<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 5, 1997
FILE NO. 333-25361
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
PROVIDENT COMPANIES, INC.
(EXACT NAME OF ISSUER AS SPECIFIED IN ITS CHARTER)
DELAWARE 62-1598430
(I.R.S. EMPLOYER IDENTIFICATION
(STATE OR OTHER JURISDICTION OF NO.)
INCORPORATION OR ORGANIZATION)
1 FOUNTAIN SQUARE
CHATTANOOGA, TENNESSEE 37402
(423) 755-1011
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
SUSAN N. ROTH
PROVIDENT COMPANIES, INC.
1 FOUNTAIN SQUARE
CHATTANOOGA, TENNESSEE 37402
(423) 755-1011
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
THE COMMISSION IS REQUESTED TO SEND COPIES OF ALL COMMUNICATIONS TO:
PETER R. O'FLINN
DAVID E. BROWN, JR.
ALSTON & BIRD LLP LEBOEUF, LAMB, GREENE & MACRAE,
ONE ATLANTIC CENTER L.L.P.
1201 WEST PEACHTREE STREET 125 WEST 55TH STREET
ATLANTA, GEORGIA 30309-3424 NEW YORK, NEW YORK 10019-5389
(404) 881-7000 (212) 424-8000
FAX: (404) 881-7777 FAX: (212) 424-8500
---------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.
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<PAGE>
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus, one to be used
in connection with the U.S. Offering (the "U.S. Prospectus") and one to be
used in connection with the International Offering (the "International
Prospectus"). The two prospectuses are identical except for the front cover
page. The form of U.S. Prospectus included herein is followed by the front
cover page to be used in the International Prospectus. The alternate page for
the International Prospectus included herein is labeled "Alternate Page for
International Prospectus."
<PAGE>
PROSPECTUS (Subject to Completion)
Issued May 5, 1997
5,917,500 Shares
Provident Companies, Inc.
COMMON STOCK
-----------
OF THE 5,917,500 SHARES OF COMMON STOCK BEING OFFERED, 4,734,000 SHARES ARE
BEING OFFERED INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S.
UNDERWRITERS AND 1,183,500 SHARES ARE BEING OFFERED INITIALLY OUTSIDE THE
UNITED STATES AND CANADA BY THE INTERNATIONAL UNDERWRITERS. SEE
"UNDERWRITERS." ALL OF THE SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING
SOLD BY TEXTRON INC. ("TEXTRON" OR THE "SELLING STOCKHOLDER"), OTHER THAN
SHARES WHICH MAY BE SOLD BY THE COMPANY PURSUANT TO THE OVER-ALLOTMENT
OPTION DESCRIBED HEREIN. SEE "THE PAUL REVERE MERGER." PURSUANT TO AN
AGREEMENT BETWEEN THE COMPANY AND THE SELLING STOCKHOLDER, THE SELLING
STOCKHOLDER WILL PAY TO THE COMPANY A PORTION OF THE NET PROCEEDS
RECEIVED BY THE SELLING STOCKHOLDER FROM THE SALE OF THE SHARES OFFERED
HEREBY. THE COMPANY'S COMMON STOCK IS TRADED ON THE NEW YORK STOCK
EXCHANGE UNDER THE SYMBOL "PVT." ON APRIL 22, 1997, THE CLOSING SALE
PRICE FOR THE COMMON STOCK ON THE NEW YORK STOCK EXCHANGE WAS $54 3/4.
-----------
SEE "RISK FACTORS" ON PAGE 8 FOR INFORMATION THAT SHOULD BE CONSIDERED BY
PROSPECTIVE INVESTORS.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
ANDEXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-----------
PRICE $ A SHARE
-----------
<TABLE>
<S> <C> <C> <C>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) SELLING STOCKHOLDER(2)(3)
-------- -------------- -------------------------
Per Share..................... $ $ $
Total(4)...................... $ $ $
</TABLE>
- -----
(1) The Company and the Selling Stockholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriters."
(2) The Company will pay expenses in connection with the offering estimated
at $350,000.
(3) Pursuant to an agreement between the Company and the Selling Stockholder,
the Selling Stockholder will pay to the Company $ of the net
proceeds received by the Selling Stockholder from the sale of the shares
offered hereby. See "The Paul Revere Merger--Textron Agreements."
(4) The Company has granted to the U.S. Underwriters an option, exercisable
within 30 days of the date hereof, to purchase up to an aggregate of
887,625 additional shares of Common Stock at the price to public less
underwriting discounts and commissions, for the purpose of covering over-
allotments, if any. If the U.S. Underwriters exercise such option in
full, the total price to public and underwriting discounts and
commissions will be $ and $ , respectively, and the
proceeds to the Company will increase by $ . See "Underwriters."
-----------
The shares of Common Stock are offered, subject to prior sale, when, as and
if accepted by the Underwriters named herein and subject to approval of certain
legal matters by LeBoeuf, Lamb, Greene & MacRae, L.L.P., counsel for the
Underwriters. It is expected that delivery of the shares of Common Stock will
be made on or about , 1997 through the book-entry facilities of The
Depository Trust Company, against payment therefor in immediately available
funds.
-----------
MORGAN STANLEY & CO. SALOMON BROTHERS INC
Incorporated
May , 1997
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
<PAGE>
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS
PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING
STOCKHOLDER OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE
SECURITIES OFFERED HEREBY, TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS
UNLAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Forward Looking Statements................................................ 3
Available Information..................................................... 3
Incorporation of Certain Documents by Reference........................... 4
Prospectus Summary........................................................ 5
Risk Factors.............................................................. 8
The Paul Revere Merger.................................................... 10
Use of Proceeds........................................................... 13
Price Range of Common Stock and Dividends................................. 14
Capitalization............................................................ 15
Selected Consolidated Financial Data...................................... 16
Management's Discussion and Analysis of Financial Condition and Results of
Operations................................................................ 17
Business.................................................................. 28
Management................................................................ 38
Beneficial Ownership of Common Stock...................................... 41
Selling Stockholder....................................................... 42
Certain United States Tax Consequences to Non-United States Holders....... 44
Underwriters.............................................................. 46
Legal Matters............................................................. 49
Experts................................................................... 49
</TABLE>
----------------
NOTICE TO NORTH CAROLINA RESIDENTS: THESE SECURITIES HAVE NOT BEEN APPROVED
OR DISAPPROVED BY THE COMMISSIONER OF INSURANCE FOR THE STATE OF NORTH
CAROLINA, NOR HAS THE COMMISSIONER OF INSURANCE FOR THE STATE OF NORTH
CAROLINA RULED UPON THE ACCURACY OR ADEQUACY OF THIS DOCUMENT.
State insurance holding company laws and regulations applicable to the
Company generally provide that no person may acquire control of the Company,
and thus indirect control of its insurance subsidiaries, unless such person
has provided certain required information to, and such acquisition is approved
(or not disapproved) by, the appropriate insurance regulatory authorities.
Generally, any person acquiring beneficial ownership of 10% or more of the
Common Stock would be presumed to have acquired such control, unless the
appropriate insurance regulatory authorities upon advance application
determine otherwise.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN SUCH
SECURITIES, AND THE IMPOSITION OF A PENALTY BID, IN CONNECTION WITH THIS
OFFERING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITERS."
2
<PAGE>
FORWARD LOOKING STATEMENTS
This Prospectus contains and incorporates by reference certain forward
looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995 with respect to the results of operations and businesses of
Provident Companies, Inc. (the "Company"). These forward looking statements
involve certain risks and uncertainties. Factors that may cause actual results
to differ materially from those contemplated or projected, forecast, estimated
or budgeted in such forward looking statements include, among others, the
following possibilities: (i) heightened competition, including specifically
the intensification of price competition, the entry of new competitors and the
development of new products by new and existing competitors; (ii) adverse
state and federal legislation and regulation, including limitations on premium
levels, increases in minimum capital and reserves, and other financial
viability requirements; (iii) failure to develop multiple distribution
channels in order to obtain new customers or failure to retain existing
customers; (iv) inability to carry out marketing and sales plans, including,
among others, changes to certain products and acceptance of the revised
products in the market; (v) loss of key executives; (vi) changes in interest
rates causing a reduction of investment income; (vii) general economic and
business conditions which are less favorable than expected;
(viii) unanticipated changes in industry trends; (ix) inaccuracies in
assumptions regarding future morbidity, persistency, mortality and interest
rates used in calculating reserve amounts; (x) failure to continue improvement
of the claims management process; and (xi) with respect to cost savings that
will be realized from, and costs associated with, the acquisition of The Paul
Revere Corporation ("Paul Revere") (the "Paul Revere Merger"), the following
possibilities: (a) the expected cost savings to be realized beginning
primarily in 1997 through combining certain functions of both the Company and
Paul Revere, restructuring the field organizations of both companies to
eliminate redundant facilities and better serve the combined company's
customers, and reductions in staff cannot be fully realized because the
changes are not made or unanticipated offsetting costs are incurred; and (b)
costs or difficulties related to the integration of the businesses of the
Company and Paul Revere are greater than expected. See "Risk Factors."
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and the rules and regulations promulgated
thereunder (the "Exchange Act"), and in accordance therewith files reports,
proxy and information statements and other information with the Securities and
Exchange Commission (the "Commission"). Such reports, proxy and information
statements and other information filed by the Company with the Commission can
be inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549; and
at the Commission's Northeast Regional Office, 7 World Trade Center, Suite
1300, New York, New York 10048, and Midwest Regional Office, Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of
such material can also be obtained at prescribed rates from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington D.C.
20549. The Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants such as the
Company that file electronically with the Commission. The address of such site
is http://www.sec.gov. In addition, such reports, proxy and information
statements and other information concerning the Company may be inspected at
the offices of The New York Stock Exchange, Inc. ("NYSE"), 20 Broad Street,
New York, New York 10005.
The Company has filed a Registration Statement on Form S-3 (the
"Registration Statement") with the Commission pursuant to the Securities Act
of 1933, as amended (the "Securities Act"), with respect to the Common Stock
offered hereby. This Prospectus does not contain all the information set forth
in the Registration Statement and the exhibits and schedules filed as a part
thereof, as permitted by the rules and regulations of the Commission. For
further information with respect to the Company and the Common Stock,
reference is hereby made to the Registration Statement, including the exhibits
and schedules filed as a part thereof. Statements contained in this Prospectus
as to the contents of any contract or other document referred to herein are
not necessarily complete, and where such contract or other document is an
exhibit to the Registration Statement,
3
<PAGE>
each such statement is qualified in all respects by the provisions of such
exhibit, to which reference is hereby made for a full statement of the
provisions thereof. The Registration Statement, including the exhibits and
schedules filed as a part thereof, may be inspected without charge at the
public reference facilities maintained by the Commission as set forth in the
preceding paragraph. Copies of these documents may be obtained at prescribed
rates from the Public Reference Section of the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents have been filed by the Company (File No. 1-11834)
with the Commission pursuant to the Exchange Act, and are incorporated herein
by reference:
1. The Company's Annual Report on Form 10-K for the year ended December 31,
1996;
2. The Company's Current Reports on Form 8-K dated March 27, 1997; and
3. The description of the Company's Common Stock (the "Common Stock") set
forth in the Company's registration statement filed with the Commission
pursuant to Section 12 of the Exchange Act, and any amendment or report filed
for the purpose of updating any such description.
In addition, all documents filed by the Company pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date hereof and prior to the
termination of the offering hereunder shall be deemed to be incorporated by
reference in this Prospectus and to be a part hereof from the date of filing
of such documents. Any statement contained in a document incorporated by
reference herein shall be deemed to be modified or superseded for all purposes
to the extent that a statement contained herein or in any other subsequently
filed document which is deemed to be incorporated by reference herein modifies
or supersedes such statement. Any statement so modified or superseded shall
not be deemed, except as modified or superseded, to constitute a part of this
Prospectus.
The Company will provide, without charge, to each person to whom a copy of
this Prospectus is delivered, upon the written or oral request of such person,
a copy of any and all of the documents incorporated by reference (not
including the exhibits to such documents, unless such exhibits are
specifically incorporated by reference in such documents). Requests for such
copies should be directed to Susan N. Roth, Secretary, Provident Companies,
Inc., 1 Fountain Square, Chattanooga, Tennessee 37402, or by telephone at
(423) 755-1011 or facsimile at (423) 755-3194.
4
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the detailed
information and financial statements, including the notes thereto, contained
elsewhere or incorporated by reference in this Prospectus. Unless otherwise
indicated, the information contained in this Prospectus assumes that the U.S.
Underwriters' over-allotment option is not exercised.
THE COMPANY
The Company is the largest provider of individual disability insurance and
the second largest overall disability insurer in the United States on the basis
of in-force premiums. It also provides a complementary portfolio of life
insurance products, including life insurance, annuities, employer- and
employee-paid group benefits and related services. The Company is the parent
holding company for a group of insurance companies that collectively operate in
all 50 states, the District of Columbia, Puerto Rico, and Canada.
Since 1994, the Company has completed a comprehensive corporate repositioning
that has prepared it to support growth and increase stockholder value. A new
management team headed by J. Harold Chandler, who joined the Company in
November 1993, initiated a strategic review of the business. As a result of its
review, management refocused the Company's strategy to (i) serve the individual
and employee benefits insurance markets, (ii) leverage the Company's disability
insurance expertise, (iii) utilize multiple distribution channels to reach
broader market segments, and (iv) more closely align the interests of the
Company's employees with those of its stockholders.
The Company has successfully undertaken a number of major initiatives in
pursuing this strategy. These initiatives include strengthening its capital
position and investment portfolio, reorganizing internally, and reassessing its
product offerings. The acquisitions of Paul Revere and GENEX Services, Inc.
("Genex") in early 1997 are the latest accomplishments under the Company's
strategic plan. Both acquisitions strengthen the Company's disability insurance
capabilities and enable the Company to offer a more complete portfolio of
products and services to its customers.
The shares of Common Stock to be sold by Textron Inc. ("Textron" or the
"Selling Stockholder") were acquired by the Selling Stockholder in the Paul
Revere Merger. In accordance with the terms of the Paul Revere Merger Agreement
(as defined herein), at the effective time of the Paul Revere Merger, each
share of the common stock of Paul Revere (other than shares held by the Selling
Stockholder) was converted into the right to receive, at the election of the
holder of such share, either (i) $26.00 in cash, without interest thereon, (ii)
.767 of a share of Common Stock (the "Stock Consideration"), or (iii) $20.00 in
cash plus .177 of a share of Common Stock, and each share of Paul Revere Common
Stock held by the Selling Stockholder was converted into the right to receive
$20.00 in cash plus .1578 of a share of Common Stock, or a total of 5,917,500
shares of Common Stock. See "The Paul Revere Merger."
Pursuant to an agreement between the Selling Stockholder and the Company, the
Selling Stockholder will pay to the Company a portion of the net proceeds
received by the Selling Stockholder from the sale of the shares offered hereby.
See "The Paul Revere Merger--Textron Agreements." Following the completion of
the offering, Textron will not hold any shares of Common Stock.
The Company's principal executive offices are located at 1 Fountain Square,
Chattanooga, Tennessee 37402, and its telephone number is (423) 755-1011.
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Shares of Common Stock offered
by the Selling Stockholder
United States offering......... 4,734,000 shares
International offering......... 1,183,500 shares
Total......................... 5,917,500 shares
Shares of Common Stock to be
outstanding after the offering. 66,884,726 shares*
Use of proceeds................. The portion of the proceeds to be paid to the
Company will be used for general corporate
purposes, including possible acquisitions. See
"Use of Proceeds."
NYSE symbol..................... PVT
</TABLE>
- --------
* Based on the number of shares of Common Stock outstanding as of March 31,
1997. Excludes an aggregate of 3,596,207 shares of Common Stock reserved for
issuance upon exercise of options and similar rights outstanding as of such
date.
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, YEAR ENDED DECEMBER 31,
1996 ------------------------------------------------------------
PRO FORMA (1) 1996 1995 1994 1993 1992
------------- ----------- ----------- ----------- ----------- -----------
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenue................ $ 3,884.4 $ 2,291.9 $ 2,555.3 $ 2,762.2 $ 2,938.0 $ 2,866.7
Benefits and expenses.. 3,927.3 (2) 2,065.7 2,379.3 2,561.3 3,078.1 2,686.9
----------- ----------- ----------- ----------- ----------- -----------
Income (loss) before
income taxes........... (42.9) 226.2 176.0 200.9 (140.1) 179.8
Federal income taxes
(credit)............... (8.5) 80.6 60.4 65.6 (58.9) 67.2
----------- ----------- ----------- ----------- ----------- -----------
Net income (loss)...... $ (34.4)(2) $ 145.6 $ 115.6 $ 135.3 $ (81.2) $ 112.6
=========== =========== =========== =========== =========== ===========
Net income (loss) per
common share........... $ (.71) $ 2.92 $ 2.27 $ 2.71 $ (2.03) $ 2.49
=========== =========== =========== =========== =========== ===========
Dividends declared per
common share........... $ .72 $ .72 $ .72 $ 1.04 $ 1.04 $ 1.00
Weighted average common
shares outstanding.... 66,719,977 45,522,417 45,381,373 45,311,053 45,200,914 45,175,980
BALANCE SHEET DATA (AT
YEAR END):
Total assets........... $ 22,642.2 $ 14,992.5 $ 16,301.3 $ 17,149.9 $ 16,891.9 $ 15,925.1
Long-term debt
including capital
lease obligations..... 581.2 200.0 200.0 202.5 247.6 206.2
Total debt............. 607.4 200.0 201.4 216.9 276.6 477.3
Common stockholders'
equity................. 2,322.4 1,582.4 1,496.1 1,012.9 1,245.4 1,387.5
</TABLE>
- --------
(1) Reflects consummation of the Paul Revere Merger as of January 1, 1996 for
statement of operations data and as of December 31, 1996 for balance sheet
data, in each case assuming that Paul Revere stockholders (other than
Textron) elect to receive the Stock Consideration. See "The Paul Revere
Merger."
(2) Includes reserve strengthening of $380.0 million, before income taxes,
recorded by Paul Revere in the third quarter of 1996, which resulted in a
decrease in net income of $244.3 million. See "The Paul Revere Merger--Paul
Revere Reserve Strengthening."
6
<PAGE>
RECENT DEVELOPMENTS
Provident's net income for the first quarter of 1997 was $40.8 million ($.81
per share of Common Stock), compared to $34.4 million ($.69 per share of Common
Stock) for the first quarter of 1996. Included in these net income figures are
net realized after-tax investment gains of $3.1 million ($.07 per share of
Common Stock) in the first quarter of 1997 and losses of $.4 million ($.01 per
share of Common Stock) in the first quarter of 1996.
After-tax operating earnings (excluding net realized investment gains and
losses) were $37.7 million ($.74 per share of Common Stock) in the first
quarter of 1997, compared to $34.8 million ($.70 per share of Common Stock) in
the first quarter of 1996.
Revenue (excluding net realized gains and investment losses) in the
Individual Life and Disability and Employee Benefits segments increased 1.1
percent to $424.3 million in the first quarter of 1997, from $419.6 million in
the first quarter of 1996. These two segments represent the lines of business
that Provident is focusing on for growth in the future. Total revenue including
the Other Operations segment, which consists of product lines closed to new
business, totaled $566.6 million for the first quarter of 1997. This represents
a decline of 4.3 percent from the $592.3 million reported in the first quarter
of 1996, primarily due to the continued run-off of the group pension business.
The following table presents certain information for the three-month periods
ended March 31, 1997 and 1996.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-----------------------------
1997(1) 1996
-----------------------------
(IN MILLIONS, EXCEPT SHARE
AND PER SHARE AMOUNTS)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue....................................... $ 571.3 $ 591.7
Benefits and expenses......................... 508.5 538.3
-------------- --------------
Income before income taxes.................... 62.8 53.4
Federal income taxes ......................... 22.0 19.0
-------------- --------------
Net income ................................... $ 40.8 $ 34.4
============== ==============
Net income per common share................... $ .81 $ .69
============== ==============
Dividends declared per common share........... $ .18 $ .18
Weighted average common shares outstanding.... 46,605,854 45,434,964
</TABLE>
- --------
(1) Does not include the results of operations for Paul Revere because the Paul
Revere Merger was accounted for by the purchase method with an effective
date as of the close of business on March 31, 1997.
7
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus,
prospective investors should consider carefully the following factors before
making an investment in the Common Stock offered hereby. Any one or more of
such factors may cause the Company's actual results for various financial
reporting periods to differ materially from those expressed in any forward-
looking statements made by or on behalf of the Company.
RESERVES
The Company maintains reserves for future policy benefits and unpaid claim
expenses which include policy reserves and claim reserves established for its
individual disability insurance, group insurance, and individual life
insurance products. Policy reserves represent the portion of premiums received
which are reserved to provide for future claims. Claim reserves are
established for future payments not yet due on claims already incurred,
primarily relating to individual disability and group disability insurance
products. Reserves, whether calculated under generally accepted accounting
principles ("GAAP") or statutory accounting practices, do not represent an
exact calculation of future benefit liabilities but are instead estimates made
by the Company using actuarial and statistical procedures. There can be no
assurance that any such reserves would be sufficient to fund future
liabilities of the Company in all circumstances. Future loss development could
require reserves to be increased, which would adversely affect earnings in
current and future periods. Adjustments to reserve amounts may be required in
the event of changes from the assumptions regarding future morbidity (the
incidence of claims and the rate of recovery, including the effects thereon of
inflation, and other societal and economic factors), persistency, mortality,
and interest rates used in calculating the reserve amounts. See "The Paul
Revere Merger--Paul Revere Reserve Strengthening" and "Business--Reserves."
CAPITAL ADEQUACY
The capacity for an insurance company's growth in premiums is in part a
function of its statutory surplus. Maintaining appropriate levels of statutory
surplus, as measured by state insurance regulators, is considered important by
state insurance regulatory authorities and the private agencies that rate
insurers' claims-paying abilities and financial strength. Failure to maintain
certain levels of statutory surplus could result in increased regulatory
scrutiny, action by state regulatory authorities or a downgrade by the private
rating agencies.
Effective in 1993, the National Association of Insurance Commissioners
("NAIC") adopted a risk-based capital ("RBC") formula, which prescribes a
system for assessing the adequacy of statutory capital and surplus for all
life and health insurers. The basis of the system is a risk-based formula that
applies prescribed factors to the various risk elements in a life and health
insurer's business to report a minimum capital requirement proportional to the
amount of risk assumed by the insurer. The life and health RBC formula is
designed to measure annually (i) the risk of loss from asset defaults and
asset value fluctuation, (ii) the risk of loss from adverse mortality and
morbidity experience, (iii) the risk of loss from mismatching of asset and
liability cash flow due to changing interest rates and (iv) business risks.
The formula is to be used as an early warning tool to identify companies that
are potentially inadequately capitalized. The formula is intended to be used
as a regulatory tool only and is not intended as a means to rank insurers
generally.
Based on computations made by the Company in accordance with the prescribed
life and health RBC formula, each of the Company's life insurance subsidiaries
exceeded the minimum capital requirements at December 31, 1996.
During 1995 and 1996, the Division of Insurance of the Commonwealth of
Massachusetts (the "Massachusetts Division of Insurance") conducted a
quadrennial examination of The Paul Revere Life Insurance Company ("Paul
Revere Life") and The Paul Revere Variable Annuity Insurance Company ("Paul
Revere Variable") for the period ended December 31, 1994. In connection with
this examination, as well as in consideration of a comprehensive study
undertaken by Paul Revere in 1995 and early 1996 of its statutory reserves,
Paul Revere Life and The Paul Revere Protective Life Insurance Company ("Paul
Revere Protective") strengthened their individual disability statutory
reserves by a combined total of $35.0 million and reflected this strengthening
in the annual statutory financial statements for the year ended December 31,
1995.
8
<PAGE>
During the third quarter of 1996, Paul Revere initiated a comprehensive
study of the adequacy of its individual disability reserves under GAAP and
under statutory accounting principles to consider experience through September
30, 1996. The results of such study prompted Paul Revere to strengthen its
GAAP individual disability reserves by $380.0 million before taxes in the
quarter ended September 30, 1996. The Massachusetts Division of Insurance
subsequently updated its examination of Paul Revere's statutory reserves to
review the results of Paul Revere's statutory reserve study, with the result
that Paul Revere's statutory reserves were strengthened by $144.0 million. In
connection with the Paul Revere Merger, Textron, the principal stockholder of
Paul Revere, contributed $121.0 million, representing the amount of the
statutory reserve increases, net of tax benefits, as additional capital to
Paul Revere prior to the effective time of the Paul Revere Merger. See "The
Paul Revere Merger--Paul Revere Reserve Strengthening" and "Business--
Reserves."
DISABILITY INSURANCE
Disability insurance may be affected by a number of social, economic,
governmental, competitive, and other factors. Changes in societal attitudes,
work ethics, motivation, stability, and mores can significantly affect the
demand for and underwriting results from disability products. Economic
conditions affect not only the market for disability products, but also
significantly affect the claims rates and length of claims. The climate and
the nature of competition in disability insurance have also been markedly
affected by the growth of Social Security, worker's compensation, and other
governmental programs in the workplace. The nature of that portion of the
Company's outstanding insurance business that consists of noncancelable
disability policies, whereby the policy is guaranteed renewable through the
life of the policy at a fixed premium, does not permit the Company to adjust
its premiums on business in-force on account of changes resulting from such
factors. Disability insurance products are important products for the Company.
To the extent that disability products are adversely affected in the future as
to sales or claims, the business or results of operations of the Company could
be materially adversely affected. See "Business--Reporting Segments."
INDUSTRY FACTORS
All of the Company's businesses are highly regulated and competitive. The
Company's profitability is affected by a number of factors, including rate
competition, frequency and severity of claims, lapse rates, government
regulation, interest rates, and general business considerations. There are
many insurance companies which actively compete with the Company in its lines
of business, some of which are larger and have greater financial resources
than the Company, and there is no assurance that the Company will be able to
compete effectively against such companies in the future. See "Business--
Competition."
In recent years, some U.S. life insurance companies have faced claims,
including class-action lawsuits, alleging various improper sales practices in
the sales of certain types of life insurance products. These claims often
relate to the selling of whole life and universal life policies that
accumulate cash values which may be utilized to fund the cost of insurance in
later years of the policy. Due to subsequent reductions in dividends or
interest credited or due to other factors, the cash values have not
accumulated sufficiently to cover costs of insurance, resulting in the need
for ongoing premium payments. Although never a principal product line for the
Company or Paul Revere, both companies have sold a modest amount of interest
sensitive whole life and universal life policies. There can be no assurance
that any future claims relating to sales of such policies will not have a
material adverse effect on the Company.
EFFECT OF THE PAUL REVERE MERGER; INTEGRATION OF OPERATIONS
The success of the Paul Revere Merger will be determined by various factors,
including the financial performance of the combined company's operations and
management's ability to realize expected cost savings through combining
certain functions of both the Company and Paul Revere and restructuring the
field organizations of both companies. The integration of the operations of
Paul Revere and the Company may be negatively affected if, among other things,
the proposed changes are not made, customers do not react positively to some
of the planned changes intended to increase service or integrate the
businesses of the two companies,
9
<PAGE>
unanticipated offsetting costs are incurred, or costs or difficulties related
to the integration of the businesses of the Company and Paul Revere are
greater than expected. There can be no assurance that the anticipated benefits
of the Paul Revere Merger will be realized or that the Paul Revere Merger will
not adversely affect the future operating results of the Company. See "The
Paul Revere Merger."
THE PAUL REVERE MERGER
On March 27, 1997, the Company completed the acquisition of Paul Revere.
