- -------------------------------------------------------------------------------
FORM 10-Q
------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-12332
Protective Life Corporation
(Exact name of registrant as specified in its charter)
Delaware 95-2492236
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
2801 Highway 280 South
Birmingham, Alabama 35223
(Address of principal executive offices and zip code)
(205) 879-9230
(Registrant's telephone number, including area code)
------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Number of shares of Common Stock, $.50 par value, outstanding as of May 9, 1997:
30,814,136 shares.
<PAGE>
PROTECTIVE LIFE CORPORATION
INDEX
Part I. Financial Information:
Item 1. Financial Statements:
Report of Independent Accountants
Consolidated Condensed Statements of Income for the Three Months
ended March 31, 1997 and 1996 (unaudited)
Consolidated Condensed Balance Sheets as of March 31, 1997
(unaudited) and December 31, 1996
Consolidated Condensed Statements of Cash Flows for the
Three Months ended March 31, 1997 and 1996 (unaudited)
Notes to Consolidated Condensed Financial Statements (unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Part II. Other Information:
Item 4. Results of Votes of Security Holders
Item 6. Exhibits and Reports on Form 8-K
Signature
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Directors and Stockholders
Protective Life Corporation
Birmingham, Alabama
We have reviewed the accompanying consolidated condensed balance sheet of
Protective Life Corporation and subsidiaries as of March 31, 1997, and the
related consolidated condensed statements of income and consolidated condensed
statements of cash flows for the three-month periods ended March 31, 1997 and
1996. These financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the consolidated condensed financial statements referred to above for
them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of December 31, 1996, and the
related consolidated statements of income, stockholders' equity, and cash flows
for the year then ended (not presented herein); and in our report dated February
11, 1997, we expressed an unqualified opinion which contains an explanatory
paragraph regarding the changes in accounting for stock-based employee
compensation plans in 1995 on those consolidated financial statements. In our
opinion, the information set forth in the accompanying consolidated condensed
balance sheet as of December 31, 1996, is fairly stated in all material respects
in relation to the consolidated balance sheet from which it has been derived.
COOPERS & LYBRAND L.L.P.
Birmingham, Alabama
April 23, 1997
2
<PAGE>
PROTECTIVE LIFE CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Dollars in thousands except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
1997 1996
---- ----
<S> <C> <C>
REVENUES
Premium and policy fees (net of reinsurance ceded:
1997 - $54,509; 1996 - $78,303) $129,578 $115,586
Net investment income 130,330 124,280
Realized investment gains (losses) (418) 4,421
Other income 4,762 5,458
--------- ---------
264,252 249,745
BENEFITS AND EXPENSES
Benefits and settlement expenses (net of reinsurance ceded:
1997 - $33,536; 1996 - $56,751) 163,019 153,140
Amortization of deferred policy acquisition costs 20,835 21,818
Other operating expenses (net of reinsurance ceded:
1997 - $14,254 1996 - $17,802) 41,630 41,647
--------- ----------
225,484 216,605
INCOME BEFORE INCOME TAX AND MINORITY
INTEREST 38,768 33,140
Income tax expense 13,181 11,268
--------- ----------
INCOME BEFORE MINORITY INTEREST 25,587 21,872
Minority interest in net income
of consolidated subsidiaries 804 804
----------- -----------
NET INCOME $ 24,783 $ 21,068
========== =========
NET INCOME PER SHARE $ .80 $ .73
============ ===========
DIVIDENDS PAID PER SHARE $ .18 $ .16
============ ===========
Average shares outstanding 31,161,907 29,020,360
</TABLE>
See notes to consolidated condensed financial statements
3
<PAGE>
PROTECTIVE LIFE CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
1997 1996
-------------------------------------
<S> <C> <C>
ASSETS (Unaudited)
Investments:
Fixed maturities $4,697,855 $4,686,072
Equity securities 37,255 35,250
Mortgage loans on real estate 1,579,900 1,503,080
Investment real estate, net 11,775 14,305
Policy loans 166,527 166,704
Other long-term investments 34,132 32,506
Short-term investments 87,328 114,258
----------- -----------
Total investments 6,614,772 6,552,175
Cash 41,996 121,051
Accrued investment income 73,951 70,544
Accounts and premiums receivable, net 38,731 47,371
Reinsurance receivables 335,838 332,614
Deferred policy acquisition costs 502,568 488,384
Property and equipment, net 36,476 36,091
Other assets 69,050 64,278
Assets held in separate accounts 603,630 550,697
----------- -----------
TOTAL ASSETS $8,317,012 $8,263,205
========== ==========
LIABILITIES
Policy liabilities and accruals $2,725,740 $2,709,386
Guaranteed investment contract deposits 2,474,605 2,474,728
Annuity deposits 1,344,933 1,331,067
Other policyholders' funds 146,076 142,221
Other liabilities 152,633 170,442
Accrued income taxes 6,885 (4,521)
Deferred income taxes 16,534 37,869
Debt 195,000 181,000
Liabilities related to separate accounts 603,630 550,697
Minority interest in consolidated subsidiaries 55,000 55,000
----------- -----------
TOTAL LIABILITIES 7,721,036 7,647,889
---------- ----------
COMMITMENTS AND CONTINGENT LIABILITIES - NOTE B
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, $0.50 par value
Shares authorized: 80,000,000
Issued: 1997 and 1996 - 33,336,462 16,668 16,668
Additional paid-in capital 166,828 166,713
Net unrealized gains (losses) on investments
(net of income tax: 1997 - $(17,420); 1996 - $3,601) (32,352) 6,688
Retained earnings 461,280 442,046
Treasury stock (1997 - 2,528,936 shares; 1996 - 2,561,344 shares) (11,856) (11,874)
Unallocated stock in Employee Stock Ownership Plan
(1997 - 693,120 shares; 1996 - 743,462 shares) (4,592) (4,925)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 595,976 615,316
----------- -----------
$8,317,012 $8,263,205
=========== ===========
</TABLE>
See notes to consolidated condensed financial statements
4
<PAGE>
PROTECTIVE LIFE CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
--------------------
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 24,783 $ 21,068
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization of deferred policy acquisition costs 20,835 21,819
Capitalization of deferred policy acquisition costs (25,480) (20,328)
Depreciation expense 1,496 1,570
Deferred income taxes (314) 459
Accrued income taxes 11,406 1,740
Interest credited to universal life and investment products 41,239 69,895
Policy fees assessed on universal life and investment products (31,163) (26,535)
Change in accrued investment income and other receivables 2,381 (23,643)
Change in policy liabilities and other policyholders' funds
of traditional life and health products 93,441 86,786
Change in other liabilities (17,899) (5,699)
Other (net) (4,914) (7,335)
----------- -----------
Net cash provided by operating activities 115,811 119,797
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Maturities and principal reductions of investments
Investments available for sale 723,663 189,407
Other 28,655 20,728
Sale of investments
Investments available for sale 537,926 354,545
Other 2,776 554,969
Cost of investments acquired
Investments available for sale (1,332,927) (1,295,016)
Other (89,573) (119,178)
Acquisitions and bulk reinsurance assumptions (2,436) 116,220
Purchase of property and equipment (1,890) (1,856)
Sale of property and equipment 54 331
----------- -----------
Net cash used in investing activities (133,752) (179,850)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings under line of credit arrangements and debt 534,400 442,234
Principal payments on line of credit arrangements and debt (520,400) (429,034)
Dividends to stockholders (5,549) (4,607)
Investment product deposits and changes in universal life deposits 174,968 309,117
Investment product withdrawals (244,533) (254,493)
----------- -----------
Net cash provided by (used in) financing activities (61,114) 63,217
------------- ------------
INCREASE (DECREASE) IN CASH (79,055) 3,164
CASH AT BEGINNING OF PERIOD 121,051 11,392
------------ ------------
CASH AT END OF PERIOD $ 41,996 $ 14,556
============ ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period:
Interest on debt $ (4,662) $ (4,594)
Income taxes $ (1,858) $ (8,496)
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Reissuance of treasury stock to ESOP $ 84 $ 669
Unallocated stock in ESOP $ 333 $ 334
Reissuance of treasury stock $ 49
Acquisitions
Assets acquired $ 339 $ 138,564
Liabilities assumed (90) (169,287)
--------------- ----------
Net $ 249 $(30,723)
============== ========
</TABLE>
See notes to consolidated condensed financial statements
5
<PAGE>
PROTECTIVE LIFE CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements
of Protective Life Corporation (the "Company") have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the disclosures required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
necessary for a fair presentation have been included. Operating results for the
three month period ended March 31, 1997, are not necessarily indicative of the
results that may be expected for the year ending December 31, 1997. The year-end
consolidated condensed balance sheet data was derived from audited financial
statements, but does not include all disclosures required by generally accepted
accounting principles. For further information, refer to the consolidated
financial statements and notes thereto included in the Company's annual report
on Form 10-K for the year ended December 31, 1996.
NOTE B - 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 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 (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. The Company and
its subsidiaries, like other life and health insurers, in the ordinary course of
business, are involved in such litigation.
6
<PAGE>
The outcome of any such litigation cannot be predicted with certainty. In
addition, in some lawsuits involving insurers' sales practices, insurers have
made material settlement payments to end litigation.
Pending litigation includes a class action filed in Jefferson County
(Birmingham), Alabama with respect to the refund of certain cancer insurance
premiums. 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 C - BUSINESS SEGMENTS
The Company operates predominantly in the life and accident and health
insurance industry. The following table sets forth total revenues, income (loss)
before income tax and minority interest, and identifiable assets of the
Company's business segments.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
-----------------------------------------------------------------
1997 1996
---- ----
AMOUNT PERCENT AMOUNT PERCENT
---------- ---------- --------- ---------
(dollars in thousands)
<S> <C> <C> <C> <C>
TOTAL REVENUES:
Acquisitions $ 54,110 20.5% $ 52,026 20.8%
Financial Institutions 15,028 5.7 14,675 5.9
Group 60,836 23.0 51,018 20.4
Guaranteed Investment Contracts 50,885 19.3 50,834 20.4
Individual Life 48,927 18.5 46,204 18.5
Investment Products 29,590 11.2 29,774 11.9
Corporate and Other 4,715 1.7 4,524 1.8
Unallocated Realized
Investment Gains (Losses) 161 0.1 690 0.3
---------- ------ ---------- ------
$264,252 100.0% $249,745 100.0%
======== ===== ======== =====
INCOME (LOSS) BEFORE INCOME
TAX AND MINORITY INTEREST:
Acquisitions $ 14,835 38.3 % $ 12,959 39.1%
Financial Institutions 2,917 7.5 1,335 4.0
Group 3,718 9.6 3,872 11.6
Guaranteed Investment Contracts 6,189 15.9 6,328 19.1
Individual Life 5,764 14.9 3,531 10.7
Investment Products 3,218 8.3 2,903 8.8
Corporate and Other 1,966 5.1 1,522 4.6
Unallocated Realized
Investment Gains (Losses) 161 0.4 690 2.1
---------- ------ ---------- ------
$ 38,768 100.0 % $ 33,140 100.0%
======== ===== ======== =====
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1997 DECEMBER 31, 1996
---------------- ---------------------
AMOUNT PERCENT AMOUNT PERCENT
----------- ----------- --------- ---------
(dollars in thousands)
<S> <C> <C> <C> <C>
IDENTIFIABLE ASSETS:
Acquisitions $1,532,813 18.4% $1,579,253 19.1%
Financial Institutions 330,843 4.0 352,021 4.3
Group 280,766 3.4 278,926 3.4
Guaranteed Investment Contracts 2,587,899 31.1 2,608,149 31.5
Individual Life 1,069,345 12.9 1,037,386 12.5
Investment Products 1,945,698 23.4 1,873,119 22.7
Corporate and Other 569,648 6.8 534,351 6.5
----------- ------ ----------- ------
$8,317,012 100.0% $8,263,205 100.0%
========== ===== ========== =====
</TABLE>
7
<PAGE>
NOTE D - 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. At March 31, 1997 and for the three months then ended, the
Company's life insurance subsidiaries had stockholder's equity and net income
prepared in conformity with statutory reporting practices of $493.1 million and
$22.4 million, respectively.
NOTE E - INVESTMENTS
As prescribed by Statement of Financial Accounting Standards ("SFAS")
No. 115, 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.
The Company's balance sheets at March 31, 1997 and December 31, 1996,
prepared on the basis of reporting investments at amortized cost rather than at
market values, are as follows:
MARCH 31, 1997 DECEMBER 31, 1996
-------------- -----------------
(IN THOUSANDS)
Total investments $6,666,568 $6,534,122
Deferred policy acquisition costs 500,544 496,148
All other assets 1,199,672 1,222,646
---------- ----------
$8,366,784 $8,252,916
========== ==========
Deferred income taxes $ 33,754 $ 34,268
All other liabilities 7,704,702 7,610,020
--------- ----------
7,738,456 7,644,288
Stockholders' equity 628,328 608,628
---------- -----------
$8,366,784 $8,252,916
========== ==========
NOTE F - 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. In
February 1997 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 "Earnings per Share" effective for
financial statements issued for periods ending after December 15, 1997. The
Company anticipates that the impact of adopting this accounting standard will
not be significant.
8
<PAGE>
NOTE G - 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 H - SUBSEQUENT EVENTS
On April 8, 1997, the Company announced it had reached an agreement to
acquire all of the outstanding capital stock of West Coast Life Insurance
Company ("West Coast Life") and the purchase is expected to be financed from
internal sources. The agreement is subject to regulatory approval and certain
customary closing conditions. At December 31, 1996, West Coast Life had $9.5
billion of life insurance in force, total statutory assets of $752 million and
$106 million of annual premium. The purchase price is approximately $257
million. The Company expects to operate West Coast Life as a subsidiary, with
its headquarters in California, and retain West Coast Life's sales force.
