<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996 Commission file number 1-11834
PROVIDENT COMPANIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 62-1598430
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1 FOUNTAIN SQUARE
CHATTANOOGA, TENNESSEE 37402
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (423) 755-1011
Securities registered pursuant to
Section 12(b) of the Act:
COMMON STOCK, PAR VALUE $1.00 PER SHARE
(Title of Class)
8.10% CUMULATIVE PREFERRED STOCK, LIQUIDATION VALUE $150 PER SHARE
(Title of Class)
Securities registered pursuant to
Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
As of March 10, 1997, there were 45,685,191 shares of the registrant's Common
Stock, and 1,041,534 shares of the registrant's 8.10% Cumulative Preferred Stock
outstanding. The aggregate market value of the shares of Common Stock and the
Depositary shares representing the Preferred Stock based on the closing price of
those shares on the New York Stock Exchange, Inc., held by non-affiliates was
approximately $ 1,246.0 million and $161.7 million, respectively.
Selected material from the Annual Report to Stockholders for the year ended
December 31, 1996 and Proxy Statement for the Annual Meeting of Stockholders
scheduled for May 7, 1997, have been incorporated by reference into Parts I, II,
and III of this Form 10-K.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
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PART I
ITEM 1. BUSINESS
INTRODUCTION
Provident Companies, Inc. (the "Company") is a Delaware business
corporation that serves as a holding company of Provident Life and Accident
Insurance Company ("Accident"), Provident Life and Casualty Insurance Company
("Casualty"), and Provident National Assurance Company ("National") (hereinafter
collectively "Provident").
Provident does business in the 50 states, the District of Columbia,
Puerto Rico, and ten provinces and two territories of Canada. Provident
operates principally in the life and health insurance business. Individual
disability income products, individual life products, and individual annuities
are reported in the Individual Life and Disability segment and are marketed
primarily through personal producing general agents, brokerage offices, and
corporate marketing arrangements. Individual annuities and individual
disability products are also marketed through financial institutions. The
Employee Benefits segment contains products that are sold to or through
corporate customers and certain affinity groups, including permanent and term
life insurance, disability, cancer, accident and sickness, accidental death and
dismemberment protection, and medical stop-loss. The Other Operations segment
reports corporate results, primarily investment earnings on capital not
specifically allocated to a line of business, and also includes results from
products no longer actively marketed, including guaranteed investment contracts
("GICs"), group single premium annuities, and corporate-owned life insurance.
This segment also includes the results of the group medical business which was
sold effective April 30, 1995. See "Note 13 of the Notes to Consolidated
Financial Statements" on page 65 of the Annual Report to Stockholders for the
year ended December 31, 1996, incorporated herein by reference.
The Company does not conduct any other significant business except for
its receipt of dividends from Provident and the payment of dividends to its
stockholders (see Item 7 below).
The acquisition of The Paul Revere Corporation ("Paul Revere") by the
Company is currently pending and is expected to close in the first quarter of
1997. The acquisition is to be effected pursuant to a merger of a newly formed,
wholly-owned subsidiary of the Company with and into Paul Revere with Paul
Revere becoming a wholly-owned subsidiary of the Company (the "Paul Revere
Merger"). The Paul Revere Merger will be accounted for under the purchase
method of accounting, pursuant to which the assets and liabilities of Paul
Revere will be recorded at their respective fair values and added to those of
the Company. Paul Revere is a Massachusetts corporation organized in 1992 as an
insurance holding company. Paul Revere's principal operations in the United
States and Canada are conducted through its wholly-owned subsidiary, The Paul
Revere Life Insurance Company ("Paul Revere Life"), a Massachusetts-domiciled
life insurance company licensed in all 50 states, the District of Columbia, and
Canada. Paul Revere Life has two wholly-owned subsidiaries, The Paul Revere
Variable Annuity Insurance Company ("Paul Revere Variable"), a Massachusetts-
domiciled life insurance company licensed in 48 states and the District of
Columbia, and The Paul Revere Protective Life Insurance Company ("Paul Revere
Protective"), a Delaware-domiciled life insurance company licensed in 40 states
and the District of Columbia. Disability insurance has been Paul Revere's
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primary product line since Paul Revere Life's founding. In addition to its
individual and group disability insurance products, Paul Revere also markets
individual life insurance, group life insurance, dental insurance, and annuity
products.
In connection with the Paul Revere Merger, the stockholders of the
Company approved issuing up to 14,406,000 shares of the Company's Common Stock
to the stockholders of Paul Revere and issuing 9,523,810 to Zurich Insurance
Company in connection with financing the Merger. They also approved amending
the Company's Certificate of Incorporation to increase from 65,000,000 to
150,000,000 the number of shares of the Company's Common Stock which the Company
is authorized to issue.
In February 1997, the Company acquired GENEX Services, Inc. and GENEX
Services of Canada, Inc. ("GENEX") at a price of approximately $70 million.
GENEX is a provider of case management, vocational rehabilitation, and related
services to corporations, third party administrators, and insurance companies.
These services are utilized in the management of disability and worker's
compensation claims. The results of the GENEX operations will be reported in
the Employee Benefits segment in future filings.
Unless the context otherwise indicates, references in this report to
the "Company" include Provident Companies, Inc., and its direct subsidiaries,
including Accident, National, and Casualty. Unless the context otherwise
indicates, the discussion of the business of the Company will refer to the
business and activities of Provident because all of the material business
activities of the Company are conducted by Provident.
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SELECTED DATA OF SEGMENTS
The following table reflects for the indicated years selected financial data for
the Company's segments.
<TABLE>
<CAPTION>
Year Ended December 31 1996 1995 1994
(in millions of dollars)
-------------------------------
<S> <C> <C> <C>
Revenue (Excluding Net Realized
Investment Gains and Losses)
Individual Life and Disability $ 1,047.6 $ 1,019.3 $ 956.6
Employee Benefits 606.1 582.7 555.3
Other Operations 646.8 985.0 1,280.4
--------- --------- ---------
Total $ 2,300.5 $ 2,587.0 $ 2,792.3
========= ========= =========
Income Before Net Realized Investment
Gains and Losses and Federal Income Taxes
Individual Life and Disability $ 117.3 $ 36.5 $ 53.2
Employee Benefits 56.3 48.6 71.8
Other Operations 61.2 122.6 106.0
--------- --------- ---------
Total $ 234.8 $ 207.7 $ 231.0
========= ========= =========
Revenue (Including Net Realized
Investment Gains and Losses)
Individual Life and Disability $ 1,056.1 $ 1,024.0 $ 962.4
Employee Benefits 606.2 586.6 556.9
Other Operations 629.6 944.7 1,242.9
--------- --------- ---------
Total $ 2,291.9 $ 2,555.3 $ 2,762.2
========= ========= =========
Income Before Federal Income Taxes
Individual Life and Disability $ 125.8 $ 41.2 $ 59.0
Employee Benefits 56.4 52.5 73.4
Other Operations 44.0 82.3 68.5
--------- --------- ---------
Total $ 226.2 $ 176.0 $ 200.9
========= ========= =========
Assets
Individual Life and Disability $ 6,051.3 $ 5,746.1 $ 4,597.1
Employee Benefits 1,505.8 1,426.5 1,238.3
Other Operations 7,435.4 9,128.7 11,314.5
--------- --------- ---------
Total $14,992.5 $16,301.3 $17,149.9
========= ========= =========
</TABLE>
Total revenue (excluding net realized investment gains and losses) includes
premium income, net investment income, and other income. Total revenue
(including net realized investment gains and losses) includes premium income,
net investment income, net realized investment gains and losses, and other
income. Assets have been allocated to the segments based upon identifiable
liabilities and allocated stockholders' equity.
Additional information regarding the operations of these segments may be
found under the caption "Management's Discussion and Analysis of Financial
Condition and Results of Operations" on pages 26-35 of the Annual Report to
Stockholders for the year ended December 31, 1996, incorporated herein by
reference.
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CONSOLIDATED LIFE INSURANCE IN FORCE
The following table sets forth the changes to life insurance in force and the
number of policies in force for the Company's business segments. Reinsurance
assumed has been included in these figures. Reinsurance ceded has not been
deducted.
<TABLE>
<CAPTION>
NUMBER OF
FACE AMOUNT POLICIES
------------------------------------------------------------------------------------------- ----------
(in millions of dollars)
In force Lapses In force In force
Beginning Other and Other End End
of Year Sales Increases Deaths Surrenders Decreases of Year of Year
--------- --------- --------- ------ ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1996
Individual Life
and Disability $12,709.1 $1,109.2 $239.6 $48.5 $1,109.9 $314.3 $12,585.2 173,330
Employee Benefits 83,276.3 13,664.0 2,011.8 201.1 11,558.2 113.1 87,079.7 415,394
Other Operations 2,967.2 4.2 66.2 28.8 5.0 4.2 2,999.6 25,597
--------- --------- --------- ------ --------- ------ --------- -------
Total $98,952.6 $14,777.4 $2,317.6 $278.4 $12,673.1 $431.6 $102,664.5 614,321
========= ========= ======== ====== ========= ====== ========== =======
1995
Individual Life
and Disability $12,683.6 $1,062.7 $260.3 $45.8 $1,050.4 $201.3 $12,709.1 179,310
Employee Benefits 71,460.5 9,133.1 6,287.9 193.6 3,324.3 87.3 83,276.3 367,601
Other Operations 2,641.5 8.9 344.6 12.3 12.2 3.3 2,967.2 25,844
--------- --------- --------- ------ --------- ------ --------- -------
Total $86,785.6 $10,204.7 $6,892.8 $251.7 $4,386.9 $291.9 $98,952.6 572,755
========= ========= ======== ====== ========= ====== ========== =======
1994
Individual Life
and Disability $12,877.4 $1,299.6 $210.0 $50.9 $1,406.7 $245.8 $12,683.6 185,440
Employee Benefits 68,064.8 7,027.2 1,214.5 188.2 4,342.3 315.5 71,460.5 340,110
Other Operations 2,351.7 5.7 307.0 12.1 10.2 0.6 2,641.5 25,995
--------- --------- --------- ------ --------- ------ --------- -------
Total $83,293.9 $8,332.5 $1,731.5 $251.2 $5,759.2 $561.9 $86,785.6 551,545
========= ========= ======== ====== ========= ====== ========== =======
</TABLE>
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INDIVIDUAL LIFE AND DISABILITY
The Individual Life and Disability segment offers a variety of disability
and life and annuity products to individuals.
For a discussion of operating results for the Individual Life and
Disability segment, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations," pages 27-28, of the Annual Report to
Stockholders for the year ended December 31, 1996, incorporated herein by
reference.
Historically, individual disability income insurance has been a significant
contributor to Provident's net income, although in 1993, 1994, and 1995 net
income from this line was down materially from earlier years. In 1996, results
in this line improved significantly.
Provident is among the largest underwriters of individual disability income
insurance in the United States based on annualized premiums in force. Until
1995 almost all of Provident's individual disability income insurance was sold
on a noncancelable basis. Under a noncancelable policy, as long as the insured
continues to pay the fixed annual premium for the policy's duration, the policy
cannot be canceled by Provident nor can the premium be raised. Historically,
Provident marketed individual disability income insurance primarily to upper
income professionals, small business owners, and business executives. As
discussed below, Provident has changed the types of policies which it is
offering and broadened the market focus for these products.
Individual disability income insurance provides the insured with a portion
of earned income lost as a result of sickness or injury. Under an individual
disability income policy, monthly benefits generally are fixed at the time the
policy is written. The benefits typically range from 30 percent to 75 percent
of the insured's monthly earned income. Various options with respect to length
of benefit periods and waiting periods before payment begins are available and
permit tailoring of the policy to a specific policyholder's needs. Provident
also markets individual disability income policies which include payments for
transfer of business ownership and business overhead expenses. Individual
disability income products do not provide for the accumulation of cash values.
Premium rates for these products are varied by age, sex, and occupation
based on assumptions concerning morbidity, persistency, policy related expenses,
and investment income. Provident develops its assumptions based on its own
claim experience and published industry tables. Due to the noncancelable, fixed
premium nature of the policies marketed in the past, profitability of this part
of the business is largely dependent upon achieving the morbidity and interest
rate assumptions set in the loss recognition study of the business written in
1993 and prior and in the pricing of business written after 1993. Provident's
underwriters evaluate the medical and financial condition of prospective
policyholders prior to the issuance of a policy.
The Company performed a loss recognition study on its individual disability
income business as of September 30, 1993. The study resulted in a $423.0
million pre-tax or $275.0 million after-tax charge to operating earnings. The
charge was required under generally accepted accounting principles due to the
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significant decline in interest rates in 1993 and the increased level of
morbidity experienced by the Company. Since 1993, the Company has performed
annual loss recognition studies to determine the continued adequacy of the
reserves that were established. Based upon the December 1996 loss recognition
study, which incorporates management's best estimate for the assumptions used,
reserves were adequate at December 31, 1996.
To better understand and analyze this business, Provident segments the
business by state, branch office, policy form, and occupation and uses the
information in the pricing, risk selection, and morbidity control processes as
more fully discussed below. Provident has also tightened its underwriting
requirements, discontinued sale of noncancelable long-term own-occupation
policies with certain exceptions, and issued a new series of loss of earnings
("LE") policies. All claim payments are centralized in the home office for
greater control and consistency. Specialization is being emphasized for specific
types of claims, such as mental and nervous and orthopedic claims; early
intervention in the claim process has been emphasized; and, the number and
qualifications of the claims adjudication staff have been increased.
The management of the Company initiated a comprehensive analysis of its
overall corporate strategy in 1994. An important conclusion related to the
individual disability income line was that the combination of noncancelable
pricing guarantees and long-term own-occupation coverage is a risk which is very
difficult to manage in today's environment. Therefore, in 1995, Provident
discontinued selling individual noncancelable contracts with the long-term own-
occupation provision (other than conversion policies available under existing
contractual arrangements). Additionally, after January 1, 1995, lifetime
benefits were not available on any basis, and maximum issue and participation
limits of $10,000 were applied to all physicians and dentists.
Consistent with the product development strategy begun in 1994, Provident
is offering LE contracts instead of the traditional noncancelable long-term own-
occupation contracts. The LE contract insures income rather than occupation.
Eligibility for benefits under the new LE policy is not based on whether the
insured can work in his or her original occupation. Instead, a claimant must
satisfy two conditions for benefits to begin: reduced ability to work due to
accident or sickness and earnings loss of at least 20 percent. These policies
are aimed at repositioning the individual disability income product by making it
more attractive to a broader market of individual consumers, including middle to
upper income individuals and corporate benefit buyers.
These product decisions are an integral part of an intensive, broad-based
effort to enhance the profitability and improve the growth prospects of the
individual disability line. This effort involves many separate improvement
initiatives implemented in 1995 which fall into four main categories. The first
major area of emphasis focuses on thoroughly understanding the risk
characteristics of the current individual disability income block of business.
The second major area of emphasis includes improvements to the claims management
process including the addition of resources, the creation of dedicated specialty
claim units (including mental and nervous and orthopedic), and enhancements to
rehabilitation capabilities. Management believes these efforts will enable the
Company to enhance service to its customers by providing a better understanding
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of the disability underlying the claims and improving further the Company's
ability to thoroughly and effectively adjudicate a claim. Through the
acquisition of GENEX and the important disability management and rehabilitation
skill sets available from its personnel, the Company will be able to provide
additional service and benefits to its disability customers. A third category is
a complete reengineering of the new-business process in order to achieve a more
efficient application and policy issue process. Through the utilization of
improved technology and work processes, Provident began the implementation of
its refocused customer strategy in 1995. Finally, the fourth area focuses on
expanded future product offerings with product modifications continuing to be
developed in 1996 as a result of the initiatives outlined above.
These strategic actions were expected to result in a period of lower
premium income from new sales of individual disability income products, due to
the product transition and the premium differential that exists between the new
LE contracts and the old noncancelable long-term own-occupation contracts.
Although sales declined in the early part of 1996, in the second half of the
year annualized new premium exceeded that of the first six months of 1996 and
that of the last six months of 1995. Management believes this indicates
improving market acceptance of the new products.
Provident markets individual disability income insurance primarily through
independent agents and brokers who are served by a network of 45 sales offices
in the United States (service offices have been consolidated into the home
office in Chattanooga, Tennessee) and 4 sales offices and 1 Canadian home office
in Canada. The sales offices are staffed with approximately 175 management,
sales, and clerical employees. Provident has 8 United States marketing regions
which provide support and services to branch and district managers.
Also included in this segment is a variety of individual life products
offered to the middle and upper income market historically through a
distribution system of approximately 700 personal producing general agents
("PPGAs") throughout the United States. These products are also available
through the individual brokerage offices.
Provident's life insurance offerings include term insurance, universal
life, and interest-sensitive life insurance products. Universal life products
provide permanent life insurance with adjustable interest rates applied to the
cash value and are designed to achieve specific policyholder objectives such as
higher accumulation values and/or flexibility with respect to amount of coverage
and premium payments. The principal difference between fixed premium and
universal life insurance policies centers around policy provisions affecting the
amount and timing of premium payments. Under universal life policies,
policyholders may vary the frequency and size of their premium payments, and
policy benefits may fluctuate accordingly. Premium payments under the fixed
premium policies are not variable by the policyholder and, as a result,
generally reflect lower administrative costs than universal life products for
which extensive monitoring of premium payments and policy benefits is required.
The largest number of ordinary life policies sold in 1995 and 1996 were the
ten-year level term policies. These products have level premiums for an initial
ten-year period after which the policyholder may resubmit to the underwriting
process and possibly qualify for a new ten year period at the attained age
premiums; otherwise, premiums revert to a yearly renewable term premium which
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increases annually. When measured by annualized premiums, universal life with
the flexibility and features described above was the largest product category
sold by Provident in this segment in recent years.
Premium rates for Provident's life insurance products are based on
assumptions as to future mortality, investment yields, expenses, and lapses.
Although a margin for profit is included in setting premium rates, the actual
profitability of products is significantly affected by the variation of actual
experience from assumed experience. Profitability of fixed premium products is
also dependent upon investment income on reserves. The profitability of
interest-sensitive products is determined primarily by the ultimate underwriting
experience and the ability to maintain anticipated investment spreads.
Provident believes that the historical claim experience for these products has
been satisfactory.
From Provident's viewpoint, the risks involved with interest-sensitive
products include actual versus assumed mortality, achieving investment returns
that at least equal the current declared rate, competitive position of declared
rates on the policies, meeting the contractually guaranteed minimum crediting
rate, and recovery of policy acquisition costs. From the policyholder's
perspective, the risk involved with interest-sensitive products is whether or
not the declared rates on the policy will compare favorably with the returns
available elsewhere in the marketplace.
In 1994, Provident began distributing individual single premium deferred
annuities through banks and other financial institutions using third party
marketers specializing in this type of distribution. Provident generated $8.1
million in single premium deferred annuity deposits sold through this channel in
1996 and expects to expand the distribution of these products in 1997. Deposits
on annuities sold through other distribution channels were $13.1 million in
1996.
Management has created a significant initiative to expand its offering of
each of its individual products through each of its marketing channels,
including its individual brokerage system, the PPGAs, and its alternative
markets group which focuses on sales through non-traditional channels including
banks and other financial institutions, affinity groups, and associations. This
expansion should further enhance the Company's ability to serve a broader
market.
EMPLOYEE BENEFITS
The Employee Benefits segment offers a variety of group related products
such as voluntary benefits, group disability, group life insurance, medical
stop-loss insurance, and other products marketed to certain associations and
employee groups. These products are sold through consultants, brokers, agents
and directly to corporate customers.
For a discussion of operating results for the Employee Benefits segment,
see "Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 29-30 of the Annual Report to Stockholders for the year
ended December 31, 1996, incorporated herein by reference.
In recent years, Provident has increased its emphasis on marketing group
disability income insurance as a separate coverage, primarily on a fully-insured
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basis to employers with fewer than 1,000 employees. Disability income insurance
provides employees with insurance coverage for loss of income in the event of
extended work absences due to sickness or injury. Services are offered to
employers and insureds to encourage and facilitate rehabilitation, retraining,
and re-employment. Premiums for this product are based on expected claims of a
pool of similar risks plus provisions for administrative expenses and profit.
Premiums for existing experience rated group disability business are based
on the specific claim experience of the client with some credibility for the
experience of the specific group. A few accounts are handled on an
administrative services only basis with responsibility for funding claim
payments remaining with the customer.
Profitability of group disability insurance is affected by deviations of
actual claims experience from expected claims experience and the ability of
Provident to control its administrative expenses. Morbidity is an important
factor in disability claim experience. Also important is the general state of
the economy; for example, during a recession the incidence of claims tends to
increase under this type of insurance.
In general, experience rated disability coverage for large groups has
narrower profit margins and represents less risk to Provident than business of
this type sold to small employers. This is because Provident must bear all of
the risk of adverse claim experience in small case coverages while larger
employers bear much of this risk themselves. For disability coverages, case
management and rehabilitation activities with regard to claims, along with
appropriate pricing and expense control, are important factors contributing to
profitability.
These products are sold by a dedicated field sales organization through
consultants and brokers. Successful sales of these products depend upon
rehabilitation programs and quality claim servicing which is perceived by
customers as justifying a fair price.
Group life insurance is marketed by Provident to both large and small
employers. The coverage offered consists primarily of renewable term life
insurance with the coverages frequently linked to employees' wages.
Profitability in group life is affected by deviations of actual claim experience
from expected claim experience and the ability of Provident to control
administrative expenses. Field sales representatives sell large case group life
to employers through consultants, brokers, and independent general agents.
Some employers protect themselves against significant adverse claim
experience with respect to medical coverage through stop-loss arrangements.
Under a variety of stop-loss arrangements, Provident charges a premium in
exchange for an obligation that it will absorb (or reimburse the employer or
plan) for claims in excess of a stated amount on an aggregate or individual
basis. Profitability in medical stop-loss arrangements depends upon the ability
of Provident to accurately predict actual claim trends relative to expected
trends, predict rates of medical cost inflation, and analyze the claim practices
of the underlying plan.
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To complement its employer paid programs Provident also offers voluntary
benefits products through employer-sponsored payroll deduction programs. In
addition to universal life and interest-sensitive life products, Provident
offers health products, principally intermediate disability income policies.
These payroll deduction health products are an integral and growing part of the
current marketing efforts in the Employee Benefits segment. Payroll deduction
individual life and health insurance is sold through salaried field
representatives, who call on large employers, and through independent general
agents and brokers. When employer sponsorship is achieved, either independent
enrollment specialists or Provident's enrollment team solicits employee
participation. Using employer-sponsored payroll deduction methods to distribute
life insurance products typically means lower acquisition costs than traditional
distribution methods.
OTHER OPERATIONS
The Other Operations segment consists of GICs, group single premium
annuities ("SPAs"), a closed block of corporate-owned life insurance, the
medical services business sold in 1995, and any capital and assets that are not
allocated to the business segments.
GIC products include synthetic GICs, traditional GICs, and separate account
GICs. In December 1994, the Company discontinued the sale of traditional GICs,
but continues to service its block of existing business. Sales of separate
account GICs and synthetic GICs were discontinued in 1996. Sales of group SPAs
were also discontinued.
Information with respect to the Other Operations segment is included in the
Annual Report to Stockholders for the year ended December 31, 1996, under the
caption "Management's Discussion and Analysis of Financial Condition and Results
of Operations" on pages 30-31, incorporated herein by reference.
Traditional GICs have comprised a major portion of this segment's products
sold since 1982. Under traditional GICs, Provident guarantees the principal and
interest to the contract holder for a specified period, generally three to five
years. Provident marketed GICs for use in corporate tax-qualified retirement
plans and derives profits from GICs on the spread between the amount of interest
earned on invested funds and the fixed rate guaranteed in the GIC. Provident
introduced its separate account GIC product in late 1992 and its synthetic GIC
in mid-1993. Separate account GICs differ from traditional GICs in that the
assets underlying the contract are segregated from the general account of
Provident and held solely for the benefit of the specific contract involved.
Funds under management for separate account GICs were $68.3 million at December
31, 1996.
The synthetic GIC differs from the traditional GIC in that the assets
underlying the contract are owned and retained by the trustee of the contract
holder. These assets are held in a custodial account in the name of the trustee
and are not included in the Company's consolidated statements of financial
condition. Under the contract, if the trustee requests a benefit payment be
made under the plan, Provident guarantees to provide the benefit payment at book
value and, in return for this service, Provident receives a premium calculated
primarily with respect to benefit payment exposure and contract size. Funds
under management for synthetic GICs at December 31, 1996, were $2,176.6 million.
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In January 1997, the Company signed a letter of understanding to sell the block
of business through an assumptive reinsurance transaction.
Group SPAs are used as funding vehicles primarily when defined benefit
pension plans are terminated. Provident also offers annuities as an employer-
sponsored option for retirees receiving their distributions from 401(k) plans.
Pursuant to a group SPA contract, Provident receives a one-time premium payment
and in turn agrees to pay a fixed monthly retirement benefit to specified
employees.
Provident believes that there are three primary sources of risk associated
with traditional GICs and group SPAs, assuming that the business has been
properly capitalized. Underwriting risk covers the risk that a GIC has been
priced properly to reflect the risk of withdrawal and for group SPAs, that the
mortality rates and the ages and frequency at which annuitants will retire have
been accurately projected. Asset/liability risk covers the risk that the
investments purchased to back the GIC or group SPA will adequately match the
future cash flows. Investment risk covers the risk that the underlying
investments backing the GICs and group SPAs will perform according to the
expectations of Provident at the time of purchase.
Provident has historically managed its investment risk by investing in
quality assets which have an aggregate duration that closely matches the
expected duration of the GICs and group SPAs. In late 1994, with Provident's
decision to stop marketing traditional GICs, it became necessary to change its
investment strategy from a duration matching approach to a cash flow matching
approach. More information on the investment portfolio is included under the
caption "Management's Discussion and Analysis of Financial Condition and Results
of Operations" on pages 34-35 of the Annual Report to Stockholders for the year
ended December 31, 1996, incorporated herein by reference.
The corporate-owned life insurance ("COLI") product included in this
segment is another product no longer actively marketed. In 1983, Provident was
among the first insurance companies to market tax-leveraged products for the
COLI market. Beginning in 1986, Congress began to enact tax legislation that
significantly reduced the ability of policyholders to deduct policy loan
interest on these products which detracted from the internal rate of return
which heretofore had been available. In 1988, Congress went further by enacting
legislation that had adverse tax consequences for distributions/policy loans
from modified endowment contracts. Under this legislation, new sales of the
majority of Provident's corporate-owned products would have been subject to
adverse tax treatment as modified endowment contracts due to their high premium
level. As a consequence, many of these products were withdrawn, and revised
products which would not be considered modified endowment contracts were
introduced. Policies issued prior to June 21, 1986, however, were grandfathered
from the modified endowment provisions. In 1996, Congress enacted tax
legislation which generally eliminates tax deductions for policy loan interest
on COLI products issued on or after June 21, 1986. This legislation is not
expected to have a material impact on Provident, since most of Provident's
premiums on this business are attributable to policies issued prior to June 21,
1986.
This segment also includes the results of the group medical business which
was sold effective April 30, 1995. See "Note 13 of the Notes to Consolidated
Financial Statements" on page 65 of the Annual Report to Stockholders for the
year ended December 31, 1996, incorporated herein by reference.
-12-
<PAGE>
INVESTMENTS
Information concerning this part of Provident's business is included under
the caption "Management's Discussion and Analysis of Financial Condition and
Results of Operations" on pages 34-35 of the Annual Report to Stockholders for
the year ended December 31, 1996, incorporated herein by reference.
REINSURANCE
Provident routinely reinsures portions of its business with other insurance
companies. In a reinsurance transaction a reinsurer agrees to indemnify another
insurer for part or all of its liability under a policy or policies it has
issued for an agreed upon premium. The maximum amount of risk retained by
Provident and not reinsured is $1 million on any individual life insured and
$150,000 on individual accidental death insurance. The amount of risk retained
by Provident on individual disability income products varies by policy type and
year of issue. Provident also reinsures against catastrophic losses in the
Employee Benefits segment. Since the ceding of reinsurance by Provident does
not discharge its primary liability to the policyholder, Provident has control
procedures with regard to reinsurance ceded. These procedures include the
exchange and review of financial statements filed with regulatory authorities,
exchange of Insurance Regulatory Information System results, review of ratings
by A.M. Best Co., determination of states in which the reinsurer is licensed to
do business, on-site visits before entering a contract to assess the operations
and management of the reinsurer, consideration of the need for collateral, such
as letters of credit, and audits of Provident's reinsurance activities by its
Internal Audit staff.
Provident also assumes reinsurance from other insurers. See "Note 10 of the
Notes to Consolidated Financial Statements" on page 63 of the Annual Report to
Stockholders for the year ended December 31, 1996, incorporated herein by
reference.
RESERVES
The applicable insurance laws under which insurance companies operate
require that they report, as liabilities, policy reserves to meet future
obligations on their outstanding policies. These reserves are the amounts
which, with the additional premiums to be received and interest thereon
compounded annually at certain assumed rates, are calculated to be sufficient to
meet the various policy and contract obligations as they mature. These laws
specify that the reserves shall not be less than reserves calculated using
certain specified mortality and morbidity tables, interest rates, and methods of
valuation. The reserves reported in the Company's financial statements
incorporated herein by reference are calculated based on generally accepted
accounting principles and differ from those specified by the laws of the various
states and carried in the statutory financial statements of the life insurance
subsidiaries. These differences arise from the use of mortality and morbidity
-13-
<PAGE>
tables and interest assumptions which are believed to be more representative of
the actual business than those required for statutory accounting purposes and
from differences in actuarial reserving methods. See "Note 1 of the Notes to
Consolidated Financial Statements" on pages 44-48 of the Annual Report to
Stockholders for the year ended December 31, 1996, incorporated herein by
reference, for more information.
The consolidated statements of income include the annual change in reserves
for future policy and contract benefits. The change reflects a normal accretion
for premium payments and interest buildup and decreases for policy terminations
such as lapses, deaths, and annuity benefit payments.
Traditional GICs are over 85 percent of Provident's policyholders' funds
balance at December 31, 1996. They are structured with a specific maturity and
provide for withdrawals for payment of benefits to contract holders or other
beneficiaries.
Policyholders' Funds, as shown on the Company's consolidated statements of
financial condition as of December 31, 1996, were $3,717.1 million. Of this
amount, $3,204.3 million reflected the Company's outstanding GICs, the maturity
of which is as follows (in millions of dollars):
<TABLE>
<CAPTION>
<S> <C>
1 year or less $1,453.8
Over 1 year but less than 2 years 997.5
Over 2 years but less than 3 years 567.9
Over 3 years but less than 4 years 155.6
Over 4 years but less than 5 years 22.7
Over 5 years 6.8
--------
Total $3,204.3
========
</TABLE>
COMPETITION
There is intense competition among insurance companies for the individual
and group insurance products of the types sold by Provident. At the end of
1996, there were over 2,000 legal reserve life insurance companies in the United
States, many offering one or more insurance products similar to those marketed
by Provident. Provident's principal competitors in the employee benefits market
include the largest insurance companies in the United States, many of which have
substantially greater financial resources and larger staffs than Provident. In
addition, in the individual life and annuities markets, Provident competes with
banks, investment advisers, mutual funds, and other financial entities for
investment of savings and retirement funds in general. In the individual and
group disability markets, Provident competes in the United States and Canada
with a limited number of major companies and regionally with other companies
offering specialty products.
All areas of the employee benefits markets are highly competitive due to the
yearly renewable term nature of the products and the large number of insurance
companies offering products in this market. Provident competes with other
companies in attracting and retaining independent agents and brokers to actively
market its products. The principal competitive factors affecting Provident's
business are price and quality of service.
-14-
<PAGE>
EMPLOYEES
At March 20, 1997, Provident had approximately 1,964 full-time employees,
including approximately 1,652 at its headquarters in Chattanooga, Tennessee, and
GENEX had approximately 1,300 full time employees, including approximately 190
in its home office in Wayne, Pennsylvania.
REGULATION
The Company and its insurance subsidiaries are subject to detailed
regulation and supervision in the jurisdictions in which each does business.
With respect to the insurance subsidiaries, such regulation and supervision is
primarily for the protection of policyholders rather than for the benefit of
investors or creditors. Although the extent of such regulation varies, state
insurance laws generally establish supervisory agencies with broad
administrative powers.
These supervisory and administrative powers relate chiefly to the granting
and revocation of the licenses to transact business, the licensing of agents,
the approval of policy forms, reserve requirements, and the form and content of
required financial statements. As to the type and amounts of its investments,
the Company's insurance subsidiaries must meet the standards and tests
promulgated by the insurance laws and regulations of Tennessee, New York, and
certain other states in which they conduct business. Once the Paul Revere
acquisition is completed, Massachusetts and Delaware will also regulate certain
of the Company's insurance subsidiaries.
The Company and its insurance subsidiaries are required to file various,
usually quarterly and/or annual, financial statements and are subject to
periodic and intermittent review with respect to their financial condition and
other matters by the various departments having jurisdiction in the states in
which they do business. The field work related to the last such examination of
the insurance subsidiaries was completed on February 4, 1992, and covered
operations for the five-year period ending December 31, 1990. No objections
were raised by the reviewing authorities as a result of that examination. The
examination for the five year period ending December 31, 1995, began in February
1996 and should be completed during the second quarter of 1997.
The laws of the states of Tennessee and New York require the registration of
and periodic reporting by insurance companies domiciled within their
jurisdiction which control or are controlled by other corporations or persons so
as to constitute a holding company system. The Company is registered as a
holding company system in Tennessee and New York. Following the Paul Revere
acquisition, the Company will also be subject to regulation under the holding
company laws of Massachusetts and Delaware, the domiciliary states of the Paul
Revere insurance subsidiaries. The holding company statutes require periodic
disclosure concerning stock ownership and prior approval of certain intercompany
transactions within the holding company system. The Company may from time to
time be subject to regulation under the insurance and insurance holding company
statutes of one or more additional states. Further information is included under
the caption "Management's Discussion and Analysis of Financial Condition and
Results of Operations" on pages 32-33 of the Annual Report to Stockholders for
the year ended December 31, 1996, incorporated herein by reference.
-15-
<PAGE>
The National Association of Insurance Commissioners ("NAIC") and insurance
regulators are re-examining existing laws and regulations and their application
to insurance companies. In particular, this re-examination has focused on
insurance company investment and solvency issues and, in some instances, has
resulted in new interpretations of existing law, the development of new laws,
and the implementation of non-statutory guidelines. The NAIC has formed
committees and appointed advisory groups to study and formulate regulatory
proposals on such diverse issues as the use of surplus notes, accounting for
reinsurance transactions, and the adoption of risk-based capital rules. The
NAIC is currently in the process of recodifying statutory accounting practices,
the result of which is expected to standardize prescribed statutory accounting
practices. Accordingly, this project, which is expected to be completed in
1997, will likely change, to some extent, prescribed statutory accounting
practices and may result in changes to the accounting practices that the
Company's insurance subsidiaries use to prepare their statutory financial
statements.
ITEM 2. PROPERTIES
The Company's home office property consists of two connected office
buildings totaling 840,000 square feet at 1 Fountain Square, Chattanooga,
Tennessee. The office buildings and substantially all of the surrounding 25
acres of land, used primarily as parking lots, are owned by Provident in fee.
Provident also leases office space and minor storage space at approximately 66
locations in 32 states and 3 Canadian provinces for its sales and service force.
Provident's real property lease payments for 1996 were approximately $3.6
million (net of rents received on subleased property).
Management of the Company believes that Provident's properties and the
properties which it leases are in good condition and are suitable and adequate
for Provident's current business operations.
ITEM 3. LEGAL PROCEEDINGS
In the ordinary course of its business operations, Provident is involved in
routine litigation with policyholders, beneficiaries, and others, and a number
of such lawsuits were pending as of the date of this filing. In the opinion of
management, the ultimate liability, if any, under these suits would not have a
material adverse effect on the consolidated financial condition or the
consolidated results of operations of Provident or the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On December 31, 1996, a special meeting of stockholders was held to consider
three proposals related to the acquisition by the Company of The Paul Revere
Corporation:
(1) The issuance of shares of common stock, par value $1.00 per share of
the Company ("Provident Common Stock") pursuant to an Amended and Restated
Agreement and Plan of Merger, dated as of April 29, 1996 (the "Merger
Agreement"), by and among the Company, Patriot Acquisition Corporation, a
wholly-owned subsidiary of the Company, ("Newco") and The Paul Revere
-16-
<PAGE>
Corporation ("Paul Revere"), which provides for the merger of Newco with and
into Paul Revere. This proposal received the following votes: 39,904,584 FOR,
30,917 AGAINST, and 142,862 ABSTENTIONS or Broker Non-Votes.
(2) The issuance of shares of Provident Common Stock pursuant to an
Amended and Restated Common Stock Purchase Agreement dated as of May 31, 1996
between the Company and Zurich Insurance Company ("Zurich"), which provides for
the purchase of 9,523,810 shares of Provident Common Stock by Zurich. This
proposal received the following votes: 39,899,119 FOR, 30,779 AGAINST, and
146,465 ABSTENTIONS or Broker Non-Votes.
(3) An amendment to the Company's Amended and Restated Certificate of
Incorporation to increase from 65,000,000 to 150,000,000 the number of shares of
Provident Common Stock which the Company is authorized to issue. This proposal
received the following votes: 39,807,411 FOR, 155,790 AGAINST, and 113,162
ABSTENTIONS or Broker Non-Votes.
(4A) EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company, all of whom are also executive
officers of one or more of its subsidiaries, were elected to serve in their
respective offices for one year or until their successors are chosen and
qualified.
<TABLE>
<CAPTION>
Name Age Position
- ---------------------- --- ------------------------------------
<S> <C> <C>
J. Harold Chandler 47 Chairman, President, Chief Executive
Officer, and Director
Thomas R. Watjen 42 Executive Vice President and Chief
Financial Officer
Robert O. Best 47 Senior Vice President and Chief
Information Officer
Timothy C. Gartland 45 Senior Vice President,
Human Resources
Thomas B. Heys, Jr. 50 Senior Vice President, Corporate
Risk Management
Peter C. Madeja 38 Senior Vice President
Jeffrey F. Olingy 47 Senior Vice President, Sales
and Marketing
Ralph A. Rogers, Jr. 48 Vice President and Controller
</TABLE>
Mr. Chandler became President and Chief Executive Officer of the Company on
November 8, 1993. He was elected Chairman of the Board on April 28, 1996.
Immediately prior to his employment with the Company, 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 Citizen and
Southern National Bank of South Carolina, a predecessor of NationsBank.
-17-
<PAGE>
Mr. Watjen became Executive Vice President and Chief Financial Officer of
the Company on July 1, 1994. He is also a director of National. Prior to
joining the Company, he served as a Managing Director of the investment banking
firm, Morgan Stanley & Co., which he joined in 1987.
Mr. Best became Senior Vice President and Chief Information Officer of the
Company on July 11, 1994. He was previously Senior Vice President and Chief
Information Officer at UNUM, which he joined in 1993 following UNUM's
acquisition of Colonial Life and Accident Insurance Company. At Colonial, he
served as Vice President, Operations and Information Systems, until 1992 when he
was named Executive Vice President.
Mr. Gartland became Senior Vice President, Human Resources, on August 30,
1996. Prior to joining the Company, he was President of Corporate Insights and
Development, Inc., a management consulting firm which he co-founded in 1993. He
served as Executive Vice President, Executive and Organizational Development,
with NationsBank prior to that time.
Mr. Heys became Senior Vice President, Corporate Risk Management, of the
Company in August 1994. He served as Vice President and Chief Officer of the
Life Department from May 1992 until August 1994. He served as Vice President
and Chief Officer, Select Group Benefits, of Accident from November 1990 until
May 1992.
Mr. Madeja became Senior Vice President of the Company in February 1997 when
the Company acquired GENEX Services, Inc. He continues to serve as President
and Chief Executive Officer of GENEX, which he joined in 1982.
Mr. Olingy became Senior Vice President, Sales and Marketing, of the Company
on April 3, 1996. Prior to joining the Company, he was a Retail Banking
Director with Bank of Boston which he joined in 1993. He served as Executive
Vice President of NationsBank from 1991 to 1993.
Mr. Rogers has served as Vice President and Controller of the Company since
1984.
-18-
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The information required by this Item is included on page 68 of the
Registrant's Annual Report to Stockholders for the year ended December 31, 1996,
under the caption "Common Stock Information" and is incorporated herein by
reference. As of March 10, 1997, there were 1,299 holders of Common Stock and
438 holders of the Depositary Shares.
For information on restrictions relating to Provident's ability to pay
dividends to the Company see "Management's Discussion and Analysis of Financial
Condition and Results of Operations" on pages 32-33 and "Note 15 of the Notes to
Consolidated Financial Statements" on page 66 of the Annual Report to
Stockholders for the year ended December 31, 1996, incorporated herein by
reference.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this Item is included on pages 36-37 of the
Registrant's Annual Report to Stockholders for the year ended December 31, 1996,
under the caption "Selected Financial Data" and is incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by this Item is included on pages 26-35 of the
Registrant's Annual Report to Stockholders for the year ended December 31, 1996,
under the caption "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is included on pages 38-67 of the
Registrant's Annual Report to Stockholders for the year ended December 31, 1996,
under the captions "Report of Ernst & Young LLP, Independent Auditors,"
"Consolidated Statements of Income," "Consolidated Statements of Financial
Condition," "Consolidated Statements of Stockholders' Equity," "Consolidated
Statements of Cash Flows," and "Notes to Consolidated Financial Statements," and
is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
-19-
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
The information required by this Item with respect to directors is included
under the caption "Information Concerning the Nominees" of the Registrant's
Proxy Statement for the Annual Meeting of Stockholders to be held May 7, 1997,
and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is included under the captions
"Compensation of Directors" and "Executive Compensation" of the Registrant's
Proxy Statement for the Annual Meeting of Shareholders to be held May 7, 1997,
and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is included under the caption
"Beneficial Ownership of Company Securities" and under the caption "Security
Ownership of Directors and Officers" of the Registrant's Proxy Statement for
the Annual Meeting of Stockholders to be held May 7, 1997, and is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is included under the caption "Certain
Transactions" of the Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held May 7, 1997, and is incorporated herein by reference.
-20-
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) List of Documents filed as part of this report
(1) Financial Statements
The following report and consolidated financial statements of Provident
Companies, Inc. and Subsidiaries, included in the Registrant's Annual Report to
Stockholders for the year ended December 31, 1996, are incorporated by reference
in Item 8:
Report of Ernst and Young LLP, Independent Auditors
Consolidated Statements of Income for the three years ended December 31,
1996
Consolidated Statements of Financial Condition at December 31, 1996 and
1995
Consolidated Statements of Stockholders' Equity for the three years
ended December 31, 1996
Consolidated Statements of Cash Flows for the three years ended December
31, 1996
Notes to Consolidated Financial Statements
(2) Schedules Supporting Financial Statements
The following financial statement schedules of Provident Companies, Inc. and
Subsidiaries are included in Item 14(d):
<TABLE>
<CAPTION>
Page
----
<S> <C>
I. Summary of Investments - Other Than Investments
in Related Parties (Consolidated) 26
II. Condensed Financial Information of Registrant 27
III. Supplementary Insurance Information
(Consolidated) 32
IV. Reinsurance (Consolidated) 34
V. Valuation and Qualifying Accounts (Consolidated) 35
</TABLE>
Schedules not referred to have been omitted as inapplicable or because they
are not required by Regulation S-X.
-21-
<PAGE>
(3) Exhibits
(2.1) Agreement and Plan of Share Exchange between Provident Companies, Inc.
and Provident Life and Accident Insurance Company of America
(incorporated by reference to Exhibit 2.1 to the Company's Form 10-K
filed for fiscal year ended 1995).
(2.2) Amended and Restated Agreement and Plan of Merger dated as of April 29,
1996 by and among Patriot Acquisition Corporation, The Paul Revere
Corporation and the Company (including exhibits thereto), (incorporated
by reference to Exhibit 2.1 of the Company's Form 10-Q and Form 10-Q/A
filed for fiscal quarter ended September 30, 1996).
(3.1) Amended and Restated Certificate of Incorporation, incorporated by
reference to Exhibit 3.1 of the Company's Form 10-K for fiscal year
ended 1995, as amended by Certificate of Amendment.
(3.2) Bylaws of the Company (incorporated by reference to Exhibit 3.2 to the
Company's Form 10-K filed for fiscal year ended 1995).
(4.1) Form of Preferred Stock Certificate relating to the registration of
6,000,000 Depositary Shares each representing a one-sixth interest in a
share the 8.10% Cumulative Preferred Stock of America (incorporated by
reference to America's Registration Statement on Form S-3, Registration
No. 33-5612).
(4.2) Form of Depositary Agreement relating to the registration of 6,000,000
Depositary Shares each representing a one-sixth interest in a share the
8.10% Cumulative Preferred Stock of America (incorporated by reference
to America's Registration Statement on Form S-3, Registration No. 33-
5612).
(4.3) Form of Depositary Receipt relating to the registration of 6,000,000
Depositary Shares each representing a one-sixth interest in a share the
8.10% Cumulative Preferred Stock of America (incorporated by reference
to America's Registration Statement on Form S-3, Registration No. 33-
5612).
(4.4) Certificate of Amendment of Restated Charter relating to the
registration of 6,000,000 Depositary Shares each representing a one-
sixth interest in a share the 8.10% Cumulative Preferred Stock of
America (incorporated by reference to Exhibit 3.1 in America's Form 10-K
filed for the fiscal year ended December 31, 1992 and to America's
Registration Statement on Form S-3, Registration No. 33-5612).
(4.5) Articles of Share Exchange (incorporated by reference to the Company's
Form 10-K filed for fiscal year ended 1995).
(10.1) Reinsurance and Administration Agreement by and between Transamerica
Occidental Life Insurance Company of Illinois and Accident dated March
18, 1987 (incorporated by reference to Exhibit 10.3 of Capital's
Registration Statement on Form S-1, Registration No. 33-17017).
-22-
<PAGE>
(10.2) Tax Indemnification and Guaranty Agreement by and among Transamerica
Occidental, Transamerica Corporation and Accident dated March 18, 1987
(incorporated by reference to Exhibit 10.4 to Capital's Registration
Statement on Form S-1, Registration No. 33-17017).
(10.3) Asset and Stock Purchase Agreement by and between Healthsource and
America and its subsidiaries dated December 21, 1994. (incorporated by
reference to Exhibit 10.3 to America's Form 10-K filed for fiscal year
ended December 31, 1995).
(10.4) Annual Management Incentive Compensation Plan (MICP), adopted by
stockholders May 4, 1994 (incorporated by reference to Exhibit 10.5 to
America's Form 10-K filed for fiscal year ended December 31, 1994), and
amended by stockholders May 1, 1996 (incorporated by reference to
Exhibit 10.1 of Company's Form 10Q filed for fiscal quarter ended June
30, 1996.
(10.5) Stock Option Plan, adopted by stockholders May 3, 1989, as amended by
the Compensation Committee on January 10, 1990, and October 29, 1991
(incorporated by reference to Exhibit 10.6 to America's Form 10-K filed
for the fiscal year 1991); and as amended by the Compensation Committee
on March 17, 1992 and by the stockholders on May 6, 1992 (incorporated
by reference to registrant's Form 10-K filed for the fiscal year ended
December 31, 1992). Terminated effective December 31, 1993.*
(10.6) Accident and Subsidiaries Supplemental Executive Retirement Plan
(incorporated by reference to Exhibit 10.8 to Capital's Registration
Statement on Form S-1, Registration No. 33-17017).*
(10.7) Form of Surplus Note, dated December 1, 1996, in the amount of $150
million executed by Accident in favor of the Company.
(10.8) Reinsurance and Administration Agreement by and between Transamerica
Occidental and Accident dated March 18, 1987 (incorporated by reference
to Exhibit 10.15 to Capital's Registration Statement on Form S-1,
Registration No. 33-17017).
(10.9) Form of Severance Agreement offered to selected executive officers
(incorporated by reference to Exhibit 10.14 to Capital's Form 10-K filed
for fiscal year ended December 31, 1990), revised February 8, 1994
(incorporated by reference to Exhibit 10.14 to registrant's Form 10-K
filed for fiscal year ended December 31, 1993).
(10.10) Description of Compensation Plan for Non-Employee Directors
(incorporated by reference to Amendment No. 1 to registrant's Form 10-K
filed January 27, 1993 on Form 8), and amended by the Board of Directors
on February 8, 1994 (incorporated by reference to Exhibit 10.15 to
America's Form 10-K filed for fiscal year ended December 31, 1993).
-23-
<PAGE>
(10.11) Stock Option Plan, originally adopted by stockholders May 5, 1993, as
amended by stockholders on May 1, 1996 (incorporated by reference to
Exhibit 10.2 of Company's Form 10-Q for fiscal quarter ended June 30,
1996).
(10.12) Employment contract between America and J. Harold Chandler, President
and Chief Executive Officer, dated November 8, 1993 (incorporated by
reference to Exhibit 10.17 to America's Form 10-K filed for fiscal year
ended December 31, 1993).*
(10.13) Employee Stock Purchase Plan (of 1995) adopted by stockholders June 13,
1995 (incorporated by reference to the Company's Form 10-K filed for
fiscal year ended 1995).*
(10.14) Credit Agreement between Provident and a consortium of financial
institutions with The Chase Manhattan Bank as Administrative Agent,
relating to a revolving loan in the aggregate amount of $800 million
maturing on July 30, 2001.
(10.15) Amended and Restated Common Stock Purchase Agreement between Provident
Companies, Inc. and Zurich Insurance Company dated as of May 31, 1996.
(10.16) Amended and Restated Relationship Agreement between Provident Companies,
Inc. and Zurich Insurance Company dated as of May 31, 1996.
(10.17) Amended and Restated Registration Rights Agreement between Provident
Companies, Inc. and Zurich Insurance Company dated as of May 31, 1996.
(11) Statement re computation of per share earnings (incorporated herein by
reference to "Note 1 of the Notes to Consolidated Financial Statements"
on pages 44-48 of the Annual Report to Stockholders for the year ended
December 31, 1996).
(13) Portions of the Annual Report to Stockholders for year ended December
31, 1996, incorporated by reference as described in Items 1, 5, 6, 7, 8,
10 and 14 hereof, which portions shall be deemed filed as a part hereof.
(19) Previously unfiled documents filed herewith include Exhibits 3.1, 10.7,
10,14, 10.15, 10.16, and 10.17.
(21) Subsidiaries of the Company.
(23) Consent of Independent Auditors.
(24) Powers of Attorney.
(27) Financial Data Schedule.
*Management contract or compensatory plan required to be filed as an exhibit to
this form pursuant to Item 14(c) of Form 10-K.
-24-
<PAGE>
(b) Reports on Form 8-K
No reports were filed by the registrant during the fourth quarter of 1996.
(c) Exhibits
See "Item 14(a)(3)" above.
(d) Financial Statement Schedules
See "Item 14(a)(2)" above.
-25-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date: March 24, 1997 PROVIDENT COMPANIES, INC.
(Registrant)
By: /s/ J. Harold Chandler
------------------------------
J. Harold Chandler
Chairman, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 24, 1997
/s/ J. Harold Chandler
- ------------------------------------
J. Harold Chandler
Chairman, President and Chief Executive Officer
and a Director
(Principal Executive Officer)
/s/ Thomas R. Watjen /s/ Ralph A. Rogers, Jr.
- ------------------------------------- -----------------------------
Thomas R. Watjen Ralph A. Rogers, Jr.
Executive Vice President and Vice President and Controller
Chief Financial Officer
Signature Title
--------- -----
* Director
- ------------------------------
WILLIAM L. ARMSTRONG
* Director
- ------------------------------
CHARLOTTE M. HEFFNER
* Director
- ------------------------------
HUGH B. JACKS
(REMAINDER ON FOLLOWING PAGE)
-26-
<PAGE>
(REMAINDER ON PRECEDING PAGE)
* Director
- ------------------------------
WILLIAM B. JOHNSON
* Director
- ------------------------------
HUGH O. MACLELLAN, JR.
* Director
- ------------------------------
A.S. MACMILLAN
* Director
- ------------------------------
C. WILLIAM POLLARD
* Director
- ------------------------------
SCOTT L. PROBASCO, JR.
* Director
- ------------------------------
STEVEN S REINEMUND
*By /s/ Susan N. Roth For all of the Directors
----------------------------
Susan N. Roth
Attorney-in-Fact
-27-
<PAGE>
SCHEDULE I--SUMMARY OF INVESTMENTS -
OTHER THAN INVESTMENTS IN RELATED PARTIES
PROVIDENT COMPANIES, INC. AND SUBSIDIARIES
December 31, 1996
<TABLE>
<CAPTION>
Amount at which
shown in the
Fair statement of
Type of Investment Cost Value financial position
(in millions of dollars)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Available-for-Sale Fixed Maturity Securities:
Bonds
United States Government and Government
Agencies and Authorities $ 6.4 $ 7.2 $ 7.2
Foreign Governments 156.5 176.4 176.4
Public Utilities 2,421.5 2,620.5 2,620.5
Mortgage-backed Securities 2,156.9 2,152.0 2,152.0
Convertible Bonds 16.7 16.5 16.5
All Other Corporate Bonds 5,578.9 5,858.5 5,858.5
Redeemable Preferred Stocks 47.4 49.0 49.0
--------- --------- ---------
Total 10,384.3 $10,880.1 10,880.1
--------- ========= ---------
Held-to-Maturity Fixed Maturity Securities:
Bonds
United States Government and Government
Agencies and Authorities 13.5 $ 15.0 13.5
States, Municipalities, and Political Subdivisions 3.2 3.4 3.2
Mortgage-backed Securities 234.9 230.1 234.9
All Other Corporate Bonds 12.9 14.6 12.9
--------- --------- ---------
Total 264.5 $ 263.1 264.5
--------- ========= ---------
Equity Securities:
Nonredeemable Preferred Stocks 7.2 $ 4.9 4.9
--------- --------- ---------
Total 7.2 $ 4.9 4.9
--------- ========= ---------
Real Estate
Investment Properties 149.0 143.8 *
Acquired in Satisfaction of Debt 23.9 7.3 *
Policy Loans 1,749.0 1,749.0
Other Long-term Investments 15.5 15.5
Short-term Investments 252.3 252.3
--------- ---------
$12,845.7 $13,317.4
========= =========
</TABLE>
* Difference between cost and carrying values results from certain valuation
allowances and other temporary declines in value.
<PAGE>
SCHEDULE II--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
PROVIDENT COMPANIES, INC. (Parent Company)
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
December 31
1996 1995
(in millions of dollars)
---------------------------
<S> <C> <C>
ASSETS
Fixed Maturity Securities
Available-for-Sale--at fair value
(cost: $9.6; $ -) $ 10.3 $ -
Short-term Investments 121.5 -
Surplus Note of Subsidiary 150.0 -
Investment in Subsidiaries 1,659.9 1,652.3
Other Assets 18.2 -
---------- ----------
Total Assets $ 1,959.9 $ 1,652.3
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Long-term Debt $ 200.0 $ -
Other Liabilities 21.3 -
---------- ----------
Total Liabilities 221.3 -
---------- ----------
STOCKHOLDERS' EQUITY
Preferred Stock 156.2 156.2
Common Stock 45.6 45.4
Additional Paid-in Capital 11.4 5.8
Net Unrealized Gain on Securities, net of
deferred federal income taxes ($0.2 ; $ -) 0.5 -
Net Unrealized Gain on Investment of Subsidiaries 85.2 97.1
Retained Earnings 1,439.7 1,347.8
---------- ----------
Total Stockholders' Equity 1,738.6 1,652.3
---------- ----------
Total Liabilities and Stockholders' Equity $ 1,959.9 $ 1,652.3
========== ==========
</TABLE>
See notes to condensed financial information.
<PAGE>
SCHEDULE II--CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)
PROVIDENT COMPANIES, INC. (Parent Company)
STATEMENTS OF NET INCOME
<TABLE>
<CAPTION>
Year Ended December 31
1996 1995 1994
(in millions of dollars)
--------------------------------
<S> <C> <C> <C>
Dividends from Subsidiaries $ 52.6 $ - $ 70.3
Interest from Subsidiaries 12.3 - -
Other Income 1.7 - 1.4
----- ------- ------
Total Revenue 66.6 - 71.7
----- ------- ------
Interest Expense on Debt 10.2 - -
Other Expenses 1.2 - 1.1
----- ------- ------
Total Expenses 11.4 - 1.1
----- ------- ------
Income Before Federal Income Taxes and Equity in
Undistributed Earnings of Subsidiaries 55.2 - 70.6
Federal Income Taxes (Credit) 1.1 - (0.1)
----- ------- ------
Income Before Equity in Undistributed Earnings
of Subsidiaries 54.1 - 70.7
Equity in Undistributed Earnings of Subsidiaries 91.5 115.6 64.6
----- ------- ------
Net Income $145.6 $115.6 $135.3
====== ======== =======
</TABLE>
See notes to condensed financial information.
<PAGE>
SCHEDULE II--CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)
PROVIDENT COMPANIES, INC. (Parent Company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31
1996 1995 1994
(in millions of dollars)
------------------------------------------------
<S> <C> <C> <C>
CASH PROVIDED BY OPERATING ACTIVITIES $ 69.7 $ - $ 59.0
-------- --------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from Maturities of Fixed Maturity Securities 0.2 - 0.6
Net Purchases of Short-term Investments (120.8) - (1.8)
Cash Distribution from Subsidiary 100.0 - -
Surplus Note Issued to Subsidiary (3.0) - -
Other (2.7) - -
-------- --------- -------
CASH USED BY INVESTING ACTIVITIES (26.3) - (1.2)
-------- --------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of Common Stock 5.8 - 1.9
Dividends Paid to Stockholders (45.5) - (59.8)
Other (3.6) - -
-------- --------- -------
CASH USED BY FINANCING ACTIVITIES (43.3) - (57.9)
-------- --------- -------
INCREASE (DECREASE) IN CASH $ 0.1 $ - $ (0.1)
======== ========= =======
</TABLE>
See notes to condensed financial information.
<PAGE>
SCHEDULE II--CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)
PROVIDENT COMPANIES, INC. (Parent Company)
NOTES TO CONDENSED FINANCIAL INFORMATION
The accompanying condensed financial statements should be read in conjunction
with the consolidated financial statements and notes thereto of Provident
Companies, Inc. and Subsidiaries.
Corporate Reorganization
Effective December 27, 1995, Provident Life and Accident Insurance Company of
America completed a step in a corporate reorganization which created a new
parent holding company, Provident Companies, Inc., a non-insurance holding
company incorporated in Delaware. In accordance with the Plan of Share Exchange
approved by shareholders at the 1995 annual meeting, each share of Class A and
Class B common stock of Provident Life and Accident Insurance Company of America
was exchanged for a single class of common stock of Provident Companies, Inc.,
with each share entitled to one vote. Each depositary share of cumulative
preferred stock of Provident Life and Accident Insurance Company of America was
also exchanged for an equivalent depositary share of cumulative preferred stock
of Provident Companies, Inc.
In March 1996, Provident Life and Accident Insurance Company of America and
Provident Life Capital Corporation were dissolved and their respective assets
and liabilities were distributed to and assumed by Provident Companies, Inc.
Assets transferred to the Company had a carrying value of approximately $187.3
million. Liabilities assumed by the Company in connection with the transfer
totaled $205.0 million. Provident Life and Accident Insurance Company, Provident
National Assurance Company, and Provident Life and Casualty Insurance Company
are now direct subsidiaries of Provident Companies, Inc.
Basis of Presentation
The condensed financial statements represent the top tier company's statements
of financial condition and the related statements of income and cash flows. In
1996 and 1995, the top tier company was Provident Companies, Inc. In 1994, the
top tier company was Provident Life and Accident Insurance Company of America.
Debt
During 1996, the Company entered into an $800.0 million five-year revolving
credit facility with various domestic and international banks. Interest is
variable based upon a London Interbank Offered Rate (LIBOR) plus a margin. At
December 31, 1996, the outstanding borrowing under the revolving credit facility
was $200.0 million.
During 1996, the Company repaid the $200.0 million bank term notes assumed from
Provident Life Capital Corporation which were due on or before December 1, 1996.
<PAGE>
SCHEDULE II--CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)
PROVIDENT COMPANIES, INC. (Parent Company)
NOTES TO CONDENSED FINANCIAL INFORMATION - CONTINUED
Preferred Stock
In a public offering completed on February 24, 1993, the Company issued
1,041,667 shares of 8.10% cumulative preferred stock, liquidation preference
$150 per share evidenced by depositary receipts for 6,250,002 depositary shares
each representing a one-sixth interest of a preferred share, of which 6,249,202
were issued and outstanding as of December 31, 1996. The preferred stock is
redeemable at a redemption price of $150 per share (equivalent to $25 per
depositary share) at the option of the Company in 1998.
Commitment to Acquire The Paul Revere Corporation
On April 29, 1996, the Company entered into a definitive agreement to acquire
The Paul Revere Corporation, a provider of life and disability insurance
products, at a price of approximately $1.2 billion. The transaction is subject
to regulatory approval and is expected to close during the first quarter of
1997. For additional information, see Note 14 of the Notes to Consolidated
Financial Statements.
<PAGE>
SCHEDULE III--SUPPLEMENTARY INSURANCE INFORMATION
PROVIDENT COMPANIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Future Other
Policy Policy
Deferred Benefits, Claims
Policy Losses, and
Acquisition Claims, and Unearned Benefits Premium
Segment Costs Loss Expenses Premiums Payable Revenue
(in millions of dollars)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1996
Individual Life and Disability $ 377.4 $ 4,236.9 $ 52.5 $ 179.9 $ 646.3
Employee Benefits 44.4 777.0 4.1 158.6 501.4
Other Operations 3,037.4 2.2 73.2 28.0
--------- ---------- ------ --------- ----------
Total $ 421.8 $ 8,051.3 $ 58.8 $ 411.7 $ 1,175.7
========= ========== ====== ========= ==========
Year Ended December 31, 1995
Individual Life and Disability $ 227.6 $ 4,098.3 $ 53.1 $ 151.3 $ 647.4
Employee Benefits 44.2 713.7 3.7 152.1 485.9
Other Operations 2,944.2 1.6 80.3 118.6
--------- ---------- ------ --------- ----------
Total $ 271.8 $ 7,756.2 $ 58.4 $ 383.7 $ 1,251.9
========= ========== ====== ========= ==========
Year Ended December 31, 1994
Individual Life and Disability $ 644.9
Employee Benefits 465.6
Other Operations 272.1
----------
Total $ 1,382.6
==========
</TABLE>
(CONTINUED ON FOLLOWING PAGE)
<PAGE>
SCHEDULE III--SUPPLEMENTARY INSURANCE INFORMATION
PROVIDENT COMPANIES, INC. AND SUBSIDIARIES
(CONTINUED FROM PRECEDING PAGE)
<TABLE>
<CAPTION>
Benefits, Amortization
Claims, of Deferred
Net Losses and Policy Other
Investment Settlement Acquisition Operating Premiums
Segment Income* Expenses Costs Expenses Written
(in millions of dollars)
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1996
Individual Life and Disability $ 393.6 $ 697.6 $ 55.6 $ 177.1 $ 581.9
Employee Benefits 97.9 436.6 8.4 104.8 238.6
Other Operations 598.6 527.0 58.6 2.8
--------- --------- ------- --------
Total $ 1,090.1 $ 1,661.2 $ 64.0 $ 340.5
========= ========= ======= ========
Year Ended December 31, 1995
Individual Life and Disability $ 361.3 $ 747.3 $ 59.0 $ 176.5 $ 583.9
Employee Benefits 90.6 430.2 12.0 91.8 240.2
Other Operations 769.4 727.1 135.4 83.1
--------- --------- ------- --------
Total $ 1,221.3 $ 1,904.6 $ 71.0 $ 403.7
========= ========= ======= ========
Year Ended December 31, 1994
Individual Life and Disability $ 302.4 $ 679.0 $ 53.0 $ 171.5 $ 578.3
Employee Benefits 85.5 388.2 6.4 88.8 218.3
Other Operations 850.7 914.0 260.4 228.0
--------- --------- ------- --------
Total $ 1,238.6 $ 1,981.2 $ 59.4 $ 520.7
========= ========= ======= ========
*Net investment income is allocated based upon segmentation. In other words, as cash flow from operations and
assigned capital is generated by a segment, the cash is invested in assets with the appropriate characteristics
for that segment's liabilities and operating structure. Thus, each segment has its own specifically identified
assets and receives the investment income generated by those assets.