Pursuant to the Amended and Restated Agreement and Plan of Merger, dated as of
April 29, 1996 (the "Paul Revere Merger Agreement"), among Paul Revere, the
Company and Patriot Acquisition Corporation ("Newco"), a wholly-owned
subsidiary of the Company, Newco was merged with and into Paul Revere, with
the result that Paul Revere became a wholly-owned subsidiary of the Company.
In accordance with the terms of the Paul Revere Merger Agreement, each share
of Paul Revere Common Stock (other than shares held by Textron) was converted
into the right to receive, at the election of the holder of such share, either
(i) $26.00 in cash, without interest thereon (the "Cash Consideration"), (ii)
.767 of a share of Common Stock (the "Stock Consideration"), or (iii) $20.00
in cash plus .177 of a share of Common Stock (the "Mixed Consideration"), and
each share of Paul Revere common stock held by Textron was converted into the
right to receive $20.00 in cash plus .1578 of a share of Common Stock (the
"Textron Consideration"). Any Paul Revere stockholder who surrenders such
holder's shares without making an election will be deemed to have elected to
receive the Cash Consideration.
Prior to consummation of the Paul Revere Merger, Textron owned 37,500,000
shares of Paul Revere common stock, or approximately 83 percent of the
45,000,000 outstanding shares of Paul Revere common stock. Accordingly, the
shares of Paul Revere common stock held by Textron were converted at the
effective time of the Paul Revere Merger into the right to receive $750.0
million in cash and an aggregate of 5,917,500 shares of Common Stock. As of
April 21, 1997, the former holders of approximately 65.94 percent of the Paul
Revere common stock (other than Textron) had elected to receive the Stock
Consideration (entitling such holders to receive an aggregate of approximately
3,793,255 shares of Common Stock), approximately .08 percent had elected to
receive the Cash Consideration (entitling such holders to receive an aggregate
of $161,304 in cash), and the remaining approximately 33.98 percent had not
yet surrendered their shares of Paul Revere common stock for exchange.
The Company has funded the required cash payments to be made to Textron and
the other former Paul Revere stockholders with the proceeds of the sale of
9,523,810 shares of Common Stock to Zurich Insurance Company ("Zurich") and
various affiliates of Zurich for $300.0 million in cash and with approximately
$525.0 million of borrowings under the Company's existing line of credit. See
"--Zurich Relationship" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
An appeal of the decision of the Massachusetts Commissioner of Insurance
approving the acquisition of control of the Paul Revere insurance subsidiaries
domiciled in Massachusetts by the Company has been filed by George E. Ginther
and Niagara Financial Services, Inc. Mr. Ginther appeared and testified at the
hearing held in connection with such acquisition of control prior to the
approval on March 24, 1997 by the Massachusetts Commissioner of Insurance. The
appeal alleges that the findings in the decision were unsubstantiated by the
evidence and that the statutory criteria for approval of the merger were not
met. The appeal requests a trial de novo before a state court to determine if
the merger meets the statutory criteria under Massachusetts law, and requests
that the application of the order approving the merger be stayed and that the
merger be ultimately disapproved, or conditionally approved. The Company
believes the likelihood of success of the appeal is remote, and the Company
intends to promptly file a motion to dismiss and otherwise to defend the
approval vigorously. However, there can be no absolute assurance that such
appeal will not result in a decision that is materially adverse to the
Company.
On May 1, 1997, the California Insurance Commissioner notified the Company
that because Paul Revere Variable was commercially domiciled in the State of
California during 1996, the Company should have filed an
10
<PAGE>
application on Form A with the Commissioner seeking approval of the change in
control of Paul Revere Variable in connection with the Paul Revere Merger. The
Company is in the process of preparing a submission to the California Insurance
Commissioner. Although the Company intends to seek such approval and believes
that failure to obtain such approval would not have a material adverse effect
on the Company, there can be no assurance that such approval can be obtained.
PAUL REVERE RESERVE STRENGTHENING
Paul Revere's individual disability insurance segment reported a loss before
income taxes of $343.3 million for the nine months ended September 30, 1996, as
compared to income before income taxes of $48.5 million during the comparable
period of 1995. This loss was attributable to reserve strengthening of $380.0
million, before income taxes, recorded in the third quarter of 1996. The
reserve strengthening recorded was prompted by the results of a comprehensive
study of the adequacy of its individual disability reserves under GAAP
completed in October 1996. In connection with such reserve study, Paul Revere
received an actuarial report from an independent actuarial firm, which report
concluded that the net individual disability reserves of $2.2 billion reported
by Paul Revere at September 30, 1996, which reflected the $380.0 million
reserve strengthening adjustment, were adequate on a GAAP basis, based on the
assumptions reflected therein.
Subsequently, Paul Revere completed, in cooperation with the Massachusetts
Division of Insurance, a comprehensive study of the adequacy of its statutory
individual disability reserves, as a result of which Paul Revere's statutory
reserves were increased by $144.0 million. Pursuant to the Amended and Restated
Voting Agreement, dated as of April 29, 1996 (the "Textron Voting Agreement"),
between Textron and the Company, Textron contributed to Paul Revere $121.0
million, representing the amount of required statutory reserve increases, net
of tax benefits. See "--Textron Agreements."
TEXTRON AGREEMENTS
Under the original terms of the Paul Revere Merger Agreement entered into on
April 29, 1996, Textron was entitled to receive the Mixed Consideration. On
November 5, 1996, the parties entered into the Paul Revere Merger Agreement as
amended and restated, pursuant to which Textron was entitled to receive the
Textron Consideration in lieu of the Mixed Consideration. In addition, pursuant
to the Textron Voting Agreement and an Agreement, dated as of March 27, 1997,
between the Company and Textron (the "Textron Agreement"), Textron, prior to or
at the effective time of the Paul Revere Merger, among other things, (i)
provided to Paul Revere $146.0 million of additional capital ($121.0 million of
which was based on the results of the final determination of the required
levels of Paul Revere's statutory reserves), (ii) contributed or agreed to
contribute to Paul Revere certain assets having a value of approximately $15.0
million, (iii) reimbursed Paul Revere for certain severance costs, (iv) agreed
to hold harmless Paul Revere and the Company from and against specified damages
resulting from certain third party claims, and (v) as described below, agreed
to pay to the Company certain proceeds from sales of Common Stock received by
Textron in the Paul Revere Merger.
Pursuant to the Textron Agreement, Textron has agreed to use its reasonable
efforts to sell for cash all shares of Common Stock received by Textron in the
Paul Revere Merger as soon as practicable after the effective date of the Paul
Revere Merger, provided that the per share proceeds to Textron from any sale
are not less than the Threshold Price (as defined below). Upon each sale of
such shares, Textron has agreed to pay to the Company an amount per share equal
to the difference (the "Appreciation") between the per share proceeds to
Textron (after subtracting all commissions and other costs of sale) from such
sale and $38.00 (appropriately adjusted for subdivisions, combinations, splits
and other adjustments in the Common Stock after the effective date of the Paul
Revere Merger, the "Threshold Price"); provided, that Textron is not required
to make any such payment until, and only to the extent that, the Appreciation
received by Textron in respect of all such sales exceeds, in the aggregate,
$20.0 million (the "Textron Appreciation"). If all 5,917,500 shares of Common
Stock held by Textron are sold in this offering, Textron will pay to the
Company the net proceeds received by Textron in excess of an aggregate of
approximately $244.8 million, or the per share net proceeds in excess of
approximately $41.38 per share of Common Stock.
11
<PAGE>
In the event that by February 27, 1998, Textron has not sold all of the
shares of Common Stock received by it in the Paul Revere Merger, the Company
has the right, which may be exercised from time to time at the Company's
discretion, to repurchase some or all of such shares then held by Textron at a
purchase price per share equal to the Threshold Price; provided, that until
such time as Textron has realized the entire Textron Appreciation, the purchase
price payable by the Company for each share purchased by the Company shall
equal, if higher than the Threshold Price, the average (appropriately adjusted
for any stock dividend, split, combination or reclassification) of the closing
prices for the Common Stock as reported on the NYSE for the ten consecutive
Trading Days (as defined in the Paul Revere Merger Agreement) ending on the
fifth Trading Day before the day on which such shares are purchased by the
Company.
PAUL REVERE FINANCIAL PERFORMANCE
For the year ended December 31, 1996, Paul Revere reported a net loss of
$162.9 million, as compared to net income of $85.3 million and $91.8 million
for the years ended December 31, 1995 and 1994, respectively. As noted above,
the loss for 1996 is attributable to individual disability reserve
strengthening of $380.0 million, before income taxes, recorded in the third
quarter of 1996, which resulted in a decrease in net income of $244.3 million,
after tax. See "--Paul Revere Reserve Strengthening." The following is an
overview of Paul Revere's financial performance for the three years ended
December 31, 1996.
Premiums, Policy and Contract Charges and Fees. Premiums increased in the
period from 1994 to 1996 from $944.9 million to $1.14 billion, which increase
was primarily attributable to growth in the individual insurance segment and
group disability insurance line of business. Deposits received by Paul Revere
from its interest-sensitive products (including both life insurance and annuity
contracts) declined in 1996 as compared to 1995, and 1995 was relatively flat
as compared to 1994. Account balances for these products increased to $2.13
billion at December 31, 1996 as compared to $2.03 billion and $1.85 billion at
December 31, 1995 and 1994, respectively.
Net Investment Income. Net investment income increased by 4.1% in 1996 to
$405.6 million as compared to $389.7 million in 1995, and by 6.8% in 1995 as
compared to $364.9 million in 1994, as the growth in invested assets more than
offset declining portfolio yields. The yields on average invested assets
declined in all years due to an interest rate environment offering yields at
less than average portfolio rates. In addition, net investment income for the
year ended December 31, 1995 was positively impacted by the receipt of $7.7
million representing the interest portion of two federal income tax refunds
related to prior years. In 1994, accelerated prepayments on mortgage-backed
securities and continued call activity generated an increase in funds available
for investment at a time when interest rates were lower than the current
portfolio yield. The average yield on Paul Revere's portfolio was 7.70%, 7.90%,
and 7.99% in 1996, 1995 and 1994, respectively.
Net Realized Investment Gains. Net realized investment gains decreased $40.4
million in 1996 to $48.6 million as compared to 1995 and increased $51.4
million in 1995 to $89.0 million from $37.6 million in 1994. The increase in
1995 was attributable to realized investment gains on equity-oriented and fixed
income securities. The equity-oriented gains included sales of Textron common
stock in accordance with a previously approved commitment. Additionally, in
1995, this increase was partially due to a sale of common stock which was
originally acquired in conjunction with a private placement debt financing.
Fixed income security sale gains were generated due to the restructuring of the
individual disability insurance segment investment portfolios in order to
lengthen duration. Net realized investment gains were reduced by increases and
increased by decreases in the provision for other than temporary declines in
investments. The net decrease in the provision (including those investments
subject to direct writedown) was $6.2 million during 1996 compared to net
increases of $10.0 million and $9.2 million during 1995 and 1994, respectively.
Benefits to Policyholders. Benefits to policyholders increased 40.1% in 1996
to $1.46 billion as compared to $1.04 billion in 1995 and 20.3% in 1995 as
compared to $864.0 million in 1994. The increase in 1996 was primarily the
result of individual disability reserve strengthening of $380.0 million, before
income taxes, recorded in the third quarter of 1996. This reserve strengthening
resulted in a decrease to net income of $244.3
12
<PAGE>
million, after tax. The increase in 1995 as compared to 1994 was primarily
attributable to adverse claim experience in the individual disability insurance
segment. This adverse claim experience resulted principally from Paul Revere's
excess-risk reinsurance line of business and the core block of policies issued
during 1985-1989, especially in Florida and California. In addition, business
issued to physicians performed below expectations. In 1995, due to the
continued deterioration of claim experience in the excess-risk reinsurance
business, Paul Revere recorded reserve strengthening of $59.0 million, before
income taxes.
Other Expenses. Paul Revere's expense ratio (excluding goodwill) was 33.1%,
33.2% and 34.7% for the years ended December 31, 1996, 1995 and 1994,
respectively. The ratio remained relatively flat in 1996 compared to 1995. The
decrease in 1995 as compared to 1994 was primarily attributable to higher
levels of premium revenues coupled with more aggressive expense management,
including various initiatives to reduce home office and field expenses.
Amortization of deferred costs increased $4.1 million in 1996 as compared to
1995 and increased $12.4 million in 1995 as compared to 1994. The increase from
1994 to 1995 reflected increasing business volumes in the individual and group
disability insurance lines of business, partially offset by the effects of
improved persistency.
ZURICH RELATIONSHIP
On March 27, 1997, the Company consummated the sale of 9,523,810 shares of
Common Stock to Zurich for $300.0 million in cash, the proceeds of which were
used to fund a portion of the cash payments required to be made to Paul Revere
stockholders in the Paul Revere Merger. The Company and Zurich have also
entered into a strategic marketing relationship pursuant to which the Company
and Zurich have agreed to work with each other to utilize existing products and
distribution channels and to explore joint opportunities and other areas to
leverage each other's strengths. Zurich has agreed to certain restrictions on
acquisitions of shares of Common Stock and is permitted, subject to certain
limitations, to designate up to two persons to be nominated to serve as
directors of the Company. Zurich has, under certain circumstances and subject
to certain exceptions, a first refusal right to acquire shares of Common Stock
proposed to be sold by certain members of the Maclellan family or related
trusts and foundations. The Company has granted to Zurich certain rights to
require the shares of Common Stock acquired by Zurich to be registered under
the Securities Act, and the Company has registered such shares in order to
facilitate resales of such shares by Zurich.
13
<PAGE>
USE OF PROCEEDS
Pursuant to an agreement between the Company and the Selling Stockholder,
the Selling Stockholder will pay to the Company a portion of the net proceeds
received by the Selling Stockholder from the sale of the shares offered
hereby. The Company will receive all of the net proceeds from the sale of
shares of Common Stock pursuant to exercise of the U.S. Underwriters' over-
allotment option. The net proceeds to the Company from the sale by the Selling
Stockholder of the 5,917,500 shares of Common Stock offered by the Selling
Stockholder hereby are estimated to be $ ($ if the U.S.
Underwriters' over-allotment option is exercised in full), assuming a public
offering price of $ per share and after deducting underwriters' discounts
and commissions, expenses payable by the Company, and retention by the Selling
Stockholder of the Threshold Price and the Textron Appreciation (as such terms
are defined in the Textron Agreement). See "The Paul Revere Merger--Textron
Agreements."
The Company intends to use the net proceeds it receives for general
corporate purposes, including possible acquisitions of businesses or assets
complementary to the Company's current businesses. The Company regularly
engages in discussions to explore acquisition opportunities. The Company
currently has no agreements or understandings to acquire any businesses.
Pending utilization of the net proceeds received by the Company from this
offering, the Company intends to invest them in short-term, income-generating,
investment-grade securities.
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
The Common Stock is traded on the NYSE under the symbol "PVT." The following
table sets forth for the indicated calendar quarters the high and low sales
prices for the Common Stock, as reported in the NYSE consolidated transaction
system, and the dividends declared per share of Common Stock since January 1,
1995.
<TABLE>
<CAPTION>
SALES
PRICES
------------ DIVIDENDS
HIGH LOW DECLARED
---- ---- ---------
<S> <C> <C> <C>
1995
First Quarter........................................ $24 7/8 $21 1/2 $.18
Second Quarter....................................... 26 20 1/2 .18
Third Quarter........................................ 27 1/2 21 7/8 .18
Fourth Quarter....................................... 33 7/8 26 1/4 .18
1996
First Quarter........................................ $ 35 $ 29 $.18
Second Quarter....................................... 37 1/4 28 1/2 .18
Third Quarter........................................ 39 35 3/4 .18
Fourth Quarter....................................... 51 1/2 36 7/8 .18
1997
$ 46
First Quarter........................................ $57 3/4 3/8 $.18
Second Quarter (through April 22, 1997).............. 59 1/4 52
</TABLE>
As of March 31, 1997, there were approximately 1,305 holders of record of
the Common Stock and 66,884,726 shares of Common Stock outstanding.
The Company has paid consecutive cash dividends on its shares for over 40
years. The payment of future dividends will depend upon future earnings, the
financial condition of the Company, restrictions contained in loan agreements,
and other factors.
14
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company and its subsidiaries as of December 31, 1996 (i) on an actual basis,
(ii) as adjusted to reflect, on a pro forma basis, the Paul Revere Merger, and
(iii) as adjusted further to reflect the sale by the Selling Stockholder of
the 5,917,500 shares of Common Stock offered hereby and payment to the Company
of a portion of the net proceeds therefrom (at an assumed public offering
price of $ per share). See "The Paul Revere Merger--Textron Agreement."
The pro forma information reflecting the Paul Revere Merger based on the
assumption that Paul Revere stockholders (other than Textron) elect to receive
the Stock Consideration has been derived from, and should be read in
conjunction with, pro forma financial information incorporated by reference
herein. See "Available Information" and "Incorporation of Certain Documents by
Reference."
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------------
PRO FORMA AS ADJUSTED
FOR THE FURTHER FOR
PAUL REVERE THE
ACTUAL MERGER OFFERING
-------- ----------- -----------
(IN MILLIONS)
<S> <C> <C> <C>
Long-term debt................................ $ 200.0 $ 581.2 $ 581.2
-------- -------- --------
Stockholders' equity:
Preferred stock, 25,000,000 shares
authorized, 1,041,534 shares of 8.10%
Cumulative Preferred Stock issued and
outstanding................................. 156.2 156.2 156.2
Common stock, $1.00 par value; 150,000,000
shares authorized, 45,627,629 shares issued
and outstanding, 66,825,189 shares issued
and outstanding pro forma and as adjusted
(1)......................................... 45.6 66.8 66.8
Additional paid-in capital................... 11.4 730.2
Retained earnings............................ 1,525.4 1,525.4 1,525.4
-------- -------- --------
Total stockholders' equity.................. 1,738.6 2,478.6
-------- -------- --------
Total capitalization....................... $1,938.6 $3,059.8 $
======== ======== ========
</TABLE>
- --------
(1) Excludes an aggregate of 2,119,727 shares of Common Stock reserved for
issuance upon exercise of options outstanding as of December 31, 1996.
15
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected historical financial data as of and for the five
years in the period ended December 31, 1996 have been derived from the audited
consolidated financial statements of the Company, which are incorporated
herein by reference. The following selected pro forma financial data reflect
consummation of the Paul Revere Merger and have been derived from pro forma
financial information of the Company incorporated herein by reference. The
information set forth below should be read in conjunction with the Company's
and Paul Revere's respective consolidated financial statements (including the
notes thereto) and the pro forma financial information relating to the Paul
Revere Merger (including the notes thereto), incorporated by reference herein.
See "Available Information" and "Incorporation of Certain Documents by
Reference."
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED DECEMBER 31,
DECEMBER 31, 1996 ---------------------------------------------------------------
PRO FORMA (1) 1996 1995 1994 1993 1992
----------------- ----------- ----------- ----------- ----------- -----------
(IN MILLIONS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenue:
Premium income......... $ 2,306.0 $ 1,175.7 $ 1,251.9 $ 1,382.6 $ 1,400.2 $ 1,490.7
Net investment income.. 1,498.4 1,090.1 1,221.3 1,238.6 1,318.7 1,241.8
Net realized investment
gains (losses)........ 40.0 (8.6) (31.7) (30.1) 43.6 (30.8)
Other income........... 40.0 34.7 113.8 171.1 175.5 165.0
----------- ----------- ----------- ----------- ----------- -----------
Total revenue.......... 3,884.4 2,291.9 2,555.3 2,762.2 2,938.0 2,866.7
----------- ----------- ----------- ----------- ----------- -----------
Benefits and expenses:
Benefits to
policyholders.......... 3,110.7 (2) 1,661.2 1,904.6 1,981.2 2,502.8 2,102.6
Amortization of policy
acquisition costs..... 74.0 64.0 71.0 59.4 61.0 66.9
Commissions and other
expenses............... 742.6 340.5 403.7 520.7 514.3 517.4
----------- ----------- ----------- ----------- ----------- -----------
Total benefits and
expenses............... 3,927.3 2,065.7 2,379.3 2,561.3 3,078.1 2,686.9
----------- ----------- ----------- ----------- ----------- -----------
Income (loss) before
federal income taxes... (42.9) 226.2 176.0 200.9 (140.1) 179.8
Federal income taxes
(credit)................ (8.5) 80.6 60.4 65.6 (58.9) 67.2
----------- ----------- ----------- ----------- ----------- -----------
Net income (loss)....... $ (34.4)(2) $ 145.6 $ 115.6 $ 135.3 $ (81.2) $ 112.6
=========== =========== =========== =========== =========== ===========
Net income (loss) per
common share............ $ (.71) $ 2.92 $ 2.27 $ 2.71 $ (2.03) $ 2.49
=========== =========== =========== =========== =========== ===========
Weighted average common
shares outstanding .... 66,719,977 45,522,417 45,381,373 45,311,053 45,200,914 45,175,980
BALANCE SHEET DATA (AT
YEAR END):
Total assets............ $ 22,642.2 $ 14,992.5 $ 16,301.3 $ 17,149.9 $ 16,891.9 $ 15,925.1
Long-term debt including
capital lease
obligations............ 581.2 200.0 200.0 202.5 247.6 206.2
Total debt.............. 607.4 200.0 201.4 216.9 276.6 477.3
Common stockholders'
equity.................. 2,322.4 1,582.4 1,496.1 1,012.9 1,245.4 1,387.5
</TABLE>
- --------
(1) Reflects consummation of the Paul Revere Merger as of January 1, 1996 for
statement of operations data and as of December 31, 1996 for balance sheet
data, in each case assuming that Paul Revere stockholders (other than
Textron) elect to receive the Stock Consideration. See "The Paul Revere
Merger."
(2) Includes reserve strengthening of $380.0 million, before income taxes,
recorded by Paul Revere in the third quarter of 1996, which resulted in a
decrease in net income of $244.3 million. See "The Paul Revere Merger--
Paul Revere Reserve Strengthening."
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OPERATING RESULTS
Revenue excluding net realized investment gains and losses (hereinafter
"revenue") declined $286.5 million in 1996, or 11.1 percent, to $2.30 billion
in 1996 from $2.59 billion in 1995. Revenue includes premium income, net
investment income, and other income. This decline resulted from decreased
revenue of $338.2 million in the Other Operations segment. This decline was
partly offset by increased revenue of $28.3 million and $23.4 million in the
Individual Life and Disability segment and Employee Benefits segment,
respectively.
In 1995, revenue declined $205.3 million, or 7.4 percent, to $2.59 billion
from $2.79 billion in 1994. This decline resulted from decreased revenue of
$295.4 million in the Other Operations segment. This decline was partly offset
by increased revenue of $62.7 million in the Individual Life and Disability
segment and of $27.4 million in the Employee Benefits segment.
Income before net realized investment gains and losses and federal income
taxes (hereinafter "income") increased $27.1 million, or 13.0 percent, to
$234.8 million in 1996 from $207.7 million in 1995. The increase resulted from
higher income of $80.8 million in the Individual Life and Disability segment
and of $7.7 million in the Employee Benefits segment. These increases were
partly offset by decreased income of $61.4 million in the Other Operations
segment.
In 1995, income was $207.7 million, compared to $231.0 million in 1994. The
decline resulted from decreased income of $23.2 million in the Employee
Benefits segment and of $16.7 million in the Individual Life and Disability
segment. These declines were only partly offset by increased income of $16.6
million in the Other Operations segment.
Net income totaled $145.6 million in 1996, compared to $115.6 million in
1995 and $135.3 million in 1994. Net realized investment losses after federal
income taxes were $5.4 million in 1996, $20.7 million in 1995, and $22.5
million in 1994.
17
<PAGE>
INDIVIDUAL LIFE AND DISABILITY OPERATING RESULTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1996 1995 1994
--------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C>
REVENUE EXCLUDING NET REALIZED INVESTMENT GAINS:
Premium income:
Individual disability income.................... $ 582.8 $ 584.5 $ 578.7
Individual life and annuities................... 63.5 62.9 66.2
--------- --------- ---------
Total premium income.......................... 646.3 647.4 644.9
Net investment income............................ 393.6 361.3 302.4
Other income..................................... 7.7 10.6 9.3
--------- --------- ---------
Total....................................... 1,047.6 1,019.3 956.6
--------- --------- ---------
BENEFITS AND EXPENSES:
Policy and contract benefits..................... 477.1 443.7 381.3
Change in reserves for future policy and contract
benefits and
policyholders' funds............................ 220.5 303.6 297.6
Amortization of deferred policy acquisition
costs........................................... 55.6 59.0 53.0
Other expenses................................... 177.1 176.5 171.5
--------- --------- ---------
Total....................................... 930.3 982.8 903.4
--------- --------- ---------
Income before net realized investment gains and
federal income taxes............................ 117.3 36.5 53.2
Net realized investment gains.................... 8.5 4.7 5.8
--------- --------- ---------
Income before federal income taxes............... $ 125.8 $ 41.2 $ 59.0
========= ========= =========
SALES--ANNUALIZED NEW PREMIUMS:
Individual disability income..................... $ 45.1 $ 55.2 $ 65.0
Individual life.................................. 6.7 7.1 9.2
DEPOSITS--DEFERRED ANNUITIES..................... 21.2 82.4 141.8
LIFE INSURANCE IN FORCE.......................... 12,585.2 12,709.1 12,683.6
</TABLE>
Revenue in the Individual Life and Disability segment increased $28.3
million, or 2.8 percent, to $1,047.6 million in 1996 from $1,019.3 million in
1995. Net investment income increased $32.3 million, or 8.9 percent, to $393.6
million in 1996 from $361.3 million in 1995. This increase was primarily the
result of an increased allocation of capital to the individual disability
income line of business. Premium income in this segment declined $1.1 million
or .2 percent, to $646.3 million in 1996 from $647.4 million in 1995. In the
individual disability income line of business, premium income declined $1.7
million, or .3 percent, to $582.8 million in 1996 from $584.5 million in 1995.
In the individual life line of business, premium income increased $.4 million,
or .6 percent, to $63.3 million in 1996 from $62.9 million in 1995.
In 1995, revenue in the Individual Life and Disability segment increased
$62.7 million, or 6.6 percent, to $1,019.3 million from $956.6 million in
1994. This increase was primarily the result of higher net investment income.
Net investment income in this segment increased $58.9 million, or 19.5
percent, due to an increased allocation of capital to the individual
disability income line of business and higher investment income from the
individual annuity line of business. Premium income in this segment increased
$2.5 million to $647.4 million in 1995 from $644.9 million in 1994. In the
individual disability income line, premium income was $584.5 million in 1995,
compared to $578.7 million in 1994, while the individual life line of business
experienced a decline in premium income from $66.2 million in 1994 to $62.9
million in 1995.
18
<PAGE>
In November 1994, the Company announced its intention to discontinue selling
individual noncancelable disability contracts with long-term own-occupation
provisions (other than conversion policies available under existing
contractual arrangements). The Company is focusing on replacing the
traditional noncancelable long-term own-occupation contracts with "loss of
earnings" contracts which insure income rather than occupation. During the
transition to the new products, revenue in this line was expected to decline
as a result of a period of lower premiums associated with the new products.
The magnitude and duration of the expected decline are dependent on the
response of customers and competitors in the industry. In 1996, annualized new
premiums for individual disability income declined $10.1 million, or 18.3
percent, to $45.1 million, from $55.2 million in 1995. In the second half of
1996, annualized new premiums totaled $24.6 million compared to $20.5 million
in the first half of 1996 and $21.5 million in the second half of 1995.