On April 29, 1997, a special purpose finance subsidiary of the Company,
PLC Capital Trust I ("PLC Capital Trust") issued $75 million of 8.25% Trust
Originated Preferred Securities ("TOPrS"), guaranteed on a subordinated basis by
the Company. PLC Capital Trust was formed solely to issue TOPrS and other
securities and use the proceeds thereof to purchase subordinated debentures of
the Company. The Company has the right under the subordinated debentures to
extend interest payment periods up to 20 consecutive quarters, and, as a
consequence, quarterly dividends on the TOPrS 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 Trust during any such extended
interest payment period. The TOPrS are redeemable by PLC Capital Trust at any
time on or after April 29, 2002. Net proceeds of approximately $72.6 million
were used to repay bank borrowings. The TOPrS and dividends thereon will be
reported in the Company's financial statement as "minority interest in
consolidated subsidiaries." In related transactions, the Company entered into
interest rate swap agreements which effectively converted the TOPrS from a fixed
dividend rate to the floating 90 day London Interbank Offered Rate ("LIBOR")
plus 74 basis points. The initial effective interest rate was 6.52%.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Protective Life Corporation through its subsidiaries provides financial
services through the production, distribution, and administration of insurance
and investment products. Founded in 1907, Protective Life Insurance Company
("Protective Life") is the Company's principal operating subsidiary.
Unless the context otherwise requires, the "Company" refers to the
consolidated group of Protective Life Corporation and its subsidiaries.
The Company has six operating divisions: Acquisitions, Financial
Institutions, Group, Guaranteed Investment Contracts, Individual Life, and
Investment Products. The Company also has an additional business segment which
is described herein as Corporate and Other.
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
-----------------------------------
THREE MONTHS PERCENTAGE
ENDED AMOUNT INCREASE/
MARCH 31 (IN THOUSANDS) (DECREASE)
------------ --------------- -----------
1996 $115,586 11.1%
1997 129,578 12.1
Premiums and policy fees increased $14.0 million or 12.1% in the first
three months of 1997 over the first three months of 1996. The coinsurance by the
Acquisitions Division of two blocks of policies in the fourth quarter of 1996
resulted in a $2.3 million increase in premiums and policy fees. Decreases in
older acquired blocks resulted in a $2.3 million decrease in premiums and policy
fees. Premium and policy fees from the Financial Institutions Division increased
slightly in the first three months of 1997 as compared to the first three months
of 1996. The reinsurance of a block of policies in the second quarter of 1996
represented a $5.0 million increase in premiums and policy fees. This increase
was largely offset by decreases resulting from a reinsurance arrangement begun
in 1995, whereby most of the Division's new credit insurance sales are ceded to
a reinsurer. Premium and policy fees from the Group Division increased $10.1
million in the first three months of 1997 as compared to the same period in
1996. Premium and policy fees related to the Group Division's dental business
increased $6.8 million in the first three months of 1997 as compared to the same
period in 1996. Increases in premiums and policy fees from the Individual Life
and Investment Product Divisions were $3.2 million and $0.6 million,
respectively.
10
<PAGE>
Net Investment Income
The following table sets forth for the periods shown the amount of net
investment income and the percentage change from the prior period:
NET INVESTMENT INCOME
THREE MONTHS ----------------------------
ENDED AMOUNT PERCENTAGE
MARCH 31 (IN THOUSANDS) INCREASE
-------------- -------------- ----------
1996 $124,280 10.3%
1997 130,330 4.9
Net investment income in the first three months of 1997 was $6.1
million or 4.9% higher than the corresponding period of the preceding year
primarily due to increases in the average amount of invested assets. Invested
assets have increased primarily due to receiving annuity deposits and to
acquisitions. The assumption of a block of policies in the second quarter of
1996 and two blocks of policies in the fourth quarter of 1996 resulted in an
increase in net investment income of $2.7 million in the first three months of
1997 as compared to the same period in 1996.
Realized Investment Gains (Losses)
The Company generally purchases its investments with the intent to hold
to maturity by purchasing investments that match future cash-flow needs.
However, the Company may sell any of its investments to maintain approximate
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 have resulted principally from portfolio
management decisions to maintain approximate matching of assets and liabilities.
The following table sets forth realized investment gains (losses) for
the periods shown:
THREE MONTHS REALIZED
ENDED INVESTMENT GAINS (LOSSES)
MARCH 31 (IN THOUSANDS)
-------------- ---------------------------
1996 $4,421
1997 (418)
Realized investment losses were $0.4 million for the first three months
of 1997 compared to realized investment gains of $4.4 million for the
corresponding period of 1996. 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.
11
<PAGE>
Other Income
The following table sets forth other income for the periods shown:
THREE MONTHS
ENDED OTHER INCOME
MARCH 31 (IN THOUSANDS)
------------ --------------
1996 $5,458
1997 4,762
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 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 three
months of 1997 was $0.7 million lower than the corresponding period of 1996.
Revenues from the Company's broker-dealer subsidiary increased $0.9 million in
the first three months of 1997 as compared to the same period in 1996. Other
income from all other sources decreased $1.6 million in the first three months
of 1997 as compared with the first three months of 1996.
Income Before Income Tax and Minority Interest
The following table sets forth income or loss before income tax and
minority interest by business segment for the periods shown:
INCOME (LOSS) BEFORE INCOME TAX
AND MINORITY INTEREST
THREE MONTHS ENDED MARCH 31
-------------------------------
(IN THOUSANDS)
BUSINESS SEGMENT 1997 1996
---------------- ---- ----
Acquisitions $14,835 $12,959
Financial Institutions 2,917 1,335
Group 3,718 3,872
Guaranteed Investment Contracts 6,189 6,328
Individual Life 5,764 3,531
Investment Products 3,218 2,903
Corporate and Other 1,966 1,522
Unallocated Realized Investment Gains(Losses) 161 690
----- ---------
$38,768 $33,140
======= =======
Percentage Increase 17.0% 12.1%
12
<PAGE>
Pretax earnings from the Acquisitions Division increased $1.9 million
in the first three 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 three
most recent acquisitions resulted in a $0.9 million increase in pretax earnings.
Older acquired blocks experienced a $1.0 million increase in pretax earnings in
the first three months of 1997 as compared to the same period in 1996 primarily
due to improved mortality experience.
Pretax earnings of the Financial Institutions Division were $1.6
million higher in the first three 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.
Group Division pretax earnings were $0.2 million lower in the first
three months of 1997 as compared to the first three months of 1996. Lower cancer
earnings offset improved traditional group life and health results. Dental
earnings were $2.2 million in the first quarter of 1997 as compared to $2.4
million in the first quarter of 1996. The Division recently announced its
intention to exit the traditional group major medical business implementing its
strategy to focus primarily on dental products. This decision is not expected to
have a significant effect on the Division's results.
The Guaranteed Investment Contract ("GIC") Division had pretax
operating earnings of $6.9 million in the first three months of 1997 and $8.7
million in the corresponding period of 1996. In December, 1996, the Company sold
a major portion of its bank loan participations in a securitization transaction
which reduced the Division's earnings. In addition, the Division has shortened
the duration of its invested assets which also reduced earnings. Realized
investment losses associated with this Division in the first three months of
1997 were $0.7 million as compared to $2.4 million in the same period last year.
As a result, total pretax earnings were $6.2 million in the first three months
of 1997 compared to $6.3 million for the same period last year.
The Individual Life Division had pretax operating earnings of $5.8
million in the first three months of 1997 as compared to $2.4 million in the
same period of 1996. Earnings from Empire General (an insurance subsidiary which
distributes products through brokerage general agencies) improved $1.6 million
in the first quarter of 1997 as compared to the same period in 1996. The
Division's earnings also increased due to improved mortality experience and
lower expenses related to new marketing ventures. 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
$5.8 million in the first three months of 1997 as compared to $3.5 million in
the first three months of 1996.
Investment Products Division pretax operating earnings of $3.2 million
were $1.0 million higher in the first three months of 1997 compared to the same
period of 1996. Variable annuity earnings improved $1.4 million. Realized
investment gains associated with the Division, net of related amortization of
deferred policy acquisition costs, were $0.7 million in 1996, resulting in total
pretax earnings of $3.2 million in the first three months of 1997 as compared to
$2.9 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 $0.4 million in the first three months of 1997 as
compared to the first three months of 1996.
13
<PAGE>
Income Taxes
The following table sets forth the effective income tax rates for the
periods shown:
THREE MONTHS
ENDED ESTIMATED EFFECTIVE
MARCH 31 INCOME TAX RATES
------------ --------------------
1996 34%
1997 34
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%.
Net Income
The following table sets forth net income and the net income per share
for the periods shown, and the percentage change from the prior period:
THREE MONTHS NET INCOME
ENDED TOTAL PERCENTAGE
MARCH 31 (IN THOUSANDS) PER SHARE INCREASE
------------------- ------------- --------- ----------
1996 $21,068 $.73 15.9%
1997 24,783 .80 9.6
Compared to the same period in 1996, net income per share in the first
three months of 1997 increased 9.6%, reflecting improved operating earnings in
the Acquisitions, Financial Institutions, Individual Life and Investment
Products Divisions and the Corporate and Other segment, which were partially
offset by lower operating earnings in the Group and Guaranteed Investment
Contracts Divisions and lower realized investment gains (net of related
amortization of deferred policy acquisition costs.)
14
<PAGE>
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 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 that reward persistency and penalize the early withdrawal of funds.
Surrender charges for these products generally are 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 March 31, 1997, the fixed maturity investments (bonds, bank loan
participations, and redeemable preferred stocks) had a market value of $4,697.9
million, which is 1.2% below amortized cost (less allowances for uncollectible
amounts on investments) of $4,757.3 million. The Company had $1,579.9 million in
mortgage loans at March 31, 1997. While the Company's mortgage loans do not have
quoted market values, at March 31, 1997, the Company estimates the market value
of its mortgage loans to be $1,617.5 million (using discounted cash flows from
the next call date) which is 2.4% 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 $547.9 million of the Company's mortgage loans have this
participation feature.
At March 31, 1997, delinquent mortgage loans and foreclosed real estate
were 0.4% 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 0.7% 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 March 31, 1997.
Policy loans at March 31, 1997, were $166.5 million, a decrease of $0.2
million from December 31, 1996. Policy loan rates are generally in the 4.5% to
8.0% range and at least equal the assumed interest rates used for future policy
benefits.
15
<PAGE>
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 relate 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 policy to generally maintain
asset and liability durations within 10% of one another, although from time to
time broader duration matching is allowed.
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 March 31, 1997,
open futures contracts with a notional amount of $975 million were in a $0.5
million unrealized loss position.
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 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. At March 31, 1997, related open
interest rate swap contracts with a notional amount of $372.8 million were in a
$4.5 million net unrealized loss position.
Withdrawals related to GICs were approximately $786 million during
1996. Withdrawals related to GICs are estimated to be approximately $600 million
in 1997. The Company's asset/liability management programs and procedures 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.
In anticipation of receiving GIC and annuity deposits, the life
insurance subsidiaries were committed at March 31, 1997 to fund mortgage loans
and to purchase fixed maturity and other long-term investments in the amount of
$335.8 million. The Company's subsidiaries held $129.2 million in cash and
short-term investments at March 31, 1997. Protective Life Corporation had an
additional $0.1 million in cash and short-term investments available for general
corporate purposes.
While the Company generally anticipates that the cash flows 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
16
<PAGE>
exceed its borrowing rate. Additionally, the Company may from time to time sell
short-duration GICs to complement its cash management practices.
At March 31, 1997, Protective Life Corporation had borrowed $59.7
million of a $70 million revolving line of credit bearing interest rates
averaging 5.8% and an additional $15.3 million at a rate of 6.0%. At March 31,
1997, the Company's bank borrowings had increased $14.0 million, net of
repayments, since December 31, 1996. Proceeds were used for general corporate
purposes, including the acquisition of a small dental managed care organization
and an additional investment in the Hong Kong joint venture.
Protective Life Corporation's cash flow is dependent on cash dividends
and payments on surplus notes from its subsidiaries, revenues from investment,
data processing, legal, and management services rendered to the subsidiaries,
and investment income. At December 31, 1996, approximately $173 million of
consolidated stockholders' equity, excluding net unrealized losses 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 states in which the Company's insurance subsidiaries
are domiciled impose certain restrictions on the insurance subsidiaries' ability
to pay dividends to Protective Life Corporation. Also, distributions, including
cash dividends to Protective Life Corporation 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 income 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 Corporation'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 Corporation 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 NAIC's risk-based capital
requirements require insurance companies to calculate and report information
under a risk-based capital formula. 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 capital through various
sources, such as retained statutory earnings or equity contributions by the
Company.
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 and its subsidiaries, like other life and health insurers,
in the course of business are involved in litigation. Pending litigation
includes a class action filed in Jefferson County (Birmingham), Alabama with
respect to the refund of certain cancer insurance premiums. Although the outcome
of any litigation cannot be predicted with certainty, the Company believes that
at the
17
<PAGE>
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.
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.
The Company is not aware of any material pending or threatened
regulatory action with respect to the Company or any of its subsidiaries.
18
<PAGE>
PART II
Item 4. Results of Votes of Security Holders
The Annual Meeting of Stockholders was held on May 5, 1997. Shares
entitled to vote at the Annual Meeting totaled 30,807,526 of which 25,591,758
shares were represented.
At the Annual Meeting the following directors were elected. The number
of shares cast for and authorization withheld for each nominee is shown below.
AUTHORIZATION
FOR WITHHELD
---------- -------------
William J. Rushton III 21,193,741 4,398,017
John W. Woods 25,497,674 94,084
William J. Cabaniss, Jr. 25,501,950 89,808
Drayton Nabers, Jr. 25,502,150 89,608
John J. McMahon, Jr. 25,501,490 90,268
A. W. Dahlberg 25,486,460 105,298
John W. Rouse, Jr. 25,495,926 95,832
Robert T. David 25,495,532 96,226
Ronald L. Kuehn, Jr. 25,486,490 105,268
Herbert A. Sklenar 25,501,490 90,268
James S. M. French 25,501,490 90,268
Robert A. Yellowlees 21,193,085 4,398,673
John D. Johns 25,502,150 89,608
Additionally, at the Annual Meeting stockholders approved three
resolutions. The first resolution was to approve the Company's 1997 Performance
Share Plan. Shares voting for the first resolution were 21,950,265, shares
voting against were 1,160,339, shares abstaining were 236,722, and there were
2,244,432 broker non-votes. The second resolution was to approve the Company's
Annual Incentive Plan. Shares voting for the second resolution were 24,516,771,
shares voting against were 894,342, and shares abstaining were 180,645. The
third resolution was to approve the Company's 1997 Stock Incentive Plan. Shares
voting for the third resolution were 20,653,713, shares voting against were
2,456,156, shares abstaining were 237,457, and there were 2,244,432 broker
non-votes.