</TABLE>
<PAGE>
SCHEDULE IV--REINSURANCE
PROVIDENT COMPANIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Percentage
Ceded Assumed Amount
Gross to Other from Other Net Assumed
Amount Companies Companies Amount to Net
(in millions of dollars)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1996
Life Insurance in Force $102,227.5 $4,347.9 $ 437.0 $98,316.6 0.4%
========== ======== ======== ========= ===
Premium Income:
Individual Life and Disability $ 659.2 $ 48.2 $ 35.3 $ 646.3 5.5%
Employee Benefits 517.1 31.9 16.2 501.4 3.2%
Other Operations 253.4 225.4 28.0
---------- -------- -------- ---------
Total $ 1,429.7 $ 305.5 $ 51.5 $ 1,175.7
========== ======== ======== =========
Year Ended December 31, 1995
Life Insurance in Force $ 98,492.4 $4,258.5 $ 460.2 $94,694.1 0.5%
========== ======== ======== ========= ===
Premium Income:
Individual Life and Disability 658.3 $ 47.8 $ 36.9 $ 647.4 5.7%
Employee Benefits 500.4 29.9 15.4 485.9 3.2%
Other Operations 290.1 171.5 118.6
---------- -------- -------- ---------
Total $ 1,448.8 $ 249.2 $ 52.3 $ 1,251.9
========== ======== ======== =========
Year Ended December 31, 1994
Life Insurance in Force $ 86,286.4 $4,202.6 $ 499.2 $82,583.0 0.6%
========== ======== ======== ========= ===
Premium Income:
Individual Life and Disability $ 646.8 $ 41.0 $ 39.1 $ 644.9 6.1%
Employee Benefits 484.1 18.9 0.4 465.6 0.1%
Other Operations 273.5 1.4 272.1
---------- -------- -------- ---------
Total $ 1,404.4 $ 61.3 $ 39.5 $ 1,382.6
========== ======== ======== =========
</TABLE>
<PAGE>
SCHEDULE V--VALUATION AND QUALIFYING ACCOUNTS
PROVIDENT COMPANIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Additions Deductions for
Charged to Amounts Applied
Balance at Realized to Specific Loans Balance at
Beginning Investment at Time of Sale/ End of
Description of Period Losses Foreclosure Period
(in millions of dollars)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year Ended December 31, 1996
Mortgage loan loss reserve $12.0 $ - $11.0 $ 1.0
Real estate reserve $19.1 $ 2.4 $21.5
Year Ended December 31, 1995
Mortgage loan loss reserve $49.0 $ 3.0 $40.0 $12.0
Real estate reserve $18.3 $ 0.8 $19.1
Year Ended December 31, 1994
Mortgage loan loss reserve $55.3 $11.2 $17.5 $49.0
Real estate reserve $12.7 $ 5.6 $18.3
</TABLE>
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
EXHIBITS
to
FORM 10-K
PROVIDENT COMPANIES, INC.
<PAGE>
INDEX OF EXHIBITS
EXHIBIT PAGE
------- ----
(3.1) Certificate of Incorporation of the Company, as amended........
(10.7) Form of Surplus Note, dated December 1, 1996...................
(10.14) Credit Agreement between Provident and a consortium of financial
institutions with The Chase Manhattan Bank as Administrative Agent,
relating to a revolving loan in the aggregate amount of $800 million
maturing on July 30, 2001.
(10.15) Amended and Restated Common Stock
Purchase Agreement between Provident
Companies, Inc. and Zurich Insurance
Company dated as of May 31, 1996...............................
(10.16) Amended and Restated Relationship Agreement
between Provident Companies, Inc. and
Zurich Insurance Company dated as of May 31, 1996..............
(10.17) Amended and Restated Registration Rights
Agreement between Provident Companies, Inc. and
Zurich Insurance Company dates as of May 31, 1996..............
(13) Portions of the Annual Report to Stockholders for year ended
December 31, 1996..............................................
(21) Subsidiaries of the Company....................................
(23) Consent of Independent Auditors................................
(24) Powers of Attorney.............................................
(27) Financial Data Schedule........................................
All other Exhibits are incorporated by reference as explained in the list in
Item 14(a)(3).
<PAGE>
Exhibit 3.1
Certificate of Incorporation of the Company, as amended
(attached)
<PAGE>
CERTIFICATE OF AMENDMENT
OF
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
PROVIDENT COMPANIES, INC.
PROVIDENT COMPANIES, INC., a corporation organized and existing under and
by virtue of the General Corporation Law of the State of Delaware, does hereby
certify:
First: That at a meeting of the Board of Directors of Provident Companies,
Inc. ("Provident") resolutions were adopted approving a proposed amendment to
the Amended and Restated Certificate of Incorporation of said corporation to
increase from 65,000,000 to 150,000,000 the number of shares of Provident Common
Stock that Provident is authorized to issue, declaring said amendment to be
advisable and calling for a meeting of the stockholders of Provident for
consideration thereof.
Second: That thereafter, pursuant to resolution of its board of directors,
a special meeting of the stockholders of Provident was duly called and held,
upon notice in accordance with Section 222 of the General Corporation Law of the
State of Delaware at which meeting the necessary number of shares as required by
the statute were voted in favor of the amendment.
Third: That the following amendment to the corporation's Amended and
Restated Certificate of Incorporation was duly adopted in accordance with the
provisions of Section 242(b) of the Delaware Corporation Law and shall become
effective upon filing:
Article IV, Section 4.1 is amended by deleting "90,000,000" and inserting
in its place "175,000,000" and deleting "65,000,000" and inserting in its place
"150,000,000", so that said section shall be and read as follows:
"Section 4.1. Total Number of Shares of Stock. The total number of shares
of stock of all classes that the Corporation shall have authority to issue is
175,000,000. The authorized capital stock is divided into 25,000,000 shares of
Preferred Stock, of the par value of $1.00 each (the "Preferred Stock"), and
150,000,000 shares of Common Stock of Common Stock of the par value of $1.00
each (the "Common Stock")."
Fourth: That the capital of Provident shall not be reduced under or by
reason of said amendment.
<PAGE>
THE UNDERSIGNED, being the President of the Corporation, for the purpose of
amending the Amended and Restated Certificate of the Corporation pursuant to the
Delaware General Corporation Law, do make this Certificate, hereby declaring and
certifying that this is the act and deed of the Corporation and that the facts
herein stated are true, and accordingly have hereunto set my hand as of this
10th day of February, 1997.
/s/J. Harold Chandler
-------------------------------------
J. Harold Chandler
Chairman, President and
Chief Executive Officer
ATTEST:
/s/Susan N. Roth
- -------------------------------
Susan N. Roth, Secretary
<PAGE>
Exhibit 10.7
Form of Surplus Note, dated December 1, 1996
(attached)
<PAGE>
PROVIDENT LIFE AND ACCIDENT INSURANCE COMPANY
----------------------------------------------
SURPLUS NOTE
------------
$150,000,000.00
December 1, 1996
Chattanooga, Tennessee
PROVIDENT LIFE AND ACCIDENT INSURANCE COMPANY, a corporation and life
insurance company duly organized and existing under the laws of Tennessee (the
"Company"), for value received, hereby promises to pay to PROVIDENT COMPANIES,
INC. ("PCI"), or its assigns, the principal sum of One Hundred Fifty Million and
00/100 Dollars ($150,000,000.00) on December 1, 2006, and to pay interest
thereon from December 1, 1996, semiannually on June 1 and December 1 in each
year (each an "Interest Payment Date"), at the applicable rate per annum
specified below, until the principal hereof is paid. The first interest payment
will be made on June 1, 1997. All principal and interest shall be paid, at the
principal corporate office of the Company or such other place, which shall be
acceptable to the Company, as the holder hereof shall designate in writing to
the Company, in collected and immediately available funds in lawful money of the
United States of America. The interest rate hereunder shall never exceed the
maximum rate permitted by law in the State of Tennessee. Principal and interest
shall be payable on the terms and conditions set forth below:
PCI agrees, on the terms of this Surplus Note, to make one or more term
loans to the Company in Dollars ("Loans") on December 1, 1996 in an amount up to
but not exceeding One Hundred Fifty Million and 00/100 Dollars
($150,000,000.00).
1
<PAGE>
1. Advance approval of the Tennessee Commissioner of Insurance (the
"Commissioner") shall be required for each payment of principal and interest on
this Surplus Note.
2. Interest. The Company hereby promises to pay to PCI interest on the
---------
unpaid principal amount of each Loan made by PCI hereunder on each Interest
Payment Date for the Semiannual Period that commenced on the next preceding
Interest Payment Date from and including the date of such Loan to but excluding
the date such Loan shall be paid in full, at the rate per annum which equals
the per annum rate paid by PCI on its long-term debt plus one percent per annum;
provided however, that this rate shall not exceed 12 (twelve) percent per annum
unless prior approval has been received from the Commissioner.
As used in this section 2, "Semiannual Period" shall mean each six month
period that has elapsed since the next preceding Interest Payment Date, e.g.,
December 1 through May 31 or June 1 through November 30.
3. "Event of Default", wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or pursuant
to any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body):
(a) default in the payment of any interest upon this Surplus Note when
it becomes due and payable, and continuance of such default for a period of 30
days, except to the extent the Commissioner prohibits such interest payment
pursuant to section 1 hereof; and
2
<PAGE>
(b) default in the payment of the principal of this Surplus Note at
its maturity, except to the extent the Commissioner prohibits such principal
payment pursuant to section 1 hereof; or
(c) default in the performance, or breach, of any covenant or warranty
of the Company in this Surplus Note (other than a covenant or warranty a default
in whose performance or whose breach is elsewhere in this section 8 specifically
dealt with), and continuance of such default or breach for a period of 90 days
after there has been given to the Company by the holder of this Surplus Note a
written notice specifying such default or breach and requiring it to be remedied
and stating that such notice is a "Notice of Default" hereunder; or
(d) a default under any bond, debenture, note or other evidence of
indebtedness in excess of $10,000,000 for money borrowed by the Company or under
any mortgage, indenture or instrument under which there may be issued or by
which there may be secured or evidenced any indebtedness in excess of
$10,000,000 for money borrowed by the Company, whether such indebtedness now
exists or shall hereafter be created, which default shall have resulted in such
indebtedness becoming or being declared due and payable prior to the date on
which it would otherwise have become due and payable, without such indebtedness
having been discharged or such acceleration having been rescinded or annulled
within a period of 10 days after there shall have been given to the Company by
the holder of this Surplus Note a written note specifying such default and
requiring the Company to cause such acceleration to be rescinded or annulled and
stating that such notice is a "Notice of Default" hereunder; or
(e) the entry of a decree or order by a court having jurisdiction in
the premises adjudging the Company insolvent, or approving as properly filed a
petition seeking reorganization, arrangement, adjustment or composition of or in
3
<PAGE>
respect of the Company under any applicable Federal or State law, or appointing
a receiver, liquidator, assignee, trustee, sequestrator or other similar
official of the Company or of any substantial part of its property, or ordering
the winding up or liquidation of its affairs, and the continuance of any such
decree or order unstayed and in effect for a period of 90 consecutive days, or
(f) the institution by the Company of proceedings to be adjudicated a
bankrupt or insolvent, or the consent by it to the institution of bankruptcy or
insolvency proceedings against it, or the filing by it of a petition or answer
or consent seeking reorganization or relief under Federal bankruptcy law or any
other applicable Federal or State law, or the consent by it to the filing of
such petition or to the appointment of a receiver, liquidator, assignee,
trustee, sequestrator or similar official of the Company or of any substantial
part of its property, or the making by it of an assignment for the benefit of
creditors, or the admission by it in writing of its inability to pay its debts
generally as they become due, or the taking of corporate action by the Company
in furtherance of any such action.
4. If an Event of Default occurs and is continuing, the holder of this
Surplus Note may declare the principal of this Surplus Note to be due and
payable immediately, by a notice in writing to the Company, and upon any such
declaration such principal shall become immediately due and payable, subject to
the provisions of section 1 hereof.
5. To the extent that the Commissioner prohibits payment of all or a
portion of the principal or interest of this Surplus Note pursuant to the
provisions of section 1 hereof, the failure by the Company to make a principal
or interest payment hereunder shall not constitute an Event of Default. The
prohibition by the Commissioner of principal or interest payments shall not be
considered to be a forgiveness of the indebtedness hereunder and within 30 days
4
<PAGE>
after the removal of such prohibition the Company shall make payment of all
amounts owing hereunder.
6. No delay or failure on the part of the holder of this Surplus Note in
the exercise of any right, power or privilege granted under this Surplus Note,
or otherwise available by agreement, at law or in equity, shall impair any such
right, power or privilege or be construed as a waiver of any Event of Default or
any acquiescence therein. No single or partial exercise of any such right,
power or privilege shall preclude the further exercise of such right, power or
privilege. No waiver will be valid against the holder of this Surplus Note
unless made in writing and signed by the holder of this Surplus Note, and then
only to the extent expressly specified therein.
7. The Company covenants that if
(a) default is made in the payment of any installment of interest on
this Surplus Note when such interest becomes due and payable and such default
continues for a period of 30 days, other than to the extent the Commissioner
prohibits such interest payment pursuant to section 1 hereunder, or
(b) default is made in the payment of the principal of this Surplus
Note at the maturity hereof, other than to the extent the Commissioner prohibits
such principal payment pursuant to section 1 hereunder,
the Company will, upon demand by the holder of this Surplus Note, and subject to
the provisions of section 1 hereof, pay to it the whole amount then due and
payable on this Surplus Note for principal and interest, with interest upon the
overdue principal and, to the extent that payment of such interest shall be
legally enforceable, upon overdue installments of interest, at the rate borne by
this Surplus Note; and, in addition thereto, such further amount as shall be
sufficient to cover the costs and expenses of collection, including reasonable
attorneys' fees.
5
<PAGE>
Subject to the provisions of section 1 hereof, if the Company fails to pay
such amounts forthwith upon such demand, the holder of this Surplus Note may
institute a judicial proceeding for the collection of the sums so due and
unpaid, may prosecute such proceeding to judgment or final decree and may
enforce the same against the Company or any other obligor upon this Surplus Note
and collect the moneys adjudged or decreed to be payable in the manner provided
by law out of the property of the Company or any other obligor upon this Surplus
Note, wherever situated.
Subject to the provisions of section 1 hereof, if an Event of Default
occurs and is continuing, the holder of this Surplus Note may in its discretion
proceed to protect and enforce its rights by such appropriate judicial
proceedings as it shall deem most effectual to protect and enforce any such
rights, whether for the specific enforcement of any covenant or agreement in
this Surplus Note or in aid of the exercise of any power granted herein, or to
enforce any other proper remedy.
8. The Company covenants that it shall not consolidate with or merge into
any other corporation or convey, transfer or lease its properties and assets
substantially as an entirety to any Person, and the Company shall not permit any
Person to consolidate with or merge into the Company or convey, transfer or
lease its properties and assets substantially as an entirety to the Company,
unless:
(a) in case the Company shall consolidate with or merge into another
corporation or convey, transfer or lease its properties and assets substantially
as an entirety to any Person, the corporation formed by such consolidation or
into which the Company is merged or the Person which acquires by conveyance or
transfer, or which leases the properties and assets of the Company substantially
as an entirety shall be a corporation organized and existing under the laws of
the United States of America, any State thereof or the District of Columbia and
shall expressly assume, in a manner satisfactory to the holder of this Surplus
6
<PAGE>
Note, the due and punctual payment of the principal of and interest on this
Surplus Note and the performance of every covenant of this Surplus Note on the
part of the Company to be performed or observed;
(b) immediately after giving effect to such transactions, no Event of
Default, and no event which, after notice or lapse of time or both, would become
an Event of Default, shall have happened and be continuing; and
(c) if, as a result of any such consolidation or merger or such
conveyance, transfer or lease, capital stock of the Company would become subject
to a pledge, lien or other encumbrance, the Company or such successor
corporation or Person, as the case may be, shall take such steps as shall be
necessary effectively to secure this Surplus Note equally and ratably with (or
prior to) all indebtedness secured thereby.
Upon any consolidation of the Company with or merger of the Company into
any other corporation or any conveyance, transfer or lease of the properties and
assets of the Company substantially as an entirety to any Person in accordance
with this section 8, the successor corporation formed by such consolidation or
into which the Company is merged or to which such conveyance, transfer or lease
is made shall succeed to, and be substituted for, and may exercise every right
and power of, the Company under this Surplus Note with the same effect as if
such successor corporation had been named as the Company herein.
For purposes of this section 8, "Person" means any individual, corporation,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
9 As long as this Surplus Note remains outstanding, the Company will not
pay, or set apart any funds or property for the payment of, any dividend on, or
7
<PAGE>
make any distribution to the holders of, any shares of capital stock of the
Company (other than dividends or distributions payable in its capital stock or
warrants or rights to purchase capital stock), and the Company will not
purchase, redeem or otherwise acquire or retire for value any shares of capital
stock of the Company, if, at the time of such declaration, payment,
distribution, purchase, redemption, other acquisition or retirement, an Event of
Default shall have occurred and be continuing or a prohibition by the
Commissioner of payment of a principal or interest amount otherwise due is in
effect.
10. In the event of reorganization, dissolution, liquidation,
receivership, insolvency or bankruptcy of the Company, the claims of the holder
of this Surplus Note shall be subordinated to policyholder, claimant and
beneficiary claims as well as debts owed to all other classes of creditors other
than the holder. The claims of the holder of this Surplus Note shall be
superior to claims of the Company's common and preferred shareholders.
11. Subject to the provisions of section 1 hereof, this Surplus Note, may
be repaid, in whole at any time or in part from time to time, without premium or
penalty and with interest to the date of payment only.
12. Except for the events described in sections 1 and 6 above, no
provisions of this Surplus Note shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of and
interest on this Surplus Note at the times, place and rate, and in the coin or
currency, herein prescribed. No provision of this Surplus Note shall extinguish
ultimate liability for the payment of principal and interest hereunder.
13. Time is of the essence hereunder. This Surplus Note shall be governed
by the laws of the State of Tennessee.
8
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Surplus Note to be executed
in its name and attested to by its authorized officers, and its corporate seal
to be hereunto affixed, all as of the date first written above.
PROVIDENT LIFE AND ACCIDENT
INSURANCE COMPANY
By: /s/ Thomas R. Watjen
_____________________________
Executive Vice President
and Chief Financial Officer
ATTEST:
/s/ Susan N. Roth
- -----------------
Secretary
9
<PAGE>
Exhibit 10.14
Credit Agreement between Provident and a consortium
of Financial Institutions
(attached)
<PAGE>
================================================================================
PROVIDENT COMPANIES, INC.
_____________________________
CREDIT AGREEMENT
Dated as of July 30, 1996
______________________________
$800,000,000
______________________________
THE CHASE MANHATTAN BANK,
as Administrative Agent
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 1. Definitions and Accounting Matters 1
1.01 Certain Defined Terms 1
1.02 Accounting Terms and Determinations 18
1.03 Types of Loans 19
1.04 Moody's Ratings and S&P Ratings 19
1.05 Moody's Claims Ratings and S&P Claims Ratings 19
Section 2. Commitments, Loans, Notes and Prepayments 20
2.01 Loans 20
2.02 Borrowings 20
2.03 Changes of Commitments 20
2.04 Facility Fee 21
2.05 Lending Offices 23
2.06 Several Obligations; Remedies Independent 23
2.07 Notes 23
2.08 Optional Prepayments and Conversions or
Continuations of Loans 24
2.09 Mandatory Prepayments and Reductions of
Commitments 24
Section 3. Payments of Principal and Interest 25
3.01 Repayment of Loans 25
3.02 Interest 25
Section 4. Payments; Pro Rata Treatment; Computations; Etc. 26
4.01 Payments 26
4.02 Pro Rata Treatment 27
4.03 Computations 27
4.04 Minimum Amounts 28
4.05 Certain Notices 28
4.06 Non-Receipt of Funds by the Administrative Agent 29
4.07 Sharing of Payments, Etc. 30
Section 5. Yield Protection, Etc. 31
5.01 Additional Costs 31
5.02 Limitation on Types of Loans 34
5.03 Illegality 35
5.04 Treatment of Affected Loans 35
5.05 Compensation 36
5.06 U.S. Taxes 37
5.07 Replacement of Bank 38
</TABLE>
<PAGE>
-ii-
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 6. Conditions Precedent 39
6.01 Initial Loan 39
6.02 Acquisition/Post-Acquisition Loans 41
6.03 Initial and Subsequent Loans 43
Section 7. Representations and Warranties 43
7.01 Corporate Existence 43
7.02 Financial Condition 44
7.03 Litigation 45
7.04 No Breach 45
7.05 Action 45
7.06 Approvals 46
7.07 Use of Credit 46
7.08 ERISA 46
7.09 Taxes 46
7.10 Investment Company Act 47
7.11 Public Utility Holding Company Act 47
7.12 Credit Agreements 47
7.13 Hazardous Materials 47
7.14 Subsidiaries, Etc. 47
7.15 True and Complete Disclosure 48
7.16 Capitalization 48
7.17 Purchase Agreement 48
Section 8. Covenants of the Company 49
8.01 Financial Statements 49
8.02 Litigation 53
8.03 Existence, Etc. 54
8.04 Insurance 54
8.05 Limitation of Fundamental Changes 55
8.06 Certain Obligations Respecting Subsidiaries 56
8.07 Limitation on Liens 56
8.08 Investments 59
8.09 Dividend Payments 59
8.10 Minimum Adjusted Statutory Surplus 60
8.11 Consolidated Funded Debt 60
8.12 Ratio of Cash Sources to Cash Uses 60
8.13 Authorized Control Level Risk
Based Capital Ratio 60
8.14 Lines of Business 60
8.15 Transactions with Affiliates 60
8.16 Use of Proceeds 61
8.17 Pari Passu 61
Section 9. Events of Default 62
Section 10. The Administrative Agent 65
10.01 Appointment, Powers and Immunities 65
</TABLE>
<PAGE>
-iii-
<TABLE>
<CAPTION>
Page
----
<S> <C>
10.02 Reliance by Administrative Agent 66
10.03 Defaults 66
10.04 Rights as a Bank 67
10.05 Indemnification 67
10.06 Non-Reliance on Administrative
Agent and Other Banks 68
10.07 Failure to Act 68
10.08 Resignation or Removal of Administrative Agent 68
10.09 Agency Fee 69
10.10 Consents under Basic Documents 69
Section 11. Miscellaneous 69
11.01 Waiver 69
11.02 Notices 69
11.03 Expenses, Etc. 70
11.04 Amendments, Etc. 71
11.05 Successors and Assigns 72
11.06 Assignments and Participations 72
11.07 Survival 74
11.08 Captions 74
11.09 Counterparts 74
11.10 Governing Law; Submission to Jurisdiction 75
11.11 Waiver of Jury Trial 75
11.12 Treatment of Certain Information
Confidentiality 75
SCHEDULE I - Credit Agreements
SCHEDULE II - Subsidiaries
SCHEDULE III- Investment Companies
EXHIBIT A - Form of Note
EXHIBIT B - Form of Opinion of Counsel to the Company
EXHIBIT C - Form of Opinion of Special New York Counsel to the Banks
EXHIBIT D - Form of Confidentiality Agreement
</TABLE>
<PAGE>
CREDIT AGREEMENT dated as of July 30, 1996, between: PROVIDENT
COMPANIES, INC., a corporation duly organized and validly existing under the
laws of the State of Delaware (the "Company"); each of the lenders that is a
-------
signatory hereto identified under the caption "BANKS" on the signature pages
hereto or that, pursuant to Section 11.06(b) hereof, shall become a "Bank"
hereunder (individually, a "Bank" and, collectively, the "Banks"); and THE CHASE
---- -----
MANHATTAN BANK, a New York banking corporation, as agent for the Banks (in such
capacity, together with its successors in such capacity, the "Administrative
--------------
Agent").
- -----
The Company is engaged in the business of insurance, and in related
businesses, and in furnishing the required supplies, services, equipment, credit
and other facilities for such operation. The Company has requested the Banks to
make loans to the Company in an aggregate principal amount at any time
outstanding not exceeding $800,000,000 to finance the operations of the Company,
to enable certain acquisitions by the Company, and for other purposes.
To induce the Banks to make such loans, the Company, the Banks and the
Administrative Agent propose to enter into this Agreement pursuant to which the
Banks will make loans to the Company.
Accordingly, the parties hereto agree as follows:
Section 1. Definitions and Accounting Matters.
----------------------------------
1.01 Certain Defined Terms . As used herein, the following terms
----------------------
shall have the following meanings (all terms defined in this Section 1.01 or in
other provisions of this Agreement in the singular to have the same meanings
when used in the plural and vice versa):
---- -----
"Acquisition" shall mean the acquisition by the Company of Paul Revere
-----------
as provided in the Purchase Agreement.
"Acquisition Date" shall mean the date the Acquisition is effective.
----------------
"Adjusted Statutory Surplus" shall mean, at any time, for any
--------------------------
Insurance Subsidiary calculated in accordance with SAP, the sum of (x) the
amount by which assets exceed liabilities at such time (which amount for PLAIC
<PAGE>
as at December 31, 1995, by way of example, is shown on the 1995 Annual
Statement, Statement of Liabilities, Surplus and Other Funds, page 3, column 1,
line 38, of PLAIC) plus (y) the consolidated asset valuation reserves of such
----
Insurance Subsidiary as at such time (which amount for PLAIC as at December 31,
1995, by way of example, is shown on the 1995 Annual Statement, Statement of
Liabilities, Surplus and Other Funds, page 3, column 1, line 24.1).
"Affiliate" shall mean any Person that directly or indirectly
---------
controls, or is under common control with, or is controlled by, the Company. As
used in this definition, "control" (including, with its correlative meanings,
-------
"controlled by" and "under common control with") shall mean possession, directly
- -------------- -------------------------
or indirectly, of power to direct or cause the direction of management or
policies (whether through ownership of securities or partnership or other
ownership interests, by contract or otherwise), provided that, in any event, any
--------
Person that owns directly or indirectly securities having 25% or more of the
voting power for the election of directors or other governing body of a
corporation or 10% or more of the partnership or other ownership interests of
any other Person (other than as a limited partner of such other Person) will be
deemed to control such corporation or other Person. Notwithstanding the
foregoing, (a) no individual shall be an Affiliate solely by reason of his or
her being a director, officer or employee of the Company or any of its
Subsidiaries and (b) none of the Subsidiaries of the Company shall be
Affiliates.
"Applicable Insurance Regulatory Authority" shall mean, for each
-----------------------------------------
Insurance Subsidiary, the insurance department or similar administrative
authority or agency located in the State in which such Insurance Subsidiary is
domiciled (or otherwise having jurisdiction thereover).
"Applicable Lending Office" shall mean, for each Bank and for each
-------------------------
Type of Loan, the "Lending Office" of such Bank (or of an affiliate of such
Bank) designated for such Type of Loan on the signature pages hereof or such
other office of such Bank (or of an affiliate of such Bank) as such Bank may
from time to time specify to the Administrative Agent and the Company as the
office by which its Loans of such Type are to be made and maintained.
"Applicable Margin" shall mean, subject to the following sentence:
-----------------
(a) with respect to Base Rate Loans, 0% per annum; and (b) with respect to
Eurodollar Loans, as at any date of determination, the sum of (x) the
Utilization Premium, if any, and (y) the percentage per annum (expressed in
<PAGE>
number of basis points) determined by reference to the Moody's Rating and the
S&P Rating as at such date:
<TABLE>
<CAPTION>
Category Moody's Rating S&P Rating Applicable Margin
- ---------- -------------- ------------------- -----------------
<S> <C> <C> <C>
(a) A3 or higher A- or higher 20 basis points
(b) Less than A3 Less than A- but 22.5 basis points
but equal to equal to or greater
or greater than BBB+
than Baa1
(c) Less than Baa1 Less than BBB+ 30 basis points
but equal to but equal to or
or greater greater than BBB
than Baa2
(d) Less than Baa2 Less than BBB 35 basis points
but equal to but equal to or
or greater greater than BBB-
than Baa3
(e) Less than Baa3 Less than BBB- 50 basis points
</TABLE>
provided, however, that in order to qualify for a particular category of
- --------
Applicable Margin (other than in the case of clause (e) above) both the Moody's
Rating and the S&P Rating required for that category of Applicable Margin must
be attained and, accordingly, if one rating is lower than the other, the
Applicable Margin shall be determined on the basis of the lower of the two
ratings. Each change in any Applicable Margin in respect of Eurodollar Loans
resulting from a change in the Moody's Rating or the S&P Rating shall take
effect at the time of the public announcement of such change in the Moody's
Rating or the S&P Rating, as the case may be. If either a Moody's Rating or an
S&P Rating shall not be available, the "Applicable Margin" with respect to
Eurodollar Loans, as at any date of determination, shall be the sum of (x) the
Utilization Premium, if any, and (y) the percentage per annum (expressed in
number of basis points) determined by reference to the Moody's Claims Rating and
the S&P Claims Rating as at such date:
<PAGE>
<TABLE>
<CAPTION>
Category Moody's Claims S&P Claims Rating Applicable Margin
- -------- -------------- ----------------- -----------------
Rating
------
<S> <C> <C> <C>
(a) Aa3 or higher AA- or higher 20 basis points
(b) Less than Aa3 Less than AA- but 22.5 basis points
but equal to equal to or greater
or greater than A+
than A1
(c) Less than A1 Less than A+ 30 basis points
but equal to but equal to or
or greater greater than A
than A2
(d) Less than A2 Less than A 35 basis points
but equal to but equal to or
or greater greater than A-
than A3
(e) Less than A3 Less than A- 50 basis points
</TABLE>
provided, however, that in order to qualify for a particular category of
- --------
Applicable Margin (other than in the case of clause (e) above) both the Moody's
Claims Rating and the S&P Claims Rating required for that category of Applicable
Margin must be attained and, accordingly, if one rating is lower than the other,
the Applicable Margin shall be determined on the basis of the lower of the two
ratings. Each change in any Applicable Margin in respect of Eurodollar Loans
resulting from a change in the Moody's Claims Rating or the S&P Claims Rating
shall take effect at the time of the public announcement of such change in the
Moody's Claims Rating or the S&P Claims Rating, as the case may be.
"Bankruptcy Code" shall mean the Federal Bankruptcy Code of 1978, as
---------------
amended from time to time.
"Base Rate" shall mean, for any day, a rate per annum equal to the
---------
higher of (a) the Federal Funds Rate for such day plus 1/2 of 1% and (b) the
Prime Rate for such day. Each change in any interest rate provided for herein
based upon the Base Rate resulting from a change in the Base Rate shall take
effect at the time of such change in the Base Rate.
<PAGE>
"Base Rate Loans" shall mean Loans that bear interest at rates based
---------------
upon the Base Rate.
"Basel Accord" shall mean the proposals for risk-based capital
------------
framework described by the Basel Committee on Banking Regulations and
Supervisory Practices in its paper entitled "International Convergence of
Capital Measurement and Capital Standards" dated July 1988, as amended, modified
and supplemented and in effect from time to time or any replacement thereof.
"Basic Documents" shall mean, collectively, this Agreement and the
---------------
Notes.
"Business Day" shall mean (a) any day on which commercial banks are
------------
not authorized or required to close in New York City and (b) if such day relates
to a borrowing of, a payment or prepayment of principal of or interest on, a
Conversion of or into, or an Interest Period for, a Eurodollar Loan or a notice
by the Company with respect to any such borrowing, payment, prepayment,
Conversion or Interest Period, any day on which dealings in Dollar deposits are
carried out in the London interbank market.
"Capital Lease Obligations" shall mean, for any Person, all
-------------------------
obligations of such Person to pay rent or other amounts under a lease of (or
other agreement conveying the right to use) Property to the extent such
obligations are required to be classified and accounted for as a capital lease
on a balance sheet of such Person under GAAP (including Statement of Financial
Accounting Standards No. 13 of the Financial Accounting Standards Board), and,
for purposes of this Agreement, the amount of such obligations shall be the
capitalized amount thereof, determined in accordance with GAAP (including such
Statement No. 13).
"Cash Sources" shall mean, as at the last day of any fiscal quarter of
------------
the Company commencing with the fiscal quarter ending December 31, 1996, the
statutory net income of the Insurance Subsidiaries on a combined basis
determined in accordance with SAP for the one year period (or, prior to
September 30, 1997, such number of fiscal quarterly periods since October 1,
1996 as shall have elapsed) ending on such date.
"Cash Uses" shall mean, as at the last day of any fiscal quarter of
---------
the Company commencing with the fiscal quarter ending December 31, 1996, the
aggregate amount paid, expended, disbursed and/or distributed by the Company in
respect of principal (other than the repayment of principal of the Refinanced
Debt made pursuant to Section 6.01(f) hereof), Interest Expense payable in
<PAGE>
connection with Indebtedness and Dividend Payments for the one year period (or,
prior to September 30, 1997, such number of fiscal quarterly periods since
October 1, 1996 as shall have elapsed) ending on such date.
"Chase" shall mean The Chase Manhattan Bank.
-----
"Closing Date" shall mean the date upon which the initial Loan
------------
hereunder is made.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
----
time to time.
"Commitment" shall mean, for each Bank, the obligation of such Bank to
----------
make Loans in an aggregate amount at any one time outstanding up to but not
exceeding the amount set opposite the name of such Bank on the signature pages
hereof under the caption "Commitment" (as the same may be reduced from time to
time pursuant to Section 2.03 hereof), subject, in the case of any assignment
contemplated by Section 11.06(b) hereof, to the provisions of such Section
11.06(b).
"Commitment Termination Date" shall mean July 30, 2001.
---------------------------
"Consolidated Capital" shall mean, at any time and as to the Company,
--------------------
the aggregate of the capital stock, capital surplus, paid-in capital, retained
earnings and unrealized gains (or losses) on equity securities (net of deferred
taxes) of the Company and its Consolidated Subsidiaries on a consolidated basis
(calculated without giving effect to SFAS 115), less the sum of treasury stock
----
and capital stock subscribed and unissued and the book value of good will,
formula, patents, trademarks, service marks, trade names, copyrights, charters,
franchises, certificates, permits and licenses, prepaid expenses, prepaid taxes,
organizational expenses, unamortized debt discount and any other intangible
assets of the Company other than (x) unamortized deferred policy acquisition
costs and (y) value of business acquired plus the Consolidated Funded Debt.
----
"Consolidated Funded Debt" shall mean Funded Debt of the Company and
------------------------
its Consolidated Subsidiaries on a consolidated basis.
"Consolidated Subsidiary" shall mean, for any Person, each Subsidiary
-----------------------
of such Person (whether now existing or hereafter created or acquired) the
financial statements of which shall be (or should have been) consolidated with
<PAGE>
the financial statements of such Person in accordance with GAAP.
"Continue", "Continuation" and "Continued" shall refer to the
-------- ------------ ---------
continuation pursuant to Section 2.08 hereof of a Eurodollar Loan as a
Eurodollar Loan from one Interest Period to the next Interest Period for such
Loan.
"Convert", "Conversion" and "Converted" shall refer to a conversion
------- ---------- ---------
pursuant to Section 2.08 hereof of one Type of Loans into another Type of Loans,
which may be accompanied by the transfer by a Bank (at its sole discretion) of a
Loan from one Applicable Lending Office to another.
"Corporate Acquisition" shall have the meaning assigned to such term
---------------------
in Section 8.05 hereof.
"Debt Issuance" shall mean any issuance or sale by the Company or any
-------------
of its Subsidiaries after the Closing Date of any Indebtedness of the type
described in clause (a) of the definition thereof.
"Default" shall mean an Event of Default or an event that with notice
-------
or lapse of time or both would become an Event of Default.
"Derivatives Obligations" of any Person shall mean all obligations of
-----------------------
such Person in respect of any rate swap transaction, basis swap, forward rate
transaction, commodity swap, commodity option, equity swap or equity index swap,
equity option or equity index option, bond option, interest rate option, foreign
exchange transaction, cap transaction, floor transaction, collar transaction,
currency swap transaction, cross-currency rate swap transaction, currency option
or any other similar transaction (including any option with respect to any of
the foregoing transactions) or any combination of the foregoing transactions.
"Dividend Payment" shall mean dividends (in cash, Property or
----------------
obligations) on, or other payments or distributions on account of, or the
setting apart of money for a sinking or other analogous fund for, or the
purchase, redemption, retirement or other acquisition of, any shares of any
class of stock of the Company or of any warrants, options or other rights to
acquire the same (or to make any payments to any Person, such as "phantom stock"
payments, where the amount thereof is calculated with reference to the fair
<PAGE>
market or equity value of the Company or any of its Subsidiaries), but excluding
dividends payable solely in shares of common stock of the Company.
"Dollars" and "$" shall mean lawful money of the United States of
------- -
America.
"Environmental Laws" shall mean any and all present and future
------------------
Federal, state, local and foreign laws, rules or regulations, and any orders or
decrees, in each case as now or hereafter in effect, relating to the regulation
or protection of human health, safety or the environment or to emissions,
discharges, releases or threatened releases of pollutants, contaminants,
chemicals or toxic or hazardous substances or wastes into the indoor or outdoor
environment, including, without limitation, ambient air, soil, surface water,
ground water, wetlands, land or subsurface strata, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of pollutants, contaminants, chemicals or toxic or
hazardous substances or wastes.
"Equity Issuance" shall mean, except for the issuance of the Company's
---------------
common stock in connection with the Acquisition and the Zurich Investment, (a)
any issuance or sale by the Company or any of its Subsidiaries after the Closing
Date of (i) any capital stock (other than any capital stock issued to directors,
officers or employees of the Company or any of its Subsidiaries), (ii) any
Equity Rights (other than any warrants or options issued to directors, officers
or employees of the Company or any of its Subsidiaries and any capital stock of
the Company issued upon the exercise of such warrants) or (iii) any other
security or instrument representing an equity interest (or the right to obtain
any equity interest) in the issuing or selling Person or (b) the receipt by the
Company or any of its Subsidiaries after the Closing Date of any capital
contribution received (whether or not evidenced by any equity security issued by
the recipient of such contribution); provided that Equity Issuance shall not
--------
include (I)(x) any such issuance or sale by any Subsidiary of the Company to the
Company or any Wholly Owned Subsidiary of the Company or (y) any capital
contribution by the Company or any Wholly Owned Subsidiary of the Company to any
Subsidiary of the Company and (II) any such issuance or sale the proceeds of
which are invested by the Company in the Company's and its Subsidiaries'
business and no special Dividend Payment is declared or made with (or related
to) the proceeds thereof.
"Equity Rights" shall mean, with respect to any Person, any
-------------
outstanding subscriptions, options, warrants, commitments, preemptive rights or
agreements of any kind (including, without limitation, any stockholders' or
<PAGE>
voting trust agreements) for the issuance, sale, registration or voting of, or
outstanding securities convertible into, any additional shares of capital stock
of any class, or partnership or other ownership interests of any type in, such
Person.
"ERISA" shall mean the Employee Retirement Income Security Act of
-----
1974, as amended from time to time.
"ERISA Affiliate" shall mean any corporation or trade or business that
---------------
is a member of any group of organizations (i) described in Section 414(b) or (c)
of the Code of which the Company is a member and (ii) solely for purposes of
potential liability under Section 302(c)(11) of ERISA and Section 412(c)(11) of
the Code and the lien created under Section 302(f) of ERISA and Section 412(n)
of the Code, described in Section 414(m) or (o) of the Code of which the Company
is a member.
"Eurodollar Base Rate" shall mean, for any Interest Period for any
--------------------
Eurodollar Loan, the arithmetic mean (rounded upwards, if necessary, to the
nearest 1/16 of 1%), as determined by the Administrative Agent, of the
respective rates per annum quoted by the respective Reference Banks at
approximately 11:00 a.m. London time (or as soon thereafter as practicable) on
the date two Business Days prior to the first day of such Interest Period for
the offering by the respective Reference Banks to leading banks in the London
interbank market of Dollar deposits having a term comparable to such Interest
Period and in an amount comparable to the Eurodollar Loans to be made by the
respective Reference Banks. If any Reference Bank is not participating in any
Eurodollar Loan during any Interest Period therefor, the Eurodollar Base Rate
for such Interest Period shall be determined by reference to the amount of the
Loan that such Reference Bank would have made or had outstanding had it been
participating in such Loan during such Interest Period. If any Reference Bank
does not timely furnish such information for determination of any Eurodollar
Base Rate, the Administrative Agent shall determine such Eurodollar Base Rate on
the basis of the information timely furnished by the remaining Reference Banks.
"Eurodollar Loans" shall mean Loans the interest rates on which are
----------------
determined on the basis of rates referred to in the definition of "Eurodollar
Base Rate" in this Section 1.01.
"Eurodollar Rate" shall mean, for any Interest Period for any
---------------
Eurodollar Loan, a rate per annum (rounded upwards, if necessary, to the nearest
<PAGE>
1/100 of 1%) determined by the Administrative Agent to be equal to the
Eurodollar Base Rate for such Interest Period divided by 1 minus the Reserve
Requirement for such Interest Period.
"Event of Default" shall have the meaning assigned to such term in
----------------
Section 9 hereof.
"Federal Funds Rate" shall mean, for any day, the rate per annum
------------------
(rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to the
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers on such
day, as published by the Federal Reserve Bank of New York on the Business Day
next succeeding such day, provided that (a) if the day for which such rate is to
--------
be determined is not a Business Day, the Federal Funds Rate for such day shall
be such rate on such transactions on the next preceding Business Day as so
published on the next succeeding Business Day and (b) if such rate is not so
published for any Business Day, the Federal Funds Rate for such Business Day
shall be the average rate charged to Chase on such Business Day on such
transactions as determined by the Administrative Agent.
"Funded Debt" shall mean, for any Person, all indebtedness created,
-----------
issued or incurred by such Person for borrowed money (whether by loan or the
issuance and sale of debt securities or the sale of Property to another Person
subject to an understanding or agreement, contingent or otherwise, to repurchase
such Property from such Person), or any Guarantee issued by such Person in
respect of any of the foregoing, but excluding any Indebtedness attributable to
and resulting from a transaction described in Section 8.07(a)(vii) hereof.
"GAAP" shall mean generally accepted accounting principles applied on
----
a basis consistent with those that, in accordance with the last sentence of
Section 1.02(a) hereof, are to be used in making the calculations for purposes
of determining compliance with this Agreement.
"Guarantee" shall mean a guarantee, an endorsement, a contingent
---------
agreement to purchase or to furnish funds for the payment or maintenance of, or
otherwise to be or become contingently liable under or with respect to, the
Indebtedness, other obligations, net worth, working capital or earnings of any
Person, or a guarantee of the payment of dividends or other distributions upon
the stock or equity interests of any Person, or an agreement to purchase, sell
or lease (as lessee or lessor) Property, products, materials, supplies or
<PAGE>
services primarily for the purpose of enabling a debtor to make payment of such
debtor's obligations or an agreement to assure a creditor against loss, and
including, without limitation, causing a bank or other financial institution to
issue a letter of credit or other similar instrument for the benefit of another
Person, but excluding endorsements for collection or deposit in the ordinary
course of business. The terms "Guarantee" and "Guaranteed" used as a verb shall
--------- ----------
have a correlative meaning.
"Indebtedness" shall mean, for any Person: (a) obligations created,
------------
issued or incurred by such Person for borrowed money (whether by loan, the
issuance and sale of debt securities or the sale of Property to another Person
subject to an understanding or agreement, contingent or otherwise, to repurchase
such Property from such Person); (b) obligations of such Person to pay the
deferred purchase or acquisition price of Property or services, other than trade
accounts payable (other than for borrowed money) arising, and accrued expenses
incurred, in the ordinary course of business so long as such trade accounts
payable are payable within 90 days of the date the respective goods are
delivered or the respective services are rendered; (c) Indebtedness of others
secured by a Lien on the Property of such Person, whether or not the respective
indebtedness so secured has been assumed by such Person; (d) obligations of such
Person in respect of letters of credit or similar instruments issued or accepted
by banks and other financial institutions for account of such Person; (e)
Capital Lease Obligations of such Person; and (f) Indebtedness of others
Guaranteed by such Person.
"Insurance Subsidiary" shall mean any Subsidiary regulated by an
--------------------
insurance department or similar administrative authority or agency.
"Interest Expense" shall mean, for any period, the sum, for the
----------------
Company and its Consolidated Subsidiaries (determined on a consolidated basis
without duplication in accordance with GAAP), of the following: (a) all
interest in respect of Indebtedness accrued or capitalized during such period
(whether or not actually paid during such period) plus (b) the net amounts
----
payable (or minus the net amounts receivable) under Derivatives Obligations
-----
related to Indebtedness accrued during such period (whether or not actually paid
or received during such period).
"Interest Period" shall mean, for any Eurodollar Loan, each period
---------------
commencing on the date such Eurodollar Loan is made or Converted from a Loan of
another Type or the last day of the next preceding Interest Period for such Loan
and ending on the numerically corresponding day in the first, third or sixth
calendar month thereafter, as the Company may select as provided in Section 4.05
<PAGE>
hereof, except that each Interest Period for a Eurodollar Loan that commences on
the last Business Day of a calendar month (or on any day for which there is no
numerically corresponding day in the appropriate subsequent calendar month)
shall end on the last Business Day of the appropriate subsequent calendar month.
Notwithstanding the foregoing: (i) if any Interest Period would otherwise end
after the Commitment Termination Date, such Interest Period shall end on the
Commitment Termination Date; (ii) each Interest Period that would otherwise end
on a day which is not a Business Day shall end on the next succeeding Business
Day (or, in the case of an Interest Period for a Eurodollar Loan, if such next
succeeding Business Day falls in the next succeeding calendar month, on the next
preceding Business Day); and (iii) notwithstanding clause (i) above, no Interest
Period shall have a duration of less than one month and, if the Interest Period
for any Eurodollar Loan would otherwise be a shorter period, such Loan shall not
be available hereunder for such period.
"Investment" shall mean, for any Person: (a) the acquisition (whether
----------
for cash, Property, services or securities or otherwise) of capital stock,
bonds, notes, debentures, partnership or other ownership interests or other
securities of any other Person or any agreement to make any such acquisition
(including, without limitation, any "short sale" or any sale of any securities
at a time when such securities are not owned by the Person entering into such
short sale); (b) the making of any deposit with, or advance, loan or other
extension of credit to, any other Person (including the purchase of Property
from another Person subject to an understanding or agreement, contingent or
otherwise, to resell such Property to such Person, but excluding any such
advance, loan or extension of credit having a term not exceeding 90 days
representing the purchase price of inventory or supplies sold by such Person in
the ordinary course of business); or (c) the entering into of any Guarantee of,
or other contingent obligation with respect to, Indebtedness or other liability
of any other Person and (without duplication) any amount committed to be
advanced, lent or extended to such Person.
"Lien" shall mean, with respect to any Property, any mortgage, lien,
----
pledge, charge, security interest or encumbrance of any kind in respect of such
Property. For purposes of this Agreement and the other Basic Documents, a
Person shall be deemed to own subject to a Lien any Property that it has
acquired or holds subject to the interest of a vendor or lessor under any
<PAGE>
conditional sale agreement, capital lease or other title retention agreement
(other than an operating lease) relating to such Property.
"Loans" shall mean the loans provided for by Section 2.01 hereof,
-----
which may be Base Rate Loans and/or Eurodollar Loans.
"Majority Banks" shall mean, subject to the last paragraph of Section
--------------
11.04 hereof, Banks having more than 50% of the aggregate amount of the
Commitments or, if the Commitments shall have terminated, Banks holding more
than 50% of the aggregate unpaid principal amount of the Loans.
"Margin Stock" shall mean "margin stock" within the meaning of
------------
Regulations G, T, U and X.
"Material Adverse Effect" shall mean a material adverse effect on (a)
-----------------------
the Property, business, operations, financial condition, liabilities or
capitalization of the Company and its Subsidiaries taken as a whole (which, in
the case of Section 7.03 hereof, shall mean an effect thereon equal to or
exceeding (individually or in the aggregate) $50,000,000 and, in the case of the
third sentence of Section 8.05 hereof, shall be in respect of at least 10% of
the Company's assets in the aggregate), (b) the ability of the Company to
perform its obligations under any of the Basic Documents, (c) the validity or
enforceability of any of the Basic Documents, (d) the rights and remedies of the
Banks and the Administrative Agent under any of the Basic Documents or (e) the
timely payment of the principal of or interest on the Loans or other amounts
payable in connection therewith.
"Moody's Claims Rating" shall mean, as at any date of determination,
---------------------
the rating assigned by Moody's Investors Service, Inc. to PLAIC's claims paying
ability as at such date.
"Moody's Rating" shall mean, as at any date of determination, the
--------------
rating assigned by Moody's Investors Service, Inc. to the Company's senior
unsecured long term debt rating (unsupported by any credit enhancement) as at
such date.
"Multiemployer Plan" shall mean a multiemployer plan defined as such
------------------
in Section 3(37) of ERISA to which contributions have been made by the Company
or any ERISA Affiliate and that is covered by Title IV of ERISA.
"NAIC" shall mean the National Association of Insurance Commissioners
----
or any successor thereto.
<PAGE>
"NAIC Ratings" shall mean the quality ratings assigned by the
------------
Securities Valuation Office of the NAIC to investments of the Company and its
Consolidated Subsidiaries. References in this Agreement to particular NAIC
Ratings are references to such ratings as currently defined and classified by
the Securities Valuation Office of the NAIC and if such rating system is changed
then each reference to a particular rating in this Agreement shall be deemed to
be a reference to the rating under such changed rating system which most closely
approximates the credit quality of the particular rating as defined on the date
of this Agreement.
"Net Available Proceeds" shall mean, in the case of any Equity
----------------------
Issuance or Debt Issuance, the aggregate amount of all cash and cash equivalents
received by the Company and its Subsidiaries in respect of such Equity Issuance
or Debt Issuance net of reasonable expenses (including underwriting commissions
and discounts) incurred by the Company and its Subsidiaries in connection
therewith.
"Notes" shall mean the promissory notes provided for by Section
-----
2.07(a) hereof and all promissory notes delivered in substitution or exchange
therefor, in each case as the same shall be modified and supplemented and in
effect from time to time.
"Paul Revere" means The Paul Revere Corporation, a Massachusetts
-----------
corporation.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any
----
entity succeeding to any or all of its functions under ERISA.
"Person" shall mean any individual, corporation, company, voluntary
------
association, partnership, limited liability company, joint venture, trust,
unincorporated organization or government (or any agency, instrumentality or
political subdivision thereof).
"PLAIC" shall mean Provident Life and Accident Insurance Company, a
-----
Tennessee insurance corporation, and its successors.
"Plan" shall mean an employee benefit or other plan established or
----
maintained by the Company or any ERISA Affiliate and that is covered by Title IV
of ERISA, other than a Multiemployer Plan.
<PAGE>
"Post-Default Rate" shall mean, in respect of any principal of any
-----------------
Loan or any other amount under this Agreement, any Note or any other Basic
Document that is not paid when due (whether at stated maturity, by acceleration,
by optional or mandatory prepayment or otherwise), a rate per annum during the
period from and including the due date to but excluding the date on which such
amount is paid in full equal to 2% plus the Base Rate as in effect from time to
----
time plus the Applicable Margin for Base Rate Loans (provided that, if the
---- --------
amount so in default is principal of a Eurodollar Loan and the due date thereof
is a day other than the last day of the Interest Period therefor, the "Post-
Default Rate" for such principal shall be, for the period from and including
such due date to but excluding the last day of the Interest Period, a rate per
annum equal to 2% plus the interest rate for such Loan as provided in Section
----
3.02(b) hereof and, thereafter, the rate provided for above in this definition).
"Prime Rate" shall mean the rate of interest from time to time
----------
announced by Chase at the Principal Office as its prime commercial lending rate.
"Principal Office" shall mean the principal office of Chase, located
----------------
on the date hereof at 1 Chase Manhattan Plaza, New York, New York 10081.
"Property" shall mean any right or interest in or to property of any
--------
kind whatsoever, whether real, personal or mixed and whether tangible or
intangible.
"Purchase Agreement" means the Agreement and Plan of Merger dated as
------------------
of April 29, 1996 among the Company, Patriot Acquisition Corporation and Paul
Revere, as amended from time to time.
"Quarterly Dates" shall mean the last day of each March, June,
---------------
September and December in each year, the first of which shall be the first such
day after the date hereof; provided that if any such day is not a Business Day,
--------
then such Quarterly Date shall be the next preceding Business Day.
"Reference Banks" shall mean Chase, First Chicago NBD Corp. and
---------------
Wachovia Bank (or their respective Applicable Lending Offices, as the case may
be).
"Refinanced Debt" shall mean the Indebtedness outstanding under the
---------------
Credit Agreement dated as of December 1, 1994 among the Company, the lenders
party thereto, and Chase, as agent, as in effect on the date hereof.
<PAGE>
"Regulations A, D, G, T, U and X" shall mean, respectively,
-------------------------------
Regulations A, D, G, T, U and X of the Board of Governors of the Federal Reserve
System (or any successor), as the same may be modified and supplemented and in
effect from time to time.
"Regulatory Change" shall mean, with respect to any Bank, any change
-----------------
after the date hereof in Federal, state or foreign law or regulations
(including, without limitation, Regulation D) or the adoption or making after
such date of any interpretation, directive or request applying to a class of
banks including such Bank of or under any Federal, state or foreign law or
regulations (whether or not having the force of law and whether or not failure
to comply therewith would be unlawful) by any court or governmental or monetary
authority charged with the interpretation or administration thereof.
"Reserve Requirement" shall mean, for any Interest Period for any
-------------------
Eurodollar Loan, the average maximum rate at which reserves (including, without
limitation, any marginal, supplemental or emergency reserves) are required to be
maintained during such Interest Period under Regulation D by member banks of the
Federal Reserve System in New York City with deposits exceeding one billion
Dollars against "Eurocurrency liabilities" (as such term is used in Regulation
D). Without limiting the effect of the foregoing, the Reserve Requirement shall
include any other reserves required to be maintained by such member banks by
reason of any Regulatory Change with respect to (i) any category of liabilities
that includes deposits by reference to which the Eurodollar Base Rate for any
Interest Period for any Eurodollar Loans is to be determined as provided in the
definition of "Eurodollar Base Rate" in this Section 1.01 or (ii) any category
of extensions of credit or other assets that includes Eurodollar Loans.
"SAP" shall mean, with respect to any Insurance Subsidiary, the
---
accounting procedures and practices prescribed or permitted by the Applicable
Insurance Regulatory Authority, applied on a basis consistent with those that,
in accordance with the last sentence of Section 1.02(a) hereof, are to be used
in making the calculations for purposes of determining compliance with certain
terms of this Agreement.
"S&P Claims Rating" shall mean, as at any date of determination, the
-----------------
rating assigned by Standard & Poor's Ratings Group to PLAIC's claims paying
ability as at such date.
<PAGE>
"S&P Rating" shall mean, as at any date of determination, the rating
----------
assigned by Standard & Poor's Ratings Group to the Company's senior unsecured
long term debt rating (unsupported by any credit enhancement) as at such date.
"SFAS 115" shall mean the Statement of Financial Accounting Standards
--------
No. 115 "Accounting for Certain Investments in Debt and Equity Securities"
issued by the Financial Accounting Standards Board.
"Subsidiary" shall mean, for the Company, any corporation, partnership
----------
or other entity of which at least a majority of the securities or other
ownership interests having by the terms thereof ordinary voting power to elect a
majority of the board of directors or other persons performing similar functions
of such corporation, partnership or other entity (irrespective of whether or not
at the time securities or other ownership interests of any other class or
classes of such corporation, partnership or other entity shall have or might
have voting power by reason of the happening of any contingency) is at the time
directly or indirectly owned or controlled by the Company or one or more
Subsidiaries of the Company or by the Company and one or more Subsidiaries of
the Company.
"Substantial Part" shall mean, as at any date of determination, 10% or
----------------
more of the assets of the Company and its Consolidated Subsidiaries on a
consolidated basis.
"Textron" shall mean Textron Inc., a Delaware corporation.
-------
"Type" shall have the meaning assigned to such term in Section 1.03
----
hereof.
"Utilization Premium" shall mean, as at any date of determination,
-------------------
five (5) basis points if, as at such time, the aggregate outstanding principal
amount of the Loans is equal to or more than one-half of the aggregate
Commitments.
"Wholly-Owned Subsidiary" shall mean any Subsidiary of which all of
-----------------------
such securities or other ownership interests (other than, in the case of a
corporation, directors' qualifying shares) are so owned or controlled.
"Zurich Investment" shall mean the issuance by the Company and the
-----------------
purchase by the Zurich Insurance Company of 9,523,810 shares of the Company's
<PAGE>
common stock pursuant to a Common Stock Purchase Agreement dated as of May 31,
1996 between the Company and Zurich Insurance Company.
1.02 Accounting Terms and Determinations.
------------------------------------
(a) Except as otherwise expressly provided herein, all accounting
terms used herein shall be interpreted, and all financial statements and
certificates and reports as to financial matters required to be delivered to the
Banks hereunder shall (unless otherwise disclosed to the Banks in writing at the
time of delivery thereof in the manner described in Section 1.02(b) hereof) be
prepared, in accordance with generally accepted accounting principles or
statutory accounting principles, as the case may be, applied on a basis
consistent with those used in the preparation of the latest financial statements
furnished to the Banks hereunder (which, prior to the delivery of the first
financial statements under Section 8.01 hereof, shall mean the financial
statements as at December 31, 1995 referred to in Section 7.02 hereof). All
calculations made for the purposes of determining compliance with this Agreement
shall (except as otherwise expressly provided herein) be made by application of
generally accepted accounting principles or statutory accounting principles, as
the case may be, applied on a basis consistent with those used in the
preparation of the latest annual or quarterly financial statements furnished to
the Banks pursuant to Section 8.01 hereof (or, prior to the delivery of the
first financial statements under said Section 8.01, used in the preparation of
the financial statements as at December 31, 1995 referred to in Section 7.02
hereof) unless (i) the Company shall have objected to determining such
compliance on such basis at the time of delivery of such financial statements or
(ii) the Majority Banks shall so object in writing within 30 days after delivery
of such financial statements, in either of which events such calculations shall
be made on a basis consistent with those used in the preparation of the latest
financial statements as to which such objection shall not have been made (which,
if objection is made in respect of the first financial statements delivered
under Section 8.01 hereof, shall mean the audited financial statements referred
to in Section 7.02 hereof).
(b) The Company shall deliver to the Banks at the same time as the
delivery of any annual or quarterly financial statement under Section 8.01
hereof (i) a description in reasonable detail of any material variation between
the application of accounting principles employed in the preparation of such
statement and the application of accounting principles employed in the
preparation of the next preceding annual or quarterly financial statements as to
<PAGE>
which no objection has been made in accordance with the last sentence of Section
1.02(a) hereof and (ii) reasonable estimates of the difference between such
statements arising as a consequence thereof.
(c) To enable the ready and consistent determination of compliance
with the covenants set forth in Section 8 hereof, the Company will not change
the last day of its fiscal year from December 31 of each year, or the last days
of the first three fiscal quarters in each of its fiscal years from March 31,
June 30 and September 30 of each year, respectively.
1.03 Types of Loans. Loans hereunder are distinguished by "Type".
---------------
The "Type" of a Loan refers to whether such Loan is a Base Rate Loan or a
Eurodollar Loan, each of which constitutes a Type.
1.04 Moody's Ratings and S&P Ratings. All references in this
--------------------------------
Agreement to particular Moody's Ratings and S&P Ratings are references to such
ratings as currently defined by Moody's Investors Service, Inc. and Standard &
Poor's Ratings Group and in the event either such rating service changes its
ratings system, each reference to a particular rating of such rating service set
forth in this Agreement shall be deemed to be a reference to the rating under
such changed rating system which, in the reasonable judgment of the
Administrative Agent, after consultation with the rating service involved, most
closely approximates the senior unsecured long term debt rating (unsupported by
any credit enhancement) associated with the particular rating of such rating
service as currently defined.
1.05 Moody's Claims Ratings and S&P Claims Ratings. All references
----------------------------------------------
in this Agreement to particular Moody's Claims Ratings and S&P Claims Ratings
are references to such ratings as currently defined by Moody's Investors
Service, Inc. and Standard & Poor's Ratings Group and in the event either such
rating service changes its ratings system, each reference to a particular rating
of such rating service set forth in this Agreement shall be deemed to be a
reference to the rating under such changed rating system which, in the
reasonable judgment of the Administrative Agent, after consultation with the
rating service involved, most closely approximates the claims paying ability
rating associated with the particular rating of such rating service as currently
defined. If for any reason a Moody's Claims Rating or an S&P Claims Rating is
not available then the level of Applicable Margin shall be determined by the
Majority Banks after consultation with the Company, based on the Majority Banks'
<PAGE>
good faith estimates of what such rating would have been had it been available,
the determination of the Majority Banks in such regard to be final and
conclusive.
Section 2. Commitments, Loans, Notes and Prepayments.
-----------------------------------------
2.01 Loans. Each Bank severally agrees, on the terms and conditions
------
of this Agreement, to make loans to the Company in Dollars during the period
from and including the Closing Date to but not including the Commitment
Termination Date in an aggregate principal amount at any one time outstanding up
to but not exceeding the amount of the Commitment of such Bank as in effect from
time to time, provided that in no event shall the aggregate principal amount of
--------
all Loans exceed the aggregate amount of the Commitments as in effect from time
to time; provided further that, prior to the Acquisition Date, the aggregate
principal amount of the Loans shall not exceed $400,000,000. Subject to the
terms and conditions of this Agreement, during such period the Company may
borrow, repay and reborrow the amount of the Commitments by means of Base Rate
Loans and Eurodollar Loans and may Convert Loans of one Type into Loans of
another Type (as provided in Section 2.08 hereof) or Continue Loans of one Type
as Loans of the same Type (as provided in said Section 2.08); provided that no
--------
more than seven separate Interest Periods in respect of Eurodollar Loans from
each Bank may be outstanding at any one time.
2.02 Borrowings. The Company shall give the Administrative Agent
-----------
(which shall promptly notify the Banks) notice of each borrowing hereunder as
provided in Section 4.05 hereof. Not later than 1:00 p.m. New York time on the
date specified for each borrowing hereunder, each Bank shall make available the
amount of the Loan or Loans to be made by it on such date to the Administrative
Agent, at account number NYAO-DI-900-9-000002 maintained by the Administrative
Agent with Chase at the Principal Office (or to such other account as the
Administrative Agent shall notify the Banks), in immediately available funds,
for account of the Company. The amount so received by the Administrative Agent
shall, subject to the terms and conditions of this Agreement, be made available
to the Company by depositing the same, in immediately available funds, in an
account of the Company maintained with Chase at the Principal Office designated
by the Company.
<PAGE>
2.03 Changes of Commitments.
-----------------------
(a) The aggregate amount of the Commitments shall be automatically
reduced to zero on the Commitment Termination Date.
(b) The Company shall have the right at any time or from time to time
(i) so long as no Loans are outstanding, to terminate the Commitments and (ii)
to reduce the aggregate unused amount of the Commitments; provided that (x) the
--------
Company shall give notice of each such termination or reduction as provided in
Section 4.05 hereof and (y) each partial reduction shall be in an aggregate
amount at least equal to $10,000,000 or in multiples of $1,000,000 in excess
thereof.
(c) The Commitments are subject to mandatory reduction as provided in
Section 2.09 hereof.
(d) The Commitments once terminated or reduced may not be reinstated.
2.04 Facility Fee. The Company shall pay to the Administrative
-------------
Agent for account of each Bank a facility fee on the daily average amount of
such Bank's Commitment, whether used or unused, for the period from and
including July 30, 1996 to but not including the earlier of (x) the date such
Commitment is terminated and (y) the Commitment Termination Date, at a rate per
annum (expressed in number of basis points) equal to the amount determined by
reference to the S&P Rating and Moody's Rating as at such date:
<TABLE>
<CAPTION>
Category Moody's Rating S&P Rating Facility Fee
- ---------- -------------- ------------------- -----------------
<S> <C> <C> <C>
(a) A3 or higher A- or higher 10 basis points
(b) Less than A3 Less than A- but 12.5 basis points
but equal to equal to or greater
or greater than BBB+
than Baa1
(c) Less than Baa1 Less than BBB+ 15 basis points
but equal to but equal to or
or greater greater than BBB
than Baa2
(d) Less than Baa2 Less than BBB 20 basis points
but equal to but equal to or
or greater greater than BBB-
than Baa3
(e) Less than Baa3 Less than BBB- 25 basis points
</TABLE>
<PAGE>
provided, however, that in order to qualify for a particular category of
- --------
facility fee (other than in the case of clause (e) above) both the Moody's
Rating and the S&P Rating required for that category of facility fee must be
attained and, accordingly, if one rating is lower than the other, the facility
fee shall be determined on the basis of the lower of the two ratings. Each
change in any facility fee resulting from a change in the Moody's Rating or the
S&P Rating shall take effect at the time of the public announcement of such
change in the Moody's Rating or the S&P Rating, as the case may be. If either a
Moody's Rating or an S&P Rating shall not be available, the facility fee, as at
any date of determination, shall be the percentage per annum (expressed in
number of basis points) determined by reference to the Moody's Claims Rating and
the S&P Claims Rating as at such date:
<TABLE>
<CAPTION>
Category Moody's Claims S&P Claims Rating Facility Fee
- ---------- -------------- ------------------- -----------------
Rating
--------------
<S> <C> <C> <C>
(a) Aa3 or higher AA- or higher 10 basis points
(b) Less than Aa3 Less than AA- but 12.5 basis points
but equal to equal to or greater
or greater than A+
than A1
(c) Less than A1 Less than A+ 15 basis points
but equal to but equal to or
or greater greater than A
than A2
(d) Less than A2 Less than A 20 basis points
but equal to but equal to or
or greater greater than A-
than A3
(e) Less than A3 Less than A- 25 basis points
</TABLE>
<PAGE>
provided, however, that in order to qualify for a particular category of
- --------
facility fee (other than in the case of clause (e) above) both the Moody's
Claims Rating and the S&P Claims Rating required for that category of facility
fee must be attained and, accordingly, if one rating is lower than the other,
the facility fee shall be determined on the basis of the lower of the two
ratings. Each change in any facility fee resulting from a change in the Moody's
Claims Rating or the S&P Claims Rating shall take effect at the time of the
public announcement of such change in the Moody's Claims Rating or the S&P
Claims Rating, as the case may be. Accrued facility fee shall be payable on
each Quarterly Date and on the earlier of the date the Commitments are
terminated and the Commitment Termination Date.