Income in the Individual Life and Disability segment increased $80.8 million
to $117.3 million in 1996 from $36.5 million in 1995. The improvement was
primarily due to improved results in the individual disability income and the
individual life lines of business. In the individual disability income line,
income increased $78.2 million to $91.3 million in 1996, from $13.1 million in
1995. This significant improvement was primarily due to a lower level of new
claims in the third and fourth quarters of 1996 along with higher levels of
claim resolutions. Management believes substantial investments in the
individual disability claims management process since the first quarter of
1995 helped produce the improvement in results in this line. The major
elements of this investment included an emphasis on early intervention to
better respond to the specific nature of the claims, increased specialization
to properly adjudicate the increasingly specialized nature of disability
claims, and an increased level of staffing with experienced claim adjusters.
In addition, net investment income in this line increased due to a higher
allocation of capital to this line of business. Income in the individual life
line of business increased $3.2 million, or 15.3 percent, to $24.1 million in
1996 from $20.9 million in 1995, while the individual annuities line of
business produced income of $1.9 million in 1996 compared to $2.5 million in
1995.
In 1995, income in the Individual Life and Disability segment declined $16.7
million, or 31.4 percent, to $36.5 million, compared to $53.2 million in 1994.
The decline was primarily due to the individual disability income line which
produced income of $13.1 million in 1995, compared to $27.1 million in 1994.
Poor results in the first quarter of 1995 from adverse claim experience on
individual noncancelable disability income contracts with long-term own-
occupation provisions which were issued between 1983 and 1989 were the primary
reason for the decline. Specifically, the average size of new claims in the
first quarter of 1995 was higher than the average level experienced for all of
1994, and the level of claim resolutions was lower relative to 1994. During
the last three quarters of 1995, claim resolutions were higher relative to the
first quarter of 1995 and all of 1994. Management believes that the
improvement in the final three quarters of 1995 was primarily the result of
the allocation of significant resources to the Company's disability claims
management unit. Lower income from the individual life and individual
annuities lines of business also contributed to the decreased income in this
segment. Income in the individual life line declined to $20.9 million in 1995,
compared to $22.9 million in 1994, while income from the individual annuities
line declined to $2.5 million in 1995 from $3.2 million in 1994.
Deposits on deferred annuities sold through financial institutions totaled
$8.1 million in 1996, compared to $78.2 million in 1995 and $131.8 million in
1994. This decline was primarily the result of the termination of certain
marketing relationships. Deposits on annuities sold through other distribution
channels were $13.1 million in 1996, compared to $4.2 million in 1995 and
$10.0 million in 1994.
The Company performed a loss recognition study on its individual disability
income business as of September 30, 1993. The study resulted in a $423.0
million pre-tax or $275.0 million after-tax charge to operating earnings. The
charge was required under GAAP due to the significant decline in interest
rates in 1993 and the increased level of morbidity experienced by the Company.
Since 1993, the Company has performed annual loss recognition studies to
determine the continued adequacy of the reserves that were established. Based
upon the December 1996 loss recognition study, which incorporates management's
best estimate for the assumptions used, reserves were adequate at December 31,
1996.
19
<PAGE>
The Company has engaged outside consultants to work with its personnel in
refining its methodology for analyzing frequency and severity rates, as well
as other factors that may affect reserve adequacy. Management intends to
continue to work to provide the Company with a better methodology for
anticipating changes in morbidity rates and a better methodology for
reflecting those changes in the management of its business. Significant
testing of any methodology must be undertaken. The preliminary results of the
Company's analyses, which are subject to further development, testing and
review, suggest a sufficiency in the Company's reserves.
It is not possible to predict with certainty whether morbidity, interest
rates, and expenses will continue at a level consistent with the assumptions
used in the loss recognition study, improve, or deteriorate; however, the
current assumptions as to these factors represent management's best estimates
in light of present circumstances. Additional increases to reserves would be
required if there is material deterioration in morbidity, interest rates,
and/or expenses. As part of its ongoing management of this line of business,
the Company will conduct a loss recognition study annually to validate the
continued adequacy of current reserves.
EMPLOYEE BENEFITS OPERATING RESULTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1996 1995 1994
--------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C>
REVENUE EXCLUDING NET REALIZED INVESTMENT GAINS:
Premium income:
Voluntary benefits.............................. $ 70.6 $ 66.3 $ 58.7
Group life...................................... 177.8 167.0 167.6
Medical stop-loss............................... 49.4 62.2 66.9
Group disability................................ 69.4 59.5 53.6
Packaged products............................... 134.2 130.9 118.8
--------- --------- ---------
Total premium income.......................... 501.4 485.9 465.6
Net investment income............................ 97.9 90.6 85.5
Other income..................................... 6.8 6.2 4.2
--------- --------- ---------
Total....................................... 606.1 582.7 555.3
--------- --------- ---------
BENEFITS AND EXPENSES:
Policy and contract benefits..................... 362.9 382.2 334.2
Change in reserves for future policy and contract
benefits and
policyholders' funds............................ 73.7 48.1 54.1
Amortization of deferred policy acquisition
costs........................................... 8.4 12.0 6.4
Other expenses................................... 104.8 91.8 88.8
--------- --------- ---------
Total....................................... 549.8 534.1 483.5
--------- --------- ---------
Income before net realized investment gains and
federal income taxes............................ 56.3 48.6 71.8
Net realized investment gains.................... .1 3.9 1.6
--------- --------- ---------
Income before federal income taxes............... $ 56.4 $ 52.5 $ 73.4
========= ========= =========
SALES--ANNUALIZED NEW PREMIUMS:
Voluntary benefits............................... $ 23.0 $ 20.2 $ 20.6
Group life....................................... 37.8 24.2 16.7
Group disability................................. 16.5 10.7 14.4
LIFE INSURANCE IN FORCE.......................... 87,079.7 83,276.3 71,460.5
</TABLE>
20
<PAGE>
Revenue in the Employee Benefits segment increased $23.4 million, or 4.0
percent, to $606.1 million in 1996 from $582.7 million in 1995. The increase
was primarily due to higher premium income which increased $15.5 million, or
3.2 percent, to $501.4 million in 1996 from $485.9 million in 1995. The
increase was primarily the result of higher premium income in the voluntary
benefits, group life, group disability, and packaged products lines of
business, which more than offset lower premium income in the medical stop-loss
line of business. Net investment income in this segment increased $7.3
million, or 8.1 percent, to $97.9 million in 1996 from $90.6 million in 1995.
In 1995, revenue in the Employee Benefits segment increased $27.4 million,
or 4.9 percent, to $582.7 million from $555.3 million in 1994. Premium income
increased $20.3 million, or 4.4 percent, to $485.9 million in 1995 from $465.6
million in 1994. The increase in premium income in this segment was primarily
the result of higher premium income in the voluntary benefits, group
disability, and packaged products lines of business, which more than offset
lower premium income in the group life and medical stop-loss lines of
business. Net investment income in this segment increased $5.1 million, or 6.0
percent, to $90.6 million in 1995, compared to $85.5 million in 1994.
Income in the Employee Benefits segment increased $7.7 million, or 15.8
percent, to $56.3 million in 1996 from $48.6 million in 1995. The increase was
primarily due to improved results in the voluntary benefits and group
disability lines of business. Income in the voluntary benefits line was $14.7
million in 1996 compared to $7.9 million in 1995. Income in the group
disability line was $2.9 million in 1996 compared to a loss of $12.8 million
in 1995. Both lines benefited from improved profitability following repricing
actions in 1995. The improvement in income in these lines of business was
partly offset by lower income in the group life, medical stop-loss, and
packaged products lines of business.
In 1995, income in the Employee Benefits segment declined to $48.6 million,
compared to $71.8 million in 1994. This decline was primarily the result of
lower income in the medical stop-loss and group disability lines of business.
Income in the medical stop-loss line declined to $16.4 million in 1995 as
compared to $26.6 million in 1994, primarily as a result of lower premium
income and higher loss ratios. Income in the group disability line declined to
a loss of $12.8 million in 1995 from a loss of $4.5 million in 1994, primarily
due to higher claim incidence and severity. These losses were primarily
attributable to business associated with the medical and legal occupations.
During the first quarter of 1995, the Company notified the existing group
disability customers in the medical and legal occupational categories that
coverages would be terminated under the terms of the existing contracts during
1995, and the Company would no longer accept proposals for group disability
coverage of new medical or legal groups. This action impacted approximately 15
percent of the group disability block of business. The group life and
voluntary benefits lines of business also produced lower income in 1995
compared to 1994, while the packaged products line reported an increase in
income.
21
<PAGE>
OTHER OPERATIONS OPERATING RESULTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1996 1995 1994
-------- -------- ---------
(IN MILLIONS)
<S> <C> <C> <C>
REVENUE EXCLUDING NET REALIZED INVESTMENT
LOSSES:
Premium income:
Corporate-owned life........................... $ 23.6 $ 24.8 $ 26.1
Group single premium annuities................. 1.9 .5 4.7
Other.......................................... 2.5 93.3 241.3
-------- -------- ---------
Total premium income......................... 28.0 118.6 272.1
Net investment income........................... 598.6 769.4 850.7
ASO fees........................................ -- 37.2 110.9
Gain on sale of group medical business.......... -- 21.8 --
Other income.................................... 20.2 38.0 46.7
-------- -------- ---------
Total...................................... 646.8 985.0 1,280.4
-------- -------- ---------
BENEFITS AND EXPENSES:
Policy and contract benefits.................... 376.5 593.8 791.3
Change in reserves for future policy and
contract benefits and
policyholders' funds........................... 150.5 133.2 122.7
Other expenses.................................. 58.6 135.4 260.4
-------- -------- ---------
Total...................................... 585.6 862.4 1,174.4
-------- -------- ---------
Income before net realized investment losses and
federal income taxes........................... 61.2 122.6 106.0
Net realized investment losses.................. (17.2) (40.3) (37.5)
-------- -------- ---------
Income before federal income taxes.............. $ 44.0 $ 82.3 $ 68.5
======== ======== =========
FUNDS UNDER MANAGEMENT AND EQUIVALENTS AT END OF
YEAR:
Group single premium annuities.................. $1,188.1 $1,197.8 $ 1,209.5
Traditional GICs................................ 3,204.3 4,838.0 7,042.6
Separate account GICs........................... 68.3 146.1 138.9
Synthetic GICs.................................. 2,176.6 2,571.9 1,626.8
Other........................................... 304.7 301.1 275.5
-------- -------- ---------
Total...................................... $6,942.0 $9,054.9 $10,293.3
======== ======== =========
LIFE INSURANCE IN FORCE......................... $2,999.6 $2,967.2 $ 2,641.5
</TABLE>
The Other Operations segment includes the Company's group pension products,
its corporate-owned life insurance ("COLI") products, corporate (unallocated)
capital and assets, and the medical services business sold in 1995 (see Note
13 of the Notes to Consolidated Financial Statements, incorporated by
reference herein). The group pension and COLI blocks of business are
essentially closed blocks of business which have been segregated for reporting
and monitoring purposes. The group pension products include the Company's
traditional guaranteed investment contracts ("GICs"), group single premium
annuities ("SPAs"), and synthetic GICs.
Revenue in the Other Operations segment declined $338.2 million, or 34.3
percent, to $646.8 million in 1996 from $985.0 million in 1995. The decline
was partially due to the sale of the medical services line of business, which,
prior to its sale on April 30, 1995, contributed operating revenue of $146.1
million and a gain from the sale of the business of $21.8 million. In
addition, revenue in the group pension line of business declined $177.2
million, or 30.3 percent, to $408.4 million in 1996 from $585.6 million in
1995 due to a decrease in
22
<PAGE>
funds under management resulting from the strategic decision to discontinue
the sale of traditional GICs. Premium income in this segment declined $90.6
million, or 76.4 percent, to $28.0 million in 1996 from $118.6 million in
1995. This decline was due to the sale of the medical services line of
business, which produced $90.9 million of premium income prior to its sale in
the second quarter of 1995.
In 1995, revenue in the Other Operations segment declined $295.4 million, or
23.1 percent, to $985.0 million as compared to $1,280.4 million in 1994.
Premium income in this segment declined $153.5 million to $118.6 million in
1995 as compared to $272.1 million in 1994. The primary reason for this
decline was the sale of the medical services business which produced premium
income of $241.3 million in 1994 and $90.9 million in 1995 prior to its sale
effective April 30, 1995. Net investment income declined $81.3 million to
$769.4 million in 1995 from $850.7 million in 1994. The primary reason for
this decline was the decrease in funds under management in the group pension
line of business. Net investment income in the group pension line declined
$80.0 million to $574.2 million in 1995 as compared to $654.2 million in 1994.
In addition, net investment income from corporate (unallocated) capital and
assets declined due to additional capital being allocated to the individual
disability income line of business. Administrative services only fees
associated with the medical services business declined due to the sale of the
medical services business in 1995. These fees totaled $110.9 million in 1994
and $37.2 million in 1995.
The Company announced in December 1994 that it would discontinue the sale of
traditional GICs. Funds under management for the group pension line excluding
deposits for synthetic GICs totaled $4.77 billion at December 31, 1996,
compared to $6.48 billion at December 31, 1995, a decrease of 26.5 percent. In
1995, funds under management decreased 25.2 percent, from $8.67 billion at
December 31, 1994.
In 1995, the Company extended an offer to GIC contract holders to surrender
their contracts on a more favorable basis than would otherwise be available to
them. Contracts with a book value of $291.7 million were surrendered under the
offer. The Company has no plans for another offer of this kind. Early
surrenders of traditional GICs totaled $40.8 million in 1996 and $662.1
million in 1995. The Company does not anticipate significant early withdrawals
on its remaining GICs as virtually all of the contracts are subject to a
market value adjustment for early withdrawal.
In keeping with management's strategic desire to focus its resources in the
Individual Life and Disability and Employee Benefits segments, the Company
decided to discontinue the sale of synthetic GICs and is selling this block of
business through an assumptive reinsurance transaction which is subject to the
approval of the contract holders and respective state regulators. This sale is
expected to be completed by December 31, 1997. Accumulated funds from the sale
of the Company's synthetic GICs totaled $2.18 billion at December 31, 1996,
$2.57 billion at December 31, 1995, and $1.63 billion at December 31, 1994.
Revenue in this segment is expected to continue to decline as a result of
the discontinuance of the sales of traditional GICs and group SPAs and the
run-off of the funds under management. As the traditional GICs mature, capital
will be available for use by the Company as amounts allocated to this line are
released.
Income in 1996 declined $61.4 million to $61.2 million from $122.6 million
in 1995. This decline was partially due to the 1995 sale of the medical
services line of business, which produced operating income of $3.2 million and
a gain from the sale of $21.8 million during 1995. In addition, the decline in
this segment was due to lower income in the group pension line of business,
which declined $26.1 million, or 35.4 percent, to $47.6 million in 1996 from
$73.7 million in 1995. The decline in this line was primarily the result of
lower funds under management and lower income from a reduced amount of capital
allocated to this line. Income from the COLI line of business declined
slightly to $19.7 million in 1996 as compared to $20.5 million in 1995.
Income in this segment increased $16.6 million to $122.6 million in 1995
from $106.0 million in 1994. Higher income in the group pension line of
business and the gain from the sale of the medical services line were the
primary reasons for the increase in income. The group pension line produced
income of $73.7 million in 1995, compared to $48.8 million in 1994. This line
of business benefited from an improvement in the spread
23
<PAGE>
between interest credited on contracts and the interest earned on the invested
assets, as well as income from bond call premiums, early surrender penalties,
and lower expenses. Income from the block of COLI declined slightly to $20.5
million in 1995 from $21.1 million in 1994. This decline in income was
primarily attributable to a decline in premium income in this line of
business. Income from the medical services line of business declined to $3.2
million for the four months of 1995 from $16.9 million for the year 1994. In
addition, the Other Operations segment in 1995 included an unusually high
level of corporate expenses related to several initiatives underway within the
Company.
Management expects that income in 1997 from the group pension line will
decline from the levels recorded in 1996 as the funds under management
decline. Management also expects that the level of corporate expenses related
to this segment will be lower in 1997 than in 1996.
LIQUIDITY AND CAPITAL RESOURCES
As a holding company, the Company is dependent upon payments from its
wholly-owned insurance subsidiaries and Genex to pay dividends to its
stockholders and to pay its expenses. These payments by the Company's
subsidiaries may take the form of either dividends or interest payments on
amounts loaned to such subsidiaries by the Company.
State insurance laws generally restrict the ability of insurance companies
to pay cash dividends or make other payments to their affiliates in excess of
certain prescribed limitations. In Tennessee, Provident's state of domicile,
regulatory approval is required if an insurance company seeks to make loans to
affiliates in amounts equal to or in excess of three percent of the insurer's
admitted assets, or to pay cash dividends in any 12-month period in excess of
the greater of such company's net gain from operations of the preceding year
or ten percent of its surplus as regards policyholders at the end of the
preceding year, each as determined in accordance with prescribed or permitted
statutory accounting practices. The maximum annual dividend which a
Massachusetts insurance company is permitted to pay without the prior approval
of the Massachusetts Commissioner of Insurance is the greater of (a) ten
percent of the insurance company's surplus to policyholders as of the thirty-
first day of December next preceding or (b) the insurance company's statutory
net gain from operations for the 12-month period ending the thirty-first day
of December next preceding. Legislation enacted in Massachusetts further
provides that any dividend not paid out of earned surplus may be made only
with prior approval of the Massachusetts Commissioner of Insurance. In
November 1996, Provident National Assurance Company ("National") made an
extraordinary cash distribution in the amount of $100.0 million to the
Company. An aggregate of $141.5 million would be available in 1997 for the
payment of dividends or other distributions by the Company's top-tier
insurance subsidiaries without regulatory approval.
The Company's requirements are met primarily by cash flow provided from
operations, principally in its insurance subsidiaries. Premium and investment
income as well as maturities and sales of invested assets provide the primary
sources of cash. Cash flow from operations was sufficient in 1996. Cash is
applied to the payment of policy benefits, costs of acquiring new business
(principally commissions) and operating expenses, as well as purchases of new
investments. The Company has established an investment strategy that
management believes will provide for adequate cash flow from operations.
The Company expects no material adverse effect on its liquidity as a result
of the discontinuance of the sales of traditional GICs. While traditionally
the investment strategy for this product line has been to match the effective
asset durations with the related expected liability durations, the Company has
moved to a cash flow matching strategy.
In May 1995, the Company sold 26 restructured mortgage loans with a
principal amount of $147.5 million and a book value of $122.6 million. The
transaction resulted in a before-tax realized investment loss of $23.1
million. In October 1995, the Company completed the sale of commercial
mortgage loans with a principal amount and a book value of $962.4 million
through a securitization collateralized by 366 loans. The transaction resulted
in a before-tax realized investment gain of $8.9 million. In February 1996,
the Company sold 24
24
<PAGE>
mortgage loans with a principal amount of $81.6 million and a book value of
$75.9 million, realizing a before-tax investment loss of $5.7 million. These
transactions increased the liquidity of the investment portfolio and
facilitated the move to a cash flow matching strategy for the GIC portfolios.
The proceeds from the mortgage sales were reinvested in fixed maturity
securities and were also used to fund the limited-time GIC surrender offer in
1995 described in "Other Operations."
The sale of the mortgage loans is expected to result in lower investment
income in the future, as well as lower net realized investment losses and
lower investment expenses. Overall, the Company expects these transactions to
have a positive effect on net income in future years. Management also expects
the transactions to improve asset quality, liquidity, asset/liability
management, and the capital adequacy ratios.
On April 29, 1996, the Company announced that it had entered into the Paul
Revere Merger Agreement pursuant to which the Company would acquire Paul
Revere at a price of approximately $1.2 billion. The Company and Textron
announced on November 6, 1996, that the Paul Revere Merger Agreement had been
amended and restated and that, in connection with that amendment and
restatement, Textron had agreed to provide additional capital to Paul Revere
and that the parties would make certain other adjustments relating to the
Company's acquisition of Paul Revere. This followed the announcement by Paul
Revere of a $244.3 million after-tax reserve strengthening in its individual
disability insurance segment in the third quarter of 1996. The strengthening
reflected the results of a previously announced comprehensive reserve study
prepared in accordance with GAAP.
The financial terms of the acquisition set forth in the amended and restated
Paul Revere Merger Agreement were unchanged to Paul Revere's public
stockholders from those of the original Paul Revere Merger Agreement. Under
the terms of the Paul Revere Merger Agreement as amended and restated, Textron
committed to make a capital contribution to Paul Revere of between $100.0
million and $180.0 million. The amount of the contribution, determined by the
amount of statutory reserve strengthening required by the Massachusetts
Division of Insurance as a condition to approving the acquisition of Paul
Revere by the Company, was $121.0 million on an after-tax basis, of which
$83.5 million was contributed to Paul Revere as of December 31, 1996, and
$37.5 million was contributed on February 18, 1997. Textron also agreed to the
resetting of the exchange ratio used in computing the number of shares of
Common Stock that constituted the stock portion of the merger consideration
Textron received for its 37.5 million shares of Paul Revere stock. The
exchange ratio for Textron as defined in the original Paul Revere Merger
Agreement was to be no lower than .0295, compared to a minimum Textron
exchange ratio of .0263 under the amended and restated Paul Revere Merger
Agreement. This change reduced the number of shares of Common Stock that
Textron was entitled to receive. Additional consideration totaling
approximately $40 million was also contributed to Paul Revere by Textron. The
amended and restated Paul Revere Merger Agreement contains certain limited
purpose hold harmless provisions pursuant to which Textron agreed to indemnify
the Company from specified damages. Subsequently, Textron agreed to enter into
the Textron Agreement, pursuant to which, among other things, Textron agreed
to pay to the Company a portion of the net proceeds received by Textron from
the sale of the shares of Common Stock offered hereby. See "The Paul Revere
Merger--Textron Agreements." The Paul Revere Merger was consummated on March
27, 1997.
The foregoing discussion of the amended and restated Paul Revere Merger
Agreement is a summary of the terms of the amended and restated Paul Revere
Merger Agreement and is qualified in its entirety by reference to the amended
and restated Paul Revere Merger Agreement and the joint press release of the
Company and Textron dated November 6, 1996, which have been previously filed
with the Commission, together with a more complete description of the terms of
the Paul Revere Merger. See "The Paul Revere Merger."
The Paul Revere Merger was financed through common equity issuance to Zurich
and various affiliates of Zurich, common equity issuance to Paul Revere
stockholders, debt, and internally generated funds. The debt financing was
provided through an $800.0 million five-year revolving credit facility with
various domestic and international banks. The revolving credit facility was
established in 1996 to provide partial financing for the purchase of Paul
Revere, to refinance the existing bank term notes of $200.0 million, and for
general corporate uses. At March 31, 1997 and December 31, 1996, outstanding
borrowings under the revolving credit facility were
25
<PAGE>
$725.0 million and $200.0 million, respectively. The credit facility has a
current interest rate of 5.965 percent and contains certain restrictive
covenants governing the Company's ability to pay dividends and requirements
that the Company satisfy certain financial covenants, including requirements
as to minimum adjusted statutory surplus and RBC levels. The Company believes
the cash flows from the combined operations will be sufficient to meet its
operating and financing cash flow requirements.
On February 28, 1997, the Company acquired Genex, a leading provider of case
management, vocational rehabilitation, and related services to corporations,
third party administrators, and insurance companies. In 1996, Genex's revenues
totaled $85.9 million. These services are utilized in the management of
disability and worker's compensation claims.
As a result of the release of capital generated by the run-off of the GIC
portfolio, the sale of the commercial mortgage loans, the sale of the medical
services line, and other corporate actions, the Company has increased its
available capital to support the growth of its businesses, including assisting
in the financing of the two acquisitions discussed above. Management continues
to analyze potential opportunities to utilize the capital to further enhance
stockholder value, including exploring options that would support the
Company's growth initiatives.
INVESTMENTS
Investment activities are an integral part of the Company's business, and
profitability is significantly affected by investment results. Invested assets
are segmented into portfolios which support the various product lines.
Generally, the investment strategy for the portfolios is to match the
effective asset durations with related expected liability durations and to
maximize investment returns, subject to constraints of quality, liquidity,
diversification, and regulatory considerations. This discussion should be read
in connection with Note 3 of the Notes to Consolidated Financial Statements
incorporated by reference herein. See "Available Information" and
"Incorporation of Certain Documents by Reference." The following table
provides the distribution of invested assets for the years indicated.
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Investment-grade fixed maturity securites.................. 77.0% 79.3% 72.6%
Below-investment-grade fixed maturity securities........... 6.7 6.2 4.6
Equity securities.......................................... .1 -- .1
Mortgage loans............................................. -- .7 10.0
Real estate................................................ 1.1 1.4 1.6
Policy loans............................................... 13.1 10.7 9.1
Other...................................................... 2.0 1.7 2.0
----- ----- -----
Total.................................................... 100.0% 100.0% 100.0%
===== ===== =====
</TABLE>
The following table provides certain investment information and results for
the years indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C>
Average cash and invested assets.............. $14,056.3 $14,914.4 $15,047.3
Net investment income......................... 1,090.1 1,221.3 1,238.6
Average yield*................................ 7.8% 8.2% 8.2%
Net realized investment losses................ $ (8.6) $ (31.7) $ (30.1)
</TABLE>
- --------
* Average yield is determined by dividing net investment income by the average
cash and invested assets for the year. Excluding net unrealized gains and
losses on securities, the yield is 8.1%, 8.3%, and 8.3% for 1996, 1995, and
1994, respectively. See Notes 1 and 3 of the Notes to Consolidated Financial
Statements incorporated by reference herein.
26
<PAGE>
For the past three years, the Company's exposure to non-current investments
has improved significantly from prior years. These non-current investments are
primarily foreclosed real estate and mortgage loans which became more than
thirty days past due in their principal and interest payments. Non-current
investments, comprised of foreclosed real estate, totaled $7.3 million at
December 31, 1996, or .05 percent of invested assets. Non-current investments
at year-end 1995 were $31.9 million, or .22 percent of invested assets,
compared to $88.5 million, or .59 percent of invested assets at year-end 1994.
As previously discussed under Liquidity and Capital Resources, the Company
sold a substantial portion of its commercial mortgage loan portfolio in 1995.
The remaining exposure of $104.8 million of mortgage loans was liquidated
during 1996.
During 1996, the Company sold four foreclosed properties with a book value
of $11.8 million. During 1995, the Company sold twelve foreclosed properties
with a book value of $39.6 million.
The Company's investment in mortgage-backed securities totaled $2.4 billion
on an amortized cost basis at December 31, 1996, and $2.9 billion at December
31, 1995. At December 31, 1996, the mortgage-backed securities had an average
life of 8.3 years and effective duration of 6.0 years. The mortgage-backed
securities are valued on a monthly basis using valuations supplied by the
brokerage firms that are dealers in these securities. The primary risk
involved in investing in mortgage-backed securities is the uncertainty of the
timing of cash flows from the underlying loans due to prepayment of principal.
The Company uses models which incorporate economic variables and possible
future interest rate scenarios to predict future prepayment rates. The Company
has not invested in mortgage-backed derivatives, such as interest-only,
principal-only or residuals, where market values can be highly volatile
relative to changes in interest rates.
As with most other fixed income investments, below-investment-grade bonds
are subject to the effects of changes in the overall level of interest rates,
which can affect both capital and reinvestment return. Below-investment-grade
bonds are inherently more risky than investment-grade bonds since the risk of
default by the issuer, by definition and as exhibited by bond rating, is
higher. Also, the secondary market for certain below-investment-grade issues
can be highly illiquid. Management does not anticipate any liquidity problem
caused by the investments in below-investment-grade securities, nor does it
expect these investments to adversely affect its ability to hold its other
investments to maturity.