After giving effect to additional and revised proxies which were
received by the Company's proxy solicitor prior to the Annual Meeting, but
which, due to technical difficulties, were not received by the Company prior to
the close of voting on the proposals, the information presented above would be
revised in several respects, all of which would increase the total shares voting
"for" the various proposals. The Company notes that after giving effect to such
proxies, all directors would have received at least 25,280,768 "for" votes.
19
<PAGE>
With regards to the transaction of such other business as might
properly come before the Annual Meeting or any adjournment thereof, 175,089
shares were cast as authorization withheld. No other matters came before the
Annual Meeting or any adjournment thereof.
Item 6. Exhibits and Reports on Form 8-K
(a). Exhibit 10(a) - The Company's 1997 Performance Share Plan
Exhibit 10(b) - The Company's Annual Incentive Plan (effective
as of January 1, 1997)
Exhibit 10(c) - The Company's 1996 Stock Incentive Plan as
amended through March 3, 1997
Exhibit 10(d) - The Company's Deferred Compensation Plan for
Officers as amended through March 3, 1997
Exhibit 10(e) - The Company's Deferred Compensation Plan for
Directors Who Are Not Employees of the Company
as amended through March 3, 1997
Exhibit 15 - Letter re: unaudited interim financial statements
Exhibit 27 - Financial Data Schedule
Exhibit 99 - Safe Harbor for Forward Looking Statements
(b). A report on Form 8-K was filed February 11, 1997, reporting
under Item 5 and Item 7, the Company's 1996 fourth quarter
earnings press release.
20
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PROTECTIVE LIFE CORPORATION
Date: May 14, 1997 /s/ Jerry W. DeFoor
--------------------
Jerry W. DeFoor
Vice President and Controller,
and Chief Accounting Officer
(Duly authorized officer)
21
<PAGE>
Exhibit 10(a)
PROTECTIVE LIFE CORPORATION
1997 PERFORMANCE SHARE PLAN
1. Purpose. The purpose of the Protective Life Corporation 1997 Performance
Share Plan is to further the long-term growth in profitability of Protective
Life Corporation by offering long-term incentives in addition to current
compensation to those key executives who will be largely responsible for such
growth.
2. Certain Definitions.
(a) "Award" means the award of Performance Shares to a Participant
pursuant to the terms of the Plan.
(b) "Award Period" means the period of calendar years fixed by the
Committee with respect to all Awards with the same Date of Grant (but no more
than five years) commencing with each Date of Grant, except that the Award
Period for a recently hired Employee may be for such lesser period as determined
by the Committee.
(c) "Change in Control" is (i) a transaction or acquisition as identified
in the Company's Rights Agreement, as in effect from time to time, (ii) the
consummation of (A) any consolidation, merger or similar transaction or purchase
of securities of the Company pursuant to which (x) the members of the Board of
Directors of the Company immediately prior to such transaction, do not,
immediately after the transaction, constitute a majority of the Board of
Directors of the surviving entity or (y) the stockholders of the Company
immediately preceding the transaction, do not, immediately after the
transaction, own at least 50% of the combined voting power of the outstanding
securities of the surviving entity, or (iii) any sale, lease, exchange or other
transfer (in one transaction or a series of related transactions) of all or
substantially all of the assets of the Company, including, without limitation,
any sale, lease, exchange or other transfer (in one transaction or a series of
related transactions) of all or substantially all of the assets of Protective
Life Insurance Company.
(d) "Change in Control Price" means the greater of (i) the price per share
of Common Stock immediately preceding any transaction resulting in a Change in
Control or (ii) the highest price per share of Common Stock offered in
conjunction with any transaction resulting in a Change in Control (as determined
in good faith by the Committee if any part of the offered price is payable other
than in cash).
(e) "Committee" means the Compensation and Management Succession Committee
of the Board (or such other committee of the Board that the Board shall
designate from time to time) or any subcommittee thereof comprised of two or
more directors each of whom is an "outside director" within the meaning of
Section 162(m) and a "non-employee director" within the meaning of Rule 16b-3,
as promulgated under Section 16 of the Exchange Act.
<PAGE>
(f) "Common Stock" means the common stock, par value $0.50 per share, of
the Company.
(g) "Company" means Protective Life Corporation, a Delaware corporation.
(h) "Date of Grant" means as of January 1 of any year in which an Award
is made.
(i) "Employee" means any person (including any officer) employed by the
Company or any subsidiary on a full-time salaried basis.
(j) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(k) "Executive Officer" shall mean those persons who are officers of the
Company within the meaning of Rule 16a-1(f) of the Exchange Act.
(l) "Fair Market Value" of the Common Stock means the average of the daily
closing prices for a share of the Common Stock for the twenty trading days prior
to the date of payment of Performance Shares for an Award Period or an Interim
Period, as the case may be, on the Composite Tape for New York Stock Exchange -
Listed Stocks, or, if the Common Stock is not listed on such Exchange, on the
principal United States securities exchange registered under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), on which the Common Stock
is listed, or, if the Common Stock is not listed on any such Exchange, the
average of the daily closing bid quotations with respect to a share of the
Common Stock for such twenty trading days on the National Association of
Securities Dealers, Inc., Automated Quotations System or any system then in use.
(m) "Interim Period" means a period of calendar years chosen by the
Committee commencing with any Date of Grant, which period is less than the Award
Period commencing on the Date of Grant.
(n) "Participant" means an Employee who is selected by the Committee to
receive an Award under the Plan.
(o) "Performance Share" means the equivalent of one share of Common Stock.
(p) "Plan" means the Protective Life Corporation 1997 Performance Share
Plan as set forth herein and as may be amended from time to time.
(q) "Section 162(m)" means Section 162(m) of the Internal Revenue Code of
1986, as amended, and any regulations promulgated thereunder.
3. Administration of the Plan.
The Plan shall be administered by the Committee which, subject to the
provisions of the Plan, shall have the authority to select the Employees who are
to participate in the Plan, to determine the Award to be made to each Employee
selected to participate in the Plan, and to determine the conditions subject to
which Awards will become payable under the Plan.
<PAGE>
The Committee shall have full power to administer and interpret the Plan
and to adopt such rules and regulations consistent with the terms of the Plan as
the Committee deems necessary or advisable in order to carry out the provisions
of the Plan. Except as otherwise provided in the Plan, the Committee's
interpretation and construction of the Plan and its determination of any
conditions applicable to Performance Share Awards or the reasons for any
terminations of Participants shall be conclusive and binding on all
Participants.
In connection with its determination as to the payment of Performance
Shares, the Committee has full discretion to adjust performance criteria to
recognize special or nonrecurring situations or circumstances for the Company,
or any other corporation, for any year.
The Committee may employ such legal counsel, consultants and agents
(including counsel or agents who are employees of the Company or a Subsidiary)
as it may deem desirable for the administration of the Plan and may rely upon
any opinion received from any such counsel or consultant or agent and any
computation received from such consultant or agent. All expenses incurred in the
administration of the Plan, including, without limitation, for the engagement of
any counsel, consultant or agent, shall be paid by the Company. No member or
former member of the Board or the Committee shall be liable for any act,
omission, interpretation, construction or determination made in connection with
the Plan other than as a result of such individual's willful misconduct.
The Plan shall be unfunded. Benefits under the Plan shall be paid from the
general assets of the Company.
4. Participation. Participants in the Plan shall be selected by the Committee
from those Employees who,in the estimation of the Committee, have a substantial
opportunity to influence the long-term profitability of the Company.
5. Performance Share Awards.
(a) After appropriate approval of the Plan, and thereafter from time to
time, the Committee shall select Employees to receive Awards in any year as of
the Date of Grant. Any Employee may be granted more than one Award under the
Plan, but no Employee may earn, in the aggregate, more than 50% of the
Performance Shares which are the subject of this Plan. Awards of Performance
Shares hereunder shall not be made unless any such Award is in compliance with
all applicable law.
(b) No Participant shall be entitled to receive any dividends or dividend
equivalents on Performance Shares; with respect to any Performance Shares, no
Participant shall have any voting or any other rights of a Company stockholder;
and no Participant shall have any interest in or right to receive any shares of
Common Stock prior to the time when the Committee determines the form of payment
of Performance Shares pursuant to Section 6.
(c) Payment of the Award to any Participant shall be made in accordance
with Section 6 and shall be subject to such conditions for payment as the
Committee may prescribe. The Committee may prescribe different conditions for
different Participants. Such conditions may be expressed in terms
<PAGE>
of income per share, return on equity, economic value added, total return, sales
or revenues, or on other reasonable bases. Unless the Committee otherwise
determines at the time of grant of Performance Shares to an Executive Officer,
the performance objectives with respect to such Award shall be related to at
least one of the following criteria, which may be determined solely by reference
to the performance of the Company or a division or subsidiary or based on
comparative performance relative to other companies: (i) income per share, (ii)
return on equity, (iii) economic value added, (iv) total return, (v) sales or
revenues, or (vi) other reasonable bases; provided that to the extent the
Committee determines that it is necessary to qualify compensation under Section
162(m), the performance criteria shall be based on one or more of the criteria
listed in (i) through (v) above. The Committee may prescribe conditions such
that payment of an Award may be made with respect to a number of shares of
Common Stock that is greater than the number of Performance Shares awarded.
Except to the extent otherwise expressly provided herein, the Committee may, at
any time and from time to time, change the performance objectives applicable
with respect to any Performance Shares to reflect such factors, including,
without limitation, changes in a Participant's duties or responsibilities or
changes in business objectives (e.g., from corporate to subsidiary or division
performance or vice versa), as the Committee shall deem necessary or
appropriate. In making any such adjustment, the Committee shall adjust the
number of Performance Shares or take other appropriate actions to prevent any
enlargement or diminution of the Participant's rights related to service
rendered and performance attained prior to the effective date of such
adjustment.
(d) Each Award shall be made in writing and shall set forth the terms and
conditions set by the Committee for payment of such Award including, without
limitation, the length of the Award Period and whether there will be an Interim
Period with respect to the Award and if so, the length of the Interim Period.
6. Payment of Performance Share Awards.
Each Participant granted an Award shall be entitled to payment of the Award
as of the close of the Award Period applicable to such Award, but only if and
after the Committee has determined that the conditions for payment of the Award
set by the Committee have been satisfied. At the time of grant of each Award,
the Committee shall decide whether there will be an Interim Period. If the
Committee determines that there shall be an Interim Period for the Award to any
Participant, each such Participant granted an Award with an Interim Period shall
be entitled to partial payment on account thereof as of the close of the Interim
Period, but only if and after the Committee has determined that the conditions
for partial payment of the Award set by the Committee have been satisfied.
Performance Shares paid to a Participant for an Interim Period may be retained
by the Participant and shall not be repaid to the Company, notwithstanding that
based on the conditions set for payment at the end of the Award Period such
Participant would not have been entitled to payment of some or any of his Award.
Any Performance Shares paid to a Participant for the Interim Period during an
Award Period shall be deducted from the Performance Shares to which such
Participant is entitled at the end of the Award Period.
Unless otherwise directed by the Committee, payment of Awards shall be
made, as promptly as possible, by the Company after the determination by the
Committee that payment has been earned. Unless otherwise directed by the
Committee, all payments of Awards to Participants shall be made partly in shares
of Common Stock and partly in cash, with the cash portion being approximately
<PAGE>
equal to the amount of federal, state, and local taxes which the Participant's
employer is required to withhold on account of said payment. The Committee, in
its discretion, may provide for payment of cash and distribution of shares of
Common Stock in such other proportions as the Committee deems appropriate,
except and provided that the Committee must pay in cash an amount equal to the
federal, state, and local taxes which the Participant's employer is required to
withhold on account of said payment. There shall be deducted from the cash
portion of all Awards all taxes to be withheld with respect to such Awards.
For payment of each Award, the number of shares of Common Stock to be
distributed to Participants shall equal the Fair Market Value of the total
Performance Shares determined by the Committee to have been earned by the
Participant less the portion of the Award that was paid in cash divided by the
Fair Market Value of a Performance Share. To the extent that shares of Common
Stock are available in the treasury of the Company on the date payment is to be
made, such shares may be issued in payment of Awards.
7. Death or Disability.
If, prior to the close of an Award Period, a Participant's employment
terminates by reason of his death, or his total and permanent disability (as
determined under the Company's Pension Plan), payment of his outstanding Award
or Awards shall be made as promptly as possible after death or the date of the
determination of total and permanent disability, and the number of Performance
Shares to be paid shall be computed as follows: First, determine (based on the
conditions set by the Committee for payment of Awards for the subject Award
Period) the number of Performance Shares that would have been paid if each
subject Award Period had ended on the December 31st immediately preceding the
date of death or the date of determination of total and permanent disability.
Then, multiply each above-determined number by a fraction, the numerator of
which is the number of months during the subject Award Period that the
Participant was an active Employee, and the denominator of which is the number
of months in the Award Period. This product shall be reduced by any Performance
Shares for which payment has been made with respect to any Interim Period during
each Award Period. In this instance, the Fair Market Value of the Common Stock
shall be based on the twenty days immediately preceding the date of death or the
date of the determination of total and permanent disability. Except as provided
in Section 23, payments for Awards awarded in the year employment terminates
shall be paid at the same percentage as the Award awarded in the year
immediately preceding the year of death or disability.
8. Retirement Prior to Close of Award Period.
Unless otherwise determined by the Committee, if, prior to the close of an
Award Period, a Participant's employment terminates by reason of his retirement
on or after his normal retirement date (as determined under the Company's
Pension Plan) or prior to his normal retirement date if such retirement was at
the request of his employer, payment of the Participant's outstanding Award or
Awards will be made as promptly as possible after such retirement and such
payment shall be computed in the same manner as in Section 7, using the
effective date of retirement in place of the date of death or determination of
total and permanent disability.
<PAGE>
9. Termination Under Certain Circumstances.
If, prior to the close of an Award Period, a Participant's employment
terminates by reason of (i) his retirement prior to his normal retirement date
(as determined under the Company's Pension Plan) and such retirement was at the
request of the Participant and approved by his employer, (ii) the divestiture by
the Company of one or more of its business segments or a significant portion of
the assets of a business segment, or (iii) a significant reduction by the
Company in its salaried work force, the determination of whether such
Participant shall receive payment of his outstanding Award or Awards shall be
within the exclusive discretion of the Committee. Payment, if any, of his Award
or Awards to such Participant shall be made as promptly as possible after one of
the events described in subsections (i), (ii), and (iii) of this Section 9
occurs and the amount of such payment shall be computed in the same manner as in
Section 7, using the effective date that such event occurs in place of the date
or determination of total and permanent disability.