2.05 Lending Offices. The Loans of each Type made by each Bank
----------------
shall be made and maintained at such Bank's Applicable Lending Office for Loans
of such Type.
2.06 Several Obligations; Remedies Independent. The failure of any
------------------------------------------
Bank to make any Loan to be made by it on the date specified therefor shall not
relieve any other Bank of its obligation to make its Loan on such date, but
neither any Bank nor the Administrative Agent shall be responsible for the
failure of any other Bank to make a Loan to be made by such other Bank, and no
Bank shall have any obligation to the Administrative Agent or any other Bank for
the failure by such Bank to make any Loan required to be made by such Bank. The
amounts payable by the Company at any time hereunder and under the Notes to each
Bank shall be a separate and independent debt and each Bank shall be entitled to
protect and enforce its rights arising out of this Agreement and the Notes, and
it shall not be necessary for any other Bank or the Administrative Agent to
consent to, or be joined as an additional party in, any proceedings for such
purposes.
2.07 Notes.
------
(a) The Loans made by each Bank shall be evidenced by a single
promissory note of the Company substantially in the form of Exhibit A hereto,
dated the date hereof, payable to such Bank in a principal amount equal to the
amount of its Commitment as originally in effect and otherwise duly completed.
(b) The date, amount, Type, interest rate and duration of Interest
Period (if applicable) of each Loan made by each Bank to the Company, and each
payment made on account of the principal thereof, shall be recorded by such Bank
<PAGE>
on its books and, prior to any transfer of the Note held by it, endorsed by such
Bank on the schedule attached to such Note or any continuation thereof; provided
--------
that the failure of such Bank to make any such recordation or endorsement shall
not affect the obligations of the Company to make a payment when due of any
amount owing hereunder or under such Note in respect of such Loans.
(c) No Bank shall be entitled to have its Note subdivided, by
exchange for promissory notes of lesser denominations or otherwise, except in
connection with a permitted assignment of all or any portion of such Bank's
Commitment, Loans and Note pursuant to Section 11.06(b) hereof.
2.08 Optional Prepayments and Conversions or Continuations of Loans.
---------------------------------------------------------------
Subject to Section 4.04 hereof, the Company shall have the right to prepay
Loans, or to Convert Loans of one Type into Loans of another Type or Continue
Loans of one Type as Loans of the same Type, at any time or from time to time,
provided that: (a) the Company shall give the Administrative Agent notice of
- --------
each such prepayment, Conversion or Continuation as provided in Section 4.05
hereof (and, upon the date specified in any such notice of prepayment, the
amount to be prepaid shall become due and payable hereunder); and (b) if any
Eurodollar Loan is prepaid or Converted other than on the last day of an
Interest Period for such Loan, the Company shall pay to the Administrative Agent
for account of each Bank the amounts, if any, required to be paid pursuant to
Section 5.05 hereof. Notwithstanding the foregoing, and without limiting the
rights and remedies of the Banks under Section 9 hereof, in the event that any
Event of Default shall have occurred and be continuing, the Administrative Agent
may (and at the request of the Majority Banks shall) suspend the right of the
Company to Convert any Loan into a Eurodollar Loan, or to Continue any Loan as a
Eurodollar Loan, in which event all Loans shall be Converted (on the last day(s)
of the respective Interest Periods therefor) into, or Continued as, as the case
may be, Base Rate Loans.
2.09 Mandatory Prepayments and Reductions of Commitments. Upon any
----------------------------------------------------
Debt Issuance or Equity Issuance, (a) the Company shall prepay the Loans, and
(b) the Commitments shall be subject to automatic reduction, in either case in
an aggregate amount equal to 100% of the Net Available Proceeds thereof. Any
such prepayment shall be paid to the Administrative Agent for account of the
Banks and shall be accompanied by the aggregate amount of accrued interest and
facility fee thereon, together with any amounts payable under Section 5.05
hereof.
<PAGE>
Section 3. Payments of Principal and Interest.
----------------------------------
3.01 Repayment of Loans. The Company hereby promises to pay to the
-------------------
Administrative Agent for account of each Bank the entire outstanding principal
amount of such Bank's Loans, and each Loan shall mature, on the Commitment
Termination Date.
3.02 Interest. The Company hereby promises to pay to the
---------
Administrative Agent for account of each Bank interest on the unpaid principal
amount of each Loan made by such Bank for the period from and including the date
of such Loan to but excluding the date such Loan shall be paid in full, at the
following rates per annum:
(a) during such periods as such Loan is a Base Rate Loan, the Base
Rate (as in effect from time to time) plus the Applicable Margin; and
----
(b) during such periods as such Loan is a Eurodollar Loan, for each
Interest Period relating thereto, the Eurodollar Rate for such Interest
Period plus the Applicable Margin.
----
Notwithstanding the foregoing, the Company hereby promises to pay to the
Administrative Agent for account of each Bank interest at the applicable Post-
Default Rate on any principal of any Loan made by such Bank and on any other
amount payable by the Company hereunder or under the Note held by such Bank to
or for account of such Bank, that shall not be paid in full when due (whether at
stated maturity, by acceleration, by mandatory prepayment or otherwise), for the
period from and including the due date thereof to but excluding the date the
same is paid in full. Accrued interest on each Loan shall be payable (i) in the
case of a Base Rate Loan, quarterly on the Quarterly Dates, (ii) in the case of
a Eurodollar Loan, on the last day of each Interest Period therefor and, if such
Interest Period is longer than three months, at three-month intervals following
the first day of such Interest Period, and (iii) in the case of any Loan, upon
the payment or prepayment thereof or the Conversion of such Loan to a Loan of
another Type (but only on the principal amount so paid, prepaid or Converted),
except that interest payable at the Post-Default Rate shall be payable from time
to time on demand. Promptly after the determination of any interest rate
provided for herein or any change therein, the Administrative Agent shall give
notice thereof to the Banks to which such interest is payable and to the
Company.
<PAGE>
Section 4. Payments; Pro Rata Treatment; Computations; Etc.
------------------------------------------------
4.01 Payments.
---------
(a) Except to the extent otherwise provided herein, all payments of
principal, interest and other amounts to be made by the Company under this
Agreement and the Notes, and, except to the extent otherwise provided therein,
all payments to be made by the Company under any other Basic Document, shall be
made in Dollars, in immediately available funds, without deduction, set-off or
counterclaim, to the Administrative Agent at account number NYAO-DI-900-9-000002
maintained by the Administrative Agent with Chase at the Principal Office (or to
such other account as the Administrative Agent shall notify the Company), not
later than 1:00 p.m. New York time on the date on which such payment shall
become due (each such payment made after such time on such due date to be deemed
to have been made on the next succeeding Business Day).
(b) If any Event of Default shall be continuing, any Bank for whose
account any such payment is to be made may (but shall not be obligated to) debit
the amount of any such payment that is not made by such time to any ordinary
deposit account of the Company with such Bank (with notice to the Company and
the Administrative Agent), provided that such Bank's failure to give such notice
--------
shall not affect the validity thereof.
(c) Subject to Section 4.02 hereof, the Company shall, at the time of
making each payment under this Agreement or any Note for account of any Bank,
specify to the Administrative Agent (which shall so notify the intended
recipient(s) thereof) the Loans or other amounts payable by the Company
hereunder to which such payment is to be applied (and in the event that the
Company fails to so specify, or if an Event of Default has occurred and is
continuing, the Administrative Agent may distribute such payment to the Banks
for application in such manner as it or the Majority Banks, subject to Section
4.02 hereof, may determine to be appropriate).
(d) Each payment received by the Administrative Agent under this
Agreement or any Note for account of any Bank shall be paid by the
Administrative Agent promptly to such Bank, in immediately available funds, for
account of such Bank's Applicable Lending Office for the Loan or other
obligation in respect of which such payment is made.
<PAGE>
(e) If the due date of any payment under this Agreement or any Note
would otherwise fall on a day that is not a Business Day, such date shall be
extended to the next succeeding Business Day, and interest shall be payable for
any principal so extended for the period of such extension.
4.02 Pro Rata Treatment. Except to the extent otherwise provided
-------------------
herein: (a) each borrowing from the Banks under Section 2.01 hereof shall be
made from the Banks, each payment of facility fee under Section 2.04 hereof
shall be made for account of the Banks, and each termination or reduction of the
amount of the Commitments under Sections 2.03 and 2.09 hereof shall be applied
to the respective Commitments of the Banks, pro rata according to the amounts of
their respective Commitments; (b) except as otherwise provided in Section 5.04
hereof, Loans having the same Interest Period shall be allocated pro rata among
the Banks according to the amounts of their respective Commitments (in the case
of making of Loans) or their respective Loans (in the case of Conversions and
Continuations of Loans); (c) each payment or prepayment of principal of Loans by
the Company shall be made for account of the Banks pro rata in accordance with
the respective unpaid principal amounts of the Loans held by them, provided that
--------
if immediately prior to giving effect to any such payment in respect of any
Loans the outstanding principal amount of the Loans shall not be held by the
Banks pro rata in accordance with their respective Commitments in effect at the
time such Loans were made (by reason of a failure of a Bank to make a Loan
hereunder in the circumstances described in the last paragraph of Section 11.04
hereof), then such payment shall be applied to the Loans in such manner as shall
result, as nearly as is practicable, in the outstanding principal amount of the
Loans being held by the Banks pro rata in accordance with their respective
Commitments; and (d) each payment of interest on Loans by the Company shall be
made for account of the Banks pro rata in accordance with the amounts of
interest on such Loans then due and payable to the respective Banks.
4.03 Computations. Interest on Eurodollar Loans and facility fee
-------------
shall be computed on the basis of a year of 360 days and actual days elapsed
(including the first day but excluding the last day) occurring in the period for
which payable and interest on Base Rate Loans shall be computed on the basis of
a year of 365 or 366 days, as the case may be, and actual days elapsed
(including the first day but excluding the last day) occurring in the period for
which payable. Notwithstanding the foregoing, for each day that the Base Rate
is calculated by reference to the Federal Funds Rate, interest on Base Rate
<PAGE>
Loans shall be computed on the basis of a year of 360 days and actual days
elapsed.
4.04 Minimum Amounts. Except for mandatory prepayments made
----------------
pursuant to Section 2.09 hereof and Conversions or prepayments made pursuant to
Section 5.04 hereof, each borrowing, Conversion and partial prepayment of
principal of Loans shall be in an aggregate amount at least equal to $10,000,000
(or, in the case of a borrowing of a Base Rate Loan, $5,000,000) or in multiples
of $1,000,000 in excess thereof (borrowings, Conversions or prepayments of or
into Loans of different Types or, in the case of Eurodollar Loans, having
different Interest Periods at the same time hereunder to be deemed separate
borrowings, Conversions and prepayments for purposes of the foregoing, one for
each Type or Interest Period). Anything in this Agreement to the contrary
notwithstanding, the aggregate principal amount of Eurodollar Loans having the
same Interest Period shall be in an amount at least equal to $10,000,000 or in
multiples of $1,000,000 in excess thereof and, if any Eurodollar Loans would
otherwise be in a lesser principal amount for any period, such Loans shall be
Base Rate Loans during such period.
4.05 Certain Notices. Notices by the Company to the Administrative
----------------
Agent of terminations or reductions of the Commitments, of borrowings,
Conversions, Continuations and optional prepayments of Loans, of Types of Loans
and of the duration of Interest Periods shall be irrevocable and shall be
effective only if received by the Administrative Agent not later than 10:00 a.m.
New York time on the number of Business Days prior to the date of the relevant
termination, reduction, borrowing, Conversion, Continuation or prepayment or the
first day of such Interest Period specified below:
<PAGE>
<TABLE>
<CAPTION>
Number of
Business
Notice Days Prior
- -------------------------------------- ----------
<S> <C>
Termination or reduction
of Commitments 2
Borrowing or prepayment of,
or Conversions into,
Base Rate Loans 0
Borrowing or prepayment of,
Conversions into, Continuations
as, or duration of Interest
Period for, Eurodollar Loans 3
</TABLE>
Each such notice of termination or reduction shall specify the amount of the
Commitments to be terminated or reduced. Each such notice of borrowing,
Conversion, Continuation or optional prepayment shall specify the Loans to be
borrowed, Converted, Continued or prepaid and the amount (subject to Section
4.04 hereof) and Type of each Loan to be borrowed, Converted, Continued or
prepaid (and, in the case of a Conversion, the Type of Loan to result from such
Conversion) and the date of borrowing, Conversion, Continuation or optional
prepayment (which shall be a Business Day). Each such notice of the duration of
an Interest Period shall specify the Loans to which such Interest Period is to
relate. The Administrative Agent shall promptly notify the Banks of the
contents of each such notice. In the event that the Company fails to select the
Type of Loan, or the duration of any Interest Period for any Eurodollar Loan,
within the time period and otherwise as provided in this Section 4.05, such Loan
(if outstanding as a Eurodollar Loan) will be automatically Converted into a
Base Rate Loan on the last day of the then current Interest Period for such Loan
or (if outstanding as a Base Rate Loan) will remain as, or (if not then
outstanding) will be made as, a Base Rate Loan.
4.06 Non-Receipt of Funds by the Administrative Agent. Unless the
-------------------------------------------------
Administrative Agent shall have been notified by a Bank or the Company (the
"Payor") prior to the date on which the Payor is to make payment to the
- ------
Administrative Agent of (in the case of a Bank) the proceeds of a Loan to be
made by it hereunder or (in the case of the Company) a payment to the
Administrative Agent for account of one or more of the Banks hereunder (such
payment being herein called the "Required Payment"), which notice shall be
-------- -------
effective upon receipt, that the Payor does not intend to make the Required
<PAGE>
Payment to the Administrative Agent, the Administrative Agent may assume that
the Required Payment has been made and may, in reliance upon such assumption
(but shall not be required to), make the amount thereof available to the
intended recipient(s) on such date and, if the Payor has not in fact made the
Required Payment to the Administrative Agent, the recipient(s) of such payment
shall, on demand, repay to the Administrative Agent the amount so made available
together with interest thereon in respect of each day during the period
commencing on the date such amount was so made available by the Administrative
Agent until the date the Administrative Agent recovers such amount at a rate per
annum equal to the Federal Funds Rate for such day and, if such recipient(s)
shall fail promptly to make such payment, the Administrative Agent shall be
entitled to recover such amount, on demand, from the Payor, together with
interest as aforesaid.
4.07 Sharing of Payments, Etc.
--------------------------
(a) The Company agrees that, in addition to (and without limitation
of) any right of set-off, banker's lien or counterclaim a Bank may otherwise
have, each Bank shall be entitled, at its option if an Event of Default shall be
continuing, to offset balances held by it for account of the Company at any of
its offices, in Dollars or in any other currency, against any principal of or
interest on any of such Bank's Loans or any other amount payable to such Bank
hereunder, that is not paid when due (regardless of whether such balances are
then due to the Company), in which case it shall promptly notify the Company and
the Administrative Agent thereof, provided that such Bank's failure to give such
--------
notice shall not affect the validity thereof.
(b) If any Bank shall obtain from the Company payment of any
principal of or interest on any Loan owing to it or payment of any other amount
under this Agreement or any other Basic Document through the exercise of any
right of set-off, banker's lien or counterclaim or similar right or otherwise
(other than from the Administrative Agent as provided herein), and, as a result
of such payment, such Bank shall have received a greater percentage of the
principal of or interest on the Loans or such other amounts then due hereunder
or thereunder by the Company to such Bank than the percentage received by any
other Bank, it shall promptly purchase from such other Banks participations in
(or, if and to the extent specified by such Bank, direct interests in) the Loans
<PAGE>
or such other amounts, respectively, owing to such other Banks (or in interest
due thereon, as the case may be) in such amounts, and make such other
adjustments from time to time as shall be equitable, to the end that all the
Banks shall share the benefit of such excess payment (net of any expenses that
may be incurred by such Bank in obtaining or preserving such excess payment) pro
rata in accordance with the unpaid principal of and/or interest on the Loans or
such other amounts, respectively, owing to each of the Banks, provided that if
--------
at the time of such payment the outstanding principal amount of the Loans shall
not be held by the Banks pro rata in accordance with their respective
Commitments in effect at the time such Loans were made (by reason of a failure
of a Bank to make a Loan hereunder in the circumstances described in the last
paragraph of Section 11.04 hereof), then such purchases of participations and/or
direct interests shall be made in such manner as will result, as nearly as is
practicable, in the outstanding principal amount of the Loans being held by the
Banks pro rata according to the amounts of such Commitments. To such end all
the Banks shall make appropriate adjustments among themselves (by the resale of
participations sold or otherwise) if such payment is rescinded or must otherwise
be restored.
(c) The Company agrees that any Bank so purchasing such a
participation (or direct interest) may exercise all rights of set-off, banker's
lien, counterclaim or similar rights with respect to such participation as fully
as if such Bank were a direct holder of Loans or other amounts (as the case may
be) owing to such Bank in the amount of such participation.
(d) Nothing contained herein shall require any Bank to exercise any
such right or shall affect the right of any Bank to exercise, and retain the
benefits of exercising, any such right with respect to any other indebtedness or
obligation of the Company. If, under any applicable bankruptcy, insolvency or
other similar law, any Bank receives a secured claim in lieu of a set-off to
which this Section 4.07 applies, such Bank shall, to the extent practicable,
exercise its rights in respect of such secured claim in a manner consistent with
the rights of the Banks entitled under this Section 4.07 to share in the
benefits of any recovery on such secured claim.
Section 5. Yield Protection, Etc.
----------------------
5.01 Additional Costs.
-----------------
(a) The Company shall pay directly to each Bank from time to time
such amounts as such Bank may determine to be necessary to compensate such Bank
for any costs that such Bank determines are attributable to its making or
<PAGE>
maintaining of any Eurodollar Loans or its obligation to make any Eurodollar
Loans hereunder, or any reduction in any amount receivable by such Bank
hereunder in respect of any of such Loans or such obligation (such increases in
costs and reductions in amounts receivable being herein called "Additional
----------
Costs"), resulting from any Regulatory Change that:
(i) changes the basis of taxation of any amounts payable to such
Bank under this Agreement or its Note in respect of any of such Loans
(other than taxes imposed on or measured by the overall net income of such
Bank or of its Applicable Lending Office for any of such Loans by the
jurisdiction in which such Bank has its principal office or such Applicable
Lending Office); or
(ii) imposes or modifies any reserve, special deposit or similar
requirements (other than the Reserve Requirement used in the determination
of the Eurodollar Rate for any Interest Period for such Loan) relating to
any extensions of credit or other assets of, or any deposits with or other
liabilities of, such Bank (including, without limitation, any of such Loans
or any deposits referred to in the definition of "Eurodollar Base Rate" in
Section 1.01 hereof), or any commitment of such Bank (including, without
limitation, the Commitment of such Bank hereunder); or
(iii) imposes any other condition affecting this Agreement or its
Note (or any of such extensions of credit or liabilities) or its
Commitment.
If any Bank requests compensation from the Company under this Section 5.01(a),
the Company may, by notice to such Bank (with a copy to the Administrative
Agent), suspend the obligation of such Bank thereafter to make or Continue
Eurodollar Loans, or to Convert Loans of any other Type into Eurodollar Loans,
until the Regulatory Change giving rise to such request ceases to be in effect
(in which case the provisions of Section 5.04 hereof shall be applicable),
provided that such suspension shall not affect the right of such Bank to receive
- --------
the compensation so requested.
(b) Without limiting the effect of the provisions of Section 5.01(a)
hereof, in the event that, by reason of any Regulatory Change, any Bank either
(i) incurs Additional Costs based on or measured by the excess above a specified
level of the amount of a category of deposits or other liabilities of such Bank
that includes deposits by reference to which the interest rate on Eurodollar
Loans is determined as provided in this Agreement or a category of extensions of
<PAGE>
credit or other assets of such Bank that includes Eurodollar Loans or (ii)
becomes subject to restrictions on the amount of such a category of liabilities
or assets that it may hold, then, if such Bank so elects by notice to the
Company (with a copy to the Administrative Agent), the obligation of such Bank
to make or Continue, or to Convert Loans of any other Type into, Eurodollar
Loans hereunder shall be suspended until such Regulatory Change ceases to be in
effect (in which case the provisions of Section 5.04 hereof shall be
applicable).
(c) Without limiting the effect of the foregoing provisions of this
Section 5.01 (but without duplication), the Company shall pay directly to each
Bank from time to time on request such amounts as such Bank may determine to be
necessary to compensate such Bank (or, without duplication, the bank holding
company of which such Bank is a subsidiary) for any costs that it determines are
attributable to the maintenance by such Bank (or any Applicable Lending Office
or such bank holding company), pursuant to any law or regulation or any
interpretation, directive or request (whether or not having the force of law and
whether or not failure to comply therewith would be unlawful) of any court or
governmental or monetary authority (i) following any Regulatory Change or (ii)
implementing any risk-based capital guideline or other requirement (whether or
not having the force of law and whether or not the failure to comply therewith
would be unlawful) heretofore or hereafter issued by any government or
governmental or supervisory authority implementing at the national or supra-
national level the Basel Accord (including, without limitation, the Final Risk-
Based Capital Guidelines of the Board of Governors of the Federal Reserve System
(12 C.F.R. Part 208, Appendix A; 12 C.F.R. Part 225, Appendix A) and the Final
Risk-Based Capital Guidelines of the Office of the Comptroller of the Currency
(12 C.F.R. Part 3, Appendix A)), of capital in respect of its Commitment or
Loans (such compensation to include, without limitation, an amount equal to any
reduction of the rate of return on assets or equity of such Bank (or any
Applicable Lending Office or such bank holding company) to a level below that
which such Bank (or any Applicable Lending Office or such bank holding company)
could have achieved but for such law, regulation, interpretation, directive or
request).
(d) Each Bank shall notify the Company of any event occurring after
the date hereof entitling such Bank to compensation under Section 5.01(a) or (c)
hereof as promptly as practicable, but in any event within 45 days, after such
Bank obtains actual knowledge thereof; provided that (i) if any Bank fails to
--------
<PAGE>
give such notice within 45 days after it obtains actual knowledge of such an
event, such Bank shall, with respect to compensation payable pursuant to this
Section 5.01 in respect of any costs resulting from such event, only be entitled
to payment under this Section 5.01 for costs incurred from and after the date 45
days prior to the date that such Bank does give such notice and (ii) each Bank
will designate a different Applicable Lending Office for the Loans of such Bank
affected by such event if such designation will avoid the need for, or reduce
the amount of, such compensation and will not, in the sole opinion of such Bank,
be disadvantageous to such Bank, except that such Bank shall have no obligation
to designate an Applicable Lending Office located in the United States of
America. Each Bank will furnish to the Company a certificate setting forth the
basis and amount of each request by such Bank for compensation under Section
5.01(a) or (c) hereof. Determinations and allocations by any Bank for purposes
of this Section 5.01 of the effect of any Regulatory Change pursuant to Section
5.01(a) hereof, or of the effect of capital maintained pursuant to Section 5.01
hereof, on its costs or rate of return of maintaining Loans or its obligation to
make Loans, or on amounts receivable by it in respect of Loans, and of the
amounts required to compensate such Bank under this Section 5.01, shall be
conclusive, provided that such determinations and allocations are made on a
--------
reasonable basis.
5.02 Limitation on Types of Loans. Anything herein to the contrary
-----------------------------
notwithstanding, if, on or prior to the determination of the Eurodollar Base
Rate for any Interest Period for any Eurodollar Loan:
(a) the Administrative Agent determines, which determination shall be
conclusive, that quotations of interest rates for the relevant deposits
referred to in the definition of "Eurodollar Base Rate" in Section 1.01
hereof are not being provided in the relevant amounts or for the relevant
maturities for purposes of determining rates of interest for Eurodollar
Loans as provided herein; or
(b) the Majority Banks determine, which determination shall be
conclusive, and notify the Administrative Agent that the relevant rates of
interest referred to in the definition of "Eurodollar Base Rate" in Section
1.01 hereof upon the basis of which the rate of interest for Eurodollar
Loans for such Interest Period is to be determined are not likely
adequately to cover the cost to such Banks of making or maintaining
Eurodollar Loans for such Interest Period;
<PAGE>
then the Administrative Agent shall give the Company and each Bank prompt notice
thereof and, so long as such condition remains in effect, the Banks shall be
under no obligation to make additional Eurodollar Loans, to Continue Eurodollar
Loans or to Convert Loans of any other Type into Eurodollar Loans, and the
Company shall, on the last day(s) of the then current Interest Period(s) for the
outstanding Eurodollar Loans, either prepay such Loans or Convert such Loans
into another Type of Loan in accordance with Section 2.08 hereof.
5.03 Illegality. Notwithstanding any other provision of this
-----------
Agreement, in the event that it becomes unlawful for any Bank or its Applicable
Lending Office to honor its obligation to make or maintain Eurodollar Loans
hereunder (and, in the sole opinion of such Bank, the designation of a different
Applicable Lending Office would either not avoid such unlawfulness or would be
disadvantageous to such Bank), then such Bank shall promptly notify the Company
thereof (with a copy to the Administrative Agent) and such Bank's obligation to
make or Continue, or to Convert Loans of any other Type into, Eurodollar Loans
shall be suspended until such time as such Bank may again make and maintain
Eurodollar Loans (in which case the provisions of Section 5.04 hereof shall be
applicable). Subject to the first parenthetical in the preceding sentence, any
Bank subject to any such illegality shall use reasonable efforts to designate a
different Applicable Lending Office to avoid such illegality.
5.04 Treatment of Affected Loans. If the obligation of any Bank to
----------------------------
make Eurodollar Loans or to Continue, or to Convert Base Rate Loans into,
Eurodollar Loans shall be suspended pursuant to Section 5.01 or 5.03 hereof,
such Bank's Eurodollar Loans shall be automatically Converted into Base Rate
Loans on the last day(s) of the then current Interest Period(s) for Eurodollar
Loans (or, in the case of a Conversion required by Section 5.01(b) or 5.03
hereof, on such earlier date as such Bank may specify to the Company with a copy
to the Administrative Agent) and, unless and until such Bank gives notice as
provided below that the circumstances specified in Section 5.01 or 5.03 hereof
that gave rise to such Conversion no longer exist:
(a) to the extent that such Bank's Eurodollar Loans have been so
Converted, all payments and prepayments of principal that would otherwise
be applied to such Bank's Eurodollar Loans shall be applied instead to its
Base Rate Loans; and
(b) all Loans that would otherwise be made or Continued by such Bank
as Eurodollar Loans shall be made or Continued instead as Base Rate Loans,
<PAGE>
and all Loans of such Bank that would otherwise be Converted into
Eurodollar Loans shall remain as Base Rate Loans.
If such Bank gives notice to the Company with a copy to the Administrative Agent
that the circumstances specified in Section 5.01 or 5.03 hereof that gave rise
to the Conversion of such Bank's Eurodollar Loans pursuant to this Section 5.04
no longer exist (which such Bank agrees to do promptly upon such circumstances
ceasing to exist) at a time when Eurodollar Loans made by other Banks are
outstanding, such Bank's Base Rate Loans shall be automatically Converted, on
the first day(s) of the next succeeding Interest Period(s) for such outstanding
Eurodollar Loans, to the extent necessary so that, after giving effect thereto,
all Loans held by the Banks holding Eurodollar Loans and by such Bank are held
pro rata (as to principal amounts, Types and Interest Periods) in accordance
with their respective Commitments.
5.05 Compensation. The Company shall pay to the Administrative
-------------
Agent for account of each Bank, upon the request of such Bank through the
Administrative Agent, such amount or amounts as shall be sufficient (in the
reasonable opinion of such Bank) to compensate it for any loss, cost or expense
that such Bank determines is attributable to:
(a) any payment, mandatory or optional prepayment or Conversion of a
Eurodollar Loan made by such Bank for any reason (including, without
limitation, the acceleration of the Loans pursuant to Section 9 hereof) on
a date other than the last day of the Interest Period for such Loan; or
(b) any failure by the Company for any reason (including, without
limitation, the failure of any of the conditions precedent specified in
Section 6 hereof to be satisfied) to borrow, Continue or Convert into a
Eurodollar Loan from such Bank on the date for such borrowing, Continuation
or Conversion specified in the relevant notice of borrowing, Continuation
or Conversion given pursuant to Section 2.02 or 4.05 hereof.
Without limiting the effect of the preceding sentence, such compensation shall
include an amount equal to the excess, if any, of (i) the amount of interest
that otherwise would have accrued on the principal amount so paid, prepaid,
Converted or not borrowed for the period from the date of such payment,
prepayment, Conversion or failure to borrow to the last day of the then current
<PAGE>
Interest Period for such Loan (or, in the case of a failure to borrow, the
Interest Period for such Loan that would have commenced on the date specified
for such borrowing) at the applicable rate of interest for such Loan provided
for herein over (ii) the amount of interest that otherwise would have accrued on
such principal amount at a rate per annum equal to the interest component of the
amount such Bank would have bid in the London interbank market for Dollar
deposits of leading banks in amounts comparable to such principal amount and
with maturities comparable to such period (as reasonably determined by such
Bank).
5.06 U.S. Taxes.
-----------
(a) The Company agrees to pay to each Bank that is not a U.S. Person
such additional amounts as are necessary in order that the net payment of any
amount due to such non-U.S. Person hereunder and under its Note after deduction
for or withholding in respect of any U.S. Taxes imposed with respect to such
payment (or in lieu thereof, payment of such U.S. Taxes by such non-U.S.
Person), will not be less than the amount stated herein to be then due and
payable, provided that the foregoing obligation to pay such additional amounts
--------
shall not apply:
(i) to any payment to any Bank hereunder unless such Bank is, on the
date hereof (or on the date it becomes a Bank hereunder as provided in
Section 11.06(b) hereof) and on the date of any change in the Applicable
Lending Office of such Bank, either entitled to submit a Form 1001
(relating to such Bank and entitling it to a complete exemption from
withholding on all interest to be received by it hereunder in respect of
the Loans) or Form 4224 (relating to all interest to be received by such
Bank hereunder in respect of the Loans), or
(ii) to any U.S. Taxes imposed solely by reason of the failure by such
non-U.S. Person to comply with applicable certification, information,
documentation or other reporting requirements concerning the nationality,
residence, identity or connections with the United States of America of
such non-U.S. Person if such compliance is required by statute or
regulation of the United States of America as a precondition to relief or
exemption from such U.S. Taxes.
For the purposes of this Section 5.06(a), (A) "U.S. Person" shall mean a
-----------
citizen, national or resident of the United States of America, a corporation,
partnership or other entity created or organized in or under any laws of the
<PAGE>
United States of America or any State thereof, or any estate or trust that is
subject to Federal income taxation regardless of the source of its income, (B)
"U.S. Taxes" shall mean any present or future tax, assessment or other charge or
- -----------
levy imposed by or on behalf of the United States of America or any taxing
authority thereof or therein, (C) "Form 1001" shall mean Form 1001 (Ownership,
---------
Exemption, or Reduced Rate Certificate) of the Department of the Treasury of the
United States of America and (D) "Form 4224" shall mean Form 4224 (Exemption
---------
from Withholding of Tax on Income Effectively Connected with the Conduct of a
Trade or Business in the United States) of the Department of the Treasury of the
United States of America. Each of the Forms referred to in the foregoing
clauses (C) and (D) shall include such successor and related forms as may from
time to time be adopted by the relevant taxing authorities of the United States
of America to document a claim to which such Form relates.
(b) Within 30 days after paying any amount to the Administrative
Agent or any Bank from which it is required by law to make any deduction or
withholding, and within 30 days after it is required by law to remit such
deduction or withholding to any relevant taxing or other authority, the Company
shall deliver to the Administrative Agent for delivery to such non-U.S. Person
evidence satisfactory to such Person of such deduction, withholding or payment
(as the case may be).
5.07 Replacement of Bank. Provided that no Default shall have
--------------------
occurred and be continuing, the Company may, at any time, replace any Bank that
has requested compensation from the Company pursuant to Section 5.01(a) or (c)
or Section 5.06 hereof or has invoked Section 5.03 hereof and whose Commitment
at such time (together with the Commitments of all other Banks being replaced at
such time) does not exceed 30% of the aggregate amount of the Commitments at
such time, by giving not less than ten (10) Business Days' prior written notice
to the Administrative Agent (which shall promptly notify such Bank), that it
intends to replace such Bank with respect to its Commitment with one or more
financial institutions (including, but not limited to, any other Bank under this
Agreement) selected by the Company and acceptable to the Administrative Agent
(acting reasonably). Upon the effective date of any replacement, the Company
shall pay (or cause to be paid) to the Bank being replaced any amounts owing to
such Bank hereunder (including, without limitation, the aggregate principal
amount of its Loans, accrued interest thereon, any accrued facility fee, amounts
payable pursuant to Section 5.05 hereof and any amounts payable under Section
5.01 or 5.06 hereof, collectively, the "Termination Costs"), whereupon each
-----------------
replacement bank shall become a "Bank" for all purposes of this Agreement having
<PAGE>
a Commitment in the amount of such Bank's Commitment assumed by it, and such
Commitment of the Bank being replaced shall be terminated upon such effective
date and all of such Bank's rights and obligations under this Agreement shall
terminate (provided that the obligations of the Company under Section 5.01, 5.05
and 11.03 hereof to such Bank shall survive such replacement as provided in
Section 11.07 hereof).
Section 6. Conditions Precedent.
--------------------
6.01 Initial Loan. The obligation of any Bank to make its initial
-------------
Loan hereunder is subject to (i) the condition precedent that such Loan shall be
made on or before November 1, 1996, (ii) in respect of documentary matters, the
receipt by the Administrative Agent of the following documents, each of which
shall be satisfactory to the Administrative Agent (and to the extent specified
below, to each Bank) in form and substance and (iii) in respect of
nondocumentary matters, the satisfaction of the specified condition precedent to
the satisfaction of the Administrative Agent (and, to the extent specified
below, each Bank):
(a) Corporate Documents. The following documents, each certified as
-------------------
indicated below:
(i) for the Company, a copy of the certificate of incorporation,
as amended and in effect, of the Company certified as of a recent date
by the Secretary of State of its jurisdiction of incorporation, and a
certificate from such Secretary of State dated as of a recent date as
to the good standing of and charter documents filed by the Company;
(ii) for the Company, a certificate of the Secretary or an
Assistant Secretary of the Company, dated the Closing Date and
certifying (A) that attached thereto is a true and complete copy of
the by-laws of the Company as amended and in effect at all times from
the date on which the resolutions referred to in clause (B) below were
adopted to and including the date of such certificate, (B) that
attached thereto is a true and complete copy of resolutions duly
adopted by the board of directors of the Company authorizing the
execution, delivery and performance of such of the Basic Documents to
which the Company is or is intended to be a party and the Loans
hereunder, and that such resolutions have not been modified, rescinded
<PAGE>
or amended and are in full force and effect, (C) that the charter of
the Company has not been amended since the date of the certification
thereto furnished pursuant to clause (i) above, and (D) as to the
incumbency and specimen signature of each officer of the Company
executing such of the Basic Documents to which the Company is intended
to be a party and each other document to be delivered by the Company
from time to time in connection therewith (and the Administrative
Agent and each Bank may conclusively rely on such certificate until it
receives notice in writing from the Company); and
(iii) for the Company, a certificate of another officer of the
Company as to the incumbency and specimen signature of the Secretary
or Assistant Secretary, as the case may be, of the Company.
(b) Officer's Certificate. A certificate of a senior officer of the
---------------------
Company, dated the Closing Date, to the effect set forth in the first
sentence of Section 6.03 hereof.
(c) Opinion of Counsel to the Company. An opinion, dated the Closing
---------------------------------
Date, of Glenn P. Felton, Vice President and Managing Corporate Counsel of
the Company, substantially in the form of Exhibit B hereto and covering
such other matters as the Administrative Agent or any Bank may reasonably
request (and the Company hereby instructs such counsel to deliver such
opinion to the Banks and the Administrative Agent).
(d) Opinion of Special New York Counsel to the Banks. An opinion,
------------------------------------------------
dated the Closing Date, of Vedder, Price, Kaufman, Kammholz & Day, special
New York counsel to the Banks, substantially in the form of Exhibit C
hereto.
(e) Notes. The Notes, duly completed and executed.
-----
(f) Repayment of Refinanced Debt. Evidence of the concurrent
----------------------------
repayment of the Company's Refinanced Debt (the "Refinancing") and the
-----------
termination of the commitments thereunder.
(g) Payment of Fees and Expenses. Evidence of the payment by the
----------------------------
Company of (i) the upfront fee, if any, payable to each Bank as separately
agreed by such Bank and Chase, (ii) such fees as the Company shall have
separately agreed to pay to Chase and (iii) amounts owing under Section
<PAGE>
11.03 hereof to the extent it has received invoices therefor on or before
the date of the initial borrowing hereunder.
(h) Insurance. A certificate of a senior officer of the Company
---------
describing in reasonable detail the types and amounts of insurance
maintained by the Company and its Subsidiaries, which types and amounts
shall be satisfactory to the Banks.
(i) Reserves. An opinion of the senior actuaries of the Insurance
--------
Subsidiaries as to the adequacy of the Insurance Subsidiaries' reserves.
(j) Litigation. The Banks' satisfaction with any litigation or
----------
proceedings affecting the Company or any of its Subsidiaries and deemed
material by the Banks.
(k) Other Documents. Such other documents as the Administrative Agent
---------------
or any Bank or special New York counsel to the Banks may reasonably
request.
6.02 Acquisition/Post-Acquisition Loan. The obligation of any Bank
----------------------------------
to make any Loan hereunder on (or its first Loan to be made at any time after)
the Acquisition Date is subject to (i) in respect of documentary matters, the
receipt by the Administrative Agent of the following documents, each of which
shall be satisfactory to the Administrative Agent (and to the extent specified
below, to each Bank) in form and substance and (ii) in respect of nondocumentary
matters, the satisfaction of the specified condition precedent to the
satisfaction of the Administrative Agent (and, to the extent specified below,
each Bank):
(a) Acquisition. The Banks' review and satisfaction with the terms
-----------
and conditions of the Acquisition and the Zurich Investment, the other
transactions contemplated hereby and thereby and the documentation relating
to each thereof, including, without limitation, the Purchase Agreement, and
the Acquisition and the Zurich Investment shall be concurrently, or shall
have become, effective.
(b) Projections. The Banks' review of and satisfaction with the
-----------
Company's projections and pro forma financial statements reflecting the
forecasted financial condition, income and expenses of the Company and its
<PAGE>
Subsidiaries after giving effect to the borrowings hereunder, the
Acquisition and the other transactions contemplated hereby.
(c) Purchase Agreement. A certified copy of the Purchase Agreement
------------------
(together with all exhibits and schedules thereto), which shall have been
duly approved by the boards of directors of the Company and Paul Revere and
shall have been duly executed and delivered by the parties thereto and
shall be in full force and effect. All conditions to the Acquisition
contained in the Purchase Agreement shall have been met in all material
respects or waived with the concurrence of the Banks, acting reasonably.
(d) Available Cash. Evidence that the aggregate amount of the funds
--------------
available to the Company in the form of Loans that may be borrowed
utilizing available Commitments hereunder and available cash and cash
equivalents shall be sufficient to consummate the Acquisition and the
Refinancing.
(e) Margin Regulations. The Banks' satisfaction that the borrowings
------------------
hereunder shall be in full compliance with all legal requirements,
including, without limitation, Regulations G, T, U and X.
(f) Legal Compliance. Evidence of compliance with all applicable U.S.
----------------
federal, state and local laws and regulations, where such compliance is
material, and evidence that all material and necessary licenses, permits
and governmental and third-party consents, filings and notices to effect
the Acquisition shall have been obtained and shall be in full force and
effect, including without limitation: (i) the approval of the Commissioners
of Insurance of the Commonwealth of Massachusetts and the State of
Delaware; (ii) any consents which may be required under the insurance laws
of any state in which Paul Revere or any of its subsidiaries conducts any
business or owns any assets; and (iii) filings pursuant by the Hart-Scott-
Rodino Antitrust Improvements Act of 1976, as amended, shall have been made
and the waiting period thereunder shall have expired or been terminated
without any injunction or enforcement action having been taken by the
Federal Trade Commission or the Department of Justice in respect thereof.
(g) Litigation. The Banks' satisfaction with any litigation or other
----------
proceedings with respect to the Acquisition or the other transactions
contemplated thereby.
<PAGE>
(h) Due Diligence. Satisfactory completion of other due diligence
-------------
customary for a transaction of this type.
(i) Capital. Evidence that the Company's capital structure is as
-------
reflected in Section 7.16 hereof.
(j) Other Documents. Such other documents as the Administrative
---------------
Agent or any Bank or special New York counsel to the Banks may reasonably
request.
6.03 Initial and Subsequent Loans. The obligation of the Banks to
-----------------------------
make any Loan to the Company upon the occasion of each borrowing hereunder
(including the initial borrowing) is subject to the further conditions precedent
that, both immediately prior to the making of such Loan and also after giving
effect thereto and to the intended use thereof: (a) no Default shall have
occurred and be continuing; and (b) the representations and warranties made by
the Company in Section 7 hereof and in the other Basic Documents shall be true
and complete on and as of the date of the making of such Loan with the same
force and effect as if made on and as of such date (or, if any such
representation or warranty is expressly stated to have been made as of a
specific date, as of such specific date). Each notice of borrowing by the
Company hereunder shall constitute a certification by the Company to the effect
set forth in the preceding sentence (both as of the date of such notice and,
unless the Company otherwise notifies the Administrative Agent prior to the date
of such borrowing, as of the date of such borrowing).
Section 7. Representations and Warranties. The Company represents
------------------------------
and warrants to the Administrative Agent and the Banks that:
7.01 Corporate Existence. Each of the Company and its Subsidiaries:
--------------------
(a) is a corporation, partnership or other entity duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization; (b) has all requisite corporate or other power, and has all
material governmental licenses, authorizations, consents and approvals necessary
to own its assets and carry on its business as now being or as proposed to be
conducted; and (c) is qualified to do business and is in good standing in all
jurisdictions in which the nature of the business conducted by it makes such
qualification necessary and where failure so to qualify could (either
individually or in the aggregate) have a Material Adverse Effect.
<PAGE>
7.02 Financial Condition.
--------------------
(a) The consolidated and, in the case of the Company only,
unconsolidated statements of financial condition of the Company and its
Consolidated Subsidiaries as at December 31, 1995 and the related consolidated
and unconsolidated statements of operations, stockholders' equity and changes in
cash flows of the Company and its Consolidated Subsidiaries for the fiscal year
ended on said date, with the opinion thereon (in the case of said consolidated
statement of financial condition and statements) of Ernst & Young LLP and the
unaudited consolidated and unconsolidated statements of financial condition of
the Company and its Consolidated Subsidiaries as at March 31, 1996 and the
related consolidated and unconsolidated statements of operations, stockholders'
equity and cash flows of the Company and its Consolidated Subsidiaries for the
three-month period ended on such date, heretofore furnished to each of the
Banks, are complete and correct and fairly present in all material respects the
consolidated financial position of the Company and its Consolidated
Subsidiaries, and the unconsolidated financial condition of the Company, as at
said dates and the consolidated and, in the case of the Company only,
unconsolidated results of their operations and their cash flows for the fiscal
year and three-month period ended on said dates (subject, in the case of such
financial statements as at March 31, 1996, to normal year-end audit
adjustments), all in accordance with generally accepted accounting principles
and practices applied on a consistent basis. Neither the Company nor any of its
Subsidiaries had on said dates any material contingent liabilities, liabilities
for taxes, unusual forward or long-term commitments or unrealized or anticipated
losses from any unfavorable commitments, except as referred to or reflected or
provided for in said statements of financial condition as at said dates. Since
December 31, 1995, there has been no material adverse change in the consolidated
financial condition, operations, business, assets (and nature thereof),
liabilities (including, without limitation, tax, ERISA and environmental
liabilities) or prospects taken as a whole of the Company and its Consolidated
Subsidiaries from that set forth in said financial statements as at said date.
(b) With respect to each Insurance Subsidiary, the statutory
financial statements of such Insurance Subsidiary as at December 31, 1995, as
filed with its Applicable Insurance Regulatory Authority, and the quarterly
statement for the three-month period ended on March 31, 1996, heretofore
furnished to each of the Banks, present in all material respects the financial
<PAGE>
condition of such Insurance Subsidiary as at said dates and its results of
operations for its fiscal year and three-month period ended on said dates, in
each case, in accordance with statutory reporting practices prescribed or
permitted by its Applicable Insurance Regulatory Authority for the preparation
of financial statements and other financial reports by insurance corporations of
the type of such Insurance Subsidiary.
7.03 Litigation. There are no legal or arbitral proceedings, or
-----------
any proceedings by or before any governmental or regulatory authority or agency,
now pending or (to the knowledge of the Company) threatened against the Company
or any of its Subsidiaries in which there is a reasonable possibility of an
adverse determination or contingent liability not reflected on the Company's
financial statements referred to in Section 7.02 hereof that could have a
Material Adverse Effect.
7.04 No Breach. None of the execution and delivery of this
----------
Agreement, the Notes and the Purchase Agreement, the consummation of the
transactions herein and therein contemplated, including the Acquisition, or
compliance with the terms and provisions hereof and thereof will conflict with
or result in a breach of, or require any consent under, the charter or by-laws
of the Company, or any applicable law or regulation, or any order, writ,
injunction or decree of any court or governmental authority or agency, or any
agreement or instrument to which the Company or any of its Subsidiaries is a
party or by which any of them or any of their Property is bound or to which any
of them is subject, or constitute a default under any such agreement or
instrument, or result in the creation or imposition of any Lien upon any
Property of the Company or any of its Subsidiaries pursuant to the terms of any
such agreement or instrument.
7.05 Action. The Company has all necessary corporate power,
-------
authority and legal right to execute, deliver and perform its obligations under
each of the Basic Documents and the Purchase Agreement; the execution, delivery
and performance by the Company of each of the Basic Documents and the Purchase
Agreement have been duly authorized by all necessary corporate action on its
part (including, without limitation, any required shareholder approvals); and
this Agreement has been duly and validly executed and delivered by the Company
and constitutes, and each of the Notes, the other Basic Documents and the
Purchase Agreement when executed and delivered by the Company (in the case of
the Notes, for value) will constitute, its legal, valid and binding obligation,
enforceable against the Company in accordance with its terms, except as such
enforceability may be limited by (a) bankruptcy, insolvency, reorganization,
<PAGE>
moratorium or similar laws of general applicability affecting the enforcement of
creditors' rights and (b) the application of general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
7.06 Approvals. No authorizations, approvals or consents of, and no
----------
filings or registrations with, any governmental or regulatory authority or
agency, or any securities exchange, are necessary for the execution, delivery or
performance by the Company of (x) the Basic Documents or for the legality,
validity or enforceability hereof or thereof or (y) except as specified in
Section 6.02(f) hereof, the Purchase Agreement, and, as at the Acquisition Date,
each of such authorizations, approvals, consents, filings and registrations
referred to in said Section 6.02(f) will be in full force and effect and will
not have been not withdrawn or modified.
7.07 Use of Credit. Neither the Company nor any of its Subsidiaries
--------------
is engaged principally, or as one of its important activities, in the business
of extending credit for the purpose, whether immediate, incidental or ultimate,
of buying or carrying Margin Stock, and no part of the proceeds of any Loan
hereunder will be used to buy or carry any Margin Stock. Not more than 10% of
the value of the Properties of the Company and its Consolidated Subsidiaries
(determined on a consolidated basis) is attributable to Margin Stock.
7.08 ERISA. The Company and the ERISA Affiliates have fulfilled
------
their respective obligations under the minimum funding standards of ERISA and
the Code with respect to each Plan and are in compliance in all material
respects with the presently applicable provisions of ERISA and the Code, and
have not incurred any liability to the PBGC or any Plan or Multiemployer Plan
(other than to make contributions in the ordinary course of business).
7.09 Taxes. United States Federal income tax returns of the Company
------
and its Subsidiaries have been examined and closed to further assessment through
the fiscal year of the Company ended December 31, 1985. The Company and its
Subsidiaries have filed all United States Federal income tax returns and all
other material tax returns which are required to be filed by them and have paid
all taxes due pursuant to such returns or pursuant to any assessment received by
the Company or any of its Subsidiaries. The charges, accruals and reserves on
the books of the Company and its Subsidiaries in respect of taxes and other
governmental charges are, in the opinion of the Company, adequate.
<PAGE>
7.10 Investment Company Act. Except for those Subsidiaries
-----------------------
specified on Schedule III hereto, neither the Company nor any of its
Subsidiaries is an "investment company", or a company "controlled" by an
"investment company", within the meaning of the Investment Company Act of 1940,
as amended.
7.11 Public Utility Holding Company Act. Neither the Company nor
-----------------------------------
any of its Subsidiaries is a "holding company", or an "affiliate" of a "holding
company" or a "subsidiary company" of a "holding company", within the meaning of
the Public Utility Holding Company Act of 1935, as amended.
7.12 Credit Agreements. Schedule I hereto is a complete and correct
------------------
list, as of the date of this Agreement, of each credit agreement, loan
agreement, indenture, purchase agreement, Guarantee or other arrangement
providing for or otherwise relating to any Indebtedness or any extension of
credit (or commitment for any extension of credit) to, or Guarantee by, the
Company or any of its Consolidated Subsidiaries the aggregate principal or face
amount of which equals or exceeds (or may equal or exceed) $1,000,000 and the
aggregate principal or face amount outstanding or which may become outstanding
under each such arrangement is correctly described in said Schedule I.
7.13 Hazardous Materials. The Company and each of its Subsidiaries
--------------------
have obtained all permits, licenses and other authorizations which are required
under all Environmental Laws, except to the extent failure to have any such
permit, license or authorization would not have a Material Adverse Effect. The
Company and each of its Subsidiaries are in compliance with the terms and
conditions of all such permits, licenses and authorizations, and are also in
compliance with all other limitations, restrictions, conditions, standards,
prohibitions, requirements, obligations, schedules and timetables contained in
any applicable Environmental Law or in any regulation, code, plan, order,
decree, judgment, injunction, notice or demand letter issued, entered,
promulgated or approved thereunder, except to the extent failure to comply would
not have a Material Adverse Effect.
7.14 Subsidiaries, Etc. Set forth in Schedule II hereto is a
-------------------
complete and correct list, as of the date of this Agreement, of all Subsidiaries
of the Company (and the respective jurisdiction of organization of each such
Subsidiary) and of all Investments held by the Company or any of its
Subsidiaries in any joint venture. Except as disclosed in Schedule II hereto
the Company owns, free and clear of Liens, all outstanding shares of such
Subsidiaries (and each such Subsidiary owns, free and clear of Liens, all
<PAGE>
outstanding equity interests of its Subsidiaries) and all such shares are
validly issued, fully paid and non-assessable and the Company (or the respective
Subsidiary) also owns, free and clear of Liens, all such Investments.
7.15 True and Complete Disclosure. The information, reports,
-----------------------------
financial statements, exhibits and schedules furnished in writing by or on
behalf of the Company to the Administrative Agent or any Bank in connection with
the negotiation, preparation or delivery of this Agreement and the other Basic
Documents or included herein or therein or delivered pursuant hereto or thereto,
when taken as a whole do not contain any untrue statement of material fact or
omit to state any material fact necessary to make the statements herein or
therein, in light of the circumstances under which they were made, not
misleading. All written information furnished after the date hereof by the
Company and its Subsidiaries to the Administrative Agent and the Banks in
connection with this Agreement and the other Basic Documents and the
transactions contemplated hereby and thereby will be true, complete and accurate
in every material respect, or (in the case of projections) based on reasonable
estimates, on the date as of which such information is stated or certified.
There is no fact known to the Company that could have a Material Adverse Effect
that has not been disclosed herein, in the other Basic Documents or in a report,
financial statement, exhibit, schedule, disclosure letter or other writing
furnished to the Banks for use in connection with the transactions contemplated
hereby or thereby.
7.16 Capitalization. As of the Closing Date, the authorized capital
---------------
stock of the Company consists of (i) 65,000,000 shares of common stock, par
value $1.00 per share, of which approximately 45,544,430 shares are duly and
validly issued and outstanding and (ii) 25,000,000 shares of preferred stock,
par value $1.00 per share, of which 1,041,534 shares of 8.10% cumulative
preferred stock, liquidation value of $150 per share, are duly and validly
issued and outstanding, each of which issued and outstanding shares are fully
paid and nonassessable. On the Acquisition Date, the authorized capital stock
of the Company will consist of (i) 150,000,000 shares of common stock, par value
$1.00 per share and (ii) 25,000,000 shares of preferred stock, par value $1.00
per share. In connection with the Zurich Investment, the Company will issue
9,523,810 shares of common stock of the Company. In connection with the
Acquisition, the Company will issue no less than 6,644,518 nor more than
14,414,414 shares of common stock of the Company, each of which will be fully
paid and nonassessable. As of the Acquisition Date, (x) except for employee
benefit and salary plans, there will be no outstanding Equity Rights with
<PAGE>
respect to the Company and (y) except for employee benefit and salary plans,
there will be no outstanding obligations of the Company or any of its
Subsidiaries to repurchase, redeem, or otherwise acquire any shares of capital
stock of the Company nor will there be any outstanding obligations of the
Company or any of its Subsidiaries to make payments to any Person, such as
"phantom stock" payments, where the amount thereof is calculated with reference
to the fair market value or equity value of the Company or any of its
Subsidiaries.
7.17 Purchase Agreement. The Company has delivered to the
-------------------
Administrative Agent true and complete copies of the Purchase Agreement
(including all schedules and exhibits thereto).
Section 8. Covenants of the Company. The Company covenants and
------------------------
agrees with the Banks and the Administrative Agent that, so long as any
Commitment or Loan is outstanding and until payment in full of all amounts
payable by the Company hereunder:
8.01 Financial Statements. The Company shall deliver to each of the
---------------------
Banks:
(a) as soon as available and in any event within 45 days after the
end of each quarterly fiscal period ending March 31, June 30 and September
30 of each fiscal year of the Company, consolidated statements of
operations and cash flow of the Company and its Consolidated Subsidiaries
for such period and for the period from the beginning of the respective
fiscal year to the end of such period, setting forth in each case in
comparative form the corresponding consolidated figures for the
corresponding period in the preceding fiscal year, and the related
consolidated statements of financial condition as at the end of such period
and as at the previous year end, accompanied by a certificate of a senior
financial officer of the Company, which certificate shall state that said
financial statements fairly present in all material respects the
consolidated financial position and results of operations and cash flows of
the Company and its Consolidated Subsidiaries, in accordance with generally
accepted accounting principles, consistently applied, as at the end of, and
for, such period (subject to normal year-end audit adjustments);
(b) as soon as available and in any event within 90 days after the end
of each fiscal year of the Company, consolidated statements of operations,
stockholders' equity and cash flow of the Company and its Consolidated
<PAGE>
Subsidiaries for such year and, in the case of the Company only,
unconsolidated statements of operations and cash flows for such year and
the related consolidated and unconsolidated statements of financial
condition as at the end of such year, setting forth in each case in
comparative form the corresponding consolidated and unconsolidated figures
for the preceding fiscal year, and accompanied (i) in the case of said
consolidated statements and statements of financial condition, by an
unqualified opinion thereon of independent certified public accountants of
recognized national standing, which opinion shall state that said
consolidated financial statements fairly present in all material respects
the consolidated financial position and results of operations and cash
flows of the Company and its Consolidated Subsidiaries as at the end of,
and for, such fiscal year in conformity with generally accepted accounting
principles, and a certificate of such accountants stating that, in making
the examination necessary for their opinion, they obtained no knowledge,
except as specifically stated, of any Default arising from the breach of
any of Sections 8.07 through 8.13 hereof (inclusive), and (ii) in the case
of said unconsolidated statements and statement of financial condition, by
a certificate of a senior financial officer of the Company, which
certificate shall state that said unconsolidated financial statements
fairly present in all material respects the unconsolidated financial
position and results of operations and cash flows of the Company in
conformity with generally accepted accounting principles, consistently
applied, as at the end of, and for, such fiscal year;
(c) as soon as available and in any event not later than 60 days
after the end of each fiscal year of each Insurance Subsidiary, (i) the
Annual Statements of such Insurance Subsidiary (prepared in accordance with
the statutory accounting practices required or permitted by its Applicable
Insurance Regulatory Authority) for such fiscal year as filed with such
Applicable Insurance Regulatory Authority, together with the opinion
thereon of a senior financial officer of such Insurance Subsidiary stating
that such Annual Statements present the statutory financial condition of
such Insurance Subsidiary in accordance with statutory accounting practices
required or permitted by such Applicable Insurance Regulatory Authority and
(ii) an opinion of the appointed actuary of such Insurance Subsidiary or
independent certified public accountants of recognized national standing
affirming the adequacy of the insurance reserves of such Insurance
Subsidiary; in addition, no later than April 1 following the end of each
fiscal year of each Insurance Subsidiary, the management's discussion and
analysis relating to the Annual Statements of such Insurance Subsidiary for
such fiscal year;
(d) as soon as available and in any event not later than the May 1
following the end of each fiscal year of the Company, the Consolidated
Annual Statement of the Company's Insurance Subsidiaries (prepared in
accordance with the statutory accounting practices required or permitted by
the Applicable Insurance Regulatory Authority for the Company) for such
fiscal year as filed with such Applicable Insurance Regulatory Authority,
<PAGE>
together with the opinion thereon of a senior financial officer of the
Company stating that such Annual Statement of the Company's Insurance
Subsidiaries was prepared in accordance with statutory accounting practices
required or permitted by such Applicable Insurance Regulatory Authority;
(e) as soon as available and in any event within 45 days after the
end of each fiscal quarter ending March 31, June 30 and September 30 of
each Insurance Subsidiary, quarterly statutory financial statements of such
Insurance Subsidiary (prepared in accordance with statutory accounting
practices required or permitted by its Applicable Insurance Regulatory
Authority) for such fiscal quarter as filed with such Applicable Insurance
Regulatory Authority, together with the opinion thereon of a senior
financial officer of such Insurance Subsidiary stating that such statutory
financial statements present the statutory financial condition of such
Insurance Subsidiary in accordance with statutory accounting practices
required or permitted by such Applicable Insurance Regulatory Authority;
(f) promptly upon their becoming available, copies of all
registration statements and regular periodic reports, if any, that the
Company shall have filed with the Securities and Exchange Commission (or
any governmental agency substituted therefor) or any national securities
exchange;
(g) promptly upon the mailing thereof to the shareholders of the
Company generally, copies of all financial statements, reports and proxy
statements so mailed;
(h) as soon as possible, and in any event within ten days after the
Company knows or has reason to believe that any of the events or conditions
<PAGE>
specified below with respect to any Plan or Multiemployer Plan has occurred
or exists, a statement signed by a senior financial officer of the Company
setting forth details respecting such event or condition and the action, if
any, that the Company or its ERISA Affiliate proposes to take with respect
thereto (and a copy of any report or notice required to be filed with or
given to the PBGC by the Company or an ERISA Affiliate with respect to such
event or condition):
(i) any reportable event, as defined in Section 4043(b) of ERISA
and the regulations issued thereunder, with respect to a Plan, other
than (x) any reportable event for which the PBGC has by regulation
waived the requirement of Section 4043(a) of ERISA that it be notified
within 30 days of the occurrence of such event (provided that a
--------
failure to meet the minimum funding standard of Section 412 of the
Code or Section 302 of ERISA, including, without limitation, the
failure to make on or before its due date a required installment under
Section 412(m) of the Code or Section 302(e) of ERISA, shall be a
reportable event regardless of the issuance of any waivers in
accordance with Section 412(d) of the Code) or (y) a reportable event
for which notice to the PBGC is waived or penalties have been waived
under PBGC Technical Update 95-3;
(ii) the filing under Section 4041 of ERISA of a notice of intent
to terminate any Plan or any action taken by the Company or an ERISA
Affiliate to terminate any Plan that would result in a liability to
the Company;
(iii) the institution by the PBGC of proceedings under Section
4042 of ERISA for the termination of, or the appointment of a trustee
to administer, any Plan, or the receipt by the Company or any ERISA
Affiliate of a notice from a Multiemployer Plan that such action has
been taken by the PBGC with respect to such Multiemployer Plan;
(iv) the complete or partial withdrawal by the Company or any
ERISA Affiliate from a Multiemployer Plan that results in liability
under Section 4201 or 4204 of ERISA (including the obligation to
satisfy secondary liability as a result of a purchaser default) or the
<PAGE>
receipt by the Company or any ERISA Affiliate of notice from a
Multiemployer Plan that it is in reorganization or insolvency pursuant
to Section 4241 or 4245 of ERISA or that it intends to terminate or
has terminated under Section 4041A of ERISA; and
(v) the institution of a proceeding by a fiduciary of any
Multiemployer Plan against the Company or any ERISA Affiliate to
enforce Section 515 of ERISA, which proceeding is not dismissed within
30 days;
(i) promptly after the Company knows or has reason to believe that
any Default has occurred, a notice of such Default (and stating that such
notice is a "Notice of Default") describing the same in reasonable detail
and, together with such notice or as soon thereafter as possible, a
description of the action that the Company has taken or proposes to take
with respect thereto;
(j) from time to time such other information regarding the financial
condition, operations, business or prospects of the Company or any of its
Subsidiaries (including, without limitation, any Plan or Multiemployer Plan
and any reports or other information required to be filed under ERISA) as
any Bank or the Administrative Agent may reasonably request; and
(k) notice of any change in the Moody's Rating, Moody's Claims
Rating, S&P Rating, S&P Claims Rating or any Insurance Subsidiary's A.M.
Best rating promptly after the same shall have occurred.
The Company will furnish to the Administrative Agent on behalf of each Bank, at
the time it furnishes each set of financial statements pursuant to Section
8.01(a), (b), (d) or (e) hereof, a certificate of a senior financial officer of
the Company (i) to the effect that no Default has occurred and is continuing
(or, if any Default has occurred and is continuing, describing the same in
reasonable detail and describing the action that the Company has taken or
proposes to take with respect thereto) and (ii) setting forth in reasonable
detail the computations necessary to determine whether the Company is in
compliance with Sections 8.07 through 8.13 hereof (inclusive) as of the end of
the respective quarterly fiscal period or fiscal year.
8.02 Litigation. The Company will promptly give to each Bank notice
-----------
of all legal or arbitral proceedings, and of all proceedings by or before any
governmental or regulatory authority or agency, and any material development in
<PAGE>
respect of such legal or other proceedings, affecting the Company or any of its
Subsidiaries, except proceedings in which there is no reasonable possibility of
an adverse determination that could have a Material Adverse Effect.
8.03 Existence, Etc. The Company will, and will cause each of its
----------------
Subsidiaries to:
(a) preserve and maintain its legal existence and all of its material
rights, privileges, licenses and franchises (provided that nothing in this
--------
Section 8.03 shall prohibit any transaction expressly permitted under
Section 8.05 hereof);
(b) comply with the requirements of all applicable laws, rules,
regulations and orders of governmental or regulatory authorities if failure
to comply with such requirements could (either individually or in the
aggregate) have a Material Adverse Effect;
(c) pay and discharge all taxes, assessments and governmental charges
or levies imposed on it or on its income or profits or on any of its
Property prior to the date on which penalties attach thereto, except for
any such tax, assessment, charge or levy the payment of which is being
contested in good faith and by proper proceedings and against which
adequate reserves are being maintained;
(d) maintain all of its Properties used or useful in its business in
good working order and condition, ordinary wear and tear excepted; and
(e) permit representatives of any Bank or the Administrative Agent,
during normal business hours, to examine, copy and make extracts from its
books and records, to inspect any of its Properties, and to discuss its
business and affairs with its officers, all to the extent reasonably
requested by such Bank or the Administrative Agent (as the case may be).
8.04 Insurance. The Company shall, and shall cause each of its
----------
Subsidiaries to, maintain worker's compensation insurance, liability insurance
and insurance on its properties, assets and business, now owned or hereafter
acquired, against such casualties, risks and contingencies, and in such types
and amounts, as are consistent with customary practices and standards of
companies engaged in similar businesses. Except in respect of errors and
omissions policies, the Company shall not permit the types or amounts of self-
<PAGE>
insurance maintained by it and its Subsidiaries to be materially increased
beyond the types and amounts thereof set forth in the certificate referred to in
Section 6.01(h) hereof.