The Company's exposure to below-investment-grade fixed maturity securities
at December 31, 1996, was $891.1 million, representing 6.7 percent of invested
assets, below the internal limit of 7.5 percent of invested assets for this
type of investment. The Company's exposure to below-investment-grade fixed
maturities at December 31, 1995, was $911.8 million, representing 6.2 percent
of invested assets. Included in the below-investment-grade portfolio was the
Company's holding of $100.0 million of Healthsource, Inc. ("Healthsource")
6.25% preferred stock, received as part of the consideration for the sale of
the group medical services business. The preferred stock was redeemed in cash
at par by Healthsource during 1996.
Changes in interest rates and individuals' behavior affect the amount and
timing of asset and liability cash flows. Management has added resources in
the investment area to address modeling and testing of all asset and liability
portfolios to improve interest rate risk management and net yields. Testing
the asset and liability portfolios under various interest rate and economic
scenarios allows management to choose the most appropriate investment strategy
as well as to prepare for the most disadvantageous outcomes.
27
<PAGE>
BUSINESS
GENERAL
The Company is the largest provider of individual disability insurance and
the second largest overall disability insurer in the United States on the
basis of in-force premiums. It also provides a complementary portfolio of life
insurance products, including life insurance, annuities, employer- and
employee-paid group benefits and related services. The Company is the parent
holding company for a group of insurance companies that collectively operate
in all 50 states, the District of Columbia, Puerto Rico, and Canada. The
Company's insurance company subsidiaries are Provident Life and Accident
Insurance Company ("Accident"), National, and Provident Life and Casualty
Insurance Company ("Casualty" and together with Accident and National,
"Provident"), and Paul Revere Life, and its two subsidiaries, Paul Revere
Variable and Paul Revere Protective.
Since 1994, the Company has completed a comprehensive corporate
repositioning that has prepared it to support growth and increase stockholder
value. A new management team headed by J. Harold Chandler, who joined the
Company in November 1993, initiated a strategic review of the business. As a
result of its review, management refocused the Company's strategy to (i) serve
the individual and employee benefits insurance markets, (ii) leverage the
Company's disability insurance expertise, (iii) utilize multiple distribution
channels to reach broader market segments, and (iv) more closely align the
interests of the Company's employees with those of its stockholders.
The Company has successfully undertaken a number of major initiatives in
pursuing this strategy. Specifically, the Company (i) sold its group medical
business for $231.0 million in cash and stock, (ii) began winding down its GIC
business which carried high capital requirements, (iii) reduced the annual
dividend on the Common Stock from $1.04 to $.72 per share to preserve capital
to fund future growth, (iv) simplified the corporate legal structure and
eliminated a dual class of common stock that had special voting rights in
order to present a more conventional corporate structure profile to the
investing market, (v) sold in three transactions $1,160.9 million in
commercial mortgage loans as part of repositioning its investment portfolio,
(vi) restructured its marketing and distribution channels, along with the
support areas of product development, underwriting and claims, to better reach
and serve individual and employee benefits customers, (vii) strengthened its
claims management procedures in the disability income insurance business, on
which the Company took a $423.0 million pre-tax charge in the third quarter of
1993 to strengthen reserves on a portion of that block of business, and (viii)
began restructuring its disability income products to discontinue the sale of
policies which combined noncancelable contracts with long-term own-occupation
provisions and to offer in their place an income replacement contract with
more reasonable limits and better pricing for elective provisions.
The acquisitions of Paul Revere and Genex in early 1997 are the latest
accomplishments under the Company's strategic plan. Both acquisitions
strengthen the Company's disability insurance capabilities and enable the
Company to offer a more complete portfolio of products and services to its
customers. Paul Revere is a specialist in disability insurance, with $972.8
million of disability premium income (86 percent of its total premium income)
in 1996. From 1989 through 1996 it was the largest provider of individual
disability insurance in the United States and Canada on the basis of in-force
premiums. By combining Paul Revere's operations with those of Provident, the
Company expects to realize significant operating efficiencies, including
leveraging both companies' knowledge of disability risks, specialized claims
and underwriting skills, and sales expertise. The Company also expects to
realize cost savings as a result of combining the corporate, administrative,
and financial operations of the two companies. These savings are expected to
be achieved over a two-year period following consummation of the Paul Revere
Merger, although no assurance can be given as to the amount or timing thereof.
See "Risk Factors--Effect of the Paul Revere Merger; Integration of
Operations."
Genex provides the Company with specialized skills in disability case
management and vocational rehabilitation that will help advance the Company's
goal of providing products that enable disabled policyholders to return to
work. Genex provides a full range of disability management services, including
worksite injury management, telephonic early intervention services for injured
workers, medical case management, vocational
28
<PAGE>
rehabilitation, and disability cost analysis, to third party administrators,
corporate clients and insurance companies. It employs 1,300 people, including
1,100 medical and vocational rehabilitation experts, in 120 offices in the
United States and Canada. While Genex has historically focused on the worker's
compensation market, Genex and the Company are now offering customized
disability programs for the employee benefits market that are intended to
integrate and simplify coverages, control costs and improve efficiency for
employers with significant disability and related claims. The Company also
expects Genex to play an increasingly significant role in helping the Company
manage its own exposure to individual and group disability claims.
The Company's Individual Life and Disability reporting segment includes
individual disability insurance, individual life insurance and individual
annuities. The Employee Benefits segment includes group long- and short-term
disability insurance, group life insurance, accident and sickness and
accidental death and disability coverages, medical stop loss insurance, and
voluntary benefits (employer-sponsored individual products sold at the
worksite through payroll deduction). For 1997, the Employee Benefits segment
will also include the results of Genex. The Company's Other Operations segment
includes the results from products the Company no longer produces for sale,
including GICs, group single premium annuities, COLI and the group medical
business sold in 1995. This segment will also include Paul Revere's dental
insurance block of business.
BUSINESS STRATEGIES
The Company's objective is to grow its business and improve its
profitability by continuing to follow the strategies set forth below.
Serve the Individual and Employee Benefits Markets. The Company believes
that the broad individual and employee benefits insurance markets are
attractive for a company with its specialty focus on disability insurance.
First, the Company believes disability insurers have not traditionally served
the broad market's potential demand for protection against loss of income due
to disability, as evidenced by the industry's size. The total in-force premium
from disabilty products is approximately $9 billion, compared to $50 billion
for annuities and $97 billion for life insurance. The Company believes that,
if it is responsive to the needs of its markets, there is opportunity for
growth in the disability industry.
Second, individual disability insurance has traditionally been sold
primarily in the medical and physician markets, where market penetration has
been significant. The Company believes that expanding its marketing to other
market segments offers greater opportunities for growth. The penetration of
the attorney, executive and professional markets, for example, is far less
than that of the medical and physician markets. The market of middle managers
and front-line workers has not been significantly developed by individual
disability insurers. Each of these markets is significantly larger than the
medical and physician market. The Company's strategy is to design products and
services that meet the needs of these underpenetrated market segments,
offering them both individual disability insurance and related life insurance,
annuities and other products.
Third, the Company believes that the markets for group disability insurance
are also underpenetrated. The Company is focused on creating customized
solutions for employee benefits customers that include group disability
insurance and related employee- and employer-paid benefits as well as
disability management services. The employee benefits market is undergoing a
change as employers seek to simpify coverages, control costs and improve
efficiency. The Company has positioned itself to package its products and
services to meet this growing demand for managed disability programs and 24-
hour coverage.
The Company encourages its sales representatives and producers to respond to
the needs of customers by cross-selling complementary products to each
account. In the past several years, for example, the Company has made ease of
meeting customers' needs the priority for its information systems investments.
The Company can now offer combined proposals that include pre-approved life
insurance with individual disability policies and bill a range of voluntary
product offerings through a single payroll deduction entry on an employee's
paycheck. The Company has also recently implemented new employee and producer
compensation plans that reward the sale of several of the Company's products
rather than single product sales, including grants of stock options to
29
<PAGE>
selected producers and a new multi-line producer compensation plan designed to
leverage a producer's production and overall compensation.
Leverage Disability Insurance Expertise and Risk Management Skills. In
serving its markets, the Company leads with its disability insurance
expertise. The Company is the largest provider of individual disability
insurance with $1.4 billion of premium income in 1996 (pro forma for the Paul
Revere Merger), and the second largest overall disability insurer in the
United States, on the basis of in-force premiums, with an additional $258.4
million of group disability insurance premium. The skills required for
disability risk management are substantially different from those used in
managing the risk of other life insurance products. The Company believes that
its risk management skills represent a competitive advantage in the disability
businesses. The Company has made a number of recent improvements to its
capabilities. In the claims management area, for example, the Company has
shifted from a geographic distribution of workflow to an organization focused
on impairments (psychiatric, orthopedic, partial disabilities, etc.) in order
to provide claimants with more specialized attention. The addition of Genex's
case management and vocational rehabilitation expertise will enable the
Company to further refine its efforts to assist disabled claimants to return
to gainful employment.
Utilize Multiple Distribution Channels to Reach Different Market Segments.
The Company's experience is that different distribution channels reach
different market segments. Therefore, its strategy is to distribute its
products through a number of channels in order to reach the broad individual
and employee benefits markets. The Company distributes its individual products
primarily through independent insurance brokers, personal producing general
agents and corporate marketing agreements with other insurance companies,
associations and financial institutions. It distributes employee benefits
products primarily through brokers, benefits consultants and a direct sales
force that calls on large corporations. All products and distribution channels
are supported through a network of 70 integrated sales and service offices in
the United States, nine offices in Canada, and non-field sales organizations
located in Chattanooga, Tennessee, Worcester, Massachusetts and Burlington,
Ontario.
The Company believes there are substantial opportunities to increase sales
by improving the productivity of each of these distribution channels and
opening new distribution channels for its products. For example, the National
Accounts distribution system, which involves the sales of the Company's
products by agents of other insurance companies, generates sales from a small
percentage of the agents of the National Account companies. A major focus for
1997 is increasing the penetration of these National Account relationships.
The Company also is in the development stages of offering lead generation and
other direct marketing support for its distribution efforts.
Align the Interests of the Company's Employees and Producers With Those of
its Stockholders. The Company's strategic plan is supported by the goal of
raising employee stock ownership in the Company. Beginning in 1994, the
Company shifted its long-term cash compensation program for executives to a
stock-based plan, introduced ownership requirements of several times salary
for executive managment, and instituted stock option and share grant plans for
executive and middle management. The Company continued to introduce new
programs to encourage ownership in 1995, establishing an employee stock
purchase plan open to all employees, introducing stock-based incentive awards,
and expanding the option program to field sales employees. Most recently, the
Company has created a stock-based plan for executives' short-term compensation
and has expanded its option plans to producers who meet certain sales and
profitability goals. These programs are intended to more closely align the
interests of employees, producers and stockholders.
Prior to the implementation of these programs in 1994, there was little
employee ownership of Common Stock. The Company had 564,217 outstanding
options for shares of Common Stock as of December 31, 1993. As of December 31,
1996, employees owned more than 200,000 shares of Common Stock through the
employee stock purchase and 401(k) plans, and the Company had 2,119,727
outstanding stock options. Approximately 50 percent of Provident's employees
participate in one or more of these stock ownership programs. The Company
intends to extend these programs to employees of Paul Revere and Genex.
30
<PAGE>
REPORTING SEGMENTS
The Company is organized around its customers, with reporting segments that
reflect its major market segments: Individual Life and Disability and Employee
Benefits. The Other Operations segment includes products that the Company no
longer produces for sale. For a discussion of the operating results of each of
the reporting segments, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Individual Life and Disability. The Individual Life and Disability segment
includes the results of disability, life and annuity products sold to
policyholders on an individual basis. Individual disability comprises the
majority of the segment, with $582.8 million of premium income in 1996 and
$1,366.6 million of premium income on a pro forma basis. Individual life
insurance products generated $63.3 million of premium income in 1996 and $97.8
million of premium income on a pro forma basis. Annuity deposits were $21.2
million in 1996 and $210.0 million on a pro forma basis.
Individual disability income insurance provides the insured with a portion
of earned income lost as a result of sickness or injury. Under an individual
disability income policy, monthly benefits generally are fixed at the time the
policy is written. The benefits typically range from 30 percent to 75 percent
of the insured's monthly earned income. Various options with respect to length
of benefit periods and waiting periods before payment begins are available and
permit tailoring of the policy to a specific policyholder's needs. Provident
also markets individual disability income policies which include payments for
transfer of business ownership and business overhead expenses. Individual
disability income products do not provide for the accumulation of cash values.
Premium rates for these products are varied by age, sex, and occupation
based on assumptions concerning morbidity, persistency, policy related
expenses, and investment income. The Company develops its assumptions based on
its own claim experience and published industry tables. The Company's
underwriters evaluate the medical and financial condition of prospective
policyholders prior to the issuance of a policy.
Almost all of the Company's in-force individual disability income insurance
was written on a noncancelable basis. Under a noncancelable policy, as long as
the insured continues to pay the fixed annual premium for the policy's
duration, the policy cannot be canceled by the Company nor can the premium be
raised. Due to the noncancelable, fixed premium nature of the policies
marketed in the past, profitability of this part of Provident's business is
largely dependent upon achieving the morbidity and interest rate assumptions
set in the 1993 loss recognition study with respect to the business written in
1993 and prior and those set in the pricing of business written after 1993.
The profitability of the Paul Revere business will be largely dependent on
meeting the assumptions included in the purchase accounting adjustments
recorded in connection with the Paul Revere Merger. As of December 31, 1996,
reserves were adequate for Provident and for Paul Revere. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the pro forma financial information incorporated herein by reference.
The Company's lead disability product is currently a noncancelable loss of
earnings ("LE") contract instead of the traditional noncancelable, long-term,
own-occupation contract. The LE contract insures income rather than
occupation. In 1995, Provident discontinued selling individual noncancelable
contracts with long-term own-occupation provisions (other than conversion
policies available under existing contractual arrangements), lifetime benefits
and high maximum issue and participation limits that were identified as the
cause of the 1993 loss recognition. In contrast to these policies, for which
benefits are determined based on whether the insured can work in his or her
original occupation, the LE policy requires policyholder to satisfy two
conditions for benefits to begin: reduced ability to work due to accident or
sickness and earnings loss of at least 20 percent. These policies are aimed at
repositioning the individual disability income product by making it more
attractive to a broader market of individual consumers, including middle to
upper income individuals and corporate benefit buyers.
The Company's life insurance offerings include term, universal life, and
interest-sensitive life insurance products. Universal life products provide
permanent life insurance with adjustable interest rates applied to the
31
<PAGE>
cash value and are designed to achieve specific policyholder objectives such as
higher accumulation values and/or flexibility with respect to amount of
coverage and premium payments. The principal difference between fixed premium
and universal life insurance policies centers around policy provisions
affecting the amount and timing of premium payments. Under universal life
policies, policyholders may vary the frequency and size of their premium
payments, and policy benefits may fluctuate accordingly. Premium payments under
the fixed premium policies are not variable by the policyholder and, as a
result, generally reflect lower administrative costs than universal life
products for which extensive monitoring of premium payments and policy benefits
is required.
The largest number of ordinary life policies sold in 1995 and 1996 were the
ten-year level-term policies. These products have level premiums for an initial
ten-year period after which the policyholder may resubmit to the underwriting
process and possibly qualify for a new ten year period at the attained age
premiums; otherwise, premiums revert to a yearly renewable term premium which
increases annually. When measured by annualized premiums, universal life with
the flexibility and features described above was the largest product category
sold by Provident in this segment in recent years. Paul Revere's largest
product category is interest-sensitive whole life insurance.
Premium rates for the Company's life insurance products are based on
assumptions as to future mortality, investment yields, expenses, and lapses.
Although a margin for profit is included in setting premium rates, the actual
profitability of products is significantly affected by the variation of actual
experience from assumed experience. Profitability of fixed premium products is
also dependent upon investment income on reserves. The profitability of
interest-sensitive products is determined primarily by the ultimate
underwriting experience and the ability to maintain anticipated investment
spreads. The Company believes that the historical claim experience for these
products has been satisfactory.
From the Company's viewpoint, the risks involved with interest-sensitive
products include actual versus assumed mortality, achieving investment returns
that at least equal the current declared rate, competitive position of declared
rates on the policies, meeting the contractually guaranteed minimum crediting
rate, and recovery of policy acquisition costs. From the policyholder's
perspective, the risk involved with interest-sensitive products is whether or
not the declared rates on the policy will compare favorably with the returns
available elsewhere in the marketplace.
The Company offers several annuity products, including tax-sheltered
retirement vehicles, single and flexible premium deferred annuities, single
premium annuities, and indexed annuities. On a pro forma basis, the Company
generated $210.0 million of deposits in 1996. Profitability of annuity products
is affected by the gross margins (the spread between investment income and
interest credited to policyholders) and the ability of the Company to control
its administrative expenses.
Employee Benefits. The Employee Benefits segment includes the results of
group products sold to employers for the benefit of employees and individual
products sold to groups of employees through payroll deduction at the worksite
("voluntary benefits products"). The Company's Employee Benefits product
offerings include group disability, group life insurance, medical stop-loss
insurance, and other related group products, and voluntary life, disability,
and cancer products. Group life comprises the majority of the segment, with
$177.8 million of premium income in 1996 ($231.2 million of premium income on a
pro forma basis). Group disability generated $69.4 million of premium income in
1996 and $258.4 million of premium income on a pro forma basis.
Group long-term disability insurance provides employees with insurance
coverage for loss of income in the event of extended work absences due to
sickness or injury. Services are offered to employers and insureds to encourage
and facilitate rehabilitation, retraining, and re-employment. Premiums for this
product are generally based on expected claims of a pool of similar risks plus
provisions for administrative expenses and profit. Some cases, however, carry
experience rating provisions. Premiums for experience rated group disability
business are based on the specific claim experience of the client with some
credibility for the experience of the specific group. A few accounts are
handled on an administrative services only basis with responsibility for
funding claim payments remaining with the customer.
32
<PAGE>
Profitability of group disability insurance is affected by deviations of
actual claims experience from expected claims experience and the ability of the
Company to control its administrative expenses. Morbidity is an important
factor in disability claim experience. Also important is the general state of
the economy; for example, during a recession the incidence of claims tends to
increase under this type of insurance. In general, experience rated disability
coverage for large groups has narrower profit margins and represents less risk
to the Company than business of this type sold to small employers. This is
because the Company must bear all of the risk of adverse claim experience in
small case coverages while larger employers often bear much of this risk
themselves. For disability coverages, case management and rehabilitation
activities with regard to claims, along with appropriate pricing and expense
control, are important factors contributing to profitability.
Group life insurance consists primarily of renewable term life insurance with
the coverages frequently linked to employees' wages. Profitability in group
life is affected by deviations of actual claim experience from expected claim
experience and the ability of the Company to control administrative expenses.
The Company also markets several group benefits products and services including
accident and sickness indemnity, accidental death and dismemberment policies,
and life and health benefits packages for affinity groups.
Medical stop-loss insurance is provided to protect the insured against
significant adverse claim experience with respect to group medical coverage.
Under a variety of stop-loss arrangements, the Company charges a premium in
exchange for an obligation that it will absorb (or reimburse the employer or
plan) for claims in excess of a stated amount on an aggregate or individual
basis. Profitability in medical stop-loss arrangements depends upon the ability
of the Company to accurately predict actual claim trends relative to expected
trends, predict rates of medical cost inflation, and analyze the claim
practices of the underlying plan.
Voluntary benefits products are offered through employer-sponsored payroll
deduction programs. Provident's in-force business in 1996 consisted primarily
of universal life and interest-sensitive life products (83.7 percent) as well
as health products, principally intermediate disability income policies.
Profitability in voluntary benefits is affected by the level of employee
participation, persistency, deviations of actual morbidity and mortality
experience from expected experience and the ability of the Company to control
administrative expenses.
Other Operations. The Other Operations segment includes the results of GICs,
SPAs, a closed block of COLI, the medical services business sold in 1995, and
any capital and assets that are not allocated to the principal business
segments. Beginning in the second quarter of 1997, the segment will also
include the results of Paul Revere's dental insurance business. Traditional
GICs comprise the majority of the segment, with $3,204.3 million of funds under
management as of December 31, 1996. Synthetic GICs accounted for $2,176.6
million and group SPAs accounted for $1,188.1 million of accumulated funds
under management at December 31, 1996. Paul Revere's dental insurance business
generated $48.3 million of premium income in 1996, excluding policies covering
Paul Revere employees.
GIC products include traditional GICs, separate account GICs and synthetic
GICs, in which the assets underlying the contract continue to be owned and
retained by the trustee of the contact holder instead of the Company. In the
first quarter of 1997, the Company announced that the synthetic GIC business
was being sold through an assumptive reinsurance transaction. The sale, which
is subject to the approval of the contract holders and respective state
regulators, is expected to be completed by December 31, 1997.
Traditional GICs have comprised a major portion of this segment's products
sold since 1982. Under traditional GICs, the Company guarantees the principal
and interest to the contract holder for a specified period, generally three to
five years. The Company marketed GICs for use in corporate tax-qualified
retirement plans and derives profits from GICs on the spread between the amount
of interest earned on invested funds and the fixed rate guaranteed in the GIC.
Separate-account GICs, which were introduced in 1992, differ from traditional
GICs in that the assets underlying the contract are segregated from the general
account of Provident and held solely for the benefit of the specific contract
involved. In December 1994, Provident discontinued the sale of traditional
GICs, but continues to service its block of existing business. Sales of
separate-account GICs were discontinued in 1996.
33
<PAGE>
Group SPAs are used as funding vehicles primarily when defined benefit
pension plans are terminated. The Company also offers annuities as an employer-
sponsored option for retirees receiving their distributions from 401(k) plans.
Pursuant to a group SPA contract, the Company receives a one-time premium
payment and in turn agrees to pay a fixed monthly retirement benefit to
specified employees. Sales of group SPAs were discontinued in 1996.
The Company believes that there are three primary sources of risk associated
with traditional GICs and group SPAs. Underwriting risk represents the risk
that a GIC has been priced properly to reflect the risk of withdrawal and for
group SPAs, that the mortality rates and the ages and frequency at which
annuitants will retire have been accurately projected. Asset/liability risk
represents the risk that the investments purchased to back the GIC or group SPA
will adequately match the future cash flows. Investment risk represents the
risk that the underlying investments backing the GICs and group SPAs will
perform according to the expectations of the Company at the time of purchase.
COLI is a tax-leveraged policy sold from 1983 to 1990, with most of the block
having been sold before June 21, 1986. Beginning in 1986, Congress began to
enact tax legislation that significantly reduced the ability of policyholders
to deduct policy loan interest on these products which detracted from the
internal rate of return which theretofore had been available. In 1988, Congress
went further by enacting legislation that had adverse tax consequences for
distributions/policy loans from modified endowment contracts. Under this
legislation, new sales of the majority of Provident's COLI products would have
been subject to adverse tax treatment as modified endowment contracts due to
their high premium level. As a consequence, many of these products were
withdrawn, and revised products which would not be considered modified
endowment contracts were introduced. Policies issued prior to June 21, 1986,
however, were grandfathered from the modified endowment provisions. In 1996,
Congress enacted tax legislation which generally eliminates tax deductions for
policy loan interest on COLI products issued on or after June 21, 1986.
34
<PAGE>
CONSOLIDATED LIFE INSURANCE IN FORCE
The following table sets forth the changes to life insurance in force and
the number of policies in force for the Company's business segments for the
indicated years. Reinsurance assumed has been included in these figures.
Reinsurance ceded has not been deducted.
<TABLE>
<CAPTION>
NUMBER
FACE AMOUNT OF
-------------------------------------------------------------------- POLICIES
IN FORCE IN FORCE IN FORCE
BEGINNING OTHER LAPSES AND OTHER END OF END OF
OF YEAR SALES INCREASES DEATHS SURRENDERS DECREASES YEAR YEAR
--------- --------- --------- ------ ---------- --------- ---------- --------
(IN MILLIONS, EXCEPT NUMBER OF POLICIES)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1996:
Individual Life and
Disability.............. $12,709.1 $ 1,109.2 $ 239.6 $ 48.5 $ 1,109.9 $314.3 $ 12,585.2 173,330
Employee Benefits....... 83,276.3 13,664.0 2,011.8 201.1 11,558.2 113.1 87,079.7 415,394
Other Operations........ 2,967.2 4.2 66.2 28.8 5.0 4.2 2,999.6 25,597
--------- --------- -------- ------ --------- ------ ---------- -------
Total.................. $98,952.6 $14,777.4 $2,317.6 $278.4 $12,673.1 $431.6 $102,664.5 614,321
========= ========= ======== ====== ========= ====== ========== =======
1995:
Individual Life and
Disability.............. $12,683.6 $ 1,062.7 $ 260.3 $ 45.8 $ 1,050.4 $201.3 $ 12,709.1 179,310
Employee Benefits....... 71,460.5 9,133.1 6,287.9 193.6 3,324.3 87.3 83,276.3 367,601
Other Operations........ 2,641.5 8.9 344.6 12.3 12.2 3.3 2,967.2 25,844
--------- --------- -------- ------ --------- ------ ---------- -------
Total.................. $86,785.6 $10,204.7 $6,892.8 $251.7 $ 4,386.9 $291.9 $ 98,952.6 572,755
========= ========= ======== ====== ========= ====== ========== =======
1994:
Individual Life and
Disability.............. $12,877.4 $ 1,299.6 $ 210.0 $ 50.9 $ 1,406.7 $245.8 $ 12,683.6 185,440
Employee Benefits....... 68,064.8 7,027.2 1,214.5 188.2 4,342.3 315.5 71,460.5 340,110
Other Operations........ 2,351.7 5.7 307.0 12.1 10.2 .6 2,641.5 25,995
--------- --------- -------- ------ --------- ------ ---------- -------
Total.................. $83,293.9 $ 8,332.5 $1,731.5 $251.2 $ 5,759.2 $561.9 $ 86,785.6 551,545
========= ========= ======== ====== ========= ====== ========== =======
</TABLE>
REINSURANCE
The Company routinely reinsures portions of its business with other
insurance companies. In a reinsurance transaction a reinsurer agrees to
indemnify another insurer for part or all of its liability under a policy or
policies it has issued for an agreed upon premium. The maximum amount of risk
retained by the Company and not reinsured is $1 million on any individual life
insured and $500,000 on individual accidental death insurance. The amount of
risk retained by the Company on individual disability income products varies
by policy type and year of issue. The Company also reinsures against
catastrophic losses in the Employee Benefits segment. Since the ceding of
reinsurance by the Company does not discharge its primary liability to the
policyholder, the Company has control procedures with regard to reinsurance
ceded. These procedures include the exchange and review of financial
statements filed with regulatory authorities, exchange of Insurance Regulatory
Information System results, review of ratings by A.M. Best Co., determination
of states in which the reinsurer is licensed to do business, on-site visits
before entering a contract to assess the operations and management of the
reinsurer, consideration of the need for collateral, such as letters of
credit, and audits of the Company's reinsurance activities by its Internal
Audit staff. The Company also assumes reinsurance from other insurers.
RESERVES
The applicable insurance laws under which insurance companies operate
require that they report, as liabilities, policy reserves to meet future
obligations on their outstanding policies. These reserves are the amounts
which, with the additional premiums to be received and interest thereon
compounded annually at certain assumed rates, are calculated to be sufficient
to meet the various policy and contract obligations as they mature. These laws
specify that the reserves shall not be less than reserves calculated using
certain specified mortality and morbidity tables, interest rates, and methods
of valuation. The reserves reported in the Company's financial statements
incorporated herein by reference are calculated based on GAAP and differ from
those specified by the laws of the various states and carried in the statutory
financial statements of the life insurance subsidiaries.
35
<PAGE>
These differences arise from the use of mortality and morbidity tables and
interest assumptions which are believed to be more representative of the
actual business than those required for statutory accounting purposes and from
differences in actuarial reserving methods.
