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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
[X] Definitive Proxy Statement Rule 14a-6(e)(2))
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
PROVIDENT COMPANIES, INC.
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(Name of Registrant as Specified In Its Charter)
--Enter Company Name Here--
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No Filing Fee Required.
[_] $500 per each party to the controversy pursuant to Exchange Act Rule 14a-
6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
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PROVIDENT COMPANIES, INC.
1 FOUNTAIN SQUARE
CHATTANOOGA, TN 37402
March 31, 1997
Dear Fellow Stockholder:
Our Annual Meeting of Stockholders will be held in the Atrium of the West
Building of our Home Office at 1 Fountain Square, Chattanooga, Tennessee. You
are invited to join us on Wednesday, May 7, 1997 at 9:30 a.m. for refreshments
and to stay for the meeting which follows at 10:00 a.m. Free parking is
available in our lot at Walnut and Fifth streets.
The following Proxy Statement outlines the business to be conducted at the
meeting. Whether you plan to attend the meeting or not, we urge you to read
the Proxy Statement carefully and then complete, date, sign and return the
enclosed Proxy card.
If you attend the meeting, we ask that you sign an attendance card at one of
the tables in the meeting area. This will help the tellers determine who will
vote in person and who by proxy.
We look forward to seeing you, and thank you for your continuing support.
Sincerely,
/s/ J. Harold Chandler
-------------------------------
J. Harold Chandler
Chairman, President and
Chief Executive Officer
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PROVIDENT COMPANIES, INC.
1 FOUNTAIN SQUARE
CHATTANOOGA, TN 37402
March 31, 1997
NOTICE OF ANNUAL MEETING
To the Stockholders of Provident Companies, Inc.:
The Annual Meeting of the Stockholders of Provident Companies, Inc. (the
"Company") will be held on Wednesday, May 7, 1997, at 10:00 a.m. Eastern
Daylight Time at the Home Office of the Company, 1 Fountain Square,
Chattanooga, Tennessee, to consider and take action on the following:
1. Election of Directors;
2. Approval of Amendment to the Annual Management Incentive Compensation Plan
of 1994;
3. Approval of Amendment to the Stock Plan of 1994;
4. Approval of the selection of Ernst & Young LLP as independent auditors;
and
5. Such other business as may properly come before the meeting or any
adjournments thereof.
Stockholders of record at the close of business on March 10, 1997, are
entitled to notice of and to vote at the Annual Meeting or any adjournment
thereof.
Please complete, date, sign and return the enclosed Proxy card in the
accompanying postage paid, addressed envelope. This procedure is necessary to
give all Stockholders a chance to vote, especially those who will be unable to
attend the Annual Meeting in person. You may revoke your Proxy at any time
prior to the exercise of the authority granted thereby by giving written
notice of revocation to the Corporate Secretary, by submitting a subsequent
validly executed Proxy, or by voting in person. If you attend the Meeting and
intend to vote in person, please notify the tellers prior to the beginning of
the meeting of your intent.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Susan N. Roth
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Susan N. Roth
Vice President, Secretary and Counsel
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PROXY STATEMENT
This statement is being furnished in connection with the solicitation of
proxies on behalf of the Board of Directors of Provident Companies, Inc. (the
"Company") to be voted at the Annual Meeting of Stockholders (the "Meeting")
to be held on May 7, 1997, and any adjournment thereof. Stockholders will be
asked to vote upon: ITEM 1. ELECTION OF DIRECTORS; ITEM 2. APPROVAL OF
AMENDMENT TO THE ANNUAL MANAGEMENT INCENTIVE COMPENSATION PLAN OF 1994; ITEM
3. APPROVAL OF AMENDMENT TO THE STOCK PLAN OF 1994; ITEM 4. SELECTION OF ERNST
& YOUNG LLP AS INDEPENDENT AUDITORS. The 1996 Annual Report to Stockholders,
including audited financial statements of the Company for the fiscal year
ended December 31, 1996, and the Proxy Card enclosed with this Proxy Statement
are being mailed to Stockholders on or about April 7, 1997.
Shares eligible to be voted and for which a proxy card is properly signed
and returned prior to the beginning of the Annual Meeting will be voted as
directed. If directions are not given or directions are not in accordance with
the options listed on a signed and returned proxy card, such shares will be
voted FOR each proposition for which the Board of Directors recommends a vote
FOR. Unsigned or unreturned proxies, including those not returned by banks,
brokers or other record holders, will not be counted for quorum or voting
purposes. For issues as to which it is a choice on the proxy, a vote to
abstain will be counted for purposes of determining the existence of a quorum,
and counted as an "ABSTENTION" rather than as either a vote "FOR" or
"AGAINST". You may revoke your Proxy at any time prior to the exercise of the
authority granted thereby by giving written notice of revocation to the
Corporate Secretary, by submitting a subsequent validly executed Proxy, or by
voting in person. If you attend the Meeting and intend to vote in person,
please notify the tellers prior to the beginning of the meeting of your
intent.
As of March 10, 1997, the record date for determination of stockholders
entitled to vote at the Meeting, there were outstanding 45,685,191 shares of
Common Stock of the Company. Each share of Common Stock entitles the holder to
one vote. The Common Stock has a par value of $1.00 per share and is the only
outstanding class of equity securities of the Company entitled to vote at this
meeting.
The Company will bear the cost of soliciting proxies from its stockholders.
Proxies will be solicited by mail and may also be solicited personally or by
telephone by Directors, officers and employees of the Company. The Company
will make appropriate arrangements with brokerage houses, banks and other
custodians, nominees and fiduciaries to facilitate solicitation of proxies
from their principals.
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ITEM 1. ELECTION OF DIRECTORS
INFORMATION CONCERNING THE NOMINEES
Unless otherwise instructed by the stockholder, all signed proxies given on
the enclosed form which are received by the Board of Directors will be voted
FOR the election of the nominees named below to be the Directors of the
Company to hold office until the next Annual Meeting of Stockholders, or until
their respective successors shall be elected and qualified. All nominees with
the exception of Messrs. Bolinder, Gluckstern and Watjen are incumbent
directors elected at the 1996 stockholders' meeting. If at the time of the
Annual Meeting any of the nominees should be unable or unwilling to serve,
such proxies may be voted for a substitute nominee or nominees chosen by the
present Board of Directors. The Board of Directors knows of no reason why any
nominee will be unavailable or unable to serve. THE BOARD OF DIRECTORS
RECOMMENDS A VOTE FOR THE NOMINEES PRESENTED HEREIN. Directors are elected by
a plurality of the votes cast by the shares entitled to vote in the election
at a meeting at which a quorum is present.
Following are the names and ages (as of March 1, 1997) of those persons
nominated to be Directors of the Company, as well as their principal
occupations (which have continued for the past five years, unless otherwise
noted), directorships held by them in certain other publicly held companies,
the year in which they became a director of the Company or the Company's
predecessor Provident Life and Accident Insurance Company of America
("America"), and certain other information with respect to such directors. All
incumbent nominees became directors of the Company on December 27, 1995 the
effective date of the Share Exchange between the Company and America. Mr.
Watjen became a director on March 26, 1997. Mr. Bolinder and Mr. Gluckstern
became directors on March 27, 1997, effective with the closing of the
transaction involving the purchase by Zurich Insurance Company or one or more
of its affiliates of 9,523,819 shares of the Company's Common Stock in
connection with the financing the Company's acquisition of The Paul Revere
Corporation. Each of the persons listed below as a nominee to be a director of
the Company will also be a director of the principal wholly owned subsidiaries
of the Company including Provident Life and Accident Insurance Company
("Accident"), Provident Life and Casualty Insurance Company ("Casualty"), and
The Paul Revere Corporation, as well as its principal subsidiary, The Paul
Revere Life Insurance Company. Provident National Assurance Company
("Assurance"), and GENEX Services, Inc., each have a board of directors whose
members include some Company board members as well as other employees of the
Company. As the context requires, Company may include direct and indirect
subsidiaries.
NOMINEES
WILLIAM L. ARMSTRONG, 59 DIRECTOR SINCE 1991
From 1979 to 1991, Senator Armstrong served as a Senator from Colorado in
the United States Senate. 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.
WILLIAM H. BOLINDER, 53 NOMINEE
Mr. Bolinder is a member of the Corporate Executive Board of the Zurich
Insurance Company, headquartered in Zurich, Switzerland. He is also U.S.
Manager, Zurich Insurance Company, U.S. Branch, and a director of Zurich's
affiliated companies in the U.S. The Zurich Insurance Group is a leading
international insurance organization providing global coverage in all lines of
insurance along with asset management services.
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J. HAROLD CHANDLER, 47 DIRECTOR SINCE 1993
Mr. Chandler became Chairman of the Company April 28, 1996, and President
and Chief Executive Officer and a Director of America, Capital, Accident and
Casualty effective November 8, 1993. Immediately prior to his employment with
America, he served as President of NationsBank Mid-Atlantic Banking Group
which includes the 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, Inc. He is currently a
member of the Board of Trustees of Wofford College.
STEVEN M. GLUCKSTERN, 45 NOMINEE
Mr. Gluckstern is a member of the Corporate Executive Board of Zurich
Insurance Company. 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.
CHARLOTTE M. HEFFNER, 59 DIRECTOR SINCE 1995
Ms. Heffner is a trustee of the Maclellan Foundation. She is the sister of
Hugh O. Maclellan, Jr.
HUGH B. JACKS, 62 DIRECTOR SINCE 1988
Mr. Jacks 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.
WILLIAM B. JOHNSON, 59 DIRECTOR SINCE 1986
Mr. Johnson 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 served as a member of the Board of
Trustees of Berry College.
HUGH O. MACLELLAN, JR., 57 DIRECTOR SINCE 1975
Mr. Maclellan, Jr. is President of the Maclellan Foundation and a director
of SunTrust Bank, Chattanooga, N. A., and Covenant Transport. Mr. Maclellan,
Jr. is the brother of Charlotte M. Heffner.
A. S. (PAT) MACMILLAN, 52 DIRECTOR SINCE 1995
Mr. MacMillan has served as the Chief Executive Officer of Team Resources,
Inc., since 1980. The company 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.
C. WILLIAM POLLARD, 58 DIRECTOR SINCE 1992
Mr. Pollard has served as Chairman of the Board of Directors of
ServiceMaster since January 1994. From June 1990 to December 1993 he served as
Chairman and Chief Executive Officer of ServiceMaster. ServiceMaster 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.
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SCOTT L. PROBASCO, JR., 68 DIRECTOR SINCE 1962
Mr. Probasco 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, Chattem, Inc., and SunTrust Banks, Inc.
STEVEN S REINEMUND, 48 DIRECTOR SINCE 1995
Mr. Reinemund has served as Chairman and Chief Executive Officer of Frito-
Lay, 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.
BURTON E. SORENSEN, 67 DIRECTOR SINCE 1985
Since December 1984 until December 1995, Mr. Sorensen served as Chairman and
Chief Executive Officer of Lord Securities Corp., an investment banking firm.
Prior to that time, Mr. Sorensen was a General Partner of Goldman, Sachs &
Co., investment bankers. He is a director of The ServiceMaster Company.
THOMAS R. WATJEN, 42 NOMINEE
Mr. Watjen became Vice-Chairman 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 America, Capital, Accident, Casualty,
and National 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., which he joined in 1987.
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BOARD OF DIRECTORS
ATTENDANCE
During 1996, there were ten meetings of the Board of Directors. No director
attended fewer than 75% of the aggregate of (a) the total number of meetings
of the Board of Directors (held during the period for which each was a
director) and (b) the total number of meetings held by all committees of the
board on which a director served (during the periods that such director
served).
COMMITTEES
In 1996, the Board of Directors of the Company had five standing committees:
Audit, Compensation, Executive, Finance and Nominating. In addition to the
duties described below, each may be assigned additional duties by the Board of
Directors from time to time and each is charged with reporting its activities
to the Board of Directors.
AUDIT COMMITTEE
Members were C. William Pollard, Chairman, William L. Armstrong, Charlotte
M. Heffner, Hugh B. Jacks and Burton E. Sorensen. The committee met six times
in 1996. The committee's duties included recommending independent public
accountants for selection by the Board of Directors and reviewing and
approving the audit plans of the independent public accountants and the
Company's Internal Audit Department. The committee monitors the internal and
external auditors, including their work with regard to financial audits,
systems security oversight, fraud detection, and internal financial and
accounting controls.
COMPENSATION COMMITTEE
Members were Hugh B. Jacks (Chairman), William B. Johnson, A. S. MacMillan,
C. William Pollard and Steven S Reinemund. The committee met five times during
1996. The committee's duties include reviewing and approving compensation
philosophy and guidelines for executive officers and senior management. The
committee consults with the Chief Executive Officer concerning compensation
matters affecting senior management, including those affecting or affected by
management succession planning. The committee reviews the performance of the
Chief Executive Officer and recommends appropriate compensation for approval
by the Board of Directors. The committee reviews all employee benefit plans
and policy, including pension and profit-sharing plans, as well as the
incentive and stock option plans described below under "Executive
Compensation." As to such incentive and stock option plans, the committee
reviews management's recommendations and approves such awards under the plans
as it deems appropriate within the terms of such plans.
EXECUTIVE COMMITTEE
Members were Hugh O. Maclellan, Jr. (Chairman), J. Harold Chandler, Hugh B.
Jacks, C. William Pollard and Burton E. Sorensen. The committee met six times
during 1996. The duties of the committee include review of strategic plans,
issues and direction, and of the operating results of the Company. The
committee may review significant financial issues including dividend policy,
mergers, acquisitions and divestitures and report to the Board of Directors.
The committee serves as a sounding board for the Chief Executive Officer and
other directors as to the composition, duties and powers of Board committees
and meeting agenda.
FINANCE COMMITTEE
Members were Burton E. Sorensen (Chairman), William L. Armstrong, Charlotte
M. Heffner, William B. Johnson, Hugh O. Maclellan, Jr. and Scott L. Probasco,
Jr. The committee met four times during 1996. The
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committee develops and monitors appropriate policy and strategies to guide and
govern the lending and investment of funds held by the Company. In accordance
with Tennessee Code Annotated Section 56-3-301, the committee has established
and oversees an Investment Subcommittee to carry out the daily activities
required to authorize and oversee the loans and investments of its insurance
subsidiaries.