8.05 Limitation of Fundamental Changes. The Company will not, nor
----------------------------------
will it permit any of its Subsidiaries to, enter into any transaction of merger
or consolidation or amalgamation, or liquidate, wind up or dissolve itself (or
suffer any liquidation or dissolution). Except for the Acquisition, the Company
will not, and will not permit any of its Subsidiaries to, acquire any business
or assets from, or capital stock of, or be a party to any acquisition of, any
Person (each, a "Corporate Acquisition") except for purchases of inventory and
---------------------
other assets to be sold or used in the ordinary course of business and
Investments permitted under Section 8.08 hereof. The Company will not, and will
not permit any of its Subsidiaries to, convey, sell, lease, transfer or
otherwise dispose of, in one transaction or a series of transactions, all or a
Substantial Part of its business or assets, whether now owned or hereafter
acquired (including, without limitation, shares of stock and indebtedness of
Subsidiaries, receivables and leasehold interests); and any conveyance, sale,
lease, transfer or other disposition not prohibited by this sentence shall be on
an arm-length basis. Notwithstanding the foregoing provisions of this Section
8.05: (a) the Subsidiaries of the Company may enter into reinsurance
transactions in respect of individual disability policies in the ordinary course
of business if both the liability in respect of such policies and their
associated assets are transferred pursuant to such reinsurance policies on an
arms-length basis and (b) if no Default exists or would result therefrom
(including, without limitation, in respect of Section 8.14 hereof):
(i) the Company may be merged or consolidated with or into any other
Person so long as the Company is the surviving corporation;
(ii) any Subsidiary of the Company may be merged or consolidated with
or into: (x) the Company if the Company shall be the continuing or
surviving corporation or (y) any other such Subsidiary; provided that if
any such transaction shall be between a Subsidiary and a Wholly-Owned
Subsidiary, the Wholly-Owned Subsidiary shall be the continuing or
surviving corporation;
(iii) any such Subsidiary may sell, lease, transfer or otherwise
dispose of any or all of its assets (upon voluntary liquidation or
otherwise) to the Company or a Wholly-Owned Subsidiary of the Company;
<PAGE>
(iv) any Subsidiary of the Company may change its domicile from one
state in the United States of America to another state in the United States
of America;
(v) the Company or any Subsidiary may (x) convey, sell, lease,
transfer or otherwise dispose of any Investments in connection with a bulk
sale thereof if the proceeds of such disposition are reinvested by the
Company or such Subsidiary in Investments of the same or higher investment
quality or (y) sell, transfer or otherwise dispose of any Subsidiary that
is an insurance company, the assets (or substantially all of the assets) of
which have been disposed of pursuant to clause (iii) above;
(vi) the Company or any Subsidiary may effect a Corporate Acquisition
unless effecting the same would have Material Adverse Effect; and
(vii) the Company or any Subsidiary may convey, sell, transfer or
otherwise dispose of all or any portion of their respective group pension
business so long as any such disposition is to a non-Affiliate of the
Company, is effected on an arms length basis and no special Dividend
Payment is declared or made with (or related to) the proceeds thereof.
8.06 Certain Obligations Respecting Subsidiaries. Subject to the
--------------------------------------------
provisions of Section 8.05 hereof, the Company will, and will cause each of its
Subsidiaries to, take such action from time to time as shall be necessary to
ensure that it at all times owns at least the same percentage of the issued and
outstanding shares of each class of stock of each of its Subsidiaries as is
owned on the date of the initial Loans hereunder. Without limiting the
generality of the foregoing, the Company will not, nor will it permit any of its
Subsidiaries to, sell, transfer or otherwise dispose of any shares of stock in
any Subsidiary owned by them (except for a sale, transfer or other disposition
permitted under Section 8.05 hereof) and the Company will not, nor will it
permit any of its Subsidiaries to, issue any shares of stock of any class
whatsoever to any Person (except directors' qualifying shares).
8.07 Limitation on Liens. (a) The Company will not, nor will it
--------------------
permit any of its Subsidiaries to, create, incur, assume or suffer to exist any
Lien upon any of its Property, whether now owned or hereafter acquired, except
(subject to paragraph (b) of this Section 8.07):
<PAGE>
(i) Liens imposed by any governmental authority for taxes,
assessments or charges not yet due or which are being contested in good
faith and by appropriate proceedings if adequate reserves with respect
thereto are maintained on the books of the Company or any of its
Subsidiaries, as the case may be, in accordance with GAAP;
(ii) carriers', warehousemen's, mechanics', materialmen's,
repairmen's or other like Liens arising in the ordinary course of business
which are not overdue for a period of more than 30 days or which are being
contested in good faith and by appropriate proceedings and Liens securing
judgments but only to the extent, for an amount and for a period not
resulting in an Event of Default under Section 9(h) hereof;
(iii) pledges or deposits under worker's compensation, unemployment
insurance and other social security legislation;
(iv) deposits to secure the performance of bids, trade contracts
(other than for borrowed money), leases, statutory obligations (including
those in respect of insurance company qualification requirements), surety
and appeal bonds, performance bonds and other obligations of a like nature
incurred in the ordinary course of business;
(v) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business and encumbrances
consisting of zoning restrictions, easements, licenses, restrictions on the
use of Property or minor imperfections in title thereto which, in the
aggregate, are not material in amount, and which do not in any case
materially detract from the value of the Property subject thereto or
interfere with the ordinary conduct of the business of the Company or any
of its Subsidiaries;
(vi) Liens upon personal Property securing obligations arising out of
Derivatives Obligations entered into solely for hedging purposes;
(vii) Liens on (A) marketable direct obligations issued or
unconditionally guaranteed or insured by the United States of America or
any agency or instrumentality thereof and backed by the full faith and
credit of the United States of America sold by the Company or any of its
Subsidiaries under a repurchase agreement with a bank or a primary dealer
<PAGE>
of United States government securities (a "Repo Counterparty ") maturing
-----------------
within 30 days from the date of sale, provided that the terms of such
agreement comply with the guidelines set forth in the Federal Financial
Institutions Examination Council Supervisory Policy -- Repurchase
Agreements of Depositary Institutions With Securities Dealers and Others,
as adopted by the Comptroller of the Currency on October 31, 1985 (or any
successor guidelines) and (B) other marketable debt securities under a
repurchase agreement and/or securities lending agreement with a bank or a
primary dealer of such securities (the "Counterparty") maturing within 30
------------
days from the date of sale if the terms of such agreement comply with such
guidelines; provided that, in the case of any mortgage-backed security
subject to such an arrangement, the Counterparty thereof may, in lieu of
returning such security, return another mortgage-backed security of the
same value, yield and rating, and otherwise having comparable economic
terms; provided further that the Company and its Subsidiaries will continue
their policies in effect on the date hereof requiring collateral from their
Repo Counterparties and Counterparties;
(viii) Liens on (x) Property acquired or (y) Property of any Person
which is subject to a Corporate Acquisition, in each case, after the date
of this Agreement, provided that such Liens are in existence at the time
such acquisition and were not created in anticipation thereof; provided
further, the aggregate Indebtedness secured thereby shall not exceed
$25,000,000 in the aggregate at any one time outstanding;
(ix) additional Liens upon real and/or personal Property, provided
that, the aggregate Indebtedness secured thereby shall not exceed
$25,000,000 in the aggregate at any one time outstanding; and
(x) any extension, renewal or replacement of the foregoing, provided,
however, that the Liens permitted hereunder shall not be spread to cover
any additional Indebtedness or Property (other than a substitution of like
Property).
(b) Notwithstanding subparagraphs (a)(i) through (a)(x) of this
Section 8.07, the Company will not, nor will it permit any of its Subsidiaries
to, create, incur, assume or suffer to exist any Lien upon any stock issued by
any Insurance Subsidiary.
<PAGE>
8.08 Investments. The Company will not permit to remain
------------
outstanding:
(a) any Investments that consist of capital stock, partnership or
other ownership interests or other equity securities in any Person (other
than a Subsidiary or Affiliate of the Company) in an aggregate amount (for
all such Investments) in excess of 10% of the total investments of the
Company and its Subsidiaries (determined on consolidated basis in
accordance with GAAP, but excluding the value of any investments of the
Company in any of its Subsidiaries or Affiliates);
(b) any Investments that are Non-Investment Grade Investments (as
defined below) in an aggregate amount (for all such Investments) in excess
of 10% of the total investments of the Company and its Subsidiaries
(determined on a consolidated basis in accordance with GAAP, but excluding
the value of any investments of the Company in any of its Subsidiaries or
Affiliates); and
(c) any Investments that consist of real estate (excluding Company
occupied properties) and mortgage loans in an aggregate amount (for all
such Investments) in excess of 10% of the total investments of the Company
and its Subsidiaries (determined on a consolidated basis in accordance with
GAAP, but excluding the value of any investments of the Company in any of
its Subsidiaries or Affiliates);
provided that the Company may, and may permit its Subsidiaries to, make and
maintain Investments in Wholly-Owned Subsidiaries of the Company. For purposes
of this Section 8.08, "Non-Investment Grade Investments" shall mean bonds,
--------------------------------
debentures, notes or other evidence of, or other obligations to repay,
Indebtedness bearing interest at a fixed rate that (i) have been designated by
the Securities Valuation Office of the NAIC as having a lower quality than '2'
or (ii) do not have a quality designation by said Securities Valuation Office
(except in the case of any such Indebtedness that does not have such rating due
to its being newly issued (and such failure to have a rating does not exceed 60
days) and if the Company reasonably believes that such Indebtedness would have
an NAIC Rating of at least 2).
8.09 Dividend Payments. The Company will not declare or make any
------------------
Dividend Payment at any time; provided, however, that the Company may declare
and make Dividend Payments in cash, subject to the satisfaction of the following
condition on the date of such Dividend Payment and after giving effect thereto:
<PAGE>
the aggregate amount of Dividend Payments made in the then current fiscal year
of Company, including the amount of such Dividend Payment, shall not exceed (i)
in the case of the Company's common stock, (x) through December 31, 1997, $0.85
per share and (y) thereafter, $1 per share (provided that any increase in the
number of outstanding common stock shares of the Company resulting from (x) a
stock split or stock dividend of such shares or (y) the issuance of such shares
where the proceeds thereof are utilized to make (or are related to the making
of) a special Dividend Payment, shall result in a commensurate proportional
decrease in the allowable per share common stock Dividend Payment) and (ii) in
the case of the Company's outstanding (as at the date hereof) 8.10% cumulative
preferred stock, $13,000,000; provided further, that if the Applicable Margin is
at any time during any year computed by reference to category (e) in the
definition thereof, the aggregate amount of Dividend Payments made in the then
current fiscal year of the Company shall not exceed 30% of the statutory net
income of the Insurance Subsidiaries on a combined basis determined in
accordance with SAP for the most recently ended fiscal year of the Company.
8.10 Minimum Adjusted Statutory Surplus. The Company will not
-----------------------------------
permit at any time the combined Adjusted Statutory Surplus for all of its
directly owned Insurance Subsidiaries to be less than (I) prior to the
Acquisition, $600,000,000 and (II) from and after the Acquisition, (i) through
December 30, 1998, $875,000,000 and (ii) thereafter, $925,000,000.
8.11 Consolidated Funded Debt Ratio. The Company will not permit at
-------------------------------
any time Consolidated Funded Debt to exceed 35.00% of the Consolidated Capital.
8.12 Ratio of Cash Sources to Cash Uses. The Company will maintain
-----------------------------------
a ratio of Cash Sources to Cash Uses in excess of 1.5 to 1.
8.13 Authorized Control Level Risk Based Capital Ratio. The Company
--------------------------------------------------
will not as at the last day of any fiscal quarter permit PLAIC's or, from and
after the Acquisition, Paul Revere Life Insurance Company's Total Adjusted
Capital (as defined in the NAIC's Risk-Based Capital for life and/or Health
Insurers Model Act (as then currently in effect), as so adopted (and including
any instructions thereunder, the "Model Act") to be less than (x) through
---------
December 30, 1998, 300% and (y) thereafter, 350% of its Authorized Control Level
RBC (as defined in the Model Act).
<PAGE>
8.14 Lines of Business. The Company will continue, and cause each
------------------
of its Consolidated Subsidiaries to continue, to engage in a business of the
same general type as conducted by it on the date of this Agreement.
8.15 Transactions with Affiliates. Except as expressly permitted by
-----------------------------
this Agreement, the Company will not, nor will it permit any of its Subsidiaries
to, directly or indirectly: (a) make any Investment in an Affiliate; (b)
transfer, sell, lease, assign or otherwise dispose of any Property to an
Affiliate; (c) merge into or consolidate with or purchase or acquire Property
from an Affiliate; or (d) enter into any other transaction directly or
indirectly with or for the benefit of an Affiliate (including, without
limitation, guarantees and assumptions of obligations of an Affiliate); provided
that (x) any Affiliate who is an individual may serve as a director, officer or
employee of the Company or any of its Subsidiaries and receive reasonable
compensation for his or her services in such capacity and (y) the Company and
its Subsidiaries may enter into transactions (other than extensions of credit by
the Company or any of its Subsidiaries to an Affiliate) providing for the
leasing of Property, the rendering or receipt of services or the purchase or
sale of inventory and other Property in the ordinary course of business (which
may include the purchase of related businesses) if the monetary or business
consideration arising therefrom would be substantially as advantageous to the
Company and its Subsidiaries as the monetary or business consideration which
would obtain in a comparable transaction with a Person not an Affiliate.
8.16 Use of Proceeds. The Company will use the proceeds of the
----------------
Loans hereunder solely (i) to pay a portion of the purchase price for the
Acquisition, (ii) to pay the principal of the Refinanced Debt, (iii) to pay
certain of the fees, commissions and expenses payable in connection with the
foregoing and (iv) for general corporate purposes (including the repurchase by
the Company of any of its outstanding preferred stock); provided that (i) none
of the proceeds shall be paid over to, or used to fund the operations of, any
Subsidiary referred to in Schedule III hereto and (ii) neither the
Administrative Agent nor any Bank shall have any responsibility as to the use of
any of such proceeds.
8.17 Pari Passu. The Company will not permit any of its
-----------
Indebtedness to creditors not constituting its Subsidiaries to be guaranteed or
otherwise supported by, or to have direct access to any assets of, any of its
Subsidiaries.
<PAGE>
Section 9. Events of Default. If one or more of the following events
-----------------
(herein called "Events of Default") shall occur and be continuing:
-----------------
(a) The Company shall default in the payment when due of (i) any
principal of or interest on any Loan, or (ii) any fee or any other amount
payable by it hereunder or under any Note and such default in respect of
any such fee or other amount shall have continued unremedied for more than
three Business Days; or
(b) The Company or any of its Consolidated Subsidiaries shall default
in the payment when due of any amount of principal of any of its other
Indebtedness the aggregate amount of which other Indebtedness is
$10,000,000 or more or shall default in the payment when due of any
interest on any such Indebtedness or on any amount payable under any
Derivatives Obligation and such default in the payment of interest or
amount shall remain unremedied for three or more Business Days; or any
event specified in any note, agreement, indenture or other document
evidencing or relating to any such Indebtedness or any Derivatives
Obligation shall occur if the effect of such event is to cause, or (with
the giving of any notice or the lapse of time or both) to permit the holder
or holders of such Indebtedness (or a trustee or agent on behalf of such
holder or holders) to cause, such Indebtedness to become due, or to be
prepaid in full (whether by redemption, purchase, offer to purchase or
otherwise), prior to its stated maturity or to have the interest rate
thereon reset to a level so that securities evidencing such Indebtedness
trade at level specified in relation to the par value thereof or, in the
case of an Derivatives Obligations, to permit the payments owing under such
Derivatives Obligations to be liquidated; or
(c) Any representation, warranty or certification made or deemed made
herein or in any other Basic Document (or in any modification or supplement
hereto or thereto) by the Company, or any certificate furnished to any Bank
or the Administrative Agent pursuant to the provisions hereof or thereof,
shall prove to have been false or misleading as of the time made or
furnished in any material respect; or
(d) The Company shall default in the performance of any of its
obligations under any of Sections 8.01(i), 8.05 through 8.13 (inclusive),
8.16 and 8.17 hereof; or the Company shall default in the performance of
any of its other obligations in this Agreement or any other Basic Document
<PAGE>
and such default shall continue unremedied for a period of 30 days after
notice thereof to the Company by the Administrative Agent or any Bank
(through the Administrative Agent); or
(e) The Company or any of its Subsidiaries shall admit in writing its
inability to, or be generally unable to, pay its debts as such debts become
due; or
(f) The Company or any of its Subsidiaries shall (i) apply for or
consent to the appointment of, or the taking of possession by, a receiver,
custodian, trustee, examiner or liquidator of itself or of all or a
substantial part of its Property, (ii) make a general assignment for the
benefit of its creditors, (iii) commence a voluntary case under the
Bankruptcy Code, (iv) file a petition seeking to take advantage of any
other law relating to bankruptcy, insolvency, reorganization,
rehabilitation, supervision, conservatorship, liquidation, dissolution,
arrangement or winding-up, or composition or readjustment of debts, (v)
fail to controvert in a timely and appropriate manner, or acquiesce in
writing to, any petition filed against it in an involuntary case under the
Bankruptcy Code or (vi) take any corporate action for the purpose of
effecting any of the foregoing; or
(g) A proceeding, order or case shall be commenced, without the
application or consent of the Company or any of its Subsidiaries, in any
court of competent jurisdiction, or by any applicable insurance regulatory
authority seeking (i) its reorganization, rehabilitation, supervision,
conservatorship, liquidation, dissolution, arrangement or winding-up, or
the composition or readjustment of its debts, (ii) the appointment of a
receiver, custodian, trustee, examiner, liquidator or the like of the
Company or such Subsidiary or of all or any substantial part of its
Property, or (iii) similar relief in respect of the Company or such
Subsidiary under any law relating to bankruptcy, insolvency,
reorganization, winding-up, or composition or adjustment of debts, and such
proceeding or case shall continue undismissed, or an order, judgment or
decree approving or ordering any of the foregoing shall be entered and
continue unstayed and in effect, for a period of 60 or more days; or an
order for relief against the Company or such Subsidiary shall be entered in
an involuntary case under the Bankruptcy Code; or
<PAGE>
(h) A final judgment or judgments for the payment of money in excess
of $10,000,000 in the aggregate (exclusive of judgment amounts fully
covered by insurance where the insurer has admitted liability in writing in
respect of such judgment) shall be rendered by one or more courts,
administrative tribunals or other bodies having jurisdiction against the
Company or any of its Subsidiaries and the same shall not be discharged (or
provision shall not be made for such discharge), or a stay of execution
thereof shall not be procured, within 30 days from the date of entry
thereof and the Company or the relevant Subsidiary shall not, within said
period of 30 days, or such longer period during which execution of the same
shall have been stayed, appeal therefrom and cause the execution thereof to
be stayed during such appeal; or
(i) An event or condition specified in Section 8.01(h) hereof shall
occur or exist with respect to any Plan or Multiemployer Plan and, as a
result of such event or condition, together with all other such events or
conditions, the Company or any ERISA Affiliate shall incur or in the
opinion of the Majority Banks shall be reasonably likely to incur a
liability to a Plan, a Multiemployer Plan or the PBGC (or any combination
of the foregoing) that, in the determination of the Majority Banks, would
(either individually or in the aggregate) have a Material Adverse Effect;
or
(j) except as expressly permitted by Section 8.05 hereof: (i) any
Person (other than Zurich Insurance Company) or two or more Persons acting
in concert shall have acquired beneficial ownership (within the meaning of
Rule 13d-3 of the Securities and Exchange Commission under the Securities
Exchange Act of 1934) of 30% or more of the outstanding shares of voting
stock of the Company; or (ii) during any period of 25 consecutive calendar
months, individuals who were directors of the Company on the first day of
such period shall no longer constitute a majority of the board of directors
(excluding any directors that replaced individuals who ceased to be
directors during such period by reason of death or retirement (voluntary or
mandatory) and any directors who were appointed or whose election was
approved by a majority of the board of directors holding office at the time
of such election) of the Company;
THEREUPON: (1) in the case of an Event of Default other than one referred to in
clause (e), (f) or (g) of this Section 9 with respect to the Company, the
<PAGE>
Administrative Agent may and, upon request of the Majority Banks will, by notice
to the Company, terminate the Commitments and/or declare the principal amount
then outstanding of, and the accrued interest on, the Loans and all other
amounts payable by the Company hereunder and under the Notes (including, without
limitation, any amounts payable under Section 5.05 hereof) to be forthwith due
and payable, whereupon such amounts shall be immediately due and payable without
presentment, demand, protest or other formalities of any kind, all of which are
hereby expressly waived by the Company; and (2) in the case of the occurrence of
an Event of Default referred to in clause (e), (f) or (g) of this Section 9 with
respect to the Company, the Commitments shall automatically be terminated and
the principal amount then outstanding of, and the accrued interest on, the Loans
and all other amounts payable by the Company hereunder and under the Notes
(including, without limitation, any amounts payable under Section 5.05 hereof)
shall automatically become immediately due and payable without presentment,
demand, protest or other formalities of any kind, all of which are hereby
expressly waived by the Company.
Section 10. The Administrative Agent.
------------------------
10.01 Appointment, Powers and Immunities. Each Bank hereby
-----------------------------------
irrevocably appoints and authorizes the Administrative Agent to act as its agent
hereunder and under the other Basic Documents with such powers as are
specifically delegated to the Administrative Agent by the terms of this
Agreement and of the other Basic Documents, together with such other powers as
are reasonably incidental thereto. The Administrative Agent (which term as used
in this sentence and in Section 10.05 hereof and the first sentence of Section
10.06 hereof shall include reference to its affiliates and its own and its
affiliates' officers, directors, employees and agents): (a) shall have no
duties or responsibilities except those expressly set forth in this Agreement
and in the other Basic Documents, and shall not by reason of this Agreement or
any other Basic Document be a trustee for any Bank; (b) shall not be responsible
to the Banks for any recitals, statements, representations or warranties
contained in this Agreement or in any other Basic Document, or in any
certificate or other document referred to or provided for in, or received by any
of them under, this Agreement or any other Basic Document, or for the value,
validity, effectiveness, genuineness, enforceability or sufficiency of this
Agreement, any Note or any other Basic Document or any other document referred
to or provided for herein or therein or for any failure by the Company or any
<PAGE>
other Person to perform any of its obligations hereunder or thereunder; (c)
shall not be required to initiate or conduct any litigation or collection
proceedings hereunder or under any other Basic Document; and (d) shall not be
responsible for any action taken or omitted to be taken by it hereunder or under
any other Basic Document or under any other document or instrument referred to
or provided for herein or therein or in connection herewith or therewith, except
for its own gross negligence or willful misconduct. The Administrative Agent
may deem and treat the payee of any Note as the holder thereof for all purposes
hereof unless and until a notice of the assignment or transfer thereof shall
have been filed with the Administrative Agent, together with the consent of the
Company to such assignment or transfer (to the extent provided in Section
11.06(b) hereof).
10.02 Reliance by Administrative Agent. The Administrative Agent
---------------------------------
shall be entitled to rely upon any certification, notice or other communication
(including, without limitation, any thereof by telephone, telecopy, telex,
telegram or cable) believed by it to be genuine and correct and to have been
signed or sent by or on behalf of the proper Person or Persons, and upon advice
and statements of legal counsel, independent accountants and other experts
selected by the Administrative Agent. As to any matters not expressly provided
for by this Agreement or any other Basic Document, the Administrative Agent
shall in all cases be fully protected in acting, or in refraining from acting,
hereunder or thereunder in accordance with instructions given by the Majority
Banks, and such instructions of the Majority Banks and any action taken or
failure to act pursuant thereto shall be binding on all of the Banks.
10.03 Defaults. The Administrative Agent shall not be deemed to
---------
have knowledge or notice of the occurrence of a Default (other than the non-
payment of principal of or interest on Loans or of facility fees) unless the
Administrative Agent has received notice from a Bank or the Company specifying
such Default and stating that such notice is a "Notice of Default". In the
event that the Administrative Agent receives such a notice of the occurrence of
a Default, the Administrative Agent shall give prompt notice thereof to the
Banks (and shall give each Bank prompt notice of each such non-payment). The
Administrative Agent shall (subject to Section 10.07 hereof) take such action
with respect to such Default as shall be directed by the Majority Banks,
provided that, unless and until the Administrative Agent shall have received
- --------
such directions, the Administrative Agent may (but shall not be obligated to)
take such action, or refrain from taking such action, with respect to such
<PAGE>
Default as it shall deem advisable in the best interest of the Banks except to
the extent that this Agreement expressly requires that such action be taken, or
not be taken, only with the consent or upon the authorization of the Majority
Banks or all of the Banks.
10.04 Rights as a Bank. With respect to its Commitment and the
-----------------
Loans made by it, Chase (and any successor acting as Administrative Agent) in
its capacity as a Bank hereunder shall have the same rights and powers hereunder
as any other Bank and may exercise the same as though it were not acting as the
Administrative Agent, and the term "Bank" or "Banks" shall, unless the context
otherwise indicates, include the Administrative Agent in its individual
capacity. Chase (and any successor acting as Administrative Agent) and its
affiliates may (without having to account therefor to any Bank) accept deposits
from, lend money to, make investments in and generally engage in any kind of
banking, trust or other business with the Company (and any of their Subsidiaries
or Affiliates) as if it were not acting as the Administrative Agent, and Chase
and its affiliates may accept fees and other consideration from the Company for
services in connection with this Agreement or otherwise without having to
account for the same to the Banks.
10.05 Indemnification. The Banks agree to indemnify the
----------------
Administrative Agent (to the extent not reimbursed under Section 11.03 hereof,
but without limiting the obligations of the Company under said Section 11.03)
ratably in accordance with their respective Commitments (and, after the
Commitments have been terminated, ratably in accordance with the aggregate
principal amount of the Loans held by the Banks), for any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind and nature whatsoever that may be imposed
on, incurred by or asserted against the Administrative Agent (including by any
Bank) arising out of or by reason of any investigation in or in any way relating
to or arising out of this Agreement or any other Basic Document or any other
documents contemplated by or referred to herein or therein or the transactions
contemplated hereby or thereby (including, without limitation, the costs and
expenses that the Company is obligated to pay under Section 11.03 hereof, but
excluding, unless a Default has occurred and is continuing, normal
administrative costs and expenses incident to the performance of its agency
duties hereunder) or the enforcement of any of the terms hereof or thereof or of
any such other documents, provided that no Bank shall be liable for any of the
--------
foregoing to the extent they arise from the gross negligence or willful
misconduct of the party to be indemnified.
<PAGE>
10.06 Non-Reliance on Administrative Agent and Other Banks. Each
-----------------------------------------------------
Bank agrees that it has, independently and without reliance on the
Administrative Agent or any other Bank, and based on such documents and
information as it has deemed appropriate, made its own credit analysis of the
Company and its Subsidiaries and decision to enter into this Agreement and that
it will, independently and without reliance upon the Administrative Agent or any
other Bank, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own analysis and decisions in
taking or not taking action under this Agreement. The Administrative Agent
shall not be required to keep itself informed as to the performance or
observance by the Company of this Agreement or any of the other Basic Documents
or any other document referred to or provided for herein or therein or to
inspect the Properties or books of the Company or any of its Subsidiaries.
Except for notices, reports and other documents and information expressly
required to be furnished to the Banks by the Administrative Agent hereunder, the
Administrative Agent shall not have any duty or responsibility to provide any
Bank with any credit or other information concerning the affairs, financial
condition or business of the Company or any of its Subsidiaries (or any of their
affiliates) that may come into the possession of the Administrative Agent or any
of its affiliates.
10.07 Failure to Act. Except for action expressly required of the
---------------
Administrative Agent hereunder and under the other Basic Documents, the
Administrative Agent shall in all cases be fully justified in failing or
refusing to act hereunder and thereunder unless it shall receive further
assurances to its satisfaction from the Banks of their indemnification
obligations under Section 10.05 hereof against any and all liability and expense
that may be incurred by it by reason of taking or continuing to take any such
action.
10.08 Resignation or Removal of Administrative Agent. Subject to
-----------------------------------------------
the appointment and acceptance of a successor Administrative Agent as provided
below, the Administrative Agent may resign at any time by giving notice thereof
to the Banks and the Company, and the Administrative Agent may be removed at any
time with or without cause by the Majority Banks. Upon any such resignation or
removal, the Majority Banks shall have the right to appoint a successor
Administrative Agent. If no successor Administrative Agent shall have been so
appointed by the Majority Banks and shall have accepted such appointment within
30 days after the retiring Administrative Agent's giving of notice of
<PAGE>
resignation or the Majority Banks' removal of the retiring Administrative Agent,
then the retiring Administrative Agent may, on behalf of the Banks, appoint a
successor Administrative Agent, that shall be a bank having an office in the
continental United States with a combined capital and surplus of at least
$1,000,000,000. Upon the acceptance of any appointment as Administrative Agent
hereunder by a successor Administrative Agent, such successor Administrative
Agent shall thereupon succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Administrative Agent, and the retiring
Administrative Agent shall be discharged from its duties and obligations
hereunder. After any retiring Administrative Agent's resignation or removal
hereunder as Administrative Agent, the provisions of this Section 10 shall
continue in effect for its benefit in respect of any actions taken or omitted to
be taken by it while it was acting as the Administrative Agent.
10.09 Agency Fee. So long as the Commitments are in effect and
-----------
until payment in full of the principal of and interest on the Loans and all
other amounts payable by the Company hereunder, the Company will pay to the
Administrative Agent an agency fee payable in such amounts and at such times as
separately agreed. Such fee, once paid, shall be non-refundable.
10.10 Consents under Basic Documents. Except as otherwise provided
-------------------------------
in Section 11.04 hereof with respect to this Agreement, the Administrative Agent
may, with the prior consent of the Majority Banks (but not otherwise), consent
to any modification, supplement or waiver under any of the Basic Documents.
Section 11. Miscellaneous.
-------------
11.01 Waiver. No failure on the part of the Administrative Agent or
-------
any Bank to exercise and no delay in exercising, and no course of dealing with
respect to, any right, power or privilege under this Agreement or any Note shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, power or privilege under this Agreement or any Note preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
The remedies provided herein are cumulative and not exclusive of any remedies
provided by law.
11.02 Notices. All notices, requests and other communications
--------
provided for herein (including, without limitation, any modifications of, or
waivers or consents under, this Agreement) shall be given or made in writing
<PAGE>
(including, without limitation, by telex or telecopy), delivered to the intended
recipient at the "Address for Notices" specified below its name on the signature
pages hereof; or, as to any party, at such other address as shall be designated
by such party in a notice to each other party. Except as otherwise provided in
this Agreement, all such communications shall be deemed to have been duly given
when transmitted by telex or telecopier or personally delivered or, in the case
of a mailed notice, upon receipt, in each case given or addressed as aforesaid.
11.03 Expenses, Etc. The Company agrees to pay or reimburse each of
---------------
the Banks and the Administrative Agent for paying: (a) all reasonable out-of-
pocket costs and expenses of the Administrative Agent actually incurred
(including, without limitation, the reasonable fees and expenses of Vedder,
Price, Kaufman, Kammholz & Day, special New York counsel to the Banks), in
connection with (i) the negotiation, preparation, execution and delivery of this
Agreement and the other Basic Documents and the Loans hereunder and (ii) any
modification, supplement or waiver of any of the terms of this Agreement or any
of the other Basic Documents; (b) all reasonable costs and expenses of the Banks
and the Administrative Agent actually incurred (including, without limitation,
reasonable counsels' fees) in connection with (i) any Default and any
enforcement or collection proceedings resulting therefrom or in connection with
the negotiation of any restructuring or "work-out" (whether or note
consummated), or the obligations of the Company hereunder and (ii) the
enforcement of this Section 11.03; and (c) all transfer, stamp, documentary or
other similar taxes, assessments or charges levied by any governmental or
revenue authority in respect of this Agreement or any of the other Basic
Documents or any other document referred to herein or therein and all costs,
expenses, taxes, assessments and other charges incurred in connection with any
filing, registration, recording or perfection of any security interest
contemplated by any Basic Document or any other document referred to therein.
The Company hereby agrees (i) to indemnify the Administrative Agent
and each Bank and their respective directors, officers, employees, attorneys and
agents from, and hold each of them harmless against, any and all losses,
liabilities, claims, damages or expenses incurred by any of them (including,
without limitation, any and all losses, liabilities, claims, damages or expenses
incurred by the Administrative Agent to any Bank, whether or not the
Administrative Agent or any Bank is a party thereto) arising out of or by reason
of any investigation or litigation or other proceedings (including any
<PAGE>
threatened investigation or litigation or other proceedings) relating to the
Loans hereunder or any actual or proposed use by the Company or any of its
Subsidiaries of the proceeds of any of the Loans hereunder, including, without
limitation, the reasonable fees and disbursements of counsel actually incurred
in connection with any such investigation or litigation or other proceedings
(but excluding any such losses, liabilities, claims, damages or expenses
incurred by reason of the gross negligence or willful misconduct of the Person
to be indemnified) and (ii) not to assert any claim against the Administrative
Agent, any Bank, any of their affiliates, or any of their respective directors,
officers, employees, attorneys and agents, on any theory of liability, for
special, indirect, consequential or punitive damages arising out of or otherwise
relating to any of the transactions contemplated herein or in any other Basic
Document.
11.04 Amendments, Etc. Except as otherwise expressly provided in
-----------------
this Agreement, any provision of this Agreement may be modified or supplemented
only by an instrument in writing signed by the Company, the Administrative Agent
and the Majority Banks, or by the Company and the Administrative Agent acting
with the consent of the Majority Banks, and any provision of this Agreement may
be waived by the Majority Banks or by the Administrative Agent acting with the
consent of the Majority Banks; provided that: (a) no modification, supplement
--------
or waiver shall, unless by an instrument signed by all of the Banks or by the
Administrative Agent acting with the consent of all of the Banks: (i) increase,
or extend the term of the Commitments, or extend the time or waive any
requirement for the reduction or termination of the Commitments, (ii) extend the
date fixed for the payment of principal of or interest on any Loan or any fee
hereunder, (iii) reduce the amount of any such payment of principal, (iv) reduce
the rate at which interest is payable thereon or any fee is payable hereunder,
(v) alter the rights or obligations of the Company to prepay Loans, (vi) alter
the manner in which payments or prepayments of principal, interest or other
amounts hereunder shall be applied as between the Banks or Types of Loans, (vii)
alter the terms of this Section 11.04 or any other provision of this Agreement
requiring consent of all Banks, (viii) modify the definition of the term
"Majority Banks", or modify in any other manner the number or percentage of the
Banks required to make any determinations or waive any rights hereunder or to
modify any provision hereof, or (ix) waive any of the conditions precedent set
forth in Section 6 hereof; and (b) any modification or supplement of Section 10
hereof shall require the consent of the Administrative Agent.
Anything in this Agreement to the contrary notwithstanding, if at a
time when the conditions precedent set forth in Section 6 hereof to any Loan
<PAGE>
hereunder are, in the opinion of the Majority Banks, satisfied, any Bank shall
fail to fulfill its obligations to make such Loan then, for so long as such
failure shall continue, such Bank shall (unless the Majority Banks, determined
as if such Bank were not a "Bank" hereunder, shall otherwise consent in writing)
be deemed solely for all purposes relating to amendments, modifications, waivers
or consents under this Agreement or any of the other Basic Documents (including,
without limitation, under this Section 11.04 and under Section 10.10 hereof) to
have no Loans or Commitment, shall not be treated as a "Bank" hereunder when
performing the computation of Majority Banks, and shall have no rights under the
preceding paragraph of this Section 11.04; provided that any action taken by the
other Banks with respect to the matters referred to in clause (a) of the
preceding paragraph shall not be effective as against such Bank.
11.05 Successors and Assigns. This Agreement shall be binding upon
-----------------------
and inure to the benefit of the parties hereto and their respective successors
and permitted assigns.
11.06 Assignments and Participations.
-------------------------------
(a) The Company may not assign any of its rights or obligations
hereunder or under the Notes without the prior consent of all of the Banks and
the Administrative Agent.
(b) Each Bank may assign any of its Loans, its Note, its Commitment
(but only with the consent of, in the case of its outstanding Commitment, the
Administrative Agent and, so long as no Default shall be continuing, the
Company, which consents shall not be unreasonably withheld); provided that (i)
--------
no such consent by the Company or the Administrative Agent shall be required in
the case of any assignment to another Bank (or a banking Affiliate of such
assigning Bank or any other Bank); (ii) any such partial assignment shall be in
an amount at least equal to $5,000,000; and (iii) each such assignment by a Bank
of its Loans, Note or Commitment shall be made in such manner so that the same
portion of its Loans, Note and Commitment is assigned to the respective
assignee. Upon execution and delivery by the assignee to the Company and the
Administrative Agent of an instrument in writing pursuant to which such assignee
agrees to become a "Bank" hereunder (if not already a Bank) having the
Commitment and Loans specified in such instrument, and upon consent thereto by
the Company and the Administrative Agent, to the extent required above, the
assignee shall have, to the extent of such assignment (unless otherwise provided
in such assignment with the consent of the Company and the Administrative Agent,
<PAGE>
the obligations, rights and benefits of a Bank hereunder holding the Commitment
and Loans (or portions thereof) assigned to it (in addition to the Commitment
and Loans, if any, theretofore held by such assignee) and the assigning Bank
shall, to the extent of such assignment, be released from the Commitment (or
portion thereof) so assigned. Upon each such assignment the assigning Bank
shall pay the Administrative Agent an assignment fee of $3,000.
(c) A Bank may sell or agree to sell to one or more other Persons a
participation in all or any part of any Loans held by it, or in its Commitment,
in which event each purchaser of a participation (a "Participant") shall be
-----------
entitled, to the extent necessary to comply with applicable banking laws and
regulations, to the rights and benefits of the provisions of Section 8.01(j)
hereof with respect to its participation in such Loans and Commitment as if (and
the Company shall be directly obligated to such Participant under such
provisions as if) such Participant were a "Bank" for purposes of said Section,
but, except as otherwise provided in Section 4.07(c) hereof, shall not have any
other rights or benefits under this Agreement or any Note or any other Basic
Document (the Participant's rights against such Bank in respect of such
participation to be those set forth in the agreements executed by such Bank in
favor of the Participant). All amounts payable by the Company to any Bank under
Section 5 hereof in respect of such Loans and Commitment shall be determined as
if such Bank had not sold or agreed to sell any participations in such Loans and
Commitment, and as if such Bank were funding each of such Loans and Commitment
in the same way that it is funding the portion of such Loans and Commitment in
which no participations have been sold. In no event shall a Bank that sells a
participation agree with the Participant to take or refrain from taking any
action hereunder or under any other Basic Document except that such Bank may
agree with the Participant that it will not, without the consent of the
Participant, agree to (i) increase or extend the term, or extend the time or
waive any requirement for the reduction or termination, of such Bank's
Commitment, (ii) extend the date fixed for the payment of principal of or
interest on the related Loan or Loans or any portion of any fee hereunder
payable to the Participant, (iii) reduce the amount of any such payment of
principal, (iv) reduce the rate at which interest is payable thereon, or any fee
hereunder payable to the Participant, to a level below the rate at which the
Participant is entitled to receive such interest or fee, (v) alter the rights or
obligations of the Company to prepay the related Loans or (vi) consent to any
modification, supplement or waiver hereof or of any of the other Basic Documents
<PAGE>
to the extent that the same, under Section 10.10 or 11.04 hereof, requires the
consent of each Bank.
(d) In addition to the assignments and participations permitted under
the foregoing provisions of this Section 11.06, any Bank may (without notice to
the Company, the Administrative Agent or any other Bank and without payment of
any fee) assign and pledge all or any portion of its Loans and its Note to any
Federal Reserve Bank as collateral security pursuant to Regulation A and any
Operating Circular issued by such Federal Reserve Bank. No such assignment
shall release the assigning Bank from its obligations hereunder.
(e) A Bank may furnish any information concerning the Company or any
of its Subsidiaries in the possession of such Bank from time to time to
assignees and participants (including prospective assignees and participants),
subject, however, to the provisions of Section 11.12(b) hereof.
(f) Anything in this Section 11.06 to the contrary notwithstanding,
no Bank may assign or participate any interest in any Loan held by it hereunder
to the Company or any of its Affiliates or Subsidiaries without the prior
written consent of each Bank.
11.07 Survival. The obligations of the Company under Sections 5.01,
---------
5.05, 5.06 and 11.03 hereof and the obligations of the Banks under Section 10.05
hereof shall survive the repayment of the Loans and the termination of the
Commitments. In addition, each representation and warranty made, or deemed to
be made by a notice of any Loan, herein or pursuant hereto shall survive the
making of such representation and warranty, and no Bank shall be deemed to have
waived, by reason of making any Loan hereunder, any Default that may arise by
reason of such representation or warranty proving to have been false or
misleading, notwithstanding that such Bank or the Administrative Agent may have
had notice or knowledge or reason to believe that such representation or
warranty was false or misleading at the time such Loan was made.
11.08 Captions. The table of contents and captions and section
---------
headings appearing herein are included solely for convenience of reference and
are not intended to affect the interpretation of any provision of this
Agreement.
11.09 Counterparts. This Agreement may be executed in any number of
-------------
counterparts, all of which taken together shall constitute one and the same
<PAGE>
instrument and any of the parties hereto may execute this Agreement by signing
any such counterpart.
11.10 Governing Law; Submission to Jurisdiction. This Agreement and
------------------------------------------
the Notes shall be governed by, and construed in accordance with, the law of the
State of New York. The Company hereby submits to the nonexclusive jurisdiction
of the United States District Court for the Southern District of New York and of
any New York state court sitting in New York City for the purposes of all legal
proceedings arising out of or relating to this Agreement or the transactions
contemplated hereby. The Company irrevocably waives, to the fullest extent
permitted by applicable law, any objection that it may now or hereafter have to
the laying of the venue of any such proceeding brought in such a court and any
claim that any such proceeding brought in such a court has been brought in an
inconvenient forum.
11.11 Waiver of Jury Trial. EACH OF THE COMPANY, THE ADMINISTRATIVE
---------------------
AGENT AND THE BANKS HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED
BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
11.12 Treatment of Certain Information; Confidentiality.
--------------------------------------------------
(a) The Company acknowledges that from time to time financial
advisory, investment banking and other services may be offered or provided to
the Company or one or more of its Subsidiaries (in connection with this
Agreement or otherwise) by any Bank or by one or more subsidiaries or affiliates
of such Bank and the Company hereby authorizes each Bank to share any
information delivered to such Bank by the Company and its Subsidiaries pursuant
to this Agreement, or in connection with the decision of such Bank to enter into
this Agreement, to any such subsidiary or affiliate, it being understood that
any such subsidiary or affiliate receiving such information shall be bound by
the provisions of Section 11.12(b) hereof as if it were a Bank hereunder. Such
authorization shall survive the repayment of the Loans and the termination of
the Commitments.
(b) Each Bank and the Administrative Agent agrees (on behalf of
itself and each of its affiliates, directors, officers, employees and
representatives) to use reasonable precautions to keep confidential, in
accordance with their customary procedures for handling confidential information
<PAGE>
of this nature and in accordance with safe and sound banking practices, any non-
public information supplied to it by the Company pursuant to this Agreement that
is identified by the Company as being confidential at the time the same is
delivered to the Banks or the Administrative Agent, provided that nothing herein
--------
shall limit the disclosure of any such information (i) after such information
shall have become public (other than through a violation of this Section 11.12),
(ii) to the extent required by statute, rule, regulation or judicial process,
(iii) to counsel for any of the Banks or the Administrative Agent, (iv) to bank
examiners (or any other regulatory authority having jurisdiction over any Bank
or the Administrative Agent), auditors or accountants, (v) to the Administrative
Agent or any other Bank (or to Chase Securities, Inc.), (vi) in connection with
any litigation to which any one or more of the Banks or the Administrative Agent
is a party, or in connection with the enforcement of rights or remedies
hereunder or under any other Basic Document, (vii) to a subsidiary or affiliate
of such Bank as provided in Section 11.12(a) hereof or (viii) to any assignee or
participant (or prospective assignee or participant) so long as such assignee or
participant (or prospective assignee or participant) first executes and delivers
to the respective Bank a Confidentiality Agreement substantially in the form of
Exhibit D hereto (or executes and delivers to such Bank an acknowledgement to
the effect that it is bound by the provisions of this Section 11.12(b), which
acknowledgement may be included as part of the respective assignment or
participation agreement pursuant to which such assignee or participant acquires
an interest in the Loans hereunder); provided, further, that in no event shall
-------- -------
any Bank or the Administrative Agent be obligated or required to return any
materials furnished by the Company. The obligations of any assignee that has
executed a Confidentiality Agreement in the form of Exhibit D hereto shall be
superseded by this Section 11.12 upon the date upon which such assignee becomes
a Bank hereunder pursuant to Section 11.06(b) hereof.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered as of the day and year first above written.
PROVIDENT COMPANIES, INC.
By /s/ George Shell
---------------------------------
Title: Treasurer
Address for Notices:
Provident Companies, Inc.
One Fountain Square
Chattanooga, TN 37402
Attention: Treasurer
Telecopier No.: (423) 755-1671
Telephone No.: (423) 755-1011
<PAGE>
BANKS
-----
Commitment THE CHASE MANHATTAN BANK
- ----------
$44,000,000
By /s/ Heather Lindstrom
---------------------------------
Title: Vice President
Lending Office for all Loans:
The Chase Manhattan Bank
1 Chase Manhattan Plaza
New York, New York 10081
Address for Notices:
The Chase Manhattan Bank
1 Chase Manhattan Plaza
New York, New York 10081
Attention: Dennis Cogan
Telecopier No.: (212) 552-1999
Telephone No.: (212) 552-4600
<PAGE>
Commitment AMSOUTH BANK OF ALABAMA
- ----------
$42,000,000
By /s/ John J. Hooker
---------------------------------
Title: Commercial Banking Officer
Lending Office for All Loans:
Amsouth Bank of Alabama
1900 5th Avenue North
Birmingham, AL 35203
Address for Notices:
Amsouth Bank of Alabama
1900 5th Avenue North
Birmingham, AL 35203
Attention: John J. Hooker
Telecopier No.: (205) 326-5601
Telephone No.: (205) 307-4139
<PAGE>
Commitment THE FIRST NATIONAL BANK OF CHICAGO
- ----------
$42,000,000
By /s/ Paul T. Schultz
---------------------------------
Title: Managing Director
Lending Office for All Loans:
The First National Bank of Chicago
One First National Plaza
Suite 0085
Chicago, IL 60670-0085
Address for Notices:
The First National Bank of Chicago
One First National Plaza
Suite 0085
Chicago, IL 60670-0085
Attention: Paul T. Schultz
Telecopier No.: (312) 732-4033
Telephone No.: (312) 732-7074
<PAGE>
Commitment FIRST UNION NATIONAL BANK OF
- ----------
NORTH CAROLINA
$42,000,000
By /s/ James M. Kipp
---------------------------------
Title: Senior Vice President
Lending Office for All Loans:
First Union National Bank of
North Carolina
301 S. College Street, DC-5
Charlotte, NC 28288-0735
Address for Notices:
First Union National Bank of
North Carolina
301 S. College Street, DC-5
Charlotte, NC 28288-0735
Attention: Robert Mayer
Telex No.: 684-3115/Funcha
Telecopier No.: (704) 383-9144
Telephone No.: (704) 374-6628
<PAGE>
Commitment FLEET NATIONAL BANK
- ----------
$42,000,000
By /s/ Thomas E. McKinlay
---------------------------------
Title: Senior Vice President
Lending Office for All Loans:
Fleet National Bank
777 Main Street
Ins. Industry CJ/MO/0250
Hartford, CT 06115
Address for Notices:
Fleet National Bank
777 Main Street
Ins. Industry CJ/MO/0250
Hartford, CT 06115
Attention: Thomas McKinlay
Telecopier No.: (860) 986-1094
Telephone No.: (860) 986-4139
<PAGE>
Commitment MELLON BANK, N.A.
- ----------
$42,000,000
By /s/ Timothy J. Marchando
---------------------------------
Title: Assistant Vice President
Lending Office for All Loans:
Mellon Bank, N.A.
Three Mellon Bank Center
Room 2302
Pittsburgh, PA 15230
Address for Notices:
Mellon Bank, N.A.
One Mellon Bank Center
Room 370
Pittsburgh, PA 15258-0001
Attention: Timothy J. Marchando
Telecopier No.: (412) 234-8087
Telephone No.: (412) 234-7922
<PAGE>
Commitment ROYAL BANK OF CANADA
- ----------
$42,000,000
By /s/ Yvonne J. Bernard
---------------------------------
Title: Manager
Lending Office for All Loans:
Royal Bank of Canada
One Financial Square - 23rd Floor
New York, NY 10005-3531
Address for Notices:
Royal Bank of Canada
One Financial Square - 24th Floor
New York, NY 10005-3531
Attention: Gary Overton
Telecopier No.: (212) 809-7468
Telephone No.: (212) 428-6277
<PAGE>
Commitment SUNTRUST BANK, Atlanta
- ----------
$42,000,000
By /s/ Frank R. Callison
---------------------------------
Title: Vice President
Lending Office for All Loans:
SunTrust Bank
Mail Code 118
P.O. Box 4418
Atlanta, GA 30302
Address for Notices:
SunTrust Bank
Mail Code 118
P.O. Box 4418
Atlanta, GA 30302
Attention: Frank R. Callison
Telecopier No.: (404) 588-8066
Telephone No.: (404) 658-4905
<PAGE>
Commitment BANK OF MONTREAL
- ----------
$30,000,000
By /s/ J. Donald Higgins
---------------------------------
Title: Managing Director
Lending Office for All Loans:
Bank of Montreal
115 S. LaSalle
12th Floor - West
Chicago, IL 60603
Address for Notices:
Bank of Montreal
115 S. LaSalle
12th Floor - West
Chicago, IL 60603
Attention: Bruce Cox
Telecopier No.: (312) 750-4352
Telephone No.: (312) 750-3891
<PAGE>
Commitment BANK OF TOKYO-MITSUBISHI
- ----------
TRUST COMPANY
$30,000,000
By /s/ Dane E. Holmes
---------------------------------
Title: Attorney-In-Fact
Lending Office for All Loans:
Bank of Tokyo-Mitsubishi
Trust Company
1251 Avenue of the Americas
12th Floor
New York, NY 10020-1104
Address for Notices:
Bank of Tokyo-Mitsubishi
Trust Company
1251 Avenue of the Americas
12th Floor
New York, NY 10020-1104
Attention: Dane E. Holmes
Telecopier No.: (212) 782-4935
Telephone No.: (212) 782-4354
<PAGE>
Commitment DEUTSCHE BANK AG, New York
- ----------
and/or Cayman Islands Branches
$30,000,000
By /s/ Louis Caltavuturo
---------------------------------
Title: Associate
By /s/ Eckhard Osenberg
---------------------------------
Title: Assistant Vice President
Lending Office for Base Rate Loans:
Deutsche Bank AG
New York Branch
31 West 52nd Street
New York, NY 10019
Lending Office for Eurodollar Loans:
Deutsche Bank AG
Cayman Islands Branch
31 West 52nd Street
New York, NY 10019
Address for Notices:
Deutsche Bank AG
New York Branch
31 West 52nd Street
New York, NY 10019
Attention: CFS, Cheryl Mandelbaum
Telex No.: 429166/DEUT BK NY
Telecopier No.: (212) 469-7880
Telephone No.: (212) 469-8426
<PAGE>
Commitment DRESDNER BANK A.G. New York Branch
- ----------
and Grand Cayman Branch
$30,000,000
By /s/ Lloyd C. Stevens
---------------------------------
Title: Assistant Vice President
By /s/ Latisha Azweem
---------------------------------
Title: Assistant Treasurer
Lending Office for Base Rate Loans:
Dresdner Bank A.G.
New York Branch
75 Wall Street
New York, New York 10005-2889
Lending Office for Eurodollar Loans:
Dresdner Bank A.G.
Grand Cayman Branch
75 Wall Street
New York, New York 10005-2889
Address for Notices:
Dresdner Bank A.G.
New York Branch
75 Wall Street
New York, New York 10005-2889
Attention: Lora Lam
Telex No.: 421 750 DRESUZ
Telecopier No.: (212) 429-2130
Telephone No.: (212) 429-2288
<PAGE>
Commitment NATIONSBANK, N.A. (South)
- ----------
$30,000,000
By /s/ William R. Herrell
---------------------------------
Title: Officer
Lending Office for All Loans:
NationsBank, N.A.
101 N. Tryon Street
Charlotte, NC 28255
Address for Notices:
NationsBank, N.A.
101 N. Tryon Street
Charlotte, NC 28255
Attention: Cathy Matthews
Telecopier No.: (704) 386-8694
Telephone No.: (704) 388-1110
<PAGE>
Commitment THE SANWA BANK, LIMITED
- ----------
Atlanta Agency
$30,000,000
By /s/ Shelley Browne
---------------------------------
Title: President
Lending Office for All Loans:
The Sanwa Bank, Limited
55 E. 52nd Street
New York, New York 10055
Address for Notices:
The Sanwa Bank, Limited
55 E. 52nd Street
New York, New York 10055
Attention: Ms. Renka Hara
Telex No.: 4611830
Telecopier No.: (212) 754-2368
Telephone No.: (212) 339-6390
<PAGE>
Commitment THE BANK OF NOVA SCOTIA
- ----------
$30,000,000
By /s/ P.M. Brown
---------------------------------
Title: Relationship Manager
Lending Office for All Loans:
The Bank of Nova Scotia
600 Peachtree St., N.E.
Suite 2700
Atlanta, GA 30308
Address for Notices:
The Bank of Nova Scotia
600 Peachtree St., N.E.
Suite 2700
Atlanta, GA 30308
Attention: Patrick M. Brown
Telex No.: 542319/Scotiabk Atl
Telecopier No.: (404) 888-8998
Telephone No.: (404) 877-1506
<PAGE>
Commitment THE SUMITOMO BANK, LIMITED,
- ----------
Atlanta Agency
$30,000,000
By /s/ Masayuki Fukushima
---------------------------------
Title: Joint General Manager
Lending Office for All Loans:
The Sumitomo Bank, Limited
Atlanta Agency
133 Peachtree Street
Suite 3210
Atlanta, Georgia 30303
Address for Notices:
The Sumitomo Bank, Limited
Atlanta Agency
133 Peachtree Street
Suite 3210
Atlanta, Georgia 30303
Attention: Tom Lawson
Telecopier No.: (404) 523-0547
Telephone No.: (404) 526-8513
<PAGE>
Commitment ABN AMRO BANK N.V., New York Branch
- ----------
$20,000,000
By /s/ Parker H. Douglas
---------------------------------
Title: Group Vice President
By /s/ David W. Eastep
---------------------------------
Title: Assistant Vice President
Lending Office for All Loans:
ABN Amro Bank N.V.
500 Park Avenue
New York, New York 10022
Address for Notices:
ABN Amro Bank N.V.
500 Park Avenue
New York, New York 10022
Attention: Victor J. Fennon
Telex No.: 423-721 amro ur
Telecopier No.: (212) 446-4335
Telephone No.: (212) 446-4230
<PAGE>
Commitment BANQUE NATIONALE DE PARIS
- ----------
$20,000,000
By /s/ Phil Truesdale
---------------------------------
Title: Vice President
By /s/ Barry S. Feigenbaum
---------------------------------
Title: Senior Vice President
Lending Office for All Loans:
Banque Nationale De Paris
499 Park Avenue
New York, New York 10022
Address for Notices:
Banque Nationale De Paris
499 Park Avenue
New York, New York 10022
Attention: Phil Truesdale
Telex No.: 824209
Telecopier No.: (212) 415-9695
Telephone No.: (212) 415-9719
<PAGE>
Commitment CREDIT LYONNAIS New York Branch
- ----------
$20,000,000
By /s/ Renaud d'Herbes
---------------------------------
Title: Senior Vice President
Lending Office for All Loans:
Credit Lyonnais New York Branch
1301 Avenue of Americas
New York, New York 10019
Address for Notices:
Credit Lyonnais New York Branch
1301 Avenue of Americas
New York, New York 10019
Attention: Peter Rasmussen
Telex No.: 62410 YLRC
Telecopier No.: (212) 261-3401
Telephone No.: (212) 261-7710
<PAGE>
Commitment THE DAI-ICHI KANGYO BANK, LIMITED
- ----------
Atlanta Agency
$20,000,000
By /s/ Takao Mochizuki
---------------------------------
Title: General Manager
Lending Office for All Loans:
The Dai-Ichi Kangyo Bank, Limited
Marquis Two Tower, Suite 2400
285 Peachtree Center Avenue, N.E.
Atlanta, Georgia 30303
Address for Notices:
The Dai-Ichi Kangyo Bank, Limited
Marquis Two Tower, Suite 2400
285 Peachtree Center Avenue, N.E.
Atlanta, Georgia 30303
Attention: Michael L. Turner
Telex No.: 544173
Telecopier No.: (404) 222-9657
Telephone No.: (404) 581-0200
<PAGE>
Commitment PNC BANK, N.A.
$20,000,000
By /s/ Eileen McDonald
---------------------------------
Title: Assistant Vice President
Lending Office for All Loans:
PNC Bank, N.A.
2 Tower Center
East Brunswick, NJ 08816
Address for Notices:
PNC Bank, N.A.
2 Tower Center
East Brunswick, NJ 08816
Attention: Eileen M. McDonald
Telecopier No.: (908) 220-3270
Telephone No.: (908) 220-3265
<PAGE>
Commitment THE SAKURA BANK, LIMITED,
- ----------
Atlanta Agency
$20,000,000
By /s/ Hiroyasu Imanishi
---------------------------------
Title: Vice President
and Senior Manager
Lending Office for All Loans:
The Sakura Bank, Limited
245 Peachtree Center Avenue, N.E.
Suite 2703
Atlanta, Georgia 30303
Address for Notices:
The Sakura Bank, Limited
245 Peachtree Center Avenue, N.E.
Suite 2703
Atlanta, Georgia 30303
Attention: Charles S. Zimmerman
Telecopier No.: (404) 521-1133
Telephone No.: (404) 521-3111
<PAGE>
Commitment SOCIETE GENERALE, New York Branch
- ----------
$20,000,000
By /s/ Laura A. Hope
---------------------------------
Title: Vice President
Lending Office for All Loans:
Societe Generale
1221 Avenue of the Americas
New York, New York 10020
Address for Notices:
Societe Generale
1221 Avenue of the Americas
New York, New York 10020
Attention: Lisa Kim
Telex No.: 428802
Telecopier No.: (212) 278-7153
Telephone No.: (212) 278-6850
<PAGE>
Commitment STATE STREET BANK & TRUST COMPANY
- ----------
$20,000,000
By /s/ Edward M. Anderson
---------------------------------
Title: Vice President
Lending Office for All Loans:
State Street Bank & Trust Company
108 Myrtle Street
No. Quincy, MA 02171
Credit Services AH-2
Address for Notices:
State Street Bank & Trust Company
108 Myrtle Street
No. Quincy, MA 02171
Credit Services AH-2
Attention: Edward M. Anderson
Telecopier No.: (617) 985-2176
Telephone No.: (617) 985-5301
<PAGE>
Commitment WACHOVIA BANK OF GEORGIA, N.A.
- ----------
$42,000,000
By /s/ Karin E. Reel
---------------------------------
Title: Banking Officer
Lending Office for All Loans:
Wachovia Bank of Georgia, N.A.
191 Peachtree St., NE
MC GA-3940
Atlanta, GA 30303
Address for Notices:
Wachovia Bank of Georgia, N.A.
191 Peachtree St., NE
MC GA-3940
Atlanta, GA 30303
Attention: Karin Reel
Telecopier No.: (404) 332-5016
Telephone No.: (404) 332-5187
<PAGE>
Commitment FUJI BANK, LIMITED, Atlanta Agency
- ----------
$20,000,000
By /s/ Toshihiro Mitsui
---------------------------------
Title: Vice President and Manager
Lending Office for All Loans:
Fuji Bank, Limited, Atlanta Agency
Marquis One Tower
245 Peachtree Center Ave. NE
Suite 2100
Atlanta, GA 30303
Address for Notices:
Fuji Bank, Limited, Atlanta Agency
Marquis One Tower
245 Peachtree Center Ave. NE
Suite 2100
Atlanta, GA 30303
Attention: Eddie Hunter
Telecopier No.: (404) 653-2119
Telephone No.: (404) 653-3133
<PAGE>
THE CHASE MANHATTAN BANK,
as Administrative Agent
By /s/ Heather Lindstrom
---------------------------------
Title: Vice President
Address for Notices to
Chase as Administrative Agent:
The Chase Manhattan Bank
4 Chase MetroTech Center
13th Floor
Brooklyn, New York 11245
Attention: Laura Rebecca
New York Agency
Telex No.: 6720516
(Answerback: CMB NYA UW)
Telecopier No.: (718) 242-6909
<PAGE>
SCHEDULE III
Investment Companies
--------------------
[To be supplied, if applicable]
<PAGE>
EXHIBIT A
[Form of Note]
PROMISSORY NOTE
$ _______________ July __, 1996
New York, New York
FOR VALUE RECEIVED, PROVIDENT COMPANIES, INC., a Delaware corporation
(the "Company"), hereby promises to pay to __________________ (the "Bank"), for
------- ----
account of its respective Applicable Lending Offices provided for by the Credit
Agreement referred to below, at the principal office of The Chase Manhattan Bank
at 1 Chase Manhattan Plaza, New York, New York 10081, the principal sum of
_______________ Dollars (or such lesser amount as shall equal the aggregate
unpaid principal amount of the Loans made by the Bank to the Company under the
Credit Agreement), in lawful money of the United States of America and in
immediately available funds, on the dates and in the principal amounts provided
in the Credit Agreement, and to pay interest on the unpaid principal amount of
each such Loan, at such office, in like money and funds, for the period
commencing on the date of such Loan until such Loan shall be paid in full, at
the rates per annum and on the dates provided in the Credit Agreement.
The date, amount, Type, interest rate and duration of Interest Period
(if applicable) of each Loan made by the Bank to the Company, and each payment
made on account of the principal thereof, shall be recorded by the Bank on its
books and, prior to any transfer of this Note, endorsed by the Bank on the
schedule attached hereto or any continuation thereof, provided that the failure
--------
of the Bank to make any such recordation or endorsement shall not affect the
obligations of the Company to make a payment when due of any amount owing under
the Credit Agreement or hereunder in respect of the Loans made by the Bank.
This Note is one of the Notes referred to in the Credit Agreement
dated as of July 30, 1996 (as modified and supplemented and in effect from time
to time, the "Credit Agreement") between the Company, the lenders named therein
----------------
and The Chase Manhattan Bank, as Administrative Agent, and evidences Loans made
by the Bank thereunder. Terms used but not defined in this Note have the
respective meanings assigned to them in the Credit Agreement.
<PAGE>
The Credit Agreement provides for the acceleration of the maturity of
this Note upon the occurrence of certain events and for prepayments of Loans
upon the terms and conditions specified therein.
Except as permitted by Section 11.06(b) of the Credit Agreement, this
Note may not be assigned by the Bank to any other Person.
This Note shall be governed by, and construed in accordance with, the
law of the State of New York.
PROVIDENT COMPANIES, INC.
By_________________________
Title:
<PAGE>
SCHEDULE OF LOANS
This Note evidences Loans made, Continued or Converted under the
within-described Credit Agreement to the Company, on the dates, in the principal
amounts, of the Types, bearing interest at the rates and having Interest Periods
(if applicable) of the durations set forth below, subject to the payments,
Continuations, Conversions and prepayments of principal set forth below:
<TABLE>
<CAPTION>
Amount
Date Prin- Paid,
Made, cipal Duration Prepaid, Unpaid
Continued Amount Type of Continued Prin-
or of of Interest Interest or cipal Notation
Converted Loan Loan Rate Period Converted Amount Made by
- ----------- ------ ---- -------- -------- --------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
<PAGE>
EXHIBIT B
[Form of Opinion of Counsel to the Company]
July ___, 1996
To: The Banks party to the Credit Agreement referred to
below and The Chase Manhattan Bank, as Administrative Agent
Ladies and Gentlemen:
I am Vice President-General Counsel of Provident Companies, Inc., a
corporation organized under the laws of the State of Delaware (the "Company") in
-------
connection with the Credit Agreement dated as of July 30, 1996 (the "Credit
------
Agreement") among the Company, the financial institutions named therein and The
- ---------
Chase Manhattan Bank, as Administrative Agent, providing for loans to be made by
said banks to the Company in an aggregate principal amount not exceeding
$800,000,000 at any one time outstanding. Terms defined in the Credit Agreement
are used herein as defined therein. As used herein, the term "Loan Documents"
refers, collectively, to the Credit Agreement and the Notes.
In rendering the opinions expressed below, I have examined:
(i) the Credit Agreement;
(ii) the Notes; and
(iii) such corporate records of the Company and such other documents
as I have deemed necessary as a basis for the opinions expressed
below.
In my examination, I have assumed the genuineness of all signatures, the
authenticity of all documents submitted to me as originals and the conformity
with authentic original documents of all documents submitted to me as copies.
When relevant facts were not independently established, I have relied upon
statements of governmental officials and upon representations made in or
pursuant to the Loan Documents and certificates of appropriate representatives
of the Company.
In rendering the opinions expressed below, I have assumed, with
respect to all of the documents referred to in this opinion letter, that
(except, to the extent set forth in the opinions expressed below, as to the
Company):
<PAGE>
(i) such documents have been duly authorized by, have been duly
executed and delivered by, and constitute legal, valid, binding
and enforceable obligations of, all of the parties to such
documents;
(ii) all signatories to such documents have been duly authorized; and
(iii) all of the parties to such documents are duly organized and
validly existing and have the power and authority (corporate or
other) to execute, deliver and perform such documents.