The consolidated statements of income include the annual change in reserves
for future policy and contract benefits. The change reflects a normal
accretion for premium payments and interest buildup and decreases for policy
terminations such as lapses, deaths, and annuity benefit payments.
In addition to reserves for future policy and contract benefits, the Company
maintains a balance sheet liability for policyholders' funds. Traditional GICs
were over 85 percent of the Company's policyholders' funds balance at December
31, 1996. They are structured with a specific maturity and provide for
withdrawals for payment of benefits to contract holders or other
beneficiaries.
Policyholders' funds, as shown on the Company's consolidated statements of
financial condition as of December 31, 1996, were $3,717.1 million. Of this
amount, $3,204.3 million reflected the Company's outstanding GICs, the
maturity of which is as follows (in millions):
<TABLE>
<S> <C>
1 year or less.................................................. $1,453.8
Over 1 year but less than 2 years............................... 997.5
Over 2 years but less than 3 years.............................. 567.9
Over 3 years but less than 4 years.............................. 155.6
Over 4 years but less than 5 years.............................. 22.7
Over 5 years.................................................... 6.8
--------
Total......................................................... $3,204.3
========
</TABLE>
See "Risk Factors--Reserves" and "The Paul Revere Merger--Paul Revere
Reserve Strengthening."
COMPETITION
There is intense competition among insurance companies for the individual
and group insurance products of the types sold by the Company. At the end of
1996, there were over 2,000 legal reserve life insurance companies in the
United States, many offering one or more insurance products similar to those
marketed by the Company. The Company's principal competitors in the employee
benefits market include the largest insurance companies in the United States,
many of which have substantially greater financial resources and larger staffs
than the Company. In addition, in the individual life and annuities markets,
the Company competes with banks, investment advisers, mutual funds, and other
financial entities for investment of savings and retirement funds in general.
In the individual and group disability markets, the Company competes in the
United States and Canada with a limited number of major companies and
regionally with other companies offering specialty products.
All areas of the employee benefits markets are highly competitive due to the
yearly renewable term nature of the products and the large number of insurance
companies offering products in this market. The Company competes with other
companies in attracting and retaining independent agents and brokers to
actively market its products. The principal competitive factors affecting the
Company's business are price and quality of service.
REGULATION
The Company and its insurance subsidiaries are subject to detailed
regulation and supervision in the jurisdictions in which each does business.
With respect to the insurance subsidiaries, such regulation and supervision is
primarily for the protection of policyholders rather than for the benefit of
investors or creditors. Although the extent of such regulation varies, state
insurance laws generally establish supervisory agencies with broad
administrative powers.
36
<PAGE>
These supervisory and administrative powers relate chiefly to the granting
and revocation of the licenses to transact business, the licensing of agents,
the approval of policy forms, reserve requirements, and the form and content
of required financial statements. As to the type and amounts of its
investments, the Company's insurance subsidiaries must meet the standards and
tests promulgated by the insurance laws and regulations of Tennessee,
Massachusetts, New York, Delaware and certain other states in which they
conduct business.
The Company and its insurance subsidiaries are required to file various,
usually quarterly and/or annual, financial statements and are subject to
periodic and intermittent review with respect to their financial condition and
other matters by the various departments having jurisdiction in the states in
which they do business. The field work related to the last such examination of
the Provident insurance subsidiaries was completed on February 4, 1992, and
covered operations for the five-year period ending December 31, 1990. No
objections were raised by the reviewing authorities as a result of that
examination. The examination for the five year period ending December 31,
1995, began in February 1996 and should be completed during the second quarter
of 1997. The field work related to the last such examination of the Paul
Revere insurance subsidiaries is expected to be completed in the second
quarter of 1997 and will cover operations for the four-year period ended
December 31, 1994.
The laws of the states of Tennessee, Massachusetts, New York and Delaware
require the registration of and periodic reporting by insurance companies
domiciled within their jurisdiction which control or are controlled by other
corporations or persons so as to constitute a holding company system. The
Company is registered as a holding company system in Tennessee, Massachusetts,
New York and Delaware. The holding company statutes require periodic
disclosure concerning stock ownership and prior approval of certain
intercompany transactions within the holding company system. The Company may
from time to time be subject to regulation under the insurance and insurance
holding company statutes of one or more additional states. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
The NAIC and insurance regulators are re-examining existing laws and
regulations and their application to insurance companies. In particular, this
re-examination has focused on insurance company investment and solvency issues
and, in some instances, has resulted in new interpretations of existing law,
the development of new laws, and the implementation of non-statutory
guidelines. The NAIC has formed committees and appointed advisory groups to
study and formulate regulatory proposals on such diverse issues as the use of
surplus notes, accounting for reinsurance transactions, and the adoption of
risk-based capital rules. The NAIC is currently in the process of recodifying
statutory accounting practices, the result of which is expected to standardize
prescribed statutory accounting practices. Accordingly, this project, which is
expected to be completed in 1997, will likely change, to some extent,
prescribed statutory accounting practices and may result in changes to the
accounting practices that the Company's insurance subsidiaries use to prepare
their statutory financial statements.
37
<PAGE>
MANAGEMENT
Set forth below is certain information concerning directors and certain
executive officers of the Company. Each director holds office until the next
annual meeting of stockholders and until his or her successor has been elected
and qualified. The information concerning the directors has been furnished by
them to the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION(S) WITH THE COMPANY
---- --- ----------------------------
<C> <C> <S>
J. Harold Chandler 47 Chairman, President and Chief Executive Officer
Thomas R. Watjen 42 Vice Chairman, Chief Financial Officer and Director
William L. Armstrong 59 Director
William H. Bolinder 53 Director
Steven M. Gluckstern 45 Director
Charlotte M. Heffner 59 Director
Hugh B. Jacks 62 Director
William B. Johnson 59 Director
Hugh O. Maclellan, Jr. 57 Director
A.S. (Pat) MacMillan 52 Director
C. William Pollard 58 Director
Scott L. Probasco, Jr. 68 Director
Steven S Reinemund 48 Director
Burton E. Sorensen 67 Director
Executive Vice President and Chief Information
Robert O. Best 47 Officer
Timothy C. Gartland 45 Executive Vice President, Human Resources
Thomas B. Heys, Jr. 50 Executive Vice President, Risk Management
Peter C. Madeja 38 Executive Vice President; President and Chief
Executive Officer of Genex
Jeffrey F. Olingy 47 Executive Vice President, Sales Management
Ralph A. Rogers, Jr. 48 Senior Vice President and Controller
</TABLE>
Mr. Chandler became Chairman of the Company on April 28, 1996, and President
and Chief Executive Officer and a Director effective November 8, 1993.
Immediately prior to his employment with the Company, he served as President of
NationsBank Mid-Atlantic Banking Group which includes the NationsBank
Corporation ("NationsBank") and Maryland National Corporation entities in the
District of Columbia, Maryland, and northern Virginia. He formerly served as
President of The Citizens and Southern National Bank of South Carolina, a
predecessor company of NationsBank. He is a director of AmSouth Bancorporation,
Herman Miller, Inc., and Healthsource. He is currently a member of the Board of
Trustees of Wofford College.
Mr. Watjen became Vice Chairman and a Director of the Company on March 26,
1997, and retains his position as Chief Financial Officer. He became Executive
Vice President and Chief Financial Officer of the Company on July 1, 1994.
Prior to that time, he served as a Managing Director of the insurance practice
of the investment banking firm, Morgan Stanley & Co. Incorporated, which he
joined in 1987.
Senator Armstrong, a Director since 1991, served as a Senator from Colorado
in the United States Senate from 1979 to 1991. He has been Chairman of
Ambassador Media Corporation since 1984, Chairman of Cherry Creek Mortgage
Company, Inc. since 1991, Chairman of El Paso Mortgage Company since 1993,
Chairman of Centennial State Mortgage Company, Frontier Real Estate, Inc. and
Frontier Title, LLC since 1994, and Chairman of Transland Financial Services,
Inc. since 1996. He is also a director of Storage Technology Corporation,
International Family Entertainment, Inc., and Helmerich and Payne, Inc.
Mr. Bolinder, who became a Director on March 27, 1997, is a member of the
Corporate Executive Board of Zurich, headquartered in Zurich, Switzerland. He
is also U.S. Manager, Zurich, U.S. Branch, and a director of Zurich's
affiliated companies in the U.S. Zurich, together with its affiliated
companies, comprise a leading international insurance organization providing
global coverage in all lines of insurance along with asset management services.
38
<PAGE>
Mr. Gluckstern, who became a Director on March 27, 1997, is a member of the
Corporate Executive Board of Zurich. He has been Chairman of Zurich
Reinsurance Centre Holdings, Inc., since March 1993. He is President and a
director of Zurich Centre Investments and serves as a director of its
operating subsidiaries. Since 1987, he has served as an executive officer and
a director of Centre Reinsurance, as well as a director of its operating
subsidiaries.
Ms. Heffner, a Director since 1995, is a trustee of the Maclellan
Foundation. She is the sister of Hugh O. Maclellan, Jr.
Mr. Jacks, a Director since 1988, retired in December 1991 as President and
Chief Executive Officer of BellSouth Services, Incorporated, a provider of
lead staff, strategic planning and support for BellSouth Companies. He is
President of Potential Enterprises, Inc.
Mr. Johnson, a Director since 1986, is Chairman of the Board and Chief
Executive Officer of The Ritz-Carlton Hotel Company, LLC. He is a director of
SunTrust Bank, Atlanta and SunTrust Banks of Georgia, Inc. He also serves as a
member of the Board of Trustees of Berry College.
Mr. Maclellan, a Director since 1975, is President of the Maclellan
Foundation and a director of SunTrust Bank, Chattanooga, N.A., and Covenant
Transport. Mr. Maclellan is the brother of Charlotte M. Heffner.
Mr. MacMillan, a Director since 1995, has served since 1980 as the Chief
Executive Officer of Team Resources, Inc., which specializes in the areas of
team and organizational development, including management consulting,
management training, organizational audits and surveys and executive search
and selection. He is also a Trustee of the Maclellan Foundation.
Mr. Pollard, a Director since 1992, has served as Chairman of the Board of
Directors of The ServiceMaster Company since January 1994. From June 1990 to
December 1993, he served as Chairman and Chief Executive Officer of The
ServiceMaster Company, which provides professional cleaning, termite and pest
control, maid service, lawn care, and appliance and other home equipment and
maintenance, as well as management of plant operations, laundry and linen,
clinical equipment maintenance, and food service for health care, educational
and industrial facilities. He is a director of Herman Miller, Inc., and Coro,
Inc.
Mr. Probasco, a Director since 1962, has served as a director and Chairman
of the Executive Committee of SunTrust Bank, Chattanooga, N.A. since 1989. He
also serves as a director of Coca-Cola Enterprises, Inc., Chattem, Inc., and
SunTrust Banks, Inc.
Mr. Reinemund, a Director since 1995, has served as Chairman and Chief
Executive Officer of FritoLay, Inc. since June 1992. He served as President
and Chief Executive Officer of Pizza Hut, Inc. from 1986 to 1992. He also
serves as a director of PepsiCo, Inc.
Mr. Sorensen, a Director since 1985, served as Chairman and Chief Executive
Officer of Lord Securities Corp., an investment banking firm, from December
1984 until December 1995. Prior to that time, Mr. Sorensen was a General
Partner of Goldman, Sachs & Co., investment bankers. He is a director of The
ServiceMaster Company.
Mr. Best became Senior Vice President and Chief Information Officer of the
Company on July 11, 1994, and was elevated to Executive Vice President on
March 26, 1997. He was previously Senior Vice President and Chief Information
Officer at UNUM Corporation, which he joined in 1993 following UNUM's
acquisition of Colonial Life and Accident Insurance Company. At Colonial, he
served as Vice President, Operations and Information Systems until 1992, when
he was named Executive Vice President.
Mr. Gartland became Senior Vice President, Human Resources of the Company on
August 30, 1996, and was elevated to Executive Vice President on March 26,
1997. Prior to joining the Company, he was President of Corporate Insights and
Development, Inc., a management consulting firm which he co-founded in 1993.
He served as Executive Vice President, Executive and Organizational
Development, with NationsBank prior to that time.
39
<PAGE>
Mr. Heys became Senior Vice President, Risk Management of the Company in
August 1994, and was elevated to Executive Vice President on March 26, 1997.
He served as Vice President and Chief Officer of the Life Department of the
Company from May 1992 until August 1994. He served as Vice President and Chief
Officer, Select Group Benefits, of Accident from November 1990 until May 1992.
Mr. Madeja became Senior Vice President of the Company in February 1997 when
the Company acquired Genex and was elevated to Executive Vice President on
March 26, 1997. He continues to serve as President and Chief Executive Officer
of Genex, which he joined in 1982.
Mr. Olingy became Senior Vice President, Sales Management, of the Company on
April 3, 1996, and was elevated to Executive Vice President, Sales Management
on March 26, 1997. Prior to joining the Company, he was a Retail Banking
Director with Bank of Boston, which he joined in 1993. He served as Executive
Vice President of NationsBank from 1991 to 1993.
Mr. Rogers has served as Vice President and Controller of the Company since
1984 and was elevated to Senior Vice President on May 1, 1997.
40
<PAGE>
BENEFICIAL OWNERSHIP OF COMMON STOCK
Detailed information about the security ownership of beneficial owners of
more than 5% of the Common Stock, including beneficial ownership based on sole
or shared voting or investment power, is incorporated by reference in the
Company's Annual Report on Form 10-K, which is incorporated by reference
herein. See "Available Information" and "Incorporation of Certain Documents by
Reference." Due to the shared voting and investment power relating to a large
portion of the Common Stock, there is significant duplication in the reported
beneficial ownership. This results from ownership of certain members of the
Maclellan family and trusts and foundations established by them or for their
benefit. The following chart is provided to summarize the reported holdings of
the various Maclellan family interests, without duplication of beneficial
ownership resulting from overlapping or shared voting or disposition powers,
as of March 10, 1997, and of beneficial ownership of other holders of more
than 5% of the Common Stock, as of March 31, 1997.
<TABLE>
<CAPTION>
DIRECTLY OWNED PERCENT OF
NAME AND ADDRESS OF DIRECT OWNER (VOTING POWER) TOTAL
- -------------------------------- -------------- ----------
<S> <C> <C>
The Maclellan Foundation, Inc.
Chattanooga, Tennessee.............................. 8,027,156 12.00
R. J. and Cora L. Maclellan Trusts for The Maclellan
Foundation, Inc.
Chattanooga, Tennessee.............................. 3,475,134 5.20
Charitable Trusts
Chattanooga, Tennessee.............................. 2,767,533 4.14
Trusts U/A R. J. Maclellan and Trusts U/A Cora L.
Maclellan
for Families of H.O. Maclellan, Sr. and R.L.
Maclellan
Chattanooga, Tennessee.............................. 2,541,205 3.76
Trusts U/A H. O. Maclellan, Sr. for Children and
Grandchildren
Chattanooga, Tennessee.............................. 2,234,317 3.34
Kathrina H. Maclellan
Lookout Mountain, Tennessee......................... 1,383,359 2.07
Hugh O. Maclellan, Jr.
Chattanooga, Tennessee.............................. 805,594 1.20
Charlotte M. Heffner
Atlanta, Georgia.................................... 457,602 .68
Other (Trusts, Estates and Family Ownership)
Chattanooga, Tennessee.............................. 1,552,355 2.32
Textron Inc.
Providence, Rhode Island............................ 5,917,500 8.85
Zurich Insurance Company and affiliates
Zurich, Switzerland................................. 9,523,810 14.24
</TABLE>
The Company has granted certain registration rights to each of the persons
in the foregoing table, including Zurich (see "The Paul Revere Merger--Zurich
Relationship") and the Selling Stockholder (see "Selling Stockholder--
Registration Rights Agreement").
41
<PAGE>
SELLING STOCKHOLDER
The shares of Common Stock offered hereby are owned by and offered for the
account of Textron. Pursuant to the Textron Agreement, the Company will
receive a portion of the proceeds from the sale of the shares by Textron.
Textron acquired the shares of Common Stock offered hereby from the Company in
connection with the Paul Revere Merger. See "The Paul Revere Merger--Textron
Agreements." Following completion of the offering, Textron will not
beneficially own any shares of Common Stock.
STANDSTILL AGREEMENT
In connection with the execution of the Paul Revere Merger Agreement, the
Company and Textron have entered into a Standstill Agreement, dated as of
April 29, 1996 (the "Textron Standstill Agreement"), which sets forth certain
standstill arrangements entered into by Textron and the Company, which are to
be effective for a period of three years from March 27, 1997, the date the
Paul Revere Merger was consummated. Textron has agreed that it and its
subsidiaries will not acquire beneficial ownership of any Company voting
securities, if the effect of such acquisition would be to cause Textron and
its subsidiaries to beneficially own, collectively, more than 15% of the
outstanding Company voting securities, except pursuant to: (i) dividends or
distributions of Company voting securities made on or to such securities owned
by Textron or (ii) offerings made available only to holders of Company voting
securities generally; provided, that Textron and its subsidiaries may acquire
Company voting securities from each other. In the event that Textron and its
subsidiaries sell, transfer or otherwise dispose of (with or without full
consideration) any Company voting securities (other than to Textron or a
subsidiary of Textron), Textron and its subsidiaries may not thereafter
reacquire such shares during the term of the Textron Standstill Agreement if
the effect of such acquisition would be to cause Textron and its subsidiaries
to beneficially own, collectively, more than 15% of the outstanding Company
voting securities, subject to the exceptions set forth in clauses (i) and (ii)
of the immediately preceding sentence.
The Textron Standstill Agreement further provides that Textron and its
subsidiaries may not: (i) participate in any way in the making of any public
announcement with respect to, or submit or participate in the submission of a
proposal for, or offer of, any change in control event; (ii) initiate the
solicitation of or solicit proxies or consents or become a "participant" in a
"solicitation" (as such terms are defined in Rule 14a-11 under the Exchange
Act) with respect to any Company voting securities in opposition to the
recommendation of the Board of Directors of the Company with respect to any
matter; (iii) participate in any way in any stockholder vote with respect to
any matter which is not required by the Company's Certificate of Incorporation
or Bylaws, the rules of the NYSE or any other national securities exchange or
automated quotations system on which Company voting securities are then
traded, or by any similar laws or rules to be submitted to the Company's
stockholders; (iv) participate in any way in any legal, regulatory or
administrative action or proceeding in any court of competent jurisdiction or
appropriate regulatory or administrative body or agency with respect to the
Company or any of its directors, officers, employees, accountants, legal
counsel or other advisors, which action or proceeding in any way contests, or
otherwise seeks to void the validity of, or the enforceability of, any
provision of the Textron Standstill Agreement; or (v) act in concert in any
way with any other person, for the purpose of voting of Company voting
securities, except as a member of a group consisting solely of Textron and its
subsidiaries with respect to actions specifically required or permitted by the
Textron Standstill Agreement.
Finally, Textron has agreed that neither it nor its subsidiaries will sell,
transfer, assign or otherwise dispose of its beneficial interest in any
Company voting securities to any person representing beneficial ownership of
more than two percent of the Company voting securities, without first
providing the Company the opportunity to purchase, or to designate an
alternative purchaser of, such Company voting securities in the manner set
forth in the Textron Standstill Agreement; provided, that Textron and its
subsidiaries may make such a disposition without such an offer if the
disposition is (a) to an underwriter or underwriters in connection with a bona
fide public offering of Company voting securities, or (b) pursuant to a
qualifying tender offer (as defined in the Textron Standstill Agreement).
42
<PAGE>
REGISTRATION RIGHTS AGREEMENT
In connection with the execution of the Paul Revere Merger Agreement, the
Company and Textron have entered into a Registration Rights Agreement, dated
as of April 29, 1996, pursuant to which the Company has caused to be prepared
and has filed with the Commission the Registration Statement of which this
Prospectus forms a part, with respect to the sale by the Selling Stockholder
of the shares of Common Stock offered hereby in accordance with the intended
method of distribution described under "Underwriters." The Company has agreed
to file such amendments and supplements to the Registration Statement and
Prospectus as may be necessary to keep the Registration Statement continuously
effective and to comply with the provisions of the Securities Act until the
earlier of (i) such time as all of the shares of Common Stock included in the
Registration Statement and offered by this Prospectus have been sold or (ii)
the expiration of 180 days after the Registration Statement becomes effective,
subject to customary suspension and extension periods, but in no event more
than nine months after the Registration Statement becomes effective. The
Company has also granted to the Selling Stockholder certain limited demand
rights and unlimited "piggyback" registration rights with respect to the
shares beneficially owned by the Selling Stockholder.
In addition, the Company has agreed to pay all expenses incurred by it and
the Selling Stockholder in connection with the Securities Act registration of
the shares of Common Stock received by Textron in the Paul Revere Merger,
including, without limitation, registration and filing fees of the Commission,
reasonable fees and disbursements of counsel to the Company and the Selling
Stockholder, any applicable state securities and "blue sky" law registration
and qualification fees, accountants' fees and expenses, transfer taxes, and
fees of transfer agents and registrars (but excluding underwriting discounts
and commissions). Moreover, the Company on the one hand, and the Selling
Stockholder on the other hand, have agreed to indemnify each other and certain
affiliated parties and "control persons" (within the meaning of Section 15 of
the Securities Act and Section 20 of the Exchange Act) from and against
certain liabilities, including liabilities under the Securities Act.
43
<PAGE>
CERTAIN UNITED STATES TAX CONSEQUENCES
TO NON-UNITED STATES HOLDERS
The following is a general discussion of certain United States federal
income and estate tax consequences of the ownership and disposition of Common
Stock by a person that, for United States federal income tax purposes, is a
nonresident alien individual, a foreign corporation, a foreign partnership, or
a foreign estate or trust (a "non-U.S. holder"). This discussion is based on
provisions of the Internal Revenue Code of 1986, as amended (the "Code"),
existing and proposed regulations thereunder and administrative and judicial
interpretations thereof, as of the date hereof, all of which are subject to
change (possibly with retroactive effect). The discussion does not consider
specific facts and circumstances that may be relevant to a particular non-U.S.
holder's tax position and does not purport to be a comprehensive discussion of
all aspects of United States federal income and estate taxation. Accordingly,
each non-U.S. holder is urged to consult its own tax advisor with respect to
the United States tax consequences of the ownership and disposition of Common
Stock, as well as any tax consequences that may arise under the laws of any
state, municipality, foreign country or other taxing jurisdiction.
DIVIDENDS
Dividends paid to a non-U.S. holder of Common Stock ordinarily will be
subject to withholding of United States federal income tax at a 30 percent
rate, or at a lower rate under an applicable income tax treaty that provides
for a reduced rate of withholding. However, if the dividends are effectively
connected with the conduct by the holder of a trade or business within the
United States or, where a tax treaty applies, attributable to a United States
permanent establishment of the holder, then the dividends will be exempt from
the withholding tax described above and instead will be subject to United
States federal income tax on a net income basis provided the non-U.S. holder
files appropriate documentation with the payor of the dividend. If such non-
U.S. holder is a foreign corporation, it may also be subject to a United
States branch profits tax at a 30 percent rate or such lower rate as may be
specified by an applicable income tax treaty.
Under such current law, dividends paid to an address outside the United
States are presumed to be paid to a resident of such country (unless the payor
has knowledge to the contrary) for purposes of the withholding discussed above
and for purposes of determining the applicability of a tax treaty rate.
However, under proposed Treasury regulations not currently in effect, in the
case of dividends paid after December 31, 1997 (December 31, 1999 in the case
of dividends paid to accounts in existence on or before the date that is 60
days after the proposed regulations are published as final regulations), a
non-U.S. holder of Common Stock who wishes to claim the benefit of an
applicable treaty rate would be required to satisfy applicable certification
and other requirements either directly or through an intermediary. In
addition, backup withholding, as discussed below, may apply in certain
circumstances if applicable certification and other requirements are not met.
A non-U.S. holder of Common Stock eligible for a reduced rate of United
States withholding tax pursuant to an income tax treaty may obtain a refund of
any excess amounts withheld by filing an appropriate claim for refund with the
Internal Revenue Service (the "IRS").
GAIN ON DISPOSITION OF COMMON STOCK
A non-U.S. holder generally will not be subject to United States federal
income tax in respect of gain realized on a disposition of Common Stock,
unless (a) the gain is effectively connected with a trade or business
conducted by the non-U.S. holder in the United States and, where a tax treaty
applies, is attributable to a U.S. permanent establishment of the non-U.S.
holder, (b) in the case of a non-U.S. holder who is a non-resident alien
individual and who holds the Common Stock as a capital asset, such holder is
present in the United States for 183 or more days in the taxable year of the
sale and certain other conditions are met, (c) the Company is or has been a
"U.S. real property holding corporation" for United States federal income tax
purposes (which the Company does not believe that it is or is likely to
become) and, in the event that the Common Stock is considered "regularly
traded," the non-U.S. holder held directly or indirectly at any time during
the five-year period ending
44
<PAGE>
on the date of the disposition more than five percent of the Common Stock, or
(d) the non-U.S. holder is subject to tax pursuant to the provisions of the
United States federal tax law applicable to certain United States expatriates.
In the case of a non-U.S. holder described in clause (a), (c) or (d) above,
such gain will be subject to United States federal income tax on net income at
regular rates on the same basis that applies to U.S. persons and, if such non-
U.S. holders are foreign corporations, may be subject to the branch profits
tax described above. A non-U.S. holder described in clause (b) above will be
subject to a flat 30 percent tax on the gain derived from the sale, which may
be offset by capital losses.
FEDERAL ESTATE TAXES
Common Stock owned or treated as being owned by a non-U.S. holder at the
time of death will be included in such holder's gross estate for United States
federal estate tax purposes, unless an applicable estate tax treaty provides
otherwise.
U.S. INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING TAX
The Company must report annually to the IRS and to each non-U.S. holder the
amount of dividends paid to such holder and the tax withheld with respect to
such dividends, regardless of whether withholding was required. Copies of the
information returns reporting such dividends and withholding may, under the
provisions of an applicable income tax treaty, also be made available to the
tax authorities in the country in which the non-U.S. holder resides.
A backup withholding tax is imposed at the rate of 31 percent on certain
payments to persons that fail to furnish certain identifying information to
the payor. Under current law, backup withholding generally will not apply to
dividends paid to a non-U.S. holder at an address outside the United States
(unless the payor has knowledge that the payee is a U.S. person), but
generally will apply to dividends paid on Common Stock at addresses inside the
United States to non-U.S. holders that fail to provide certain identifying
information in the manner required. However, under proposed Treasury
regulations not currently in effect, in the case of dividends paid after
December 31, 1997 (December 31, 1999 in the case of dividends paid to accounts
in existence on or before the date that is 60 days after the proposed
regulations are published as final regulations), a non-U.S. holder generally
would be subject to backup withholding at a 31 percent rate, unless certain
certification procedures (or, in the case of payments made outside the United
States with respect to an offshore account, certain documentary evidence
procedures) are complied with, directly or through an intermediary or a non-
U.S. holder otherwise establishes an exemption from backup withholding.
As a general matter, information reporting and backup withholding also will
not apply to a payment of the proceeds of a sale of Common Stock effected
outside the United States by a foreign office of a foreign broker. However,
information reporting requirements (but generally not backup withholding) will
apply to a payment of the proceeds of a sale of Common Stock effected outside
the United States by a foreign office of a broker if the broker is a U.S.
person, derives 50 percent or more of its gross income for certain periods
from the conduct of a trade or business in the United States, or is a
"controlled foreign corporation" as to the United States, unless the broker
has documentary evidence in its records that the holder is a non-U.S. holder
and certain conditions are met, or the holder otherwise establishes an
exemption. Payment by a United States office of a broker of the proceeds of a
sale of Common Stock will be subject to both backup withholding and
information reporting unless the holder certifies, among other things, its
non-United States status under penalties of perjury or otherwise establishes
an exemption.