NOMINATING COMMITTEE
Members were A. S. MacMillan (Chairman), Hugh O. Maclellan, Jr., Scott L.
Probasco, Jr., and Steven S Reinemund. The committee met one time during 1996.
The duties of the committee include standardizing and formalizing the process
for nominating persons to be elected or re-elected to the Board of Directors.
The committee develops its own nominations and accepts nominations submitted
in writing from stockholders. It considers and makes recommendations
concerning issues relating to the composition and size of the Board, and also
as to tenure, retirement age, honorary directorships and term limits.
COMPENSATION OF DIRECTORS
Directors of the Company who are also employees of the Company or any
subsidiary are not compensated for their services as directors of the Company
or of any of its direct or indirect subsidiaries.
The Company pays its non-employee directors an annual retainer of $5,000
which is paid in shares of Common Stock of the Company. Non-employee directors
receive fees aggregating $32,000, including the retainer paid by the Company
and the respective subsidiaries, as well as attendance fees for 10 meetings
during 1996. The annual cash retainers from the other companies are as
follows: Accident, $16,000; Casualty, $1,000. Directors of the Company also
serve on various committees of the Boards of Directors of these companies. As
to such service, non-employee directors receive annual retainers only from
Accident ranging from $3,000 to $7,000 per committee (depending on the
committees on which they serve) and meeting fees of $1,000 per meeting.
Messrs. Armstrong, Johnson, Maclellan, Jr., Probasco, Jr., and Sorensen and
Ms. Heffner were also directors of Assurance. Each non-employee director
beginning the Board year May 1996, received an annual retainer of $2,000 in
cash.
Certain non-employee directors of the Company who have reached age 55 at the
time of retirement from the Board of Directors and have at least five years of
service on the Board of Directors would be eligible for the benefits described
below. The annual benefit payable is a base of 50 percent of an amount equal
to the retainer in effect at the time of retirement plus an additional 10
percent of the amount of the retainer for each full year of service in excess
of five years. The maximum annual benefit is 100 percent of an amount of the
retainer in effect at the time of retirement. Payments to eligible directors
are to be in monthly installments for the lesser of (a) a period equal to the
number of months of service as a non-employee director, or (b) 144 months.
Non-employee Directors elected to the Board for the first time on or after
May 4, 1994, are precluded from participation in the existing retirement
benefits program. Instead, such Directors receive annual grants of stock
options under the Stock Plan of 1994 as amended by the stockholders in May
1994. Non-employee Directors appointed prior to 1994 were required in 1994 to
elect either (i) to continue building credits under the retirement plan or
(ii) to limit such retirement plan credits to those earned prior to 1994 and
to receive stock options in the future. The total number of stock options
granted to all non-employee Directors may not exceed in the aggregate 100,000
shares (20,000 annually) for the duration of the Stock Plan of 1994.
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ITEM 2. APPROVAL OF AMENDMENT TO THE
ANNUAL MANAGEMENT INCENTIVE COMPENSATION PLAN OF 1994
GENERAL
In May 1994, the stockholders approved the Management Incentive Compensation
Plan ("MICP"). The MICP currently consists of three components: (i) an annual
cash incentive compensation award to selected management participants based on
the achievement of certain performance goals designated from time to time by
the Compensation Committee of the Board (the "MICP Non-Equity Subplan"), (ii)
an annual award of restricted stock to 5 to 25 selected management
participants, based on special performance as determined by the Committee upon
recommendation of the Chief Executive Officer ("the Key Contributor Subplan");
and (iii) a phantom stock deferral program, whereby persons entitled to an
award under the MICP Non-Equity Subplan will receive a portion of such award
in the form of performance shares, plus a "gross up" grant of performance
shares, which shares will increase or decrease in value in tandem with the
Common Stock of the Company (the "Performance Share Subplan").
Pursuant to Section 162(m) of the Internal Revenue Code of 1986, as amended
(the "Code"), the Company may not deduct compensation in excess of $1 million
paid to the Chief Executive Officer and the four next most highly compensated
executive officers of the Company (each, a "Covered Employee"). However,
certain forms of "performance-based" compensation (as defined in the
regulations under Code Section 162(m)) are fully deductible by the Company,
not withstanding the $1 million limitation.
In order for a portion of the MICP Non-Equity Subplan awards to satisfy the
requirements of "performance-based" compensation, the Board sought and
received stockholder approval in 1994, 1995 and 1996 of various performance
measures, and specific targets and weightings thereof, for cash incentive
awards under the MICP for the 1994, 1995 and 1996 plan years.
PROPOSED AMENDMENTS
The Board is now seeking approval by the stockholders of a further amendment
to the MICP (the "MICP Amendment"), as more fully described below.
The following summary of the MICP Amendment is qualified in its entirety to
the full text of the MICP, as proposed to be amended, as set forth in Appendix
A hereto. The provisions of the MICP not affected by the MICP Amendment will
be retained in the MICP without modification.
First, the MICP Amendment would divide the MICP Non-Equity Subplan into two
parts, one of which will be based solely on the achievement of objective
corporate performance goals (the "Corporate Performance Subplan"), and one of
which will be based on individually designed goals for contribution to the
business of the Company (the "Individual Performance Subplan"). The reason for
this bifurcation is to clarify the ability of the Company to deduct awards
made under the Corporate Performance Subplan without regard for the
limitations of Code Section 162(m) and the regulations thereunder.
Secondly, the MICP Amendment would provide that annual incentive awards
granted under the Corporate Performance Subplan may be determined solely on
the basis of one or more of the following measures of corporate performance,
alone or in combination, for the Company as a whole or for any division or
business unit: (a) return on equity (b) overall or selected premium growth,
(c) stock performance, (d) expense efficiency ratios (ratio of expenses to
premium income), (e) earnings per share, (f) market share, (g) revenue, (h)
customer service measures or indices, (i) underwriting efficiency and/or
quality, and (j) persistency factors. Measurement of the Company's performance
against such corporate goals established by the Committee shall be objectively
determinable, and to the extent such goals are expressed in standard
accounting terms, performance shall be measured in accordance with generally
accepted accounting principles. The Committee shall have the right for any
reason to reduce (but not increase) any such award, notwithstanding the
achievement of a specified goal.
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If an award is made on the basis of one or more of the above corporate
performance measures, the Committee shall establish goals prior to the
beginning of the period for which such performance goal relates (or such later
date as may be permitted under Code Section 162(m) or the regulations
thereunder). Any payment of an award granted under the Corporate Performance
Subplan will be conditioned on the written certification of the Committee in
each case that the performance goals and any other material conditions were
satisfied. The MICP Amendment provides a maximum annual award under the
Corporate Performance Subplan to any Covered Employee of $2.5 million.
Finally, the MICP Amendment would amend the Key Contributor Subplan to give
the Committee flexibility to impose different restrictions on the stock awards
thereunder. Currently, the Key Contributor Subplan provides that stock awarded
thereunder is non-forfeitable but cannot be sold for a period of three years
from the date of grant. The MICP Amendment would permit the Committee to
establish different restrictions on future grants under the Key Contributor
Subplan, including, without limitation, a requirement that the participant
forfeit the stock under prescribed circumstances. Such amendment would not
affect existing stock grants under the Key Contributor Subplan.
CERTAIN FEDERAL INCOME TAX EFFECTS
Based on the Company's interpretation of existing federal tax law, including
the regulations under Code Section 162(m), it is intended that annual
incentive MICP awards under the Corporate Performance Subplan would satisfy
the requirements of "performance-based" compensation and would be fully
deductible by the Company. The portion, if any, of an MICP award to a Covered
Employee that does not qualify as performance-based compensation under Code
Section 162(m) (such as awards under the Key Contributor Subplan or the
Individual Performance Subplan and certain related portions of awards under
the Performance Share Subplan) could be non-deductible by the Company, in
whole or in part, depending on such Covered Employee's total compensation in
the applicable year. Awards under the Corporate Performance Subplan or the
Individual Performance Subplan will be taxable to the participant in the year
received, except to the extent such awards are taken in the form of
performance shares under the Performance Share Subplan. Awards under the
Performance Share Subplan will be taxable to the participant in the earlier of
the year received or the year such awards become available to the participant.
Awards under the Key Contributor Subplan will be taxable to the participant in
the year that the applicable restrictions lapse. In each case, subject to Code
Section 162(m) restrictions if applicable, the Company will be entitled to a
deduction in the year that the participant recognize income.
BENEFITS TO NAMED EXECUTIVE OFFICERS AND OTHERS
Since future annual cash incentive awards under the MICP will be based on
the achievement of performance goals, the performance of which has not been
completed, and since future awards of restricted stock under the MICP will be
made at the discretion of the Committee, it is not presently possible to
determine, with respect to (i) the executive officers named in the Summary
Compensation Table, (ii) all current executive officers as a group, or (iii)
all employees, including all current officers who are not executive officers,
as a group, either the benefits or amounts that will be received by such
persons or groups pursuant to the MICP, as proposed to be amended, or the
benefits or amounts that would have been received by such persons or groups if
the MICP, as proposed to be amended, had been in effect during fiscal year
1996.
ADDITIONAL INFORMATION
The affirmative vote of a majority of the shares present or represented by
proxy and entitled to vote at the meeting on this proposal will constitute
approval of the MICP Amendment. If not so approved by the stockholders, the
MICP Amendment will be null and void.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" APPROVAL OF THE
AMENDMENT TO THE MANAGEMENT INCENTIVE COMPENSATION PLAN.
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ITEM 3. APPROVAL OF AMENDMENT TO THE
STOCK PLAN OF 1994
GENERAL
In May 1993, the stockholders approved the Stock Plan of 1994 ("Stock
Plan"), which was subsequently amended in May 1994, June 1995, and May 1996.
The 1994 Plan provides for the granting of stock awards including:
STOCK OPTIONS--Options to purchase Common Stock of the Company, which
options may be incentive stock options within the meaning of Section 422 of
the Code, non-qualified stock options, or any other type of options
encompassed by the Code.
STOCK APPRECIATION RIGHTS--Rights to receive a payment from the Company
equal to the excess of the fair market value (as defined in the plan) of a
share of Common Stock at the date of exercise over the fair market value at
the date of grant.
RESTRICTED STOCK--Common Stock issued or transferred under the plan which is
subject to restrictions on the vesting, sale or other disposition thereof.
ADMINISTRATION
The Stock Plan is administered by the Compensation Committee of the Board of
Directors (the "Committee"). The Committee has the authority to administer,
construe and interpret the plan; to determine the persons to whom, and the
time or times in which, stock awards will be granted, the form of stock award
to be granted, the number of shares of Common Stock to be covered by each
award and the period of time and requisite conditions for each award; and to
determine the terms and provisions of the award agreements.
PROPOSED AMENDMENTS
The Board of Directors recommends that the Stock Plan be amended to (i)
increase the total number of shares of Common Stock that may be issued
thereunder and the maximum number of shares underlying options or stock
appreciation rights that may be granted to any one person in a calendar year,
and (ii) eliminate the requirement that certain options granted under the
Stock Plan not be exercisable unless the price of the Common Stock reaches
certain levels (the "Stock Plan Amendment"). The following summary of the
Stock Plan Amendment is qualified in its entirety to the full text of the
Stock Plan, as proposed to be amended, as set forth in Appendix B hereto.
Increase in Number of Shares. The Stock Plan currently provides a limit of
3,500,000 as the number of shares that can be granted under the plan and
650,000 as the number of shares that may be awarded to an employee in a
calendar year. As of March 10, 1997, 176,903 shares remained available to be
granted under the Stock Plan. As the number of employees of the Company grows,
the Company needs additional ability to utilize the Stock Plan to attract,
incent and retain employees, directors and producers. The Committee and the
Board of Directors therefore recommend amending the Stock Plan to increase the
total number of shares that can be issued thereunder to 5,000,000 and to
increase the maximum number of shares, underlying options or stock
appreciation rights that may be granted to any one person in a calendar year
from 650,000 to 1,000,000.
Elimination of Stock Price Condition. The Stock Plan provides that, for all
options granted to participants other than the Chief Executive Officer, the
exercisability of 50% of each such option grant is contingent on the price per
share of Common Stock reaching a specified level during any three trading days
occurring within a period of 90 days. Such stipulated price for options
granted after 1994 is determined by adding to the grant price an amount equal
to the risk free rate of return on capital at the time of grant, compounded
for the number of years determined by the Committee to be an appropriate
performance period. The Committee and the Board of Directors believe that such
plan restrictions on the exercisability of options is no longer appropriate
and recommend that such provision of the Stock Plan be eliminated. As a
practical matter, since the target stock
9
<PAGE>
price was reached during fiscal year 1996, such restrictions had no effect on
the exercisability of options granted during such year.
Except as proposed to be amended as described above, all provisions of the
Stock Plan, as previously approved and amended by the stockholders, would
remain in effect.
CERTAIN FEDERAL INCOME TAX EFFECTS
Non-qualified Stock Options. Under present federal income tax regulations,
there will be no federal income tax consequences to either the Company or the
participant upon the grant of a non-discounted non-qualified stock option.
However, the participant will realize ordinary income on the exercise of the
option in an amount equal to the excess of the fair market value of the Common
Stock acquired upon the exercise of such option over the exercise price, and
the Company will receive a corresponding deduction. The gain, if any, realized
upon the subsequent disposition by the participant of the Common Stock will
constitute short- or long-term capital gain, depending on the participant's
holding period.
Incentive Stock Options. Under present federal income tax regulations, there
will be no federal income tax consequences to either the Company or the
participant upon the grant of an incentive stock option (an option that meets
the requirement of Section 422 of the Code) or the exercise thereof by the
participant. If the participant holds the shares of Common Stock underlying
the option for the greater of two years after the date the option was granted
or one year after the acquisition of such shares of Common Stock (the
"required holding period"), the difference between the aggregate exercise
price and the amount realized upon disposition of the shares of Common Stock
will constitute a long-term capital gain or loss, and the Company will not be
entitled to a federal income tax deduction. If the shares of Common Stock are
disposed of in a sale, exchange or other disqualifying disposition during the
required holding period, the participant will realize taxable ordinary income
in an amount equal to the excess of the fair market value of the Common Stock
purchased at the time of exercise over the aggregate exercise price, and the
Company will be entitled to a federal income tax deduction equal to such
amount.