10. Voluntary Termination or Discharge.
If, prior to the close of an Award Period, a Participant's status as an
Employee terminates and there is no payment due under the terms of Sections 7,
8, 9, 20, or 21, all of such Participant's outstanding Performance Shares shall
forthwith and automatically be cancelled and all rights of the former holder of
such cancelled Performance Shares in respect to such cancelled Performance
Shares shall forthwith terminate.
11. Limitation on Awards and Payments.
The maximum number of Performance Shares which may be earned under the Plan
shall not exceed an aggregate of 2,000,000 (except as adjusted in accordance
with Section 18). If any Performance Shares awarded under the Plan are not paid
because of death, total and permanent disability, retirement, voluntary
termination, discharge, or cancellation or because they lapse when conditions to
their payment are not met, they shall thereupon become available again for award
under the Plan.
12. Term of Plan.
This Plan shall be effective January 1, 1997, subject to the approval of
this Plan by stockholders of the Company at the Annual Meeting of Stockholders
to be held May 5, 1997 or any adjournment thereof. The Board of Directors of the
Company may terminate the Plan at any time. If not sooner terminated, the Plan
will expire on the date on which all of the Performance Shares subject to award
under the Plan have been paid, but no grant of Awards may be made after December
31, 2006. Termination or expiration shall not adversely affect any right or
obligation with respect to an Award theretofore made.
13. Cancellation of Performance Shares.
With the written consent of a Participant holding Performance Shares
granted to him under the Plan, the Committee may cancel such Performance Shares.
In the event of any such cancellation,
<PAGE>
all rights of the former holder of such cancelled Performance Shares in respect
to such cancelled Performance Shares shall forthwith terminate.
14. No Assignment of Interest.
The interest of any Participant in the Plan shall not be assignable, either
by voluntary assignment or by operation of law, and any assignment of such
interest, whether voluntary or by operation of law, shall render the Award void,
except that cash or shares of Common Stock payable under the Plan shall be
transferable by testamentary will or by the laws of descent and distribution.
All shares of Common Stock paid pursuant to this Plan are to be taken subject to
an investment representation by the Participant or other recipient that any such
shares are acquired for investment and not with a view to distribution and that
such shares shall not be transferred or sold until registered in compliance with
the Securities Act of 1933 or unless an exemption therefrom is available in the
opinion of the General Counsel for the Company.
15. Designation of Beneficiary.
Each Participant may designate a beneficiary or beneficiaries (which
beneficiary may be an entity other than a natural person) to receive any
payments which may be made following the Participant's death. Such designation
may be changed or canceled at any time without the consent of any such
beneficiary. Any such designation, change or cancellation must be made in a form
approved by the Committee and shall not be effective until received by the
Committee. If no beneficiary has been named, or the designated beneficiary or
beneficiaries shall have predeceased the Participant, the beneficiary shall be
the Participant's spouse or, if no spouse survives the Participant, the
Participant's estate. If a Participant designates more than one beneficiary, the
rights of such beneficiaries shall be payable in equal shares, unless the
Participant has designated otherwise.
16. Employment Rights.
An Award made under the Plan shall not confer any right on the Participant
to continue in the employ of the Company or any subsidiary or limit in any way
the right of his employer to terminate his employment at any time.
17. Expenses.
The expenses of administrating the Plan shall be borne by the Company.
18. Dilution, Recapitalization, and Other Adjustments.
In case the Company shall at any time issue any shares of Common Stock (i)
in a stock split or other increase of outstanding shares of Common Stock, by
reclassification or otherwise, whereby the par value of shares is reduced, or
(ii) in payment of a stock dividend, the number of Performance Shares which have
been awarded but not paid and the maximum number of Performance Shares which may
be earned under the Plan (see Section 11) shall be increased proportionately;
and in like manner, in case of any combination of shares of Common Stock, by a
reverse stock split, reclassification or otherwise, the number of Performance
Shares which have been awarded but not
<PAGE>
paid, and the maximum number of Performance Shares which may be earned under the
Plan, shall be reduced proportionately.
19. Amendment and Termination of the Plan.
The Board of Directors of the Company may amend, suspend or terminate the
Plan at any time; provided, however, that no amendment may, without stockholder
approval, change the definition of Performance Share.
20. Plan Termination.
The Board of Directors may terminate the Plan at any time in their
discretion and in such event no Awards shall be made after the date of such Plan
Termination.
Payment of all Awards outstanding at the date of Plan Termination shall be
made as promptly as possible after such date and payment of each such Award
shall be computed in the same manner as in Section 7 using the effective date of
Plan Termination in place of the date of death or the date of the determination
of total and permanent disability, except that the Common Stock will be priced
at Fair Market Value based on the twenty trading days immediately preceding the
date of Plan Termination.
21. Change in Control.
In the event of a Change of Control, the Plan will automatically terminate
and each participant shall be deemed to have earned Performance Shares with
respect to each of his Awards outstanding at the date of such Change in Control.
The number of Performance Shares so earned shall be computed by determining
(based on the conditions set by the Committee for payment of Awards for the
subject Award Period) the number of Performance Shares that would have been paid
if each subject Award Period had ended on the December 31st immediately
preceding the Change of Control provided that in no event shall the number of
Performance Shares earned be less than the aggregate number of Performance
Shares at the target performance level (as identified in the applicable award
letter) with respect to all such Awards. Awards granted in the year of the
Change of Control shall be earned at the same percentage as Awards granted in
the year preceding the year of the Change of Control. Each Performance Share so
earned shall be canceled in exchange for an immediate payment in cash of an
amount equal to the Change in Control Price.
22. Construction.
The use of the masculine gender herein shall be deemed to refer to the
feminine as well. All headings are included for convenience of reference and
shall not be deemed a part of this Plan.
23. Interpretation.
Notwithstanding anything else contained in this Plan to the contrary, if
any award of Performance Shares is intended, at the time of grant, to be other
performance-based compensation within the meaning of Section 162(m)(4)(C) of the
Code, to the extent required to so qualify any Award
<PAGE>
hereunder, (i) the Committee shall not be entitled to exercise any discretion
otherwise authorized under this Plan with respect to such award if the ability
to exercise such discretion (as opposed to the exercise of such discretion)
would cause such award to fail to qualify as other performance-based
compensation and (ii) in the event that an Executive Officer's employment
terminates by reason of his retirement on or after his normal retirement date or
prior to his normal retirement date if such retirement was at the request of his
employer, the payment, if any, with respect to any Performance Shares awarded
since the December 31st immediately preceding the date of termination shall be
made as promptly as possible after the end of the year in which such termination
occurs and the number of Performance Shares to be paid shall be equal to that
percentage, if any, of such Award that would have been earned if, based on the
conditions set by the Committee for payment of Awards for the subject Award
Period, the subject Award Period had ended as of December 31 of the year in
which the termination occurred, times a fraction, the numerator of which is the
number of months during the subject Award Period that the Participant was an
active Employee, and the denominator of which is the number of months in the
Award Period.
<PAGE>
Exhibit 10(b)
PROTECTIVE LIFE CORPORATION
ANNUAL INCENTIVE PLAN
(Effective as of January 1, 1997)
1. Purpose.
The purposes of the Plan are to enable the Company and its Subsidiaries to
attract, retain, motivate and reward qualified executive officers and key
employees by providing them with the opportunity to earn competitive
compensation directly linked to the Company's performance. The Plan is designed
to assure that amounts paid to certain executive officers of the Company will
not fail to be deductible by the Company for Federal income tax purposes because
of the limitations imposed by Section 162(m).
2. Definitions.
Unless the context requires otherwise, the following words as used in the
Plan shall have the meanings ascribed to each below, it being understood that
masculine, feminine and neuter pronouns are used interchangeably and that each
comprehends the others.
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Committee" shall mean the Compensation and Management Succession
Committee of the Board (or such other committee of the Board that the Board
shall designate from time to time) or any subcommittee thereof comprised of two
or more directors each of whom is an "outside director" within the meaning of
Section 162(m).
(c) "Company" shall mean Protective Life Corporation.
(d) "Covered Employee" shall have the meaning set forth in Section 162(m).
(f) "Participant" shall mean (i) each executive officer of the Company and
(ii) each other key employee of the Company or a Subsidiary who the Committee
designates as a participant under the Plan.
(g) "Plan" shall mean the Protective Life Corporation Annual Incentive
Plan, as set forth herein and as may be amended from time to time.
(h) "Section 162(m)" shall mean Section 162(m) of the Internal Revenue Code
of 1986, as amended, and any regulations promulgated thereunder.
<PAGE>
3. Administration.
The Committee shall administer and interpret the Plan, provided that, in no
event, shall the Plan be interpreted in a manner which would cause any amount
payable under the Plan to any Covered Employee to fail to qualify as
performance-based compensation under Section 162(m). The Committee shall
establish the performance objectives for any calendar year in accordance with
Section 4 and certify whether such performance objectives have been obtained.
Any determination made by the Committee under the Plan shall be final and
conclusive. The Committee may employ such legal counsel, consultants and agents
(including counsel or agents who are employees of the Company or a Subsidiary)
as it may deem desirable for the administration of the Plan and may rely upon
any opinion received from any such counsel or consultant or agent and any
computation received from such consultant or agent. All expenses incurred in the
administration of the Plan, including, without limitation, for the engagement of
any counsel, consultant or agent, shall be paid by the Company. No member or
former member of the Board or the Committee shall be liable for any act,
omission, interpretation, construction or determination made in connection with
the Plan other than as a result of such individual's willful misconduct.
4. Bonuses.
(a) Performance Criteria. On or before April 1 of each year (or such other
date as may be required or permitted under Section 162(m)), the Committee shall
establish the performance objective or objectives that must be satisfied in
order for a Participant to receive a bonus for such year. Any such performance
objectives will be based upon the relative or comparative achievement of one or
more of the following criteria, as determined by the Committee: (i) net income;
(ii) operating income; (iii) income per share; (iv) economic value added; (v)
return on equity; (vi) total return; (vii) division or subsidiary income; (viii)
division or subsidiary sales or revenues; (ix) division or subsidiary economic
value added; or (x) other reasonable bases provided that to the extent required
to qualify compensation paid to certain executive officers under the Plan the
performance criteria shall be based on one or more of the criteria listed in (i)
through (ix) above.
(b) Maximum Amount Payable. If the Committee certifies that any of the
performance objectives established for the relevant year under Section 4(a) has
been satisfied, each Participant who is employed by the Company or one of its
Subsidiaries on the last day of the calendar year for which the bonus is payable
shall be entitled (subject to the provisions of Section 4(c) hereof) to receive
an annual bonus equal to 150% of such Participant's base salary up to a maximum
of $1,000,000. Unless the Committee shall otherwise determine, if a
Participant's employment terminates for any reason (including, without
limitation, his death, disability or retirement under the terms of any
retirement plan maintained by the Company or a Subsidiary) prior to the last day
of the calendar year for which the bonus is payable, such Participant shall
receive an annual bonus equal to the amount the Participant would have received
as an annual bonus award if such Participant had remained an employee through
the end of the year multiplied by a fraction, the numerator of which is the
number of days that elapsed during the calendar year in which the termination
occurs prior to and including the date of the Participant's termination of
employment and the denominator of which is 365.
<PAGE>
(c) Negative Discretion. Notwithstanding anything else contained in Section
4(b) to the contrary, the Committee shall have the right, in its absolute
discretion, (i) to reduce or eliminate the amount otherwise payable to any
Participant under Section 4(b) based on individual performance or any other
factors that the Committee, in its discretion, shall deem appropriate and (ii)
to establish rules or procedures that have the effect of limiting the amount
payable to each Participant to an amount that is less than the maximum amount
otherwise authorized under Section 4(b).
(d) Affirmative Discretion. Notwithstanding any other provision in the Plan
to the contrary, (i) the Committee shall have the right, in its discretion, to
pay to any Participant who is not a Covered Employee an annual bonus for such
year in an amount up to the maximum bonus payable under Section 4(b), based on
individual performance or any other criteria that the Committee deems
appropriate and (ii) in connection with the hiring of any person who is or
becomes a Covered Employee, the Committee may provide for a minimum bonus amount
in any calendar year, regardless of whether performance objectives are attained.
5. Payment.
Except as may be determined pursuant to the terms of Section 4(e) or as
otherwise provided hereunder, payment of any bonus amount determined under
Section 4 shall be made to each Participant as soon as practicable after the
Committee certifies that one or more of the applicable performance objectives
have been attained (or, in the case of any bonus payable under the provisions of
Section 4(d), after the Committee determines the amount of any such bonus).
6. General Provisions.
(a) Effectiveness of the Plan. Subject to the approval by the holders of
the Common Stock at the 1997 Annual Meeting of Stockholders, the Plan shall be
effective with respect to calendar years beginning on or after January 1, 1997,
and ending on or before December 31, 2006, unless the term hereof is extended by
action of the Board.
(b) Amendment and Termination. Notwithstanding Section 6(a), the Board or
the Committee may at any time amend, suspend, discontinue or terminate the Plan;
provided, however, that no such amendment, suspension, discontinuance or
termination shall adversely affect the rights of any Participant in respect of
any calendar year which has already commenced and no such action shall be
effective without approval by the stockholders of the Company to the extent
necessary to continue to qualify the amounts payable hereunder to Covered
Employees as performance-based compensation under Section 162(m).
(c) Designation of Beneficiary. Each Participant may designate a
beneficiary or beneficiaries (which beneficiary may be an entity other than a
natural person) to receive any payments which may be made following the
Participant's death. Such designation may be changed or canceled at any time
without the consent of any such beneficiary. Any such designation, change or
cancellation must be made in a form approved by the Committee and shall not be
effective until received by the Committee. If no beneficiary has been named, or
the designated beneficiary or beneficiaries shall have predeceased the
Participant, the beneficiary shall be the Participant's spouse or, if no spouse
survives the Participant, the Participant's estate. If a Participant designates
more than one
<PAGE>
beneficiary, the rights of such beneficiaries shall be payable in equal shares,
unless the Participant has designated otherwise.