Based upon and subject to the foregoing and subject to the comments
and qualifications set forth below, I am of the opinion that:
1. The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. To my knowledge, no
governmental authority has asserted that the Company or any Subsidiary is
required to be licensed or qualified in any foreign jurisdiction in which
the Company or such Subsidiary is not now licensed or qualified.
2. The Company has all requisite corporate power to execute and deliver,
and to perform its obligations under, the Credit Agreement, the Notes and
the Purchase Agreement and to borrow under the Credit Agreement.
3. The execution, delivery and performance by the Company of the Credit
Agreement, the borrowings under the Credit Agreement and the consummation
of the Acquisition (i) have been duly authorized by all necessary corporate
action on the part of the Company and (ii) do not and will not (a) violate
any provision of the charter or by-laws of the Company, (b) violate any
applicable law, rule or regulation, (c) violate any order, writ, injunction
or decree of any court or governmental authority or agency or any arbitral
award applicable to the Company or any of its Subsidiaries of which I have
knowledge (after due inquiry) or (d) result in a breach of, constitute a
default under, require any consent under, or result in the acceleration or
required prepayment of any indebtedness pursuant to the terms of, any
agreement or instrument of which I have knowledge (after due inquiry) to
which the Company or any of its Subsidiaries is a party or by which any of
<PAGE>
them is bound or to which any of them is subject, or result in the creation
or imposition of any Lien upon any Property of the Company or any of its
Subsidiaries pursuant to the terms of any such agreement or instrument.
4. Each of the Loan Documents (assuming, in the case of the Notes,
execution and delivery thereof for value) and the Purchase Agreement
constitutes the legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except as may
be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting the rights of creditors generally and
except as the enforceability of the Loan Documents is subject to the
application of general principles of equity (regardless of whether
considered in a proceeding in equity or at law), including, without
limitation, (a) the possible unavailability of specific performance,
injunctive relief or any other equitable remedy and (b) concepts of
materiality, reasonableness, good faith and fair dealing.
5. Except for [list], each of which is in full force and effect, no
authorization, approval or consent of, and no filing or registration with,
any governmental or regulatory authority or agency of the United States of
America or the States of Delaware or Tennessee is required on the part of
the Company for the execution, delivery or performance by the Company of
the Loan Documents or the Purchase Agreement.
6. I have no knowledge (after due inquiry) of any legal or arbitral
proceedings, or any proceedings by or before any governmental or regulatory
authority or agency, now pending or threatened against the Company or any
of its Subsidiaries or any of their respective Properties that, if
adversely determined, could have a Material Adverse Effect.
7. Under the law of the State of Tennessee, a foreign corporation is not
required solely as a lender holding Indebtedness, to procure a certificate
of authority to transact business or otherwise qualify to do business. As
such, neither the Administrative Agent nor any of the Banks, solely by
reason of the making of the extensions of credit contemplated by the Credit
Agreement, will (a) be required to qualify to do business in the State of
Tennessee or to comply with the requirements of any foreign registration or
qualification statute of the State of Tennessee, (b) be subject to taxation
<PAGE>
by the State of Tennessee or any political subdivision of said State or (c)
be required to make any filing with any court or other judicial
administrative body in or of the State of Tennessee preceding enforcement
in order to carry out any of the transactions contemplated by the Credit
Agreement or to avail itself of any of the remedies provided by the Credit
Agreement.
The foregoing opinions are subject to the following comments and
qualifications:
A. The enforceability of Section 11.03 of the Credit Agreement may be
limited by laws rendering unenforceable indemnification contrary to Federal
or state securities laws and the public policy underlying such laws.
B. The enforceability of provisions in the Credit Agreement to the effect
that terms may not be waived or modified except in writing may be limited
under certain circumstances.
C. I express no opinion as to (i) the effect of the laws of any
jurisdiction in which any Bank is located (other than Tennessee) that limit
the interest, fees or other charges such Bank may impose, (ii) Section
4.07(c) of the Credit Agreement and (iii) the second sentence of Section
11.10 of the Credit Agreement, insofar as such sentence relates to the
subject matter jurisdiction of the United States District Court for the
Southern District of New York to adjudicate any controversy related to the
Loan Documents.
The foregoing opinions are limited to matters involving the Federal
laws of the United States, the Delaware General Corporation Law and the law of
the State of Tennessee and I do not express any opinion as to the laws of any
other jurisdiction.
This opinion letter is, pursuant to Section 6.01(c) of the Credit
Agreement, provided to you by me in my capacity as counsel to the Company and
may not be relied upon by any Person for any purpose other than in connection
with the transactions contemplated by the Credit Agreement without, in each
instance, my prior written consent.
Very truly yours,
<PAGE>
EXHIBIT C
[Form of Opinion of Special New York Counsel to the Banks]
July __, 1996
To: The Banks party to the Credit Agreement referred to below and The Chase
Manhattan Bank, as Administrative Agent
Ladies and Gentlemen:
We have acted as special New York counsel to the Banks in connection with
the Credit Agreement (the "Credit Agreement") dated as of July 30, 1996, between
----------------
Provident Companies, Inc. (the "Company"), the financial institutions named
-------
therein and The Chase Manhattan Bank, as Administrative Agent, providing for
loans to be made by said banks to the Company in an aggregate principal amount
not exceeding $800,000,000 at any one time outstanding. Terms defined in the
Credit Agreement are used herein as defined therein.
We have assumed for purposes of our opinion hereinafter set forth that
the Credit Agreement has been duly authorized, executed and delivered by the
Company, each Bank and the Administrative Agent, and that the Company is duly
incorporated and validly existing under the laws of Delaware and has full power,
authority and legal right to make and perform the Credit Agreement and the
Notes.
We have examined originals or copies authenticated to our satisfaction of
all such corporate records of the Company, agreements and other instruments,
certificates of public officials and of officers and representatives of the
Company and other documents, as we have deemed necessary in connection with the
opinions hereinafter expressed. In such examination we have assumed the
genuineness of all signatures, the authenticity of documents submitted to us as
originals, the conformity with the originals of all documents submitted to us as
certified or photostatic copies, and the authenticity of the originals of such
latter documents. As to questions of fact material to such opinions we have,
when relevant facts were not independently established, relied upon
representations and certificates of the Company and its officers.
<PAGE>
Based upon the foregoing and subject to the comments and qualifications
set forth below, we are of the opinion that the Credit Agreement constitutes,
and the Notes when executed and delivered for value will constitute, valid and
binding obligations of the Company enforceable in accordance with their
respective terms, except as such enforceability may be limited by (a)
bankruptcy, insolvency, reorganization, moratorium or other similar laws of
general applicability affecting the enforcement of creditors' rights and (b) the
application of general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law), and except
that we express no opinion as to (i) Section 4.07(c) of the Credit Agreement,
(ii) the effect of the law of any jurisdiction (other than the State of New
York) wherein any Bank (including any of its Applicable Lending Offices) may be
located which limits rates of interest which may be charged or collected by such
Bank, (iii) whether a Federal or state court outside of the State of New York
would give effect to the choice of New York law provided for in the Credit
Agreement and the Notes, (iv) the second sentence of Section 11.10 of the Credit
Agreement, insofar as such sentence relates to the subject matter jurisdiction
of the United States District Court for the Southern District of New York to
adjudicate any controversy related to the Credit Agreement or the Notes, (v) the
waiver of inconvenient forum set forth in Section 11.10 of the Credit Agreement
with respect to proceedings in the United States District Court for the Southern
District of New York or (vi) Section 11.11 of the Credit Agreement.
In connection with the above, we wish to point out that provisions of the
Credit Agreement which permit the Administrative Agent or any Bank to take
action or make determinations, or to benefit from indemnities and similar
undertakings of the Company, may be subject to a requirement that such action be
taken or such determinations be made, and that any action or inaction by the
Administrative Agent or a Bank which may give rise to a request for payment
under such an undertaking be taken or not taken, on a reasonable basis and in
good faith.
We are members of the bar of the State of New York and we do not herein
intend to express any opinion as to any matters governed by any laws other than
the law of the State of New York and the Federal law of the United States of
America.
Very truly yours,
<PAGE>
EXHIBIT D
[Form of Confidentiality Agreement]
CONFIDENTIALITY AGREEMENT
[Date]
[Insert Name and
Address of Prospective
Participant or Assignee]
Re: Credit Agreement dated as of July 30, 1996, between Provident
Companies, Inc. (the "Company"), the financial institutions named
-------
therein and The Chase Manhattan Bank, as Administrative Agent.
Dear _____________:
As a Bank party to the above-referenced Credit Agreement (the "Credit
------
Agreement"), we have agreed with Provident Companies, Inc. (the "Company")
- --------- -------
pursuant to Section 11.12 of the Credit Agreement to use reasonable precautions
to keep confidential, except as otherwise provided therein, all non-public
information identified by the Company as being confidential at the time the same
is delivered to us pursuant to the Credit Agreement.
As provided in said Section 11.12, we are permitted to provide you, as a
prospective [holder of a participation in the Loans (as defined in the Credit
Agreement)][assignee Bank], with certain of such non-public information subject
to the execution and delivery by you, prior to receiving such non-public
information, of a Confidentiality Agreement in this form. Such information
will not be made available to you until your execution and return to us of this
Confidentiality Agreement.
Accordingly, in consideration of the foregoing, you agree (on behalf of
yourself and each of your affiliates, directors, officers, employees and
representatives) that (A) such information will not be used by you except in
connection with the proposed [participation] [assignment] mentioned above and
(B) you shall use reasonable precautions, in accordance with your customary
procedures for handling confidential information and in accordance with safe and
sound banking practices, to keep such information confidential, provided that
<PAGE>
nothing herein shall limit the disclosure of any such information (i) to the
extent required by statute, rule, regulation or judicial process, (ii) to your
counsel or to counsel for any of the Banks or the Administrative Agent, (iii) to
bank examiners, auditors or accountants, (iv) to the Administrative Agent or any
other Bank (or to Chase Securities, Inc.), (v) in connection with any litigation
to which you or any one or more of the Banks or the Administrative Agent are a
party, (vi) to a subsidiary or affiliate of yours as provided in Section
11.12(a) of the Credit Agreement or (vii) to any assignee or participant (or
prospective assignee or participant) so long as such assignee or participant (or
prospective assignee or participant) first executes and delivers to you a
Confidentiality Agreement substantially in the form hereof, and provided further
that in no event shall you be obligated to return any materials furnished to you
pursuant to this Confidentiality Agreement.
Would you please indicate your agreement to the foregoing by signing at
the place provided below the enclosed copy of this Confidentiality Agreement.
Very truly yours,
[Insert Name of Bank]
By ______________________________
The foregoing is
agreed to as of the
date of this letter
[Insert name of
prospective
participant or
assignee]
By
<PAGE>
Exhibit (10.15)
Amended and Restated Common Stock Purchase Agreement
between Provident Companies, Inc.
and Zurich Insurance Company dated as of May 31, 1996
(attached)
<PAGE>
AMENDED AND RESTATED
COMMON STOCK
PURCHASE AGREEMENT
between
PROVIDENT COMPANIES, INC.
and
ZURICH INSURANCE COMPANY
Dated as of May 31, 1996
<PAGE>
TABLE OF CONTENTS
Page
SECTION 1. THE SHARES...................................................... 2
Section 1.1. Issuance, Sale and Purchase of the Shares.......... 2
Section 1.2. Closing............................................ 2
Section 1.3. Further Action..................................... 2
Section 1.4. Anti-Dilution Provisions........................... 2
SECTION 2. REPRESENTATIONS AND WARRANTIES.................................. 3
Section 2.1. Representations and Warranties of the Company...... 3
Section 2.1.1. Organization, Good Standing and Qualification...... 3
Section 2.1.2. Authorization, Enforceability...................... 4
Section 2.1.3. No Conflict........................................ 4
Section 2.1.4. Capitalization..................................... 5
Section 2.1.5. Valid Issuance of Securities....................... 6
Section 2.1.6. Litigation......................................... 6
Section 2.1.7. Consents........................................... 6
Section 2.1.8. Compliance with Law and Other Instruments.......... 7
Section 2.1.9. SEC Documents; Financial Statements................ 7
Section 2.1.10. Absence of Certain Changes or Events............... 9
Section 2.1.11. No Regulatory Disqualifications.................... 9
Section 2.1.12. Registration Rights................................ 9
Section 2.1.13. Acquisition Agreements............................. 9
Section 2.1.14. Rating Agency......................................10
Section 2.1.15. Brokers............................................10
Section 2.1.16. Environmental Protection...........................10
Section 2.1.17. Delaware Law.......................................11
Section 2.1.18. Incorporation of Representations and Warranties
from the Merger Agreement........................11
Section 2.2. Representations, Warranties and Covenants
of the Purchaser ................................12
Section 2.2.1. Organization.......................................12
Section 2.2.2. Authorization......................................12
Section 2.2.3. Purchase for Investment............................12
Section 2.2.4. Restricted Securities..............................12
<PAGE>
Section 2.2.5. No Regulatory Disqualifications....................13
Section 2.2.6. Purchaser Information..............................13
Section 2.2.7. Consents...........................................13
Section 2.2.8. Brokers............................................14
SECTION 3. CERTAIN AGREEMENTS OF THE PARTIES...............................14
Section 3.1. Conduct of Business of the Company.................14
Section 3.2. Covenants of the Purchaser.........................16
Section 3.3. Proxy Statement; Stockholder Approval..............17
Section 3.4. Approvals, Etc.....................................17
Section 3.5. Exclusivity........................................17
Section 3.6. Publicity .........................................17
Section 3.7. Modification of Other Agreements...................17
Section 3.8. Exchange Listing...................................18
Section 3.9. Investigation and Confidentiality..................18
Section 3.10. State Takeover Laws; Charter Provisions............18
Section 3.11. Use of Proceeds....................................19
Section 3.12. Marketing Agreement................................19
Section 3.13. Restrictive Agreements Prohibited..................19
SECTION 4. CLOSING CONDITIONS .............................................19
Section 4.1. Conditions to Obligation of Purchaser..............19
Section 4.1.1. Representations and Warranties Complete
and Correct......................................19
Section 4.1.2. Compliance with this Agreement.....................19
Section 4.1.3. Officers' Certificate..............................19
Section 4.1.4. Consents; Etc......................................20
Section 4.1.5. Supporting Documents...............................20
Section 4.1.6. HSR Act............................................20
Section 4.1.7. Merger Closing.....................................20
Section 4.1.8. Other Agreements...................................20
Section 4.1.9. Material Adverse Change............................21
Section 4.1.10. Illegality, Etc....................................21
Section 4.1.11. Stockholder Approval...............................21
Section 4.1.12. Exchange Listing...................................21
Section 4.1.13. Financing of Cash Payments in Merger...............21
Section 4.1.14. Maclellan Family Agreement.........................21
Section 4.1.15. Legal Opinions ....................................21
<PAGE>
Section 4.2. Conditions to the Obligations of the Company.......21
Section 4.2.1. Compliance with the Agreement......................22
Section 4.2.2. Purchaser's Representations and Warranties
Complete and Correct.............................22
Section 4.2.3. Officer's Certificate..............................22
Section 4.2.4. Consents; Etc......................................22
Section 4.2.5. HSR Act............................................22
Section 4.2.6. Merger Closing.....................................22
Section 4.2.7. Illegality, Etc....................................22
Section 4.2.8. Stockholder Approval...............................22
Section 4.2.9. Exchange Listing...................................23
Section 4.2.10. Financing of Cash Payments in Merger...............23
Section 4.2.11. Legal Opinions.....................................23
SECTION 5. TERMINATION ....................................................23
Section 5.1. Termination........................................23
Section 5.2. Effect of Termination..............................24
Section 5.3. Termination Fee....................................24
SECTION 6. MISCELLANEOUS...................................................24
Section 6.1. Expenses and Indemnification.......................24
Section 6.2. Survival of Agreements.............................26
Section 6.3. Parties in Interest................................26
Section 6.4. Notices............................................26
Section 6.5. Governing Law......................................27
Section 6.6. Entire Agreement...................................27
Section 6.7. Counterparts.......................................27
Section 6.8. Amendments.........................................27
Section 6.9. Severability.......................................28
Section 6.10. Titles and Subtitles...............................28
Section 6.11. Further Assurances.................................28
Exhibit 1 Terms for Marketing Agreement
Exhibit 2 Certificate of Incorporation
Exhibit 3 By-laws
Exhibit 4 Amended and Restated Family
Stockholders Agreement
Exhibit 5 Form of Opinion of Company Counsel
Exhibit 6 Form of Opinion of Purchaser's
Counsel
<PAGE>
AMENDED AND RESTATED COMMON STOCK PURCHASE AGREEMENT
dated as of May 31, 1996 between Provident Companies, Inc., a
Delaware corporation (the "Company"), and Zurich Insurance
Company, a Swiss corporation ("Zurich" and, solely for purposes
of the provisions of this Agreement relating to the rights of the Purchaser
hereunder, together with such affiliates of Zurich as Zurich may designate in
accordance with Section 1.1 hereof, collectively the "Purchaser").
RECITALS:
WHEREAS, on May 31, 1996 the parties hereto signed the
original Common Stock Purchase Agreement and such parties desire
to amend and restate such Agreement as of such date; and
WHEREAS, this Amended and Restated Common Stock
Purchase Agreement is being executed on November 27, 1996 as of
May 31, 1996; and
WHEREAS, the Company wishes to issue and sell to the Purchaser
an aggregate of 9,523,810 shares (the "Shares") of the authorized but unissued
common stock, par value $1.00 per share (the "Common Stock"), of the Company;
and
WHEREAS, the Purchaser wishes to purchase the Shares on the
terms and subject to the conditions set forth in this Agreement; and
WHEREAS, the purchase and sale of the Shares is intended to be
consummated in connection with, and contingent upon, the acquisition by the
Company of all the outstanding common stock of The Paul Revere Corporation
("Revere") through a merger transaction (the "Merger"), all pursuant to an
Amended and Restated Agreement and Plan of Merger, entered into as of November
5, 1996, and dated as of April 29, 1996, between the Company, Patriot
Acquisition Corporation and Revere (as the same may be amended or supplemented
in accordance with the terms of this Agreement, the "Merger Agreement"); and
<PAGE>
WHEREAS, in connection with the execution and delivery of this
Agreement, the Company and the Purchaser are entering into (i) an Amended and
Restated Registration Rights Agreement dated as of May 31, 1996 (as the same may
be amended or supplemented from time to time, the "Registration Agreement")
providing for certain rights in favor of the Purchaser with respect to the
registration of the Shares under the federal securities laws and (ii) an Amended
and Restated Relationship Agreement dated as of May 31, 1996 (as the same may be
amended or supplemented from time to time, the "Relationship Agreement")
providing for certain agreements with respect to Shares acquired hereunder; and
WHEREAS, on or prior to the Closing Date (as defined in
Section 1.2) the Company and the Purchaser will enter into a Marketing Agreement
(as the same may be amended or supplemented from time to time, the "Marketing
Agreement") relating to a proposed strategic relationship between the Purchaser
and its affiliates and the Company, which agreement shall include the terms set
forth on Exhibit 1 (the Marketing Agreement, the Registration Agreement and the
Relationship Agreement are referred to herein collectively as the "Ancillary
Agreements").
NOW, THEREFORE, in consideration of the premises and the
mutual covenants contained in this Agreement, the parties agree as follows:
SECTION 1. THE SHARES
Section 1.1. Issuance, Sale and Purchase of the Shares. In
reliance upon the representations and warranties made herein and subject to the
satisfaction or waiver of the conditions set forth herein, the Company agrees to
issue and sell to the Purchaser (and/or such affiliates (as defined in the
Relationship Agreement) of the Purchaser as it may designate in writing to the
Company prior to the Closing (as defined below)), and the Purchaser agrees to
purchase (or to cause such affiliates to purchase) from the Company 9,523,810
Shares, for a purchase price of $31.50 per Share, or an aggregate purchase price
equal to $300,000,000.
Section 1.2. Closing. The closing shall take place at the
offices of Skadden, Arps, Slate, Meagher & Flom, One Beacon Street, Boston,
Massachusetts, on the date the Merger becomes effective in accordance with the
terms and conditions of the Merger Agreement, or at such other location, date
and time as may be agreed upon between the Purchaser and the Company (such
<PAGE>
closing being called the "Closing" and such date and time being called the
"Closing Date"). At the Closing, the Company shall issue and deliver to the
Purchaser (or its affiliates), a stock certificate or certificates in definitive
form, registered in the name of the Purchaser (or such affiliates), representing
the Shares being purchased at the Closing. As payment in full for the Shares
being purchased under this Agreement, and against delivery of the stock
certificate or certificates therefor on the Closing Date, the Purchaser shall
(or shall cause its affiliates to) wire transfer in accordance with the
Company's instructions funds in the amount of $300,000,000.
Section 1.3. Further Action. During the period from the date
hereof to the Closing Date, each of the Company and the Purchaser shall use all
reasonable efforts to take all action necessary or appropriate to satisfy the
closing conditions contained in Section 4 hereof and to cause its respective
representations and warranties contained in Section 2 to be complete and correct
in all material respects as of the Closing Date, after giving effect to the
transactions contemplated by this Agreement, as if made on and as of such date.
Section 1.4. Anti-Dilution Provisions. In the event the
Company changes the number of shares of Common Stock issued and outstanding
prior to the Closing as a result of a stock split, stock dividend, or
similar recapitalization with respect to such stock and the
record date therefor (in the case of a stock dividend) or the effective date
thereof (in the case of a stock split or similar recapitalization for which a
record date is not established) shall be prior to the Closing, the number of
Shares to be purchased and the purchase price per Share shall be
proportionately adjusted, without any corresponding adjustment to the
aggregate purchase price for the Shares.
SECTION 2. REPRESENTATIONS AND WARRANTIES
Section 2.1. Representations and Warranties of the Company.
The Company represents and warrants to the Purchaser as follows:
Section 2.1.1. Organization, Good Standing and Qualification.
(a) Each of the Company and each of its subsidiaries (the "Company
Subsidiaries") is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation, and has all
requisite power and authority under such laws to own or lease and operate its
properties and to carry on its business as now conducted. Each of the Company
and each of the Company Subsidiaries is duly qualified or licensed to do
business as a foreign corporation in good standing in each jurisdiction in which
the nature of the business transacted by it or the character of the properties
owned or leased by it requires it to so qualify or be licensed, except where the
failure to so qualify or be licensed or be in good standing would not (i) have a
material adverse effect on the results of operations, assets, liabilities or
financial condition of the Company and the Subsidiaries considered as a single
enterprise or (ii) impair in any material respect the ability of the Company to
perform any of its obligations or agreements hereunder or under the Ancillary
Agreements or consummate the transactions contemplated hereby or thereby
(collectively, a "Material Adverse Effect"). Subject to the requisite approvals
of the Company's stockholders as described in Section 2.1.2, the Company has the
corporate power and authority to execute, deliver and perform this Agreement and
the Ancillary Agreements, and to issue, sell and deliver the Shares.
(b) The Company conducts its insurance operations through
Provident Life and Accident Insurance Company, Provident National Assurance
Company and Provident Life and Casualty Insurance Company (collectively, the
"Company Insurance Subsidiaries"). Except as disclosed in Schedule 2.1.1, each
of the Company Insurance Subsidiaries is (i) duly licensed or authorized as an
insurance company in its jurisdiction of incorporation, (ii) duly licensed or
authorized as an insurance company in each other jurisdiction where it is
required to be so licensed or authorized, and (iii) duly authorized in its
jurisdiction of incorporation and each other applicable jurisdiction to write
each line of business reported as being written in the Company SAP Statements
(as hereinafter defined), except, in any such case, where the failure to be so
licensed or authorized is not reasonably likely to result in a Material
Adverse Effect.
<PAGE>
(c) Except for the Company Subsidiaries (including
Revere after consummation of the Merger) and as set forth in the 1995 SAP
Statements or in Schedule 2.1.1, the Company does not directly or indirectly
own any equity or similar interest in, or any interest convertible into or
exchangeable or exercisable for any equity or similar interest in, any
corporation, partnership, joint venture or other business association or
entity that directly or indirectly conducts any activity which is material to
the Company.
Section 2.1.2. Authorization, Enforceability. Except for the
affirmative vote of a majority of the votes cast by holders of shares of Common
Stock present in person or represented by proxy at the Stockholders' Meeting (as
defined in Section 3.3) (provided that the votes cast by such holders constitute
a majority of the votes entitled to be cast by holders of the outstanding shares
of Common Stock) to authorize the issuance of the Shares hereunder and the
shares of Common Stock to be issued under the Merger Agreement and except for
the affirmative vote of the holders of sixty-six and two thirds percent of the
shares of Common Stock outstanding with respect to the Charter Amendment (as
defined in Section 5.3 of the Merger Agreement), all corporate action on the
part of the Company, its officers, directors and stockholders necessary for the
authorization, execution and delivery of this Agreement and the Ancillary
Agreements, the performance of all obligations of the Company hereunder and
thereunder and the authorization, issuance, sale and delivery of the Shares has
been taken. This Agreement, the Registration Agreement and the Relationship
Agreement have been (and the Marketing Agreement, when executed and delivered,
will be) duly authorized, executed and delivered by the Company and constitute
(and, in the case of the Marketing Agreement, when executed and delivered, will
constitute) the valid and legally binding obligations of the Company,
enforceable in accordance with their respective terms, except as enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or similar laws affecting the enforcement of creditors' rights generally and by
general principles of equity (whether enforcement is sought by proceedings in
equity or at law).
Section 2.1.3. No Conflict. The execution and delivery by the
Company of this Agreement and the Ancillary Agreements, the performance by the
Company of its obligations hereunder and thereunder, the issuance, sale and
delivery of the Shares, will not violate any provision of (i) the Amended and
Restated Certificate of Incorporation, as amended or supplemented
(the "Certificate of Incorporation"), or By-laws, as amended (the "By-laws"), of
the Company, or (ii) any law or any order of any court or other agency of
government, or conflict with, result in a breach of or constitute (with notice
or lapse of time or both) a default under any indenture, agreement or other
instrument by which the Company or any of its properties or assets is bound, or
result in the creation or imposition of any lien, charge, restriction, claim or
encumbrance of any nature whatsoever known to the Company upon any of the
properties or assets of the Company, except for violations, conflicts, breaches
or defaults which are not reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect. True and correct copies of the Certificate
of Incorporation and By-laws, as in effect on the date hereof, are attached
hereto as Exhibits 2 and 3, respectively.
<PAGE>
Section 2.1.4. Capitalization. (a) The authorized capital
stock of the Company consists of (i) 25,000,000 shares of Preferred Stock, par
value $1.00 per share (the "Preferred Stock"), which may be issued in series;
and (ii) 65,000,000 shares of Common Stock. As of the Closing Date, assuming the
Charter Amendment is approved by the Company's stockholders, the authorized
number of shares of Common Stock will be increased to at least 75,000,000
shares.
(b) As of April 29, 1996, there were issued and
outstanding (i) 45,465,135 shares of Common Stock, (ii) 1,041,667 shares of
8.10% Cumulative Preferred Stock, evidenced by depositary receipts for 6,250,002
depositary shares each representing a one-sixth interest in one share of the
8.10% Cumulative Preferred Stock, and (iii) options to purchase 1,837,145 shares
of Common Stock under the Company's Stock Option Plan of 1994, as amended (the
"1994 Plan") out of a total of 3,500,000 options authorized to be issued under
the 1994 Plan. As of the Closing Date (and after giving effect to the Merger and
the transactions contemplated by this Agreement), there will be outstanding
67,540,281 shares of Common Stock (not including shares of Common Stock issued
pursuant to the exercise of options granted under the 1994 Plan and assuming
12,492,617 shares of Common Stock are issued to stockholders of Revere by virtue
of the Merger).
(c) Except as set forth in Schedule 2.1.4 or as provided
in this Agreement and the Merger Agreement, there are not outstanding any
options, warrants, rights (including conversion, exchange or preemptive rights)
or agreements or commitments, orally or in writing, for the purchase or
acquisition from the Company of any shares of its capital stock.
(d) Except as set forth in Schedule 2.1.4, the Company
has no obligation (contingent or other) to purchase, redeem or otherwise acquire
any of its equity securities or any interest therein or to pay any dividend
(other than cumulative dividends on the 8.10% Cumulative Preferred Stock in
accordance with the terms thereof) or make any other distribution in respect
thereof.
Section 2.1.5. Valid Issuance of Securities. (a) The
Shares, when issued, sold and delivered in accordance with the terms hereof
<PAGE>
for the consideration expressed herein, will be duly authorized, validly
issued, fully paid and nonassessable.
(b) The outstanding shares of Common Stock and 8.10%
Cumulative Preferred Stock are, and the shares of Common Stock issuable pursuant
to the Merger Agreement will be when issued, duly authorized, validly issued,
fully paid and nonassessable.
(c) The issuance, sale and delivery of the Shares is not
subject to any preemptive right of stockholders of the Company arising under law
or the Certificate of Incorporation or By-laws or to any contractual right of
first refusal or other right in favor of any person.
Section 2.1.6. Litigation. There is no action, suit,
proceeding or investigation pending or, to the knowledge of the Company,
currently threatened against the Company or any of the Company Subsidiaries that
questions the validity of this Agreement or any of the Ancillary Agreements or
the right of the Company to enter into, or to consummate, the transactions
contemplated hereby or thereby, or that is reasonably likely, either
individually or in the aggregate, to have a Material Adverse Effect, nor does
the Company have knowledge that there is any basis for any of the foregoing. The
Company is not a party or subject to the provisions of any order, writ,
injunction, judgment or decree of any court or government agency or
instrumentality that specifically names the Company, any of the Company
Subsidiaries and as to which either compliance or noncompliance is reasonably
likely to have a Material Adverse Effect. Except as set forth on Schedule 2.1.6,
there is no action, suit, proceeding or investigation by the Company or any of
the Company Subsidiaries currently pending or which the Company or any Company
Subsidiary intends to initiate that is material to the operations of the Company
and the Company Subsidiaries considered as a whole.
Section 2.1.7. Consents. Assuming the accuracy of the
representations and warranties of the Purchaser set forth in this Agreement,
except as set forth on Schedule 2.1.7, no consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any governmental authority, agency or body or any other person on
the part of the Company is required in connection with the consummation of the
transactions contemplated by this Agreement and the Ancillary Agreements, except
for (i) required blue sky filings, if any, which will be effected in accordance
with such laws, (ii) filings required under the Securities Act of 1933 (the
"Securities Act") in connection with the Registration Agreement, (iii) the
filing of a Pre-Merger Notification Form and related
<PAGE>
documents under the Hart-Scott-Rodino Antitrust Improvements Act of 1976
(the "HSR Act"), (iv) the filing of appropriate documents with, and the
approval of, the Superintendent of Insurance of the State of New York and
the Commissioners of Insurance of the Commonwealth of Massachusetts, the
States of Delaware and Tennessee and any other state or jurisdiction in which
the Company or any of the Company Insurance Subsidiaries is domiciled or does
business (the "Insurance Regulators") for the issuance of the Shares to the
Purchaser, (v) such consents, approvals, notices or waivers as may be required
under the law of Canada or any of the provinces thereof; (vi) the approval of
the NYSE (as defined in Section 3.8) for the listing of the Shares on the NYSE,
subject to official notice of issuance; and (vii) such consents, approvals,
orders, authorizations, registrations, qualifications, designations,
declarations or filings which if not obtained or made, as the case may be, are
not reasonably likely to have a Material Adverse Effect.
Section 2.1.8. Compliance with Law and Other Instruments. The
Company and the Company Subsidiaries are not in conflict with, or in default or
violation of, (i) any law, rule, regulation, order, judgment or decree
applicable to any of them or by which any of their property or assets is bound
or affected, or (ii) any note, bond, mortgage, indenture, contract, agreement,
lease, license, permit, franchise or other instrument or obligation to which any
of them is a party or by which the Company or any of the Company Subsidiaries or
any of their property or assets is bound or affected, except for any such
conflicts, defaults or violations that are not reasonably likely, individually
or in the aggregate, to have a Material Adverse Effect.
Section 2.1.9. SEC Documents; Financial Statements. Except
as set forth in Schedule 2.1.9:
(a) There are no agreements, understandings or proposed
transactions between the Company or any of the Subsidiaries and any of
their respective officers, directors or affiliates, or
any affiliate thereof, of a type that would be required to be disclosed on
Form 10-K for the year ending on December 31, 1995 other than the agreements,
understandings or proposed transactions disclosed in the SEC Documents (as
hereinafter defined).
(b) The Company has timely filed all reports required to be
filed by it with the SEC since January 1, 1994 pursuant to the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and the rules and
regulations thereunder. The Company has provided the Purchaser with copies of
(i) the Company's annual reports on Form 10-K for the years ended December 31,
<PAGE>
1994 and 1995, (ii) the Proxy Statement filed by the Company with the SEC on
April 1, 1996 with respect to the Annual Meeting of Stockholders of the Company
held on May 1, 1996 and (iii) the Company's quarterly report on Form 10-Q for
the quarter ended March 31, 1996 (collectively, together with any other reports
or filings made by the Company since January 1, 1994 or which are made after the
date hereof and on or prior to the Closing Date with the SEC pursuant to the
requirements of the Securities Act or the Exchange Act or the rules and
regulations thereunder, including, without limitation, the Registration
Statement and the Proxy Statement (as those terms are defined in Section 2.2.6),
the "SEC Documents"). As of their respective dates, the SEC Documents complied
(or, as to SEC Documents filed after the date hereof, will comply) in all
material respects with the requirements of the Exchange Act, the Securities Act
and the rules and regulations of the SEC promulgated thereunder. Except to the
extent that information contained in any SEC Document has been revised or
superseded by a later filed SEC Document (which was filed prior to the date of
this Agreement), none of the SEC Documents contains (or, as to SEC Documents
filed after the date hereof, will contain) any untrue statement of a material
fact or omits to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. The Registration Statement will not,
at the time it becomes effective, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein not misleading. The Proxy
Statement will not, at the time of the mailing of the Proxy Statement to the
Company's stockholders (or, in the case of any amendment or supplement thereto,
at the time of mailing of such amendment or supplement, as the case may be) and
at the time of the Stockholders' Meeting and at the Effective Time (as defined
in the Merger Agreement) contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
were made, not misleading.
(c) The financial statements of the Company included in the
SEC Documents comply (or, as to SEC Documents filed after the date hereof, will
comply) as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto, have been prepared in accordance with generally accepted accounting
principles, except, in the case of unaudited statements as permitted by Form
10-Q, applied on a consistent basis during the periods involved and fairly
<PAGE>
present the consolidated financial position of the Company and its subsidiaries
as of the date thereof and the consolidated results of their operations and cash
flows for the periods then ended (subject, in the case of unaudited statements,
to normal year-end audit adjustments). Except as set forth in the SEC Documents,
neither the Company nor any of the Company Subsidiaries has any material
liabilities or obligations which, individually or in the aggregate, are
reasonably likely to have a Material Adverse Effect.
(d) Each Company Insurance Subsidiary has filed all annual or
quarterly statements, together with all exhibits and schedules thereto, required
to be filed or submitted to the appropriate regulatory authorities of the
jurisdiction in which it is domiciled on forms prescribed or permitted by such
authority (the "SAP Statements"). The financial statements included in the SAP
Statements, including the notes thereto, have been prepared in all material
respects in accordance with accounting practices prescribed or permitted by
applicable state regulatory authorities in effect as of the date of the
respective statements (and such accounting practices have been applied on a
consistent basis throughout the periods involved, except as expressly set forth
in the notes or schedules thereto), and present fairly the respective statutory
financial position and results of operation of each of the Company Insurance
Subsidiaries as of their respective dates and for the respective periods
prescribed therein.
Section 2.1.10. Absence of Certain Changes or Events. Except
as disclosed in the SEC Documents, or as set forth in Schedule 2.1.10 or as a
consequence of, or as contemplated by, this Agreement or the Merger Agreement,
since March 31, 1996, (i) the business of the Company has been carried on only
in the ordinary and usual course, (ii) there has not occurred any change which
has resulted or is reasonably likely to result in a Material Adverse Effect and
(iii) neither the Company nor any Company Subsidiary has taken any action of the
type described in clauses (g), (h), (i) or (j) of Section 3.1.
Section 2.1.11. No Regulatory Disqualifications. To the
knowledge of the Company, no event has occurred or condition exists or, to the
extent it is within the reasonable control of the Company, will occur or exist
with respect to the Company that, in connection with obtaining any approvals
from any Insurance Regulator required in connection with the transactions
contemplated by this Agreement or the Merger Agreement, would cause the Company
or any Company Subsidiary to fail to satisfy on its face any applicable statute
<PAGE>
or written regulation of any Insurance Regulator, which is reasonably likely to
adversely affect the Company's ability to consummate the transactions
contemplated hereby or thereby.
Section 2.1.12. Registration Rights. Except for the
Registration Agreement, the registration rights granted pursuant to the
Registration Rights Agreement, dated April 29, 1996, between the Company and
Textron Inc. and the registration rights agreement with members of the Family
Group (as defined in the Registration Agreement), the Company has not granted or
agreed to grant any registration rights, including piggyback rights, to any
person or entity.
Section 2.1.13. Acquisition Agreements. True and correct
copies of (i) the Merger Agreement and any agreements executed by the Company
(or any of its affiliates) and Revere in connection therewith (the "Merger
Documents") and (ii) any agreement, letter of intent, commitment letter or
similar agreement or document relating to any financing proposed to be incurred
by the Company in connection with the Merger, other than this Agreement and the
Ancillary Agreements (the "Company Financing Agreements"), have been furnished
to the Purchaser.
Section 2.1.14. Rating Agency. From December 31, 1995 through
the date hereof, except as disclosed on Schedule 2.1.14, no rating agency has
(i) imposed conditions (financial or otherwise) on retaining any rating assigned
to the Company or any Company Insurance Subsidiary or (ii) threatened to
downgrade any rating assigned to the Company or any Company Insurance
Subsidiary.
Section 2.1.15. Brokers. Other than its financial advisor,
Goldman, Sachs & Company, the Company has not employed any investment banker,
broker, finder, or intermediary in connection with the sale of the Shares, and
the Company is under no obligation to pay any investment banking, brokerage,
finder's or similar fee or commission in connection with such transactions,
other than certain fees payable to Goldman, Sachs & Company, which fees are the
obligation of the Company.
Section 2.1.16. Environmental Protection. (a) For
purposes of this Section 2.1.16, the following terms shall be defined as
follows:
<PAGE>
"Environmental Laws" means any federal, state or local
statute, code, ordinance, rule, regulation, permit, consent, approval, license,
judgment, order, writ, decree, injunction or other authorization and any
amendments thereto, relating to:
(i) emissions, discharges, release or threatened releases of
pollutants, contaminants or hazardous or toxic materials or wastes into
indoor or ambient air, surface water, ground water, publicly owned
treatment works, septic systems or land;
(ii) the treatment, storage, disposal, handling,
manufacturing, transportation, or shipment of Hazardous Water or
hazardous and/or toxic wastes, material, substances, products or
by-products as defined in the Comprehensive Environmental Response
Compensation and Liability Act as amended by the Superfund Amendments
and Reauthorization Act, as amended, 42 U.S.C. ss. 9601 et seq.; the
Resource Conservation Recovery Act, as amended, 42 U.S.C. ss. 6901 et
seq. and the Toxic Substances Control Act, as amended, 15 U.S.C. ss.
2601 et seq. as amended from time to time and corresponding state
legislation and all regulations promulgated thereunder; or
(iii) otherwise relating to the pollution or protection of
health or the environment; and
"Hazardous Waste" (a) means any chemical substance or
material including, but not limited to wastes, petroleum and petroleum-derived
substances, asbestos, urea formaldehyde foam insulation, transformer equipment
containing dielectric fluid with levels of polychlorinated biphenyls, radon gas,
radioactive materials or other pollutants or contaminants which have the
characteristic of hazardous waste as set forth in or which are now or hereafter
included or regulated by the Clean Water Act, 33 U.S.C. ss. 1251 et seq.; the
Clear Act, as amended, 42 U.S.C. ss. 7401, et seq.; the Federal Water Pollution
Control Act, as amended, 33 U.S.C. ss. 1251 et seq.; CERCLA; RCRA; and TSCA.
(b) The Company and the Company Subsidiaries are not in
violation of any Environmental Laws, other than such violations which have not
had and are reasonably expected not to have a Material Adverse Effect and have,
and are in compliance with all terms and conditions of, all permits, licenses
and authorizations necessary for the conduct of their respective businesses,
<PAGE>
other than such instances of non-compliance which are not reasonably likely to
have a Material Adverse Effect.
(c) Except as set forth on Schedule 2.1.16, there is no site
which is listed on either the National Priorities List pursuant to CERCLA or a
similar state or local law list with respect to which the Company has received
notice from the United States Environmental Protection Agency or a state or
local agency that the Company is considered to be a potentially responsible
party by reason of arranging for disposal, owning or operating any facility or
site or transporting any Hazardous Waste.
Section 2.1.17. Delaware Law. The Company has elected not to
be governed by the provisions of Section 203 of the Delaware General Corporation
Law ("DGCL") and such election is effective as of the date hereof and such
Section 203 (a) is not applicable to the transactions contemplated hereby and by
the Ancillary Agreements and (b) will not be applicable to any future
transactions between the Company, on the one hand, and the Purchaser and/or any
of its affiliates, on the other hand. The Company has taken all action so that
the entering into of this Agreement and the consummation of the sale of the
Shares and the other transactions contemplated by this Agreement do not and will
not result in the grant of any rights to any person under the Certificate of
Incorporation, By-laws or other governing instruments of the Company or restrict
or impair the ability of the Purchaser to vote, or otherwise to exercise the
rights of a stockholder with respect to, shares of the Company that may be
directly or indirectly acquired or controlled by the Purchaser.
Section 2.1.18. Incorporation of Representations and
Warranties from the Merger Agreement. Without qualifying any of the other
representations and warranties set forth in this Agreement, the representations
and warranties of the Company set forth in Sections 5.3, 5.4, 5.9, 5.11, 5.12,
5.13, 5.14, 5.16, 5.17, 5.18, 5.19 and 5.20 of the Merger Agreement (including
any related definitions) shall be deemed to be incorporated by reference herein
as if fully set forth herein.
Section 2.2. Representations, Warranties and Covenants of
the Purchaser. The Purchaser represents and warrants to the Company that:
Section 2.2.1. Organization. The Purchaser is a
corporation duly organized and validly existing under the laws of Switzerland.
<PAGE>
Section 2.2.2. Authorization. The Purchaser has full power and
authority to enter into this Agreement and the Ancillary Agreements. Each of
this Agreement, the Registration Agreement and the Relationship Agreement
constitute (and the Marketing Agreement, when executed and delivered, will
constitute) its valid and legally binding obligation, enforceable in accordance
with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally and by general principles of equity
(whether enforcement is sought by proceedings in equity or at law).
Section 2.2.3. Purchase for Investment. The Shares will be
acquired for investment for the Purchaser's (or its affiliates') own account and
not with a view to the resale or distribution of any part thereof, except in
compliance with the provisions of the Securities Act or an exemption therefrom.
Section 2.2.4. Restricted Securities. The Purchaser
understands that the Shares are characterized as "restricted securities" under
the federal securities laws inasmuch as they are being acquired from the Company
in a transaction not involving a public offering and that under such laws and
applicable regulations such shares may be resold without registration under the
Securities Act only in certain limited circumstances.
The Purchaser further agrees that each certificate representing the
Shares shall be stamped or otherwise imprinted with a legend substantially in
the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE (I) HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT
BE TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS IT HAS BEEN
REGISTERED UNDER THAT ACT OR AN EXEMPTION FROM REGISTRATION
IS AVAILABLE, AND (II) ARE SUBJECT TO THE PROVISIONS OF A
RELATIONSHIP AGREEMENT, DATED AS OF MAY 31, 1996, BETWEEN
THE COMPANY AND THE PURCHASER, COPIES OF WHICH ARE ON FILE
AT THE PRINCIPAL EXECUTIVE OFFICES OF THE COMPANY."
<PAGE>
A certificate shall not bear such legend if the Purchaser shall have delivered
to the Company an opinion of counsel reasonably satisfactory to the Company to
the effect that the securities being sold may be publicly sold without
registration under the Securities Act. The foregoing shall not be deemed to
affect the obligations of the Company under the Registration Agreement.
Section 2.2.5. No Regulatory Disqualifications. To the
knowledge of the Purchaser, no event has occurred or condition exists or, to the
extent it is within the reasonable control of the Purchaser, will occur or exist
with respect to the Purchaser that, in connection with obtaining any approvals
from any Insurance Regulator required in connection with the transactions
contemplated by this Agreement, would cause the Purchaser to fail to satisfy on
its face any applicable statute or written regulation of any Insurance
Regulator, which would be reasonably likely to adversely affect the Purchaser's
ability to consummate the transactions contemplated hereby or thereby.
Section 2.2.6. Purchaser Information. None of the information
regarding the Purchaser supplied by the Purchaser in writing specifically for
inclusion in (i) the registration statement to be filed by the Company as
contemplated by Section 4.10 of the Merger Agreement (the "Registration
Statement") or (ii) the proxy statement-prospectus to be filed by the Company as
contemplated by Section 6.4 of the Merger Agreement (the "Proxy Statement")
will, in the case of the Registration Statement, at the time it becomes
effective contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein not misleading, or, in the case of the Proxy Statement, at
the time of the mailing of the Proxy Statement to the Company's stockholders
(or, in the case of any amendment or supplement thereto, at the time of mailing
of such amendment or supplement, as the case may be) and at the time of the
Stockholders' Meeting and at the Effective Time (as defined in the Merger
Agreement) contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
Section 2.2.7. Consents. Assuming the accuracy of the
representations and warranties of the Company set forth in this Agreement, no
consent, approval, order or authorization of, or registration, qualification,
designation, declaration or filing with, any governmental authority, agency or
body or any other person on the part of the Purchaser is required in connection
with the consummation of the transactions contemplated by this Agreement and the
Ancillary Agreements, except for (i) the filing of a Pre-Merger Notification
Form and related documents under the HSR Act, (ii) the filing of appropriate
documents with, and approval of, the Insurance Regulators and the Commissioners
of Insurance of any state or jurisdiction in which the Purchaser or
<PAGE>
any of its insurance subsidiaries is domiciled or does business, (iii) such
consents, approvals, notices or waivers as may be required under the laws of
Canada or any of the provinces thereof, (iv) filings required under the
Securities Act or the Securities Exchange Act of 1934, as amended, or (v) such
consents, approvals, orders, authorizations, registrations, qualifications,
designations, declarations or filings, which if not obtained or made, as the
case may be, are not reasonably likely to impair in any material respect the
ability of the Purchaser to perform any of its obligations or agreements
hereunder or under the Ancillary Agreements or consummate the transactions
contemplated hereby or thereby.
Section 2.2.8. Brokers. Other than Donaldson, Lufkin &
Jenrette Securities Corporation, the Purchaser has not employed any
investment banker, broker, finder, or intermediary in connection with the
transactions contemplated by this Agreement, and the Purchaser is under no
obligation to pay any investment banking, brokerage, finder's or similar fee
or commission in connection with such transactions, other than certain fees
payable to Donaldson, Lufkin & Jenrette Securities Corporation, which are the
obligation of the Purchaser (except to the extent otherwise provided in
Section 6.1).
SECTION 3. CERTAIN AGREEMENTS OF THE PARTIES
Section 3.1. Conduct of Business of the Company. Except as set
forth in Schedule 3.1, from the date of this Agreement until the earlier of the
Closing or the termination of this Agreement, unless the prior written consent
of the Purchaser shall have been obtained, and except as otherwise contemplated
by this Agreement, the Company will conduct its operations according to its
ordinary and usual course of business consistent with past practice and shall
use all reasonable efforts to preserve intact its current business
organizations, keep available the service of its current officers and employees,
maintain its material permits and contracts and preserve its relationships with
customers, suppliers and others having business dealings with it. Without
limiting the generality of the foregoing, and except as otherwise contemplated
by this Agreement or as set forth in Schedule 3.1, the Company will not, without
the prior written consent of the Purchaser (which consent shall not be
unreasonably withheld):
(a) issue, sell, grant, dispose of, pledge or otherwise
<PAGE>
encumber, or authorize or propose the issuance, sale, disposition or
pledge or other encumbrance of (i) any additional shares of capital
stock of capital stock of any class (including shares of Common Stock),
or any securities or rights convertible into, exchangeable for, or
evidencing the right to subscribe for any shares of capital stock, or
any rights, warrants, options, calls, commitments or any other
agreements of any character to purchase or acquire any shares of
capital stock or any securities or rights convertible into,
exchangeable for, or evidencing the right to subscribe for, any shares
of capital stock or (ii) any other securities in respect of, in lieu
of, or in substitution for, shares of Common Stock outstanding on the
date hereof;
(b) redeem, purchase or otherwise acquire, or propose to
redeem, purchase or otherwise acquire, any of its outstanding shares
of Common Stock;
(c) split, combine, subdivide or reclassify any shares of
Common Stock or declare, set aside for payment or pay any dividend, or
make any other actual, constructive or deemed distribution in respect
of any capital stock of the Company or otherwise make any payments to
stockholders in their capacity as such, other than the declaration and
payment of regular quarterly cash dividends on the Common Stock in an
amount no greater than $.18 per share and in accordance with past
dividend policy and except for dividends by a direct or indirect wholly
owned Company Subsidiary;
(d) adopt a plan of complete or partial liquidation,
dissolution, merger, consolidation, restructuring, recapitalization or
other reorganization of the Company or any of the Company Subsidiaries
(other than the Merger);
(e) adopt any amendments to its Certificate of Incorporation
or Bylaws or alter through merger, liquidation, reorganization,
restructuring or in any other fashion the corporate structure or
ownership of any direct or indirect Company Subsidiary, except for
Company Subsidiaries which are not material to the assets, liabilities,
financial condition or results of operations of the Company and the
Company Subsidiaries taken as a whole;
<PAGE>
(f) make, or permit any Company Subsidiary to make, any
material acquisition, by means of merger, consolidation or otherwise,
or material disposition, of assets or securities;
(g) other than in the ordinary course of business consistent
with past practice, incur, or permit any Company Subsidiary to incur,
any material indebtedness for borrowed money or guarantee any such
indebtedness or make any material loans, advances, or capital
contributions to, or other material investments in, any person other
than the Company or any Company Subsidiary;
(h) change any method of accounting or accounting practice by
the Company or any Company Subsidiary, except for such required change
in GAAP or applicable statutory accounting principles;
(i) permit any Company Insurance Subsidiary to materially
change its investment guidelines or policies or conduct transactions in
investments except in material compliance with the investment
guidelines and policies of such Company Insurance Subsidiary and all
applicable insurance laws;
(j) enter, or permit any Company Insurance Subsidiary to
enter, into any material reinsurance, coinsurance or similar agreement,
whether as reinsurer or reinsured, except in the ordinary course of
business consistent with past practice;
(k) (x) take, or agree or commit to take, or permit any
Company Subsidiary to take, or agree or commit to take,
any action that would make any representation and warranty of the
Company hereunder inaccurate in any material respect at the Closing
(except for representations and warranties which speak as of a
particular date, which need be accurate only as of such date), (y)
omit, or agree or commit to omit, or permit any Company Subsidiary to
omit, or agree or commit to omit, to take any action necessary to
prevent any such representation and warranty from being inaccurate in
any material respect at the Closing (except for representations and
warranties which speak as of a particular date, which need be
accurate only as of such date), provided however that the Company
shall be permitted to take or omit to take such action which can be
<PAGE>
cured, and in fact is cured, at or prior to the Closing, or (z) any
action that would result in, or would be reasonably likely to result
in, any of the conditions set forth in Section 4 not being satisfied;
or
(l) authorize, recommend, propose or announce an intention to
do any of the foregoing, or enter into any contract, agreement,
commitment or arrangement to do any of the foregoing.
Section 3.2. Covenants of the Purchaser. Except as otherwise
contemplated by this Agreement, the Purchaser will not, without the prior
written consent of the Company, which consent shall not be unreasonably
withheld, (x) take, or agree or commit to take, any action that would make any
representation and warranty of the Purchaser hereunder inaccurate in any
material respect at the Closing (except for representations and warranties which
speak as of a particular date, which need be accurate only as of such date), (y)
omit, or agree or commit to omit, to take any action necessary to prevent any
such representation and warranty from being inaccurate in any material respect
at the Closing (except for representations and warranties which speak as of a
particular date, which need be accurate only as of such date), provided however
that the Purchaser shall be permitted to take or omit to take such action which
can be cured, and in fact is cured, at or prior to the Closing, or (z) any
action that would result in, or would be reasonably likely to result in, any of
the conditions set forth in Section 4 not being satisfied.
Section 3.3. Proxy Statement; Stockholder Approval. The
Company shall call a special meeting of its stockholders (the "Stockholders'
Meeting"), to be held as soon as reasonably practicable after the date of this
Agreement, for the purpose of voting upon approval of the sale of Shares
pursuant to this Agreement, the issuance of shares of Company Common Stock
pursuant to the Merger Agreement, the Charter Amendment (as defined in the
Merger Agreement) and such other related matters as it deems appropriate. In
connection with the Stockholders' Meeting, (i) the Company shall prepare and
file with the SEC a Proxy Statement and mail such Proxy Statement to its
stockholders, (ii) the Board of Directors of the Company shall recommend to its
stockholders the approval of the sale of Shares pursuant to this Agreement and
(subject to the terms of the Merger Agreement) the issuance of shares of Common
Stock pursuant to the Merger Agreement and the Charter Amendment and (iii) the
Board of Directors and officers of the Company shall use their reasonable
efforts to obtain such stockholders' approval (subject to the terms of the
Merger Agreement).
<PAGE>
Section 3.4. Approvals, Etc. Subject to the terms and
conditions provided herein, each of the parties hereto agrees to (i) promptly
effect all registrations, submissions and filings, including but not limited to,
filings under the HSR Act, submissions to the Insurance Regulators and filings
required under the Registration Agreement, which may be necessary or required in
connection with the consummation of the transactions contemplated by this
Agreement and, in the case of the Company, the Merger Agreement, (ii) to use all
reasonable efforts to take all other action and to do all other things
necessary, proper or advisable to consummate and make effective as promptly as
practicable the transactions contemplated by this Agreement and, in the case of
the Company, the Merger Agreement and (iii) use all reasonable efforts to obtain
all other necessary or appropriate waivers, consents and approvals with respect
to the transactions contemplated by this Agreement and, in the case of the
Company, the Merger Agreement.
Section 3.5. Exclusivity. The Company hereby agrees that,
prior to the Closing Date, the Company shall not solicit or accept alternative
sources for the investment contemplated by this Agreement. The Company further
agrees that it will not utilize any funds or other sources of financing to
finance the Merger without first consummating the full purchase and sale
provided hereunder.
Section 3.6. Publicity. Neither the Company nor the Purchaser
shall make any public announcement concerning this Agreement or the other
transactions contemplated hereby without the prior written consent of the other,
except as may be required by law or stock exchange rule.
Section 3.7. Modification of Other Agreements. Without the
prior written consent of the Purchaser, the Company shall not amend in any
material respect any provision of, or waive any condition to the performance by
the Company or its affiliates of any of their respective obligations under, any
of the Merger Documents or the Company Financing Agreements.
Section 3.8. Exchange Listing. The Company shall as promptly
as practicable prepare and submit to the New York Stock Exchange ("NYSE") a
listing application covering the Shares, and shall use all reasonable efforts to
obtain, prior to the Closing, approval for the listing of the Shares on the
NYSE, subject to official notice of issuance.
<PAGE>
Section 3.9. Investigation and Confidentiality. (a)
Prior to the Closing, the Company shall keep the Purchaser advised of all
material developments relevant to its business and to consummation of the
Merger and the sale of the Shares and shall permit the Purchaser to make or
cause to be made such investigation of its business and properties and of its
financial and legal condition as the Purchaser reasonably requests, provided
that such investigation shall be reasonably related to the transactions
contemplated hereby and shall not interfere unnecessarily with normal
operations. The Purchaser agrees that it will not, and will cause its
officers, employees and agents not to, use any information obtained pursuant
to this Section 3.9 for any purpose unrelated to the performance of the
obligations under, or the consummation of the transactions contemplated by,
this Agreement or the Ancillary Agreements.
(b) The Purchaser agrees that the Confidentiality
Agreement, dated December 3, 1995, by and between Provident Life and Accident
Insurance Company of America and Centre ReSource Limited (the "Confidentiality
Agreement"), shall be binding upon the Purchaser and shall apply with respect to
information furnished by the Company or any of its Subsidiaries, or any of their
respective officers, employees, counsel, accountants and other authorized
representatives hereunder.
(c) Notwithstanding the provisions hereof, during the period
prior to the Closing Date, the parties shall take appropriate precautions to
ensure that competitively sensitive information is not exchanged in a manner
which is inconsistent with applicable law.
Section 3.10. State Takeover Laws; Charter Provisions. Each of
the Company and the Company Subsidiaries shall take all necessary action to
ensure that the entering into of this Agreement and the consummation of the sale
of the Shares and the other transactions contemplated hereby do not and will not
result in the grant of any rights to any Person under the Certificate of
Incorporation, Bylaws or other governing instruments of the Company or restrict
or impair the ability of the Purchaser to vote, or otherwise to exercise the
rights of a stockholder with respect to, shares of the Company that may be
directly or indirectly acquired or controlled by the Purchaser.
Section 3.11. Use of Proceeds. The proceeds from the sale of
the Shares shall be used to fund payments required to be made by the Company in
connection with the Merger.
<PAGE>
Section 3.12. Marketing Agreement. The parties hereto agree to
negotiate in good faith, and execute prior to the Closing, the Marketing
Agreement, which agreement shall (i) be effective as of the Closing, (ii) have
terms consistent with the summary of terms attached hereto as Exhibit 1 and
(iii) have such other terms as the parties may agree to.
Section 3.13. Restrictive Agreements Prohibited. The
Company shall not become a party to any agreement which by its terms violates
the terms of this Agreement or any of the Ancillary Agreements.
SECTION 4. CLOSING CONDITIONS
Section 4.1. Conditions to Obligation of Purchaser. The
obligation of the Purchaser to purchase the Shares shall be subject to its
satisfaction or waiver of the following conditions on or before the Closing
Date:
Section 4.1.1. Representations and Warranties Complete and
Correct. The representations and warranties of the Company contained in Section
2.1 hereof which are qualified as to materiality or a Material Adverse Effect
shall have been true and correct when made and shall be true and correct at and
as of the Closing Date, after giving effect to the transactions contemplated by
this Agreement and the Merger Agreement, as if made on and as of such date
(except for representations and warranties which are confined to a specified
date, which shall be true and correct as of such date). The representations and
warranties of the Company contained in Section 2.1 hereof which are not
qualified as to materiality or a Material Adverse Effect shall have been true
and correct in all material respects when made and shall be true and correct in
all material respects at and as of the Closing Date, after giving effect to the
transactions contemplated by this Agreement and the Merger Agreement, as if made
on and as of such date (except for representations and warranties which are
confined to a specified date, which shall be true and correct in all material
respects as of such date).
Section 4.1.2. Compliance with this Agreement. The Company
shall have performed and complied in all material respects with all agreements,
covenants and conditions contained herein which are required to be performed or
complied with by it on or before the Closing Date.
Section 4.1.3. Officers' Certificate. The Purchaser shall have
received a certificate, dated the Closing Date and signed by the President or
any Vice President and attested by the Secretary of the Company, certifying that
the conditions set
<PAGE>
forth in Sections 4.1.1 and 4.1.2 are satisfied on and as of
such date.
Section 4.1.4. Consents; Etc. The Company shall have received
all consents, approvals and other authorizations that may be required from, and
made all such filings and declarations that may be required with, any
governmental authority or agency pursuant to any law, statute, regulation or
rule (federal, state, local and foreign), or pursuant to any agreement, order or
decree by which the Company or any of its assets is bound, in connection with
the transactions contemplated by this Agreement.
Section 4.1.5. Supporting Documents. The Purchaser shall
have received copies of the following documents:
(i) (A) the Certificate of Incorporation, certified as of a
recent date by the appropriate authority of the Company's jurisdiction
of incorporation; and (B) a certificate of such authority dated as of a
recent date as to the due incorporation and good standing of the
Company, and listing all documents of the Company on file with said
authority; and
(ii) a certificate of the Secretary or an Assistant Secretary
of the Company dated the Closing Date and certifying: (A) that attached
thereto is a true and complete copy of the Bylaws of the Company as in
effect on the date of such certification; (B) that attached thereto is
a true and complete copy of all resolutions adopted by the Board of
Directors or the stockholders of the Company authorizing the execution,
delivery and performance of this Agreement and the Ancillary
Agreements, the issuance, sale and delivery of the Shares, and that all
such resolutions are in full force and effect and are all the
resolutions adopted in connection with the transactions contemplated by
this Agreement, the Marketing Agreement and the Registration Agreement;
(C) that the Certificate of Incorporation has not been amended since
the date of the last amendment referred to in the certificate delivered
pursuant to clause (i)(B) above; and (D) that the Bylaws have not been
amended since the date of the last amendment referred to in such
certificate pursuant to subclause (ii)(A) above.
Section 4.1.6. HSR Act. Any required waiting periods under the
HSR Act relating to the transactions to be consummated on the Closing Date shall
have expired or been terminated.
<PAGE>
Section 4.1.7. Merger Closing. The closing under the
Merger Agreement shall have occurred or shall occur simultaneously with the
Closing hereunder.
Section 4.1.8. Other Agreements. The Company shall have
complied with all agreements required to be complied with by it on or before
the Closing Date under the Ancillary Agreements.
Section 4.1.9. Material Adverse Change. Except as disclosed in
the SEC Documents filed prior to the date hereof, or as set forth in Schedule
2.1.10 or as a consequence of, or as contemplated by, this Agreement or the
Merger Agreement, since December 31, 1995, there shall not have occurred any
change, and no additional information shall have been disclosed to the
Purchaser, which is reasonably likely to have a material adverse effect on the
financial condition, results of operations, assets or liabilities of the Company
and the Company Subsidiaries, taken as a whole, or a material adverse effect on
the financial condition, results of operations, assets or liabilities of Revere
and its subsidiaries, taken as a whole.
Section 4.1.10. Illegality, Etc. No statute, rule or
regulation, or order, decree or injunction enacted, entered, promulgated or
enforced by any court or governmental authority shall be in effect which
prohibits or restricts the consummation of the transactions contemplated hereby.
Section 4.1.11. Stockholder Approval. Each of the sale of
Shares pursuant to this Agreement, the issuance of shares of Common Stock
pursuant to the Merger Agreement and the Charter Amendment shall have been duly
approved by the stockholders of the Company entitled to vote with respect
thereto in accordance with applicable law and the Certificate of Incorporation
and Bylaws of the Company and, in the case of the issuance of shares of Common
Stock pursuant to the Merger Agreement and the sale of the Shares, the rules of
the NYSE.
Section 4.1.12. Exchange Listing. The Shares shall have been
approved for listing on the NYSE, subject to official notice of issuance.
Section 4.1.13. Financing of Cash Payments in Merger. The
Company shall have obtained financing for the aggregate cash payments to be
made to stockholders of Revere in the Merger pursuant to the Company Financing
Agreements.
<PAGE>
Section 4.1.14. Maclellan Family Agreement. The Purchaser
shall have entered into an agreement with the members of the Maclellan family,
in form and substance substantially in the form attached hereto as Exhibit 4.
Section 4.1.15. Legal Opinions. The Purchaser shall have
received an opinion or opinions of counsel to the Company, dated as of the
Closing, covering the matters set forth in Exhibit 5.
Section 4.2. Conditions to the Obligations of the Company.
The Company's obligation to sell the Shares shall be subject to the
satisfaction or waiver by it of the following conditions on or before the
Closing Date:
Section 4.2.1. Compliance with the Agreement. The Purchaser
shall have performed and complied in all material respects with all agreements
and conditions contained herein which are required to be performed or complied
with by it on or before the Closing Date.
Section 4.2.2. Purchaser's Representations and Warranties
Complete and Correct. The Purchaser's representations and warranties contained
in Section 2.2 of this Agreement shall be true and correct in all material
respects when made and shall be true and correct in all material respects at and
as of the Closing Date, after giving effect to the transactions contemplated by
this Agreement, as if made on and as of such date.
Section 4.2.3. Officer's Certificate. The Company shall have
received a certificate, dated the Closing Date and signed by a duly authorized
officer of the Purchaser, certifying that the conditions set forth in Section
4.2.2 are satisfied on and as of such date.
Section 4.2.4. Consents; Etc. The Company shall have
received all consents, approvals and other authorizations that may be
required from, and made all such filings and declarations that may be required
with, any governmental authority or agency pursuant to any law, statute,
regulation or rule (federal, state, local and foreign), or pursuant to any
agreement, order or decree by which the Company or any of its assets is bound,
in connection with the transactions contemplated by this Agreement.
<PAGE>
Section 4.2.5. HSR Act. Any required waiting periods under the
HSR Act relating to the transactions to be consummated on the Closing Date shall
have expired or been terminated.