Stock Appreciation Rights. Under present federal income tax regulations, a
participant receiving a non-discounted stock appreciation right will not
recognize income, and the Company will not be allowed a tax deduction, at the
time the award is granted. When a participant exercises the stock appreciation
right, the amount of cash and the fair market value of any shares of Common
Stock received will be ordinary income to the participant and will be allowed
as a deduction for federal income tax purposes to the Company.
Restricted Stock. Under present federal income tax regulations, and unless
the participant makes an election to accelerate recognition of the income to
the date of grant, a participant receiving a restricted stock award will not
recognize income, and the Company will not be allowed a tax deduction, at the
time the award is granted. When the restrictions lapse, the participant will
recognize ordinary income equal to the fair market value of the Common Stock,
and, subject to Code Section 162(m) limitations, if applicable, the Company
will be entitled to a corresponding tax deduction at that time.
BENEFITS TO NAMED EXECUTIVE OFFICERS AND OTHERS
Since the target stock price was reached during fiscal year 1996, such
restrictions had no effect on the exercisability of options granted during
such year. Since the Committee has not yet determined the target stock price
with respect to options not yet granted, it is not presently possible to
determine, with respect to (i) the executive officers named in the Summary
Compensation Table, (ii) all current executive officers as a group, (iii) all
current non-employee directors as a group, (iv) each nominee for director, or
(v) all employees, including all current officers who are not executive
officers, as a group, either the benefits or amounts that will be received by
such persons or groups as a result of the proposed elimination of the target
stock price provisions of the Stock Plan. Likewise, since all future grants of
awards under the Stock Plan are subject to the discretion of the Committee, it
is not presently possible to determine, with respect to such persons and
groups, either the
10
<PAGE>
benefits or amounts that will be received by such persons or groups as a
result of the proposed increase in the number of shares issuable under the
Stock Plan.
ADDITIONAL INFORMATION
The closing price of the Company's Common Stock, as reported by the New York
Stock Exchange on March 10, 1997, was $57.625.
The affirmative vote of a majority of the shares present or represented by
proxy and entitled to vote at the meeting on this proposal will constitute
approval of the Stock Plan Amendment. If not so approved by the stockholders,
the Stock Plan Amendment will be null and void.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" APPROVAL OF THE
AMENDMENT TO THE STOCK PLAN OF 1994.
11
<PAGE>
EXECUTIVE COMPENSATION
The named officers of the Company work primarily for Accident and from time
to time also provide services to the other companies in the corporate group,
including the Company.
REPORT OF THE COMPENSATION COMMITTEE
The Report of the Compensation Committee is comprised of the "Executive
Compensation Policies" and "CEO Compensation" sections and is presented over
the names of the members of the Compensation Committee.
EXECUTIVE COMPENSATION POLICIES
The underlying principle of the Company's executive compensation policies is
to motivate its executive officers to operate the business in the best
interests of the stockholders and customers. As the Company focuses on growth
of its lines of business, the CEO and other key executives must pursue
strategies to attain these objectives. The Committee is responsible for
compensation policies that reward successful pursuit of these strategies,
accomplishing the following:
Require executives to own substantial amounts of Company stock.
Reward executives for enhancement of the value of the Company's stock.
Reward executives for successful performance of the business strategies
approved by the Company's Board of Directors.
Attract and retain key executives crucial to the long term success of the
Company.
STOCK OWNERSHIP REQUIREMENT
The foundation for the Company's executive compensation program is ownership
of the Company's common stock by members of the senior management group. An
ownership requirement, expressed as the market value of stock as a multiple of
salary, has been established for each senior executive, to be attained within
the five year period beginning January 1, 1994 or his employment date,
whichever is later. These multiples are as follows:
<TABLE>
<S> <C>
1. President and Chief Executive Officer.................. Six times salary
2. Executive Vice President............................... Three times salary
3. Other Designated Senior Executives..................... Two times salary
</TABLE>
This ownership requirement, involving a substantial portion of each
executive's net worth, will motivate the executive to think and act like a
stockholder. The executive will assume responsibility for profitability and
improving total stockholder return. The stock ownership requirement can be met
with shares beneficially owned by the executive, through purchase of shares
via the Employee Stock Purchase Plan, exercise of stock options, shares
allocated to the executive through the Company's 401(k) retirement plan
(MoneyMaker), stock issued under the annual incentive compensation plan
through the Performance Share and the Key Contributor Subplans, restricted
stock issued to the executive, or open market purchase from personal funds.
Unexercised stock options do not apply toward the ownership requirement.
BASE SALARY
A competitive base salary program is necessary to attract and retain key
executives. It is the Company's practice to establish executive salaries at a
conservative level relative to the median for salaries for comparable
12
<PAGE>
positions in other companies in its competitor group. For the named executive
officers other than the CEO (see "CEO Compensation" below), one of the base
salaries was above the median and three were below.
The companies in the competitor group are life, health and multi-line
insurance companies that the Company has determined are its primary
competitors for key executives. (Note: For compensation purposes the
competitor group is comprised of a size, measured by assets, comparable to the
Company that compete with the Company for business and key executives. This is
a substantially larger group of companies than are included in the "Insurance
Index" used for the "Comparison of Five-Year Cumulative Total Return" chart
below. The group of companies in the "Insurance Index" is comprised of firms
the Committee has determined are competing with the Company in the capital
market and includes some companies which are not included in the compensation
comparison group.)
Merit increases in salary generally are awarded annually by the Committee,
based primarily on an assessment of the Company's position relative to
competitors and on an appraisal of the executive's contribution. The
assessment of salary position relative to competitors is performed by use of a
national survey of the competitor group of life and health insurance companies
as described above, conducted by a recognized compensation consulting firm and
also by use of internally generated surveys of data gathered from proxy
statements. Salary levels for 1996 were established by the Committee following
the policies described.
ANNUAL INCENTIVE COMPENSATION
Management Incentive Compensation Plan
Annual awards for all participants are based on performance measures
included in the Annual Management Incentive Compensation Plan of 1994
("MICP"), as amended, subject to the approval of stockholders at the annual
meeting on May 7, 1997 (see Item 2; Approval of Amendment to the Management
Incentive Compensation Plan).
The four performance measures under this plan for 1996 along with their
respective weights are: Return on Equity (30%), Premium Growth (30%), Relative
Stock Performance (20%) and Individual Contribution (20%). These factors total
100% which is equivalent to a target payout. Target payout is defined as a
percentage of the participant's base salary at the end of the year. The payout
percentage on each measure is based on achievement against specified targets.
Above target payouts are allowed for when results exceed established goals on
the first three measures. Return on Equity and Premium Growth are not capped;
however, the Relative Stock Performance is capped at 60% payout (or 300% of
target). The individual contribution is capped at the 20% or 100% of target
payout. The weighted average percentage is multiplied by the base salary to
arrive at the total payout amount.
Based on 1996 results, the payout percentages were as follows: 29% for
Return on Equity, 0% for Premium Growth, 59.6% for Relative Stock Performance.
Individual contribution ranged from 50% to 100% for which the average was 87%
of target, which resulted in individual payout amounts of 10% to 20%.
LONG TERM INCENTIVE COMPENSATION
Stock Plan of 1994
This Plan provides executive officers and certain other key employees with
restricted stock, stock appreciation rights and options to purchase shares of
the common stock of the Company. The purposes of this plan are to encourage
and enable the acquisition of a financial interest in the Company by key
employees and to reward key employees for the long term growth in the market
value of the stock.
The committee approved option grants for Mr. Olingy as a condition of his
employment with the Company. Options were granted in January 1996 as approved
by the Committee in December 1995 and previously reported in the Proxy
Statement for the Annual Meeting held May 1, 1996. Grants were approved in
early 1997, effective
13
<PAGE>
January 13, 1997, for senior executives other than the CEO. This grant is
expected to cover the three year period from 1997 to 1999 and vests over the 5
year period from 1998 to 2002. On an annualized basis, based on the Black-
Scholes value, these grants are approximately 1.75 to 3.09 times salary. These
annualized stock option awards are similar to the previous grant levels.
Million Dollar Deduction Limitation (IRC Section 162(m))
It is the policy of the Committee that non-deductible compensation be
minimized. Based on the Company's interpretation of existing federal tax law,
including the regulations under IRC Section 162(m), it is intended that annual
incentive awards under the Corporate Performance Subplan of the MICP, as
proposed to be amended, and stock options awarded at fair market value under
the Stock Plan of 1994, would satisfy the requirements of "performance-based"
compensation and would be fully deductible by the Company to the extent that
the Company is required to recognize a compensation charge in its tax
accounting for such awards.
CEO COMPENSATION
Compensation of the CEO follows the general principles for executive
compensation as set forth in the section headed "Executive Compensation
Policies." Specific applications of these principles to CEO pay for 1996 were
as follows:
BASE SALARY
Base salary for the CEO position was set at a level reflecting pay of chief
executive officers of companies in the Company's competitor group. Base salary
for Mr. Chandler was set pursuant to the employment agreement described in the
1994 proxy statement and will be reviewed annually and adjusted as deemed
appropriate by the Committee, based on the criteria set forth above.
ANNUAL INCENTIVE COMPENSATION
For 1996, there was a payout of $721,000 to the CEO; of this total, $616,000
was based on performance of the goals set out in the MICP applying to all
participants in the plan, and $105,000 was awarded by the Compensation
Committee for the achievement of goals established by the Committee which were
specific to the CEO.
STOCK PLAN OF 1994
The Committee has previously indicated that it plans to make stock option
grants to the CEO at a higher multiple of salary than for other senior
executives. This higher level of award is in recognition of the higher level
of responsibility and accountability of the CEO and also to produce
compensation at a level comparable to competitor companies. Options were
granted in January 1996 as approved by the Committee in December 1995 and
previously reported in the Proxy Statement for the Annual Meeting held May 1,
1996. In early 1997, effective January 13, 1997, a grant of 600,000 options to
Mr. Chandler was approved. This grant is expected to cover the three year
period from 1997 to 1999 and vests over the period from 1999 to 2002. On an
annualized basis, this grant is similar to previous levels.
14
<PAGE>
MEMBERS OF BOARD COMPENSATION COMMITTEE
Members of the Company's Board of Directors who served on the Compensation
Committee during the year 1996 are as follows:
Hugh B. Jacks, Chairman
William B. Johnson
A. S. (Pat) MacMillan
C. William Pollard
Steven S Reinemund
No employee of the Company was a member of the Compensation Committee during
1996.
15
<PAGE>
COMPENSATION TABLES
The following table summarizes the compensation of the Chief Executive
Officer and the four other most highly compensated executive officers (the
"Named Executive Officers") for the years 1994, 1995, and 1996:
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
-----------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
----------------------------------------- --------------------- -------
OTHER RESTRICTED
ANNUAL STOCK LTIP ALL OTHER
COMPENSATION AWARD(S) OPTIONS PAYOUTS COMPENSATION
YEAR SALARY ($) BONUS ($) ($) ($)(8) (#) ($) ($)
---- ---------- --------- ------------ ---------- ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
J. Harold Chandler...... 1996 686,539 1,076,157(2) 0 309,000(9) 200,000 0 2,375(11)
Chairman, Pres/CEO 1995 650,000 1,879,902 0 0 500,000 0 2,250
1994 650,000 433,362 69,971 0 110,000 0 0
Thomas R. Watjen........ 1996 418,269 427,164(3) 0 105,888(9) 100,000 0 0
EVP/CFO 1995 400,000 514,207 0 0 100,000 0 0
1994 190,769 250,879 0 87,435 100,000 0 0
Robert O. Best.......... 1996 217,308 113,685(4) 0 18,271(9) 20,000 0 2,375(11)
SVP/CIO 1995 210,000 192,461 0 0 30,500 0 727
1994 96,923 56,750 0 0 30,500 0 0
Thomas B. Heys, Jr. .... 1996 207,308 103,268(5) 0 25,168(9) 25,000 0 2,375(11)
SVP, Risk Mgmt 1995 200,000 128,293 0 0 30,000 0 24,415
1994 189,500 49,845 0 0 11,650 0 2,250
Jeffrey F. Olingy....... 1996 162,693 110,644(6) 62,275(7) 55,148(10) 50,000 0 0
SVP/Sales and 1995 0 0 0 0 0 0 0
Marketing (1) 1994 0 0 0 0 0 0 0
</TABLE>
- --------
(1) Mr. Olingy became Senior Vice President Sales and Marketing of the Company
on April 3, 1996.
(2) Bonus comprised of $721,000 Incentive Bonus all of which was deferred in
the form of phantom shares (50% of the incentive was a mandatory deferral
for 3 years) and accounted for under the Performance Share Plan; 7,304
shares of vested restricted stock awarded at employment to replace loss of
stock from previous employer ($355,157, the fair market value of such
shares) are also included in this amount.
(3) Bonus comprised of $329,428 Incentive Bonus of which $247,071 was deferred
in the form of phantom shares (50% of the incentive was a mandatory
deferral for 3 years) and accounted for under the Performance Share Plan;
2,010 shares of vested restricted stock awarded to replace loss of stock
from previous employer ($97,736, the fair market value of such shares) are
also included in this amount.
(4) Bonus comprised of $113,685 Incentive Bonus of which $42,632 was deferred
in the form of phantom shares (37.5% of the incentive was a mandatory
deferral for 3 years) and accounted for under the Performance Plan.
(5) Bonus comprised of $103,268 Incentive Bonus of which $58,726 was deferred
in the form of phantom shares (37.5% of the incentive was a mandatory
deferral for 3 years) and accounted for under the Performance Plan.
(6) Bonus comprised of $110,644 Incentive Bonus of which $55,322 was deferred
in the form of phantom shares (37.5% of the incentive was a mandatory
deferral for 3 years) and accounted for under the Performance Plan.
(7) Represents non-cash benefits in excess of $27,334 related to miscellaneous
personal services including a non-recurring payment for relocation
expenses of $42,693, and $19,582 of other miscellaneous services.
(8) As of December 31, 1996, the Named Executive Officer held the following
aggregate shares of restricted stock, with the following values (based on
year end closing price of $48.375 per share): Mr. Olingy 666 shares valued
at $32,218. Cash compensation in lieu of dividends will be paid on the
restricted shares.
16
<PAGE>
(9) This amount represents premium phantom shares to recognize the lack of
liquidity and marketability. They were issued upon defferal of the
incentive award into phantom shares. These shares are subject to risk of
forfeiture for three years and are accounted for under the Performance
Share Plan.