(d) No Right of Continued Employment. Nothing in this Plan shall be
construed as conferring upon any Participant any right to continue in the
employment of the Company or any of its Subsidiaries.
(e) Interpretation. Notwithstanding anything else contained in this Plan to
the contrary, to the extent required to so qualify any award as other
performance based compensation within the meaning of Section 162(m) (4) (C) of
the Code, the Committee shall not be entitled to exercise any discretion
otherwise authorized under this Plan (such as the right to accelerate vesting
without regard to the achievement of the relevant performance objectives) with
respect to such award if the ability to exercise such discretion (as opposed to
the exercise of such discretion) would cause such award to fail to qualify as
other performance based compensation.
(f) No Limitation to Corporation Action. Nothing in this Plan shall
preclude the Committee or the Board, as each or either shall deem necessary or
appropriate, from authorizing the payment to the eligible employees of
compensation outside the parameters of the Plan, including, without limitation,
base salaries, awards under any other plan of the Company and/or its
Subsidiaries (whether or not approved by stockholders), any other bonuses
(whether or not based on the attainment of performance objectives) and retention
or other special payments, provided that, if the stockholders of the Company do
not approve the Plan at the first annual meeting of stockholders following the
adoption of the Plan, the Plan set forth herein shall not be implemented.
(g) Nonalienation of Benefits. Except as expressly provided herein, no
Participant or beneficiary shall have the power or right to transfer,
anticipate, or otherwise encumber the Participant's interest under the Plan. The
Company's obligations under this Plan are not assignable or transferable except
to (i) a corporation which acquires all or substantially all of the Company's
assets or (ii) any corporation into which the Company may be merged or
consolidated. The provisions of the Plan shall inure to the benefit of each
Participant and the Participant's beneficiaries, heirs, executors,
administrators or successors in interest.
(h) Withholding. Any amount payable to a Participant or a beneficiary under
this Plan shall be subject to any applicable Federal, state and local income and
employment taxes and any other amounts that the Company or a Subsidiary is
required at law to deduct and withhold from such payment.
(i) Severability. If any provision of this Plan is held unenforceable, the
remainder of the Plan shall continue in full force and effect without regard to
such unenforceable provision and shall be applied as though the unenforceable
provision were not contained in the Plan.
(j) Governing Law. The Plan shall be construed in accordance with and
governed by the laws of the State of Delaware, without reference to the
principles of conflict of laws.
(k) Headings. Headings are inserted in this Plan for convenience of
reference only and are to be ignored in a construction of the provisions of the
Plan.
<PAGE>
Exhibit 10(c)
PROTECTIVE LIFE CORPORATION
1996 STOCK INCENTIVE PLAN
SECTION 1
PURPOSE
The purpose of the Plan is to foster and promote the long-term financial
success of the Company and materially increase stockholder value by (a)
motivating superior performance by means of performance-related incentives, (b)
encouraging and providing for the acquisition of an ownership interest in the
Company by Employees, and (c) enabling the Company to attract and retain the ser
vices of an outstanding management team upon whose judgment, interest, and
special effort the successful conduct of its operations is largely dependent.
SECTION 2
DEFINITIONS
2.1 Definitions. Whenever used herein, the following terms shall have the
respective meanings set forth below:
(a) "Act" means the Securities Exchange Act of 1934, as amended.
(b) "Board" means the Board of Directors of the Company.
(c) "Cause" means (i) the willful failure by the Participant to perform
substantially his duties as an Employee of the Company (other than due
to physical or mental illness) after reasonable notice to the
Participant of such failure, (ii) the Participant's engaging in serious
misconduct that is injurious to the Company or any Subsidiary, (iii)
the Participant's having been convicted of, or entered a plea of nolo
contendere to, a crime that constitutes a felony or (iv) the breach by
the Participant of any written covenant or agreement with the Company
or any Subsidiary not to disclose any information pertaining to the
Company or any Subsidiary or not to compete or interfere with the
Company or any Subsidiary.
(d) "Change in Control" is (i) transaction or acquisition as identified in
the Company's Rights Agreement, as in effect from time to time, (ii)
the consummation of (A) any consolidation, merger or similar
transaction or purchase of securities of the Company pursuant to which
(x) the members of the Board of Directors of the Company immediately
prior to such transaction, do not, immediately after the transaction,
constitute a majority of the Board of Directors of the surviving entity
or (y) the stockholders of the Company immediately preceding the
transaction, do not, immediately after the transaction, own at least
50% of the combined voting power of the outstanding securities of the
surviving entity, or (iii) any sale, lease, exchange or other transfer
(in one transaction or a series of related transactions) of all or
substantially all of the assets of the Company, including, without
limitation, any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all or
substantially all of the assets of Protective Life Insurance Company.
<PAGE>
(e) "Change in Control Price" means the highest price per share of Stock
offered in conjunction with any transaction resulting in a Change in
Control (as determined in good faith by the Committee if any part of
the offered price is payable other than in cash).
(f) "Code" means the Internal Revenue Code of 1986, as amended.
(g) "Committee" means the Compensation and Management Succession Committee
of the Board (or such other committee of the Board that the Board shall
designate from time to time), which shall consist of two or more
members, each of whom shall be a "non-employee director" within the
meaning of Rule 16b-3, as promulgated under Section 16 of the Act and
an "outside director" within the meaning of Section 162(m).
(h) "Company" means Protective Life Corporation, a Delaware corporation,
and any successor thereto.
(i) "Disability" means total disability as determined in accordance with
the terms of the long-term disability plan of the Company or any of its
Subsidiaries in which the Participant is eligible to participate.
(j) "Employee" means any officer or other key executive and management
employee of the Company or any of its Subsidiaries.
(k) "Fair Market Value" means, on any date, the average of the average of
the highest and lowest sales price for a share of Stock reported for
such day on a national exchange or the average of the highest and
lowest bid and asked prices for a share of Stock on such date on a
nationally recognized system of price quotation. In the event that
there are no Stock transactions reported on such exchange or system on
such date, Fair Market Value shall mean the closing price on the
immediately preceding date on which Stock transactions were so
reported.
(l) "Participant" means any Employee designated by the Committee to
participate in the Plan.
(m)"Plan" means the Protective Life Corporation 1996 Stock Incentive Plan,
as in effect from time to time.
(n)"Retirement" means retirement at the age at which the Participant may
retire and immediately thereafter commence receipt of any benefits due
under the Company's defined benefit pension plan.
(o) "Section 162(m)" means Section 162(m) of the Internal Revenue Code of
1986, as amended, and any regulations promulgated thereunder.
(p) "Stock" means the common stock of the Company, par value $0.50 per
share.
(q) "Stock Appreciation Right" shall mean a contractual right granted under
Section 6 to receive Stock.
(r) "Subsidiary" means any corporation or partnership in which the Company
owns, directly or indirectly, 50% or more of the total combined voting
power of all classes of stock of such corporation or of the capital
interest or profits interest of such partnership.
<PAGE>
2.2 Gender and Number. Except when otherwise indicated by the context,
words in the masculine gender used in the Plan shall include the feminine
gender, the singular shall include the plural, and the plural shall include the
singular.
SECTION 3
ELIGIBILITY AND PARTICIPATION
Participants in the Plan shall be those Employees selected by the Committee
to participate in the Plan.
SECTION 4
POWERS OF THE COMMITTEE
4.1 Power to Grant. The Committee shall determine the Participants to whom
Stock Appreciation Rights shall be granted and the terms and conditions of any
and all such Stock Appreciation Rights. The Chairman of the Board may suggest to
the Committee the Participants who should receive Stock Appreciation Rights
under the Plan, provided that the number of shares of the Company's Common Stock
with respect to which awards may be made to any participant shall not exceed
200,000. The terms and conditions of each Stock Appreciation Right shall be
determined by the Committee at the time of grant, and such terms and conditions
shall not be subsequently changed in a manner which would be adverse to
participants without the consent of the Participant to whom such Stock
Appreciation Right has been granted. The Committee may establish different terms
and conditions for different Participants receiving Stock Appreciation Rights
and for the same Participant for each Stock Appreciation Right such Participant
may receive, whether or not granted at different times.
4.2 Substitute Stock Appreciation Rights. The Committee shall have the
right to grant Stock Appreciation Rights in substitution for or upon the
cancellation of Stock Appreciation Rights previously granted and such new Stock
Appreciation Rights may contain terms more favorable to the recipient than the
Stock Appreciation Rights they replace, including, without limitation, a lower
exercise price.
4.3 Administration. The Committee shall be responsible for the
administration of the Plan. The Committee, by majority action thereof, is
authorized to prescribe, amend, and rescind rules and regulations relating to
the Plan, to provide for conditions deemed necessary or advisable to protect the
interests of the Company, and to make all other determinations necessary or
advisable for the administration and interpretation of the Plan in order to
carry out its provisions and purposes. Determinations, interpretations, or other
actions made or taken by the Committee pursuant to the provisions of the Plan
shall be final, binding, and conclusive for all purposes and upon all persons.
SECTION 5
STOCK SUBJECT TO PLAN
5.1 Number. Subject to the provisions of Section 5.3, the number of shares
of Stock subject to Stock Appreciation Rights under the Plan may not exceed
500,000 shares of Stock. The shares
<PAGE>
to be delivered under the Plan will consist of either newly issued shares of
Stock or treasury Stock.
5.2 Canceled, Terminated, or Forfeited Stock Appreciation Rights. Any
shares of Stock subject to a Stock Appreciation Right which for any reason is
canceled, terminated or otherwise settled without the issuance of any Stock
shall again be available under the Plan.
5.3 Adjustment in Capitalization. In the event of any Stock dividend or
Stock split, recapitalization (including, without limitation, the payment of an
extraordinary dividend), merger, consolidation, combination, spin-off,
distribution of assets to stockholders, exchange of shares, or other similar
corporate change, the aggregate number of shares of Stock available for Stock
Appreciation Rights under Section 5.1 or subject to outstanding Stock
Appreciation Rights and the respective base prices and/or performance criteria
applicable to outstanding Stock Appreciation Rights may be appropriately
adjusted by the Committee, whose determination shall be conclusive.
SECTION 6
STOCK APPRECIATION RIGHTS
6.1 Grant of Stock Appreciation Rights. Stock Appreciation Rights may be
granted to Participants at such time or times as shall be determined by the
Committee. The Committee shall have complete discretion in determining the
number of Stock Appreciation Rights, if any, to be granted to a Participant.
Each Stock Appreciation Right shall be evidenced by a letter to each Participant
that shall specify the base price, the duration of the Stock Appreciation
Rights, the number of shares of Stock to which the Stock Appreciation Rights
pertain, and such other terms and conditions not inconsistent with the Plan as
the Committee shall determine.
6.2 Base Price. Unless otherwise determined by the Committee, a Stock
Appreciation Right granted pursuant to the Plan shall have a base price which is
not less than the Fair Market Value of the Stock on the date the Stock
Appreciation Right is granted.
6.3 Exercise of Stock Appreciation Rights. A Stock Appreciation Right
awarded under the Plan shall entitle a Participant to receive from the Company
an amount in Stock equal to the excess of the Fair Market Value of a share of
Stock on the date of exercise of the Stock Appreciation Right over the base
price thereof. Except as otherwise provided in the Plan and subject to the
Committee's right to accelerate the exercisability of such Stock Appreciation
Rights in its discretion, the Stock Appreciation Rights shall become
exercisable, subject to the restrictions and conditions hereof, on the fifth
anniversary of the Grant Date (the "Grant Date"), provided that such Stock
Appreciation Rights shall also become exercisable under the circumstances
described in Section 7 and/or Section 9.1. Notwithstanding the foregoing, no
Stock Appreciation Right shall be exercisable for more than 10 years after the
date on which it is granted.
6.4 Payment. The Committee shall establish procedures governing the
exercise of Stock Appreciation Rights, which shall require that written notice
of exercise be given. The number of shares of Stock payable pursuant to the
exercise of Stock Appreciation Rights shall be equal to the (x) the excess of
(i) the Fair Market Value of a share of Stock on the date of exercise multiplied
by the number of Stock Appreciation Rights exercised over (ii) the sum of the
base price for all Stock Appreciation Rights exercised divided by (y) the Fair
Market Value of a share of Stock on the date of exercise. As soon as practicable
after receipt of a written exercise notice, the Company shall deliver to the
Participant a certificate or certificates representing the acquired shares of
Stock. In the
<PAGE>
event that the Committee shall determine that any certificates issued hereunder
must bear a legend restricting the transfer of such Stock, such certificates
shall have the appropriate legend.
6.5 Limitations on and Deferral of Payment. (a) Deferrals. Notwithstanding
anything in the Plan to the contrary, the Committee may defer all or any portion
of any distribution of Common Stock to be made hereunder to the extent such
distribution, when added to all other payments to be made to a Participant in a
calendar year, would not be deductible compensation paid by the Company for
federal income tax purposes within the meaning of Section 162. In the event that
a distribution or distributions of Stock to a Participant is deferred, the
Company will establish for each such Participant a book-entry account (the
"Account") representing all such deferred awards.
(b) Dividends on Deferred Awards. In the event that dividends are paid by
the Company during the deferral period, each Participant's Account shall be
credited with the amount of any dividends which would otherwise have been
payable to such Participant if the number of shares represented by such
Account had been owned directly, and such amount shall be deemed to be
reinvested in additional shares of Stock.
(c) Payment. The Stock represented by each Participant's Account shall be
paid to such Participant (or, in the event of his or her death, to his or
her designated beneficiary or, if none, to his or her estate) in a lump
sum, or in installments, if necessary to preserve the deductibility of such
payment, as of the earliest date that the payment of the Account balance,
or portion thereof, when added to all other payments to be made to a
Participant in a calendar year, would be deductible by the Company for
federal income tax purposes within the meaning of Section 162 (including
Section 162(m)) of the Code.
SECTION 7
TERMINATION OF EMPLOYMENT
7.1 Termination of Employment Due to Death. Disability or Retirement.
Unless otherwise determined by the Committee at the time of grant, in the event
a Participant's employment terminates by reason of death, Disability or
Retirement, any Stock Appreciation Rights granted to such Participant which are
then outstanding (whether or not exercisable prior to the date of such
termination) may be exercised by the Participant or the Participant's designated
beneficiary, and if none is named, in accordance with Section 11.2, at any time
prior to the expiration date of the term of the Stock Appreciation Rights or
within three (3) years (or such other period as the Committee shall determine at
the time of grant) following the Participant's termination of employment,
whichever period is shorter.