Any amounts withheld under the backup withholding rules generally will be
allowed as a refund or a credit against such holder's United States federal
income tax liability provided the required information is furnished in a
timely manner to the IRS.
These backup withholding and information reporting rules are under review by
the United States Treasury, and their application to the Common Stock could be
changed by future regulations.
45
<PAGE>
UNDERWRITERS
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated the date hereof (the "Underwriting Agreement"), a syndicate of
United States underwriters (the "U.S. Underwriters") named below has severally
agreed to purchase, and the Selling Stockholder has agreed to sell to them,
severally, the respective number of shares of Common Stock set forth opposite
the names of such U.S. Underwriters below, and a syndicate of international
underwriters (the "International Underwriters") named below has severally
agreed to purchase, and the Selling Stockholder has agreed to sell to them,
severally, the respective number of shares of Common Stock set forth opposite
the names of such International Underwriters below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
NAME COMMON STOCK
- ---- ------------
<S> <C>
U.S. Underwriters:
Morgan Stanley & Co. Incorporated.................................
Salomon Brothers Inc..............................................
---------
Subtotal......................................................... 4,734,000
International Underwriters:
Morgan Stanley & Co. International Limited........................
Salomon Brothers International Limited............................
---------
Subtotal......................................................... 1,183,500
---------
Total........................................................... 5,917,500
</TABLE>
The U.S. Underwriters and the International Underwriters are collectively
referred to as the "Underwriters." The Underwriting Agreement provides that
the obligations of the several Underwriters to pay for and accept delivery of
the shares of Common Stock offered hereby are subject to the approval of
certain legal matters by their counsel and to certain other conditions. The
Underwriters are obligated to take and pay for all of the shares of Common
Stock offered hereby (other than those covered by the over-allotment option
described below) if any such shares are taken.
Pursuant to the Agreement Between U.S. and International Underwriters, each
U.S. Underwriter has represented and agreed that, with certain exceptions, (i)
it is not purchasing any U.S. Shares (as defined below) for the account of
anyone other than a United States or Canadian Person (as defined below) and
(ii) it has not offered or sold, and will not offer or sell, directly or
indirectly, any U.S. Shares or distribute any prospectus relating to the U.S.
Shares outside the United States or Canada or to anyone other than a United
States or Canadian Person. Pursuant to the Agreement Between U.S. and
International Underwriters, each International Underwriter has represented and
agreed that, with certain exceptions, (i) it is not purchasing any
International Shares (as defined below) for the account of any United States
or Canadian Person and (ii) it has not offered or sold, and will not offer or
sell, directly or indirectly, any International Shares or distribute any
prospectus relating to the International Shares within the United States or
Canada or to any United States or Canadian Person. With respect to any
Underwriter that is a U.S. Underwriter and an International Underwriter, the
foregoing representations and agreements (i) made by it in its capacity as a
U.S. Underwriter shall apply only to shares of Common Stock purchased by it in
its capacity as a U.S. Underwriter, (ii) made by it in its capacity as an
International Underwriter shall apply only to shares of Common Stock purchased
by it in its capacity as an International Underwriter and (iii) shall not
restrict its ability to distribute any prospectus relating to the shares of
Common Stock to any person. The foregoing limitations do not apply to
stabilization transactions or to certain other transactions specified in the
Agreement Between U.S. and International Underwriters. As used herein, "United
States or Canadian Person" means any national or resident of the United States
or Canada, or any corporation, pension, profit-sharing or other trust or other
entity organized under the laws of the United States or Canada or any
political subdivision thereof (other than a branch located outside the United
States and Canada of
46
<PAGE>
any United States or Canadian Person) and includes any United States or
Canadian branch of a person who is otherwise not a United States or Canadian
Person. All shares of Common Stock to be purchased by the U.S. Underwriters
and the International Underwriters are referred to herein as the U.S. Shares
and the International Shares, respectively.
Pursuant to the Agreement Between U.S. and International Underwriters, sales
may be made between the U.S. Underwriters and the International Underwriters
of any number of shares of Common Stock to be purchased pursuant to the
Underwriting Agreement as may be mutually agreed. The per share price and
currency of any shares sold shall be the public offering price set forth on
the cover page hereof, in United States dollars, less an amount not greater
than the per share amount of the concession to dealers set forth below.
Pursuant to the Agreement Between U.S. and International Underwriters, each
U.S. Underwriter has represented that it has not offered or sold, and has
agreed not to offer or sell, any shares of Common Stock, directly or
indirectly, in any province or territory of Canada or to, or for the benefit
of, any resident of any province or territory of Canada in contravention of
the securities laws thereof and has represented that any offer of shares of
Common Stock in Canada will be made only pursuant to an exemption from the
requirement to file a prospectus in the province or territory of Canada in
which such offer is made. Each U.S. Underwriter has further agreed to send to
any dealer who purchases from it any shares of Common Stock a notice stating
in substance that, by purchasing such shares of Common Stock, such dealer
represents and agrees that it has not offered or sold, and will not offer or
sell, directly or indirectly, any of such shares of Common Stock in any
province or territory of Canada or to, or for the benefit of, any resident of
any province or territory of Canada in contravention of the securities laws
thereof and that any offer of shares of Common Stock in Canada will be made
only pursuant to an exemption from the requirement to file a prospectus in the
province or territory of Canada in which such offer is made, and that such
dealer will deliver to any other dealer to whom it sells any of such shares of
Common Stock a notice to the foregoing effect.
Each International Underwriter has agreed that: (i) it has not offered or
sold and will not offer or sell any shares of Common Stock to persons in the
United Kingdom ("U.K.") except to persons whose ordinary activities involve
them in acquiring, holding, managing or disposing of investments (as principal
or agent) for the purposes of their businesses or otherwise in circumstances
which have not resulted and will not result in an offer to the public in the
U.K. within the meaning of the Public Offers of Securities Regulations 1995
(the "Regulations"); (ii) it has complied and will comply with all applicable
provisions of the Financial Services Act 1986 and the Regulations with respect
to anything done by it in relation to the shares of Common Stock in, from or
otherwise involving the U.K.; and (iii) it has only issued or passed on, and
will only issue or pass on, to any person in the U.K. any document received by
it in connection with the issue of the shares of Common Stock, if that person
is of a kind described in Article 11(3) of the Financial Services Act 1986
(Investment Advertisements) (Exemptions) Order 1996 or is a person to whom the
document may otherwise lawfully be issued or passed on.
The Underwriters initially propose to offer part of the shares of Common
Stock directly to the public at the public offering price set forth on the
cover page hereof and part to certain dealers at a price that represents a
concession not in excess of $ a share under the public offering price. The
Underwriters may allow, and such dealers may reallow, a concession not in
excess of $ a share to other Underwriters or to certain other dealers.
After the initial offering of the shares of Common Stock, the offering price
and other selling terms may from time to time be varied by the Underwriters.
Pursuant to the Underwriting Agreement, the Company has granted to the U.S.
Underwriters an option, exercisable for 30 days from the date of this
Prospectus, to purchase up to an aggregate of 887,625 additional shares of
Common Stock at the public offering price set forth on the cover page hereof,
less underwriting discounts and commissions. The U.S. Underwriters may
exercise such option solely for the purpose of covering over-allotments, if
any, made in connection with the offering of the shares of Common Stock
offered hereby. To the extent such option is exercised, each U.S. Underwriter
will become obligated, subject to certain conditions, to purchase
approximately the same percentage of such additional shares of Common Stock as
the number set forth next to such U.S. Underwriter's name in the preceding
table bears to the total number of U.S. Shares offered hereby.
47
<PAGE>
The Company, the Selling Stockholder, certain other holders of Common Stock,
and the directors and officers of the Company have agreed, with certain
exceptions, not to (i) offer, pledge, sell, contract to sell, sell any option
or contract to purchase, purchase any option or contract to sell, grant any
option, right or warrant to purchase or otherwise transfer or dispose of,
directly or indirectly, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for shares of Common Stock
(provided that such shares or securities are either owned prior to the
offering or are thereafter acquired in connection with the offering) or (ii)
enter into any swap or other arrangement that transfers to another, in whole
or in part, any of the economic consequences of ownership of the shares of
Common Stock, whether any such transaction described in clause (i) or (ii)
above is to be settled by delivery of shares of Common Stock or such other
securities, in cash or otherwise, except for the shares to be sold in the
offerings, for a period of at least 90 days from the date of this Prospectus
without the prior written consent of Morgan Stanley & Co. Incorporated, on
behalf of the several Underwriters; provided, that (x) the Company may issue,
or grant options for, shares of Common Stock pursuant to any stock plan for
employees or directors, or any qualified employee benefit plan, in effect on
the date of this Prospectus, or pursuant to any stock options outstanding on
the date of this Prospectus, and any defined contribution qualified employee
benefit plan in effect on the date of this Prospectus may sell shares of
Common Stock to satisfy plan liquidity need, and (y) such other holders,
officers and directors may dispose of any shares of Common Stock or securities
convertible into or exercisable or exchangeable for shares of Common Stock (A)
pursuant to a bona fide gift between or among family members or the estate of
any such person (including, without limitation, any transfer by any such
person to or among any trust, foundation, custodial or other similar accounts
or funds in which such person or other member of his family serves as trustee
or custodian or in a similar fiduciary capacity or to a trust created by any
such person which has a member of his immediate family as a beneficiary) and
(B) pursuant to any transfer to any organization, which transfer qualifies for
the federal income tax charitable deduction at the time of such transfer;
provided, that in the case of this clause (y), the transferee is then bound by
or agrees to be bound by the restrictions described in this paragraph. If any
such consent is given it would not necessarily be preceded or followed by a
public announcement thereof.
In the ordinary course of their respective businesses, certain of the
Underwriters and their respective affiliates have engaged in and may in the
future engage in commercial and investment banking transactions with the
Company.
The Company, the Selling Stockholder and the Underwriters have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act.
In connection with the offering, the Underwriters may purchase and sell the
Common Stock in the open market. These transactions may include over-allotment
and stabilizing transactions and purchases to cover short positions created by
the Underwriters in connection with the offering. The Underwriters also may
impose a penalty bid, whereby selling commissions allowed to broker-dealers in
respect of the securities sold in the offering may be reclaimed by the
Underwriters if such shares of Common Stock are repurchased by the
Underwriters in stabilizing or covering transactions. These activities may
stabilize, maintain or otherwise affect the market price of the Common Stock,
which may be higher than the price that would otherwise prevail in the open
market; and these activities, if commenced, may be discontinued at any time.
These transactions may be effected on the NYSE, in the over-the-counter market
or otherwise.
48
<PAGE>
LEGAL MATTERS
The legality of the shares of Common Stock offered hereby and certain other
legal matters in connection with the sale of the Common Stock offered hereby
will be passed upon for the Company by Alston & Bird LLP, Atlanta, Georgia.
Certain other legal matters in connection with the sale of the Common Stock
offered hereby will be passed upon for the Company by Susan N. Roth, Vice
President, Secretary and Counsel of the Company. As of March 31, 1997, Ms.
Roth beneficially owned approximately 2,403 shares of Common Stock and holds
options to purchase 3,750 shares of Common Stock. Certain legal matters in
connection with the sale of the Common Stock offered hereby will be passed
upon for the Underwriters by LeBoeuf, Lamb, Greene & MacRae, L.L.P., a limited
liability partnership including professional corporations, New York, New York.
LeBoeuf, Lamb, Greene & MacRae, L.L.P., provides certain legal services to the
Company from time to time. Certain legal matters relating to the Selling
Stockholder will be passed upon by Skadden, Arps, Slate, Meagher & Flom LLP,
Boston, Massachusetts.
EXPERTS
The consolidated financial statements of Provident Companies, Inc.
incorporated by reference in its Annual Report on Form 10-K for the year ended
December 31, 1996, and the consolidated financial statements of The Paul
Revere Corporation for the year ended December 31, 1996, included in Provident
Companies, Inc.'s Current Report on Form 8-K, dated March 27, 1997, have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
reports thereon incorporated by reference or set forth therein and
incorporated herein by reference. Such consolidated financial statements are
incorporated herein by reference in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing.
49
<PAGE>
ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS
PROSPECTUS (Subject to Completion)
Issued May 5, 1997
5,917,500 Shares
Provident Companies, Inc.
COMMON STOCK
------------
OF THE 5,917,500 SHARES OF COMMON STOCK BEING OFFERED, 1,183,500 SHARES ARE
BEING OFFERED INITIALLY OUTSIDE THE UNITED STATES AND CANADA BY THE
INTERNATIONAL UNDERWRITERS AND 4,734,000 SHARES ARE BEING OFFERED INITIALLY
IN THE UNITED STATES AND CANADA BY THE U.S. UNDERWRITERS. SEE "UNDERWRITERS."
ALL OF THE SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING SOLD BY TEXTRON
INC. ("TEXTRON" OR THE "SELLING STOCKHOLDER"), OTHER THAN SHARES WHICH MAY
BE SOLD BY THE COMPANY PURSUANT TO THE OVER-ALLOTMENT OPTION DESCRIBED
HEREIN. SEE "THE PAUL REVERE MERGER." PURSUANT TO AN AGREEMENT BETWEEN THE
COMPANY AND THE SELLING STOCKHOLDER, THE SELLING STOCKHOLDER WILL PAY TO
THE COMPANY A PORTION OF THE NET PROCEEDS RECEIVED BY THE SELLING
STOCKHOLDER FROM THE SALE OF THE SHARES OFFERED HEREBY. THE COMPANY'S
COMMON STOCK IS TRADED ON THE NEW YORK STOCK EXCHANGE UNDER THE SYMBOL
"PVT." ON APRIL 22, 1997, THE CLOSING SALE PRICE FOR THE COMMON STOCK
ON THE NEW YORK STOCK EXCHANGE WAS $54 3/4.
------------
SEE "RISK FACTORS" ON PAGE 8 FOR INFORMATION THAT SHOULD BE CONSIDERED BY
PROSPECTIVE INVESTORS.
------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
ANDEXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------
PRICE $ A SHARE
------------
<TABLE>
<S> <C> <C> <C>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) SELLING STOCKHOLDER(2)(3)
-------- -------------- -------------------------
Per Share..................... $ $ $
Total(4)...................... $ $ $
</TABLE>
- ------
(1) The Company and the Selling Stockholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under
the Securities Act of 1933, as amended. See "Underwriters."
(2) The Company will pay expenses in connection with the offering estimated
at $350,000.
(3) Pursuant to an agreement between the Company and the Selling
Stockholder, the Selling Stockholder will pay to the Company $ of
the net proceeds received by the Selling Stockholder from the sale of
the shares offered hereby. See "The Paul Revere Merger--Textron
Agreements."
(4) The Company has granted to the U.S. Underwriters an option, exercisable
within 30 days of the date hereof, to purchase up to an aggregate of
887,625 additional shares of Common Stock at the price to public less
underwriting discounts and commissions, for the purpose of covering
over-allotments, if any. If the U.S. Underwriters exercise such option
in full, the total price to public and underwriting discounts and
commissions will be $ and $ , respectively, and the
proceeds to the Company will increase by $ . See "Underwriters."
------------
The shares of Common Stock are offered, subject to prior sale, when, as and
if accepted by the Underwriters named herein and subject to approval of certain
legal matters by LeBoeuf, Lamb, Greene & MacRae, L.L.P., counsel for the
Underwriters. It is expected that delivery of the shares of Common Stock will
be made on or about , 1997 through the book-entry facilities of The
Depository Trust Company, against payment therefor in immediately available
funds.
------------
MORGAN STANLEY & CO.
International
SALOMON BROTHERS INTERNATIONAL LIMITED
May , 1997
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses in connection with the distribution of the Common Stock are set
forth in the following table. All amounts except the Securities and Exchange
Commission registration fee are estimated. The expenses set forth below will
be borne by the Company. The Selling Stockholder will pay all discounts,
concessions or commissions to underwriters, agents, brokers or dealers and all
transfer or other taxes on the sale of the Shares.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee................ $114,450
NYSE listing fee................................................... 3,100
Legal fees and expenses............................................ 100,000
Accountants' fees and expenses..................................... 30,000
Miscellaneous...................................................... 102,450
--------
Total............................................................ $350,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant's Certificate of Incorporation and Bylaws provide for
indemnification of directors and officers of the Registrant to the full extent
permitted by Delaware law.
Section 145 of the General Corporation Law of the State of Delaware provides
generally that a corporation may indemnify any person who was or is a part or
is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he or she is or was a director,
officer, employee or agent of the corporation, or is or was serving at its
request in such capacity in another corporation or business association,
against expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by him or her in
connection with such action, suit or proceeding if he or she acted in good
faith and in a manner he or she reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his or her conduct
was unlawful.
In addition, pursuant to the authority of Delaware law, the Certificate of
Incorporation of the Registrant also eliminates the monetary liability of
directors to the fullest extent permitted by Delaware law.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers or persons
controlling the Registrant pursuant to the foregoing provisions, the
Registrant has been informed that in the opinion of the Securities and
Exchange Commission (the "Commission") such indemnification is against public
policy as expressed in the Act and is therefore unenforceable.
Pursuant to a Registration Rights Agreement between the Company and Textron
Inc. ("Textron"), (i) the Company has agreed to indemnify Textron, its
directors and officers, each person who participates as an underwriter in the
offering or sale of the shares of Common Stock offered hereby, each officer or
director of each underwriter, and each person who controls Textron or any such
underwriter against all losses, claims, damages, liabilities and expenses that
arise out of or are based upon any alleged untrue statement of a material fact
in this Registration Statement, or any alleged omission to state a material
fact required to be stated herein or necessary to make the statements herein
not misleading, except that the Company shall not be liable to the extent that
such loss, claim, damage, liability or expense arises out of or is based upon
written information furnished to the Company for use in this Registration
Statement and (ii) the Selling Stockholder has agreed to indemnify the Company
and its directors, officers and controlling persons against all losses,
claims, damages and liabilities that arise out of or are based upon any
alleged untrue statement of material fact in this Registration Statement, or
any
II-1
<PAGE>
alleged omission to state a material fact required to be stated herein or
necessary to make the statements herein not misleading, but only with respect
to information furnished in writing by or on behalf of the Selling Stockholder
for use in this Registration Statement.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
1.1 Form of Underwriting Agreement
2.1 Amended and Restated Agreement and Plan of Merger, dated as of
April 29, 1996, by and among the Registrant, The Paul Revere
Corporation and Patriot Acquisition Corporation (incorporated by
reference from the Registrant's Quarterly Report on Form 10-Q
(File No. 1-11834) for the quarter ended September 30, 1996)
*5.1 Opinion of Alston & Bird LLP
23.1 Consent of Ernst & Young LLP
23.2 Consent of Ernst & Young LLP
*23.3 Consent of Alston & Bird LLP (included in Exhibit 5.1)
*24.1 Power of Attorney
99.1 Registration Rights Agreement, dated as of April 29, 1996, by and
between the Registrant and Textron Inc. (incorporated by reference
from the Registrant's Current Report on Form 8-K (File No. 1-
11834), dated April 29, 1996)
</TABLE>
- --------
*Previously filed.
ITEM 17. UNDERTAKINGS
A. The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
B. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
C. The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Chattanooga, State of Tennessee, as of May 2, 1997.
PROVIDENT COMPANIES, INC.
By: /s/ J. Harold Chandler
-----------------------------------
J. Harold Chandler
Chairman of the Board, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated as of May 2, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
* Chairman of the Board, President and
--------------------------------------
J. HAROLD CHANDLER Chief Executive Officer (principal
executive officer)
* Vice Chairman, Chief Financial Officer
--------------------------------------
THOMAS R. WATJEN and Director (principal financial
officer)
* Senior Vice President and Controller
--------------------------------------
RALPH A. ROGERS, JR. (principal accounting officer)
* Director
--------------------------------------
WILLIAM L. ARMSTRONG
* Director
--------------------------------------
WILLIAM H. BOLINDER
* Director
--------------------------------------
STEVEN M. GLUCKSTERN
* Director
--------------------------------------
CHARLOTTE M. HEFFNER
* Director
--------------------------------------
HUGH B. JACKS
* Director
--------------------------------------
WILLIAM B. JOHNSON
* Director
--------------------------------------
HUGH O. MACLELLAN, JR.
* Director
--------------------------------------
A. S. MACMILLAN
* Director
--------------------------------------
C. WILLIAM POLLARD
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
* Director
______________________________________
SCOTT L. PROBASCO, JR.
* Director
______________________________________
STEVEN S REINEMUND
* Director
______________________________________
BURTON E. SORENSEN
</TABLE>
/s/ Susan N. Roth
*By: ____________________________
Susan N. Roth
Attorney-in-Fact
II-4
<PAGE>
5,917,500 Shares
PROVIDENT COMPANIES, INC.
COMMON STOCK, $1.00 PAR VALUE PER SHARE
UNDERWRITING AGREEMENT
May __, 1997
<PAGE>
May __, 1997
Morgan Stanley & Co. Incorporated
Salomon Brothers Inc
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Morgan Stanley & Co. International Limited
Salomon Brothers International Limited
c/o Morgan Stanley & Co. International Limited
25 Cabot Square
Canary Wharf
London E14 4QA
England
Dear Sirs and Mesdames:
Textron Inc., a Delaware corporation (the "Selling Stockholder"),
proposes to issue and sell to the several Underwriters (as defined below)
5,917,500 shares of Provident Companies, Inc. (the "Company") Common Stock,
$1.00 par value per share (the "Firm Shares").
It is understood that, subject to the conditions hereinafter stated,
4,734,000 Firm Shares (the "U.S. Firm Shares") will be sold to the several U.S.
Underwriters named in Schedule I hereto (the "U.S. Underwriters") in connection
with the offering and sale of such U.S. Firm Shares in the United States and
Canada to United States and Canadian Persons (as such terms are defined in the
Agreement Between U.S. and International Underwriters of even date herewith),
and 1,183,500 Firm Shares (the "International Shares") will be sold to the
several International Underwriters named in Schedule II hereto (the
"International Underwriters") in connection with the offering and sale of such
International Shares outside the United States and Canada to persons other than
United States and Canadian Persons. Morgan Stanley & Co. Incorporated and
Salomon Brothers Inc shall act as representatives (the "U.S. Representatives")
of the several U.S. Underwriters, and Morgan Stanley & Co. International Limited
and Salomon Brothers International Limited shall act as representatives (the
"International Representatives") of the several International Underwriters. The
U.S. Underwriters and the International Underwriters are hereinafter
collectively referred to as the Underwriters.
The Company proposes to issue and sell to the several Underwriters not
more than an additional 887,625 shares of its Common Stock, $1.00 par value per
share (the "Additional Shares"), if and to the extent that the U.S.
Representatives
<PAGE>
shall have determined to exercise, on behalf of the Underwriters, the right to
purchase such shares of Common Stock granted to the Underwriters in Section 3
hereof. The Firm Shares and the Additional Shares are hereinafter collectively
referred to as the "Shares." The shares of Common Stock, $1.00 par value per
share, of the Company to be outstanding after giving effect to the sales
contemplated hereby are hereinafter referred to as the "Common Stock."
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement relating to the Shares. The registration
statement contains two prospectuses to be used in connection with the offering
and sale of the Shares: the U.S. prospectus, to be used in connection with the
offering and sale of Shares in the United States and Canada to United States and
Canadian Persons, and the international prospectus, to be used in connection
with the offering and sale of Shares outside the United States and Canada to
persons other than United States and Canadian Persons. The international
prospectus is identical to the U.S. prospectus except for the outside front
cover page. The registration statement as amended at the time it becomes
effective, including the information (if any) deemed to be part of the
registration statement at the time of effectiveness pursuant to Rule 430A under
the Securities Act of 1933, as amended (the "Securities Act"), is hereinafter
referred to as the "Registration Statement"; the U.S. prospectus and the
international prospectus in the respective forms first used to confirm sales of
Shares are hereinafter collectively referred to as the "Prospectus." If the
Company has filed an abbreviated registration statement to register additional
shares of Common Stock pursuant to Rule 462(b) under the Securities Act (the
"Rule 462 Registration Statement"), then any reference herein to the term
"Registration Statement" shall be deemed to include such Rule 462 Registration
Statement. Any reference herein to the Registration Statement or Prospectus
shall be deemed to refer to and include the documents incorporated by reference
therein which were filed with the Commission on or prior to the date of this
Agreement, and any reference to the terms "amend," "amendment" or "supplement"
with respect to the Registration Statement or Prospectus shall be deemed to
refer to and include the filing of any document with the Commission deemed to be
incorporated by reference therein after the date of this Agreement.
1. Representations and Warranties. The Company represents and
------------------------------
warrants to and agrees with each of the Underwriters that:
(a) The Registration Statement has become effective; no stop order
suspending the effectiveness of the Registration Statement is in effect,
and no proceedings for such purpose are pending before or threatened by the
Commission.
<PAGE>
(b) (i) The Registration Statement, when it became effective, did not
contain and, as amended or supplemented, if applicable, will not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading,
(ii) the Registration Statement and the Prospectus comply and, as amended or
supplemented, if applicable, will comply in all material respects with the
Securities Act and the applicable rules and regulations of the Commission
thereunder and (iii) the Prospectus does not contain and, as amended or
supplemented, if applicable, will not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading,
except that the representations and warranties set forth in this paragraph 1(b)
do not apply to statements or omissions in the Registration Statement or the
Prospectus based upon information relating to any Underwriter furnished to the
Company in writing by such Underwriter through you expressly for use therein.
(c) The documents incorporated by reference in the Registration
Statement or Prospectus, when such documents became effective or were filed with
the Commission, as the case may be, under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), (i) complied, and any documents so filed and
incorporated by reference after the date of this Agreement will, when they are
filed with the Commission, comply, in all material respects with the Securities
Act and the Exchange Act, as applicable, and the applicable rules and
regulations of the Commission thereunder, and (ii) did not contain and, as
amended or supplemented, if applicable, will not contain any untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein not misleading.
(d) The Company has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, has the corporate power and authority to own its property and to
conduct its business as described in the Prospectus and is duly qualified to
transact business and is in good standing in each jurisdiction in which the
conduct of its business or its ownership or leasing of property requires such
qualification, except to the extent that the failure to be so qualified or be in
good standing would not have a material adverse effect on the Company and its
subsidiaries, taken as a whole.
(e) Each subsidiary of the Company has been duly incorporated, is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its
<PAGE>
incorporation, has the corporate power and authority to own its property and to
conduct its business as described in the Prospectus and is duly qualified to
transact business and is in good standing in each jurisdiction in which the
conduct of its business or its ownership or leasing of property requires such
qualification, except to the extent that the failure to be so qualified or be in
good standing would not have a material adverse effect on the Company and its
subsidiaries, taken as a whole; all of the issued shares of capital stock of
each subsidiary of the Company have been duly and validly authorized and issued,
are fully paid and non-assessable and are owned by the Company either directly
or through another subsidiary of the Company, free and clear of all liens,
encumbrances, equities or claims.
(f) This Agreement has been duly authorized, executed and delivered by
the Company .
(g) The authorized capital stock of the Company conforms as to legal
matters to the description thereof contained in the Prospectus.
(h) The shares of Common Stock (including the Shares to be sold by the
Selling Stockholder) outstanding prior to the issuance of the Shares to be sold
by the Company have been duly authorized and are validly issued, fully paid and
non-assessable.
(i) The Shares to be sold by the Company have been duly authorized
and, when issued and delivered in accordance with the terms of this Agreement,
will be validly issued, fully paid and non-assessable, and the issuance of such
Shares will not be subject to any preemptive or similar rights.