(10) Of this amount, $31,438 represents the grant date value of 1,000 shares
of restricted stock given to Mr. Olingy upon employment with the Company.
This stock has the following vesting schedule: 334 shares on April 3,
1996, 333 shares on January 10, 1997, and 333 shares on January 10, 1998.
The remainder of the amount represents premium phantom shares to
recognize the lack of liquidity and marketability. They were issued upon
deferral of the incentive award into phantom shares. These shares are
subject to risk of forfeiture for three years and are accounted for under
the Performance Share Plan.
(11) The amounts reported include only the Company's match of their respective
contributions to the MoneyMaker, a Long-Term 401(k) Retirement Plan
("MoneyMaker").
The following table describes the options granted to the named individuals for
1996:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS GRANT DATE VALUE
(B) (C) (D) (E) (F) (2)
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS GRANTED
OPTIONS GRANTED TO EMPLOYEES IN EXERCISE OR BASE GRANT DATE
NAME (#)(1) FISCAL YEAR PRICE ($/SH) DATE PRESENT VALUE
- ---- ----------------- --------------- ---------------- -------- ----------------
<S> <C> <C> <C> <C> <C>
J. Harold Chandler...... 200,000(3) 29.70% $30.75 01/03/06 $1,165,470
Thomas R. Watjen........ 100,000(3) 14.85% $30.75 01/03/06 $ 582,735
Robert O. Best.......... 20,000(3) 3.04% $30.75 01/03/06 $ 116,547
Thomas B. Heys, Jr...... 25,000(3) 3.71% $30.75 01/03/06 $ 145,684
Jeffrey F. Olingy....... 50,000(3) 7.42% $31.75 03/13/06 $ 329,925
</TABLE>
- --------
(1) Options granted are for non-qualified stock options, with the exercise
price determined as the average of the high and low price on the last
market day next preceding the date of the grant. All options granted were
for Provident Companies, Inc. Common Stock.
(2) The Grant Date Present Value of individual options granted in 1996 was
determined using a Black-Scholes Pricing Model. The underlying assumptions
and the basis for their selection were as follows:
VOLATILITY. Volatility for Provident's Common Stock was calculated using
28 quarterly stock prices form the date of grant. The volatility was 18%.
RISK-FREE RATE OF RETURN. Rates of return were based on U.S. Treasury
strip rates of return for a 7-year investment. The rate on January 4, 1996
was 5.60%, the rate on March 14, 1996 was 6.34%.
DIVIDEND PAYOUT RATE. The dividend payout rates were determined by
dividing the annual dividend rate in effect on the grant date ($0.72 per
share) by the exercise price.
TIME OF EXERCISE. The time of exercise was assumed to be 7 years from the
date of grant.
(3) All options have a one year vesting period before the options may be
exercised. Therefore, a discount of 11% was applied in determining the
Grant Date Present Value of these options to recognize the risk of
forfeiture. All options became exercisable on January 4, 1997, with the
exception of Mr. Olingy's which became exercisable on March 14, 1997. One-
half of the options granted to each executive officer except Mr. Olingy
were not exercisable until the price of the stock reached $35.78 during
any three trading days occurring within a period of ninety days. One-half
of Mr. Olingy's options were not exercisable until the price of the stock
reached $37.65 during any three trading days occurring within a period of
ninety days. A 30% discount was applied in determining the Grant Date
Present Value of these options to recognize this performance criterion.
The stock price performance criterion was met for all options granted
during 1996. All options, except those for Mr. Chandler, expire on the
earliest of the following dates: (a) upon termination of employment other
than by death or disability; (b) three years after the date of death or
disability; or (c) ten years after the date of grant. In the event of a
change in control, options would become
17
<PAGE>
immediately exercisable, or the Compensation Committee can exercise its
discretion to cash out any unvested options. Expiration of Mr. Chandler's
options is determined in accordance with the terms of his employment
contract.
The following table shows the information concerning options for Provident
Companies, Inc. Common Stock for the named individuals during 1996:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUE
<TABLE>
<CAPTION>
(E)
(B) (C) (D) VALUE OF UNEXERCISED
(A) NUMBER OF SECURITIES IN-THE-
UNDERLYING UNEXERCISED MONEY OPTIONS AT
OPTIONS AT FY-END (#) FY-END ($)
SHARES ACQUIRED EXERCISABLE/ EXERCISABLE/
ON EXERCISE (#) VALUE REALIZED ($) UNEXERCISABLE UNEXERCISABLE
--------------- ------------------ ---------------------- ----------------------
<S> <C> <C> <C> <C>
J. Harold Chandler...... 0 $ 0 800,000/200,000 $18,673,125/$3,525,000
Thomas R. Watjen........ 0 $ 0 200,000/100,000 $ 4,956,250/$1,762,500
Robert O. Best.......... 0 $ 0 61,000/ 20,000 $ 1,427,781/ $352,500
Thomas B. Heys, Jr...... 7,258 $105,301 48,166/ 25,000 $ 1,147,180/ $440,625
Jeffrey F. Olingy....... 0 $ 0 0/ 50,000 $ 0/ $831,250
</TABLE>
18
<PAGE>
PENSION PLAN TABLE
The following table shows the estimated annual aggregate benefits payable at
normal retirement under the tax-qualified, defined benefit Retirement Plan for
Salaried Employees for various combinations of compensation and years of
service:
<TABLE>
<CAPTION>
1996
AVERAGE BASE ESTIMATED ANNUAL BENEFIT FOR
SALARY IN FIVE REPRESENTATIVE YEARS OF SERVICE CREDIT
CONSECUTIVE HIGHEST ---------------------------------------------------------------
PAID YEARS 15 YEARS 20 YEARS 25 YEARS 30 YEARS
------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
$150,000 $ 38,328 $ 53,628 $ 61,428 $ 69,228
175,000 45,828 63,624 72,672 81,720
200,000 53,328 73,620 83,928 94,224
225,000 60,828 83,628 95,172 106,728
250,000 68,328 93,624 106,428 119,220
300,000 83,328 113,628 128,928 144,228
350,000 98,328 133,620 151,428 169,224
400,000 113,328 153,624 173,928 194,220
450,000 128,328 173,628 196,428 219,228
500,000 143,328 193,620 218,928 244,224
</TABLE>
Benefits are based on the average base salary earned during the five
consecutive years of highest compensation preceding retirement date plus $5
per each year of service subject to a maximum of 30 years, subject to a
partial offset for the Social Security benefits to which the participant is
entitled upon retirement. Credit for years of service ceases after 30 years. A
reduction of 4% is applied for retirement before age 62. As of December 31,
1996, Chandler, Watjen, Best, Heys and Olingy had approximately 3, 2, 2, 22
and 1 years of credited service, respectively.
The Company also provides a Supplemental Executive Retirement Plan ("SERP")
pursuant to which certain current officers of the Company may be entitled to
retirement benefits in addition to those that may be funded or paid through a
tax-qualified plan such as the Retirement Plan. Such benefits are not included
in the Pension Plan Table above. Generally, participants in the SERP become
entitled to benefits upon retirement at or after age 65, age 55 with 20 years
of service or age 62 with consent of the Compensation Committee of the Board
of Directors. The maximum annual amount of such additional benefits is the
greater of (a) 50 percent of the average of the participant's compensation for
the five highest consecutive calendar years of active service with Provident
(which will be achieved when the participant has 20 years of service), plus
$1,800, offset by the benefits payable under the Retirement Plan and certain
social security benefits; or (b) the difference between the benefits which are
payable under the Retirement Plan and the benefits which would be payable
under the Retirement Plan to the participant without the limitations on annual
benefits imposed by Section 415 of the Internal Revenue Code of 1986, as
amended (the "Code") (for 1996, $120,000). Proportionately smaller
supplemental retirement benefits are payable under the SERP upon retirement
before age 65. Mr. Chandler will be covered under the Retirement Plan for
Salaried Employees, the SERP, and the supplemental retirement benefit ("SRB")
described in his employment agreement.
The Company offers severance agreements to certain other of its key
executives as determined by the Board of Directors acting on the
recommendation of the Compensation Committee. While agreements can vary
slightly in details, the basic arrangements require the Company to make
certain payments and provide certain benefits in the event that the
executive's employment terminates for any reason except death, disability,
retirement, or of good cause by the Company or without good reason by the
executive within two years following a change of control as that term is
defined below. The amounts and benefits are (1) a multiple of one to three
times the executive's annual base salary at the highest rate in effect at any
time immediately prior to the change in control until the termination date;
(2) participation at no additional direct costs to the executive in the life,
accident and health insurance plans in effect prior to the change in control
(or equivalent benefits) for one to three years
19
<PAGE>
following the termination date; (3) up to $10,000 of reasonable expenses
associated with outplacement through a professional placement firm for a
period of not more than one year. In addition, each is entitled to death or
long-term disability benefits no less favorable than those to which the
executive would have been entitled if death or termination for disability
occurred within six months prior to the change in control. Messrs. Watjen,
Best, Heys, and Olingy entered into agreements providing the amounts and
benefits described above.
EMPLOYMENT CONTRACT
J. Harold Chandler has an agreement with the Company by which he became
President and Chief Executive Officer of the America, Capital, Accident and
Casualty effective November 8, 1993. The period of employment covered by the
Agreement is one year with automatic extensions for additional one year terms
unless either party terminates the Agreement. Compensation under the Agreement
includes (i) a base annual salary of $650,000, subject to being increased
annually upon recommendation of the Compensation Committee; (ii) a transition
bonus of $130,000; (iii) a special bonus of $170,000; (iv) an annual incentive
bonus for 1993 of not less than $200,000; (v) 29,216 shares of restricted
Class B Common Stock, 7,304 shares of which became vested and unrestricted on
December 31, 1993, and 7,304 shares of which shall become unrestricted by
vesting and being delivered on each December 31 of 1994, 1995, and 1996; (vi)
a grant of options for 190,000 shares of Class B Common Stock on November 8,
1993 (having a two year vesting and a five year exercise period); (vii) a
grant of options on January 6, 1994 for 110,000 shares of Class B Common Stock
(having a two year vesting and a five year exercise period); and (viii) such
other options or other stock grants to be recommended by the Compensation
Committee from time to time over a ten year period beginning November 8, 1993
within the terms of the approved stock option plan then in effect for
approximately an additional 700,000 shares of Class B Common Stock. The
Agreement also grants eligibility to participate in the Employer's Retirement
Plan for Salaried Employees ("Qualified Plan") and the Supplemental Executive
Retirement Plan ("SERP"). In addition, a supplemental retirement benefit
("SRB") calculated using the SERP formula applied to the annual base salary
will be provided. Rights to receive the SRB will vest at 10% per year provided
that employment continues for five years. Generally, if employment is
terminated prior to the expiration of the five year period none of the SRB
will be payable. Any SRB payments will be reduced by amounts paid under the
other plans listed in this paragraph and any qualified or nonqualified
retirement benefit paid by Mr. Chandler's previous employer. The Company
agreed to pay reasonable relocation expenses including the purchase of Mr.
Chandler's former house. Certain other benefits including club memberships and
up to $10,000 in 1993 and $4,000 in each year of employment thereafter for
personal financial planning were also included.
CHANGE IN CONTROL
For purposes of accelerating benefits under one or more of the incentive
compensation plans (annual and stock option), and for purposes of the
severance agreements for certain executive officers, and for purposes of
certain termination provisions in Mr. Chandler's employment contract described
below, a change in control will be deemed to have occurred if either of the
following sets of events happen: (a) both (i) the Maclellan family holdings
must fall below 30 percent of the outstanding stock of the Company, and (ii)
concurrently at least 30 percent of the outstanding stock of the Company must
be owned by a person or group other than the Maclellan family; or (b)
stockholders approve (i) a merger or consolidation of the Company in which the
Company is not the surviving entity, (ii) a plan of complete liquidation of
the Company, or (iii) an agreement for the sale of or disposition of all or
substantially all of the assets of the Company.
If within 24 months following a change in control as defined above, Mr.
Chandler voluntarily resigns or retires or his employment is terminated except
for disability, death or cause, benefits include (i) payment of 299% of Mr.
Chandler's average (for the preceding years of service up to five years of
such prior service) base salary and annual incentive bonus; (ii) vesting of
unvested options and restricted stock as of the date of such termination; and
(iii) a cash payment equal to the value of any options anticipated to be
granted during the three years following such termination.
20
<PAGE>
TERMINATION OF EMPLOYMENT
Mr. Chandler's employment agreement provides benefits in the event of a
termination for the following reasons:
DISABILITY: Benefits include (i) payment of base salary for two years from
the date of notice of termination; (ii) full vesting of nonvested
restricted stock, stock options and other equity awards and of SRB
benefits; (iii) two annual payments each equal to the average of the annual
incentive bonus received for the two years prior to the year in which the
notice of termination is given, less any amounts paid to Mr. Chandler under
the Company's disability plan. In addition, the Company will continue to
provide, for a period of two years from the date of the notice of
termination, such health benefits and life insurance benefits as were in
effect immediately prior to such termination for disability
DEATH: Benefits include (i) the amount of base salary which would have been
paid for the remainder of the year in which death occurs; (ii) the sum of
any unpaid transition, special and annual incentive bonuses which would
have been payable during the period of employment; (iii) vesting of granted
but unvested stock options or other equity awards and of SRB benefits.
CAUSE: Only earned but unpaid base salary through the date of termination
for cause will be paid, while all nonvested benefits held as of the date of
such termination shall be canceled as of such date.
VOLUNTARY RESIGNATION OR RETIREMENT: Benefits include (i) earned but unpaid
base salary through the date of voluntary resignation or retirement; (ii)
such health benefits and life insurance benefits as were in effect
immediately prior to such termination; and such other payments or benefits
as may be negotiated.
WITHOUT CAUSE: Benefits include (i) payment of up to $2,250,000 less the
total of all base salary and annual incentive bonus received from November
8, 1993, to the effective date of the termination, but in no event would
the total payable be greater than two times the sum of the then current
base salary and target annual incentive bonus for the year in which such
termination occurs; (ii) for a period of two years from the date of the
notice of termination, such health benefits and life insurance benefits as
were in effect immediately prior to such termination; immediate and full
vesting of all unvested stock options and other equity awards as well as
the SRB benefit.