Section 4.2.6. Merger Closing. The closing under the
Merger Agreement shall have occurred or shall occur simultaneously with the
Closing hereunder.
Section 4.2.7. Illegality, Etc. No statute, rule or
regulation, or order, decree or injunction enacted, entered, promulgated or
enforced by any court or governmental authority shall be in effect which
prohibits or restricts the consummation of the transactions contemplated hereby.
Section 4.2.8. Stockholder Approval. Each of the sale of
Shares pursuant to this Agreement, the issuance of shares of Common Stock
pursuant to the Merger Agreement and the Charter Amendment shall have been duly
approved by the stockholders of the Company entitled to vote with respect
thereto in accordance with applicable law and the Certificate of Incorporation
and Bylaws of the Company and, in the case of the issuance of shares of Common
Stock pursuant to the Merger Agreement and the sale of the Shares, the rules of
the NYSE.
Section 4.2.9. Exchange Listing. The Shares shall have
been approved for listing on the NYSE, subject to official notice of issuance.
Section 4.2.10. Financing of Cash Payments in Merger. The
Company shall have obtained financing for the aggregate cash payments to be made
to stockholders of Revere in the Merger pursuant to the Company Financing
Agreements.
Section 4.2.11. Legal Opinions. The Company shall have
received an opinion or opinions of counsel to the Purchaser, dated as of the
Closing, covering the matters set forth in Exhibit 6.
SECTION 5. TERMINATION
Section 5.1. Termination. This Agreement may be terminated
as follows:
<PAGE>
(a) by mutual written consent of the Company and the
Purchaser;
(b) by either party if the Closing shall not have occurred
by May 28, 1997 (and the failure of the Closing to occur is not due to
the breach by either party of this Agreement);
(c) by either party if the Merger Agreement is terminated;
(d) by either party (provided that the terminating party is
not then in material breach of any representation, warranty, covenant or other
agreement contained in this Agreement) in the event of a breach by the other
party of any representation or warranty contained in this Agreement which
cannot be or has not been cured within 30 days after the giving of written
notice to the breaching Party of such breach and which breach would cause (i)
in the case of a breach by the Company, the conditions set forth in Section
4.1.1 not to be satisfied (assuming the Closing were to occur on the date of
such termination), and (ii) in the case of a breach by the Purchaser, the
conditions set forth in Section 4.2.2 not to be satisfied (assuming the
Closing were to occur on the date of such termination); or
(e) by either party (provided that the terminating party is
not then in material breach of any representation, warranty, covenant or other
agreement contained in this Agreement) in the event of a material breach by the
other party of any covenant or agreement contained in this Agreement which
cannot be or has not been cured within 30 days after the giving of written
notice to the breaching party of such breach; or
(f) by either party (provided that the terminating party is
not then in material breach of any representation, warranty, covenant or other
agreement contained in this Agreement) in the event any court of competent
jurisdiction in the United States or some other governmental body or regulatory
authority shall have issued an order permanently restraining, enjoining or
otherwise prohibiting the sale of the Shares and such order shall have become
final and nonappealable; provided that the party seeking to terminate this
Agreement pursuant to this Section 5.1(f) shall have used all reasonable efforts
to remove such order; or
(g) by either party, if the sale of the Shares, the issuance
of shares of Common Stock in the Merger and the Charter Amendment shall have
<PAGE>
been voted on by stockholders of the Company and the vote shall not have been
sufficient to satisfy the conditions set forth in Sections 4.1.11 and 4.2.8.
Section 5.2. Effect of Termination. In the event of the
termination of this Agreement pursuant to Section 5.1, this Agreement shall
forthwith become void and have no effect, without any liability on the part of
any party hereto, other than the provisions of Sections 3.6, 3.9(b), 5.2, 5.3
and 6.1, which shall survive any such termination. Nothing contained in this
Section 5.2 shall relieve any party from liability for any willful breach of
this Agreement.
Section 5.3. Termination Fee. The Company hereby agrees that
if the Merger Agreement (or any similar agreement entered into by the Company
(and/or one or more of its affiliates) and Revere (or one or more of its
affiliates) which contemplates a business combination involving the Company and
Revere or sale of a majority of the equity interests or assets of the Company or
Revere to the other) is terminated and, in connection with such termination, the
Company (or any of its affiliates) receives a termination or similar fee (a
"Termination Fee"), the Company shall pay to the Purchaser, on the date a
Termination Fee is paid to the Company (or such affiliates), a cash fee in an
amount equal to 20% of the aggregate Termination Fee, payable in immediately
available funds to an account specified by the Purchaser.
SECTION 6. MISCELLANEOUS
Section 6.1. Expenses and Indemnification. (a) The Company
hereby agrees to pay or reimburse the Purchaser and its affiliates for all
out-of-pocket expenses (including the reasonable fees and disbursements of legal
counsel and investment and other advisors and consultants and expenses incurred
in connection with the preparation of the letter agreement dated April 27, 1996
(the "Commitment Letter"), this Agreement and the Ancillary Agreements) incurred
by any of them in connection with the Purchaser's consideration of various
proposed financing and other transactions between the Purchaser and/or its
affiliates and the Company and the transactions referred to herein, including,
without limitation, the transactions contemplated hereby and by the Merger
Agreement, whether incurred before or after the date hereof and whether or not
such transactions are made or effected; provided that the aggregate of such
amounts shall not exceed $1,500,000 and the Company shall not be obligated to
<PAGE>
make such payment or reimbursement prior to the earlier of (i) the Closing Date
and (ii) termination of this Agreement. Any such amounts shall be paid or
reimbursed promptly after invoicing thereof by the Purchaser which invoicing
shall be accompanied by supporting detail evidencing such expenses.
(b) In addition to the foregoing the Company agrees to
indemnify and hold harmless the Purchaser and any of its officers, partners,
members, directors, employees and affiliates (direct or indirect) from and
against all actions, suits, proceedings (including any investigations or
inquiries), claims, losses, damages, liabilities or expenses of any kind or
nature whatsoever ("Claims") which may be incurred by or asserted against or
involve the Purchaser, or any of its officers, partners, members, directors,
employees or affiliates (direct or indirect) as a result of any third party
claim arising out of the transactions contemplated hereby and, upon demand by
the Purchaser or any such officer, partner, member, director, employee or
affiliates, pay or reimburse any of the Purchaser or such officers, partners,
members, directors, employees or affiliates for any reasonable out-of-pocket
legal or other expenses, and other internal costs incurred by the Purchaser or
its officers, partners, members, directors, employees or affiliates (direct or
indirect) in connection with the investigation, defending or preparing to defend
any such Claim, provided that the foregoing indemnity shall not apply to the
extent any Claim arises from any material breach by the Purchaser of this
Agreement or the gross negligence or willful misconduct of an indemnified party.
(c) Each person entitled to indemnification under Section
6.1(b) (each an "Indemnified Party") shall give notice to the Company promptly
after such Indemnified Party has actual knowledge of any Claim as to which
indemnity may be sought, and shall permit the Company to assume the defense of
any such Claim; provided, that counsel for the Company, who shall conduct the
defense of such Claim, shall be approved by the Indemnified Party (which
approval shall not be unreasonably withheld) and the Indemnified Party may
participate in such defense at such party's expense (unless the Indemnified
Party shall have reasonably concluded that there is a conflict of interest
between the Indemnified Party and the Company in such action, in which case the
reasonable fees and expenses for one such counsel for all Indemnified Parties
(and one local counsel) shall be at the expense of the Company), and provided,
further, that the failure of any Indemnified Party to give notice as provided
herein shall not relieve the Company of its obligations under Section 6.1(b) or
this Section 6.1(c) unless the Company is materially prejudiced thereby. The
Company may not, in the defense of any such Claim, except with the consent of
<PAGE>
each Indemnified Party (which consent shall not be unreasonably withheld or
delayed), consent to entry of any judgment or enter into any settlement which
does not include as an unconditional term thereof thegiving by the claimant or
plaintiff to such Indemnified Party of a release from all liability in respect
of such Claim. Each Indemnified Party shall furnish such information regarding
itself or the Claim in question as the Company may reasonably request in writing
and as shall be reasonably required in connection with the defense of such
Claim.
Section 6.2. Survival of Agreements. The representations and
warranties (i) of the Company set forth in Sections 2.1.1, 2.1.2, 2.1.3, 2.1.4,
2.1.5, 2.1.7, 2.1.12, 2.1.15 and 2.1.17 hereof and (ii) of the Purchaser set
forth in Sections 2.2.1, 2.2.2, 2.2.3, 2.2.4, 2.2.6, 2.2.7 and 2.2.8 shall
survive the Closing indefinitely. None of the other agreements, representations
or warranties made in this Agreement, or any certificate or instrument delivered
to the Purchaser pursuant to or in connection therewith shall survive the
Closing; provided, however, that this Section 6.2 shall not limit any (x)
covenant or agreement of the parties hereto which by its terms contemplates
performance after the Closing Date or (y) rights or remedies otherwise available
to the Company or the Purchaser at law or in equity; provided, further, that the
Confidentiality Agreement shall survive any termination of this Agreement.
Section 6.3. Parties in Interest. All representations,
covenants and agreements contained in this Agreement by or on behalf of any of
the parties hereto shall bind and inure to the benefit of the respective
successors and assigns of the parties hereto whether so expressed or not;
provided that the Purchaser shall not assign its rights to purchase shares of
Common Stock under this Agreement to any non affiliate without first obtaining
the prior written consent of the Company, which consent may be withheld by the
Company in its sole discretion.
Section 6.4. Notices. All notices, requests, consents and
other communications hereunder shall be in writing and shall be delivered in
person or mailed by certified or registered mail, return receipt requested, or
sent by facsimile transmission, addressed as follows:
(a) if to the Company:
Provident Companies, Inc.
1 Fountain Square
Chattanooga, Tennessee 37402
Attention: Chief Financial Officer
Fax No.: (423) 755-2590
with a copy to:
<PAGE>
Alston & Bird
1201 W. Peachtree Street
Atlanta, Georgia 30309
Attention: F. Dean Copeland, Esq.
Fax No.: (404) 881-7777
(b) if to the Purchaser:
Zurich Insurance Company
Mythenquai 2
P.O. Box Ch-8022
Zurich, Switzerland
Attention: General Counsel
Fax No.: 011-411-202-1063
with copies to:
Zurich Center Resource Limited
One Chase Manhattan Plaza
New York, New York 10005
Attention: General Counsel
Fax No.: (212) 898-5002
Willkie Farr & Gallagher
153 East 53rd Street
New York, New York 10022
Attention: Thomas M. Cerabino, Esq.
Fax No.: (212) 821-8111
or, in any such case, at such other address or addresses as shall have been
furnished in writing by such party to the others. All notices, requests,
consents and other communications hereunder shall be deemed to have been duly
given or served on the date on which personally delivered or on the date
actually received, if sent by mail or telex, with receipt acknowledged.
Section 6.5. Governing Law. This Agreement shall be
governed by and construed in accordance with the laws of the State of New
York, without giving effect to conflicts of law principles thereof.
Section 6.6. Entire Agreement. This Agreement, including the
Schedules and Exhibits hereto, constitutes the sole and entire agreement of
<PAGE>
the parties with respect to the subject matter hereof. All Schedules and
Exhibits hereto are hereby incorporated herein by reference. The Commitment
Letter shall hereby be deemed to be terminated.
Section 6.7. Counterparts. This Agreement may be executed
in counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 6.8. Amendments. This Agreement may not be amended
or modified, and no provisions hereof may be waived, without the written
consent of the Company and the Purchaser.
Section 6.9. Severability. If any provision of this
Agreement shall be declared void or unenforceable by any judicial or
administrative authority, the validity of any other provision and of the
entire Agreement shall not be affected thereby.
Section 6.10. Titles and Subtitles. The titles and subtitles
used in this Agreement are for convenience only and are not to be considered
in construing or interpreting any term or provision of this Agreement. The term
"date of this Agreement" and words of similar import (such as "date hereof")
shall mean and refer to May 31, 1996.
Section 6.11. Further Assurances. From and after the date of
this Agreement, upon the request of the Purchaser or the Company, the Company
and the Purchaser shall execute and deliver such instruments, documents and
other writings as may be reasonably necessary or desirable to confirm and carry
out and to effectuate fully the intent and purposes of this Agreement and the
Preferred Shares.
<PAGE>
IN WITNESS WHEREOF, the Company and the Purchaser have
executed this Agreement as of the day and year first above written.
PROVIDENT COMPANIES, INC.
By:/s/ Thomas R. Watjen
Name: Thomas R. Watjen
Title: Executive Vice President
ZURICH INSURANCE COMPANY
By:/s/ Steven M. Gluckstern
Name: Steven M. Gluckstern
Title: Representative
<PAGE>
EXHIBIT 1
Strategic Relationship
Overview of Terms
The strategic relationship described herein will be set forth in a "Marketing
Agreement" entered into by the parties. The concepts listed below require
further discussions to develop them fully, but it is contemplated that the
Marketing Agreement would include the following:
1. Provident intends to continue to offer a wide range of
Individual and Employee Benefit products to its customers,
through multiple distributions channels. Provident would
agree to utilize products developed by Zurich whenever
possible to meet its customers' needs. In the Individual
marketplace, these products opportunities may include term
life, whole life, universal life, variable universal life,
individual property and casualty insurance products, and
fixed and variable annuities. When a "Zurich product" is
sold, Provident would expect to receive consideration "normal
and customary" for the business and would expect to have
reasonable opportunity to participate as a reinsurer on this
business.
2. Provident intends to expand its offerings of retirement/asset
accumulation products to its Individual and Employee Benefits
customers. It would be Provident's intent, depending on the
products' design and features, to offer to its customers
mutual funds and institutional asset management services
offered by Zurich. As Provident considers integrating life
and investment product features into its Disability products,
Provident would intend to utilize Zurich's products, as
appropriate, in these new product offerings. Provident would
again expect "normal and customary" consideration when
placing business in this capacity.
3. Zurich would agree to market Provident's Individual
Disability product through its U.S. marketing channels
whenever possible, including Kemper. The terms of such an
agreement would be similar to those used in other "Corporate
Agreements", where Zurich would receive consideration for
acting as an intermediary. Provident would also intend to
offer Zurich the opportunity to reinsure a portion of this
business if appropriate.
4. Zurich and Provident would jointly explore opportunities to
market Individual and Group Disability products outside the
U.S. In general it would be expected that Provident would
<PAGE>
contribute its product and risk management expertise, while
Zurich would contribute its local market knowledge and
marketing capabilities.
5. Zurich and Provident would jointly explore opportunities
which may exist in linking Group Long-Term Disability
coverage with Workers Compensation coverage. Both companies
recognize the potential market for a "24 hour" coverage and
would commit the resources necessary to investigate whether a
mutually acceptable opportunity may exist.
6. Zurich and Provident would continue to seek other
opportunities to leverage each other's strengths, and to
bring better value and service to both organizations'
customers. This may include reinsurance transactions and
potential investment management ventures.
7. If Provident elects to engage in a significant reinsurance
transaction with respect to its Individual Disability block
of business, Provident will give Zurich the right to provide
such reinsurance on market terms. Provident agrees to offer
to Zurich the opportunity to propose other reinsurance
transactions and investment management arrangements and to
consider such proposals in good faith.
The strategic initiatives outlined above would not be finalized prior to the
closing of the other "Investor Transactions" described in the letter agreement
to which this Exhibit is attached. Provident and Zurich would however expect
to refine the understanding noted above and have such an understanding
documented in a general "Marketing Agreement".
Each of Zurich and Provident would commit up to $1.5 million to a joint
marketing/development program to fund the expenses and/or hire dedicated staff
to pursue the relationship.
<PAGE>
EXHIBIT 10.16
AMENDED AND RESTATED RELATIONSHIP AGREEMENT
BETWEEN PROVIDENT COMPANIES, INC. AND
ZURICH INSURANCE COMPANY DATED AS OF MAY 31, 1996.
(attached)
<PAGE>
EXHIBIT 10.16
AMENDED AND RESTATED
RELATIONSHIP AGREEMENT
THIS AMENDED AND RESTATED RELATIONSHIP AGREEMENT (this "Agreement") is
made and entered into as of May 31, 1996, by and between PROVIDENT COMPANIES,
INC., a corporation organized and existing under the laws of the State of
Delaware (the "Company"), and ZURICH INSURANCE COMPANY, a corporation organized
and existing under the laws of Switzerland (the "Investor").
WHEREAS, on May 31, 1996 the parties hereto signed the original
Relationship Agreement and such parties desire to amend and restate such
Agreement as of such date; and
WHEREAS, this Amended and Restated Relationship Agreement is being
executed on November 27, 1996 as of May 31, 1996;
NOW, THEREFORE, in consideration of the mutual warranties,
representations, covenants and agreements set forth herein, the parties,
intending to be legally bound, agree as follows:
ARTICLE ONE
DEFINITIONS
As used in this Agreement and any amendments hereto, the following
terms shall have the following meanings respectively:
"Affiliate" shall have the meaning set forth in regulations of the
SEC included in 17 C.F.R. ss. 230.405.
"Beneficial owner" (and various derivations of such term such as
"beneficially owned") shall have the meaning set forth in the regulations of the
SEC included in 17 C.F.R. ss. 240.13d-3; provided that for purposes of this
Agreement, any option, warrant, right, conversion privilege or arrangement to
purchase, acquire or vote Company Voting Securities regardless of the time
period during or at which it may be exercised and regardless of the
consideration paid shall be deemed to give the holder thereof beneficial
ownership of the Company Voting Securities to which it relates (excluding,
however, First Offer Shares (as defined in the Amended and Restated
Family Stockholder Agreement (as the same may be amended or
supplemented from time to time, the "Family Agreement") to be dated
as of the Closing (as defined in the Purchase Agreement) among the
Investors and the holders of Family Shares (the "Family
Stockholders") until such time as such First Offer Shares are acquired by the
Investor or an affiliate thereof pursuant to the Family Agreement). Any Company
Voting Securities which are subject to such options, warrants, rights,
conversion privileges or other arrangements shall be deemed to be outstanding
for purposes of computing the percentage of outstanding securities owned by such
Person but shall not be deemed to be outstanding for the purpose of computing
the percentage of outstanding securities owned by any other Person.
<PAGE>
"Common Stock" shall mean the $1.00 par value common stock of the
Company and any security which is exchanged or substituted for such common
stock.
"Company Voting Securities" shall mean all classes of capital stock of
the Company which are then entitled to vote generally in the election of
directors and any securities exchanged or substituted for such classes of
capital stock and any securities convertible into or exchangeable or exercisable
for (whether or not presently convertible, exchangeable or exercisable) such
classes of capital stock. For purposes of determining the amount or percentage
of outstanding Company Voting Securities beneficially owned by a Person, and for
purposes of calculating the aggregate voting power relating to such
Company Voting Securities, securities that are
deemed to be outstanding shall be included to the extent provided in the
definition of "beneficial owner."
"Effective Time" shall have the meaning set forth in the Merger
Agreement (as defined below).
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Family Representatives" shall mean initially Hugh O. Maclellan,
Jr., Charlotte M. Heffner, Kathrina H. Maclellan and The Maclellan
Foundation, Inc. (the "Foundation"), or such other persons as shall
have been appointed by written notice to the Company and the Investor as the
representatives of the holders of the Family Shares for purposes of this
Agreement; provided, however, that the number of Family Representatives
shall not exceed four at any time.
"Family Shares" shall mean any Company Voting Securities beneficially
owned by the Foundation, trusts for the benefit of the Foundation or those
members of the Maclellan family and other trusts and foundations identified on
Schedule A attached hereto.
"Initial Threshold" shall mean that percentage of the Outstanding
Voting Power equal to the percentage of the Company Voting Securities
beneficially owned by the Investor as of the Closing (as defined in the Purchase
Agreement), after giving effect to the transactions contemplated by the Purchase
Agreement and the Merger Agreement (as defined in the Purchase Agreement).
<PAGE>
"Outstanding Voting Power" shall mean total number of votes which may
be cast in the election of directors of the Company at any meeting of
stockholders of the Company if all Company Voting Securities then outstanding
were present and voted at such meeting, other than votes that may be cast only
by one class or series of stock (other than the Common Stock) or upon the
happening of a contingency.
"Purchase Agreement" shall mean that certain Common Stock Purchase
Agreement, dated as of even date herewith, by and between the Company and the
Investor, as the same may be amended.
"Party" shall mean either the Company, on the one hand, or the
Investor, on the other hand, and "Parties" shall mean the Company and the
Investor.
"Person" shall mean a natural person or any legal, commercial or
governmental entity, such as, but not limited to, a corporation, general
partnership, joint venture, limited partnership, limited liability company,
trust, business association, group (within the meaning of Section 13(d)(3) of
the Exchange Act), or any person acting in a representative capacity.
"Purchase Agreement" shall mean the Amended and Restated Common
Stock Purchase Agreement, entered into as of November 27, 1996 and dated
as of May 31, 1996, by and between the Investor and the Company,
as the same may be amended.
"Qualifying Tender Offer" shall mean an offer to purchase or exchange
for cash or other consideration any Company Voting Securities (whether pursuant
to a tender offer within the meaning of Section 14(d) of the Exchange Act or
otherwise) (i) which is made by or on behalf of the Company or (ii) which is
made by or on behalf of any other Person and which is approved by the Board of
Directors of the Company or not opposed by the Board of Directors
of the Company by two business days prior to the expiration of such offer.
"Registration Rights Agreement" shall mean the Amended and Restated
Registration Rights Agreement, dated as of May 31, 1996, between the Investor
and the Company, as the same may be amended.
<PAGE>
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Standstill Agreement" shall mean the Standstill Agreement, dated as of
April 29, 1996, by and between the Company and Textron.
"Subsidiary" shall mean any "Subsidiary" of the Company as defined in
Regulation S-X under the Exchange Act.
"Textron" shall mean Textron Inc. and its successors and assigns.
"Textron Shares" shall mean (i) all of the shares of Common Stock
issued to Textron in the Merger and (ii) any Company Voting Securities issued in
respect of any subdivision, split or dividend on the shares of Common Stock
described in subparagraph (i).
ARTICLE TWO
COVENANTS AND AGREEMENTS
2.1 Directors.
(a) Effective as of the Closing, the Company shall take such
action as may be necessary to increase by two the number of members of the Board
of Directors of the Company and to elect to fill such newly created vacancies
two persons designated by the Investor. So long as the Investor is the
beneficial owner of Company Voting Securities representing 10% or more of the
Outstanding Voting Power, the Investor shall be entitled to designate two
persons to serve as directors of the Company. So long as the Investor and its
Affiliates are the beneficial owners of Company Voting Securities representing
5% or more but less than 10% of the Outstanding Voting Power, the Investor shall
be entitled to designate one person to serve as a director of the Company. In
the event that the Investor and its Affiliates are the beneficial owners of
Company Voting Securities representing less than 5% of the Outstanding Voting
Power, the Investor shall not be entitled to designate any person to serve as a
director of the Company. Each of the persons designated by the Investor pursuant
to this Section 2.1(a) is referred to herein as an "Investor Designee."
<PAGE>
(b) The Company shall use all reasonable efforts to cause the
election of the required number of Investor Designees to the Board of Directors
of the Company including taking the following actions: (i) at each annual
meeting of Company stockholders at which an Investor Designee's term as a
director expires or at any other meeting of the Company's stockholders at which
directors are to be elected, if the Investor is still entitled to designate one
or more persons to serve as a director of the Company in accordance with this
Agreement, the Investor Designees shall be included in the slate of
nominees recommended by the Company's Board of Directors to the stockholders for
election as directors, unless either (x) an Investor Designee requests not to be
so included in the slate of nominees, in which case such Investor Designee shall
not be so included, or (y) service by an Investor Designee as a director or his
nomination for election as a director is violative of applicable law or
regulation (provided that, in such case, the Investor shall be provided an
opportunity to designate an alternate person to serve as a director). and (ii)
in the event that an Investor Designee is unable to serve, or once having
commenced to serve, is removed or withdraws from the Board of Directors of the
Company, the Investor will have the right to designate such person's replacement
and the Company agrees to take all reasonable action within its power to cause
the election of the substitute Investor Designee to the Board of Directors of
the Company as soon as possible following such person's designation.
(c) In the event that, any time after an annual meeting of
Company stockholders in connection with which the Investor was entitled to
designate two Investor Designees and such Investor Designees were elected as
directors, such Investor Designees are still serving as directors, and prior to
the next annual meeting of Company stockholders the Investor shall beneficially
own Company Voting Securities representing less than 10% but 5% or more of the
Outstanding Voting Power, then, at the request of the Company (provided Investor
at the time of such request shall still beneficially own Company Voting
Securities representing less than 10% but 5% or more of the Outstanding Voting
Power), the Investor shall use all reasonable efforts to cause one of the
Investor Designees then in office to resign as a director. In the event that,
any time after an annual meeting of Company stockholders in connection with
which the Investor was entitled to designate one or more Investor Designees,
such Investor Designees were elected as directors and such Investor Designees
are still serving as directors at such time prior to the next annual meeting of
Company stockholders when the Investor shall beneficially own Company Voting
Securities representing less than 5% of the Outstanding Voting Power, then, at
the request of the Company (provided Investor at the time of such request still
beneficially owns Company Voting Securities representing less than 5% of the
Outstanding Voting Power), the Investor shall use all reasonable efforts to
cause all Investor Designees then in office to resign as directors.
<PAGE>
(d) At the request of the Investor, the Company shall cause
the Investor Designees then required to be included in the slate of nominees
recommended by the Company's Board of Directors for the election to the
Company's Board of Directors to be elected to serve on the Board of Directors of
each Subsidiary.
(e) So long as the Investor beneficially owns Company Voting
Securities representing 5% or more of the Outstanding Voting Power, the Company
shall effect all action necessary to appoint one Investor Designee to the
Executive Committee of the Board of Directors (or other committee or group
performing similar functions) (the "Executive Committee") of the Company and
each Subsidiary having such a committee or group on which an Investor Designee
serves as a director.
(f) If after the Closing, the Company takes corporate action
to classify the Board of Directors of the Company, the Investor Designees (if
the Investor is then entitled to designate two directors) shall be designated to
serve on different classes.
(g) So long as the Investor is entitled to designate at least
one member of the Board of Directors of the Company, during any period that the
requisite number of Investor Designees are not members of the Board of
Directors, the Company shall cause one person (to be designated by the Investor
in its sole discretion) to be permitted to attend all meetings of the Board of
Directors of the Company and all meetings of the Executive Committee of the
Company. The Company shall take all action necessary to ensure that (i) the
Investor is notified of all meetings of the Board of Directors in accordance
with and at the times prescribed by the notice provisions of the by-laws of the
Company applicable to directors of the Company and (ii) that the Investor is
furnished with all information and materials furnished to directors of the
Company in connection with any meetings of the Board of Directors or the
Executive Committee at the time such information and materials are furnished to
the directors.
2.2 Acquisition of Voting Securities.
(a) Neither the Investor or any of its Affiliates shall,
directly or indirectly, in any manner, acquire any Company Voting Securities,
if, after giving effect to such acquisition, the Investor and its Affiliates
would beneficially own, in the aggregate, Company Voting Securities representing
more than the Initial Threshold; provided, however, that this Section 2.2 shall
<PAGE>
not prohibit the acquisition by the Investor or any of its Affiliates of any
Company Voting Securities the acquisition of which would cause the Investor and
its Affiliates to beneficially own Company Voting Securities in excess of the
Initial Threshold if (i) such securities (x) are Family Shares, (y) are other
than Family Shares if the Investor is unable to exercise the right of first
offer set forth in Section 2 of the Family Agreement due to the restrictions set
forth in clause (ii) of this Section 2.2(a) without giving effect to the proviso
to such clause (ii) or (z) are purchased from Textron (provided that (1) the
number of Company Voting Securities purchased from Textron do not exceed
one-half of the Textron Shares and (2) the Investor or such Affiliate shall have
first offered to the Family Representatives, on behalf of the holders of the
Family Shares, a right to sell the same number of Company Voting Securities to
the Investor or such Affiliate on the same terms as those offered to Textron,
which offer shall not have been irrevocably accepted in full by each of the
Family Representatives, on behalf of all of the holders of the Family Shares,
within 15 business days after such notice is given to each of the Family
Representatives, which acceptance shall identify the selling holders of Family
Shares) and (ii) after giving effect to any such acquisition, the Investor and
its Affiliates would beneficially own Company Voting Securities representing not
more than 40% of the Outstanding Voting Power; provided, further, that,
notwithstanding the foregoing, the Investor and its Affiliates may acquire
Family Shares as would result in the Investor and its Affiliates beneficially
owning Company Voting Securities representing more than 40% of the Outstanding
Voting Power if the Investor or its Affiliates first offer to purchase all of
the issued and outstanding Company Voting Securities at the price offered to be
paid for such Family Shares pursuant to either a tender offer to all holders of
Company Voting Securities or a definitive merger agreement (provided, that if
the Company's Board of Directors recommends that the holders of the Company
Voting Securities accept such offer and tender their shares, such offer shall be
made pursuant to a definitive merger agreement (or a tender offer followed by a
merger) on the same terms).
(b) No provision contained in this Agreement shall
require the Investor or any of its Affiliates to dispose of any Company
Voting Securities if the aggregate percentage of the Outstanding Voting Power
represented by Company Voting Securities beneficially
owned by the Investor and its Affiliates is increased as a result of a
recapitalization of the Company or a repurchase of securities by the Company
or any other action taken by the Company or any of its Affiliates (other than
the Investor or its Affiliates).
<PAGE>
(c) The agreements of the Investor set forth in this Section
2.2 shall terminate on the seventh anniversary of the Closing and neither the
Investor nor any of its Affiliates shall have any further obligations or
liabilities hereunder or in respect hereof.
2.3 Exercise of Right of First Refusal. So long as the Investor and its
Affiliates have complied with the provisions of Section 2.2(a) hereof, (a) the
Company shall not exercise any of the rights set forth in Section 3.4 of the
Standstill Agreement with respect to any proposed sale or transfer of Company
Voting Securities by Textron or any of its Subsidiaries (as defined in the
Standstill Agreement) to the Investor or any of its Affiliates and (b) if the
Company receives notice of a proposed sale or transfer of the Textron Shares to
any Person other than the Investor or any of its Affiliates and if requested in
writing by the Investor, the Company shall take such actions as are within its
control to cause the Investor or an Affiliate thereof designated by the Investor
to be the Person designated by the Company to purchase such securities in
accordance with the provisions of Section 3.4(b) of the Standstill Agreement;
provided that any such request by the Investor shall be accompanied by evidence
reasonably satisfactory to the Company that any such sale or transfer to the
Investor or its Affiliates will comply with Section 2.2(a).
2.4 Sales of Company Voting Securities. During the period commencing on
the Closing and ending on the seventh anniversary thereof, neither the Investor
nor any of its Affiliates shall sell, transfer, assign or otherwise dispose of
("Transfer") its beneficial interest in any Company Voting Securities, except:
(a) to the Company or to any Person approved in a resolution adopted by a
majority of the Board of Directors of the Company; (b) in conversion, exchange
or otherwise pursuant to the terms of such Company Voting Securities; (c) in a
merger or consolidation in which the Company is acquired, in a plan of
liquidation of the Company, or pursuant to a Qualifying Tender Offer; (d)
pursuant to a bona fide underwritten public offering including a public sale
pursuant to a registration under the Registration Rights Agreement; (e) pursuant
to Rule 144 under the Securities Act; (f) to the Investor or an Affiliate of the
Investor, provided that such Affiliate shall expressly assume in a writing duly
executed by it and delivered to the Company all of the obligations and
restrictions contained in this Agreement pertaining to the Investor and shall
agree to transfer such Company Voting Securities to the Investor or
another Affiliate of the Investor if such
<PAGE>
Affiliate ceases to be an Affiliate of the Investor; (g) to Insurance Partners,
L.P. or Insurance Partners Offshore (Bermuda), L.P. or one or more Affiliates of
either of them (each, an "IP Entity" and collectively, the "IP Entities"),
provided that (i) all voting rights with respect to such Company Voting
Securities are retained by the Investor or an Affiliate thereof until the IP
Entity holding such Company Voting Securities Transfers such Company Voting
Securities in accordance with this Section 2.4 and (ii) each IP Entity acquiring
such shares shall expressly assume in a writing duly executed by it and
delivered to the Company the obligations and restrictions contained in this
Section 2.4 pertaining to the Investor, provided, further, that notwithstanding
any provision of this Section 2.4 to the contrary, with respect to the shares of
Company Voting Securities (not to exceed 3,174,604 shares) acquired from the
Investor by the IP Entities following the acquisition of such shares by the
Investor or an Affiliate of the Investor pursuant to the Purchase Agreement
(including any shares issued in respect of any subdivision, split or dividend on
such shares, the "Original IP Shares"), (A) each IP Entity shall be permitted to
Transfer its beneficial interest in Original IP Shares free and clear of any
restrictions or obligations contained in this Section 2.4 if such Transfer is
required pursuant to the terms of any of the documents, instruments or
agreements (the "Loan Documentation") entered into in connection with the
financing of the purchase by any of the IP Entities of such Original IP Shares
(a "Financing") and (B) nothing contained in this Section 2.4 shall restrict the
ability of any lender providing Financing from exercising any remedies provided
for in the Loan Documentation applicable to such Financing, including, without
limitation, Transferring any Original IP Shares to which such Financing relates
free and clear of any of the restrictions and obligations contained in this
Section 2.4; and (h) in any other manner, provided that prior to making any
offer to sell, sale or other transfer to any Person pursuant to this clause (h)
of Company Voting Securities representing beneficial ownership of more than two
percent (2%) of the Outstanding Voting Power, the Investor shall give the
Company the opportunity to purchase, or to designate an alternative purchaser
of, such Company Voting Securities in the following manner:
(i) The proposed transferor of such Company Voting Securities
shall give to the Company written notice (the "Transfer Notice") of the
proposed transfer, specifying the proposed transferee, the number of
Company Voting Securities proposed to be disposed of, the proposed
consideration to be received in exchange therefor, and the other
material terms of the proposed transfer.
(ii) The Company shall have the right, exercisable by written
notice given to the Person which gave the Transfer Notice within seven
(7) business days after receipt of such Notice, to purchase (or to
cause another Person designated by the Company to purchase) all, but
not less than all, of the Company Voting Securities specified in such
<PAGE>
Notice for cash at the purchase price set forth therein. If the
consideration specified in the Transfer Notice includes any property
other than cash, such purchase price shall be deemed to be the amount
of any cash included as part of such consideration plus the value (as
jointly determined by a nationally recognized investment banking firm
selected by each Party or, in the event such firms are unable to agree,
a third nationally recognized investment banking firm to be selected by
the first two such firms) of such other property included in such
consideration and the date on which the Company must exercise its right
of first refusal shall be extended until five (5) business days after
the determination of the value of property included in the
consideration.
(iii) If the Company exercises its right of first refusal
hereunder, the closing of the purchase of the Company Voting Securities
with respect to which such right has been exercised shall take place
within five (5) business days after the Company gives notice of such
exercise; provided that if any approval of or notice to any
governmental authority or agency is required in connection with such
purchase of Company Voting Securities, the parties shall use all
reasonable efforts to obtain such approvals or to make such notices and
the closing shall take place within two (2) business days after receipt
of the last such approval and expiration of any required waiting
periods. If the Company does not exercise its right of first refusal
hereunder within the time specified for such exercise, the Person
giving the Transfer Notice shall be free during the period of six
months following the expiration of such time for exercise to sell the
Company Voting Securities specified in such Notice to any Person for
the consideration specified therein (or at any price in excess
thereof).
<PAGE>
ARTICLE THREE
MISCELLANEOUS
3.1 Further Assurances. From time to time after the execution of this
Agreement, as and when requested by the Company and the Investor and to the
extent permitted by Delaware law, the Parties shall take or cause to be taken
such further or other action as shall be necessary to carry out the purposes of
this Agreement.
3.2 Effectiveness of Agreement. The respective rights and
obligations of the Parties under this Agreement shall arise from and after
the Closing.
3.3 Remedies. The Parties recognize and hereby acknowledge
that it may be difficult to accurately measure the amount of damages that
would result to a Party by reason of a failure of the other Party to
perform any of the obligations imposed on it by this
Agreement. The Parties accordingly agree that each such Party shall be
entitled to an injunction to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof in any court of the United States
or any state having jurisdiction, in addition to any other remedies to which
such Party may be entitled at law or in equity in accordance with this
Agreement.
3.4 Notices. Any notices or other communications required or permitted
under this Agreement shall be effective only if it is in writing and delivered
personally, by facsimile transmission, or by registered or certified mail,
postage pre-paid, addressed as follows:
The Company: Provident Companies, Inc.
1 Fountain Square
Chattanooga, Tennessee 37402
Telecopy: (423) 755-2590
Attention: Chief Financial Officer
Copy to Counsel: Alston & Bird
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
Telecopy: (404) 881-7777
Attention: F. Dean Copeland
The Investor: Zurich Insurance Company
Mythenquai 2
P.O. Box Ch-8022
Zurich, Switzerland
Telecopy: 011-411-205-1063
Attention: General Counsel
<PAGE>
With Copies to: Zurich Center Resource Limited
One Chase Manhattan Plaza
New York, New York 10005
Telecopy: (212) 898-5002
Attention: General Counsel
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, New York 10022
Telecopy: (212) 821-8111
Attention: Thomas M. Cerabino, Esq.
Family Stockholders: Hugh O. Maclellan, Jr.
Suite 501
Provident Building
One Fountain Square
Chattanooga, TN 37402
Telephone: (423)755-8141
Facsimile: (423)755-1640
A.S. MacMillan
Team Resources
Suite 425
River Edge One
5500 Interstate North Parkway
Atlanta, GA 30328
Telephone: (770)955-5135
Facsimile: (770)955-1602
Charlotte M. Heffner
3655 Randall Hall, NW
Atlanta, GA 30327
Telephone and Facsimile: (404)233-7238
Kathrina H. Maclellan
125 Fairy Trail
Lookout Mountain, Tennessee 37350
<PAGE>
With a Copy To: King & Spalding
120 West 45th Street
New York, NY 10036
Telephone: (212) 556-2100
Facsimile: (212) 556-2222
Attention: E. William Bates, II
or such other address as shall be furnished in writing by any of the
Parties. Any such notice or communication shall be deemed to have been given as
of the date so personally delivered or mailed.
3.5 Amendments. This Agreement may be amended by a subsequent
writing signed by both Parties upon the approval of each of the Parties.
3.6 Counterparts. This Agreement may be executed in two or more
counterparts all of which shall be one and the same Agreement and shall become
effective when one or more counterparts have been signed by each Party and
delivered to the other Party.
3.7 Headings. The headings in this Agreement are for
convenience only and shall not affect the construction or interpretation of
this Agreement.
3.8 Successors and Assigns. All terms and conditions of this Agreement
shall be binding upon and inure to the benefit of and be enforceable by any
successor to the Investor and any successor to the Company. Except as otherwise
provided in this Section 3.8, any assignment of the rights and obligations of
the Parties under this Agreement shall be effective upon a written agreement
signed by all the Parties.
3.9 Severability. If any provision of this Agreement shall be held to
be illegal, invalid or unenforceable, such illegality, invalidity or
unenforceability shall attach only to such provision and shall not in any manner
affect or render illegal, invalid or unenforceable any other provision of this
Agreement, and this Agreement shall be carried out as if any such illegal,
invalid or unenforceable provision were not contained herein.
3.10 Entire Agreement. This Agreement constitutes the entire
understanding between and among the Parties with respect to the subject matter
hereof and shall supersede any prior agreements and understandings among the
Parties with respect to such subject matter.
<PAGE>
3.11 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without
giving effect to conflicts of law principles thereof.
3.12 No Third Party Beneficiaries. Except for the Family
Representatives solely with respect to the provisions of Section 2.2 applicable
to the holders of Family Shares, this Agreement is not intended to confer upon
any Person any rights or remedies hereunder.
IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be
duly executed and delivered as of the date above written.
PROVIDENT COMPANIES, INC.
By: /s/ Thomas R. Watjen
Name: Thomas R. Watjen
Title: Executive Vice President
ZURICH INSURANCE COMPANY
By: /s/ Steven M. Gluckstern
Name: Steven M. Gluckstern
Title: Representative
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
SHARES OWNED
AS OF
FAMILY SHAREHOLDERS 3/4/96
------------------- ------------
<S> <C>
Suntrust Trust, D. Porter Jr., K.H. Maclellan & R.H. Maclellan, TTEES UAW R.J.
Maclellan for R.L. Maclellan Family Trust (#2151) 538,345
Suntrust Trust, D. Porter Jr., K.H. Maclellan & R.H. Maclellan, TTEES UAW R.J.
Maclellan for R.L. Maclellan Family Trust Inv. Inc. (#215109) 116,425
Suntrust Trust, H.O. Maclellan Jr., C.M. Heffner & T.H. McCallie III, TTEES UAW R.J.
Maclellan Tr. for H.O. Maclellan Sr. Fam. (#2152) 522,615
Suntrust Trust, H.O. Maclellan Jr., C.M. Heffner & T.H. McCallie III, TTEES UAW R.J.
Maclellan Tr. for H.O. Maclellan Sr. Fam. Inv. Inc. (#215209) 120,675
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SHARES OWNED
AS OF
FAMILY SHAREHOLDERS 3/4/96
------------------- ------------
<S> <C>
Suntrust Trust, D. Porter Jr., K.H. Maclellan & R.H. Maclellan, TTEES UAW Cora L.
Maclellan Tr. For R.L. Maclellan Fam. (#2155) 535,820
Suntrust Trust, D. Porter Jr., K.H. Maclellan & R.H. Maclellan, TTEES UAW Cora L.
Maclellan Tr. For R.L. Maclellan Fam. Inv. Inc. (#215509) 97,520
Suntrust Trust, H.O. Maclellan Jr., C.M. Heffner & T.H. McCallie III, TTEES UAW Cora
L. Maclellan for H.O. Maclellan Sr. Fam. Tr. (#2156) 518,695
Suntrust Trust, H.O. Maclellan Jr., C.M. Heffner & T.H. McCallie III, TTEES UAW Cora
L. Maclellan for H.O. Maclellan Sr. Fam. Tr. Inv. Inc. (#215609) 91,110
Suntrust Trust, H.O. Maclellan Jr., D. Porter Jr. & K.H. Maclellan, TTEES for R.J.
Maclellan Trust for the Maclellan Foundation Inc. (#2150) 3,470,123
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SHARES OWNED
AS OF
FAMILY SHAREHOLDERS 3/4/96
------------------- ------------
<S> <C>
Suntrust Trust, H.O. Maclellan Jr., D. Porter Jr. & K.H. Maclellan, TTEES for Cora L.
Maclellan Trust for the Maclellan Foundation Inc. (#2154) 34,538
The Maclellan Foundation Inc. 8,115,514
Christian Education Charitable Trust 711,100
H.O. Maclellan Jr., C.M. Heffner, Henry A. Henegar, Lee S. Anderson, Frank A. Brock
TTEES U/A Dtd 4/23/93, Hugh & Charlotte Maclellan Charitable Trust 392,706
Helen M. Tipton Charitable Trust 1,565,842
Estate of Hugh O. Maclellan Sr. 50,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SHARES OWNED
AS OF
FAMILY SHAREHOLDERS 3/4/96
------------------- ------------
<S> <C>
Mrs. Charlotte F. Maclellan 390,725
C.M. Heffner, H.O. Maclellan Jr. & US Tr. Co. of FL TTEES UTA Dtd 8/2/52 with C.F.
Maclellan for the Primary Benefit of Charlotte M. Heffner 67,200
J.P. Gaither, H.O. Maclellan Jr. & C.M. Heffner, TTEES UTA Dtd 6/2/52 with C.F.
Maclellan for H.O. Maclellan Jr. 69,200
Hugh O. Maclellan Jr. & Charlotte M. Heffner Co-TTEES U/A H.O. Maclellan Sr. FBO
Great-grandchildren 60,000
Mrs. Kathrina H. Maclellan 1,389,344
Trust U/W Anne Maclellan Munford (Cede & Co.) 585,000
US Trust Company of NY, Successor TTEE for Lara L. Munford U/A with Kathrina H.
Maclellan Dtd 8/5/76 2,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SHARES OWNED
AS OF
FAMILY SHAREHOLDERS 3/4/96
------------------- ------------
<S> <C>
US Trust Company as Corporate TTEE Charitable Remainder Unitrust of Kathrina H.
Maclellan 8/11/76 50,000
Suntrust Trust, Trustee UAW Robert Howze Maclellan Dtd 9/22/88 (US-TTEE 249,507;
ANB-DTC 19,523) 259,230
Suntrust Trust, C/F J.F. Decosimo & J.N. Irvine, Co-TTEES UAW Robert H. Maclellan for
Heather Howze Maclellan (ST-Summit) 2,397
Suntrust Trust, C/F J.F. Decosimo & J.N. Irvine, Co-TTEES UAW Robert H. Maclellan for
Ian Llewellyn Maclellan (ST-Summit) 2,397
Trust for R.L. Maclellan & K.H. Maclellan Foundation U/A Mrs. Kathrina H. Maclellan
Dtd 1/4/73 (Cede & Co.) 45,416
K.H. Maclellan & US Trust Company of NY, TTEES for Second Charitable Remainder
Unitrust of K.H. Maclellan Dtd 12/17/81 Their Successor in Tr. & Assign 27,500
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SHARES OWNED
AS OF
FAMILY SHAREHOLDERS 3/4/96
------------------- ------------
<S> <C>
Hugh O. Maclellan Jr. 827,150
Hugh O. Maclellan Jr. & Suntrust Bank TTEES UTA 12/08/48 for Hugh O. Maclellan Jr. 299,916
Hugh O. Maclellan Jr. TTEE FBO Catherine H. Maclellan Dtd 11/19/66 UTS H.O. Maclellan 51,091
Hugh O. Maclellan Jr. TTEE FBO Daniel O. Maclellan Dtd 7/8/68 UTA H.O. Maclellan Sr. 51,060
Hugh O. Maclellan Jr. TTEE FBO Christopher H. Maclellan UTA H.O. Maclellan Sr. 47,435
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SHARES OWNED
AS OF
FAMILY SHAREHOLDERS 3/4/96
------------------- ------------
<S> <C>
H.O. Maclellan Jr. & Suntrust Trust, TTEES UITA of H.O. Maclellan Sr. FBO Catherine
H. Maclellan & Her Descs Dtd 5/29/70 (#4629) 100,612
H.O. Maclellan Jr. & Suntrust Trust, TTEES UITA of H.O. Maclellan Sr. FBO Daniel O.
Maclellan & His Descs Dtd 5/29/70 (#4630) 100,523
H.O. Maclellan Jr. & Suntrust Trust, TTEES UITA of H.O. Maclellan Sr. FBO Christopher
H. Maclellan & His Descs Dtd 5/29/70 (#4631) 100,715
Hugh O. Maclellan Jr. & Charlotte M. Heffner, TTEES for Hugh O. Maclellan Sr. Dtd
1/31/67 1,740
C.F. Maclellan, H.O. Maclellan Jr., L.S. Anderson & J.C. Stophel, TTEES of the H.O.M.
Sr. Char. Inc. Tr. Dtd 12/31/76 FBO Elizabeth Maclellan 158,190
H.O. Maclellan Jr., C.M. Heffner, L.S. Anderson & J.C. Stophel, TTEES of the H.O.
Maclelland Sr. Dtd 12/31/76 FBO Christoper H. Maclellan 136,665
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SHARES OWNED
AS OF
FAMILY SHAREHOLDERS 3/4/96
------------------- ------------
<S> <C>
H.O. Maclellan Jr., C.M. Heffner, L.S. Anderson & J.C. Stophel, TTEES of the H.O.
Maclelland Sr. Dtd 12/31/76 FBO Catherine H. Maclellan 136,665
H.O. Maclellan Jr., C.M. Heffner, L.S. Anderson & J.C. Stophel, TTEES of the H.O.
Maclelland Sr. Dtd 12/31/76 FBO Daniel O. Maclellan 136,665
H.O. Maclellan Jr., C.M. Heffner, L.S. Anderson & J.C. Stophel, TTEES of the H.O.
Maclellan Sr. Dtd 12/31/76 FBO Elizabeth Maclellan 136,670
Hugh O. Maclellan Jr., TTEE UTA Dtd 12/15/83 FBO Elizabeth Maclellan 3,320
Hugh O. Maclellan Jr. C/F Elizabeth Maclellan UTUGTMA 5,329
Hugh O. Maclellan Jr. C/F Hugh Owner III UTUGTMA 5,079
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SHARES OWNED
AS OF
FAMILY SHAREHOLDERS 3/4/96
------------------- ------------
<S> <C>
Hugh O. Maclellan Jr. C/F Morgan Christopher Maclellan UTUGTMA 5,079
Christopher Hugh Maclellan (52+120, nominee name) 44,059
Christopher Hugh Maclellan, Cust. for Morgan Christopher Maclellan 688
Christopher Hugh Maclellan, Cust. for Hugh Owner Maclellan III 688
Christopher Hugh Maclellan, Cust. for Robert Browne Baclellan 688
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SHARES OWNED
AS OF
FAMILY SHAREHOLDERS 3/4/96
------------------- ------------
<S> <C>
Susan Maclellan (352 Nominee name) 3,652
Daniel Owen Maclellan 29,800
Daniel O. Maclellan Cust. for Jacqueline Hannah Maclellan 688
Leslie Stophel Maclellan (746 nominee name) 1,518
Catherine Maclellan Heald 40,617
Catherine Maclellan Heald C/F Frances Anne Heald 3,130
Catherine Maclellan Heald C/F Hallie Elizabeth Heald 2,806
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SHARES OWNED
AS OF
FAMILY SHAREHOLDERS 3/4/96
------------------- ------------
<S> <C>
Catherine Maclellan Heald C/F Hamilton Reed Heald 688
Haryl Heald 1,432
Nancy Browne Maclellan 24,964
Nancy B. Maclellan & John P. Gaither, TTEES UTA Hugh O. Maclellan Jr. Dtd 1/31/67 17,600
Charlotte Maclellan Heffner & NationsBank as Co-TTEES U/A H.O. Maclellan Sr. Dtd
9/8/72 FBO Richard L. Heffner Jr. 74,170
Charlotte Maclellan Heffner & NationsBank as Co-TTEES U/A H.O. Maclellan Sr. Dtd
9/8/72 FBO Richard L. Heffner Jr. 74,170
H.O. Maclellan Jr., C.M. Heffner, L.S. Anderson & J.C. Stophel, TTEES UTA H.O.
Maclellan Sr. Dtd 12/31/76 FBO Richard L. Heffner Jr. 136,665
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SHARES OWNED
AS OF
FAMILY SHAREHOLDERS 3/4/96
------------------- ------------
<S> <C>
H.O. Maclellan Jr., C.M. Heffner, L.S. Anderson & J.C. Stophel, TTEES UTA H.O.
Maclellan Sr. Dtd 12/31/76 FBO Thomas M. Heffner 136,670
Charlotte M. Heffner & Suntrust Bank CO-TTEES UTA Hugh O. Maclellan Sr. 12/09/48 FBO
Charlotte M. Heffner 294,695
Charlotte M. Heffner and Richard L. Heffner Sr. TTEES FBO Richard L. Heffner Sr. UA
Dtd 1/26/95 300,000
Charlotte M. Heffner 457,455
Richard L. Heffner Sr. 9,482
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SHARES OWNED
AS OF
FAMILY SHAREHOLDERS 3/4/96
------------------- ------------
<S> <C>
Richard L. Heffner, Jr. 45,499
Christina M. Heffner 3,172
Thomas Maclellan Heffner 42,349
Irrevocable Trust 12/3/64 U/A H.O. Maclellan Sr. FBO Thomas Maclellan Heffner, R.L.
Heffner Sr., Trustee 11,675
Irrevocable Trust 6/1/62 U/A H.O. Maclellan Sr. FBO Richard L. Maclellan Jr., R.L.
Heffner Sr., Trustee 11,675
Jean B. (Mrs. Jere) Tipton 61,000
------------
TOTAL SHARES 23,967,036
</TABLE>
<PAGE>
EXHIBIT 10.17
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
BETWEEN PROVIDENT COMPANIES, INC. AND
ZURICH INSURANCE COMPANY DATED AS OF MAY 31, 1996.
(attached)
<PAGE>
EXHIBIT 10.17
PROVIDENT COMPANIES, INC.
AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT,
dated as of May 31, 1996, between Zurich Insurance Company, a Swiss corporation
("Zurich" and, together with any purchaser of Common Stock (as defined below)
pursuant to the Stock Purchase Agreement (as defined below) collectively, the
"Investor"), and Provident Companies, Inc., a Delaware corporation (the
"Company").
R E C I T A L S
WHEREAS, on May 31, 1996 the aprties hereto signed the
original Registration Rights Agreement as such parties desire to amend and
restate such Agreement as of such date; and
WHEREAS, this Amended and Restated Registration Rights
Agreement is being executed on November 27, 1996 as of May 31, 1996; and
WHEREAS, the Investor has, pursuant to the terms of an Amended
and Restated Common Stock Purchase Agreement, entered into as of November 27,
1996 and dated as of May 31, 1996, by and among the Company and the Investor (as
the same may be amended or supplemented from time to time, the "Stock Purchase
Agreement"), agreed to purchase shares of Common Stock, par value $1.00 per
share, of the Company (the "Common Stock"); and
WHEREAS, the Company has agreed, as a condition precedent to
the Investor's obligations under the Stock Purchase Agreement, to grant the
Investor certain registration rights; and
<PAGE>
WHEREAS, the Company and the Investor desire to define the
registration rights of the Investor on the terms and subject to the conditions
herein set forth.
NOW, THEREFORE, in consideration of the foregoing premises and
for other good and valuable consideration, the parties hereby agree as follows:
1. DEFINITIONS
As used in this Agreement, the following terms have the
respective meanings set forth below:
Commission: shall mean the Securities and Exchange
Commission or any other federal agency at the time administering the
Securities Act;
Exchange Act: shall mean the Securities Exchange Act of
1934, as amended;
Existing Holder: shall mean Textron, Inc. or any member of
the Family Group, and shall include any transferees thereof who are entitled
to registration rights from the Company pursuant to agreements between the
Company and Textron, Inc. or the Company and the members of the Family Group.
Family Group: shall mean the stockholders of the Company
set forth on Exhibit A hereto.
Holder: shall mean any holder of Registrable Securities;
Initiating Holder: shall mean any Holder or Holders who in
the aggregate are Holders of more than 10% of the then outstanding Registrable
Securities;
Person: shall mean an individual, partnership, joint-stock
company, corporation, trust or unincorporated organization, and a government
or agency or political subdivision thereof;
register, registered and registration: shall mean a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act (and any post-effective amendments filed or
<PAGE>
required to be filed) and the declaration or ordering of effectiveness of such
registration statement;
Registrable Securities: shall mean (A) the shares of Common
Stock issued under the Stock Purchase Agreement, (B) any additional shares of
Common Stock acquired by the Investor and (C) any stock of the Company issued
as a dividend or other distribution with respect to, or in exchange for or in
replacement of, the shares of Common Stock referred to in clause (A) or (B);
provided, that Registrable Securities shall not include (i) securities with
respect to which a registration statement with respect to the sale of such
securities has become effective under the Securities Act and all such
securities have been disposed of in accordance with such registration
statement, or (ii) such securities as are actually sold pursuant to Rule 144
(or any successor provision thereto) under the Securities Act;
Registration Expenses: shall mean all expenses incurred by
the Company in compliance with Sections 2(a), (b) and (c) hereof, including,
without limitation, all registration and filing fees, printing expenses, fees
and disbursements of counsel for the Company, fees and expenses of one counsel
for all the Holders, blue sky fees and expenses and the expense of any special
audits incident to or required by any such registration (but excluding the
compensation of regular employees of the Company, which shall be paid in any
event by the Company);
Security, Securities: shall have the meaning set forth in
Section 2(1) of the Securities Act;
Securities Act: shall mean the Securities Act of 1933, as
amended; and
Selling Expenses: shall mean all underwriting discounts and
selling commissions applicable to the sale of Registrable Securities and
all fees and disbursements of counsel for each of the Holders other than
fees and expenses of one counsel for all the Holders.
2. REGISTRATION RIGHTS
(a) Requested Registration.
(i) Request for Registration. If the Company shall
<PAGE>
receive from an Initiating Holder, at any time, a written request that
the Company effect any registration with respect to all or a part of
the Registrable Securities, the Company will:
(A) promptly give written notice of
the proposed registration, qualification or compliance to all other Holders;
and
(B) as soon as practicable, use its
reasonable best efforts to effect such registration
(including, without limitation, the execution of an
undertaking to file post-effective amendments, appropriate
qualification under applicable blue sky or other state
securities laws and appropriate compliance with applicable
regulations issued under the Securities Act) as may be so
requested and as would permit or facilitate the sale and
distribution of all or such portion of such Registrable
Securities as are specified in such request, together with
all or such portion of the Registrable Securities of any
Holder or Holders joining in such request as are specified
in a written request received by the Company within 10
business days after written notice from the Company is given
under Section 2(a)(i)(A) above; provided that the Company
shall not be obligated to effect, or take any action to
effect, any such registration pursuant to this Section 2(a):
(u) Solely with respect to
underwritten registrations requested pursuant to this
Agreement, if the Company shall have previously
effected an underwritten registration with respect
to Registrable Securities pursuant to Section 2(b)
hereof, the Company shall not be required to effect
any underwritten registration pursuant to this
Section 2(a) until a period of 180 days shall have
elapsed from the effective date of the most recent
such previous registration; provided that if, in the
most recent such previous registration, participation
pursuant to Section 2(b) hereof shall not have been
to the extent requested pursuant to Section 2(b)
hereof, then the Company shall not be required to
effect any underwritten registration pursuant to this
<PAGE>
Section 2 (a) until a period of 90 days shall have
elapsed from the effective date of the most recent
such previous registration;
(v) If, upon receipt of a
registration request pursuant to this Section 2(a),
the Company is advised in writing (with a copy to the
Initiating Holder) by a recognized national
independent investment banking firm selected by the
Company that, in such firm's opinion, a registration
at the time and on the terms requested would
adversely affect any public offering of securities of
the Company by the Company (other than in connection
with benefit and similar plans) or by or on behalf of
any shareholder of the Company exercising a demand
registration right (collectively, a "Company
Offering") with respect to which the Company has
commenced preparations for a registration prior to
the receipt of a registration request pursuant to
this Section 2(a), the Company shall not be required
to effect a registration pursuant to this Section
2(a) until the earlier of (i) 30 days after the
completion of such Company Offering, (ii) promptly
after any abandonment of such Company Offering or
(iii) 60 days after the date of receipt of a
registration request pursuant to this Section 2(a);
provided, however, that the periods during which the
Company shall not be required to effect a
registration pursuant to this Section 2(a) together
with any periods of suspension under Section 2(i)
hereof may not exceed 90 days in the aggregate during
any period of 12 consecutive months;
(w) If the Registrable Securities
requested by all Holders to be registered pursuant to
such request are included in, and eligible for sale
under, the Shelf Registration (as defined below);
<PAGE>
(x) In any particular jurisdiction
in which the Company would be required to execute a
general consent to service of process in effecting
such registration, qualification or compliance,
unless the Company is already subject to service in
such jurisdiction and except as may be required by
the Securities Act or applicable rules or regulations
thereunder;
(y) After the Company has
effected three (3) such registrations pursuant to
this Section 2(a) (in the aggregate for all
Holders) and such registrations have been declared or
ordered effective and the sales of such Registrable
Securities shall have closed; provided, that
Holders shall not have the right to request an
underwritten registration pursuant to this Section
2(a) more than one (1) time in any six-month
period; or
(z) If the Registrable Securities
requested by all Holders to be registered pursuant to
such request do not have an anticipated aggregate
public offering price (before any underwriting
discounts and commissions) of not less than
$10,000,000.
The registration statement filed pursuant to the request of
the Initiating Holders may, subject to the provisions of Section 2(a)(ii) below,
include other Securities of the Company which are held by Persons who, by virtue
of agreements with the Company, are entitled to include their Securities in any
such registration ("Other Stockholders").
(ii) Underwriting. If the Initiating Holders intend
to distribute the Registrable Securities covered by their request by
means of an underwriting, they shall so advise the Company as a part of
their request made pursuant to Section 2(a). If Other Stockholders
request inclusion in any such registration, the Holders shall offer to
include the securities of such Other Stockholders in the underwriting
and may condition such offer on their acceptance of the further
applicable provisions of this Section 2. The Holders whose shares are
to be included in such registration and the Company shall (together
with all Other Stockholders proposing to distribute their securities
through such underwriting) enter into underwriting and related
agreements in customary form with the representative of the underwriter
or underwriters selected for such underwriting by the Initiating
<PAGE>
Holders and reasonably acceptable to the Company. Such underwriting
agreement will contain such representations and warranties by the
Company and such other terms and provisions as are customarily
contained in underwriting agreements with respect to
secondary distributions, including, without limitation, indemnities and
contribution to the effect and to the extent provided in Section 2(f)
hereof and the provision of opinions of counsel and accountants'
letters to the effect and to the extent provided in Section 2(e)
hereof, and the representations and warranties by, and the other
agreements on the part of, the Company to and for the benefit of such
underwriters shall also be made to and for the benefit of the Holders.
The Company shall cooperate fully with the Holders and the underwriters
in connection with any underwritten offering. Notwithstanding any other
provision of this Section 2(a), if the representative advises the
Holders in writing that marketing factors require a limitation on the
number of shares to be underwritten, the securities of the Company held
by Other Stockholders shall be excluded from such registration to the
extent so required by such limitation. If, after the exclusion of such
shares, further reductions are still required, the number of shares
included in the registration by each Holder shall be reduced on a pro
rata basis (based on the number of shares held by such Holder), by such
minimum number of shares as is necessary to comply with such request.
No Registrable Securities or any other securities excluded from the
underwriting by reason of the underwriter's marketing limitation shall
be included in such registration. If any Other Stockholder who has
requested inclusion in such registration as provided above disapproves
of the terms of the underwriting, such person may elect to withdraw
therefrom by written notice to the Company, the underwriter and the
Initiating Holders. The securities so withdrawn shall also be withdrawn
from registration. If the underwriter has not limited the number of
Registrable Securities or other securities to be underwritten, the
Company and officers and directors of the Company may include its or
their securities for its or their own account in such registration if
the representative so agrees and if the number of Registrable
Securities and other securities which would otherwise have been
included in such registration and underwriting will not thereby be
limited.
(b) Company Registration.
<PAGE>
(i) If the Company shall determine to register any of
its equity securities either for its own account or for the account of
Other Stockholders, other than a registration relating solely to
benefit plans, or a registration relating solely to a Commission Rule
145 transaction, or a registration on any registration form which does
not permit secondary sales or does not include substantially the same
information as would be required to be included in a registration
statement covering the sale of Registrable Securities, the Company
will:
(A) promptly give to each of the Holders a
written notice thereof (which shall include a list of the
jurisdictions in which the Company intends to attempt to
qualify such securities under the applicable blue sky or other
state securities laws); and
(B) include in such registration (and any
related qualification under blue sky laws or other
compliance), and in any underwriting involved therein, all the
Registrable Securities specified in a written request or
requests, made by the Holders within ten (10) business days
after the giving of the written
notice from the Company described in clause (i) above,
except as set forth in Section 2(b)(ii) below. Such written
request shall specify the amount of Registrable Securities
intended to be disposed of by a Holder and may specify all
or a part of the Holders' Registrable Securities.
Notwithstanding the foregoing, if, at any time after giving such
written notice of its intention to effect such registration and prior
to the effective date of the registration statement filed in connection
with such registration, the Company shall determine for any reason not
to register such equity securities the Company may, at its election,
give written notice of such determination to the Holders and thereupon
the Company shall be relieved of its obligation to register such
Registrable Securities in connection with the registration of such
equity securities (but not from its obligation to pay Registration
Expenses to the extent incurred in connection therewith as provided
herein), without prejudice, however, to the rights (if any) of Holders
immediately to request that such registration be effected as a
registration under Section 2(a) hereof.