7.2 Termination of Employment for Any Other Reason. Unless otherwise
determined by the Committee at or after the time of grant, in the event the
employment of the Participant shall terminate for any reason other than one
described in Section 7.1, any unexercised Stock Appreciation Rights (whether or
not exercisable prior to the date of termination) shall terminate and be
canceled immediately upon such termination of employment.
<PAGE>
SECTION 8
FORFEITURE OF STOCK APPRECIATION RIGHTS
8.1 Forfeiture and Pay-Back of SAR Amount. If within one year after the
exercise of all or a portion of the Stock Appreciation Rights awarded under this
Agreement, the Participant voluntarily terminates his or her employment with the
Company and the Participant becomes employed by a competitor of the Company in
the financial services industry (which includes, but is not limited to, working
in the insurance, mutual fund, broker-dealer, financial institution, or
investment company industries), the Participant agrees to pay the Company within
30 days of commencing such employment an amount, in cash or the equivalent value
in shares of Stock, equal to the aggregate of all SAR Amounts attributable to
Stock Appreciation Rights exercised within the one year period prior to the date
of such termination.
8.2 Forfeiture of Stock Appreciation Rights. If, after the Participant's
termination of employment, the Committee determines that, either during or after
the Participant's employment by the Company or one of its Subsidiaries, the
Participant engaged in conduct that (i) would have permitted the Company or any
of its Subsidiaries to terminate the Participant's employment for Cause had he
or she still been employed or (ii) otherwise results in damage to the business
or reputation of the Company or any of its Subsidiaries, all of the Stock
Appreciation Rights that are still outstanding at the time of such determination
shall immediately terminate and be canceled immediately upon such determination
by the Committee. Upon such a determination by the Committee, the Company may
disregard any attempted exercise of the Stock Appreciation Rights by notice
delivered prior to such determination, if, at such time, the Company had not
completed the steps necessary to effect such exercise.
SECTION 9
CHANGE IN CONTROL
9.1 Accelerated Vesting and Payment. Subject to the provisions of Section
9.2 below, in the event of a Change in Control, each Stock Appreciation Right
(regardless of whether such SARs are at such time otherwise exercisable) shall
be canceled in exchange for a payment in cash of an amount equal to the excess,
if any, of the Change in Control Price over the base price for such Stock
Appreciation Right.
9.2 Alternative Awards. Notwithstanding Section 9.1, no cancellation,
acceleration of exercis ability or vesting or cash settlement or other payment
shall occur with respect to any Stock Appreciation Rights if the Committee
reasonably determines in good faith prior to the occurrence of a Change in
Control that such Stock Appreciation Rights shall be honored or assumed, or new
rights substituted therefor (such honored, assumed or substituted award
hereinafter called an "Alternative Award"), by a Participant's employer (or the
parent or a subsidiary of such employer) immediately following the Change in
Control, provided that any such Alternative Award must:
(i) be based on stock which is traded on an established securities
market, or which will be so traded within 60 days of the Change in Control;
(ii) provide such Participant (or each Participant in a class of
Participants) with rights and entitlements substantially equivalent to or
better than the rights, terms and conditions applicable
<PAGE>
under such Award, including, but not limited to, an identical or better
exercise or vesting schedule and identical or better timing and methods of
payment;
(iii) have substantially equivalent economic value to such Award
(determined at the time of the Change in Control);
(iv) have terms and conditions which provide that in the event that the
Participant's employment is involuntarily terminated or constructively
terminated, any conditions on a Participant's rights under, or any
restrictions on transfer or exercisability applicable to, each such
Alternative Award shall be waived or shall lapse, as the case may be.
For this purpose, a constructive termination shall mean a termination by a
Participant following a material reduction in the Participant's compensation or
a material reduction in the Participant's responsibilities, in each case without
the Participant's written consent.
9.3 Stock Appreciation Rights Granted Within Six Months of the Change of
Control. If any Stock Appreciation Rights granted within six months of the date
on which a Change in Control occurs (i) is held by a person subject to the
reporting requirements of Section 16(a) of the Act and (ii) is to be cashed out
pursuant to Section 9.1, such cash out shall not occur until the later of (i)
the date which is six months and one day after the date the Stock Appreciation
Right was granted or (ii) the first date on which, in the opinion of the
Company's counsel, such cash out could occur without such reporting person being
potentially subject to liability under Section 16(b) of the Act by reason of
such cash out.
SECTION 10
AMENDMENT, MODIFICATION, AND TERMINATION OF PLAN
The Board may at any time terminate or suspend the Plan, and from time to
time either the Board or the Committee may amend or modify the Plan. No
amendment, modification, or termination of the Plan shall in any manner
adversely affect any Stock Appreciation Right theretofore granted under the
Plan, without the consent of the Participant.
SECTION 11
MISCELLANEOUS PROVISIONS
11.1 Nontransferability of Stock Appreciation Rights. No Stock Appreciation
Right granted under the Plan may be sold, transferred, pledged, assigned, or
otherwise alienated or hypothecated, other than by will or by the laws of
descent and distribution. All rights with respect to Stock Appreciation Rights
granted to a Participant under the Plan shall be exercisable during his lifetime
only by such Participant.
11.2 Beneficiary Designation. Benefits remaining unpaid at the
Participant's death shall be paid to or exercised by the Participant's surviving
spouse, if any, or otherwise to or by the Participant's estate. If the
Participant desires to name another beneficiary or beneficiaries (who may be
named contingently or successively) to whom any benefit under the Plan is to be
paid or by whom any right under the Plan is to be exercised in case of the
Participant's death, the Participant may do so by filing a form prescribed by
the Committee. Such designation will be effective only when filed by the
Participant, in writing with the Chief Accounting Officer of the Company, during
the Participant's lifetime. Such designation will revoke all prior designations
made by the Participant.
<PAGE>
11.3 No Guarantee of Employment or Participation. Nothing in the Plan shall
interfere with or limit in any way the right of the Company or any Subsidiary to
terminate any Participant's employment at any time, nor confer upon any
Participant any right to continue in the employ of the Company or any Subsidiary
or affiliate. No Employee shall have a right to be selected as a Participant,
or, having been so selected, to receive any future Stock Appreciation Rights.
11.4 Tax Withholding. The Company shall have the power to withhold, or
require a Participant to remit to the Company, an amount sufficient to satisfy
Federal, state, and local withholding tax requirements on any Stock Appreciation
Rights under the Plan, and the Company may defer issuance of Stock until such
requirements are satisfied.
11.5 No Limitation on Compensation. Nothing in the Plan shall be construed
to limit the right of the Company to establish other plans or to pay
compensation to its employees in cash or property, in a manner which is not
expressly authorized under the Plan.
11.6 Requirements of Law. The granting of Stock Appreciation Rights and the
issuance of shares of Stock shall be subject to all applicable laws, rules, and
regulations, and to such approvals by any governmental agencies or national
securities exchanges as may be required.
11.7 Term of Plan. The Plan shall be effective on August 15, 1996. The Plan
shall continue in effect, unless sooner terminated pursuant to Section 9, until
the tenth anniversary of the Grant Date.
11.8 Governing Law. The Plan, and all agreements hereunder, shall be
construed in accordance with and governed by the laws of the State of Delaware.
11.9 No Impact on Benefits. Stock Appreciation Rights granted under the
Plan are not compensation for purposes of calculating an Employee's rights under
any employee benefit plan.
11.10 No Voting Rights. The Participant shall have no right, in respect of
Stock Appreciation Rights granted, to vote on any matter submitted to the
Company's stockholders until such time as shares of Stock issuable upon exercise
of such Stock Appreciation Rights have been so issued.
<PAGE>
Exhibit 10(d)
PROTECTIVE LIFE CORPORATION
DEFERRED COMPENSATION PLAN
FOR OFFICERS
1. Eligibility and Purpose
Officers of Protective Life Corporation and its affiliates (the "Company")
who participate in either the Annual Incentive Plan (or other eligible bonus
plan) or Performance Share Plan, or both shall be eligible to participate in the
Protective Life Corporation Deferred Compensation Plan for Officers (the
"Plan"). Any Officer who elects to participate in the Plan ("Officer") shall
thereby defer the receipt of all or any portion of such bonuses payable by the
Company to such Officer (the "Deferrable Compensation").
2. Deferral of Compensation
An Officer may elect to defer all or any portion of the Deferrable
Compensation by executing a form prescribed by the Company and delivering such
election form to the Company prior to the first day of the calendar year for
which the election is to be effective or at such other time and subject to such
other conditions as the Company shall determine, provided, that, any such
election shall be applicable only to Deferrable Compensation with respect to
which the Officer, at the time of election, has no current right to receive. The
amount of Deferrable Compensation deferred shall be paid or distributed to the
Officer in accordance with the provisions of Section 5 or Section 6, below.
3. Deferred Compensation Account
The Company shall establish a deferred compensation account (the "Account")
for the Officer. As of the date payments of Deferrable Compensation otherwise
would be made to the Officer, the Company shall credit to the Account, in cash
or stock equivalents, or a combination thereof, as hereinafter provided, that
amount of the Deferrable Compensation which the Officer has elected to defer.
4. Cash or Stock Election
(a) As of the date payments of Deferrable Compensation otherwise would be
made to the Officer, the amount due the Officer shall be credited to the Account
either as a cash allotment or as a stock allotment, or a portion to each, as the
Officer shall elect, except that any Performance Share Plan bonuses will be
credited as a stock allotment.
(b) If a cash allotment is elected in whole or in part, the Account shall
be credited with the dollar amount of the allotment. Interest (at the rate
described below) on the Average Daily Balance (computed as described below)
shall be credited to the Account as of the last day of each calendar month
before and after the termination of the Officer's service and after the
Officer's death or disability until the total balance in the Account has been
paid out in accordance with the provisions of Section 5 or Section 6, below. The
interest rate for each calendar month shall be the 30-Day London Interbank
Offered Rate (LIBOR) plus 75 basis points for the last business day of the
immediately preceding calendar month as reported on the Bloomberg financial news
system. The "Average Daily Balance" shall be the quotient obtained by dividing
the sum of the closing balance
<PAGE>
in the Account at the end of each calendar day in a calendar month by the number
of days in such calendar month.
(c)(1) If a stock allotment is elected in whole or in part, the Account
shall be credited with a stock equivalent that shall be equal to the number of
full and fractional shares of the Company's Common Stock, par value $0.50 per
share (the "Common Stock"), that could be purchased with the dollar amount of
the allotment using the Average Closing Price (as defined below) of the Common
Stock for the twenty (20) trading days ending on the day preceding the date the
Account is so credited. The "Average Closing Price" of the Common Stock means
the average of the daily closing prices for a share of the Common Stock for the
applicable twenty (20) trading days on the Composite Tape for the New York Stock
Exchange D Listed Stocks, or, if the Common Stock is not listed on such
Exchange, on the principal United States securities exchange registered under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), on which
the Common Stock is listed, or, if the Common Stock is not listed on any such
Exchange, the average of the daily closing bid quotations with respect to a
share of the Common Stock for such twenty (20) trading days on the National
Association of Securities Dealers, Inc., Automated Quotations Systems or any
system then in use, or, if no such quotations are available, the fair market
value of a share of the Common Stock as determined by a majority of the Board;
provided, however, that if a Change in Control (as defined below) shall have
occurred, then such determination shall be made by a majority of the Continuing
Directors (as defined in the Protective Life Corporation Rights Agreement, as in
effect from time to time).
(2) The Account also shall be credited as of the payment date for each
dividend on the Common Stock with additional stock equivalents computed as
follows: The dividend paid, either in cash or property (other than Common
Stock), upon a share of Common Stock to a shareholder of record shall be
multiplied by the number of stock equivalents in the Account and the product
thereof shall be divided by the Average Closing Price of the Common Stock for
the twenty (20) trading days ending on the day preceding the dividend payment
date. In the case of dividends payable in property, the amount paid shall be
based on the fair market value of the property at the time of distribution of
the dividend, as determined by a majority of the Board; provided, however, that
if a Change in Control shall have occurred, then such determination shall be
made by a majority of the Continuing Directors.
(3) In the event of any change in the Common Stock, upon which the stock
equivalency hereunder is based, by reason of a merger, consolidation,
reorganization, recapitalization, stock dividend, stock split, combination or
exchange of shares, or any other change in corporate structure, the number of
shares credited to the Account shall be adjusted in such manner as a majority of
the Board shall determine to be fair under the circumstances; provided, however,
that if a Change in Control shall have occurred, then such determination shall
be made by a majority of the Continuing Directors (as defined in the Protective
Life Corporation Rights Agreement, as in effect from time to time).
5. Distribution
(a) Except as otherwise provided in the Plan, at the Officer's election,
the balance in the Account shall be paid out to the Officer commencing on the
date which the Officer has specified on his or her election form.
<PAGE>
Except as otherwise provided in the Plan, the balance in the Account shall be
paid either in a lump sum or, at the Officer's election, in monthly, quarterly,
semiannual or annual installments, but such installments shall be payable over a
period of years not to exceed ten (10) years (the "Payout Period"). In order to
be effective, an election to change the method and/or timing of distribution
with respect to the Account must be in a form prescribed by the Company and
received by the Company at least six months prior to such Officer's retirement
from the Company and prior to the first day of the calendar year in which
payments (i) are to begin pursuant to such election and (ii) would have begun
absent such election. The amount of each installment shall be determined as of
the first day of the period in which payment is to be made by dividing the then
balance in the Account by the then remaining number of payment dates in the
Payout Period. The lump sum or first periodic installment shall be paid by the
Company as promptly as is convenient, but not more than sixty (60) days
following the date specified by the Officer.
(b) Notwithstanding the provisions of Section 5(a), in the event the
Officer ceases to be employed by the Company, other than after a Change in
Control as defined in Section 6(a) below or due to such Officer's retirement
pursuant to terms of the Company's qualified pension plan, prior to distribution
of the entire balance in the Officer's Account, the balance in the Account shall
be payable in a lump sum.