CHANGE IN CONTROL: If within 24 months following a change in control as
defined above, Mr. Chandler voluntarily resigns or retires or his
employment is terminated except for disability, death or cause, benefits
include (i) payment of 299% of Mr. Chandler's average (for the preceding
years of service up to five years of such prior service) base salary and
annual incentive bonus; (ii) vesting of unvested options and restricted
stock as of the date of such termination; and (iii) a cash payment equal to
the value of any options anticipated to be granted during the three years
following such termination.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPANTS IN COMPENSATION
DECISION
During 1996:
1. No member of the Compensation Committee:
(a) was an employee or officer of the Company or any of its
subsidiaries; or
(b) had any relationship requiring disclosure under Item 404 of
Regulation S-K.
2. No executive officer of the Company served as a:
(a) member of a compensation committee (or its equivalent or the board
of directors in the absence of such a committee) of another entity,
one of whose executive officers served on the Company's
Compensation Committee or was a director of the Company; and
(b) director of an entity, one of whose executive officers served on
the Company's Compensation Committee.
21
<PAGE>
CERTAIN TRANSACTION
The Company maintains a commercial banking relationship with certain
subsidiary banks of SunTrust Banks, Inc. ("SunTrust"), a bank holding company
the subsidiaries of which own of record more than five percent of the
Company's Common Stock. (See Security Ownership of Certain Beneficial Owners
and Management.) The transactions entered into between the Company and these
subsidiary banks of SunTrust include the provision of lines of credit for
short term borrowings by the Company, lines of credit for small equipment
leases and normal depository and other accounts. In addition, the Company has
purchased for investment certain loans originated by a subsidiary of SunTrust
and debentures issued by a SunTrust subsidiary. A subsidiary of SunTrust also
provides services for one of the Company's investment portfolios. SunTrust has
indicated that all investments by the Company and loans to the Company were
made in the ordinary course of business and were made on substantially the
same terms as those prevailing at the time for comparable transactions with
others, and that in its opinion the loans to the Company do not involve more
than the normal risk of collectibility or present other unfavorable features.
22
<PAGE>
COMPANY PERFORMANCE
The following graph shows a five year comparison of cumulative total returns
for the Common Stock of the Company (NYSE symbol: PVT), Class B Common Stock of
America (NYSE symbol: PVB), the Class A Common Stock of America (NYSE symbol:
PVA), the S&P Composite Index, and the Insurance Index (non-weighted average of
"total returns" from the S&P Life Index and the S&P Multi-line Index.)
Effective December 27, 1995 all shares of America were exchanged for shares of
the Company.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
PVT, PVB, PVA, S&P 500, INSURANCE INDEX
Assumes $100 invested in each at December 1991 with dividends reinvested
The following table contains the values used to plot the performance graph
above:
<TABLE>
<CAPTION>
DEC. 1991 DEC. 1992 DEC. 1993 DEC. 1994 DEC. 1995 DEC. 1996
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
PVB................ $100.00 $145.14 $154.51 $120.68 $202.50 $294.81
PVA................ $100.00 $127.67 $143.37 $105.24 $168.46 $245.24
Insurance Index.... $100.00 $107.62 $118.46 $120.03 $165.13 $203.05
S&P 500............ $100.00 $124.17 $132.33 $124.47 $180.86 $225.16
</TABLE>
LOGO
23
<PAGE>
BENEFICIAL OWNERSHIP OF COMPANY SECURITIES
Detailed information about the security ownership of beneficial owners of
more than 5% of Provident Common Stock is set forth beginning on page 25,
including beneficial ownership based on sole voting and share voting power and
investment power. Due to the shared voting and investment power relating to a
large portion of the Company 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
Maclellan family interests.
DIRECT OWNERSHIP
<TABLE>
<CAPTION>
DIRECT OWNED(1) PERCENT OF
NAME AND ADDRESS OF DIRECT OWNER (VOTING POWER) TOTAL
- -------------------------------- --------------- ----------
<S> <C> <C>
The Maclellan Foundation, Inc....................... 8,027,156 17.57
Chattanooga, Tennessee
R. J. and Cora L. Maclellan Trusts.................. 3,475,134 7.61
for The Maclellan Foundation
Chattanooga, Tennessee
Charitable Trusts................................... 2,767,533 6.06
Chattanooga, Tennessee
Trusts U/A R. J. Maclellan.......................... 2,541,205 5.56
and Trusts U/A Cora L. Maclellan
for Families of H. O. Maclellan, Sr.
and R. L. Maclellan
Chattanooga, Tennessee
Trusts U/A H. O. Maclellan, Sr...................... 2,234,317 4.89
for Children and Grandchildren
Chattanooga, Tennessee
Kathrina H. Maclellan............................... 1,383,359 3.03
Lookout Mountain, Tennessee
Hugh O. Maclellan, Jr............................... 805,594 1.76
Chattanooga, Tennessee
Charlotte M. Heffner................................ 457,602 1.00
Atlanta, Georgia
Other (Trusts, Estates and Family Ownership)........ 1,552,355 3.40
Chattanooga, Tennessee
</TABLE>
24
<PAGE>
The following tables present information about the beneficial owners of the
Company's Common Stock. Voting power and investment (dispositive) power is
shown separately in the following tables which list those persons holding five
percent (5%) or more of such voting power and those persons holding five
percent (5%) or more of such investment power, respectively. The Company does
not know of any other person that is a beneficial owner of more than five
percent (5%) of Common Stock.
BENEFICIAL OWNERSHIP BASED ON VOTING POWER
<TABLE>
<CAPTION>
AMOUNT
BENEFICIALLY OWNED(1) PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER (VOTING POWER) CLASS
- ------------------------------------ --------------------- ----------
<S> <C> <C>
The Maclellan Foundation, Inc. ........... 8,027,156(2) 17.57
Chattanooga, Tennessee
R. J. and Cora L. Maclellan............... 3,475,134(3) 7.61
Trusts for The Maclellan Foundation, Inc.
Chattanooga, Tennessee
Hugh O. Maclellan, Jr..................... 18,705,568(2)(3)(4) 40.94
Chattanooga, Tennessee
Kathrina H. Maclellan..................... 9,185,331(2)(3)(5) 20.11
(Mrs. Robert L. Maclellan)
Lookout Mountain, Tennessee
Dudley Porter, Jr......................... 4,765,924(3)(6) 10.43
(retired officer of Company)
Chattanooga, Tennessee
Charlotte M. Heffner...................... 3,802,838(2)(7) 8.32
(Mrs. Richard L. Heffner)
Atlanta, Georgia
Textron Inc............................... 18,357,424(8) 40.26
Providence, Rhode Island
Zurich Insurance Company.................. 18,357,424(9) 40.26
Zurich, Switzerland
</TABLE>
- --------
(1) Beneficial ownership of securities is disclosed according to Rule 13d-3 of
the Securities Exchange Act of 1934. If shares beneficially owned by more
than one person were shown as beneficially owned by only one person, then
the total number of shares owned by The Maclellan Foundation, Inc.; the R.
J. and Cora L. Maclellan Trusts for The Maclellan Foundation, Inc.;
Kathrina H. Maclellan; Hugh O. Maclellan, Jr.; Dudley Porter, Jr.; and
Charlotte M. Heffner would have been equal to 23,244,255 shares of Common
Stock (50.88%).
(2) Trustees of The Maclellan Foundation, Inc. (the "Maclellan Foundation")
were Hugh O. Maclellan, Jr., Kathrina H. Maclellan, Charlotte M. Heffner,
Robert H. Maclellan, A. S. MacMillan, Frank A. Brock, G. Richard Hostetter
and Ronald W. Blue. Hugh O. Maclellan, Jr. held a revocable proxy to vote
the shares of Company Common Stock held by the Maclellan Foundation.
Accordingly, shares owned by the Maclellan Foundation have been included
among those listed for Hugh O. Maclellan, Jr. The Maclellan Foundation is
a charitable organization treated as a private foundation for federal
income tax purposes.
(3) Trustees of the R. J. Maclellan Trust for the Maclellan Foundation and the
Cora L. Maclellan Trust for the Maclellan Foundation were Hugh O.
Maclellan, Jr., Kathrina H. Maclellan, Dudley Porter, Jr., and SunTrust
Banks, Inc. For information concerning the stock ownership of SunTrust
Banks, Inc., see Footnote 12 under "Beneficial Ownership Based on
Investment Power." Voting power with respect to shares owned by these
trusts was held by Hugh O. Maclellan, Jr., Kathrina H. Maclellan and
Dudley Porter, Jr. The R. J. and Cora L. Maclellan Trusts for the
Maclellan Foundation are charitable organizations treated as private
foundations for federal income tax purposes.
25
<PAGE>
(4) Hugh O. Maclellan, Jr. had the power to vote the following shares of
Common Stock:
<TABLE>
<S> <C> <C> <C>
Voting Power............ 2,226,250 Shares - 4.87%
Shared Voting Power..... 16,479,318 Shares - 36.07%
----------------- ------
Total................... 18,705,568 Shares - 40.94%
</TABLE>
Totals listed above, and below under "Beneficial Ownership Based on
Investment Power", do not include 42,564 shares of Common Stock voted
solely by spouse, Nancy B. Maclellan, of which beneficial interest is
disclaimed.
(5) Kathrina H. Maclellan had the power to vote the following shares of Common
Stock:
<TABLE>
<S> <C> <C> <C>
Voting Power............ 1,383,359 Shares - 3.03%
Shared Voting Power..... 7,801,972 Shares - 17.08%
----------------- ------
Total................... 9,185,331 Shares - 20.11%
</TABLE>
(6) Dudley Porter, Jr. had the power to vote the following shares of Common
Stock:
<TABLE>
<S> <C> <C> <C>
Voting Power............ 2,680 Shares - 0.00%
Shared Voting Power..... 4,763,244 Shares - 10.43%
----------------- ------
Total................... 4,765,924 Shares - 10.43%
</TABLE>
Totals listed above, and below under "Beneficial Ownership Based on
Investment Power", do not include 20,926 shares of Common Stock voted
solely by spouse, Mary M. Porter, of which beneficial interest is
disclaimed.
(7) Charlotte M. Heffner had the power to vote the following shares of Common
Stock:
<TABLE>
<S> <C> <C> <C>
Voting Power............ 1,200,637 Shares - 2.63%
Shared Voting Power..... 2,602,201 Shares - 5.69%
----------------- ------
Total................... 3,802,838 Shares - 8.32%
</TABLE>
Totals listed above, and below under "Beneficial Ownership Based on
Investment Power," do not include 32,832 shares of Common Stock voted
solely by spouse, Richard L. Heffner, of which beneficial interest is
disclaimed.
With respect to the shares of Common Stock held by SunTrust Bank, the
Company has been informed that as of March 10, 1997: (a) 3,475,134 shares
(7.61%) were owned by the R. J. and Cora L. Maclellan Trusts for the
Maclellan Foundation; and (b) 3,437,666 shares (7.26%) were owned by other
trusts and charitable organizations within the Maclellan family.
Accordingly, of the shares of Common Stock reported as held by SunTrust
Bank, Chattanooga, N. A., as of March 10, 1997, an aggregate of 6,912,800
shares of Provident Common Stock (15.13%) were also included among those
listed as beneficially owned by either the R. J. and Cora L. Maclellan
Trusts for the Maclellan Foundation, Kathrina H. Maclellan, Hugh O.
Maclellan, Jr., Dudley Porter, Jr., or Charlotte M. Heffner.
(8) Pursuant to the Maclellan Voting Agreement, the Selected Maclellan
Stockholders have agreed with Textron to vote the shares of Provident
Common Stock as to which they have voting power or control in favor of the
issuance of shares of Provident Common Stock pursuant to the Merger
Agreement and in favor of the Charter Amendment. Therefore, Textron may be
deemed to have beneficial ownership by its power to direct the vote of
such shares. See "The Merger--Maclellan Voting Agreement."
(9) Pursuant to the Maclellan Stockholder Agreement, the selected Maclellan
Stockholders have agreed with Zurich to vote the shares of Provident
Common Stock beneficially owned by them in favor of the Merger and the
Merger Agreement and the transactions contemplated thereby, in favor of
the Zurich Purchase Agreement and the transactions contemplated thereby,
and in favor of the Charter Amendment. Therefore, Zurich may be deemed to
have beneficial ownership by its power to direct the vote of such shares.
See "The Zurich Relationship--Maclellan Stockholder Agreement."
26
<PAGE>
BENEFICIAL OWNERSHIP BASED ON INVESTMENT POWER
<TABLE>
<CAPTION>
AMOUNT
BENEFICIALLY OWNED(1) PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER (INVESTMENT POWER) CLASS
- ------------------------------------ --------------------- ----------
<S> <C> <C>
The Maclellan Foundation, Inc............... 8,027,156(2) 17.57
Chattanooga, Tennessee
R. J. and Cora L. Maclellan................. 3,475,134 7.61
Trusts for The Maclellan Foundation, Inc.
Chattanooga, Tennessee
Hugh O. Maclellan, Jr....................... 18,705,568(2)(3) 40.94
Chattanooga, Tennessee
Kathrina H. Maclellan....................... 17,212,487(2)(4) 37.68
(Mrs. Robert L. Maclellan)
Lookout Mountain, Tennessee
Charlotte M. Heffner........................ 11,941,734(2)(5) 26.14
(Mrs. Richard L. Heffner)
Atlanta, Georgia
Robert H. Maclellan......................... 9,612,280(2)(6) 21.04
Lookout Mountain, Tennessee
Dudley Porter, Jr........................... 4,765,924(2)(7) 10.43
(retired officer of Company)
Chattanooga, Tennessee
Frank A. Brock.............................. 8,420,827(2)(8) 18.43
Lookout Mountain, Tennessee
G. Richard Hostetter........................ 8,028,656(2)(9) 17.57
Chattanooga, Tennessee
A. S. MacMillan............................. 8,077,514(2)(10) 17.68
Atlanta, Georgia
Ronald W. Blue.............................. 8,027,156(2)(11) 17.57
Atlanta, Georgia
SunTrust Banks, Inc......................... 7,793,047(12) 17.09
Atlanta, Georgia
FMR Corp.................................... 2,720,050(13) 5.95
Boston, Massachusetts
</TABLE>
- --------
(1) Beneficial ownership of securities is listed according to Rule 13d-3 of
the Securities Exchange Act of 1934. If shares beneficially owned by more
than one person were shown as beneficially owned by only one person, then
the total number of shares owned by The Maclellan Foundation, Inc.; the R.