<PAGE>
(ii) Underwriting. If the registration of which the
Company gives notice is for a registered public offering involving an
underwriting, the Company shall so advise each of the Holders as a part
of the written notice given pursuant to Section 2(b)(i)(A). In such
event, the right of each of the Holders to registration pursuant to
this Section 2(b) shall be conditioned upon such Holders' participation
in such underwriting and the inclusion of such Holders' Registrable
Securities in the underwriting to the extent provided herein. The
Holders whose shares are to be included in such registration shall
(together with the Company and the Other Stockholders distributing
their securities through such underwriting) enter into an underwriting
agreement in customary form with the representative of the underwriter
or underwriters selected for the underwriting by the Company or such
Other Stockholders, as the case may be. Such underwriting agreement
will contain such representations and warranties by the Company and
such other terms and provisions as are customarily contained in
underwriting agreements with respect to secondary distributions,
including, without limitation, indemnities and contribution to the
effect and to the extent provided in Section 2(f) hereof and the
provision of opinions of counsel and accountants' letters to the effect
and to the extent provided in Section 2(e), and the representations and
warranties by, and the other agreements on the part of, the Company to
and for the benefit of such underwriters shall also be made to and for
the benefit of the Holders whose shares are to be included in such
registration. Notwithstanding any other provision of this Section 2(b),
if the representative determines that marketing factors require a
limitation on the number of shares to be underwritten, the Company
shall so advise all holders of securities requesting registration, and
the number of shares of securities that are entitled to be included in
the registration and underwriting shall be allocated in the following
manner: The securities of the Company held by officers, directors and
Other Stockholders of the Company (other than securities held by
Existing Holders or holders who by contractual right demanded such
registration ("Demanding Holders")) shall be excluded from such
registration and underwriting to the extent required by such
limitation, and, if a limitation on the number of shares is still
required, the number of shares that may be included in the registration
<PAGE>
and underwriting by each of the Holders, Existing Holders which are not
Demanding Holders with respect to such registration and Demanding
Holders with respect to such registration which are not Existing
Holders shall be reduced, on a pro rata basis (based on the number of
shares held by such holder), by such minimum number of shares as is
necessary to comply with such limitation; provided, however, that in
the event that an Existing Holder is a Demanding Holder with respect to
such registration, the number of shares of Registrable Securities
proposed to be included in any such registration by each Holder shall
be reduced on a pro rata basis (based on the number of shares held by
such holder) prior to any reduction in the number of shares to be
included in such registration by such Demanding Holder. If any of the
Holders or any officer, director or Other Stockholder disapproves of
the terms of any such underwriting, he may elect to withdraw therefrom
by written notice to the Company and the underwriter. Any Registrable
Securities or other securities excluded or withdrawn from such
underwriting shall be withdrawn from such registration.
(c) Shelf Registration. (i) On or before the earlier of
December 15, 1996, or ten business days following the effectiveness of
the Company's Registration Statement on Form S-4 containing the Joint
Proxy Statement/Prospectus to be circulated in connection with the
Merger (as defined in the Purchase Agreement) the Company shall file a
"shelf" registration statement pursuant to Rule 415 under the
Securities Act (the "Shelf Registration") with respect to the
Registrable Securities to be issued under the Stock Purchase Agreement.
The Company shall (A) use its reasonable best efforts to have the Shelf
Registration declared effective on or before the Closing Date (as
defined in the Stock Purchase Agreement) or as soon thereafter as
practicable and (B) subject to Section 2(i) hereof, use its reasonable
best efforts to keep the Shelf Registration continuously effective from
the date such Shelf Registration is declared effective until the date
of termination of this Agreement pursuant to Section 2(j) hereof in
order to permit the prospectus forming a part thereof to be usable by
Holders during such period. Except as set forth in Section 2(c)(iii)
below, the Shelf Registration may not include other securities of the
Company which are held by Other Stockholders.
(ii) Subject to Section 2(i) hereof, the Company
shall supplement or amend the Shelf Registration, (A) as required by
the registration form utilized by the Company or by the instructions
applicable to such registration form or by the Securities Act or the
<PAGE>
rules and regulations promulgated thereunder, (B) to include in such
Shelf Registration any additional securities that become Registrable
Securities by operation of the definition thereof and (C) following the
written request of an Initiating Holder pursuant to Section 2(c)(iii)
below, to cover offers and sales of all or a part of the Registrable
Securities by means of an underwriting including the incorporation of
any information required pursuant to Section 2(e)(x) below. The Company
shall furnish to the Holders of the Registrable Securities to which the
Shelf Registration relates copies of any such supplement or amendment
sufficiently in advance (but in no event less than five business days
in advance) of its use and/or filing with the Commission to allow the
Holders a meaningful opportunity to comment thereon.
(iii) The Holders may, at their election and upon
written notice by an Initiating Holder to the Company, subject to the
limitations set forth in clauses (u), (v), (x), (y) and (z) of Section
2(a)(i)(B) hereof, effect offers and sales under the Shelf Registration
by means of one or more underwritten offerings, in which case the
provisions of Section 2(a)(ii) above shall apply to any such
underwritten distribution of securities under the Shelf Registration
and such underwriting shall, if sales of Registrable Securities
pursuant thereto shall have closed, be regarded as the exercise of one
of the registration rights contemplated by Section 2(a) hereof. In the
event of such an election, and, without the consent of the Holders of a
majority of the then outstanding Registrable Securities, under no other
circumstances, the Shelf Registration may, subject to Section 2(a)(ii)
above, be amended to include other shares of Common Stock which are
held by Other Stockholders.
(d) Expenses of Registration. All
Registration Expenses incurred in connection with any registration,
qualification or compliance pursuant to this Section 2 (including all
Registration Expenses incurred in connection with the Shelf Registration and
any supplements or amendments thereto, whether or not it becomes effective,
and whether all, none or some of the Registrable Securities are sold pursuant
to the Shelf Registration) shall be borne by the Company, and all Selling
Expenses shall be borne by the Holders of the securities so registered pro
rata on the basis of the number of their shares so registered; provided,
however, that if, as a result of the withdrawal of a request for registration
by any of the Holders, as applicable, the registration statement does not
become effective, the Holders and Other Stockholders requesting registration
may elect to bear the Registration Expenses (pro rata on the basis of
the number of their shares so included in the
<PAGE>
registration request, or on such other basis as such Holders and Other
Stockholders may agree), in which case such registration shall not be counted
as a registration pursuant to Section 2(a)(i)(B)(y).
(e) Registration Procedures. In the case of
each registration effected by the Company pursuant to this Section 2, the
Company will keep the Holders, as applicable, advised in writing as to the
initiation of each registration and as to the completion thereof. At its
expense, the Company will:
(i) other than the Shelf Registration, the
obligations in respect of which are set forth in Section 2(c)(i)(B)
above, keep such registration effective for a period of one hundred
eighty (180) days or until the Holders, as applicable, have completed
the distribution described in the registration statement relating
thereto, whichever first occurs;
(ii) furnish to each Holder, and to any underwriter
before filing with the Commission, copies of any registration statement
(including all exhibits) and any prospectus forming a part thereof and
any amendments and supplements thereto (including all documents
incorporated or deemed incorporated by reference therein prior to the
effectiveness of such registration statement and including each
preliminary prospectus, any summary prospectus or any term sheet (as
such term is used in Rule 434 under the Securities Act)) and any other
prospectus filed under Rule 424 under the Securities Act, which
documents, other than documents incorporated or deemed incorporated by
reference, will be subject the review of the Holders and any such
underwriter for a period of at least five business days, and the
Company shall not file any such registration statement or such
prospectus or any amendment or supplement to such registration
statement or prospectus to which any Holder or any such underwriter
shall reasonably object within five business days after the receipt
thereof; a Holder or such underwriter(s), if any, shall be deemed to
have reasonably objected to such filing only if the registration
statement, amendment, prospectus or supplement, as applicable, as
proposed to be filed, contains a material misstatement or omission;
<PAGE>
(iii) furnish to each Holder and to any underwriter,
such number of conformed copies of the applicable registration
statement and of each amendment and supplement thereto (in each case
including all exhibits) and such number of copies of the prospectus
forming a part of such registration statement (including each
preliminary prospectus, any summary prospectus or any term sheet (as
such term is used in Rule 434 under the Securities Act)) and any other
prospectus filed under Rule 424 under the Securities Act, in conformity
with the requirements of the Securities Act, and such other documents,
including without limitation documents incorporated or deemed to be
incorporated by reference prior to the effectiveness of such
registration, as each of the Holders or any such underwriter, from time
to time may reasonably request;
(iv) to the extent practicable, promptly prior to the
filing of any document that is to be incorporated by reference into any
registration statement or prospectus forming a part thereof subsequent
to the effectiveness thereof, and in any event no later than the date
such document is filed with the Commission, provide copies of such
document to the Holders, if requested, and to any underwriter, make
representatives of the Company available for discussion of such
document and other customary due diligence matters, and include such
information in such document prior to the filing thereof as any Holder
or any such underwriter reasonably may request;
(v) make available at reasonable times for inspection
by the Holders, any underwriter participating in any disposition
pursuant to such registration and any attorney or accountant retained
by the Holders or any such underwriter, all financial and other
records, pertinent corporate documents and properties of the Company
and cause the officers, directors and employees of the Company to
supply all information reasonably requested by the Holders and any such
underwriters, attorneys or accountants in connection with such
registration subsequent to the filing of the applicable registration
statement and prior to the effectiveness of the applicable registration
statement;
(vi) use its reasonable best efforts (x) to register
or qualify all Registrable Securities and other securities covered by
such registration under such other securities or blue sky laws of such
States of the United States of America where an exemption is not
available and as the sellers of Registrable Securities covered by such
<PAGE>
registration shall reasonably request, (y) to keep such registration or
qualification in effect for so long as the applicable registration
statement remains in effect, and (z) to take any other action which may
be reasonably necessary or advisable to enable such sellers to
consummate the disposition in such jurisdictions of the securities to
be sold by such sellers, except that the Company shall not for any such
purpose be required to qualify generally to do business as a foreign
corporation in any jurisdiction where it is not so qualified, or to
subject itself to taxation in any such jurisdiction, or to execute a
general consent to service of process in effecting such registration,
qualification or compliance, unless the Company is already subject to
service in such jurisdiction and except as may be
required by the Securities Act or applicable rules or regulations
thereunder;
(vii) use its reasonable best efforts to cause all
Registrable Securities covered by such registration statement to be
registered with or approved by such other federal or state governmental
agencies or authorities as may be necessary in the opinion of counsel
to the Company and counsel to the Holders of Registrable Securities to
enable the Holders thereof to consummate the disposition of such
Registrable Securities;
(viii) subject to Section 2(i) hereof, promptly
notify each Holder of Registrable Securities covered by a registration
statement (A) upon discovery that, or upon the happening of any event
as a result of which, the prospectus forming a part of such
registration statement, as then in effect, includes an untrue statement
of a material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading,
(B) of the issuance by the Commission of any stop order suspending the
effectiveness of such registration statement or the initiation of
proceedings for that purpose, (C) of any request by the Commission for
(1) amendments to such registration statement or any document
incorporated or deemed to be incorporated by reference in any such
registration statement, (2) supplements to the prospectus forming a
part of such registration statement or (3) additional information, (D)
of the receipt by the Company of any notification with respect to the
suspension of the qualification or exemption from qualification of any
of the Registrable Securities for sale in any jurisdiction or the
initiation of any proceeding for such purpose, and at the request of
<PAGE>
any such Holder promptly prepare and furnish to it a reasonable number
of copies of a supplement to or an amendment of such prospectus as may
be necessary so that, as thereafter delivered to the purchasers of such
securities, such prospectus shall not include an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading;
(ix) use its reasonable best efforts to obtain the
withdrawal of any order suspending the effectiveness of any such
registration, or the lifting of any suspension of the qualification (or
exemption from qualification) of any of the Registrable Securities for
sale in any jurisdiction;
(x) if requested by any Initiating Holder, or any
underwriter, promptly incorporate in such registration statement or
prospectus, pursuant to a supplement or post-effective amendment if
necessary, such information as the Initiating Holder and any
underwriter may reasonably request to have included therein, including,
without limitation, information relating to the "plan of distribution"
of the Registrable Securities, information with respect to the
principal amount or number of shares of Registrable Securities being
sold to such underwriter, the purchase price being paid therefor and
any other terms of the offering of the Registrable Securities to be
sold in such offering and make all required filings of any such
prospectus supplement or post-effective amendment as soon as
practicable after the Company is notified of the matters to be
incorporated in such prospectus supplement or post-effective amendment;
(xi) furnish to the Holders, addressed to them, an
opinion of counsel for the Company, dated the date of the closing under
the underwriting agreement, if any, or the date of effectiveness of the
registration statement if such registration is not an underwritten
offering, and use its reasonable best efforts to furnish to the
Holders, addressed to them, a "cold comfort" letter signed by the
independent certified public accountants who have certified the
Company's financial statements included in such registration, covering
<PAGE>
substantially the same matters with respect to such registration (and
the prospectus included therein) and, in the case of such accountants'
letter, with respect to events subsequent to the date of such financial
statements, as are customarily covered in opinions of issuer's counsel
and in accountants' letters delivered to underwriters in underwritten
public offerings of securities and such other matters as the Holders
may reasonably request;
(xii) provide promptly to the Holders upon request
any document filed by the Company with the Commission pursuant to the
requirements of Section 13 and Section 15 of the Exchange Act; and
(xiii) use its reasonable best efforts to cause all
Registrable Securities included in any registration pursuant hereto to
be listed on each securities exchange on which securities of the same
class are then listed or, if not then listed on any securities
exchange, to be eligible for trading in any over-the-counter market or
trading system in which securities of the same class are then traded.
(f) Indemnification.
(i) The Company will indemnify each of the Holders,
as applicable, each of its officers, directors, members and partners,
and each person controlling each of the Holders, with respect to each
registration which has been effected pursuant to this Section 2, and
each underwriter, if any, and each person who controls any underwriter,
against all claims, losses, damages and liabilities (or actions in
respect thereof) arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any
prospectus, offering circular or other document (including any
related registration statement, notification or the like) incident to
any such registration, qualification or compliance, or based on any
omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, or any violation by the Company of the
Securities Act or the Exchange Act or any rule or regulation
thereunder applicable to the Company and relating to action or
inaction required of the Company in connection with any such
registration, qualification or compliance, and will reimburse each of
the Holders, each of its officers, directors, members and partners,
and each person controlling each of the Holders, each such
<PAGE>
underwriter and each person who controls any such underwriter, for
any legal and any other expenses reasonably incurred in connection
with investigating and defending any such claim, loss, damage,
liability or action, provided that the Company will not be liable in
any such case to the extent that any such claim, loss, damage,
liability or expense arises out of or is based on any untrue
statement or omission based upon written information furnished to the
Company by the Holders or underwriter and stated to be specifically
for use therein.
(ii) Each of the Holders will, if Registrable
Securities held by it are included in the securities as to which such
registration, qualification or compliance is being effected, indemnify
the Company, each of its directors and officers and each underwriter,
if any, of the Company's securities covered by such a registration
statement, each person who controls the Company or such underwriter,
each Other Stockholder and each of their officers, directors, members
and partners, and each person controlling such Other Stockholder
against all claims, losses, damages and liabilities (or actions in
respect thereof) arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any such
registration statement, prospectus, offering circular or other document
made by such Holder, or any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to
make the statements by such Holder therein not misleading, and will
reimburse the Company and such Other Stockholders, directors, officers,
partners, members, persons, underwriters or control persons for any
legal or any other expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage, liability or
action, in each case to the extent, but only to the extent, that such
untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering
circular or other document in reliance upon and in conformity with
written information furnished to the Company by such Holder and stated
to be specifically for use therein; provided, however, that the
obligations of each of the Holders hereunder and under clause (vi)
below shall be limited to an amount equal to the net proceeds to such
Holder of securities sold as contemplated herein.
(iii) Each party entitled to indemnification under
this Section 2(f) (the "Indemnified Party") shall give notice to the
party required to provide indemnification (the "Indemnifying Party")
promptly after such Indemnified Party has actual knowledge of any claim
as to which indemnity may be sought, and shall permit the Indemnifying
Party to assume the defense of any such claim or any litigation
resulting therefrom; provided that counsel for the Indemnifying Party,
who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval
shall not unreasonably be withheld) and the Indemnified Party may
participate in such defense at such party's expense (unless the
Indemnified Party shall have reasonably concluded that there may be a
conflict of interest between the Indemnifying Party and the Indemnified
Party in such action, in which case the fees and expenses of one such
counsel for all Indemnified Parties shall be at the expense of the
Indemnifying Party), and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve
the Indemnifying Party of its obligations under this Section 2 unless
the Indemnifying Party is materially prejudiced thereby. No
Indemnifying Party, in the defense of any such claim or litigation
shall, except with the consent of each Indemnified Party (which consent
shall not be unreasonably withheld or delayed), consent to entry of any
judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to
such Indemnified Party of a release from all liability in respect to
such claim or litigation. Each Indemnified Party shall furnish such
information regarding itself or the claim in question as an
Indemnifying Party may reasonably request in writing and as shall be
reasonably required in connection with the defense of such claim and
litigation resulting therefrom.
<PAGE>
(iv) If the indemnification provided for in this
Section 2(f) is held by a court of competent jurisdiction to be
unavailable to an Indemnified Party with respect to any loss,
liability, claim, damage or expense referred to herein, then the
Indemnifying Party, in lieu of indemnifying such Indemnified Party
hereunder, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such loss, liability, claim, damage or
expense in such proportion as is appropriate to reflect the relative
fault of the Indemnifying Party on the one hand and of the Indemnified
Party on the other in connection with the statements or omissions which
resulted in such loss, liability, claim, damage or expense, as well as
any other relevant equitable considerations. The relative fault of the
Indemnifying Party and of the Indemnified Party shall be determined by
reference to, among other things, whether the untrue (or alleged
untrue) statement of a material fact or the omission (or alleged
omission) to state a material fact relates to information supplied by
the Indemnifying Party or by the Indemnified Party and the parties'
relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
(v) Notwithstanding the foregoing, to the extent that
the provisions on indemnification and contribution contained in the
underwriting agreement entered into in connection with any underwritten
public offering contemplated by this Agreement are in conflict with the
foregoing provisions, the provisions in such underwriting agreement
shall be controlling.
(vi) The foregoing indemnity agreement of the Company
and Holders is subject to the condition that, insofar as they relate to
any loss, claim, liability or damage made in a preliminary prospectus
but eliminated or remedied in the amended prospectus on file with the
Commission at the time the registration statement in question becomes
effective or the amended prospectus filed with the Commission pursuant
to Commission Rule 424(b) (the "Final Prospectus"), such indemnity or
contribution agreement shall not inure to the benefit of any
underwriter or Holder (but only if such Holder was required to deliver
such Final Prospectus) if a copy of the Final Prospectus was furnished
to the underwriter and was not furnished to the person asserting the
loss, liability, claim or damage at or prior to the time such action is
required by the Securities Act.
(g) Information by the Holders. Each of the
Holders holding securities included in any registration shall furnish to the
Company such information regarding such Holder and the distribution proposed by
such Holder as the Company may reasonably request in writing and as shall be
reasonably required in connection with any registration, qualification or
compliance referred to in this Section 2.
<PAGE>
(h) Rule 144 Reporting.
With a view to making available the benefits of certain rules
and regulations of the Commission which may permit the sale
of restricted securities to the public without registration, the Company
agrees to:
(i) make and keep public information available as
those terms are understood and defined in Rule 144 under the Securities
Act ("Rule 144"), at all times;
(ii) use its best efforts to file with the Commission
in a timely manner all reports and other documents required of the
Company under the Securities Act and the Exchange Act; and
(iii) so long as the Holder owns any Registrable
Securities, furnish to the Holder upon request, a written statement by
the Company as to its compliance with the reporting requirements of
Rule 144, and of the Securities Act and the Exchange Act, a copy of the
most recent annual or quarterly report of the Company, and such other
reports and documents so filed as the Holder may reasonably request in
availing itself of any rule or regulation of the Commission allowing
the Holder to sell any such securities without registration.
(i) Holdback Agreement; Postponement.
Notwithstanding the provisions of Sections 2(a),(b) and (c), if the Board of
Directors of the Company determines in good faith that it is in the best
interests of the Company (A) not to disclose the existence of facts
surrounding any proposed or pending acquisition, disposition, strategic
alliance or financing transaction involving the Company or (B) for any
purpose, to suspend the registration rights set forth herein, the Company may,
by notice to the Holders in accordance with Section 4(a), (1) suspend the
rights of the Holders to make sales pursuant to the Shelf Registration and (2)
postpone any registration which is requested pursuant to Section 2(a), in each
case for such a period of time as the Board of Directors may determine;
provided that (x) such periods of suspension together with any periods of
suspension effected pursuant to Section 2(a)(i)(B)(v) hereof may not exceed 90
days in the aggregate during any period of 12 consecutive months and (y) the
Company may not impose such a suspension or a postponement pursuant to Section
2(a)(i)(B)(v) following the printing and distribution of a preliminary
prospectus in any underwritten public offering of Registrable Securities
pursuant to Section 2(a)(i) or 2(c)(iii) (except such
<PAGE>
suspension, not to exceed 10 days, which results from an event that is not
within the reasonable control of the Company). Notwithstanding the provisions of
Section 2(a)(i)(B)(v) or this Section 2(i), the Company shall not suspend the
registration rights set forth herein at any time during which any similar rights
of the Existing Holders are not similarly suspended.
(j) Termination. The registration rights set
forth in Section 2(a) shall not be available to any Holder if, in
the opinion of counsel to the Company, all of the Registrable Securities then
owned by such Holder could be sold in any 90-day period pursuant to Rule 144
(without giving effect to the provisions of Rule 144(k)).
(k) Assignment. The registration rights set
forth in Section 2 hereof may be assigned, in whole or in part, to any
transferee of Registrable Securities (who shall be considered thereafter to be
a Holder (provided that any transferee who is not an affiliate of Investor
shall be a Holder only with respect to such Registrable Securities so acquired
and any stock of the Company issued as a dividend or other distribution with
respect to, or in exchange for or in replacement of, such Registrable
Securities) and shall be bound by all obligations and limitations of this
Agreement).
3. INTERPRETATION OF THIS AGREEMENT
(a) Directly or Indirectly. Where any
provision in this Agreement refers to action to be taken by any Person, or
which such Person is prohibited from taking, such provision shall be
applicable whether such action is taken directly or indirectly by such Person.
(b) Governing Law. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York
applicable to contracts made and to be performed entirely within such State.
(c) Section Headings. The headings of the
sections and subsections of this Agreement are inserted for convenience only
and shall not be deemed to constitute a part thereof.
4. MISCELLANEOUS
(a) Notices.
<PAGE>
(i) All communications under this Agreement shall be
in writing and shall be delivered by facsimile or by hand or mailed by
overnight courier or by registered or certified mail, postage prepaid:
(A) if to the Company, to Provident
Companies, Inc., 1 Fountain Square, Chattanooga,
Tennessee 37402, Fax No.: (423) 755-2590, Attention: Chief
Financial Officer, or at such other address as it may have
furnished in writing to the Investors;
(B) if to the Investor, at the address
listed on Schedule I hereto, or at such other address as may
have been furnished the Company in writing.
(ii) Any notice so addressed shall be deemed to be
given: if delivered by hand, on the date of such delivery; if mailed by
courier, on the first business day following the date of such mailing;
and if mailed by registered or certified mail, on the third business
day after the date of such mailing.
(b) Reproduction of Documents. This
Agreement and all documents relating thereto, including, without limitation,
any consents, waivers and modifications which may hereafter be executed may be
reproduced by the Investor by any photographic, photostatic, microfilm,
microcard, miniature photographic or other similar process and the Investors
may destroy any original document so reproduced. The parties hereto agree and
stipulate that any such reproduction shall be admissible in evidence as the
original itself in any judicial or administrative proceeding (whether or not
the original is in existence and whether or not such reproduction was made by
the Investors in the regular course of business) and that any enlargement,
facsimile or further reproduction of such reproduction shall likewise be
admissible in evidence.
(c) Successors and Assigns. This Agreement
shall inure to the benefit of and be binding upon the successors and assigns
of each of the parties.
(d) Entire Agreement; Amendment and Waiver.
This Agreement constitutes the entire understanding of the parties hereto and
supersedes all prior understanding among such parties. This Agreement may be
amended, and the observance of any term of this Agreement may be waived, with
(and only with) the written consent of the Company and the Holders of a
majority of the then outstanding Registrable Securities.
(e) Counterparts. This Agreement may be
executed in one or more counterparts, each of which shall be deemed an
original and all of which together shall be considered one and the same
agreement.
(f) No Inconsistent Agreements. The Company
will not hereafter enter into any agreement with respect to its securities
which is inconsistent with the rights granted to the Holders of Registrable
Securities in this Agreement.
(g) Remedies. Each Holder of Registrable
Securities, in addition to being entitled to exercise all rights
<PAGE>
granted by law, including recovery of damages, will be entitled to specific
performance of its rights under this Agreement. The Company agrees that monetary
damages would not be adequate compensation for any loss incurred by reason of a
breach by it of the provisions of this Agreement and hereby agrees to waive the
defense in any action for specific performance that a remedy at law would be
adequate.
(h) Severability. In the event that any one
or more of the provisions contained herein, or the application thereof in any
circumstances, is held invalid, illegal or unenforceable in any respect for
any reason, the validity, legality and enforceability of any such provision in
every other respect and of the remaining provisions contained herein shall not
be in any way impaired thereby, it being intended and understood that all of
the rights and privileges of each of the Holders shall be enforceable to the
fullest extent permitted by law.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the date first set forth above.
PROVIDENT COMPANIES, INC.
By:/s/ Thomas R. Watjen
Name: Thomas R. Watjen
Title: Executive Vice President
INVESTOR:
ZURICH INSURANCE COMPANY
By: /s/ Steven M. Gluckstern
Name: Steven M. Gluckstern
Title: Representative
<PAGE>
SCHEDULE I
Name and Address
of Investor
ZURICH INSURANCE COMPANY
Mythenquai 2
P.O. Box
Ch-8022
Zurich, Switzerland
Attention: General Counsel
with copies to:
Zurich Center Resource Limited
One Chase Manhattan Plaza
New York, New York
Facsimile No.: (212) 898-5002
Attention: General Counsel
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, New York 10022
Facsimile No.: (212) 821-8111
Attention: Thomas M. Cerabino
<PAGE>
Exhibit (13)
Portions of the Annual Report to Stockholders for year ended December 31,
1996
(attached)
<PAGE>
PROVIDENT COMPANIES, INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(in millions of dollars, except share data) 1996 1995 1994 1993 1992
- -------------------------------------------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Premium Income $ 1,175.7 $ 1,251.9 $ 1,382.6 $ 1,400.2 $ 1,490.7
Net Investment Income 1,090.1 1,221.3 1,238.6 1,318.7 1,241.8
Net Realized Investment Gains (Losses) (8.6) (31.7) (30.1) 43.6 (30.8)
Other Income 34.7 113.8 171.1 175.5 165.0
----------- ----------- ----------- ----------- -----------
Total Revenue 2,291.9 2,555.3 2,762.2 2,938.0 2,866.7
Benefits and Changes in Reserves 1,661.2 1,904.6 1,981.2 2,502.8 2,102.6
Operating Expenses 404.5 474.7 580.1 575.3 584.3
----------- ----------- ----------- ----------- -----------
Income (Loss) Before Federal Income Taxes 226.2 176.0 200.9 (140.1) 179.8
Federal Income Taxes (Credit) 80.6 60.4 65.6 (58.9) 67.2
----------- ----------- ----------- ----------- -----------
Net Income (Loss) $ 145.6 $ 115.6 $ 135.3 $ (81.2) $ 112.6
=========== =========== =========== =========== ===========
Net Income (Loss) Per Common Share $ 2.92 $ 2.27 $ 2.71 $ (2.03) $ 2.49
=========== =========== =========== =========== ===========
Weighted Average Common Shares Outstanding 45,522,417 45,381,373 45,311,053 45,200,914 45,175,980
=========== =========== =========== =========== ===========
Assets $ 14,992.5 $ 16,301.3 $ 17,149.9 $ 16,891.9 $ 15,925.1
Long-term Debt Including Capital Lease Obligations $ 200.0 $ 200.0 $ 202.5 $ 247.6 $ 206.2
Stockholders' Equity $ 1,738.6 $ 1,652.3 $ 1,169.1 $ 1,401.6 $ 1,387.5
Stockholders' Equity Per Common Share $ 34.68 $ 32.95 $ 22.33 $ 27.51 $ 30.74
Stockholders' Equity Per Common Share Excluding SFAS
115 Adjustment(1) $ 32.69 $ 30.65 $ 28.91 $ 27.51 $ 30.74
Dividends Per Common Share $ .72 $ .72 $ 1.04 $ 1.04 $ 1.00
Life Insurance Sales (Amount of Insurance) $ 14,777.4 $ 10,204.7 $ 8,332.5 $ 7,819.3 $ 5,964.0
Life Insurance in Force (Amount of Insurance) $ 102,664.5 $ 98,952.6 $ 86,785.6 $ 83,293.9 $ 80,893.3
</TABLE>
(1) Adoption of Statement of Financial Accounting Standards No. 115
effective January 1, 1994.
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME BY SEGMENT
<TABLE>
<CAPTION>
Year Ended December 31 1996 1995 1994
--------- -------- --------
(in millions of dollars)
<S> <C> <C> <C>
Premium Income
Individual Life and Disability $646.3 $647.4 $644.9
Employee Benefits 501.4 485.9 465.6
Other Operations 28.0 118.6 272.1
------- ------- -------
1,175.7 1,251.9 1,382.6
Net Investment Income and Other Income
Individual Life and Disability 401.3 371.9 311.7
Employee Benefits 104.7 96.8 89.7
Other Operations 618.8 866.4 1,008.3
------- ------- -------
1,124.8 1,335.1 1,409.7
Total Revenue (Excluding Net Realized
Investment Gains and Losses)
Individual Life and Disability 1,047.6 1,019.3 956.6
Employee Benefits 606.1 582.7 555.3
Other Operations 646.8 985.0 1,280.4
------- ------- -------
2,300.5 2,587.0 2,792.3
Benefits and Expenses
Individual Life and Disability 930.3 982.8 903.4
Employee Benefits 549.8 534.1 483.5
Other Operations 585.6 862.4 1,174.4
------- ------- -------
2,065.7 2,379.3 2,561.3
Income Before Net Realized Investment
Gains and Losses and Federal Income Taxes
Individual Life and Disability 117.3 36.5 53.2
Employee Benefits 56.3 48.6 71.8
Other Operations 61.2 122.6 106.0
------- ------- -------
234.8 207.7 231.0
Net Realized Investment Losses (8.6) (31.7) (30.1)
------- ------- -------
Income Before Federal Income Taxes 226.2 176.0 200.9
Federal Income Taxes 80.6 60.4 65.6
------- ------- -------
Net Income $145.6 $115.6 $135.3
======= ======= =======
</TABLE>
<PAGE>
OPERATING RESULTS
Revenue excluding net realized investment gains and losses (hereinafter
"revenue") declined $286.5 million in 1996, or 11.1 percent, to $2.30 billion in
1996 from $2.59 billion in 1995. Revenue includes premium income, net
investment income, and other income. This decline resulted from decreased
revenue in the Other Operations segment ($338.2 million). This decline was
partly offset by increased revenue in the Individual Life and Disability segment
($28.3 million) and Employee Benefits segment ($23.4 million).
In 1995, revenue declined $205.3 million, or 7.4 percent, to $2.59 billion
from $2.79 billion in 1994. This decline resulted from decreased revenue in the
Other Operations segment ($295.4 million). This decline was partly offset by
increased revenue in the Individual Life and Disability segment ($62.7 million)
and Employee Benefits segment ($27.4 million).
Income before net realized investment gains and losses and federal income
taxes (hereinafter "income") increased $27.1 million, or 13.0 percent, to $234.8
million in 1996 from $207.7 million in 1995. The increase resulted from higher
income in the Individual Life and Disability segment ($80.8 million) and
Employee Benefits segment ($7.7 million). These increases were partly offset by
decreased income in the Other Operations segment ($61.4 million).
In 1995, income was $207.7 million, compared to $231.0 million in 1994.
The decline resulted from decreased income in the Employee Benefits segment
($23.2 million) and Individual Life and Disability segment ($16.7 million).
These declines were only partly offset by increased income in the Other
Operations segment ($16.6 million).
Net income totaled $145.6 million in 1996, compared to $115.6 million in
1995 and $135.3 million in 1994. Net realized investment losses after federal
income taxes were $5.4 million in 1996, $20.7 million in 1995, and $22.5 million
in 1994.
INDIVIDUAL LIFE AND DISABILITY OPERATING RESULTS
Revenue in the Individual Life and Disability segment increased $28.3
million, or 2.8 percent, to $1,047.6 million in 1996 from $1,019.3 million in
1995. Net investment income increased $32.3 million, or 8.9 percent, to $393.6
million in 1996 from $361.3 million in 1995. This increase was primarily the
-1-
<PAGE>
INDIVIDUAL LIFE AND DISABILITY OPERATING RESULTS
<TABLE>
<CAPTION>
Year Ended December 31 1996 1995 1994
---------- ----------- ---------
(in millions of dollars)
<S> <C> <C> <C>
REVENUE EXCLUDING NET REALIZED INVESTMENT GAINS
Premium Income
Individual Disability Income $582.8 $584.5 $578.7
Individual Life and Annuities 63.5 62.9 66.2
------- -------- ------
Total Premium Income 646.3 647.4 644.9
Net Investment Income 393.6 361.3 302.4
Other Income 7.7 10.6 9.3
------- -------- ------
TOTAL 1,047.6 1,019.3 956.6
------- -------- ------
BENEFITS AND EXPENSES
Policy and Contract Benefits 477.1 443.7 381.3
Change in Reserves for Future Policy and
Contract Benefits and Policyholders' Funds 220.5 303.6 297.6
Amortization of Deferred Policy Acquisition Costs 55.6 59.0 53.0
Other Expenses 177.1 176.5 171.5
------- -------- ------
TOTAL 930.3 982.8 903.4
------- -------- ------
INCOME BEFORE NET REALIZED INVESTMENT
GAINS AND FIT 117.3 36.5 53.2
NET REALIZED INVESTMENT GAINS 8.5 4.7 5.8
------- -------- ------
INCOME BEFORE FIT $125.8 $41.2 $59.0
======= ======== ======
SALES - ANNUALIZED NEW PREMIUMS
Individual Disability Income $45.1 $55.2 $65.0
Individual Life $6.7 $7.1 $9.2
DEPOSITS - DEFERRED ANNUITIES $21.2 $82.4 $141.8
LIFE INSURANCE IN FORCE $12,585.2 $12,709.1 $12,683.6
</TABLE>
<PAGE>
result of an increased allocation of capital to the individual disability income
line of business. Premium income in this segment declined $1.1 million or 0.2
percent, to $646.3 million in 1996 from $647.4 million in 1995. In the
individual disability income line of business, premium income declined $1.7
million, or 0.3 percent, to $582.8 million in 1996 from $584.5 million in 1995.
In the individual life line of business, premium income increased $0.4 million,
or 0.6 percent, to $63.3 million in 1996 from $62.9 million in 1995.
In 1995, revenue in the Individual Life and Disability segment increased
$62.7 million, or 6.6 percent, to $1,019.3 million from $956.6 million in 1994.
This increase was primarily the result of higher net investment income. Net
investment income in this segment increased $58.9 million, or 19.5 percent, due
to an increased allocation of capital to the individual disability income line
of business and higher investment income from the individual annuity line of
business. Premium income in this segment increased $2.5 million to $647.4
million in 1995 from $644.9 million in 1994. In the individual disability
income line, premium income was $584.5 million in 1995, compared to $578.7
million in 1994, while the individual life line of business experienced a
decline in premium income from $66.2 million in 1994 to $62.9 million in 1995.
In November 1994, the Company announced its intention to discontinue
selling individual noncancelable disability contracts with long-term own-
occupation provisions (other than conversion policies available under existing
contractual arrangements). The Company is focusing on replacing the traditional
noncancelable long-term own-occupation contracts with "loss of earnings"
contracts which insure income rather than occupation. During the transition to
the new products, revenue in this line was expected to decline as a result of a
period of lower premiums associated with the new products. The magnitude and
duration of the expected decline are dependent on the response of customers and
competitors in the industry. In 1996, annualized new premiums for individual
disability income declined $10.1 million, or 18.3 percent, to $45.1 million,
from $55.2 million in 1995. In the second half of 1996, annualized new premiums
totaled $24.6 million compared to $20.5 million in the first half of 1996 and
$21.5 million in the second half of 1995, indicating improving market acceptance
of the new products.
Income in the Individual Life and Disability segment increased $80.8
million to $117.3 million in 1996 from $36.5 million in 1995. The improvement
is primarily due to improved results in the individual disability income and the
individual life lines of business. In the individual disability income line,
-2-
<PAGE>
income increased $78.2 million to $91.3 million in 1996, from $13.1 million in
1995. This significant improvement is primarily due to a lower level of new
claims in the third and fourth quarters of 1996 along with higher levels of
claim resolutions. Management believes substantial investments in the
individual disability claims management process since the first quarter of 1995
helped produce the significant improvement in results in this line. The major
elements of this investment include an emphasis on early intervention to better
respond to the specific nature of the claims, increased specialization to
properly adjudicate the increasingly specialized nature of disability claims,
and an increased level of staffing with experienced claim adjusters. In
addition, net investment income in this line increased due to a higher
allocation of capital to this line of business. Income in the individual life
line of business increased $3.2 million, or 15.3 percent, to $24.1 million in
1996 from $20.9 million in 1995, while the individual annuities line of business
produced income of $1.9 million in 1996 compared to $2.5 million in 1995.
In 1995, income in the Individual Life and Disability segment declined
$16.7 million, or 31.4 percent, to $36.5 million, compared to $53.2 million in
1994. The decline was primarily due to the individual disability income line
which produced income of $13.1 million in 1995, compared to $27.1 million in
1994. Poor results in the first quarter of 1995 from adverse claim experience on
individual noncancelable disability income contracts with long-term own-
occupation provisions which were issued between 1983 and 1989 were the primary
reason for the decline. Specifically, the average size of new claims in the
first quarter of 1995 was higher than the average level experienced for all of
1994, and the level of claim resolutions was lower relative to 1994. During the
last three quarters of 1995, claim resolutions were higher relative to the first
quarter of 1995 and all of 1994. Management believes that the improvement in the
final three quarters of 1995 was primarily the result of the allocation of
significant resources to the Company's disability claims management unit. Lower
income from the individual life and individual annuities lines of business also
contributed to the decreased income in this segment. Income in the individual
life line declined to $20.9 million in 1995, compared to $22.9 million in 1994,
while income from the individual annuities line declined to $2.5 million in 1995
from $3.2 million in 1994.
Deposits on deferred annuities sold through financial institutions totaled
$8.1 million in 1996, compared to $78.2 million in 1995 and $131.8 million in
1994. This decline was primarily the result of the termination of certain
marketing relationships. Deposits on annuities sold through other distribution
-3-
<PAGE>
channels were $13.1 million in 1996, compared to $4.2 million in 1995 and $10.0
million in 1994.
The Company performed a loss recognition study on its individual disability
income business as of September 30, 1993. The study resulted in a $423.0
million pre-tax or $275.0 million after-tax charge to operating earnings. The
charge was required under generally accepted accounting principles due to the
significant decline in interest rates in 1993 and the increased level of
morbidity experienced by the Company. Since 1993, the Company has performed
annual loss recognition studies to determine the continued adequacy of the
reserves that were established. Based upon the December 1996 loss recognition
study, which incorporates management's best estimate for the assumptions used,
reserves were adequate at December 31, 1996.
The Company has engaged outside consultants to work with its personnel in
refining its methodology for analyzing frequency and severity rates, as well as
other factors that may affect reserve adequacy. Management intends to continue
to work to provide the Company with a better methodology for anticipating
changes in morbidity rates and a better methodology for reflecting those changes
in the management of its business. Significant testing of any methodology must
be undertaken. Early indicators suggest a sufficiency in the Company's
reserves.
It is not possible to predict with certainty whether morbidity, interest
rates, and expenses will continue at a level consistent with the assumptions
used in the loss recognition study, improve, or deteriorate; however, the
current assumptions as to these factors represent management's best estimates in
light of present circumstances. Additional increases to reserves would be
required if there is material deterioration in morbidity, interest rates, and/or
expenses. As part of its ongoing management of this line of business, the
Company will conduct a loss recognition study annually to validate the continued
adequacy of current reserves.
EMPLOYEE BENEFITS OPERATING RESULTS
Revenue in the Employee Benefits segment increased $23.4 million, or 4.0
percent, to $606.1 million in 1996 from $582.7 million in 1995. The increase is
primarily due to higher premium income which increased $15.5 million, or 3.2
percent, to $501.4 million in 1996 from $485.9 million in 1995. The increase was
primarily the result of higher premium income in the voluntary benefits, group
-4-
<PAGE>
EMPLOYEE BENEFITS OPERATING RESULTS
<TABLE>
<CAPTION>
Year Ended December 31 1996 1995 1994
--------- --------- ----------
(in millions of dollars)
<S> <C> <C> <C>
REVENUE EXCLUDING NET REALIZED INVESTMENT GAINS
Premium Income
Voluntary Benefits $70.6 $66.3 $58.7
Group Life 177.8 167.0 167.6
Medical Stop-Loss 49.4 62.2 66.9
Group Disability 69.4 59.5 53.6
Packaged Products 134.2 130.9 118.8
-------- -------- ---------
Total Premium Income 501.4 485.9 465.6
Net Investment Income 97.9 90.6 85.5
Other Income 6.8 6.2 4.2
-------- -------- ---------
TOTAL 606.1 582.7 555.3
-------- -------- ---------
BENEFITS AND EXPENSES
Policy and Contract Benefits 362.9 382.2 334.2
Change in Reserves for Future Policy and
Contract Benefits and Policyholders' Funds 73.7 48.1 54.1
Amortization of Deferred Policy Acquisition 8.4 12.0 6.4
Other Expenses 104.8 91.8 88.8
-------- -------- ---------
TOTAL 549.8 534.1 483.5
-------- -------- ---------
INCOME BEFORE NET REALIZED INVESTMENT
GAINS AND FIT 56.3 48.6 71.8
NET REALIZED INVESTMENT GAINS 0.1 3.9 1.6
-------- -------- ---------
INCOME BEFORE FIT $56.4 $52.5 $73.4
======== ======== =========
SALES - ANNUALIZED NEW PREMIUMS
Voluntary Benefits $23.0 $20.2 $20.6
Group Life $37.8 $24.2 $16.7
Group LTD $16.5 $10.7 $14.4
LIFE INSURANCE IN FORCE $87,079.7 $83,276.3 $71,460.5
</TABLE>
<PAGE>
life, group disability, and packaged products lines of business, which more than
offset lower premium income in the medical stop-loss line of business. Net
investment income in this segment increased $7.3 million, or 8.1 percent, to
$97.9 million in 1996 from $90.6 million in 1995.
In 1995, revenue in the Employee Benefits segment increased $27.4 million,
or 4.9 percent, to $582.7 million from $555.3 million in 1994. Premium income
increased $20.3 million, or 4.4 percent, to $485.9 million in 1995 from $465.6
million in 1994. The increase in premium income in this segment was primarily
the result of higher premium income in the voluntary benefits, group disability,
and packaged products lines of business, which more than offset lower premium
income in the group life and medical stop-loss lines of business. Net
investment income in this segment increased $5.1 million, or 6.0 percent, to
$90.6 million in 1995, compared to $85.5 million in 1994.
Income in the Employee Benefits segment increased $7.7 million, or 15.8
percent, to $56.3 million in 1996 from $48.6 million in 1995. The increase is
primarily due to improved results in the voluntary benefits and group disability
lines of business. Income in the voluntary benefits line was $14.7 million in
1996 compared to $7.9 million in 1995. Income in the group disability line was
$2.9 million in 1996 compared to a loss of $12.8 million in 1995. Both lines
benefited from improved profitability following repricing actions in 1995. The
improvement in income in these lines of business was partly offset by lower
income in the group life, medical stop-loss, and packaged products lines of
business.
In 1995, income in the Employee Benefits segment declined to $48.6 million,
compared to $71.8 million in 1994. This decline was primarily the result of
lower income in the medical stop-loss and group disability lines of business.
Income in the medical stop-loss line declined to $16.4 million in 1995, compared
to $26.6 million in 1994, primarily as a result of lower premium income and
higher loss ratios. Income in the group disability line declined to a loss of
$12.8 million in 1995 from a loss of $4.5 million in 1994, primarily due to
higher claim incidence and severity. These losses were primarily attributable
to business associated with the medical and legal occupations. During the first
quarter of 1995, the Company notified the existing group disability customers in
the medical and legal occupational categories that coverages would be terminated
under the terms of the existing contracts during 1995, and the Company would no
longer accept proposals for group disability coverage of new medical or legal
groups. This action impacted approximately 15 percent of the group disability
-5-
<PAGE>
block of business. The group life and voluntary benefits lines of business also
produced lower income in 1995 compared to 1994, while the packaged products line
reported an increase in income.
-6-
<PAGE>
OTHER OPERATIONS OPERATING RESULTS
<TABLE>
<CAPTION>
Year Ended December 31 1996 1995 1994
--------- --------- ---------
(in millions of dollars)
<S> <C> <C> <C>
REVENUE EXCLUDING NET REALIZED INVESTMENT LOSSES
Premium Income
Corporate-Owned Life $23.6 $24.8 $26.1
Group Single Premium Annuities 1.9 0.5 4.7
Other 2.5 93.3 241.3
-------- -------- ---------
Total Premium Income 28.0 118.6 272.1
Net Investment Income 598.6 769.4 850.7
ASO Fees -- 37.2 110.9
Gain on Sale of Group Medical Business -- 21.8 --
Other Income 20.2 38.0 46.7
-------- -------- ---------
TOTAL 646.8 985.0 1,280.4
-------- -------- ---------
BENEFITS AND EXPENSES
Policy and Contract Benefits 376.5 593.8 791.3
Change in Reserves for Future Policy and
Contract Benefits and Policyholders' Funds 150.5 133.2 122.7
Other Expenses 58.6 135.4 260.4
-------- -------- ---------
TOTAL 585.6 862.4 1,174.4
-------- -------- ---------
INCOME BEFORE NET REALIZED INVESTMENT
LOSSES AND FIT 61.2 122.6 106.0
NET REALIZED INVESTMENT LOSSES (17.2) (40.3) (37.5)
-------- -------- ---------
INCOME BEFORE FIT $44.0 $82.3 $68.5
======== ======== =========
FUNDS UNDER MANAGEMENT AND
EQUIVALENTS AT END OF YEAR
Group Single Premium Annuities $1,188.1 $1,197.8 $1,209.5
Traditional GICs 3,204.3 4,838.0 7,042.6
Separate Account GICs 68.3 146.1 138.9
Synthetic GICs 2,176.6 2,571.9 1,626.8
Other 304.7 301.1 275.5
-------- -------- ---------
Total $6,942.0 $9,054.9 $10,293.3
======== ======== =========
LIFE INSURANCE IN FORCE - CORPORATE-OWNED LIFE $2,999.6 $2,967.2 $2,641.5
</TABLE>
<PAGE>
OTHER OPERATIONS OPERATING RESULTS
The Other Operations segment includes the Company's group pension products,
its corporate-owned life insurance ("COLI") products, corporate (unallocated)
capital and assets, and the medical services business sold in 1995 (see Note 13
of the Notes to Consolidated Financial Statements). The group pension and COLI
blocks of business are essentially closed blocks of business which have been
segregated for reporting and monitoring purposes. The group pension products
include the Company's traditional guaranteed investment contracts ("GICs"),
group single premium annuities ("SPAs"), and synthetic GICs.
Revenue in the Other Operations segment declined $338.2 million, or 34.3
percent, to $646.8 million in 1996 from $985.0 million in 1995. The decline was
partially due to the sale of the medical services line of business, which, prior
to its sale on April 30, 1995, contributed operating revenue of $146.1 million
and a gain from the sale of the business of $21.8 million. In addition, revenue
in the group pension line of business declined $177.2 million, or 30.3 percent,
to $408.4 million in 1996 from $585.6 million in 1995 due to a decrease in funds
under management resulting from the strategic decision to discontinue the sale
of traditional GICs. Premium income in this segment declined $90.6 million, or
76.4 percent, to $28.0 million in 1996 from $118.6 million in 1995. This
decline is due to the sale of the medical services line of business, which
produced $90.9 million of premium income prior to its sale in the second quarter
of 1995.
In 1995, revenue in the Other Operations segment declined $295.4 million, or
23.1 percent, to $985.0 million, compared to $1,280.4 million in 1994. Premium
income in this segment declined $153.5 million to $118.6 million in 1995
compared to $272.1 million in 1994. The primary reason for this decline was the
sale of the medical services business which produced premium income of $241.3
million in 1994 and $90.9 million in 1995 prior to its sale effective April 30,
1995. Net investment income declined $81.3 million to $769.4 million in 1995
from $850.7 million in 1994. The primary reason for this decline was the
decrease in funds under management in the group pension line of business. Net
investment income in the group pension line declined $80.0 million to $574.2
million in 1995, compared to $654.2 million in 1994. In addition, net
investment income from corporate (unallocated) capital and assets declined due
to additional capital being allocated to the individual disability income line
of business. Administrative services only fees associated with the medical
-7-
<PAGE>
services business declined due to the sale of the medical services business in
1995. These fees totaled $110.9 million in 1994 and $37.2 million in 1995.
The Company announced in December 1994, that it would discontinue the sale
of traditional GICs. Funds under management for the group pension line
excluding deposits for synthetic GICs totaled $4.77 billion at December 31,
1996, compared to $6.48 billion at December 31, 1995, a decrease of 26.5
percent. In 1995, funds under management decreased 25.2 percent, from $8.67
billion at December 31, 1994.
In 1995, the Company extended an offer to GIC contract holders to surrender
their contracts on a more favorable basis than would otherwise be available to
them. Contracts with a book value of $291.7 million were surrendered under the
offer. The Company has no plans for another offer of this kind. Early
surrenders of traditional GICs totaled $40.8 million in 1996 and $662.1 million
in 1995. The Company does not anticipate significant early withdrawals on its
remaining GICs as virtually all of the contracts are subject to a market value
adjustment for early withdrawal.
In keeping with management's strategic desire to focus its resources in the
other two segments, the Company decided to discontinue the sale of synthetic
GICs and in January 1997, signed a letter of understanding to sell the block of
business through an assumptive reinsurance transaction. Accumulated funds from
the sale of the Company's synthetic GICs totaled $2.18 billion at December 31,
1996, $2.57 billion at December 31, 1995, and $1.63 billion at December 31,
1994.
Revenue in this segment is expected to continue to decline as a result of
the discontinuance of the sales of traditional GICs and group SPAs and the run-
off of the funds under management. As the traditional GICs mature, capital will
be available for use by the Company as amounts allocated to this line are
released.
Income in 1996 declined $61.4 million to $61.2 million in 1996 from $122.6
million in 1995. This decline is partially due to the 1995 sale of the medical
services line of business, which produced operating income of $3.2 million and a
gain from the sale of $21.8 million during 1995. In addition, the decline in
this segment was due to lower income in the group pension line of business,
which declined $26.1 million, or 35.4 percent, to $47.6 million in 1996 from
$73.7 million in 1995. The decline in this line was primarily the result of
lower funds under management and lower income from a reduced amount of capital
allocated to this line. Income from the corporate-owned life insurance line of
-8-
<PAGE>
business declined slightly to $19.7 million in 1996, compared to $20.5 million
in 1995.
Income in this segment increased $16.6 million to $122.6 million in 1995
from $106.0 million in 1994. Higher income in the group pension line of
business and the gain from the sale of the medical services line were the
primary reasons for the increase in income. The group pension line produced
income of $73.7 million in 1995, compared to $48.8 million in 1994. This line
of business benefited from an improvement in the spread between interest
credited on contracts and the interest earned on the invested assets, as well as
income from bond call premiums, early surrender penalties, and lower expenses.
Income from the block of corporate-owned life insurance declined slightly to
$20.5 million in 1995 from $21.1 million in 1994. This decline in income was
primarily attributable to a decline in premium income in this line of business.
Income from the medical services line of business declined to $3.2 million for
the four months of 1995 from $16.9 million for the year 1994. In addition, the
Other Operations segment in 1995 included an unusually high level of corporate
expenses related to several initiatives underway within the Company.
Management expects that income in 1997 from the group pension line will
decline from the levels recorded in 1996 as the funds under management decline.
Management also expects that the level of corporate expenses related to this
segment will be lower in 1997 than in 1996.
-9-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
As a holding company, the Company is dependent upon payments from its
wholly-owned insurance subsidiaries, Provident Life and Accident Insurance
Company ("Accident"), Provident Life and Casualty Insurance Company
("Casualty"), and Provident National Assurance Company ("National")
(collectively "Provident") and its recently acquired wholly-owned subsidiaries
GENEX Services, Inc. and GENEX Services of Canada, Inc. (collectively "GENEX")
to pay dividends to its shareholders and to pay its expenses. These payments by
Provident and GENEX may take the form of either dividends or interest payments
on amounts loaned to Provident or GENEX by the Company.
State insurance laws generally restrict the ability of insurance companies
to pay cash dividends or make other payments to their affiliates in excess of
certain prescribed limitations. In Tennessee, Provident's state of domicile,
regulatory approval is required if an insurance company seeks to make loans to
affiliates in amounts equal to or in excess of three percent of the insurer's
admitted assets, or to pay cash dividends in excess of the greater of such
company's net gain from operations of the preceding year or ten percent of its
surplus as regards policyholders, as determined at the end of the preceding year
in accordance with prescribed or permitted accounting practices. In November
1996, National made an extraordinary cash distribution in the amount of $100.0
million to the Company. An aggregate of $107.0 million would be available in
1997 for the payment of dividends or other distributions by Accident, National,
and Casualty without regulatory approval.
The Company's requirements are met primarily by cash flow provided from
operations, principally in Provident. Premium and investment income as well as
maturities and sales of invested assets provide the primary sources of cash.
Cash flow from operations was sufficient in 1996. Cash is applied to the
payment of policy benefits, costs of acquiring new business (principally
commissions) and operating expenses, as well as purchases of new investments.
The Company has established an investment strategy that management believes will
provide for adequate cash flow from operations.
The Company expects no material adverse effect on its liquidity as a result
of the discontinuance of sales of traditional GICs. While traditionally the
investment strategy for this product line has been to match the effective asset
durations with the related expected liability durations, the Company has moved
to a cash flow matching strategy.
-10-
<PAGE>
In May 1995, the Company sold 26 restructured mortgage loans with a
principal amount of $147.5 million and a book value of $122.6 million. The
transaction resulted in a before-tax realized investment loss of $23.1 million.
In October 1995, the Company completed the sale of commercial mortgage loans
with a principal amount and a book value of $962.4 million through a
securitization collateralized by 366 loans. The transaction resulted in a
before-tax realized investment gain of $8.9 million. In February 1996, the
Company sold 24 mortgage loans with a principal amount of $81.6 million and a
book value of $75.9 million, realizing a before-tax investment loss of $5.7
million. These transactions increased the liquidity of the investment portfolio
and facilitated the move to a cash flow matching strategy for the GIC
portfolios. The proceeds from the mortgage sales were reinvested in fixed
maturity securities and were also used to fund the limited-time GIC surrender
offer in 1995 described in Other Operations.
The sale of the mortgage loans is expected to result in lower investment
income in the future, as well as lower net realized investment losses and lower
investment expenses. Overall, the Company expects these transactions to have a
positive effect on net income in future years. Management also expects the
transactions to improve asset quality, liquidity, asset/liability management,
and the capital adequacy ratios.
On April 29, 1996, the Company announced that it had entered into an
Agreement and Plan of Merger ("Agreement") with The Paul Revere Corporation
("Paul Revere") pursuant to which the Company would acquire Paul Revere at a
price of approximately $1.2 billion.
The Company and Paul Revere's 83 percent shareholder, Textron Inc.
("Textron"), announced on November 6, 1996, that Textron had agreed to provide
additional capital to Paul Revere and that the parties would make certain other
adjustments relating to the Company's acquisition of Paul Revere. This followed
the announcement by Paul Revere of a $244.3 million after-tax reserve
strengthening in its individual disability insurance segment in the third
quarter of 1996. The strengthening reflected the results of a previously
announced comprehensive reserve study prepared in accordance with generally
accepted accounting principles which was completed in early November 1996.
The financial terms of the acquisition are unchanged to Paul Revere's public
shareholders from those of the original Agreement. Under the terms of the
Amended and Restated Agreement and Plan of Merger (the "Amended Agreement"),
-11-
<PAGE>
Textron was committed to make a capital contribution to Paul Revere of between
$100 million and $180 million. The amount of the contribution, determined by
the amount of statutory reserve strengthening required by the Commonwealth of
Massachusetts Division of Insurance as a condition to consenting to the
acquisition of Paul Revere by the Company, was $121.0 million on an after-tax
basis, of which $83.5 million was contributed to Paul Revere as of December 31,
1996, and $37.5 million was contributed on February 18, 1997. Textron also
agreed to the resetting of the Exchange Ratio to be used in computing the number
of shares of Company stock that will constitute the stock portion of the merger
consideration Textron will receive for its 37.5 million shares of Paul Revere
stock. The Exchange Ratio for Textron as defined in the original Agreement was
to be no lower than 0.0295, compared to a minimum Textron Exchange Ratio of
0.0263 under the Amended Agreement. This change may reduce the number of shares
of the Company's stock that Textron will receive. Additional consideration
totaling approximately $35 million will also be paid to the Company or
contributed to Paul Revere by Textron. The Amended Agreement contains certain
limited purpose hold harmless provisions pursuant to which Textron has agreed to
indemnify the Company from specified damages. The transaction was approved by
the required vote of the shareholders of the Company and Paul Revere on December
31, 1996. It remains subject to the approval of the Commonwealth of
Massachusetts Division of Insurance. A hearing was held by the Division on
March 6, 1997, to consider the Company's application to acquire Paul Revere, and
a decision by the Commissioner is expected shortly.
The foregoing discussion of the Amended Agreement is a summary of the terms
of the Amended Agreement and is qualified in its entirety by reference to the
Amended Agreement and the joint press release of the Company and Textron dated
November 6, 1996, which have been previously filed with the Securities and
Exchange Commission, together with a more complete description of the terms of
the merger.
The acquisition will be financed through common equity issuance to Zurich
Insurance Company, a Swiss insurer, or one or more of its affiliates, common
equity issuance to Paul Revere shareholders, debt, and internally generated
funds. Contractual commitments are in place for the debt issuance. For
additional information, see Note 6 of the Notes to Consolidated Financial
Statements. The Company believes the cash flows from the combined operations
will be sufficient to meet its operating and financing cash flow requirements.
-12-
<PAGE>
On February 28, 1997, the Company acquired GENEX Services, Inc. and GENEX
Services of Canada, Inc., subsidiaries of First Data Corporation, at a price of
approximately $70.0 million. GENEX is a leading provider of case management,
vocational rehabilitation, and related services to corporations, third party
administrators, and insurance companies. These services are utilized in the
management of disability and worker's compensation claims.
As a result of the release of capital generated by the run-off of the GIC
portfolio, the sale of the commercial mortgage loans, the sale of the medical
services line, and other corporate actions, the Company has increased its
available capital to support the growth of its businesses, including assisting
in the financing of the two acquisitions discussed above. Management continues
to analyze potential opportunities to utilize the capital to further enhance
shareholder value, including exploring options that would support the Company's
growth initiatives.
-13-
<PAGE>
INVESTMENTS
Investment activities are an integral part of the Company's business, and
profitability is significantly affected by investment results. Invested assets
are segmented into portfolios which support the various product lines.
Generally, the investment strategy for the portfolios is to match the effective
asset durations with related expected liability durations and to maximize
investment returns, subject to constraints of quality, liquidity,
diversification, and regulatory considerations. This discussion should be read
in connection with Note 3 of the Notes to Consolidated Financial Statements.
The following table provides the distribution of invested assets for the years
indicated.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
December 31 1996 1995 1994
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------
Investment-Grade Fixed Maturity Securites 77.0% 79.3% 72.6%
Below-Investment-Grade Fixed Maturity Securities 6.7 6.2 4.6
Equity Securities 0.1 --- 0.1
Mortgage Loans --- 0.7 10.0
Real Estate 1.1 1.4 1.6
Policy Loans 13.1 10.7 9.1
Other 2.0 1.7 2.0
- -----------------------------------------------------------------------------------
Total 100.0% 100.0% 100.0%
- -----------------------------------------------------------------------------------
</TABLE>
The following table provides certain investment information and results for
the years indicated.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
Year Ended December 31 1996 1995 1994
- -----------------------------------------------------------------------------------
(in millions of dollars)
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Average Cash and Invested Assets $14,056.3 $14,914.4 $15,047.3
Net Investment Income $ 1,090.1 $ 1,221.3 $ 1,238.6
Average Yield* 7.8% 8.2% 8.2%
Net Realized Investment Losses $ (8.6) $ (31.7) $ (30.1)
- -----------------------------------------------------------------------------------
</TABLE>
*Average yield is determined by dividing net investment income by the average
cash and invested assets for the year. Excluding net unrealized gains and
losses on securities, the yield is 8.1%, 8.3%, and 8.3% for 1996, 1995, and
1994, respectively. See Notes 1 and 3 of the Notes to Consolidated Financial
Statements.
-14-
<PAGE>
For the past three years, the Company's exposure to non-current investments
has improved significantly from prior years. These non-current investments are
primarily foreclosed real estate and mortgage loans which became more than
thirty days past due in their principal and interest payments. Non-current
investments, comprised of foreclosed real estate, totaled $7.3 million at
December 31, 1996, or 0.05 percent of invested assets. Non-current investments
at year-end 1995 were $31.9 million, or 0.22 percent of invested assets,
compared to $88.5 million, or 0.59 percent of invested assets at year-end 1994.
As previously discussed under Liquidity and Capital Resources, the Company
sold a substantial portion of its commercial mortgage loan portfolio in 1995.
The remaining exposure of $104.8 million of mortgage loans was liquidated during
1996.
During 1996, the Company sold four foreclosed properties with a book value
of $11.8 million. During 1995, the Company sold twelve foreclosed properties
with a book value of $39.6 million at the date of sale.
The Company's investment in mortgage-backed securities totaled $2.4 billion
on an amortized cost basis at December 31, 1996, and $2.9 billion at December
31, 1995. At December 31, 1996, the mortgage-backed securities had an average
life of 8.3 years and effective duration of 6.0 years. The mortgage-backed
securities are valued on a monthly basis using valuations supplied by the
brokerage firms that are dealers in these securities. The primary risk involved
in investing in mortgage-backed securities is the uncertainty of the timing of
cash flows from the underlying loans due to prepayment of principal. The
Company uses models which incorporate economic variables and possible future
interest rate scenarios to predict future prepayment rates. The Company has not
invested in mortgage-backed derivatives, such as interest-only, principal-only
or residuals, where market values can be highly volatile relative to changes in
interest rates.
As with most other fixed income investments, below-investment-grade bonds
are subject to the effects of changes in the overall level of interest rates,
which can affect both capital and reinvestment return. Below-investment-grade
bonds are inherently more risky than investment-grade bonds since the risk of
default by the issuer, by definition and as exhibited by bond rating, is higher.
Also, the secondary market for certain below-investment-grade issues can be
highly illiquid. Management does not anticipate any liquidity problem being
caused by the investments in below-investment-grade securities, nor does it
-15-
<PAGE>
expect these investments to adversely affect its ability to hold its other
investments to maturity.
The Company's exposure to below-investment-grade fixed maturity securities
at December 31, 1996, was $891.1 million, representing 6.7 percent of invested
assets, below the internal limit of 7.5 percent of invested assets for this type
of investment. The Company's exposure to below-investment-grade fixed
maturities at December 31, 1995, was $911.8 million, representing 6.2 percent of
invested assets. Included in the below-investment-grade portfolio was the
Company's holding of $100.0 million of Healthsource 6.25% preferred stock,
received as part of the consideration for the sale of the group medical services
business. The preferred stock was redeemed in cash at par by Healthsource
during 1996.
Changes in interest rates and individuals' behavior affect the amount and
timing of asset and liability cash flows. Management has added resources in the
investment area to address modeling and testing of all asset and liability
portfolios to improve interest rate risk management and net yields. Testing the
asset and liability portfolios under various interest rate and economic
scenarios allows management to choose the most appropriate investment strategy
as well as to prepare for the most disadvantageous outcomes. This analysis is
the precursor to the Company's activities in derivative financial instruments
(see Note 4 of the Notes to Consolidated Financial Statements).
-16-
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Provident Companies, Inc.
We have audited the accompanying consolidated statements of financial condition
of Provident Companies, Inc. and Subsidiaries as of December 31, 1996 and 1995,
and the related consolidated statements of income, stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Provident Companies, Inc. and Subsidiaries at December 31, 1996 and 1995, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, during 1994 the
Company changed its method of accounting for certain debt and equity securities.