(c) In the event of the death of the Officer prior to distribution of the
entire balance in the Officer's Account, the balance in the Account shall be
payable in a lump sum to:
(i) the surviving beneficiary (or surviving beneficiaries in
such proportions as) the Officer may have designated by notice in
writing to the Company unrevoked by a later notice in writing to the
Company or, in the absence of an unrevoked notice,
(ii) the beneficiary (or beneficiaries in such proportions as)
the Officer may have designated by will or, if no beneficiary is
designated,
(iii) the legal representative of the Officer's estate.
In the event an Officer becomes disabled or suffers a hardship, the payment
commencement date and/or payment schedule with respect to a balance in an
Officer's Account may be accelerated by the Compensation and Management
Succession Committee of Protective Life Corporation (or its designee) in its
sole discretion.
(d) The provisions of the Plan shall apply to and be binding upon the
beneficiaries, distributees and personal representatives and any other
successors in interest of the Officer.
(e) Distribution of the cash in the Account shall be made in cash.
Distribution of stock equivalents in the Account shall be made in whole shares
of the Company's Common Stock; fractional shares shall be paid in cash in an
amount equal to the number of fractional shares multiplied by the Average
Closing Price of the Common Stock for the twenty (20) trading days ending on the
day preceding the date of distribution.
(f) The Company shall deduct from all distributions hereunder any taxes
required to be withheld by the federal or any state or local government.
<PAGE>
6. Acceleration of Distribution
(a) "Change in Control" is:
(1) a transaction or acquisition as identified in Protective Life
Corporation's Rights Agreement, as in effect from time to time; or
(2) approval by the Board of (i) a merger, consolidation or
reorganization of the Company in which, as a consequence of the transaction,
either the Continuing Directors do not constitute a majority of the directors of
the continuing or surviving corporation or any person, entity or "group," within
the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act, controls 15% or
more of the combined voting power of the continuing or surviving corporation;
(ii) any sale, lease or other transfer, in one transaction or a series of
related transactions, of all or substantially all of the assets of Protective
Life Corporation, including, without limitation, any sale, lease, exchange or
other transfer (in one or a series of related transactions) of all or
substantially all, of the assets of Protective Life Insurance Company; or (iii)
any plan or proposal for the liquidation or dissolution of Protective Life
Corporation; provided, however, that, if at the time of such approval, a
majority of the Continuing Directors determines that such merger, consolidation,
reorganization, sale, lease, other transfer, liquidation or dissolution shall
not, for purposes of the Plan, be deemed a Change in Control, such transaction
shall not constitute a Change in Control hereunder, and, provided further, that,
if a majority of the Continuing Directors so determines, a Change in Control
shall not be deemed to occur until the consummation of any such transaction.
(b) Upon a Change in Control or any time thereafter, the Officer may
convert any stock allotments in the Account (including Performance Share Plan
bonuses credited as a stock allotment) into cash allotments. The Officer may not
convert any cash allotments in the Account into stock allotments.
(c) Notwithstanding any other provision of the Plan, if a Change in Control
occurs and at any time after or in connection with the occurrence of such Change
in Control either of the following events occurs:
(1) the Officer ceases to have duties consistent with the
Officer's position, responsibilities and status with the
Company immediately prior to a Change in Control;
(2) the Plan is terminated; or
(3) the Company's capital structure is changed materially;
then the balance in the Account shall be paid in a lump sum to the Officer as
soon as practicable after January 1 of the calendar year immediately following
such second event unless such Officer completes a new election form, prior to
the end of the calendar year in which such second event occurs, electing an
alternative method and/or timing of distribution. Notwithstanding the foregoing,
no such election shall cause a distribution to be made earlier than the calendar
year following the year in which such election is made.
<PAGE>
(d) Distribution shall be in accordance with Sections 5(b), 5(c), 5(d) and
5(e), above, except that distribution of stock equivalents in the Account shall
be made in cash in an amount equal to the number of stock equivalents to be
distributed multiplied by the greater of (i) the Average Closing Price of the
Common Stock for the twenty (20) trading days ending on the day preceding the
date on which the right to such distribution arose; (ii) the Average Closing
Price of the Common Stock for the twenty (20) trading days ending on the day
preceding the date of the Change in Control; or (iii) the highest price per
share of Common Stock in the transaction or series of transactions constituting
the Change in Control.
(e) With respect to conversions of stock allotments in the Officer's
Account into cash allotments in accordance with Section 6(b), the converted
stock allotments shall be valued at the greater of (i) the Average Closing Price
of the Common Stock for the twenty (20) trading days ending on the day preceding
the effective date of such conversions; (ii) the Average Closing Price of the
Common Stock for the twenty (20) trading days ending on the day preceding the
date of the Change in Control; or (iii) the highest price per share of Common
Stock in the transaction or series of transactions constituting the Change in
Control. Additionally, with respect to conversions of stock allotments in the
Officer's Account into cash allotments, the interest rate for each calendar
month shall be the highest prime rate as reported on the Bloomberg financial
news system for the last business day of the immediately preceding calendar
month.
(f) Any payments shall be made by the Company as promptly as practicable,
but not more than thirty (30) days following the date on which the right to such
payment arose. The Company shall promptly reimburse the Officer for all legal
fees and expenses reasonably incurred in successfully seeking to obtain or
enforce any right or benefit provided under this Section 6.
(g) This Section 6 may not be amended or modified after the occurrence of
a Change in Control.
7. Miscellaneous
(a) Except as set forth in 6(c) above, the election to defer Deferrable
Compensation, including, but not limited to, the allocation of the amount
deferred between the cash allotment or the stock allotment portion of the
Account, or a combination thereof, shall be irrevocable as to amounts payable
following the time when the election is made and shall remain irrevocable until
a new election form reflecting a change or revocation with respect to amounts
payable in a subsequent time period is delivered to the Company not later than
seven (7) days preceding the payment date of subsequent Deferrable Compensation
to which such change or revocation is applicable.
(b) Neither the Officer nor any other person shall have any interest in any
fund or in any specific asset of the Company by reason of amounts credited to
the Account of an Officer hereunder, nor the right to exercise any of the rights
or privileges of a shareholder with respect to any stock equivalents credited to
the Account, nor the right to receive any distribution under the Plan except as
and to the extent expressly provided for in the Plan. Distributions hereunder
shall be made from the general funds of the Company, and the rights of the
Officer shall be those of an unsecured general creditor of the Company.
(c) The interest of the Officer under the Plan shall not be assignable by
the Officer or the Officer's beneficiary or legal representative, either by
voluntary assignment or by operation of law, and any assignment of such
interest, whether voluntary or by operation of law, shall be ineffective
<PAGE>
to transfer the Officer's interest; provided, however, that (i) the Officer may
designate a beneficiary to receive any benefit payable under the Plan upon
death, and (ii) the legal representative of the Officer's estate may assign the
Officer's interest under the Plan to the persons entitled to any benefit payable
under the Plan upon the Officer's death.
(d) Except as provided in Section 6, above, the Company may amend, modify,
terminate or discontinue the Plan at any time; provided, however, that no such
action shall reduce the amounts credited to the Account of the Officer
immediately prior to such action, nor change the time, method or manner of
distribution of such amount, including, without limitation, distribution in
accordance with Section 6, above.
(e) Nothing contained herein shall impose any obligation on the Company to
continue the tenure of the Officer beyond the term for which such Officer may
have been elected or appointed or shall prevent the removal of such Officer.
(f) This Plan shall be interpreted by and all questions arising in
connection therewith shall be determined by the Compensation and Management
Succession Committee of Protective Life Corporation (or its designee) whose
interpretation or determination, when made in good faith, shall be conclusive
and binding, unless a Change in Control shall have occurred, in which case such
interpretation or determination shall be made by a majority of the Continuing
Directors.
(g) If any amounts deferred pursuant to the Plan are found in a
"determination" (within the meaning of Section 1313(a) of the Internal Revenue
Code of 1986, as amended) to have been includible in gross income by an Officer
prior to payment of such amounts from the Officer's Account, such amounts shall
be immediately paid to such Officer, notwithstanding the Officer's elections
pursuant to Section 2.
(h) The Deferrable Compensation is still subject to Federal Insurance
Contributions Taxes at the rate required by Section 3101 of the Internal
Revenue Code, as amended. The Company will withhold such taxes from other
compensation which is not deferred.
<PAGE>
Exhibit 10(e)
PROTECTIVE LIFE CORPORATION
DEFERRED COMPENSATION PLAN
FOR DIRECTORS WHO ARE NOT EMPLOYEES OF THE COMPANY
1. Eligibility and Purpose
Each member of the Board of Directors (the "Board") of Protective Life
Corporation (the "Company") who is not an employee of the Company or its
subsidiaries shall be eligible to participate in the Protective Life Corporation
Deferred Compensation Plan for Directors Who Are Not Employees of the Company
(the "Plan"). Any member of the Board who elects to participate in the Plan
("Director") shall thereby defer the receipt of all or any portion of the annual
retainer (except any voluntary contributions to the Company's Political Action
Committees paid out of such retainer), meeting and committee fees payable by the
Company to such Director for serving as a member of the Board or one or more of
its committees (the "Deferrable Compensation").
2. Deferral of Compensation
A Director may elect to defer all or any portion of the Deferrable
Compensation by executing a form prescribed by the Company and delivering such
election form to the Company prior to the first day of the calendar year for
which the election is to be effective or at such other time and subject to such
other conditions as the Company shall determine, provided, that, any such
election shall be applicable only to Deferrable Compensation with respect to
which the Director, at the time of election, has no current right to receive. In
the calendar year that a Director first becomes eligible to participate in the
Plan, such Director may elect to defer all or any portion of the Deferrable
Compensation, provided that the election form is delivered to the Company within
thirty (30) days after the Director first becomes eligible to participate in the
Plan for such year. An election made in this manner will be applicable only to
Deferrable Compensation earned after the effective date of the election. The
amount of Deferrable Compensation deferred shall be paid or distributed to the
Director in accordance with the provisions of Section 5 or Section 6, below.
3. Deferred Compensation Account
The Company shall establish a deferred compensation account (the
"Account") for the Director. As of the date payments of Deferrable Compensation
otherwise would be made to the Director, the Company shall credit to the
Account, in cash or stock equivalents, or a combination thereof, as hereinafter
provided, that amount of the Deferrable Compensation which the Director has
elected to defer.
4. Cash or Stock Election
(a) As of the date payments of Deferrable Compensation otherwise would
be made to the Director, the amount due the Director shall be credited to the
Account either as a cash allotment or as a stock allotment, or a portion to
each, as the Director shall elect.
<PAGE>
(b) If a cash allotment is elected in whole or in part, the Account
shall be credited with the dollar amount of the allotment. Interest (at the rate
described below) on the Average Daily Balance (computed as described below)
shall be credited to the Account as of the last day of each calendar month
before and after the termination of the Director's service and after the
Director's death or disability until the total balance in the Account has been
paid out in accordance with the provisions of Section 5 or Section 6, below. The
interest rate for each calendar month shall be the 30-Day London Interbank
Offered Rate (LIBOR) plus 75 basis points for the last business day of the
immediately preceding calendar month as reported on the Bloomberg financial news
system. The "Average Daily Balance" shall be the quotient obtained by dividing
the sum of the closing balance in the Account at the end of each calendar day in
a calendar month by the number of days in such calendar month.
(c)(1) If a stock allotment is elected in whole or in part, the Account
shall be credited with a stock equivalent that shall be equal to the number of
full and fractional shares of the Company's Common Stock, par value $0.50 per
share (the "Common Stock"), that could be purchased with the dollar amount of
the allotment using the Average Closing Price (as defined below) of the Common
Stock for the twenty (20) trading days ending on the day preceding the date the
Account is so credited. The "Average Closing Price" of the Common Stock means
the average of the daily closing prices for a share of the Common Stock for the
applicable twenty (20) trading days on the Composite Tape for the New York Stock
Exchange D Listed Stocks, or, if the Common Stock is not listed on such
Exchange, on the principal United States securities exchange registered under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), on which
the Common Stock is listed, or, if the Common Stock is not listed on any such
Exchange, the average of the daily closing bid quotations with respect to a
share of the Common Stock for such twenty (20) trading days on the National
Association of Securities Dealers, Inc., Automated Quotations Systems or any
system then in use, or, if no such quotations are available, the fair market
value of a share of the Common Stock as determined by a majority of the Board;
provided, however, that if a Change in Control (as defined below) shall have
occurred, then such determination shall be made by a majority of the Continuing
Directors (as defined in Protective Life Corporation's Rights Agreement, as in
effect from time to time).
(2) The Account also shall be credited as of the payment date for each
dividend on the Common Stock with additional stock equivalents computed as
follows: The dividend paid, either in cash or property (other than Common
Stock), upon a share of Common Stock to a shareholder of record shall be
multiplied by the number of stock equivalents in the Account and the product
thereof shall be divided by the Average Closing Price of the Common Stock for
the twenty (20) trading days ending on the day preceding the dividend payment
date. In the case of dividends payable in property, the amount paid shall be
based on the fair market value of the property at the time of distribution of
the dividend, as determined by a majority of the Board; provided, however, that
if a Change in Control shall have occurred, then such determination shall be
made by a majority of the Continuing Directors.
(3) In the event of any change in the Common Stock, upon which the
stock equivalency hereunder is based, by reason of a merger, consolidation,
reorganization, recapitalization, stock dividend, stock split, combination or
exchange of shares, or any other change in corporate structure, the number of
shares credited to the Account shall be adjusted in such manner as a majority of
the Board shall determine to be fair under the circumstances; provided, however,
that if a Change in Control (as defined below) shall have occurred, then such
determination shall be made by a majority
<PAGE>
of the Continuing Directors (as defined in Protective Life Corporation's Rights
Agreement, as in effect from time to time).
5. Distribution
(a) Except as otherwise provided in the Plan, at the Director's
election, the balance in the Account shall be paid out to the Director
commencing on the date which the Director has specified on his or her election
form.
