuant to delayed delivery contracts ("Contracts") providing for payment and
delivery on a specified date or dates. A commission indicated in the applicable
Prospectus Supplement will be paid to underwriters, dealers and agents
soliciting purchases of Offered Securities pursuant to Contracts accepted by
Protective Life.
LEGAL MATTERS
Unless otherwise indicated in the applicable Prospectus Supplement, certain
matters of Delaware law relating to the validity of the Preferred Securities of
the PLC Capital Trusts will be passed upon for the Company and the PLC Capital
Trusts by Richards, Layton & Finger, P.A., special Delaware counsel to the
Company and the PLC Capital Trusts, and the validity of any other Offered
Securities offered hereby and of the Preferred Securities Guarantee and the
Senior Debt Securities relating to any Preferred Securities of the PLC Capital
Trusts offered hereby will be passed upon for Protective Life and the PLC
Capital Trusts by Debevoise & Plimpton. Debevoise & Plimpton may rely upon
Richards, Layton & Finger, P.A., special Delaware counsel to Protective Life and
the PLC Capital Trusts, as to all matters of Delaware law relating to any
Preferred Securities.
EXPERTS
The consolidated balance sheets of Protective Life as of December 31, 1996
and 1995 and the related consolidated statements of income, stockholder's equity
and cash flows for each of the three years in the period ended December 31, 1996
and the related financial statement schedules which are incorporated by
reference or included in Protective Life's Annual Report on Form 10-K for the
year ended December 31, 1996 and which have been incorporated by reference in
this Prospectus, have been incorporated herein in reliance on the report of
Coopers & Lybrand L.L.P., independent accountants, given on the authority of
that firm as experts in accounting and auditing.
With respect to the unaudited interim financial information for Protective
Life and subsidiaries for the three-month periods ended March 31, 1997 and 1996
incorporated by reference in this Prospectus, the independent accountants have
reported that they have applied limited procedures in accordance with
professional standards for a review of such information. However, their separate
report included in the Registration Statement of which this Prospectus forms a
part states that they did not audit and they do not express an opinion on such
interim financial information. Accordingly, the degree of reliance on their
report on such information should be restricted in light of the limited nature
of the review procedures applied. The accountants are not subject to the
liability provisions of Section 11 of the Securities Act of 1933 for their
report on the unaudited interim financial information because that report is not
a "report" or a "part" of the Registration Statement prepared or certified by
the accountants within the meaning of Sections 7 and 11 of the Act.
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NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IN
CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY PROTECTIVE LIFE CORPORATION, PLC CAPITAL TRUST
II OR THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND
THE PROSPECTUS, NOR ANY SALE MADE HEREUNDER AND THEREUNDER, SHALL UNDER ANY
CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS
OF PROTECTIVE LIFE CORPORATION OR PLC CAPITAL TRUST II SINCE THE DATE HEREOF.
THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS SHALL NOT CONSTITUTE AN OFFER OR
SOLICITATION BY ANYONE IN ANY STATE IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION.
--------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PROSPECTUS SUPPLEMENT
PAGE
---------
Prospectus Supplement Summary............. S-6
<S> <C>
Risk Factors.............................. S-22
The Company............................... S-32
The Trust................................. S-38
Use of Proceeds........................... S-39
Third Quarter Results..................... S-40
Price Range of Common Stock and
Dividends............................... S-43
Capitalization of Protective Life......... S-44
Accounting Treatment...................... S-44
Selected Financial Information of the
Company................................. S-46
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................. S-48
Description of FELINE PRIDES.............. S-57
Description of the Purchase Contracts..... S-60
Certain Provisions of the Purchase
Contract Agreement and the Pledge
Agreement............................... S-69
Description of the Preferred Securities... S-72
Description of the Preferred Securities
Guarantee............................... S-83
Description of the Subordinated Debt
Securities.............................. S-85
Effect of Obligations Under the
Subordinated Debt Securities and the
Preferred Securities Guarantee.......... S-96
Certain Federal Income Tax Consequences... S-97
Underwriting.............................. S-104
Legal Matters............................. S-106
Index of Terms for Prospectus
Supplement.............................. S-107
Index to Financial Statements............. F-1
PROSPECTUS
Available Information..................... 3
Incorporation of Certain Documents by
Reference............................... 4
Protective Life Corporation............... 5
The PLC Capital Trusts.................... 6
Use of Proceeds........................... 6
Consolidated Earnings Ratios.............. 7
Description of Debt Securities of
Protective Life......................... 8
Description of Capital Stock of Protective
Life.................................... 18
Description of Preferred Stock of
Protective Life......................... 18
Description of Common Stock of Protective
Life.................................... 18
Description of Preferred Securities of the
PLC Capital Trusts...................... 24
Description of the Preferred Securities
Guarantees.............................. 27
Effect of Obligations Under the
Subordinated
Debt Securities and the Preferred
Securities Guarantees................... 30
Description of Stock Purchase Contracts
and Stock Purchase Units................ 31
Plan of Distribution...................... 31
Legal Matters............................. 33
Experts................................... 33
</TABLE>
2,000,000 FELINE PRIDES-SM-
PROTECTIVE LIFE CORPORATION
PLC CAPITAL TRUST II
-----------------
PROSPECTUS SUPPLEMENT
-----------------
MERRILL LYNCH & CO.
GOLDMAN, SACHS & CO.
FOX-PITT, KELTON INC.
THE ROBINSON-HUMPHREY COMPANY
NOVEMBER 20, 1997
-SM-SERVICE MARK OF MERRILL LYNCH & CO. INC.
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