J. and Cora L. Maclellan Trusts for the Maclellan Foundation, Inc.;
Kathrina H. Maclellan, Hugh O. Maclellan, Jr.; Charlotte M. Heffner;
Robert H. Maclellan; Dudley Porter, Jr.; Frank A. Brock; G. Richard
Hostetter; A. S. MacMillan; Ronald W. Blue; and SunTrust Banks, Inc. (with
respect to the Maclellan family only) would have been equal 23,492,691
shares of Common Stock (51.42%). The totals shown are for the total
Maclellan family interest only. Shares held by SunTrust Bank which are
included in the totals for the Maclellan family include 6,929,854 shares
of Common Stock.
(2) The 8,027,156 shares of Common Stock owned by the Maclellan Foundation
also have been included among those listed for Hugh O. Maclellan, Jr.,
Kathrina H. Maclellan, Charlotte M. Heffner, Robert H. Maclellan, A. S.
MacMillan, Frank A. Brock, G. Richard Hostetter and Ronald W. Blue, the
trustees of the Maclellan Foundation, all of whom share investment power
with respect to these shares.
27
<PAGE>
(3) Hugh O. Maclellan, Jr. had the power to invest the following shares of
Common Stock:
<TABLE>
<S> <C> <C> <C>
Sole Investment Power... 1,354,554 Shares - 2.96%
Shared Investment Power. 17,351,014 Shares - 37.98%
----------------- ------
Total................... 18,705,568 Shares - 40.94%
</TABLE>
These shares listed above as beneficially owned by Mr. Maclellan based upon
investment power include the 8,027,156 shares of Common Stock owned by the
Maclellan Foundation and 3,475,134 shares of Common Stock owned by the R.
J. and Cora L. Maclellan Trust for the Maclellan Foundation. Totals listed
above do not include 42,564 shares of Common Stock for which his spouse,
Nancy B. Maclellan, had sole investment power, and for which beneficial
ownership is disclaimed.
(4) Kathrina H. Maclellan had the power to invest the following shares of
Common Stock:
<TABLE>
<S> <C> <C> <C>
Sole Investment Power... 1,383,359 Shares - 3.03%
Shared Investment Power. 15,829,128 Shares - 34.65%
----------------- ------
Total................... 17,212,487 Shares - 37.68%
</TABLE>
These shares listed above as beneficially owned by Mrs. Maclellan based
upon investment power include the 8,027,156 shares of Common Stock owned by
the Maclellan Foundation and 3,475,134 shares of Common Stock owned by the
R. J. and Cora L. Maclellan Trust for the Maclellan Foundation.
(5) Charlotte M. Heffner had the power to invest the following shares of
Common Stock:
<TABLE>
<S> <C> <C> <C>
Sole Investment Power... 457,602 Shares - 1.00%
Shared InvestmentPower.. 11,484,132 Shares - 25.14%
----------------- ------
Total................... 11,941,734 Shares - 26.14%
</TABLE>
These shares listed above as beneficially owned by Mrs. Heffner based upon
investment power include 8,027,156 shares of Common Stock owned by the
Maclellan Foundation for which Mrs. Heffner had shared investment power.
Totals listed above do not include 32,832 shares of Common Stock for which
her spouse, Richard L. Heffner, had sole investment power, and for which
beneficial ownership is disclaimed.
(6) Robert H. Maclellan had the power to invest the following shares of Common
Stock:
<TABLE>
<S> <C> <C> <C>
Sole Investment Power.... 245,613 Shares - 0.54%
Shared InvestmentPower... 9,366,667 Shares - 20.50%
---------------- ------
Total.................... 9,612,280 Shares - 21.04%
</TABLE>
These shares listed above as beneficially owned by Mr. Maclellan based upon
investment power include 8,027,156 shares of Common Stock owned by the
Maclellan Foundation.
(7) Dudley Porter, Jr. had the power to invest the following shares of Common
Stock:
<TABLE>
<S> <C> <C> <C>
Sole Investment Power.... 2,680 Shares - 0.00%
Shared Investment Power.. 4,763,244 Shares - 10.43%
---------------- ------
Total.................... 4,765,924 Shares - 10.43%
</TABLE>
Totals listed above do not include 20,926 shares of Common Stock for which
his spouse, Mary M. Porter, had sole investment power, and for which
beneficial ownership is disclaimed.
(8) Frank A. Brock had the power to invest the following shares of Common
Stock:
<TABLE>
<S> <C> <C> <C>
Sole Investment Power.... 965 Shares - 0.00%
Shared Investment Power.. 8,419,862 Shares - 18.43%
---------------- ------
Total.................... 8,420,827 Shares - 18.43%
</TABLE>
In addition to the 8,027,156 shares of Common Stock owned by the Maclellan
Foundation for which Mr. Brock had shared investment power, Mr. Brock held
sole investment and sole voting power for 965 shares of Common Stock.
28
<PAGE>
(9) G. Richard Hostetter had the power to invest the following shares of
Common Stock:
<TABLE>
<S> <C> <C> <C>
Sole Investment Power.... 1,500 Shares - 0.00%
Shared Investment Power.. 8,027,156 Shares - 17.57%
---------------- ------
Total.................... 8,028,656 Shares - 17.57%
</TABLE>
In addition to the 8,027,156 shares of Common Stock owned by the Maclellan
Foundation for which Mr. Hostetter had shared investment power, Mr.
Hostetter held sole investment and sole voting power for 1,500 shares of
Common Stock.
(10) A. S. MacMillan had the power to invest the following shares of Common
Stock:
<TABLE>
<S> <C> <C> <C>
Sole Investment Power.... 358 Shares - 0.00%
Shared Investment Power.. 8,077,156 Shares - 17.68%
---------------- ------
Total.................... 8,077,514 Shares - 17.68%
</TABLE>
In addition to the 8,027,156 shares of Common Stock owned by the Maclellan
Foundation, for which Mr. MacMillan had shared investment power, Mr.
MacMillan held sole investment and sole voting power for 358 shares of
Common Stock.
(11) Ronald W. Blue had the power to invest the following shares of Common
Stock:
<TABLE>
<S> <C> <C> <C>
Sole Investment Power.... 0 Shares - 0.00%
Shared Investment Power.. 8,027,156 Shares - 17.57%
---------------- ------
Total.................... 8,027,156 Shares - 17.57%
</TABLE>
These shares listed above as beneficially owned by Mr. Blue based upon
investment power, include 8,027,156 shares of Common Stock owned by the
Maclellan Foundation.
(12) SunTrust Banks, Inc. ("SunTrust"), a bank holding company, has informed
the Company that as of March 31, 1997, certain subsidiaries of SunTrust
held in various fiduciary capacities an aggregate of 7,793,047 shares
(17.06%) of Common Stock of the Company. As to such shares, all of which
are held in various fiduciary capacities, SunTrust and certain of its
subsidiaries may be deemed beneficial owners; however, SunTrust and such
subsidiaries disclaim any beneficial interest in such shares. Shares
reported include shares also reported for the Maclellan family as well as
other shares held for owners unrelated to the Maclellan family.
SunTrust and its subsidiaries had the power to invest the following shares
of the Company's Common Stock:
<TABLE>
<S> <C> <C> <C>
Sole Investment Power.... 265,445 Shares - 0.58%
Shared Investment Power.. 7,498,623 Shares - 16.41%
---------------- ------
Total.................... 7,764,068 Shares - 16.99%
</TABLE>
SunTrust and its subsidiaries had the power to vote the following shares of
the Company's Common Stock:
<TABLE>
<S> <C> <C> <C>
Sole Voting Power........... 834,293 Shares - 1.83%
Shared Voting Power......... 38,795 Shares - 0.08%
-------------- -----
Total....................... 873,088 Shares - 1.91%
</TABLE>
As to the shares described above, SunTrust has informed the Company that as
of March 10, 1997, an aggregate of 7,725,737 shares (16.91%) of Common
Stock was held in various fiduciary capacities by SunTrust Bank,
Chattanooga, N.A. ("SunTrust"), which is a direct subsidiary of SunTrust
Bank of Tennessee, which is a direct subsidiary SunTrust Banks, Inc.
As of March 10, 1997, SunTrust Bank, Chattanooga, N. A. had the power to
invest the following shares:
<TABLE>
<S> <C> <C> <C>
Sole Investment Power.... 217,900 Shares - 0.48%
Shared Investment Power.. 7,479,558 Shares - 16.37%
---------------- ------
Total.................... 7,697,458 Shares - 16.85%
</TABLE>
29
<PAGE>
As of March 31, 1997, SunTrust Bank, Chattanooga, N. A. had the power to
vote the following shares:
<TABLE>
<S> <C> <C> <C>
Sole Voting Power........... 769,483 Shares - 1.68%
Shared Voting Power......... 36,295 Shares - 0.07%
-------------- -----
Total....................... 805,778 Shares - 1.75%
</TABLE>
With respect to the shares of Common Stock held by SunTrust Bank,
Chattanooga, N. A., the Company has been informed that as of March 10,
1997: (a) 3,475,134 shares (7.61%) were owned by the R. J. and
Cora L. Maclellan Trusts for the Maclellan Foundation; and (b) 3,449,926
shares (7.55%) were owned by other trusts and charitable organizations
within the Maclellan family. Accordingly, an aggregate of 6,925,060 shares
(15.16%) were also included among those listed as beneficially owned by
either the R. J. and Cora L. Maclellan Trusts for the Maclellan Foundation,
Kathrina H. Maclellan, Hugh O. Maclellan, Jr., Robert H. Maclellan, Dudley
Porter, Jr., or Charlotte M. Heffner.
(13) FMR Corp. a registered investment adviser, informed the Company that as
of March 10, 1997, it beneficially owned 2,720,050 shares of the Common
Stock of the Company and that the shares have been acquired for
investment purposes only.
30
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
The following reflects the beneficial ownership of the Company's Common
Stock by its directors and executive officers as of March 10, 1997. None of
the persons listed below own any shares of the Company's Preferred Stock. The
table also shows Units held as of March 10, 1997, by executive officers under
the Performance Share Plan of the Company's Management Incentive Compensation
Plan as described in footnote 6.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS
- ------------------------ -------------------- ----------
COMMON UNITS COMMON
<S> <C> <C> <C>
William L. Armstrong(3)........................ 6,610 0 *
Charlotte M. Heffner(1)........................ 3,802,838 0 8.32
Hugh B. Jacks.................................. 2,651 0 *
William B. Johnson............................. 1,291 0 *
Hugh O. Maclellan, Jr.(1)...................... 18,705,568 0 40.94
A. S. "Pat" MacMillan(1)....................... 2,858 0 *
C. William Pollard............................. 6,686 0 *
Scott L. Probasco, Jr.(2)...................... 398,394 0 *
Steven S Reinemund............................. 1,572 0 *
Burton E. Sorensen............................. 11,134 0 *
J. Harold Chandler(3).......................... 1,120,006 19,642 2.45
Thomas R. Watjen(3)............................ 179,341 6,731 *
Robert O. Best(3).............................. 94,879 1,161 *
Thomas B. Heys, Jr.(3)......................... 83,213 1,599 *
Jeffrey F. Olingy(3)........................... 51,566 1,507 *
All Directors and Executive Officers as a group
(18 persons)(3)(4)(5)......................... 21,918,305.02 31,845 47.98
</TABLE>
- --------
*= Less than one percent.
(1) Information concerning the nature of the ownership of the securities
listed here may be found in the section of this Proxy Statement entitled
"Beneficial Ownership of Company Securities." Information concerning
shares for which ownership is disclaimed may also be found in that
section.
(2) Mr. Probasco has sole voting and investment power with respect 397,009
shares of Common Stock. However, he disclaims beneficial ownership of
350,000 shares of Common Stock of which he has sole voting and investment
power as these are one-half of the shares held in a family trust for the
benefit of Mr. Probasco's sister. The number of beneficially owned shares
listed also includes 1,385 shares of Common Stock as to which Mr. Probasco
shares voting and investment power that are owned by various charitable
organizations of which he is one trustee and as to such shares, beneficial
ownership is disclaimed.
(3) The following, included in the respective share totals above, are shares
which the named persons or the group have the right to acquire through the
exercise of options:
<TABLE>
<CAPTION>
COMMON STOCK
------------
<S> <C>
Armstrong....................................................... 3,750
MacMillan....................................................... 2,500
Chandler........................................................ 1,000,000
Watjen.......................................................... 150,000*
Best............................................................ 81,000
Heys............................................................ 75,416
Olingy.......................................................... 50,000
Reinemund....................................................... 2,500
Directors and Executive Officers as a Group..................... 1,142,466
</TABLE>
--------
* The number of options owned by Mr. Watjen reflect a decrease from
previous reporting due to the transfer of 150,000 options in January
1997 pursuant to a domestic relations order.
31
<PAGE>
(4) Shares beneficially owned by more than one person have been counted only
once for purposes of this total.
(5) Based on information provided to the Company, as to the shares listed for
the officers and directors as a group (excluding the shares listed as
beneficially owned by Ms. Heffner, Mr. Maclellan, Jr., Mr. MacMillan and
Mr. Probasco), shared voting and investment power is held with respect to
2,266 shares of Common Stock. The beneficial owners have sole investment
and voting power as to the remaining shares.
(6) These units represent deferred compensation based on the value of the
market price of the Company's Common Stock at the time the compensation is
earned. The units include "purchased" shares and "premium" shares. Units
cannot be converted into stock for a period of three years, unless (with
respect to the purchased shares only) the participant terminates
employment with the Company. The premium shares are subject to forfeiture
for a period of three years. The portion of the units representing premium
shares are as follows: Chandler 5,892; Watjen 2,019; Best 348; Heys 479;
Olingy 452; all executive officers as a group 9,551.
(7) Shares owned by Mr. Chandler, Mr. Watjen, Mr. Best, Mr. Heys, Mr. Olingy
and the executive officers as a group include shares owned in the
Company's 401(k) Plan, The MoneyMaker, and the Company's Employee Stock
Purchase Plan.