(j) The execution and delivery by the Company of, and the performance
by the Company of its obligations under, this Agreement will not contravene any
provision of applicable law or the certificate of incorporation or by-laws of
the Company or any agreement or other instrument binding upon the Company or any
of its subsidiaries that is material to the Company and its subsidiaries, taken
as a whole, or any judgment, order or decree of any governmental body, agency or
court having jurisdiction over the Company or any subsidiary, and no consent,
approval, authorization or order of, or qualification with, any governmental
body or agency is required for the performance by the Company of its obligations
under this Agreement, except such as may be required by the securities or Blue
Sky laws of the various states in connection with the offer and sale of the
Shares.
(k) There has not occurred any material adverse change, or any
development involving a prospective material
<PAGE>
adverse change, in the condition, financial or otherwise, or in the earnings,
business or operations of the Company and its subsidiaries, taken as a whole,
from that set forth in the Prospectus.
(l) There are no legal or governmental proceedings pending or
threatened to which the Company or any of its subsidiaries is a party or to
which any of the properties of the Company or any of its subsidiaries is subject
that are required to be described in the Registration Statement or the
Prospectus and are not so described or any statutes, regulations, contracts or
other documents that are required to be described in the Registration Statement
or the Prospectus or to be filed as exhibits to the Registration Statement that
are not described or filed as required.
(m) Each preliminary prospectus filed as part of the registration
statement as originally filed or as part of any amendment thereto, or filed
pursuant to Rule 424 under the Securities Act, complied when so filed in all
material respects with the Securities Act and the applicable rules and
regulations of the Commission thereunder.
(n) The Company is not and, after giving effect to the offering and
sale of the Shares and the application of the proceeds thereof as described in
the Prospectus, will not be an "investment company" or a "company controlled by
an investment company" as such terms are defined in the Investment Company Act
of 1940, as amended.
(o) The Company and its subsidiaries (i) are in compliance with any
and all applicable foreign, federal, state and local laws and regulations
relating to the protection of human health and safety, the environment or
hazardous or toxic substances or wastes, pollutants or contaminants
("Environmental Laws"), (ii) have received all permits, licenses or other
approvals required of them under applicable Environmental Laws to conduct their
respective businesses and (iii) are in compliance with all terms and conditions
of any such permit, license or approval, except where such noncompliance with
Environmental Laws, failure to receive required permits, licenses or other
approvals or failure to comply with the terms and conditions of such permits,
licenses or approvals would not, singly or in the aggregate, have a material
adverse effect on the Company and its subsidiaries, taken as a whole.
(p) There are no costs or liabilities associated with Environmental
Laws (including, without limitation, any capital or operating expenditures
required for clean-up, closure of properties or compliance with Environmental
Laws or any permit, license or approval, any related constraints on operating
activities and any potential liabilities to
<PAGE>
third parties) which would, singly or in the aggregate, have a material adverse
effect on the Company and its subsidiaries, taken as a whole.
(q) There are no contracts, agreements or understandings between the
Company and any person granting such person the right to require the Company to
include any securities of the Company with the Shares registered pursuant to the
Registration Statement, other than (i) the Agreement, dated as of March 27,
1997, between the Company and the Selling Stockholder, under which the Firm
Shares are being registered, and (ii) the Amended and Restated Registration
Rights Agreement, dated as of May 31, 1996, between the Company and Zurich
Insurance Company, and the Registration Rights Agreement, dated as of May 31,
1996, between the Company and certain stockholders of the Company, under each of
which all rights to register shares of Common Stock to be included under the
Registration Statement have been waived.
(r) The Company has complied with all provisions of Section 517.075,
Florida Statutes relating to doing business with the Government of Cuba or with
any person or affiliate located in Cuba.
2. Representations and Warranties of the Selling Stockholder.
----------------------------------------------------------
The Selling Stockholder represents and warrants to and agrees with each of the
Underwriters that:
(a) This Agreement has been duly authorized, executed and delivered by
or on behalf of the Selling Stockholder.
(b) The execution and delivery by the Selling Stockholder of, and the
performance by the Selling Stockholder of its obligations under, this Agreement
will not contravene any provision of applicable law, or the certificate of
incorporation or by-laws of the Selling Stockholder, or any agreement or other
instrument binding upon the Selling Stockholder or any judgment, order or decree
of any governmental body, agency or court having jurisdiction over the Selling
Stockholder, and no consent, approval, authorization or order of, or
qualification with, any governmental body or agency is required for the
performance by the Selling Stockholder of its obligations under this Agreement,
except such as may be required by the securities or Blue Sky laws of the various
states in connection with the offer and sale of the Shares.
(c) The Selling Stockholder has, and on the Closing Date will have,
valid title to the Shares to be sold by the Selling Stockholder and the legal
right and power, and all authorization and approval required by law, to enter
into this Agreement and to sell, transfer and deliver the Shares
<PAGE>
to be sold by the Selling Stockholder.
(d) Delivery of the Shares to be sold by the Selling Stockholder
pursuant to this Agreement will pass title to such Shares to the several
underwriters free and clear of any security interests, claims, liens,
equities and other encumbrances.
(e) (i) The Registration Statement, when it became effective, did not
contain and, as amended or supplemented, if applicable, will not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading, (ii) the Registration Statement and the Prospectus comply
and, as amended or supplemented, if applicable, will comply in all material
respects with the Securities Act and the applicable rules and regulations
of the Commission thereunder and (iii) the Prospectus does not contain and,
as amended or supplemented, if applicable, will not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements therein, in the light of the circumstances under which
they were made, not misleading; provided, that the representations and
--------
warranties set forth in this paragraph 2(e) apply only to statements or
omissions in the Registration Statement or the Prospectus based upon
information relating to the Selling Stockholder furnished to the Company by
such Selling Stockholder expressly for use therein.
3. Agreements to Sell and Purchase. The Selling Stockholder hereby
-------------------------------
agrees to sell to the several Underwriters, and each Underwriter, upon the basis
of the representations and warranties herein contained, but subject to the
conditions hereinafter stated, agrees, severally and not jointly, to purchase
from the Selling Stockholder the respective numbers of Firm Shares set forth in
Schedules I and II hereto opposite its names at U.S. $_____ a share ("Purchase
Price").
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Company agrees to sell
to the Underwriters the Additional Shares, and the Underwriters shall have a
one-time right to purchase, severally and not jointly, up to 887,625 Additional
Shares at the Purchase Price. If the U.S. Representatives, on behalf of the
Underwriters, elect to exercise such option, the U.S. Representatives shall so
notify the Company in writing not later than 30 days after the date of this
Agreement, which notice shall specify the number of Additional Shares to be
purchased by the Underwriters and the date on which such shares are to be
purchased. Such date may be the same as the Closing Date (as defined below) but
not earlier than the Closing Date nor later than ten business days after the
date of
<PAGE>
such notice. Additional Shares may be purchased as provided in Section 4 hereof
solely for the purpose of covering over-allotments made in connection with the
offering of the Firm Shares. If any Additional Shares are to be purchased, each
Underwriter agrees, severally and not jointly, to purchase the number of
Additional Shares (subject to such adjustments to eliminate fractional shares as
the U.S. Representatives may determine) that bears the same proportion to the
total number of Additional Shares to be purchased as the number of Firm Shares
set forth in Schedule I and/or Schedule II hereto opposite the name of such
Underwriter bears to the total number of Firm Shares.
Each of the Selling Stockholder and the Company hereby agrees that,
without the prior written consent of Morgan Stanley & Co. Incorporated on behalf
of the Underwriters, it will not, during the period ending 90 days after the
date of the Prospectus, (i) offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase or otherwise transfer or dispose of,
directly or indirectly, any shares of Common Stock or any securities convertible
into or exercisable or exchangeable for shares of Common Stock (provided that
such shares or securities are either owned prior to the sale of the Shares
hereunder or are thereafter acquired in connection with the sale of the Shares
hereunder) or (ii) enter into any swap or other arrangement that transfers to
another, in whole or in part, any of the economic consequences of ownership of
the shares of Common Stock, whether any such transaction described in clause (i)
or (ii) above is to be settled by delivery of shares of Common Stock or such
other securities, in cash or otherwise. The foregoing sentence shall not apply
to (A) the Shares to be sold hereunder or (B) the issuance by the Company of, or
the grant by the Company of options for, shares of Common Stock pursuant to any
stock plan for employees or directors, or any qualified employee benefit plan,
in effect on the date of the Prospectus, or pursuant to any stock options
outstanding on the date of the Prospectus or (C) the sale of shares of Common
Stock by any defined contribution qualified employee benefit plan in effect on
the date of the Prospectus to satisfy plan liquidity need. In addition, the
Selling Stockholder agrees that, without the prior written consent of Morgan
Stanley & Co. Incorporated on behalf of the Underwriters, it will not, during
the period ending 90 days after the date of the Prospectus, make any demand for,
or exercise any right with respect to, the registration of any shares of Common
Stock or any security convertible into or exercisable or exchangeable for shares
of Common Stock.
4. Terms of Public Offering. The Selling Stockholder and the Company
------------------------
are advised by you that the Underwriters propose to make a public offering of
their respective portion of the Shares as soon after the Registration Statement
and this Agreement have become effective as in your judgment is advisable.
<PAGE>
The Selling Stockholder and the Company are further advised by you that the
Shares are to be offered to the public initially at U.S.$______ a share (the
"Public Offering Price") and to certain dealers selected by you at a price that
represents a concession not in excess of U.S.$________ a share under the Public
Offering Price, and that any Underwriter may allow, and such dealers may
reallow, a concession not in excess of U.S. $_______ a share, to any Underwriter
or to certain other dealers.
5. Payment and Delivery. Payment for the Firm Shares shall be made
--------------------
to the Selling Stockholder in Federal or other funds immediately available in
New York City against delivery of such Firm Shares for the respective accounts
of the several Underwriters at 10:00 A.M., New York City time, on _____________,
1997, or at such other time on the same or such other date, not later than
_______________, 1997, as shall be designated in writing by the U.S.
Representatives. The time and date of such payment are hereinafter referred to
as the "Closing Date."
Payment for any Additional Shares shall be made to the Company in
Federal or other funds immediately available in New York City against delivery
of such Additional Shares for the respective accounts of the several
Underwriters at 10:00 A.M., New York City time, on the date specified in the
notice described in Section 3 or at such other time on the same or on such other
date, in any event not later than _________________, 1997, as shall be
designated in writing by the U.S. Representatives. The time and date of such
payment are hereinafter referred to as the "Option Closing Date."
Certificates for the Firm Shares and Additional Shares shall be in
definitive form and registered in such names and in such denominations as you
shall request in writing not later than one full business day prior to the
Closing Date or the Option Closing Date, as the case may be. The certificates
evidencing the Firm Shares and Additional Shares shall be delivered to you on
the Closing Date or the Option Closing Date, as the case may be, for the
respective accounts of the several Underwriters, with any transfer taxes payable
in connection with the transfer of the Shares to the Underwriters duly paid,
against payment of the Purchase Price therefor.
6. Conditions to the Underwriters' Obligations. The obligations of
-------------------------------------------
the Selling Stockholder and the Company to sell the Shares to the Underwriters
and the several obligations of the Underwriters to purchase and pay for the
Shares on the Closing Date are subject to the condition that the Registration
Statement shall have become effective not later than ________ (New York City
time) on the date hereof.
The several obligations of the Underwriters are subject to the
following further conditions :
(a) Subsequent to the execution and delivery of this
<PAGE>
Agreement and prior to the Closing Date:
(i) there shall not have occurred any downgrading, nor shall any
notice have been given of any intended or potential downgrading or of any
review for a possible change that does not indicate the direction of the
possible change, in the rating accorded any of the Company's securities by
any "nationally recognized statistical rating organization," as such term is
defined for purposes of Rule 436(g)(2) under the Securities Act; and
(ii) there shall not have occurred any change, or any development
involving a prospective change, in the condition, financial or otherwise, or
in the earnings, business or operations of the Company and its subsidiaries,
taken as a whole, from that set forth in the Prospectus (exclusive of any
amendments or supplements thereto subsequent to the date of this Agreement)
that, in your judgment, is material and adverse and that makes it, in your
judgment, impracticable to market the Shares on the terms and in the manner
contemplated in the Prospectus.
(b) The Underwriters shall have received on the Closing Date a
certificate, dated the Closing Date and signed by an executive officer of the
Company, to the effect set forth in clause (a)(i) above and to the effect that
the representations and warranties of the Company contained in this Agreement
are true and correct as of the Closing Date and that the Company has complied
with all of the agreements and satisfied all of the conditions on its part to be
performed or satisfied hereunder on or before the Closing Date.
The officer signing and delivering such certificate may rely upon the
best of his or her knowledge as to proceedings threatened.
(c) The Underwriters shall have received on the Closing Date an
opinion of Alston & Bird LLP, outside counsel for the Company, dated the Closing
Date, to the effect set forth in Exhibit A hereto.
(d) The Underwriters shall have received on the Closing Date an
opinion of Skadden, Arps, Slate, Meagher & Flom LLP, counsel for the Selling
Stockholder, dated the Closing Date, to the effect set forth in Exhibit B
hereto.
(e) The Underwriters shall have received on the Closing Date an
opinion of Susan N. Roth, Vice President, Secretary and Counsel of the Company,
dated the Closing Date, to the effect set forth in Exhibit C hereto.
<PAGE>
(f) The Underwriters shall have received on the Closing Date an
opinion of LeBoeuf, Lamb, Greene & MacRae, L.L.P., counsel for the
Underwriters, dated the Closing Date, to the effect set forth in Exhibit D
hereto.
The opinion of Alston & Bird LLP described in paragraph (c) above
shall be rendered to the Underwriters at the request of the Company and
shall so state therein.
(g) The Underwriters shall have received, on each of the date hereof
and the Closing Date, a letter dated the date hereof or the Closing Date,
as the case may be, in form and substance satisfactory to the Underwriters,
from Ernst & Young LLP, independent public accountants, containing
statements and information of the type ordinarily included in accountants'
"comfort letters" to underwriters with respect to the financial statements
and certain financial information contained in the Registration Statement
and the Prospectus; provided that the letter delivered on the Closing Date
--------
shall use a "cut-off date" not earlier than the date hereof.
(h) The "lock-up" agreements, each substantially in the form of
Exhibit E hereto, between you and officers and directors of the Company
relating to sales and certain other dispositions of shares of Common Stock
or certain other securities, delivered to you on or before the date hereof,
shall be in full force and effect on the Closing Date.
(i) The "lock-up" agreements, each substantially in the form of
Exhibit F hereto, between you and the stockholders of the Company listed on
Schedule I to such Exhibit F relating to sales and certain other
dispositions of shares of Common Stock or certain other securities,
delivered to you on or before the date hereof, shall be in full force and
effect on the Closing Date.
(j) The "lock-up" agreements, each substantially in the form of
Exhibit G hereto, between you and the stockholders of the Company listed on
Schedule I to such Exhibit G relating to sales and certain other
dispositions of shares of Common Stock or certain other securities,
delivered to you on or before the date hereof, shall be in full force and
effect on the Closing Date.
The several obligations of the Underwriters to purchase Additional
Shares hereunder are subject to the delivery to the U.S. Representatives on the
Option Closing Date of such documents as they may reasonably request with
respect to the good standing of the Company, the due authorization and issuance
of the Additional Shares and other matters related to the issuance of the
Additional Shares.
<PAGE>
On the Closing Date, the Selling Stockholder shall have received an
opinion of Alston & Bird LLP, addressed to the Selling Stockholder, to the
effect set forth in Exhibit A hereto. In addition, the Company shall use its
reasonable best efforts to furnish to the Selling Stockholder on the Closing
Date a letter from Ernst & Young LLP, addressed to the Selling Stockholder, as
described in paragraph (g) above.
7. Covenants of the Company. In further consideration of the
------------------------
agreements of the Underwriters herein contained, the Company covenants with each
Underwriter as follows:
(a) To furnish to you, without charge, two signed copies of the
Registration Statement (including exhibits thereto) and for delivery to
each other Underwriter a conformed copy of the Registration Statement
(without exhibits thereto) and to furnish to you in New York City, without
charge, prior to 5:00 P.M. New York City time on the business day next
succeeding the date of this Agreement and during the period mentioned in
paragraph (c) below, as many copies of the Prospectus and any supplements
and amendments thereto or to the Registration Statement as you may
reasonably request.
(b) Before amending or supplementing the Registration Statement or the
Prospectus, to furnish to you a copy of each such proposed amendment or
supplement and not to file any such proposed amendment or supplement to
which you reasonably object, and to file with the Commission within the
applicable period specified in Rule 424(b) under the Securities Act any
prospectus required to be filed pursuant to such Rule.
(c) If, during such period after the first date of the public offering
of the Shares as in the opinion of counsel for the Underwriters the
Prospectus is required by law to be delivered in connection with sales by
an Underwriter or dealer, any event shall occur or condition exist as a
result of which it is necessary to amend or supplement the Prospectus in
order to make the statements therein, in the light of the circumstances
when the Prospectus is delivered to a purchaser, not misleading, or if, in
the opinion of counsel for the Underwriters, it is necessary to amend or
supplement the Prospectus to comply with applicable law, forthwith to
prepare, file with the Commission and furnish, at its own expense, to the
Underwriters and to the dealers (whose names and addresses you will furnish
to the Company) to which the Shares may have been sold by you on behalf of
the Underwriters and to any other dealers upon request, either amendments
or supplements to the Prospectus so that the statements in the Prospectus
as so amended or
<PAGE>
supplemented will not, in the light of the circumstances when the
Prospectus is delivered to a purchaser, be misleading or so that the
Prospectus, as amended or supplemented, will comply with law.
(d) To endeavor to qualify the Shares for offer and sale under the
securities or Blue Sky laws of such jurisdictions as you shall reasonably
request.
(e) To make generally available to the Company's security holders and
to you as soon as practicable an earning statement covering the twelve-
month period ending June 30, 1998 that satisfies the provisions of Section
11(a) of the Securities Act and the rules and regulations of the Commission
thereunder.
(f) Whether or not the transactions contemplated in this Agreement are
consummated or this Agreement is terminated, to pay or cause to be paid all
expenses incident to the performance of its and the Selling Stockholder's
obligations under this Agreement, including: (i) the fees, disbursements
and expenses of the Company's and the Selling Stockholder's counsel and the
Company's accountants in connection with the registration and delivery of
the Shares under the Securities Act and all other fees or expenses in
connection with the preparation and filing of the Registration Statement,
any preliminary prospectus, the Prospectus and amendments and supplements
to any of the foregoing, including all printing costs associated therewith,
and the mailing and delivering of copies thereof to the Underwriters and
dealers, in the quantities hereinabove specified, (ii) all costs and
expenses related to the transfer and delivery of the Shares to the
Underwriters, including any transfer or other taxes payable thereon, (iii)
the cost of printing or producing any Blue Sky or Legal Investment
memorandum in connection with the offer and sale of the Shares under state
securities laws and all expenses in connection with the qualification of
the Shares for offer and sale under state securities laws as provided in
Section 7(d) hereof, including filing fees and the reasonable fees and
disbursements of counsel for the Underwriters in connection with such
qualification and in connection with the Blue Sky or Legal Investment
memorandum, (iv) all filing fees, reasonable fees and disbursements of
counsel to the Underwriters incurred in connection with any required review
and qualification of the offering of the Shares by the National Association
of Securities Dealers, Inc., (v) the cost of printing certificates
representing the Shares, (vi) the costs and charges of any transfer agent,
registrar or depositary, (vii) the costs and expenses of the Company and
the Selling Stockholder relating to investor presentations on any "road
show" undertaken in connection with the marketing of the offering of the
Shares, including, without limitation, expenses associated with the
production
<PAGE>
of road show slides and graphics, fees and expenses of any consultants
engaged in connection with the road show presentations with the prior
approval of the Company, travel and lodging expenses of the representatives
and officers of the Company and any such consultants, and the cost of any
aircraft chartered in connection with the road show, and (ix) all other
costs and expenses incident to the performance of the obligations of the
Company and the Selling Stockholder hereunder for which provision is not
otherwise made in this Section. It is understood, however, that except as
provided in this Section, Section 8 entitled "Indemnity and Contribution",
and the last paragraph of Section 10 below, the Underwriters will pay all
of their costs and expenses, including fees and disbursements of their
counsel, stock transfer taxes payable on resale of any of the Shares by
them and any advertising expenses connected with any offers they may make.
8. Indemnity and Contribution. (a) (i) The Company agrees to
--------------------------
indemnify and hold harmless each Underwriter and each person, if any, who
controls any Underwriter within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act from and against any and all
losses, claims, damages and liabilities (including, without limitation, any
legal or other expenses reasonably incurred in connection with defending or
investigating any such action or claim) caused by any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement or any amendment thereof, any preliminary prospectus or the Prospectus
(as amended or supplemented if the Selling Stockholder and the Company shall
have furnished any amendments or supplements thereto), or caused by any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, except
insofar as such losses, claims, damages or liabilities are caused by any such
untrue statement or omission or alleged untrue statement or omission based upon
information relating to any Underwriter furnished to the Company in writing by
such Underwriter through you expressly for use therein; and (ii) the Company
agrees to indemnify and hold harmless the Selling Stockholder, its directors and
officers and each person, if any, who controls the Selling Stockholder within
the meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act, from and against any and all losses, claims, damages and
liabilities (including, without limitation, any legal or other expenses
reasonably incurred in connection with defending or investigating any such
action or claim) caused by any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or any amendment thereof,
any preliminary prospectus or the Prospectus (as amended or supplemented if the
Selling Stockholder and the Company shall have furnished any amendments or
supplements thereto), or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or
<PAGE>
necessary to make the statements therein not misleading, except insofar as such
losses, claims, damages or liabilities are caused by any such untrue statement
or omission or alleged untrue statement or omission based upon information
relating to the Selling Stockholder furnished to the Company in writing by the
Selling Stockholder expressly for use therein.
(b) (i) The Selling Stockholder agrees to indemnify and hold harmless
each Underwriter and each person, if any, who controls any Underwriter within
the meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act to the same extent as the foregoing indemnity from the Company to
the Underwriters, but only with reference to information relating to such
Selling Stockholder furnished to the Company in writing by such Selling
Stockholder expressly for use in the Registration Statement, any preliminary
prospectus, the Prospectus or any amendments or supplements thereto; and (ii)
the Selling Stockholder agrees to indemnify and hold harmless the Company, each
director of the Company, and each officer of the Company who signs the
Registration Statement to the same extent as the foregoing indemnity from the
Company to the Selling Stockholder, but only with reference to information
relating to such Selling Stockholder furnished to the Company in writing by such
Selling Stockholder expressly for use in the Registration Statement, any
preliminary prospectus, the Prospectus or any amendments or supplements thereto.
(c) Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Selling Stockholder and the Company, its directors, its
officers who sign the Registration Statement and each person, if any, who
controls the Selling Stockholder and the Company within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange Act to the same
extent as the foregoing indemnities from the Company and the Selling Stockholder
to such Underwriter, but only with reference to information relating to such
Underwriter furnished to the Company in writing by such Underwriter through you
expressly for use in the Registration Statement, any preliminary prospectus, the
Prospectus or any amendments or supplements thereto.
(d) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to paragraph (a), (b) or (c) of this Section 8, such person (the
"indemnified party") shall promptly notify the person against whom such
indemnity may be sought (the "indemnifying party") in writing and the
indemnifying party, upon request of the indemnified party, shall retain counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party and any others the indemnifying party may designate in such proceeding and
shall pay the fees and disbursements of such counsel related to such proceeding.
In any such proceeding, any indemnified party shall
<PAGE>
have the right to retain its own counsel, but the fees and expenses of such
counsel shall be at the expense of such indemnified party unless (i) the
indemnifying party and the indemnified party shall have mutually agreed to the
retention of such counsel or (ii) the named parties to any such proceeding
(including any impleaded parties) include both the indemnifying party and the
indemnified party and representation of both parties by the same counsel would
be inappropriate due to actual or potential differing interests between them. It
is understood that the indemnifying party shall not, in respect of the legal
expenses of any indemnified party in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for the fees and expenses of
more than one separate firm (in addition to any local counsel) for all such
indemnified parties and that all such fees and expenses shall be reimbursed as
they are incurred. Such firm shall be designated in writing by Morgan Stanley &
Co. Incorporated, in the case of parties indemnified pursuant to clause (i) of
paragraph (a) or clause (i) of paragraph (b) of this Section 8, by the Selling
Stockholder in the case of parties indemnified pursuant to clause (ii) of
paragraph (a) or clause (ii) of paragraph (b) of this Section 8, and by the
Selling Stockholder and the Company, in the case of parties indemnified pursuant
to paragraph (c) of this Section 8. The indemnifying party shall not be liable
for any settlement of any proceeding effected without its written consent, but
if settled with such consent or if there be a final judgment for the plaintiff,
the indemnifying party agrees to indemnify the indemnified party from and
against any loss or liability by reason of such settlement or judgment.
Notwithstanding the foregoing sentence, if at any time an indemnified party
shall have requested an indemnifying party to reimburse the indemnified party
for fees and expenses of counsel as contemplated by the second and third
sentences of this paragraph, the indemnifying party agrees that it shall be
liable for any settlement of any proceeding effected without its written consent
if (i) such settlement is entered into more than 30 days after receipt by such
indemnifying party of the aforesaid request and (ii) such indemnifying party
shall not have reimbursed the indemnified party in accordance with such request
prior to the date of such settlement. No indemnifying party shall, without the
prior written consent of the indemnified party, effect any settlement of any
pending or threatened proceeding in respect of which any indemnified party is or
could have been a party and indemnity could have been sought hereunder by such
indemnified party, unless such settlement includes an unconditional release of
such indemnified party from all liability on claims that are the subject matter
of such proceeding.
(e) To the extent the indemnification provided for in paragraph (a),
(b) or (c) of this Section 8 is unavailable to an indemnified party or
insufficient in respect of any losses, claims, damages or liabilities referred
to therein, then each indemnifying party under such paragraph, in lieu of
indemnifying
<PAGE>
such indemnified party thereunder, shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the Selling Stockholder and the Company on the one hand and
the Underwriters on the other hand from the offering of the Shares or (ii) if
the allocation provided by clause (i) above is not permitted by applicable law,
in such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Selling
Stockholder and the Company on the one hand and of the Underwriters on the other
hand in connection with the statements or omissions that resulted in such
losses, claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative benefits received by the Selling Stockholder and
the Company on the one hand and the Underwriters on the other hand in connection
with the offering of the Shares shall be deemed to be in the same respective
proportions as the net proceeds from the offering of the Shares (before
deducting expenses) received by the Selling Stockholder and the Company and the
total underwriting discounts and commissions received by the Underwriters, in
each case as set forth in the table on the cover of the Prospectus, bear to the
aggregate Public Offering Price of the Shares. The relative fault of the Selling
Stockholder and the Company on the one hand and the Underwriters on the other
hand shall be determined by reference to, among other things, whether the untrue
or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Selling
Stockholder and the Company or by the Underwriters and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The Underwriters' respective obligations to
contribute pursuant to this Section 8 are several in proportion to the
respective number of Shares they have purchased hereunder, and not joint.
(f) The Selling Stockholder and the Company and the Underwriters agree
that it would not be just or equitable if contribution pursuant to this Section
8 were determined by pro rata allocation (even if the Underwriters were treated
--------
as one entity for such purpose) or by any other method of allocation that does
not take account of the equitable considerations referred to in paragraph (e) of
this Section 8. The amount paid or payable by an indemnified party as a result
of the losses, claims, damages and liabilities referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 8, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Shares underwritten by it and distributed to the public were
offered to the public
<PAGE>
exceeds the amount of any damages that such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The remedies provided for in this Section 8 are not exclusive
and shall not limit any rights or remedies which may otherwise be available to
any indemnified party at law or in equity.