Except as otherwise provided in the Plan, the balance in the Account shall be
paid either in a lump sum or, at the Director's election, in monthly, quarterly,
semiannual or annual installments, but such installments shall be payable over a
period of years not to exceed ten (10) years (the "Payout Period"). In order to
be effective, an election to change the method and/or timing of distribution
with respect to the Account must be in a form prescribed by the Company and
received by the Company at least six months prior to such Director's retirement
as Director of the Company and prior to the first day of the calendar year in
which payments (i) are to begin pursuant to such election and (ii) would have
begun absent such election. The amount of each installment shall be determined
as of the first day of the period in which payment is to be made by dividing the
then balance in the Account by the then remaining number of payment dates in the
Payout Period. The lump sum or first periodic installment shall be paid by the
Company as promptly as is convenient, but not more than sixty (60) days
following the date specified by the Director.
(b) Notwithstanding the provisions of Section 5(a), in the event the
Director ceases to hold office as a member of the Board, other than after a
Change in Control (as defined in Section 6(a) below) or due to such Director's
retirement from the Board, prior to distribution of the entire balance in the
Director's Account, the balance in the Account shall be payable in a lump sum.
(c) In the event of the death of the Director prior to distribution
of the entire balance in the Director's Account, the balance in the Account
shall be payable in a lump sum to
(i) the surviving beneficiary (or surviving beneficiaries in such
proportions as) the Director may have designated by notice in writing
to the Company unrevoked by a later notice in writing to the Company
or, in the absence of an unrevoked notice,
(ii) the beneficiary (or beneficiaries in such proportions as) the Director
may have designated by will or,if no beneficiary is designated,
(iii) the legal representative of the Director's estate.
In the event a Director becomes disabled, the payment commencement date
and/or payment schedule with respect to a balance in a Director's Account may be
accelerated by the Board Structure and Nominating Committee (or its designee) in
its sole discretion.
(d) The provisions of the Plan shall apply to and be binding upon the
beneficiaries, distributees and personal representatives and any other
successors in interest of the Director.
(e) Distribution of the cash in the Account shall be made in cash.
Distribution of stock equivalents in the Account shall be made in whole shares
of the Company's Common Stock;
<PAGE>
fractional shares shall be paid in cash in an amount equal to the number of
fractional shares multiplied by the Average Closing Price of the Common Stock
for the twenty (20) trading days ending on the day preceding the date of
distribution.
(f) The Company shall deduct from all distributions hereunder any taxes
required to be withheld by the federal or any state or local government.
6. Acceleration of Distribution
(a) "Change in Control" is:
(1) a transaction or acquisition as identified in Protective
Life Corporation's Rights Agreement, as in effect from time to time; or
(2) approval by the Board of (i) a merger, consolidation or
reorganization of the Company in which, as a consequence of the transaction,
either the Continuing Directors do not constitute a majority of the directors of
the continuing or surviving corporation or any person, entity or "group," within
the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act, controls 15% or
more of the combined voting power of the continuing or surviving corporation;
(ii) any sale, lease or other transfer, in one transaction or a series of
transactions, of all or substantially all of the assets of the Company,
including, without limitation, any sale, lease, exchange or other transfer (in
one or a series of related transactions) of all or substantially all of the
assets of Protective Life Insurance Company; or (iii) any plan or proposal for
the liquidation or dissolution of the Company; provided, however, that, if at
the time of such approval, a majority of the Continuing Directors determines
that such merger, consolidation, reorganization, sale, lease, other transfer,
liquidation or dissolution shall not, for purposes of the Plan, be deemed a
Change in Control, such transaction shall not constitute a Change in Control
hereunder, and, provided further, that, if a majority of the Continuing
Directors so determines, a Change in Control shall not be deemed to occur until
the consummation of any such transaction.
(b) Notwithstanding any other provision of the Plan, if a Change in
Control occurs and at any time after or in connection with the occurrence of
such Change in Control either of the following events occurs:
(1) the Director ceases to hold office as a member of the
Board;
(2) the Plan is terminated; or
(3) the Company's capital structure is changed materially;
then the balance in the Account shall be payable in a lump sum to the Director
as soon as practicable after January 1 of the following calendar year unless
such Director completes a new election form prior to the end of the current
calendar year, determining the method and timing of election, provided, that, no
such election shall cause a distribution to occur earlier than the calendar year
following such election. If payment is payable in a lump sum, such payment shall
be made by the Company as promptly as practicable, but not more than thirty (30)
days following the date on which the right to such payment arose.
<PAGE>
(c) Distribution shall be in accordance with Sections 5(b), 5(c), 5(d)
and 5(e), above, except that distribution of stock equivalents in the Account
shall be made in cash in an amount equal to the number of stock equivalents to
be distributed multiplied by the greater of (i) the Average Closing Price of the
Common Stock for the twenty (20) trading days ending on the day preceding the
date on which the right to such distribution arose; (ii) the Average Closing
Price of the Common Stock for the twenty (20) trading days ending on the day
preceding the date of the Change in Control; or (iii) the highest price per
share of Common Stock in the transaction or series of transactions constituting
the Change in Control.
(d) The Company shall promptly reimburse the Director for all legal
fees and expenses reasonably incurred in successfully seeking to obtain or
enforce any right or benefit provided under this Section 6.
(e) This Section 6 may not be amended or modified after the occurrence
of a Change in Control.
7. Miscellaneous
(a) Except as provided in 6(b) above, the election to defer Deferrable
Compensation, including, but not limited to, the allocation of the amount
deferred between the cash allotment or the stock allotment portion of the
Account, or a combination thereof, shall be irrevocable as to amounts earned
following the time when the election is made and shall remain irrevocable until
a new election form reflecting a change or revocation with respect to amounts
earned in a subsequent time period is delivered to the Company not later than
ten (10) days preceding the first day of the calendar month to which such change
or revocation is applicable.
(b) Neither the Director nor any other person shall have any interest
in any fund or in any specific asset of the Company by reason of amounts
credited to the Account of a Director hereunder, nor the right to exercise any
of the rights or privileges of a shareholder with respect to any stock
equivalents credited to the Account, nor the right to receive any distribution
under the Plan except as and to the extent expressly provided for in the Plan.
Distributions hereunder shall be made from the general funds of the Company, and
the rights of the Director shall be those of an unsecured general creditor of
the Company.
(c) The interest of the Director under the Plan shall not be assignable
by the Director or the Director's beneficiary or legal representative, either by
voluntary assignment or by operation of law, and any assignment of such
interest, whether voluntary or by operation of law, shall be ineffective to
transfer the Director's interest; provided, however, that (i) the Director may
designate a beneficiary to receive any benefit payable under the Plan upon
death, and (ii) the legal representative of the Director's estate may assign the
Director's interest under the Plan to the persons entitled to any benefit
payable under the Plan upon the Director's death.
(d) Except as provided in Section 6, above, the Company may amend,
modify, terminate or discontinue the Plan at any time; provided, however, that
no such action shall reduce the amounts credited to the Account of the Director
immediately prior to such action, nor change the time, method or manner of
distribution of such amount, including, without limitation, distribution in
accordance with Section 6, above.
<PAGE>
(e) Nothing contained herein shall impose any obligation on the Company
to continue the tenure of the Director beyond the term for which such Director
may have been elected or shall prevent the removal of such Director.
(f) This Plan shall be interpreted by and all questions arising in
connection therewith shall be determined by a majority of the Board, whose
interpretation or determination, when made in good faith, shall be conclusive
and binding, unless a Change in Control shall have occurred, in which case such
interpretation or determination shall be made by a majority of the Continuing
Directors.
(g) If any amounts deferred pursuant to the Plan are found in a
"determination" (within the meaning of Section 1313(a) of the Internal Revenue
Code of 1986, as amended) to have been includible in gross income by a Director
prior to payment of such amounts from his Director's Account, such amounts shall
be immediately paid to such director, notwithstanding his elections pursuant to
Section 2.
<PAGE>
Exhibit 15
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Protective Life Corporation
We are aware that our report dated April 23, 1997, on our review of interim
consolidated financial information of Protective Life Corporation and
subsidiaries for the period ended March 31, 1997, and included in the Company's
quarterly report on Form 10-Q for the quarter then ended, is incorporated by
reference in the Company's registration statements on Form S-8 and Form S-3.
Pursuant to Rule 436(c) under the Securities Act of 1933, this report should not
be considered a part of the registration statements prepared or certified by us
within the meaning of Sections 7 and 11 of that Act.
COOPERS & LYBRAND L.L.P.
Birmingham, Alabama
May 14, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements of Protective Life Corporation and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-01-1997
<DEBT-HELD-FOR-SALE> 4,697,855
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 37,255
<MORTGAGE> 1,579,900
<REAL-ESTATE> 11,775
<TOTAL-INVEST> 6,614,772
<CASH> 41,996
<RECOVER-REINSURE> 335,838
<DEFERRED-ACQUISITION> 502,568
<TOTAL-ASSETS> 8,317,012
<POLICY-LOSSES> 2,472,301
<UNEARNED-PREMIUMS> 253,439
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 146,076
<NOTES-PAYABLE> 195,000
0
0
<COMMON> 16,668<F1>
<OTHER-SE> 579,308
<TOTAL-LIABILITY-AND-EQUITY> 8,317,012
129,578
<INVESTMENT-INCOME> 130,330
<INVESTMENT-GAINS> (418)
<OTHER-INCOME> 4,762
<BENEFITS> 163,019
<UNDERWRITING-AMORTIZATION> 20,835
<UNDERWRITING-OTHER> 41,630
<INCOME-PRETAX> 225,484
<INCOME-TAX> 13,181
<INCOME-CONTINUING> 24,783<F2>
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24,783
<EPS-PRIMARY> 0.80<F1>
<EPS-DILUTED> 0.80<F1>
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1>Reflects two for one stock split effective June 1, 1995.
<F2>Net of minority interest in income of consolidated subsidiaries of $804.
</FN>
</TABLE>
<PAGE>
Exhibit 99
to
Form 10-Q
of
Protective Life Corporation
for the three months
Ended March 31, 1997
Safe Harbor for Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 (the "Act")
encourages companies to make "forward-looking statements" by creating a safe
harbor to protect the companies from securities law liability in connection with
forward-looking statements. Forward-looking statements can be identified by use
of words such as "expect," "estimate," "project, " budget," "forecast,"
"anticipate," "plan," and similar expressions. Protective Life Corporation (the
"Company") intends to qualify both its written and oral forward-looking
statements for protection under the Act.
To qualify oral forward-looking statements for protection under the
Act, a readily available written document must identify important factors that
could cause actual results to differ materially from those in the
forward-looking statements. The Company provides the following information to
qualify forward-looking statements for the safe harbor protection of the Act.
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. Certain known trends and uncertainties
which may affect future results of the Company are discussed more fully below.
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 and health insurance is a highly competitive industry and the
Company's Divisions encounter significant competition in all their respective
lines of business from other insurance companies, many of which have greater
financial resources than the Company, as well as competition from other
providers of financial services.
Management believes that the Company'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
rating agencies.
The Company competes against other insurance companies and financial
institutions in the origination of commercial mortgage loans.
<PAGE>
RATINGS. Ratings are an important factor in the competitive position of
life insurance companies. Rating organizations periodically review the financial
performance and condition of insurers, including the Company's insurance
subsidiaries. A downgrade in the ratings of the Company's life insurance
subsidiaries could adversely affect its ability to sell its products and its
ability to compete for attractive acquisition opportunities.
Rating organizations assign ratings based upon several factors. While
most of the considered factors relate to the rated company, some of the factors
relate to general economic conditions and circumstances outside the rated
company's control.
POLICY CLAIMS FLUCTUATIONS. The Company's results 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 the
Company's life insurance subsidiaries allow policyholders and contractholders to
withdraw their funds under defined circumstances. The Company's life 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. Asset/liability management
programs and procedures are used to monitor the relative duration of the
Company's assets and liabilities. While the Company's life 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 the Company's life insurance
subsidiaries to dispose of illiquid assets on unfavorable terms, which could
have a material adverse effect on the Company.
INTEREST RATE FLUCTUATIONS. Significant changes in interest rates
expose life insurance companies to the risk of not earning anticipated spreads
between the interest rate earned on investments and the interest rate credited
to its life insurance and investment products. Both rising and declining
interest rates can negatively affect the Company's spread income. For example,
certain of the Company's insurance and investment products guarantee a minimum
credited interest rate. While the Company 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.
INVESTMENT RISKS. The Company's invested assets are subject to inherent
risks of defaults and changes in market values. The value of the Company's
commercial mortgage portfolio depends in part on the financial condition of the
tenants occupying the properties on which the Company has made loans. Factors
that may affect the overall default rate on, and market value of, the Company's
invested assets include the level of interest rates, performance of the
financial markets, and general economic conditions, as well as particular
circumstances affecting the businesses of individual borrowers and tenants.
<PAGE>
CONTINUING SUCCESS OF ACQUISITION STRATEGY. The Company has actively
pursued a strategy of acquiring blocks of insurance policies. 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.
REGULATION AND TAXATION. The Company'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 dealing with all aspects of the insurance business
including premium rates, benefits, marketing practices, advertising, policy
forms, underwriting standards, and capital adequacy, and is concerned primarily
with the protection of policyholders rather than stockholders. The Company
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 the Company'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 the Company's subsidiaries, would be adversely
affected.
The Company cannot predict what future initiatives the President or
Congress may propose which may affect the life and health insurance industry and
the Company.
LITIGATION. 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 (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. The Company and
its subsidiaries, like other life and health insurers, in the ordinary course of
business, are involved in such litigation. The outcome of any such litigation
cannot be predicted with certainty. In addition, in some lawsuits involving
insurers' sales practices, insurers have made material settlement payments to
end litigation.
RELIANCE UPON 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 Goldman Sachs Asset Management and its affiliates;
a portion of the sales in the Financial Institutions, Group, 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 with
the Lippo Group. Therefore the Company's results may be affected by the
performance of others.
<PAGE>
REINSURANCE. As is customary in the insurance industry, the Company'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, the
Company assumes policies of other insurers. Any regulatory or other adverse
development affecting the ceding insurer could also have an adverse effect on
the Company.
Forward-looking statements express expectations of future events and/or
results. All forward-looking statements are inherently uncertain as they are
based on various expectations and assumptions concerning future events and they
are subject to numerous known and unknown risks and uncertainties which could
cause actual events or results to differ materially from those projected. Due to
these inherent uncertainties, investors are urged not to place undue reliance on
forward-looking statements. In addition, the Company undertakes no obligation to
update or revise forward-looking statements to reflect changed assumptions, the
occurrence of unanticipated events, or changes to projections over time.