COMPLIANCE WITH SECTION 16(A)
Under Section 16(a) of the Exchange Act, the Company's directors, officers
and 10% beneficial holders of Common Stock and Company Depositary Shares are
required to file with the Securities and Exchange Commission certain forms
reporting their beneficial ownership of and transactions in Common Stock and
Company Depositary Shares. Based solely upon information provided to the
Company by each of such persons, the Company believes that each of its
directors, officers and 10% beneficial owners filed all required reports on a
timely basis during the last fiscal year.
ITEM 4. SELECTION OF AUDITORS
The Board of Directors, in accordance with the recommendation of its Audit
Committee, has re-appointed Ernst & Young LLP, as independent auditors for the
Company, subject to the ratification by the shareholders. Representatives of
Ernst & Young LLP are expected to be present at the Annual Meeting to respond
to appropriate questions and to make a statement if they so desire.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE RATIFICATION
OF THE SELECTION OF ERNST & YOUNG LLP.
As of the time the Proxy Statement was printed, the Board of Directors was
not aware of any other business to be presented at the Meeting; however, if
any matters other than those referred to above properly come before the
meeting, the persons voting the proxies will vote them in accordance with
their best judgment.
STOCKHOLDER PROPOSALS
Stockholder proposals intended to be presented at the Annual Meeting of
Stockholders in 1998 should be directed to the Corporate Secretary of the
Company and be received by the Company no later than December 31, 1997, to be
considered for qualification for inclusion in the proxy statement and proxy
card relating to that meeting.
32
<PAGE>
APPENDIX A
ANNUAL MANAGEMENT INCENTIVE COMPENSATION PLAN OF 1994
PURPOSE
The purpose of this Management Incentive Compensation Plan ("MICP") is to
motivate the participants to perform in a way that will enable Provident Life
and Accident Insurance Company and its affiliates ("the Company"),
subsidiaries of Provident Companies, Inc. ("Provident"), to reach its short-
term goals.
ADMINISTRATION OF THE PLAN
The Compensation Committee ("the Committee"), designated by the Board of
Directors, will administer, construe, and interpret the MICP. No member of the
Committee, the Board of Directors, or any delegatee as the case may be, shall
be liable for any act done in good faith.
The construction and interpretation by the Committee of any provision of the
MICP shall be final and conclusive. The Committee must approve, subject to the
provisions of the MICP, the amount, if any, due a participant.
The Committee, may, in its discretion, delegate its general administrative
duties to an officer or employee or committee composed of officers or
employees of the Company, but may not delegate its authority to construe and
interpret the MICP or approve awards.
The Committee, subject to approval by the Board of Directors, may, at any
time or from time to time amend the MICP in any respect without restriction
and without the consent of any participant. However, any modification of the
MICP which would increase materially the benefits accruing to participants,
modify materially the requirements as to eligibility for participation,
increase the cost of the MICP to the Company, or permit any member of the
Compensation Committee to receive an award, must be approved by the
stockholders of Provident.
This MICP, and the rights and obligations of the parties thereunder, will be
construed in accordance with the laws of the State of Tennessee.
TIME PERIOD FOR MEASUREMENT
The MICP will base awards entirely upon achievement of one-year goals. Each
plan year will be from January 1 through December 31. The first plan year will
be from January 1, 1994, through December 31, 1994.
PARTICIPATION IN THE PLAN
Participation in the MICP shall be based on recommendation by Company
management and subject to approval by the Committee. Participation in all
portions of the MICP except the Performance Share Plan (as described below)
will be limited to officers and other key employees of the Company and its
subsidiaries and affiliates whose judgments, decisions and actions can have a
discernible impact on the profitability of the Company. The Committee will
establish participation criteria and make decisions on eligibility based on
such criteria.
NON-EQUITY SUBPLAN
The Non-Equity Subplan of the MICP shall include the Corporate Performance
Subplan and the Individual Performance Subplan, as more specifically described
below:
Corporate Performance Subplan
Awards under the Corporate Performance Subplan will be based solely on the
achievement of one or more of the following measures of corporate performance,
alone or in combination, for the Company as a whole or
A-1
<PAGE>
for any division or business unit: (a) return on equity, (b) overall or
selected premium growth, (c) stock performance, (d) expense efficiency ratios
(ratio of expenses to premium income), (e) earnings per share, (f) market
share, (g) revenue, (h) customer service measures or indices (i) underwriting
efficiency and/or quality, and (j) persistency factors. Measurement of
Provident performance against such goals established by the Committee shall be
objectively determinable, and to the extent such goals are expressed in
standard accounting terms, performance shall be measured in accordance with
generally accepted accounting principles. The Committee shall have the right
for any reason to reduce (but not increase) any such award, notwithstanding
the achievement of a specified goal. The maximum annual award under the
Corporate Performance Subplan to any Covered Employee (as such term is defined
in Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code") or the regulations thereunder) will be $2.5 million. The Committee
shall establish goals for the Corporate Performance Subplan prior to the
beginning of the period for which such performance goal relates (or such later
date as may be permitted under Code Section 162(m) or the regulations
thereunder). Any payment of an award granted under the Corporate Performance
Subplan will be conditioned on the written certification of the Committee in
each case that the performance goals and any other material conditions were
satisfied.
Individual Performance Subplan
Awards under the Individual Performance Subplan will be based on
individually designed goals for an individual's contribution to the business
of the Company. These goals may include non-objective as well as objective
measures, as determined by the Committee.
Performance goals for each of these measures will be established by the
Committee at the beginning of each plan year. The Committee will also
establish limits on payouts in excess of targets, if any.
Target awards under the Non-Equity Subplan are set at percentages of base
salary; 50% for the CEO; 75% for the Executive Vice President and Chief
Financial Officer; 50% for Senior Vice Presidents (with appropriate
percentages to be assigned by the Committee for other designated senior
officers); and percentages from 35% to 10% for all other participants based on
assessment of their contribution to the Company's success.
PAYOUT THRESHOLD
No awards under the Non-Equity Subplan will be payable to any employee under
any measure if thresholds established by the Committee are not reached.
FORM AND PAYMENT OF AWARDS
Awards under the Non-Equity Subplan will be approved by the Committee after
the end of each plan year. Awards will be paid in cash, after making any
applicable withholdings, for performance up to the target award level. Any
awards in excess of the target will be paid in shares of Provident's common
stock, after reduction for tax liability, if at least 50 shares could be
purchased; if not, payment of such excess awards will be in cash.
VESTING
Any award under the Non-Equity Subplan will be vested (considered the
participant's property) at the time the Committee approves the award; except
that, if a participant dies or becomes disabled after the close of the plan
year for which the award was earned and prior to approval of the award, the
award will be vested as of the date of death or disability.
CHANGE IN CONTROL
In the event of a change in control:
(a) Each participant who is in active employment at the time of such change
in control shall be entitled to immediate vesting of an MICP award
based on achievement of the annual plan goal on a pro rata basis for
the period elapsed during the plan year prior to the change in control,
based on a measure of actual performance for completed months during
the plan year as compared with award targets for such
A-2
<PAGE>
completed months. At the end of the plan year, the payment to each
participant shall be the greater of the award earned during the entire
plan year and the vested award.
(b) If the MICP is terminated during a plan year after the date a change in
control occurs, each participant who is in active employment at the
time of such termination shall be paid an award equal to the greater of
the vested award as described above, and an award based on achievement
of the annual plan goal on a pro rata basis for the period elapsed
during the plan year prior to plan termination, based on a measure of
actual performance for completed months during the plan year as
compared with award targets for such completed months.
(c) If a participant's employment is terminated without cause by the
Company during a plan year after the change in control occurs, such
participant shall be paid an award equal to the greater of the vested
award as described above, and an award based on achievement of the
annual plan on a pro rata basis for the period elapsed during the plan
year prior to such termination, based on a measure of actual
performance for completed months during the plan year as compared with
award targets for such completed months.
(d) Cause shall mean the occurrence of one of the following acts:
(1) A conviction of the participant of (x) a felony or (y) any lesser
crime or offense involving the property of the Company or one of its
affiliates.
(2) The willful engaging by the participant in conduct which has caused
demonstrable and serious injury to the Company, monetary or
otherwise, as evidenced by a determination in a binding and final
judgment, order or decree of a court or administrative agency of
competent jurisdiction, in effect after exhaustion or lapse of all
rights of appeal, in an action, suit or proceeding, whether civil,
criminal, administrative or investigative.
(3) Willful gross dereliction of duty or other willful grave misconduct
by the participant and failure to cure such situation within thirty
(30) days after receipt of notice thereof from the Chairman of the
Compensation Committee of the Board.
No act or failure to act on the part of the participant shall be deemed
willful if done, or omitted to be done, by the participant in good faith
and with a reasonable belief that his action or omission was in the best
interests of the Company or a subsidiary. The participant shall not be
deemed to have been terminated for "Cause" unless and until there shall
have been delivered to the participant a copy of a resolution duly
adopted by the Compensation Committee of the Board (or another committee
of the Board hereafter succeeding the responsibilities performed on the
date of this Agreement by the Compensation Committee) finding that in
the good faith opinion of the Committee the Executive has committed an
act set forth in this subsection (d) and specifying the particulars
thereof in detail.
(e) Change in Control shall be deemed to have occurred if at any time or
from time to time after the date of this Agreement:
(1) any "person" or "group" [as those terms are used in Sections 13(d)
and 14(d), respectively, of the Securities Exchange Act of 1934
("Exchange Act")], other than the Maclellan family or a trustee or
other fiduciary holding securities under an employee benefit plan of
Provident, or a corporation owned, directly or indirectly, by the
stockholders of Provident in substantially the same proportions as
their ownership of stock of Provident, is or becomes the "beneficial
owner," (as defined in Rule 13d-3 of the Exchange Act), directly or
indirectly, of securities of Provident representing thirty percent
(30%) or more of the combined voting power of Provident's then
outstanding securities and (ii) the "group" comprised of the
Maclellan family does not then beneficially own, directly or
indirectly, securities of Provident representing more than thirty
percent (30%) of the combined voting power of the Company's then
outstanding securities; or
(2) the stockholders of Provident approve a merger or consolidation of
Provident with any other corporation, other than a merger or
consolidation which would result in the voting securities of
A-3
<PAGE>
Provident outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into
voting securities of the surviving entity) more than fifty percent
(50%) of the combined voting power of the voting securities of
Provident or such surviving entity outstanding immediately after such
merger or consolidation, or the stockholders of Provident approve a
plan of complete liquidation of Provident or an agreement for the
sale or disposition by Provident of all or substantially all
Provident's assets.
KEY CONTRIBUTOR PLAN
The MICP includes a Key Contributor Plan. This plan will function as
follows:
(a) There will be 5-25 participants each year, with participation for the
year based on special performance.
(b) Award payments under the plan will be equivalent to a flat dollar
amount not related to salary.
(c) Determination of participants and payout amounts will be made by the
Compensation Committee upon recommendation by the CEO.
(d) Award payments will be made in the Common Stock of Provident, with the
number of shares determined by dividing the dollar value of the award
by the market price of the stock at the time of the award.
(e) The stock awarded under this Subplan may be subject to restrictions on
vesting, transfer or otherwise.
The total cost of the Key Contributor Plan will not exceed $1,750,000 during
any year.
PERFORMANCE SHARE PLAN
A Performance Share Plan is also included in the MICP. The CEO, Vice
Chairman and Chief Financial Officer, Executive Vice Presidents, the Senior
Vice Presidents, and other designated senior officers participate in this
plan. Producers for the Company who achieve certain performance sales goals
also participate in this plan as described below. Approximately 15-35 officers
may participate in any one year. The officers, all of whom have company stock
ownership requirements, are required to receive a portion of their MICP annual
incentive awards in "Performance Shares," based on the following table:
<TABLE>
<CAPTION>
MICP INCENTIVE
EARNED % PAID IN PERFORMANCE SHARES
-------------- ----------------------------
<S> <C>
Less than $100,000 25.0%
$100,000--$249,999 37.5
$250,000 or more 50.0
</TABLE>
Participants may elect to receive any portion of their MICP awards above the
required percentage in Performance Shares.
A "Performance Share" is a unit of deferred compensation, equal in value to
the market price of Provident stock. The number of Performance Shares to be
awarded to any participant is determined by:
(1) Dividing the amount of MICP award being paid in Performance Shares
(both mandatory and voluntary) by the current market price for a share
of Provident stock, and
(2) "Grossing-up" the number of Performance Shares on a 30% basis, to
reflect risk of forfeiture, and lack of liquidity and marketability.
Performance Shares are subject to the following:
(1) The shares attributable to the "gross-up" factor are subject to
forfeiture during a three-year period following the award. The
remaining Performance Shares are not subject to forfeiture.
A-4
<PAGE>
(2) Participants may elect to extend the deferral period for payment of
Performance Shares beyond the required period of three years, but not
beyond the earliest of retirement, death, or disability. Any such
election must be made prior to the date such shares are credited to the
participant.
(3) Generally, Performance Shares will be paid in Provident stock; however,
the Compensation Committee of the Board of Directors has the authority
to direct that the value of such shares be paid in part or entirely in
cash.
(4) Each Performance Share will receive a dividend equivalent in an amount
equal to the then current dividend on Provident's stock. The dividend
may be paid in cash or applied to accumulate additional Performance
Shares, at the election of each participant.
(5) Performance Shares will be counted in the calculation of participants'
total ownership of Provident stock for purposes of determining the
extent to which stock ownership requirements have been met.
(6) In the event of death, normal retirement, termination without cause, or
change in control of Provident, any shares attributable to the "gross-
up" factor, which otherwise would be subject to forfeiture during a
three year period, will automatically cease to be subject to such
forfeiture.
In the event of termination for cause or voluntary resignation, any
shares subject to the "gross-up" factor will be forfeited. The
Compensation Committee of the Board of Directors has the authority to
review such forfeiture on a case by case basis.
Certain producers who achieve performance sales goals are also eligible to
participate in the Performance Share Plan. The goals required and the terms of
the producers' participation will be approved by the Compensation Committee.
However, there is no "gross-up" of the number of shares to be awarded under
the Plan to the producers, and the terms of such participation would be no
more favorable than those applicable to the officers. Management estimates
that approximately ten to thirty-five producers would participate in this plan
each year.
NON-ASSIGNABILITY
No grants or awards under this Plan shall be subject in any manner to
alienation, anticipation, sale, transfer, assignment, pledge or encumbrance.
NO RIGHT TO CONTINUED EMPLOYMENT
Participation in the MICP shall not give any employee any right to remain in
the employ of the Company. The MICP is not to be construed as a contract of
employment for any period and does not alter the at-will status of any
participant.