(g) The indemnity and contribution provisions contained in this
Section 8 and the representations, warranties and other statements of the
Selling Stockholder and the Company contained in this Agreement shall remain
operative and in full force and effect regardless of (i) any termination of this
Agreement, (ii) any investigation made by or on behalf of any Underwriter or any
person controlling any Underwriter or by or on behalf of the Selling Stockholder
and the Company, its officers or directors or any person controlling the Selling
Stockholder and the Company and (iii) acceptance of and payment for any of the
Shares.
9. Termination. This Agreement shall be subject to termination by
-----------
notice given by you to the Selling Stockholder and the Company, if (a) after the
execution and delivery of this Agreement and prior to the Closing Date (i)
trading generally shall have been suspended or materially limited on or by, as
the case may be, any of the New York Stock Exchange, the American Stock
Exchange and the National Association of Securities Dealers, Inc., (ii) trading
of any securities of the Company shall have been suspended on any exchange or in
any over-the-counter market, (iii) a general moratorium on commercial banking
activities in New York shall have been declared by either Federal or New York
State authorities or (iv) there shall have occurred any outbreak or escalation
of hostilities or any change in financial markets or any calamity or crisis
that, in your judgment, is material and adverse and (b) in the case of any of
the events specified in clauses (a)(i) through (iv), such event, singly or
together with any other such event, makes it, in your judgment, impracticable to
market the Shares on the terms and in the manner contemplated in the
Prospectus.
10. Effectiveness; Defaulting Underwriters. This Agreement shall
--------------------------------------
become effective upon the execution and delivery hereof by the parties hereto.
If, on the Closing Date or the Option Closing Date, as the case may
be, any one or more of the Underwriters shall fail or refuse to purchase Shares
that it has or they have agreed to purchase hereunder on such date, and the
aggregate number of Shares which such defaulting Underwriter or Underwriters
agreed but failed or refused to purchase is not more than one-tenth of
<PAGE>
the aggregate number of the Shares to be purchased on such date, the other
Underwriters shall be obligated severally in the proportions that the number of
Firm Shares set forth opposite their respective names in Schedule I or Schedule
II bears to the aggregate number of Firm Shares set forth opposite the names of
all such non-defaulting Underwriters, or in such other proportions as you may
specify, to purchase the Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase on such date; provided
--------
that in no event shall the number of Shares that any Underwriter has agreed to
purchase pursuant to this Agreement be increased pursuant to this Section 10 by
an amount in excess of one-ninth of such number of Shares without the written
consent of such Underwriter. If, on the Closing Date, any Underwriter or
Underwriters shall fail or refuse to purchase Firm Shares and the aggregate
number of Firm Shares with respect to which such default occurs is more than
one-tenth of the aggregate number of Firm Shares to be purchased, and
arrangements satisfactory to you and the Company for the purchase of such Firm
Shares are not made within 36 hours after such default, this Agreement shall
terminate without liability on the part of any non-defaulting Underwriter, the
Selling Stockholder or the Company. In any such case either you, the Selling
Stockholder or the Company shall have the right to postpone the Closing Date,
but in no event for longer than seven days, in order that the required changes,
if any, in the Registration Statement and in the Prospectus or in any other
documents or arrangements may be effected. If, on the Option Closing Date, any
Underwriter or Underwriters shall fail or refuse to purchase Additional Shares
and the aggregate number of Additional Shares with respect to which such default
occurs is more than one-tenth of the aggregate number of Additional Shares to be
purchased, the non-defaulting Underwriters shall have the option to (i)
terminate their obligation hereunder to purchase Additional Shares or (ii)
purchase not less than the number of Additional Shares that such non-defaulting
Underwriters would have been obligated to purchase in the absence of such
default. Any action taken under this paragraph shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.
If this Agreement shall be terminated by the Underwriters, or any of
them, because of any failure or refusal on the part of the Selling Stockholder
or the Company to comply with the terms or to fulfill any of the conditions of
this Agreement, or if for any reason the Selling Stockholder or the Company
shall be unable to perform its obligations under this Agreement the Company will
reimburse the Underwriters or such Underwriters as have so terminated this
Agreement with respect to themselves, severally, for all out-of-pocket expenses
(including the fees and disbursements of their counsel) reasonably incurred
by such Underwriters in connection with this Agreement or the offering
contemplated hereunder.
<PAGE>
11. Counterparts. This Agreement may be signed in two or more
------------
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
12. Applicable Law. This Agreement shall be governed by and
--------------
construed in accordance with the internal laws of the State of New York.
13. Headings. The headings of the sections of this Agreement have
--------
been inserted for convenience of reference only and shall not be deemed a part
of this Agreement.
Very truly yours,
PROVIDENT COMPANIES, INC.
By
-----------------------
Name:
Title:
TEXTRON INC.
By
-----------------------
Name:
Title:
Accepted as of the date hereof
MORGAN STANLEY & CO. INCORPORATED
SALOMON BROTHERS INC
Acting severally on behalf of themselves
and the several U.S. Underwriters
named in Schedule I hereto.
By Morgan Stanley & Co. Incorporated
By
-----------------------
Name:
Title:
<PAGE>
MORGAN STANLEY & CO. INTERNATIONAL LIMITED
SALOMON BROTHERS INTERNATIONAL LIMITED
Acting severally on behalf of themselves
and the several International Underwriters
named in Schedule II hereto.
By Morgan Stanley & Co. International Limited
By
-----------------------
Name:
Title:
<PAGE>
Schedule I
U.S. Underwriters
-----------------
<TABLE>
<CAPTION>
Underwriter Number of
----------- Firm Shares
To Be Purchased
---------------
<S> <C>
Morgan Stanley & Co. Incorporated
Salomon Brothers Inc
[NAMES OF OTHER U.S. UNDERWRITERS]
---------
Total U.S. Firm Shares 4,734,000
---------
</TABLE>
<PAGE>
Schedule II
International Underwriters
--------------------------
<TABLE>
<CAPTION>
Underwriter Number of
----------- Firm Shares
To Be Purchased
---------------
<S> <C>
Morgan Stanley & Co. Incorporated
Salomon Brothers International Limited
[NAMES OF OTHER INTERNATIONAL UNDERWRITERS]
-----
Total International Firm Shares 1,183,500
---------
</TABLE>
<PAGE>
EXHIBIT A
Pursuant to Section 6(c) of the Agreement, Alston & Bird LLP, outside
counsel for the Company, shall provide to the Underwriters on the Closing Date
an opinion, dated the Closing Date, to the effect that:
(i) the Company has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, has the corporate power and authority to own its property and to
conduct its business as described in the Prospectus and is duly qualified to
transact business and is in good standing in each jurisdiction in which the
conduct of its business or its ownership or leasing of property requires such
qualification, except to the extent that the failure to be so qualified or be in
good standing would not have a material adverse effect on the Company and its
subsidiaries, taken as a whole;
(ii) the authorized capital stock of the Company conforms as to legal
matters to the description thereof incorporated by reference in the Prospectus;
(iii) the shares of Common Stock (including the Shares to be sold by
the Selling Stockholder) outstanding prior to the issuance of the Shares to be
sold by the Company have been duly authorized and are validly issued, fully paid
and non-assessable;
(iv) the Shares to be sold by the Company have been duly authorized
and, when issued and delivered in accordance with the terms of the Agreement,
will be validly issued, fully paid and non-assessable, and the issuance of such
Shares will not be subject to any preemptive or similar rights;
(v) the Agreement has been duly authorized, executed and delivered by
the Company;
(vi) the execution and delivery by the Company of, and the performance
by the Company of its obligations under, the Agreement will not contravene any
provision of applicable law or the certificate of incorporation or by-laws of
the Company or, to the best of such counsel's knowledge, any agreement or other
instrument binding upon the Company or any of its subsidiaries that is material
to the Company and its subsidiaries, taken as a whole, or, to the best of such
counsel's knowledge, any judgment, order or decree of any governmental body,
agency or court having jurisdiction over the Company or any subsidiary, and no
consent, approval, authorization or order of, or qualification with, any
governmental body or agency is required for the performance by the Company of
its obligations under this Agreement, except such as may be required by the
securities or Blue Sky laws of the various states or any foreign jurisdiction in
connection with the
<PAGE>
offer and sale of the Shares by the U.S. Underwriters;
(vii) the statements (A) in the Prospectus under the captions "Certain
United States Tax Consequences to Non-United States Holders" and "Underwriters"
and (B) in the Registration Statement in Items 14 and 15, in each case insofar
as such statements constitute summaries of the legal matters, documents or
proceedings referred to therein, fairly present the information called for with
respect to such legal matters, documents and proceedings and fairly summarize
the matters referred to therein;
(viii) after due inquiry, such counsel does not know of any legal or
governmental proceedings pending or threatened to which the Company or any of
its subsidiaries is a party or to which any of the properties of the Company or
any of its subsidiaries is subject that are required to be described in the
Registration Statement or the Prospectus and are not so described or of any
statutes, regulations, contracts or other documents that are required to be
described in the Registration Statement or the Prospectus or to be filed as
exhibits to the Registration Statement that are not described or filed as
required;
(ix) the Company is not and, after giving effect to the offering and sale
of the Shares and the application of the proceeds thereof as described in the
Prospectus, will not be an "investment company" or a "company controlled by an
investment company" as such terms are defined in the Investment Company Act of
1940, as amended; and
(x) such counsel (A) is of the opinion that the Registration Statement
and Prospectus (except for financial statements and schedules and other
financial and statistical data included therein as to which such counsel need
not express any opinion) comply as to form in all material respects with the
Securities Act and the applicable rules and regulations of the Commission
thereunder, (B) has no reason to believe that (except for financial statements
and schedules and other financial and statistical data as to which such counsel
need not express any belief) the Registration Statement and the prospectus
included therein at the time the Registration Statement became effective
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading and (C) has no reason to believe that (except for financial
statements and schedules and other financial and statistical data as to which
such counsel need not express any belief) the Prospectus contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
<PAGE>
EXHIBIT B
Pursuant to Section 6(d) of the Agreement, Skadden, Arps, Slate, Meagher &
Flom LLP, counsel for the Selling Stockholder, shall provide to the Underwriters
on the Closing Date an opinion, dated the Closing Date, to the effect that:
(i) the Agreement has been duly authorized, executed and delivered by or
on behalf of the Selling Stockholder;
(ii) the execution and delivery by the Selling Stockholder of, and the
performance by the Selling Stockholder of its obligations under, the Agreement
will not conflict with, result in the breach of or constitute a default under
any Applicable Contracts (as hereinafter defined), or violate any of the
provisions of the Certificate of Incorporation or Bylaws of the Selling
Stockholder or, so far as is known to such counsel, violate the Delaware General
Corporation Law or the laws of the State of New York or the United States of
America, and no consent, approval, authorization or validation of or filing with
any court or governmental agency is required under the Delaware General
Corporation Law or the laws of the State of New York or United States of America
in connection with the consummation by the Selling Stockholder of the
transactions contemplated by the Selling Stockholder under the Agreement, except
such as have been obtained or made and such as may be required under the
applicable rules of the New York Stock Exchange, Inc. or by the securities or
Blue Sky laws of the various states in connection with the offer and sale of the
Shares; provided, however, that counsel to the Selling Stockholders expresses no
opinion in this paragraph as to (a) the securities laws or anti-fraud laws of
any jurisdiction, and (b) laws other than those which, in such counsel's
experience, are normally applicable to transactions of the type provided for by
the Agreement. "Applicable Contracts" mean those agreements and instruments set
forth on Schedule I to the certificate, dated the Closing Date and addressed to
such counsel and to the Underwriters and signed by an officer of the Selling
Stockholder, included as Annex A to such opinion. Such agreements and
instruments shall have been identified in such certificate as all the agreements
and instruments to which the Selling Stockholder is a party or by which the
Selling Stockholder may be bound and which are material to the business,
properties or financial condition or results of operations of the Selling
Stockholder;
(iii) the Selling Stockholder was, immediately prior to the sale and
transfer of the Shares pursuant to the Agreement, to the knowledge of such
counsel, the sole registered owner of the Shares to be sold by the Selling
Stockholder and has the requisite corporate power and corporate authority to
enter into the Agreement and to sell, transfer and deliver the Shares to be sold
by the Selling Stockholder; and
(iv) assuming the U.S. Representatives and the International
Representatives acquired their interest in the Shares to be sold by the Selling
Stockholder in good faith and without notice of any adverse claim within the
meaning of Section 8-302 of the Uniform Commercial Code as in effect in New York
(the "UCC"), upon delivery to the U.S. Representatives and the International
Representatives in the State of New York of certificates identified in such
opinion endorsed to the U.S. Representatives and the International
Representatives or endorsed in blank, the U.S. Representatives and the
International Representatives will acquire all rights of the Selling Stockholder
in such Shares free of any adverse claims within the meaning of said Section
8-302.
<PAGE>
EXHIBIT C
Pursuant to Section 6(e) of the Agreement, Susan N. Roth, Vice President,
Secretary and Counsel of the Company, shall provide to the Underwriters on the
Closing Date an opinion, dated the Closing Date, to the effect that:
(i) each subsidiary of the Company has been duly incorporated, is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and authority to own
its property and to conduct its business as described in the Prospectus and is
duly qualified to transact business and is in good standing in each jurisdiction
in which the conduct of its business or its ownership or leasing of property
requires such qualification, except to the extent that the failure to be so
qualified or be in good standing would not have a material adverse effect on the
Company and its subsidiaries, taken as a whole;
(ii) all of the issued shares of capital stock of each subsidiary of the
Company have been duly and validly authorized and issued, are fully paid and
non-assessable and are owned directly by the Company, free and clear of all
liens, encumbrances, equities or claims;
(iii) the execution and delivery by the Company of, and the performance
by the Company of its obligations under, the Agreement will not contravene any
provision of applicable law or the certificate of incorporation or by-laws of
the Company or, to the best of such counsel's knowledge, any agreement or other
instrument binding upon the Company or any of its subsidiaries that is material
to the Company and its subsidiaries, taken as a whole, or, to the best of such
counsel's knowledge, any judgment, order or decree of any governmental body,
agency or court having jurisdiction over the Company or any subsidiary, and no
consent, approval, authorization or order of, or qualification with, any
governmental body or agency is required for the performance by the Company of
its obligations under this Agreement, except such as may be required by the
securities or Blue Sky laws of the various states in connection with the offer
and sale of the Shares by the U.S. Underwriters;
(iv) the statements in the Prospectus under the caption "Business --
Regulation," insofar as such statements constitute summaries of the legal
matters, documents or proceedings referred to therein, fairly present the
information called for with respect to such legal matters, documents and
proceedings and fairly summarize the matters referred to therein;
(v) after due inquiry, such counsel does not know of any legal or
governmental proceedings pending or threatened to which the Company or any of
its subsidiaries is a party or to
<PAGE>
which any of the properties of the Company or any of its subsidiaries is subject
that are required to be described in the Registration Statement or the
Prospectus and are not so described or of any statutes, regulations, contracts
or other documents that are required to be described in the Registration
Statement or the Prospectus or to be filed as exhibits to the Registration
Statement that are not described or filed as required;
(vi) the Company and its subsidiaries (A) are in compliance with any and
all applicable Environmental Laws, (B) have received all permits, licenses or
other approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (C) are in compliance with all terms and
conditions of any such permit, license or approval, except where such
noncompliance with Environmental Laws, failure to receive required permits,
licenses or other approvals or failure to comply with the terms and conditions
of such permits, licenses or approvals would not, singly or in the aggregate,
have a material adverse effect on the Company and its subsidiaries, taken as a
whole; and
(vii) such counsel (A) is of the opinion that the Registration
Statement and Prospectus (except for financial statements and schedules and
other financial and statistical data included therein as to which such counsel
need not express any opinion) comply as to form in all material respects with
the Securities Act and the applicable rules and regulations of the Commission
thereunder, (B) has no reason to believe that (except for financial statements
and schedules and other financial and statistical data as to which such counsel
need not express any belief) the Registration Statement and the prospectus
included therein at the time the Registration Statement became effective
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading and (C) has no reason to believe that (except for financial
statements and schedules and other financial and statistical data as to which
such counsel need not express any belief) the Prospectus contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
<PAGE>
EXHIBIT D
Pursuant to Section 6(f) of the Agreement, LeBoeuf, Lamb, Greene & MacRae,
L.L.P., counsel to the Underwriters, shall provide to the Underwriters on the
Closing Date an opinion, dated the Closing Date, to the effect that:
(i) the Shares to be sold by the Company have been duly authorized and,
when issued and delivered in accordance with the terms of this Agreement, will
be validly issued, fully paid and non-assessable, and the issuance of such
Shares will not be subject to any preemptive or similar rights;
(ii) the Agreement has been duly authorized, executed and delivered by
the Company;
(iii) the statements (A) in the Prospectus under the caption
"Underwriters" and (B) in the Registration Statement in Items 14 and 15, in each
case insofar as such statements constitute summaries of the legal matters,
documents or proceedings referred to therein, fairly present the information
called for with respect to such legal matters, documents and proceedings and
fairly summarize the matters referred to therein; and
(iv) such counsel (A) is of the opinion that the Registration Statement
and Prospectus (except for financial statements and schedules and other
financial and statistical data included therein as to which such counsel need
not express any opinion) comply as to form in all material respects with the
Securities Act and the applicable rules and regulations of the Commission
thereunder, (B) has no reason to believe that (except for financial statements
and schedules and other financial and statistical data as to which such counsel
need not express any belief) the Registration Statement and the prospectus
included therein at the time the Registration Statement became effective
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading and (C) has no reason to believe that (except for financial
statements and schedules and other financial and statistical data as to which
such counsel need not express any belief) the Prospectus contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
<PAGE>
EXHIBIT E
[Form of Lock-up Letter for Officers
------------------------------------
and Directors of the Company]
-----------------------------
May __, 1997
Morgan Stanley & Co. Incorporated
Salomon Brothers Inc
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, NY 10036
Dear Sirs:
The undersigned understands that Morgan Stanley & Co. Incorporated ("Morgan
Stanley") and Salomon Brothers Inc ("Salomon Brothers"), as Representatives of
the several Underwriters, proposes to enter into an Underwriting Agreement (the
"Underwriting Agreement") with Textron Inc., a Delaware corporation (the
"Selling Stockholder") and Provident Companies, Inc., a Delaware corporation
(the "Company") providing for the public offering (the "Public Offering") by the
several Underwriters, including Morgan Stanley and Salomon Brothers (the
"Underwriters"), of 5,917,500 shares (the "Shares") of the Common Stock, $1.00
par value per share of the Company (the "Common Stock").
To induce the Underwriters that may participate in the Public Offering to
continue their efforts in connection with the Public Offering, the undersigned
hereby agrees that, without the prior written consent of Morgan Stanley on
behalf of the Underwriters, it will not, during the period commencing on the
date hereof and ending 90 days after the date of the final prospectus relating
to the Public Offering (the "Prospectus"), (1) offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant to purchase, or otherwise transfer
or dispose of, directly or indirectly, any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock
(provided that such shares or securities are either now owned by the undersigned
or are hereafter acquired prior to or in connection with the Public Offering),
or (2) enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of such shares
of Common Stock, whether any such transaction described in clause (1) or (2)
above is to be settled by delivery of Common Stock or such other securities, in
cash or otherwise. The foregoing sentence shall not apply to
<PAGE>
the sale of any Shares to the Underwriters pursuant to the Underwriting
Agreement. In addition, the undersigned agrees that, without the prior written
consent of Morgan Stanley on behalf of the Underwriters, it will not, during the
period commencing on the date hereof and ending 90 days after the date of the
Prospectus, make any demand for or exercise any right with respect to, the
registration of any shares of Common Stock or any security convertible into or
exercisable or exchangeable for Common Stock.
Whether or not the Public Offering actually occurs depends on a number of
factors, including market conditions. Any Public Offering will only be made
pursuant to an Underwriting Agreement, the terms of which are subject to
agreement between the Company and the Underwriters.
Very truly yours,
(Name)
(Address)
<PAGE>
EXHIBIT F
[Form of Lock-up Letter for the
-------------------------------
Stockholders of the Company listed
----------------------------------
on Schedule I to this Exhibit F]
--------------------------------
May __, 1997
Morgan Stanley & Co. Incorporated
Salomon Brothers Inc
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, NY 10036
Dear Sirs:
The undersigned understands that Morgan Stanley & Co. Incorporated
("Morgan Stanley") and Salomon Brothers Inc ("Salomon Brothers"), as
Representatives of the several Underwriters, proposes to enter into an
Underwriting Agreement (the "Underwriting Agreement") with Textron Inc., a
Delaware corporation (the "Selling Stockholder") and Provident Companies, Inc.,
a Delaware corporation (the "Company") providing for the public offering (the
"Public Offering") by the several Underwriters, including Morgan Stanley and
Salomon Brothers (the "Underwriters"), of 5,917,500 shares (the "Shares") of the
Common Stock, $1.00 par value per share of the Company (the "Common Stock").
To induce the Underwriters that may participate in the Public Offering
to continue their efforts in connection with the Public Offering, the
undersigned hereby agrees that, without the prior written consent of Morgan
Stanley on behalf of the Underwriters, it will not, during the period commencing
on the date hereof and ending the earlier of (a) 90 days after the date of the
final prospectus relating to the Public Offering (the "Prospectus") or (b)
December 31, 1997, (1) offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, or otherwise transfer or dispose of, directly or
indirectly, any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock (provided that such shares or
securities are either now owned by the undersigned or are hereafter acquired
prior to or in connection with the Public Offering), or (2) enter into any swap
or other arrangement that transfers to another, in whole or in part, any of the
economic consequences of ownership of such shares of Common Stock, whether any
such transaction described in clause (1) or (2) above is to be settled by
delivery of Common Stock or such other securities, in cash or otherwise. The
<PAGE>
foregoing sentence shall not apply to the sale of any Shares to the Underwriters
pursuant to the Underwriting Agreement. In addition, the undersigned agrees
that, without the prior written consent of Morgan Stanley on behalf of the
Underwriters, it will not, during the period commencing on the date hereof and
ending the earlier of (x) 90 days after the date of the Prospectus or (y)
December 31, 1997, make any demand for or exercise any right with respect to,
the registration of any shares of Common Stock or any security convertible into
or exercisable or exchangeable for Common Stock.
Whether or not the Public Offering actually occurs depends on a number
of factors, including market conditions. Any Public Offering will only be made
pursuant to an Underwriting Agreement, the terms of which are subject to
agreement between the Company and the Underwriters.
Very truly yours,
(Name)
(Address)
<PAGE>
Schedule I to Exhibit F
Centre Reinsurance Limited
Cumberland House
1 Victoria Street
P.O. Box HM1788
Hamilton, HMHX, Bermuda
Zurich Reinsurance Centre, Inc.
1 Canterbury Green
Stamford, CT 06901
Longfellow I, LLC
Zurich Insurance Company,
U.S. Branch
1400 American Lane
Schaumburg, IL 60196
Empire Fire and Marine
Insurance Company
1624 Douglas Street
Omaha, NE 68192
Universal Underwriters
Insurance Company
6363 College Boulevard
Overland Park, KS 66211
Universal Underwriters
Life Insurance Company
6363 College Boulevard
Overland Park, KS 66211
Fidelity and Deposit
Company of Maryland
Charles & Lexington St.
Baltimore, MD 21203
<PAGE>
EXHIBIT G
[Form of Lock-up Letter For Certain Holders
-------------------------------------------
of Common Stock]
----------------
May __, 1997
Morgan Stanley & Co. Incorporated
Salomon Brothers Inc
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, NY 10036
Dear Sirs:
The undersigned understands that Morgan Stanley & Co. Incorporated
("Morgan Stanley") and Salomon Brothers Inc ("Salomon Brothers"), as
Representatives of the several Underwriters, propose to enter into an
Underwriting Agreement (the "Underwriting Agreement") with Textron Inc., a
Delaware corporation (the "Selling Stockholder") and Provident Companies, Inc.,
a Delaware corporation (the "Company") providing for the public offering (the
"Public Offering") by the several Underwriters, including Morgan Stanley and
Salomon Brothers (the "Underwriters"), of 5,917,500 shares (the "Shares") of the
Common Stock, $1.00 par value per share of the Company (the "Common Stock").
The number of shares of Common Stock beneficially owned by the undersigned as of
May 31, 1996, is as set forth opposite his name on Schedule I to the
Registration Rights Agreement, dated May 31, 1996, between certain stockholders
of the Company and the Company.
To induce the Underwriters that may participate in the Public Offering
to continue their efforts in connection with the Public Offering, the
undersigned hereby agrees that, without the prior written consent of Morgan
Stanley on behalf of the Underwriters, it will not, during the period commencing
on the date hereof and ending 90 days after the date of the final prospectus
relating to the Public Offering (the "Prospectus"), (1) offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant to purchase, or
otherwise transfer or dispose of, directly or indirectly, any shares of Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock (provided that such shares or securities are either now owned by
the undersigned or are hereafter acquired prior to or in connection with the
Public Offering), or (2) enter into any swap or other arrangement that transfers
to another, in whole or in part, any of the economic consequences of ownership
of such shares of Common Stock, whether
<PAGE>
any such transaction described in clause (1) or (2) above is to be settled by
delivery of Common Stock or such other securities, in cash or otherwise;
provided, that the undersigned may dispose of any shares of Common Stock or
- --------
securities convertible into or exercisable or exchangeable for shares of Common
Stock (A) pursuant to a bona fide gift between or among family members or the
estate of the undersigned (including, without limitation, any transfer by the
undersigned to or among any trust, foundation, custodial or other similar
accounts or funds in which the undersigned or other member of his family serves
as trustee or custodian or in a similar fiduciary capacity or to a trust created
by the undersigned which has a member of his immediate family as a beneficiary)
and (B) pursuant to any transfer to any organization, which transfer qualifies
for the federal income tax charitable deduction at the time of such transfer;
provided further, that in the case of clauses (A) and (B) above, the transferee
- ----------------
is then bound by or agrees to be bound by the restrictions described in this
paragraph from the date of such transfer until the expiration of the 90-day
period described above. The foregoing sentence shall not apply to the sale of
any Shares to the Underwriters pursuant to the Underwriting Agreement. In
addition, the undersigned agrees that, without the prior written consent of
Morgan Stanley on behalf of the Underwriters, it will not, during the period
commencing on the date hereof and ending 90 days after the date of the
Prospectus, make any demand for or exercise any right with respect to, the
registration of any shares of Common Stock or any security convertible into or
exercisable or exchangeable for Common Stock.
Whether or not the Public Offering actually occurs depends on a number
of factors, including market conditions. Any Public Offering will only be made
pursuant to an Underwriting Agreement, the terms of which are subject to
agreement between the Company and the Underwriters.
Very truly yours,
-----------------------------------------
(Name)
-----------------------------------------
(Address)
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3 No. 333-25361) and related Prospectuses of
Provident Companies, Inc. for the registration of 6,805,125 common shares and
to the incorporation by reference therein of our reports dated February 10,
1997 with respect to the consolidated financial statements of Provident
Companies, Inc. incorporated by reference in its Annual Report (Form 10-K) for
the year ended December 31, 1996 and the related financial statement schedules
included therein, filed with the Securities and Exchange Commission.
ERNST & YOUNG LLP
Chattanooga, Tennessee
May 2, 1997
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3 No. 333-25361) and related Prospectuses of
Provident Companies, Inc. for the registration of 6,805,125 common shares and
to the incorporation by reference therein of our report dated January 23, 1997
with respect to the consolidated financial statements of The Paul Revere
Corporation included in Provident Companies' Current Report on Form 8-K dated
March 27, 1997, filed with the Securities and Exchange Commission.
ERNST & YOUNG LLP
Boston, Massachusetts
May 2, 1997