SOURCE OF BENEFITS
Awards under the MICP will not be prefunded but will be paid by the Company
as and when they become due as provided herein, and the participant's interest
in the award shall be only that of an unsecured creditor of the Company.
TAXATION
Award payments under the MICP are treated as wages and will be subject to
income and FICA tax withholding at the time received. To the extent prescribed
by law, the Company will be required to deduct these taxes from any payments
to participants.
A-5
<PAGE>
APPENDIX B
STOCK PLAN OF 1994
PURPOSE
The purpose of this Stock Plan of 1994 ("the Plan") is to advance the
interests of Provident Life and Accident Insurance Company ("the Company") its
parent, Provident Companies, Inc. ("Provident") and its affiliates,
subsidiaries of Provident, by encouraging and enabling the acquisition of a
financial interest in Provident by key employees, non-employee Directors and
non-employee producers of business for the Company and its affiliates.
FORMS OF STOCK AWARDS
The following forms of stock awards are permitted by the Plan:
STOCK OPTIONS--All forms of stock options, including incentive stock options
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended from time to time; non-qualified stock options or any other type of
options encompassed by the Code.
STOCK APPRECIATION RIGHTS--Rights to receive a payment from the Company
equal to the excess of the fair market value (as defined below) of a share of
common stock at the date of exercise over the fair market value at the date of
grant.
RESTRICTED STOCK--Stock issued or transferred under the Plan which is
subject to restrictions on the vesting, sale or other disposition thereof.
ADMINISTRATION OF THE PLAN
The Compensation Committee ("the Committee"), designated by the Board of
Directors, will administer, construe, and interpret the Plan. No member of the
Committee, or of the Board of Directors, or any delegatee as the case may be,
shall be liable for any act done in good faith.
The Committee shall be constituted so as to permit the Plan to comply with
Rule 16b-3 promulgated by the Securities Exchange Commission under the
Securities Exchange Act of 1934 or under any successor rule.
The construction and interpretation of the Committee of any provision of the
Plan shall be final and conclusive. The Committee shall have full and complete
authority in its discretion to determine, among other things, the key persons
to whom, and the time or times in which, stock awards shall be granted, the
form of stock to be granted, the number of shares to be covered by each award
and the period of time and requisite conditions for each; and to determine the
terms and provisions of the award agreements (which agreements need not be
identical).
The Committee may, in its discretion, delegate its general administrative
duties to an officer or employee or committee composed of officers or
employees of the Company, but may not delegate its authority to construe and
interpret the plan or approve the granting of stock awards.
The Committee may at any time or from time to time amend the Plan in any
respect without restriction and without the consent of any participant.
However, any modification of the Plan which would result in a substantial
change in the number of participants or the number of stock awards granted, or
termination of the Plan, must be approved by the Board of Directors.
The Plan shall terminate on the earlier of December 31, 1998, or the
issuance of all stock awards authorized for the Plan, unless earlier
terminated by the Committee with the approval of the Board of Directors.
B-1
<PAGE>
This Plan, and the rights and obligations of the parties thereunder, will be
construed in accordance with the laws of the State of Tennessee.
PARTICIPATION IN THE PLAN
Participation in the Plan shall be based on recommendations by Company
management and subject to approval by the Committee.
Participation in the Plan shall be limited to the following:
(1) Key employees
(2) Non-employee Directors
(3) Certain non-employee producers of the Company or its affiliates
STOCK TO BE AWARDED
Stock awards will be for shares of Common Stock of Provident. The stock to
be received by participants may be purchased on the open market or issued out
of authorized but unissued stock of Provident.
The total number of shares that may be awarded to all participants under the
Plan may not exceed 5,000,000 shares. The total number of shares that may be
awarded to all non-employee Directors may not exceed in the aggregate 100,000
shares (20,000 annually). No more than 1,000,000 shares may be awarded to an
employee in a calendar year.
AWARDS OF STOCK OPTIONS
Except as otherwise specifically provided herein, stock options granted
pursuant to the Plan shall be subject to the following terms and conditions:
(a) Option Price. The option price shall be 100% of the fair market value
of the stock on the date of grant. The fair market value of a share of
stock shall be the average of the high and low market prices reported
in The Wall Street Journal at which a share of stock shall have been
sold on the day before the option is granted or on the next preceding
trading day if such date was not a trading day.
(b) Payment. The option price shall be paid in full at the time of
exercise. No shares shall be delivered until full payment has been
received therefor. Payment may be in cash or by delivery of shares of
stock owned by the optionee. Payment may also be made by subtracting
from the number of options exercised the number of shares necessary to
meet such payment obligation, a feature generally known as a "cashless
exercise." If payment is with shares of stock, the value of the shares
shall be computed on the basis of the average of the high and low
market prices reported in The Wall Street Journal at which a share of
stock shall have been sold on the day before the optionee elects to
exercise an option, or on the next preceding trading day if such date
was not a trading day.
(c) Duration of Options. The duration of options shall be determined by the
Committee, but in no event shall the duration of an option exceed ten
(10) years from the date of its grant.
B-2
<PAGE>
(d) "Reload" Feature. To encourage increased ownership, the Plan includes
what is commonly referred to as a "reload" feature. Under this
arrangement, when options are exercised, payment for the option shares
by delivery of shares already owned by the optionee (which were
acquired either (i) by direct purchase outside the option process, or
(ii) through exercise of options more than six (6) months prior to the
date of the current exercise) would entitle the optionee to a new stock
option grant equal to the number of shares delivered. The new option
grant would acquire the remaining exercise period with respect to the
options exercised and the option price would be the then current fair
market value as defined by the Plan.
This feature applies to all options under the Plan subject to the
discretion of the Compensation Committee based on then applicable tax
and/or accounting rules.
(e) Other Terms and Conditions. Options may contain such other provisions,
not inconsistent with the provisions of the Plan, as the Committee
shall determine appropriate from time to time; provided, however, that
no option shall be exercisable in whole or in part for a period of
twelve (12) months from the date on which the option is granted, except
as provided in the section below headed Change in Control.
NUMBER OF STOCK AWARDS
The Committee shall determine the number of stock awards granted to each
participant in the Plan.
NON-TRANSFERABILITY
No stock award granted pursuant to the Plan shall be transferable otherwise
than by will or by the laws of descent and distribution, and except in the
case of an incentive stock option, pursuant to domestic relations order as
defined in the Internal Revenue Code or Title I (of the Employee Retirement
Income Security Act, or the rules thereunder, if the order satisfies the
conditions set forth in the Code. Notwithstanding the foregoing, the Committee
may (but need not) permit transfers other than by will, or by the laws of
descent and distribution, or pursuant to a domestic relations order where the
Committee concludes that such transferability (i) does not result in
accelerated taxation, (ii) does not cause any option intended to be an
incentive stock option to fail to be described in Section 422(b) of the Code,
and (iii) is otherwise appropriate and desirable, taking into account any
state or federal securities laws applicable to transferable awards.
During the lifetime of an optionee, a stock award shall be exercisable only
by the optionee personally or by the optionee's legal representative.
TERMINATION OF EMPLOYMENT
If a participant's active employment terminates for any reason other than
retirement, disability, or death, all non-vested stock awards, and all
unexercised rights under options held by the participant, shall expire on the
date of such termination.
RIGHTS IN THE EVENT OF RETIREMENT
Upon retirement of a participant in the Plan, all outstanding stock options
will become immediately exercisable for a period of five years (but in no
event more than 10 years from date of grant). For purposes of this provision,
"retirement" shall mean normal retirement or early retirement with Committee
approval.
RIGHTS IN EVENT OF DISABILITY OR DEATH
If a participant to whom stock options have been granted terminates active
employment with the Company because of total disability or death, such options
may be exercised within the period provided in the option agreement but in no
event more than three years after the date of onset of disability or death.
For purposes of this provision, "disability" shall mean total disability due
to injury or illness. A participant will be considered totally disabled if not
able to perform all the duties of the participant's position with the Company
at the time of termination of active employment.
B-3
<PAGE>
CHANGE IN CONTROL
In the event of a change in control of Provident, all outstanding options
would become immediately exercisable by all option holders, and all other
forms of stock awards would immediately become vested. The Committee also
would have the right to cash out any unvested stock options on the date of a
change in control at an amount for each option equal to the spread between the
fair market value on the date of change in control and the option price. The
fair market value shall be the average of the high and low market prices
reported in The Wall Street Journal at which a share of stock shall have been
sold on the day before the date of change in control or on the next preceding
trading day if such date was not a trading day.
CHANGE IN CONTROL shall be deemed to have occurred if any time or from time
to time after the date of this Agreement:
(1) any "person" or "group" [as those terms are used in Sections 13(d) and
14(d), respectively, of the Securities Exchange Act of 1934 ("Exchange
Act")], other than the Maclellan family or a trustee or other fiduciary
holding securities under an employee benefit plan of Provident, or a
corporation owned, directly or indirectly, by the stockholders of
Provident in substantially the same proportions as their ownership of
stock of Provident, is or becomes the "beneficial owner," (as defined
in Rule 13d-3 of the Exchange Act), directly or indirectly, of
securities of Provident representing thirty percent (30%) or more of
the combined voting power of Provident's then outstanding securities
and (ii) the "group" comprised of the Maclellan family does not then
beneficially own, directly or indirectly, securities of Provident
representing more than thirty percent (30%) of the combined voting
power of the Company's then outstanding securities; or
(2) the stockholders of Provident approve a merger or consolidation of
Provident with any other corporation, other than a merger or
consolidation which would result in the voting securities of Provident
outstanding immediately prior thereto continuing to represent (either
by remaining outstanding or by being converted into voting securities
of the surviving entity) more than fifty percent (50%) of the combined
voting power of the voting securities of Provident or such surviving
entity outstanding immediately after such merger or consolidation, or
the stockholders of Provident approve a plan of complete liquidation of
Provident or an agreement for the sale or disposition by Provident of
all or substantially all Provident's assets.
RIGHTS AS A STOCKHOLDER
A participant shall have no right as a stockholder with respect to any stock
award until the participant shall have become the holder of record of such
stock, and no adjustment shall be made for dividends in cash or other property
or other distributions or rights in respect to such stock for which the record
date is prior to the date on which the participant shall have in fact become
the holder of record of the shares of stock acquired pursuant to the Plan.
ADJUSTMENT IN THE NUMBER OF SHARES AND IN OPTION PRICE
In the event there is any change in the shares of stock through the
declaration of stock dividends, or stock splits or through recapitalization or
merger or consolidation or combination or shares or otherwise, the Committee
shall make such adjustment, if any, as it may deem appropriate in the number
of shares of stock covered by each outstanding award. Any such adjustment may
provide for the elimination of any fractional shares which might otherwise
become subject to any option or right without payment therefor.
TAXATION
If the granting or vesting of a stock award, or the exercise of an option
granted under this Plan, triggers any income tax withholding requirements
whatsoever, the Company shall have the right to take whatever action it deems
necessary or appropriate to satisfy that requirement, acting in its absolute
discretion.
B-4
<PAGE>
DESIGNATION OF BENEFICIARIES
A participant may designate a beneficiary or beneficiaries to receive any
unvested stock awards, or to exercise stock options previously granted to the
participant under the Plan, in case of death. A designation of beneficiary may
be replaced by a new designation or may be revoked by the participant at any
time. A designation or revocation shall be on a form to be provided for the
purpose and shall be signed by the participant and delivered to the Company
prior to the participant's death. If there shall be any question as to the
legal right of any beneficiary to exercise any rights under the Plan, the
rights to the award in question may be exercised by the estate of the
participant, in which event the Company shall have no further liability to
anyone with respect to such stock award.
NO RIGHT TO CONTINUED EMPLOYMENT
Participation in the Plan shall not give any employee any right to remain in
the employ of the Company. The Plan is not to be construed as a contract of
employment for any period and does not alter the at-will status of any
participant.
B-5
<PAGE>
[x] Please mark your votes as in this example.
When properly executed, this proxy will be voted as directed. If directions
are not given, the shares represented by this proxy will be voted FOR all of the
nominees in Item 1 and FOR Items 2, 3, and 4.
1. Election of Directors (See Reverse) FOR WITHHELD
[ ] [ ]
Nominees: William L. Armstrong; William H. Bolinder; J. Harold Chandler; Steven
M. Gluckstern; Charlotte M. Heffner; Hugh B. Jacks; William B. Johnson; Hugh O.
Maclellan, Jr.; A.S. (Pat) MacMillan; C. William Pollard; Scott L. Probasco,
Jr.; Steven S Reinemund; Burton E. Sorensen and Thomas R. Watjen.
For, except vote withheld from the following nominees(s):
_________________________________________________________
2. Approval of Amendment to Annual Management FOR AGAINST ABSTAIN
Incentive Compensation Plan of 1994. [ ] [ ] [ ]
3. Approval of Amendment of Stock Plan of 1994. FOR AGAINST ABSTAIN
[ ] [ ] [ ]
4. Approval of the selection of Ernst & Young FOR AGAINST ABSTAIN
LLP as independent auditors for 1997. [ ] [ ] [ ]
5. Other Matters: In their discretion, to vote upon all other matters as may
properly come before the Meeting or any adjournments thereof.
[ ] Please check the box to the left if you plan to attend the meeting.
___________________________________________
___________________________________________
SIGNATURE(S) DATE
________________________________________________________________________________
FOLD AND DETACH HERE
<PAGE>
PROVIDENT COMPANIES, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
ANNUAL MEETING OF STOCKHOLDERS
MAY 7, 1997, AT 10 A.M., EASTERN DAYLIGHT TIME
PROXY FOR COMMON STOCK
The undersigned hereby appoints J. Harold Chandler and Hugh O.
Maclellan, Jr., and each or either of them, as true and lawful proxies with full
power of substitution in each, to represent the undersigned at the 1997 Annual
Meeting of the Stockholders of Provident Companies, Inc. to be held in the Home
Office of the Company at 1 Fountain Square, Chattanooga, Tennessee, on
Wednesday, May 7, 1997 at 10:00 a.m. and at any adjournments thereof, and to
vote the shares of the Company represented by this Proxy as specified on the
reverse side.
Please mark, date, sign and return this proxy in the enclosed, pre-paid
envelope.
________________________________________________________________________________
FOLD AND DETACH HERE