ERNST & YOUNG LLP
Chattanooga, Tennessee
February 10, 1997, except for Note 16,
as to which the date is February 28, 1997
-1-
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
PROVIDENT COMPANIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year Ended December 31
1996 1995 1994
(in millions of dollars, except share data)
----------------------------------------------
<S> <C> <C> <C>
REVENUE
Premium Income $ 1,175.7 $ 1,251.9 $ 1,382.6
Net Investment Income 1,090.1 1,221.3 1,238.6
Net Realized Investment Losses (8.6) (31.7) (30.1)
Other Income 34.7 113.8 171.1
----------- ----------- -----------
TOTAL REVENUE 2,291.9 2,555.3 2,762.2
----------- ----------- -----------
BENEFITS AND EXPENSES
Policy and Contract Benefits 1,216.5 1,419.7 1,506.8
Change in Reserves for Future Policy and Contract Benefits
and Policyholders' Funds 444.7 484.9 474.4
Amortization of Deferred Policy Acquisition Costs 64.0 71.0 59.4
Salaries 77.3 99.8 160.2
Commissions 124.0 131.9 121.8
Other Operating Expenses 139.2 172.0 238.7
----------- ----------- -----------
TOTAL BENEFITS AND EXPENSES 2,065.7 2,379.3 2,561.3
----------- ----------- -----------
INCOME BEFORE FEDERAL INCOME TAXES 226.2 176.0 200.9
FEDERAL INCOME TAXES 80.6 60.4 65.6
----------- ----------- -----------
NET INCOME $ 145.6 $ 115.6 $ 135.3
=========== =========== ===========
NET INCOME PER COMMON SHARE $ 2.92 $ 2.27 $ 2.71
=========== =========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 45,522,417 45,381,373 45,311,053
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
-2-
<PAGE>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
PROVIDENT COMPANIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
December 31
1996 1995
(in millions of dollars)
---------------------------
<S> <C> <C>
ASSETS
INVESTMENTS
Fixed Maturity Securities
Available-for-Sale - at fair value (amortized cost: $10,384.3; $11,458.3) $10,880.1 $12,318.6
Held-to-Maturity - at amortized cost (fair value: $263.1; $321.1) 264.5 299.0
Equity Securities - at fair value (cost: $7.2; $9.2) 4.9 5.3
Mortgage Loans - 104.8
Real Estate 151.1 203.7
Policy Loans 1,749.0 1,574.6
Other Long-term Investments 15.5 14.0
Short-term Investments 252.3 231.0
--------- ---------
TOTAL INVESTMENTS 13,317.4 14,751.0
OTHER ASSETS
Cash and Bank Deposits 19.3 24.8
Accounts Receivable 40.1 41.3
Premiums Receivable 72.3 75.5
Reinsurance Receivable 468.3 435.3
Accrued Investment Income 268.3 277.4
Deferred Policy Acquisition Costs 421.8 271.8
Property and Equipment - at cost less accumulated depreciation 59.0 49.2
Miscellaneous 25.5 17.2
Separate Account Assets 300.5 357.8
--------- ---------
TOTAL ASSETS $14,992.5 $16,301.3
========= =========
</TABLE>
See notes to consolidated financial statements.
-3-
<PAGE>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION - CONTINUED
PROVIDENT COMPANIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
December 31
1996 1995
(in millions of dollars)
---------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Policy and Contract Benefits $ 411.7 $ 383.7
Reserves for Future Policy and Contract Benefits 8,051.3 7,756.2
Unearned Premiums 58.8 58.4
Experience Rating Refunds 164.0 157.8
Policyholders' Funds 3,717.1 5,334.6
Federal Income Tax Liability
Current 34.6 29.9
Deferred 14.5 37.2
Long-term Debt 200.0 200.0
Other Liabilities 301.4 333.4
Separate Account Liabilities 300.5 357.8
--------- ---------
TOTAL LIABILITIES 13,253.9 14,649.0
--------- ---------
COMMITMENTS AND CONTINGENT LIABILITIES--NOTE 14
STOCKHOLDERS' EQUITY--NOTE 7
Preferred Stock 156.2 156.2
Common Stock, $1 par
Authorized: 150,000,000 shares
Issued: 45,627,629 and 45,397,886 shares 45.6 45.4
Additional Paid-in Capital 11.4 5.8
Net Unrealized Gain on Securities 90.9 101.9
Foreign Currency Translation Adjustment (5.2) (4.8)
Retained Earnings 1,439.7 1,347.8
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 1,738.6 1,652.3
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $14,992.5 $16,301.3
========= =========
</TABLE>
See notes to consolidated financial statements.
-4-
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
PROVIDENT COMPANIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year Ended December 31
1996 1995 1994
(in millions of dollars)
--------------------------------
<S> <C> <C> <C>
PREFERRED STOCK
Balance at Beginning and End of Year $ 156.2 $ 156.2 $ 156.2
-------- -------- --------
COMMON STOCK
Balance at Beginning of Year 45.4 45.4 45.2
Issued During Year 0.2 - 0.2
-------- -------- --------
Balance at End of Year 45.6 45.4 45.4
-------- -------- --------
ADDITIONAL PAID-IN CAPITAL
Balance at Beginning of Year 5.8 4.8 3.1
Contributions During Year 5.6 1.0 1.7
-------- -------- --------
Balance at End of Year 11.4 5.8 4.8
-------- -------- --------
NET UNREALIZED GAIN (LOSS) ON SECURITIES
Balance at Beginning of Year 101.9 (302.3) (2.1)
Adjustment for the Initial Application of SFAS 115 - - 244.9
Change During Year (11.0) 404.2 (545.1)
-------- -------- --------
Balance at End of Year 90.9 101.9 (302.3)
-------- -------- --------
FOREIGN CURRENCY TRANSLATION ADJUSTMENT
Balance at Beginning of Year (4.8) (5.4) (3.9)
Change During Year (0.4) 0.6 (1.5)
-------- -------- --------
Balance at End of Year (5.2) (4.8) (5.4)
-------- -------- --------
RETAINED EARNINGS
Balance at Beginning of Year 1,347.8 1,270.4 1,203.1
Net Income 145.6 115.6 135.3
Dividends to Stockholders
(Paid Per Common Share: $0.72; $0.72; $1.04) (53.7) (38.2) (68.0)
-------- -------- --------
Balance at End of Year 1,439.7 1,347.8 1,270.4
-------- -------- --------
TOTAL STOCKHOLDERS' EQUITY $1,738.6 $1,652.3 $1,169.1
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
-5-
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
PROVIDENT COMPANIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year Ended December 31
1996 1995 1994
(in millions of dollars)
-----------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 145.6 $ 115.6 $ 135.3
Adjustments to Reconcile Net Income
to Net Cash Provided by Operating Activities
Policy Acquisition Costs Capitalized (71.4) (88.1) (95.1)
Amortization of Policy Acquisition Costs 64.0 71.0 59.4
Depreciation and Amortization 11.1 24.3 42.2
Net Realized Investment Losses 8.6 31.7 30.1
Premiums Receivable 3.2 (13.2) 2.4
Reinsurance Receivable (33.0) 2.0 (56.4)
Accrued Investment Income 9.1 4.1 (17.4)
Insurance Reserves and Liabilities 546.8 581.8 563.6
Federal Income Taxes (11.9) (11.4) (25.7)
Other (11.5) (42.9) 8.0
--------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 660.6 674.9 646.4
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from Sales of Investments
Available-for-Sale Securities 1,592.6 1,359.9 693.7
Other Investments 141.8 1,172.5 50.2
Proceeds from Maturities of Investments
Available-for-Sale Securities 1,115.7 880.8 2,023.6
Held-to-Maturity Securities 100.5 0.7 2.2
Other Investments 13.0 248.7 382.9
Purchase of Investments
Available-for-Sale Securities (1,630.7) (1,680.1) (3,453.4)
Held-to-Maturity Securities (48.6) (183.9) (0.2)
Other Investments (177.5) (236.6) (266.9)
Net (Purchases) Sales of Short-term Investments (21.5) 58.7 66.4
Disposition of Group Medical Business - (48.9) -
Other (75.5) (67.0) 63.5
--------- --------- ---------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES $ 1,009.8 $ 1,504.8 $ (438.0)
--------- --------- ---------
</TABLE>
See notes to consolidated financial statements.
-6-
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
PROVIDENT COMPANIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year Ended December 31
1996 1995 1994
(in millions of dollars)
-----------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Deposits to Policyholder Accounts $ 392.5 $ 530.6 $ 1,691.0
Maturities and Benefit Payments from
Policyholder Accounts (2,023.8) (2,663.5) (1,779.7)
Net Short-term Debt Repayments (1.4) (13.0) (14.6)
Issuance of Common Stock 5.8 1.0 1.9
Dividends Paid to Stockholders (45.5) (45.3) (59.8)
Other (3.5) - (43.9)
--------- --------- ---------
NET CASH USED BY FINANCING ACTIVITIES (1,675.9) (2,190.2) (205.1)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND BANK DEPOSITS (5.5) (10.5) 3.3
CASH AND BANK DEPOSITS AT BEGINNING OF YEAR 24.8 35.3 32.0
--------- --------- ---------
CASH AND BANK DEPOSITS AT END OF YEAR $ 19.3 $ 24.8 $ 35.3
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
-7-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PROVIDENT COMPANIES, INC. AND SUBSIDIARIES
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION: The accompanying financial statements have been prepared
on the basis of generally accepted accounting principles. Such accounting
principles differ from statutory accounting practices prescribed or permitted by
state regulatory authorities (see Note 15). The consolidated financial
statements include the accounts of Provident Companies, Inc. and its wholly-
owned subsidiaries (the Company), including Provident Life and Accident
Insurance Company, Provident Life and Casualty Insurance Company, and Provident
National Assurance Company (see Note 7). Material intercompany transactions
have been eliminated.
OPERATIONS: The Company does business in the fifty states, the District of
Columbia, Puerto Rico, and ten provinces and two territories of Canada. The
Company operates principally in the life and health insurance business.
Individual life products, individual disability income products, and individual
annuities are reported in the Individual Life and Disability segment and are
marketed primarily through personal producing general agents, brokerage offices,
and corporate marketing arrangements. Individual annuities are also marketed
through financial institutions. The Employee Benefits segment contains products
that are sold to or through corporate customers and certain affinity groups,
including permanent and term life insurance, disability, medical stop-loss,
cancer, accident and sickness, and accidental death and dismemberment
protection. The Other Operations segment reports corporate results, primarily
investment earnings not specifically allocated to a line of business, and also
includes results from products no longer actively marketed, including guaranteed
investment contracts (GICs), group single premium annuities, and corporate-
owned life insurance. This segment also includes the results of the group
medical business which was sold effective April 30, 1995 (see Note 13).
USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect amounts reported in the financial statements and
accompanying notes. Such estimates and assumptions could change in the future
as more information becomes known, which could impact the amounts reported and
disclosed herein.
INVESTMENTS: Investments are reported in the consolidated statements of
financial condition as follows:
Available-for-Sale Fixed Maturity Securities are reported at fair value.
Held-to-Maturity Fixed Maturity Securities are generally reported at amortized
cost.
Equity Securities are reported at fair value.
Mortgage Loans are generally carried at the unpaid balance. Mortgage loans that
are considered impaired are carried at the lower of the unpaid balance or the
fair value of the collateral.
Real Estate that the Company expects to hold and use is carried at cost less
accumulated depreciation which is calculated using principally the straight-line
method. Real estate to be disposed of is carried at the lower of cost less
accumulated depreciation or fair value less cost to sell.
Policy Loans are presented at unpaid balances.
Other Long-term Investments are carried at cost plus the Company's equity in
undistributed net earnings since acquisition.
Short-term Investments are carried at cost.
-8-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
PROVIDENT COMPANIES, INC. AND SUBSIDIARIES
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Fixed maturity securities include bonds and redeemable preferred stocks. Equity
securities include common stocks and nonredeemable preferred stocks. Fixed
maturity and equity securities not bought and held for the purpose of selling in
the near term but for which the Company does not have the positive intent and
ability to hold to maturity are classified as available-for-sale. Fixed
maturity securities that the Company has the positive intent and ability to hold
to maturity are classified as held-to-maturity. The Company determines the
appropriate classification of fixed maturity securities at the time of purchase.
Realized investment gains and losses, which are reported as a component of
revenue in the consolidated statements of income, are based upon specific
identification of the investments sold and do not include amounts allocable to
separate accounts. At the time a decline in the value of an investment is
determined to be other than temporary, a loss is recorded which is included in
realized investment gains and losses.
DERIVATIVE FINANCIAL INSTRUMENTS:
Interest Rate Swap Agreements are agreements in which two parties agree to
exchange, at specified intervals, interest payment streams calculated on an
agreed-upon notional principal amount with at least one stream based on a
specified variable rate. The underlying notional principal is not exchanged
between the parties. The Company has certain forward interest rate swap
agreements where the exchange of interest payments does not begin until a
specified future date. The Company intends to settle the forward interest rate
swap agreements prior to the commencement of the exchange of interest payment
streams.
The fair values of interest rate swap agreements which hedge available-for-sale
securities are reported in the consolidated statements of financial condition as
a component of fixed maturity securities. The fair values of interest rate swap
agreements which hedge liabilities are not reported in the consolidated
statements of financial condition. Amounts to be paid or received pursuant to
interest rate swap agreements are accrued and recognized in the consolidated
statements of income as an adjustment to net investment income for asset hedges
or as an adjustment to policy and contract benefits for liability hedges.
The Company accounts for all of its interest rate swap agreements as hedges.
Accordingly, any gains or losses realized on closed or terminated interest rate
swap agreements are deferred and amortized to net investment income for asset
hedges or policy and contract benefits for liability hedges over the expected
remaining life of the hedged item. If the hedged item matures or terminates
earlier than anticipated, the remaining unamortized gain or loss is amortized to
net investment income or policy and contract benefits in the current period.
Gains or losses realized on interest rate swap agreements which are terminated
when the hedged assets are sold or which are terminated because the hedged
anticipated transaction is no longer likely to occur are reported in the
consolidated statements of income as a component of net realized investment
gains and losses. The Company regularly monitors the effectiveness of its
hedging programs. In the event a hedge becomes ineffective, it is
marked-to-market, resulting in a charge or credit to net investment income or
policy and contract benefits.
-9-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
PROVIDENT COMPANIES, INC. AND SUBSIDIARIES
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Futures and Forwards contracts are commitments to either purchase or sell a
financial instrument at a specific future date for a specified price. The
Company invests only in futures and forwards contracts which have U.S. Treasury
securities as the underlying investments. Changes in the market value of
contracts are generally settled on a daily basis. The notional amount of
futures and forwards contracts represent the extent of the Company's involvement
but not the future cash requirements, as the Company intends to close out open
positions prior to settlement. All of the Company's futures and forwards
contracts are accounted for as hedges.
The fair values of futures and forwards which hedge available-for-sale
securities are reported in the consolidated statements of financial condition as
a component of fixed maturity securities. The fair values of futures and
forwards which hedge liabilities are not reported in the consolidated statements
of financial condition. Gains or losses realized on the termination of futures
and forwards contracts are accounted for in the same manner as interest rate
swap agreements.
Options contracts give the owner the right, but not the obligation, to buy or
sell a financial instrument at an agreed-upon price on or before a specific
date. The purchasing counterparty pays a premium to the selling counterparty
for this right. The notional amounts of contracts represent the Company's
involvement but not the future cash requirements, as the Company intends to
close out contracts prior to the expiration date when the market price of the
underlying financial instrument exceeds the option price or allow contracts to
expire if the option price exceeds the market price. All of the Company's
options contracts are accounted for as hedges. The book and fair values of
options contracts are reported in the statements of financial condition in a
manner similar to the underlying hedged item. Gains or losses on the
termination of options contracts are accounted for in the same manner as
interest rate swap agreements.
DEFERRED POLICY ACQUISITION COSTS: Certain costs of acquiring new business
which vary with and are primarily related to the production of new business have
been deferred. Such costs include commissions, other agency compensation,
certain selection and policy issue expenses, and certain field expenses.
Deferred policy acquisition costs are subject to recoverability testing at the
time of policy issue and loss recognition testing subsequent to the year of
issue.
Deferred policy acquisition costs related to traditional individual life and
individual disability income are amortized over the premium paying period of the
related policies in proportion to the ratio of the present value of annual
expected premium income to the present value of total expected premium income.
Adjustments are made each year to recognize actual persistency experience as
compared to assumed experience.
Deferred policy acquisition costs related to interest-sensitive individual life
and individual annuity policies are amortized over the lives of the policies in
relation to the present value of estimated gross profits from surrender charges
and mortality, investment, and expense margins. Adjustments are made each year
to reflect actual experience for assumptions which deviate significantly
compared to assumed experience.
The amortization periods do not exceed 25 years for traditional and interest-
sensitive individual life policies, 20 years for individual disability income
policies, and 15 years for individual annuity policies. Loss recognition is
performed when, in the judgment of management, adverse deviations from original
assumptions have occurred and may be likely to continue such that
recoverability of deferred policy acquisition costs on a line of business is
questionable. Insurance contracts are grouped on a basis consistent with the
Company's manner of acquiring, servicing, and measuring profitability of the
contracts. If loss recognition testing indicates that deferred policy
acquisition costs are not recoverable, the deficiency is charged to expense.
Once a loss recognition adjustment is required, loss recognition testing is
generally performed on an annual basis using then current assumptions until the
line of business becomes immaterial or results improve significantly. The
assumptions used in loss recognition testing represent management's best
estimates of future experience.
-10-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
PROVIDENT COMPANIES, INC. AND SUBSIDIARIES
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
PROPERTY AND EQUIPMENT: Property and equipment is depreciated on the straight-
line method over its estimated useful life. The accumulated depreciation for
property and equipment was $84.4 million and $87.6 million as of December 31,
1996 and 1995, respectively.
REVENUE RECOGNITION: For traditional life and accident and health products, the
amounts collected from policyholders are recognized as premium income over the
premium paying period and are reported net of experience rating refunds and
unearned premiums. For interest-sensitive products, the amounts collected from
policyholders are considered deposits, and only the deductions during the period
for cost of insurance, policy administration, and surrenders are included in
revenue. Policyholders' funds represent funds deposited by contract holders and
are not included in revenue.
POLICY AND CONTRACT BENEFITS: Policy and contract benefits, principally related
to accident and health insurance policies, are based on reported losses and
estimates of incurred but not reported losses for traditional life and accident
and health products. For interest-sensitive products, benefits are the amounts
paid and expected to be paid on insured claims in excess of the policyholders'
policy fund balances.
RESERVES FOR FUTURE POLICY AND CONTRACT BENEFITS: Active life reserves for
future policy and contract benefits on traditional life and accident and health
products have been provided on the net level premium method. The reserves are
calculated based upon assumptions as to interest, withdrawal, morbidity, and
mortality that were appropriate at the date of issue. Withdrawal assumptions
are based on actual Company experience. Morbidity and mortality assumptions are
based upon industry standards adjusted as appropriate to reflect actual Company
experience. The assumptions vary by plan, year of issue, and policy duration
and include a provision for adverse deviation.
Disabled lives reserves for future policy and contract benefits on disability
income policies are calculated based upon assumptions as to interest and claim
termination rates that are currently appropriate. Termination rate assumptions
are based upon industry standards adjusted as appropriate to reflect actual
Company experience. The assumptions vary by year of claim incurral.
Reserves for future policy and contract benefits on group single premium
annuities have been provided on a net single premium method. The reserves are
calculated based upon assumptions as to interest, mortality, and retirement that
were appropriate at the date of issue. Mortality assumptions are based upon
industry standards adjusted as appropriate to reflect actual Company experience.
The assumptions vary by year of issue and include a provision for adverse
deviation.
The interest rate assumptions used to calculate reserves for future policy and
contract benefits are as follows:
<TABLE>
<CAPTION>
December 31
1996 1995
---------------------------------
<S> <C> <C>
ACTIVE LIFE RESERVES - CURRENT YEAR ISSUES
Traditional Life 7.25% to 10.00% 7.25% to 10.00%
Individual Disability Income 7.00% to 7.75% 7.50% to 7.75%
DISABLED LIVES RESERVES - CURRENT YEAR CLAIMS
Individual Disability Income 8.00% 8.25%
Group Disability Income 7.00% 6.75%
DISABLED LIVES RESERVES - PRIOR YEAR CLAIMS
Individual Disability Income 8.00% 8.25%
Group Disability Income 6.00% to 7.00% 6.00% to 7.00%
</TABLE>
-11-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
PROVIDENT COMPANIES, INC. AND SUBSIDIARIES
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Interest assumptions for active life reserves are generally graded downward over
a period of years. Reserves for future policy and contract benefits on
interest-sensitive products are principally policyholder account values
determined on the retrospective deposit method.
The Company performed a loss recognition study as of December 31, 1996, for the
individual disability income business. In a loss recognition study, the Company
uses its best estimates as to future experience with regard to interest rates,
morbidity rates, lapse rates, expenses, and other factors to determine if
reserves currently held plus the present value of future cash inflows (primarily
from premiums and investment income) are projected to be sufficient to meet the
present value of future cash outflows (primarily for benefits and expenses) and
the amortization of deferred policy acquisition costs. If they are not
sufficient, an additional provision must be recorded either as a reduction of
deferred policy acquisition costs or as an increase in reserve liabilities.
Based upon current assumptions which represent management's best estimates,
reserves were adequate at December 31, 1996.
POLICYHOLDERS' FUNDS: Policyholders' funds represent customer deposits plus
interest credited at contract rates. The Company controls its interest rate
risk by investing in quality assets which have an aggregate duration that
closely matches the expected duration of the liabilities. For GICs, the Company
has changed its investment strategy from a duration matching approach to a cash
flow matching approach. The change was necessitated by the Company's
announcement in 1994 that it had discontinued the sale of new traditional GIC
business. The Company will continue to service all of its existing GICs.
The liability for GICs comprises over 85 percent of the liability balance shown
on the consolidated statements of financial condition. The interest rate
credited on a contract is dependent upon the time to maturity with most
contracts issued having a three to five year maturity. Generally, if a
policyholder terminates a GIC prior to maturity, there is a surrender charge
imposed which is based on the length of the remaining life of the GIC and the
change in interest rates from the date the GIC was issued to the date of
termination. In 1995, the Company extended an offer to GIC policyholders to
surrender their contracts on a more favorable basis than would otherwise be
available to them. Contracts with a book value of $291.7 million were
surrendered under the offer.
Interest credited on GICs is reported as a part of policy and contract benefits
in the consolidated statements of income. The interest credited on GICs and the
average interest crediting rates are presented below.
<TABLE>
<CAPTION>
Interest Credited Average Interest
(in millions of dollars) Crediting Rate
--------------------------------------------
<S> <C> <C>
Year Ended December 31
1996 $249.4 6.40%
1995 393.5 6.65
1994 499.2 6.94
</TABLE>
-12-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
PROVIDENT COMPANIES, INC. AND SUBSIDIARIES
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
SYNTHETIC GICS: In May 1996, the Company discontinued accepting new synthetic
GIC deposits. Prior to this time, the Company issued synthetic GICs to trustees
of employee benefit plans pursuant to the terms of which the trustees own and
retain the assets related to these contracts. Such assets are not included in
the Company's consolidated statements of financial condition. The Company
guarantees to provide benefit payments in the event of plan benefit requests
and, in return for this guarantee, receives a premium based on such elements as
benefit payment exposure and contract size. The trustees may either reimburse
the Company for such benefit payments with interest, either at a fixed or
floating rate, from future plan and asset cash flows or from the sale of
securities. In certain circumstances, the Company may realize a gain or loss
upon the sale of the securities by the trustees. The Company underwrote the
plans for the possibility of having to make benefit payments and must agree to
investment guidelines to ensure appropriate asset quality and the matching of
asset and liability durations. Accumulated funds from the sale of synthetic GICs
were $2,176.6 million and $2,571.9 million at December 31, 1996 and 1995,
respectively.
FEDERAL INCOME TAXES: Deferred taxes have been recorded for significant
temporary differences between financial statement income and taxable income.
SEPARATE ACCOUNTS: The separate account amounts shown in the accompanying
financial statements represent contributions by contract holders to variable-
benefits and fixed-benefits pension plans. The contract purchase payments and
the assets of the separate accounts are segregated from other Company funds for
both investment and administrative purposes. Contract purchase payments
received under variable annuity contracts are subject to deductions for sales
and administrative fees. Also, the sponsoring company of the separate accounts
receives management fees which are based on the net asset values of the separate
accounts.
TRANSLATION OF FOREIGN CURRENCY: Revenues and expenses of the Company's
Canadian operations are translated at average exchange rates. Assets and
liabilities are translated at the rates of exchange on the balance sheet date.
The translation gain or loss is generally reported in stockholders' equity, net
of deferred tax credits of $2.8 million and $2.7 million at December 31, 1996
and 1995, respectively.
EARNINGS PER SHARE: Earnings per common share are computed using net income
less preferred stock dividends divided by the weighted average number of common
shares outstanding. There is no significant difference between earnings per
share on a primary or fully diluted basis.
-13-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
PROVIDENT COMPANIES, INC. AND SUBSIDIARIES
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
CHANGES IN ACCOUNTING PRINCIPLES:
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 121 (SFAS 121), ACCOUNTING FOR
THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF
In 1996, the Company adopted the provisions of SFAS 121 which require that long-
lived assets and certain identifiable intangibles to be held and used by an
entity be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Measurement of an impairment loss for long-lived assets and identifiable
intangibles that an entity expects to hold and use should be based on the fair
value of the asset. SFAS 121 also requires that long-lived assets and certain
intangibles to be disposed of generally be reported at the lower of the carrying
amount or fair value less cost to sell.
The primary assets of the Company which are subject to SFAS 121 are investment
real estate and property and equipment used in the Company's daily operations.
The effect of the adoption of SFAS 121 on the Company's financial position and
results of operations was immaterial.
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 123 (SFAS 123), ACCOUNTING FOR
STOCK-BASED COMPENSATION
SFAS 123 defines a fair value based method of accounting for stock-based
employee compensation plans. Under this method, compensation cost is measured
at the grant date based on the value of the award and is recognized over the
service period, which is usually the vesting period. SFAS 123 also allows an
entity to continue to measure compensation cost using the intrinsic value based
method of accounting prescribed by Accounting Principles Board Opinion No. 25
(Opinion 25), Accounting for Stock Issued to Employees. Under this method,
compensation cost is the excess, if any, of the quoted market price of the stock
at grant date or other measurement date over the amount an employee must pay to
acquire the stock. SFAS 123 requires entities electing to continue accounting
for stock-based employee compensation plans under Opinion 25 to make pro forma
disclosures of net income and earnings per share as if the fair value based
method of accounting defined under SFAS 123 had been applied. The Company
adopted the disclosure provisions of SFAS 123 in 1996 (see Note 9), but elected
to continue to measure compensation cost for stock-based compensation under the
expense recognition provisions of Opinion 25. The adoption of SFAS 123,
therefore, did not have an effect on the Company's financial position or results
of operations.
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 114 (SFAS 114), ACCOUNTING BY
CREDITORS FOR IMPAIRMENT OF A LOAN AND STATEMENT OF FINANCIAL ACCOUNTING
STANDARDS NO. 118 (SFAS 118), ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN -
INCOME RECOGNITION AND DISCLOSURES
In 1995, the Company adopted the provisions of SFAS 114 and SFAS 118. SFAS 114
requires that certain impaired loans of creditors be measured based on the
present value of expected future cash flows discounted at the loan's effective
interest rate, at the loan's observable market price, or at the fair value of
the collateral if the loan is collateral dependent. SFAS 118 amends SFAS 114
and eliminates its provisions regarding how a creditor should report income on
an impaired loan. SFAS 118 allows the Company to continue to use its existing
method for recognizing income on impaired loans. The adoptions of SFAS 114 and
SFAS 118 did not affect the Company's financial position or results of
operations.
-14-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
PROVIDENT COMPANIES, INC. AND SUBSIDIARIES
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 115 (SFAS 115), ACCOUNTING FOR
CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES
SFAS 115 addresses the accounting and reporting for investments in fixed
maturity securities and for equity securities with readily determinable fair
values. SFAS 115 requires these investments to be classified into three
categories and accounted for as follows:
(1) Fixed maturity securities that the Company has the positive intent and
ability to hold to maturity are classified as held-to-maturity
securities and reported at amortized cost.
(2) Fixed maturity and equity securities that are bought and held
principally for the purpose of selling in the near term are classified
as trading securities and reported at fair value, with changes in
unrealized holding gains and losses included in results of operations.
(3) Fixed maturity and equity securities classified neither as held-to-
maturity securities nor as trading securities are classified as
available-for-sale securities and reported at fair value, with
unrealized holding gains and losses reported as a separate component
of stockholders' equity.
The issuance of SFAS 115 changed the previous definition of what constituted a
security being held-to-maturity. Due to the significant restrictions placed on
securities classified as held-to-maturity, the Company believes that prudent
asset management requires a major portion of debt securities to be classified as
available-for-sale.
The Company adopted the provisions of SFAS 115 as of January 1, 1994, and
classified over 99 percent of its fixed maturity securities as available-for-
sale with the remainder reported as held-to-maturity. In addition to reporting
available-for-sale securities at fair value, the Securities and Exchange
Commission expressed its belief and requirement that registrants also adjust
deferred policy acquisition costs and certain policyholder liabilities to
reflect the changes that would have been necessary if the unrealized investment
gains and losses related to the available-for-sale securities had been realized.
Therefore, where applicable, the Company has reflected those adjustments in the
asset and liability balances with the offset as a direct adjustment to
stockholders' equity. In accordance with SFAS 115, prior period financial
statements were not restated to reflect the change in accounting principle.
The changes required by SFAS 115 and the Securities and Exchange Commission did
not result in any changes to the net income of the Company. The Company has not
changed its investment policies or strategies as a result of the implementation
of the new accounting requirements.
ACCOUNTING PRONOUNCEMENTS OUTSTANDING:
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 125 (SFAS 125), ACCOUNTING FOR
TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENT OF LIABILITIES
AND STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 127 (SFAS 127), DEFERRAL OF
THE EFFECTIVE DATE OF CERTAIN PROVISIONS OF FASB STATEMENT NO. 125
In 1996, the Financial Accounting Standards Board (FASB) issued SFAS 125 which
provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities. Those standards are based
on consistent application of a financial-components approach that focuses on
control. SFAS 125 also establishes new rules for determining whether a
transfer of financial assets constitutes a sale and, if so, the determination of
any resulting gain or loss. The provisions of SFAS 125 were to be applied to
transactions occurring after December 31, 1996. However, SFAS 127 was issued
which defers the effective date one year for those provisions of SFAS 125 that
deal with securities lending, repurchase and dollar repurchase agreements, and
the recognition of collateral. The Company does not expect the adoptions of
SFAS 125 and SFAS 127 to have a material effect on its financial position or
results of operations.
-15-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
PROVIDENT COMPANIES, INC AND SUBSIDIARIES
NOTE 2--FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amounts and fair values of the Company's financial instruments are
as follows:
<TABLE>
<CAPTION>
December 31
(in millions of dollars)
---------------------------------------------
1996 1995
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Fixed Maturity Securities
Available-for-Sale $10,859.9 $10,859.9 $12,337.4 $12,337.4
Derivatives Hedging Available-for-Sale 20.2 20.2 (18.8) (18.8)
Held-to-Maturity 264.5 263.1 299.0 321.1
Equity Securities 4.9 4.9 5.3 5.3
Mortgage Loans - - 104.8 104.8
Policy Loans 1,749.0 2,080.5 1,574.6 2,005.7
Short-term Investments 252.3 252.3 231.0 231.0
Cash and Bank Deposits 19.3 19.3 24.8 24.8
LIABILITIES
Policyholders' Funds
GICs 3,204.3 3,230.9 4,838.0 4,980.7
Deferred Annuity Products 281.4 266.0 263.1 247.7
Supplementary Contracts without
Life Contingencies 61.1 61.1 44.7 44.7
Long-term Debt 200.0 200 0 200.0 200.0
Derivatives Hedging Liabilities - 3.0 - 0.6
</TABLE>
The following methods and assumptions were used by the Company in estimating the
fair values of its financial instruments:
Fixed Maturity Securities: Fair values for fixed maturity securities are based
on quoted market prices, where available. For fixed maturity securities not
actively traded, fair values are estimated using values obtained from
independent pricing services or, in the case of private placements, are
estimated by discounting expected future cash flows using a current market rate
applicable to the yield, credit quality, and maturity of the investments. See
Note 3 for the amortized cost and fair values of securities by security type and
by maturity date.
Equity Securities: Fair values for equity securities are based on quoted market
prices.
Mortgage Loans: At December 31, 1995, the fair value for mortgage loans to be
sold was based on the expected sales price as of that date. For mortgage loans
which were in the process of foreclosure, the fair value was the appraised value
of collateral for the loan.
Policy Loans: Fair values for policy loans are estimated using discounted cash
flow analyses, using interest rates currently being offered.
-16-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
PROVIDENT COMPANIES, INC. AND SUBSIDIARIES
NOTE 2--FAIR VALUES OF FINANCIAL INSTRUMENTS - CONTINUED
Short-term Investments and Cash and Bank Deposits: Carrying amounts for short-
term investments and cash and bank deposits approximate fair value.
Policyholders' Funds: Fair values of the Company's liability for GICs are
estimated using discounted cash flow calculations, based on current market
interest rates available for similar contracts with maturities consistent with
those remaining for the contracts being valued. Fair values of the Company's
liability for deferred annuity products are estimated using the cash surrender
values of the annuity contracts. The carrying amounts for supplementary
contracts without life contingencies approximate fair value.
Fair values for the Company's insurance contracts other than investment
contracts are not required to be disclosed. However, the fair values of
liabilities under all insurance contracts are taken into consideration in the
Company's overall management of interest rate risk, which minimizes exposure to
changing interest rates through the matching of investment maturities with
amounts due under insurance contracts.
Long-term Debt: The carrying amounts for long-term debt approximate fair value.
Derivatives: Fair values of the Company's derivative financial instruments are
based on market quotes, pricing models, or formulas using current interest rates
and assumptions and represent the net amount of cash the Company would have
received or paid if the contracts had been settled or closed on December 31.
-17-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
PROVIDENT COMPANIES, INC. AND SUBSIDIARIES
NOTE 3--INVESTMENTS
SECURITIES
The amortized cost and fair values of securities by security type are as
follows:
<TABLE>
<CAPTION>
December 31, 1996
(in millions of dollars)
--------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------------------------------------------
<S> <C> <C> <C> <C>
AVAILABLE-FOR-SALE SECURITIES
United States Government and
Government Agencies and Authorities $ 6.4 $ 0.8 $ - $ 7.2
Foreign Governments 156.5 19.9 - 176.4
Public Utilities 2,421.5 206.4 7.4 2,620.5
Mortgage-backed Securities 2,156.9 28.4 33.3 2,152.0
All Other Corporate Bonds 5,595.6 306.2 26.8 5,875.0
Redeemable Preferred Stocks 47.4 2.1 0.5 49.0
--------- ------ ----- ---------
Total Fixed Maturity Securities 10,384.3 563.8 68.0 10,880.1
Equity Securities 7.2 - 2.3 4.9
--------- ------ ----- ---------
$10,391.5 $563.8 $70.3 $10,885.0
========= ====== ===== =========
HELD-TO-MATURITY SECURITIES
United States Government and
Government Agencies and Authorities $ 13.5 $ 1.5 $ - $ 15.0
States, Municipalities, and Political
Subdivisions 3.2 0.2 - 3.4
Mortgage-backed Securities 234.9 3.3 8.1 230.1
All Other Corporate Bonds 12.9 1.7 - 14.6
--------- ------ ----- ---------
$ 264.5 $ 6.7 $ 8.1 $ 263.1
========= ====== ===== =========
</TABLE>
-18-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
PROVIDENT COMPANIES, INC. AND SUBSIDIARIES
NOTE 3--INVESTMENTS - CONTINUED
<TABLE>
<CAPTION>
December 31, 1995
(in millions of dollars)
--------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------------------------------------------
<S> <C> <C> <C> <C>
AVAILABLE-FOR-SALE SECURITIES
United States Government and
Government Agencies and Authorities $ 5.4 $ 9.5 $ - $ 14.9
Foreign Governments 159.2 17.1 0.5 175.8
Public Utilities 2,679.8 345.9 2.0 3,023.7
Mortgage-backed Securities 2,738.5 48.4 15.4 2,771.5
All Other Corporate Bonds 5,805.5 530.8 76.9 6,259.4
Redeemable Preferred Stocks 69.9 3.7 0.3 73.3
--------- ------ ----- ---------
Total Fixed Maturity Securities 11,458.3 955.4 95.1 12,318.6
Equity Securities 9.2 0.1 4.0 5.3
--------- ------ ----- ---------
$11,467.5 $955.5 $99.1 $12,323.9
========= ====== ===== =========
HELD-TO-MATURITY SECURITIES
United States Government and
Government Agencies and Authorities $ 13.3 $ 2.8 $ - $ 16.1
States, Municipalities, and Political
Subdivisions 3.4 0.3 - 3.7
Mortgage-backed Securities 170.3 16.7 - 187.0
All Other Corporate Bonds 12.0 2.3 - 14.3
Redeemable Preferred Stocks 100.0 - - 100.0
--------- ------ ----- ---------
$ 299.0 $ 22.1 $ - $ 321.1
========= ====== ===== =========
</TABLE>
-19-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
PROVIDENT COMPANIES, INC. AND SUBSIDIARIES
NOTE 3--INVESTMENTS - CONTINUED
The amortized cost and fair values of fixed maturity securities by maturity date
are shown below. The maturity dates have not been adjusted for possible calls
or prepayments.
<TABLE>
<CAPTION>
December 31, 1996
(in millions of dollars)
--------------------------
Amortized Fair
Cost Value
--------------------------
<S> <C> <C>
AVAILABLE-FOR-SALE SECURITIES
1 year or less $ 668.4 $ 706.5
Over 1 year through 5 years 1,610.5 1,693.2
Over 5 years through 10 years 2,308.7 2,419.5
Over 10 years 3,639.8 3,908.9
--------- ---------
8,227.4 8,728.1
Mortgage-backed Securities 2,156.9 2,152.0
--------- ---------
$10,384.3 $10,880.1
========= =========
HELD-TO-MATURITY SECURITIES
1 year or less $ 1.2 $ 1.3
Over 1 year through 5 years 2.0 2.1
Over 5 years through 10 years 0.9 1.0
Over 10 years 25.5 28.6
--------- ---------
29.6 33.0
Mortgage-backed Securities 234.9 230.1
--------- ---------
$ 264.5 $ 263.1
========= =========
</TABLE>
The adjustments related to SFAS 115 are as follows:
<TABLE>
<CAPTION>
December 31
1996 1995
(in millions of dollars)
---------------------------
<S> <C> <C>
ASSETS
Fixed Maturity Securities $ 495.8 $ 860.3
Equity Securities (2.3) (3.9)
Deferred Policy Acquisition Costs (240.9) (383.5)
LIABILITIES
Reserve for Future Policy and 112.8 316.1
Contract Benefits
Deferred Federal Income Taxes 48.9 54.9
STOCKHOLDERS' EQUITY
Net Unrealized Gain on Securities 90.9 101.9
</TABLE>
-20-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
PROVIDENT COMPANIES, INC. AND SUBSIDIARIES
NOTE 3--INVESTMENTS - CONTINUED
At December 31, 1996, the total investment in below-investment-grade fixed
maturity securities (securities rated below Baa3 by Moody's Investors Services
or an equivalent internal rating) was $891.1 million or 6.7 percent of invested
assets. The amortized cost of these securities was $869.2 million.
MORTGAGE LOANS
As of December 31, 1996, the recorded investment in mortgage loans was $1.0
million with a related loss reserve of $1.0 million. Changes in the mortgage
loan loss reserve are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
(in millions of dollars)
----------------------------
<S> <C> <C> <C>
BALANCE AT JANUARY 1 $ 12.0 $ 49.0 $ 55.3
Additions Charged to Realized
Investment Losses - 3.0 11.2
Release Due to Sale or Direct
Write-Down of Loans (11.0) (40.0) (17.5)
------ ------ ------
BALANCE AT DECEMBER 31 $ 1.0 $ 12.0 $ 49.0
====== ====== ======
</TABLE>
In February 1996, the Company sold 24 mortgage loans with a principal amount of
$81.6 million and a book value of $75.9 million. In October 1995, the Company
sold commercial mortgage loans with a principal amount and a book value of
$962.4 million through a securitization collateralized by 366 loans. In May
1995, the Company sold 26 restructured mortgage loans with a principal amount of
$147.5 million and a book value of $122.6 million. The transactions resulted in
before-tax realized investment gains (losses) of $(5.7) million, $8.9 million,
and $(23.1) million, respectively.
REAL ESTATE
Accumulated depreciation on real estate was $28.5 million and $33.6 million as
of December 31, 1996 and 1995, respectively.
-21-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
PROVIDENT COMPANIES, INC. AND SUBSIDIARIES
NOTE 3--INVESTMENTS - CONTINUED
NET INVESTMENT INCOME
Sources for net investment income are as follows:
<TABLE>
<CAPTION>
Year Ended December 31
1996 1995 1994
(in millions of dollars)
------------------------------
<S> <C> <C> <C>
Fixed Maturity Securities $ 900.2 $ 961.4 $ 946.2
Equity Securities 0.4 0.4 0.6
Mortgage Loans 2.6 100.7 159.0
Real Estate 25.8 29.6 38.0
Policy Loans 182.8 163.9 137.9
Other Long-term Investments 3.9 4.3 3.6
Short-term Investments 7.4 6.9 8.4
-------- -------- --------
Gross Investment Income 1,123.1 1,267.2 1,293.7
Investment Expenses 33.0 45.9 55.1
-------- -------- --------
Net Investment Income $1,090.1 $1,221.3 $1,238.6
======== ======== ========
</TABLE>
REALIZED INVESTMENT GAINS AND LOSSES
Realized investment gains (losses) are as follows:
<TABLE>
<CAPTION>
Year Ended December 31
1996 1995 1994
(in millions of dollars)
----------------------------
<S> <C> <C> <C>
Fixed Maturity Securities $ 37.1 $ 14.9 $ (1.3)
Equity Securities (1.3) 0.2 2.0
Mortgage Loans and Real Estate (3.7) (26.9) (30.2)
Real Estate Partnerships and Other
Invested Assets 0.1 - (0.4)
Derivatives (40.8) (19.9) (0.2)
------ ------ ------
$ (8.6) $(31.7) $(30.1)
====== ====== ======
</TABLE>
Net realized investment losses include writedowns and changes in the reserve for
losses on mortgage loans and foreclosed real estate of $(5.0) million, $(29.0)
million, and $16.8 million for 1996, 1995, and 1994, respectively.
-22-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
PROVIDENT COMPANIES, INC. AND SUBSIDIARIES
NOTE 3--INVESTMENTS - CONTINUED
Proceeds from sales of fixed maturity and equity securities and the related
gross gains and losses realized on those sales are as follows:
<TABLE>
<CAPTION>
Year Ended December 31
1996 1995 1994
(in millions of dollars)
----------------------------
<S> <C> <C> <C>
PROCEEDS FROM SALES
Available-for-Sale Fixed Maturity
Securities $1,592.0 $1,353.1 $686.3
Equity Securities 0.6 6.8 7.4
GROSS GAINS
Available-for-Sale Fixed Maturity
Securities 50.1 35.3 19.0
Equity Securities - 1.3 2.4
GROSS LOSSES
Available-for-Sale Fixed Maturity
Securities 13.0 20.4 20.3
Equity Securities 1.3 1.1 0.4
</TABLE>
NOTE 4--DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses interest rate swaps and exchange-traded interest rate futures
contracts to hedge interest rate risks and to match assets with its insurance
liabilities. Other derivatives, such as options and interest rate forward
contracts, are also used to some extent in the hedging process.
DERIVATIVE RISKS
The basic types of risks associated with derivatives are market risk (that the
value of the derivative will be adversely impacted by changes in the market,
primarily the change in interest rates) and credit risk (that the counterparty
will not perform according to the terms of the contract). The market risk of
the derivatives should generally offset the market risk associated with the
hedged financial instrument or liability.
To help limit the credit exposure of the derivatives, the Company has entered
into master netting agreements with its counterparties whereby contracts in a
gain position can be offset against contracts in a loss position. The Company
also typically enters into bilateral, cross-collateralization agreements with
its counterparties to help limit the credit exposure of the derivatives. These
agreements require the counterparty in a loss position to submit acceptable
collateral with the other counterparty in the event the net loss position meets
or exceeds an agreed upon amount. The Company's current credit exposure on
derivatives, which is limited to the value of those contracts in a net gain
position, was $3.0 million at December 31, 1996.
-23-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
PROVIDENT COMPANIES, INC. AND SUBSIDIARIES
NOTE 4--DERIVATIVE FINANCIAL INSTRUMENTS - CONTINUED
HEDGING ACTIVITY
The table below summarizes by notional amounts the activity for each category of
derivatives.
<TABLE>
<CAPTION>
Interest Rate Swaps
-----------------------------
Receive Receive
Variable/ Fixed/
Pay Fixed Pay Variable Forwards Futures Options Total
(in millions of dollars)
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1993 $ - $525.0 $ 22.0 $ 21.0 $ - $ 568.0
Additions 800.0 201.0 178.5 1,464.5 - 2,644.0
Terminations - - 200.5 1,280.5 - 1,481.0
------ ------ -------- -------- ------- --------
BALANCE AT DECEMBER 31, 1994 800.0 726.0 - 205.0 - 1,731.0
Additions 300.0 495.0 - 947.5 820.0 2,562.5
Terminations 200.0 359.8 - 1,137.5 820.0 2,517.3
------ ------ -------- -------- ------- --------
BALANCE AT DECEMBER 31, 1995 900.0 861.2 - 15.0 - 1,776.2
Additions - 400.0 - 477.0 - 877.0
Terminations 600.0 463.6 - 482.0 - 1,545.6
------ ------ -------- -------- ------- --------
BALANCE AT DECEMBER 31, 1996 $300.0 $797.6 $ - $ 10.0 $ - $1,107.6
====== ====== ======== ======== ======= ========
</TABLE>
Additions and terminations reported above for futures include roll activity,
which is the closing out of an old contract and initiation of a new one when the
futures contract is about to mature but the need for it still exists.
The following table summarizes the timing of anticipated settlements of interest
rate swaps outstanding at December 31, 1996, and the related weighted average
interest receive rate or pay rate assuming current market conditions.
<TABLE>
<CAPTION>
1997 1998 1999 2000 2001 2002 Total
(in millions of dollars)
------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
RECEIVE VARIABLE/PAY FIXED
Notional value $300.0 - - - - - $ 300.0
Weighted average receive rate 5.56% - - - - - 5.56%
Weighted average pay rate 6.99 - - - - - 6.99
RECEIVE FIXED/PAY VARIABLE
Notional value $113.9 - $333.7 $170.0 $160.0 $20.0 $ 797.6
Weighted average receive rate 6.16% - 7.12% 7.79% 7.81% 7.44% 7.27%
Weighted average pay rate 5.50 - 5.54 5.56 5.56 5.50 5.54
TOTAL INTEREST RATE SWAPS $413.9 - $333.7 $170.0 $160.0 $20.0 $1,097.6
TOTAL WEIGHTED AVERAGE RECEIVE RATE 5.73% - 7.12% 7.79 7.81% 7.44% 6.81%
TOTAL WEIGHTED AVERAGE PAY RATE 6.58 - 5.54 5.56 5.56 5.50 5.94
</TABLE>
-24-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
PROVIDENT COMPANIES, INC. AND SUBSIDIARIES
NOTE 4--DERIVATIVE FINANCIAL INSTRUMENTS - CONTINUED
Derivative activity falls under five hedging programs as follows:
PROGRAM 1
The Company routinely uses forwards and futures to protect margins by reducing
the risk of changes in interest rates between the time of asset purchase and the
associated sale of an asset or sale of new business. Prior to 1995, this
activity was primarily associated with new GIC sales. The majority of the 1995
activity ($500.0 million) was a hedge of the reinvestment of the proceeds from
the securitization of the Company's commercial mortgage loan portfolio (see Note
3).
Gains or losses on termination of these forwards and futures are deferred and
reported as an adjustment of the carrying amount of the hedged asset or
liability and amortized into earnings over the lives of the hedged items. The
net deferred gain associated with this activity was $29.3 million and $31.8
million at December 31, 1996 and 1995, respectively.
The deferred gain from this program was amortized into income in the
consolidated statements of income as follows:
<TABLE>
<CAPTION>
Year Ended December 31
1996 1995 1994
(in millions of dollars)
-----------------------------------------
<S> <C> <C> <C>
Net Investment Income $ 1.0 $ 0.2 $ 0.1
Policy and Contract Benefits 1.2 3.8 1.9
----- ----- -----
$ 2.2 $ 4.0 $ 2.0
===== ===== =====
</TABLE>
At December 31, 1996, the Company had no open futures contracts under this
program.
PROGRAM 2
In 1994 and 1993 the Company created $101.0 million of synthetic fixed rate
assets consisting of variable rate mortgage-backed securities combined with
index amortizing swaps (receive fixed/pay variable). These synthetic fixed rate
assets back fixed rate GICs. During this time, the Company also created $625.0
million of synthetic variable rate GICs consisting of fixed rate GICs combined
with index amortizing swaps (receive fixed/pay variable), which were then backed
by variable rate mortgage-backed securities. The notional amount of index
amortizing swaps associated with this program was $197.6 million and $366.2
million at December 31, 1996 and 1995, respectively. The notional amount of
these swaps reduces based on an amortization schedule indexed to a constant
maturity treasury rate. Under market conditions at December 31, 1996, the
remaining swaps are expected to amortize fully over the next three years.
-25-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
PROVIDENT COMPANIES, INC. AND SUBSIDIARIES
NOTE 4--DERIVATIVE FINANCIAL INSTRUMENTS - CONTINUED
Income (expense) from settlements of payment streams on these interest rate swap
agreements as reported in the consolidated statements of income were as follows:
<TABLE>
<CAPTION>
Year Ended December 31
1996 1995 1994
(in millions of dollars)
--------------------------------
<S> <C> <C> <C>
Net Investment Income $ - $ 0.9 $ 0.4
Policy and Contract Benefits 0.3 (4.7) 3.9
----- ------ -----
$ 0.3 $(3.8) $ 4.3
===== ====== =====
</TABLE>
PROGRAM 3
In December 1994, the Company announced that it would discontinue the sale of
traditional GICs. At that time, the Company decided to convert from a duration
matching investment approach to a cash flow matching investment approach for its
GIC business. The Company hedged the risk that a rise in interest rates would
reduce the price on future sales of assets which would be necessary to fund
maturing liabilities by entering into $1.1 billion notional amount of forward
interest rate swaps (receive variable/pay fixed) and $205.0 million notional
amount of short interest rate futures contracts. The majority of this hedge was
initiated in 1994, with the last $300.0 million of swaps initiated in 1995.
The $205.0 million futures position was terminated in 1995 as planned when
$208.7 million of fixed maturity securities were sold to fund maturing GICs. The
Company realized a $0.1 million before-tax investment gain on the futures and a
$5.6 million before-tax investment loss on the fixed maturity securities, a net
result which was consistent with the original hedge expectations. The first
$200.0 million swap position was terminated in 1995; however, fixed maturity
securities sales did not occur as originally anticipated because the Company had
adequate cash flow from other sources to fund the maturing GICs. The primary
source of this other cash flow was the securitization of the commercial mortgage
loan portfolio which had not been anticipated at the time this hedge was
initiated (see Note 3). The Company realized a $20.0 million before-tax
investment loss on termination of this swap position in 1995.
During 1996, the Company terminated $600.0 million of these forward swaps as
scheduled, realizing a $36.1 million before-tax investment loss. In addition,
the Company used offsetting futures contracts to partially remove the hedge as
fixed maturities were sold prior to the termination date of the interest rate
swaps. The Company realized a $5.3 million before-tax investment loss on the
termination of these futures contracts. The Company sold $423.0 million of fixed
maturity securities associated with this hedge, realizing a $19.6 million
before-tax investment gain. The remaining fixed maturity sales did not occur as
originally anticipated because the Company had adequate cash flow from other
sources to fund the maturing GICs. The last $300.0 million of these swaps will
be terminated as scheduled in 1997.
At December 31, 1996, the Company had an unrealized loss of $4.5 million on
these outstanding interest rate swaps and an unrealized gain of $5.1 million on
the associated fixed maturity securities.
PROGRAM 4
In 1995, the Company purchased $820.0 million in put options on treasury
securities to hedge the risk that a rise in interest rates would reduce the
price realized on the securitization of the commercial mortgage loan portfolio.
The options expired without value, and the $7.6 million price of the option was
reported as an adjustment to the net realized investment gain from the mortgage
loan sale.
-26-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
PROVIDENT COMPANIES, INC. AND SUBSIDIARIES
NOTE 4--DERIVATIVE FINANCIAL INSTRUMENTS - CONTINUED
PROGRAM 5
During 1995, the Company executed a series of cash flow hedges in the individual
disability income portfolio, hedging $495.0 million of expected cash flows in
the years 1996 through 2000 using forward interest rate swaps (receive fixed/pay
variable). During 1996, the Company added $200.0 million of forward interest
rate swaps to the individual disability income portfolio and initiated a $200.0
million forward interest rate swap position in the group single premium annuity
portfolio. The purpose of these actions was to lock in the reinvestment rates
on future cash flows and protect the Company from the potential adverse impact
of declining interest rates on the associated policy reserves.
During 1996, the Company terminated $295.0 million of these interest rate swaps,
$160.0 million of which were terminated in conjunction with the purchase of
$160.0 million of fixed maturity securities. The $3.6 million before-tax
investment gain realized on the termination of the swaps was deferred as an
adjustment to the book value of the purchased fixed maturity securities. In
addition, the Company used offsetting futures contracts to partially remove the
hedge as fixed maturities were purchased prior to the termination date of the
interest rate swaps. The $3.6 million before-tax investment gain realized on the
termination of these futures contracts was deferred as an adjustment to the book
value of the purchased fixed maturity securities. Interest rate swaps of $120.0
million were terminated when it was determined that the hedged anticipated cash
flows were no longer likely to occur. The resulting $0.5 million before-tax gain
on this termination is reported as a component of realized investment gains and
losses. The remaining $15.0 million of interest rate swaps were replaced with
$15.0 million of interest rate futures contracts to maintain the hedge until the
fixed maturity securities are purchased. In 1996, the Company amortized into net
investment income $0.1 million of the deferred gain from this program.
At December 31, 1996, the Company had an unrealized gain of $24.7 million on the
open forward interest rate swaps and interest rate futures. These derivatives
are scheduled to be terminated in the years 1997 through 2002 as assets are
purchased with the future anticipated cash flows.
NOTE 5--FEDERAL INCOME TAXES
A reconciliation of the income tax attributable to continuing operations
computed at U.S. federal statutory tax rates to the income tax expense as
included in the consolidated statements of income follows:
<TABLE>
<CAPTION>
Year Ended December 31
1996 1995 1994
----------------------------------
<S> <C> <C> <C> <C>
Statutory Federal Income Tax Rate 35.0% 35.0% 35.0%
Tax-preferred Investment Income (1.1) (2.1) (2.4)
Net Prior Years Tax Refunds (0.1) (0.8) (2.4)
Other Items, Net 1.8 2.2 2.5
---- ---- ----
Effective Tax Rate 35.6% 34.3% 32.7%
==== ==== ====
</TABLE>
-27-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
PROVIDENT COMPANIES, INC. AND SUBSIDIARIES
NOTE 5--FEDERAL INCOME TAXES - CONTINUED
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial statement
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred federal income tax liability are as follows:
<TABLE>
<CAPTION>
December 31
1996 1995
(in millions of dollars)
----------------------------------
<S> <C> <C>
DEFERRED TAX LIABILITY
Deferred Policy Acquisition Costs $133.6 $140.5
Bond Market Discount 11.2 10.7
Net Unrealized Investment Gains 48.9 54.9
Cost of Business Acquired 2.3 2.3
Property and Equipment 9.8 6.7
Other 13.4 11.3
------ ------
Total Deferred Tax Liability 219.2 226.4
------ ------
DEFERRED TAX ASSET
Reserves 105.5 106.1
Realized Investment Gains and Losses 44.7 32.5
Postretirement Benefits 20.9 23.8
Other Employee Benefits 24.4 21.1
Other 9.2 5.7
------ ------
Total Deferred Tax Asset 204.7 189.2
------ ------
NET DEFERRED TAX LIABILITY $ 14.5 $ 37.2
====== ======
</TABLE>
The Company is required to establish a valuation allowance for any portion of
the deferred tax asset that management believes will not be realized. In the
opinion of management, it is more likely than not that the Company will realize
the benefit of the deferred tax asset and, therefore, no such valuation
allowance has been established.
-28-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
PROVIDENT COMPANIES, INC. AND SUBSIDIARIES
NOTE 5--FEDERAL INCOME TAXES - CONTINUED
Under the Life Insurance Company Tax Act of 1959, life companies were required
to maintain a policyholders' surplus account containing the accumulated portion
of current income which had not been subjected to income tax in the year earned.
The Deficit Reduction Act of 1984 requires that no future amounts be added after
1983 to the policyholders' surplus account. Further, any future distributions
from the account would become subject to federal income taxes at the general
corporate federal income tax rate then in effect. The amount of the
policyholders' surplus account at December 31, 1996, is approximately $125.0
million. Future distributions from the policyholders' surplus account are
deemed to occur if a statutorily prescribed maximum for the account is less than
the value of the account or if dividend distributions exceed the total amount
accumulated as currently taxable income in the year earned. If the entire
policyholders' surplus account were deemed distributed in 1997, this would
result in a tax of approximately $43.8 million. No current or deferred federal
income taxes have been provided on these amounts because management considers
the conditions under which such taxes would be paid to be remote.
In 1996, the Company received a refund that had been accrued in 1995 relating to
the final settlement of litigation for tax years 1980 through 1983. The refund
of taxes was $1.5 million and interest on the refund was $4.2 million. The
Company also received a refund that had been accrued in 1994 relating to a final
settlement of the remaining issues in dispute for the 1984 and 1985 tax years.
The refund of taxes was $3.1 million and related interest was $5.9 million.
During 1996, the Internal Revenue Service concluded its examination of the
Company's federal income tax returns for tax years 1990 through 1992 and issued
a Revenue Agents' Report proposing a tax deficiency of $26.0 million for these
years. Although this proposed deficiency has been appealed, the Company made an
additional payment for these years of $13.0 million tax and $5.2 million
interest to preclude the accrual of interest at punitive rates on any portion of
the proposed deficiency that the Company could possibly lose. Net income for
1996 was increased by $0.9 million as a result of these tax refunds and
payments.
In 1995, the Company received a refund that was previously accrued in 1994
relating to a final settlement of the remaining issues in litigation for the
1966 through 1979 tax years. The refund of taxes was $1.1 million and interest
on the refund was $4.8 million. The Company also accrued refunds of federal
income tax of $1.5 million and related interest of $3.5 million attributable to
a final settlement of the remaining issues in litigation for tax years 1980
through 1983. Overall, including interest received, net income in 1995 was
increased by $4.0 million as a result of the receipt and accrual of these
refunds.
In 1994, the Company accrued refunds of federal income tax of $4.3 million and
related interest of $9.6 million. The refunds related to the 1984 and 1985 tax
years and to a final settlement of court proceedings for the remaining issues in
dispute for tax years 1966 through 1979. Also, during 1994, the Internal
Revenue Service concluded its examination of the Company's federal income tax
returns for tax years 1988 and 1989 and issued a Revenue Agent's Report
reflecting a proposed deficiency of $17.5 million for these years. The Company
paid $6.6 million of tax and interest in response to this proposed deficiency to
preclude the possible accrual of interest at punitive rates. Net income for
1994 was increased by $10.5 million as a result of these items.
During the year, the Internal Revenue Service began its examination of the
Company's federal income tax returns for tax years 1993 through 1995.
Management believes this examination will have no material impact on the
Company's financial statements.
Federal income taxes paid during 1996, 1995, and 1994 were $92.5 million, $71.8
million, and $91.3 million, respectively.
-29-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
PROVIDENT COMPANIES, INC. AND SUBSIDIARIES
NOTE 6--DEBT
During 1996, the Company entered into an $800.0 million five-year revolving
credit facility with various domestic and international banks. The purpose of
this arrangement was to provide partial financing for the purchase of The Paul
Revere Corporation (see Note 14), to refinance the existing bank term notes of
$200.0 million, and for general corporate uses. Interest is variable based upon
a London Interbank Offered Rate (LIBOR) plus a margin. At December 31, 1996,
the outstanding borrowing under the revolving credit facility was $200.0
million.
During 1996, the Company repaid the $200.0 million bank term notes which were
due on or before December 1, 1996.
There was no short-term debt outstanding at December 31, 1996. Short-term debt
outstanding at December 31, 1995 was $1.4 million.
Interest paid on short- and long-term debt during 1996, 1995, and 1994 was $17.1
million, $22.4 million, and $27.3 million, respectively. Interest expense
during 1996, 1995, and 1994 was $17.8 million, $22.3 million, and $25.9 million,
respectively.
NOTE 7--STOCKHOLDERS' EQUITY
CORPORATE REORGANIZATION
Effective December 27, 1995, Provident Life and Accident Insurance Company of
America completed a step in a corporate reorganization which created a new
parent holding company, Provident Companies, Inc., a non-insurance holding
company incorporated in Delaware. In accordance with the Plan of Share Exchange
approved by shareholders at the 1995 annual meeting, each share of Class A and
Class B common stock of Provident Life and Accident Insurance Company of America
was exchanged for a single class of common stock of Provident Companies, Inc.,
with each share entitled to one vote. Each depositary share of cumulative
preferred stock of Provident Life and Accident Insurance Company of America was
also exchanged for an equivalent depositary share of cumulative preferred stock
of Provident Companies, Inc.
In March 1996, Provident Life and Accident Insurance Company of America and
Provident Life Capital Corporation were dissolved and their respective assets
and liabilities were distributed to and assumed by Provident Companies, Inc.
Provident Life and Accident Insurance Company, Provident National Assurance
Company, and Provident Life and Casualty Insurance Company are now direct
subsidiaries of Provident Companies, Inc.
-30-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
PROVIDENT COMPANIES, INC. AND SUBSIDIARIES
NOTE 7--STOCKHOLDERS' EQUITY - CONTINUED
PREFERRED AND COMMON STOCK
In 1996, the Company's shareholders approved an amendment to the Company's
Amended and Restated Certificate of Incorporation to increase from 65,000,000 to
150,000,000 the number of shares of common stock which the Company is authorized
to issue.
In 1993, the Company issued 1,041,667 shares of 8.10% cumulative preferred
stock, liquidation preference $150 per share evidenced by depositary receipts
for 6,250,002 depositary shares each representing a one-sixth interest of a
preferred share, of which 6,249,202 and 6,250,002 were issued and outstanding as
of December 31, 1996 and 1995, respectively. The preferred stock is redeemable
at a redemption price of $150 per share (equivalent to $25 per depositary share)
at the option of the Company in 1998.
NOTE 8--RETIREMENT BENEFITS
PENSION PLAN
The Company provides a self-administered, defined benefit pension plan for
eligible salaried employees. The benefits are based on years of service and the
employee's highest consecutive five years of compensation. The Company's
funding policy is to contribute amounts to the plan sufficient to meet the
minimum funding requirements set forth in the Employee Retirement Income
Security Act of 1974, plus such additional amounts as the Company may determine
to be appropriate. Plan assets are invested in two separate accounts of a
subsidiary of the Company, one of which invests in listed equity securities and
the other in corporate obligations and U.S. bonds.
The pension plan's funded status and the amount recognized in the Company's
consolidated statements of financial condition are as follows:
<TABLE>
<CAPTION>
December 31
1996 1995
(in millions of dollars)
----------------------------------
<S> <C> <C>
Actuarial present value of benefit
obligation - vested $160.8 $147.9
====== ======
Accumulated benefit obligation $161.6 $149.0
====== ======
Projected benefit obligation $189.8 $177.6
Plan assets at fair value 220.2 200.5
------ ------
Plan assets in excess of projected
benefit obligation 30.4 22.9
Unrecognized net actuarial gains (29.9) (26.3)
Unrecognized prior service cost 2.4 2.6
Unrecognized net transition obligation 0.6 0.7
------ ------
Accrued pension asset (liability) $ 3.5 $ (0.1)
====== ======
Weighted-average discount rate used in
determining the projected benefit obligation 7.25% 7.75%
Weighted-average rate of compensation
increase 4.50% 5.00%
</TABLE>
-31-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
PROVIDENT COMPANIES, INC. AND SUBSIDIARIES
NOTE 8--RETIREMENT BENEFITS - CONTINUED
Net periodic pension cost (benefit) included the following components:
<TABLE>
<CAPTION>
Year Ended December 31
1996 1995 1994
(in millions of dollars)
-----------------------------
<S> <C> <C> <C>
Service cost $ 4.0 $ 5.7 $ 7.8
Interest cost 12.6 12.6 10.0
Actual return on plan assets (28.1) (43.1) (9.8)
Net amortization and deferral 7.5 26.5 (4.1)
Curtailment cost - 1.0 -
------ ------ -----
$ (4.0) $ 2.7 $ 3.9
====== ====== =====
Expected long-term rate of return on plan assets 8.50% 7.75% 7.75%
</TABLE>
POSTRETIREMENT PLANS
The Company sponsors two defined benefit postretirement plans other than
pensions for full-time employees who have ten years of credited service with the
Company and have reached age 55. One plan provides medical and dental benefits,
and the other provides life insurance benefits. The postretirement health care
plan is contributory, with retiree contributions adjusted annually, and contains
other cost-sharing features such as deductibles and coinsurance. It is the
Company's expressed intent to increase the health care plan's retiree
contribution rate annually as the cost of health care increases. The life
insurance plan is noncontributory and is fully funded through a life insurance
contract issued by the Company. The health care plan is unfunded.
The following tables show the accumulated postretirement benefit obligation, the
amount recognized in the Company's consolidated statements of financial
condition, and the net periodic postretirement benefit cost.
<TABLE>
<CAPTION>
December 31
1996 1995
(in millions of dollars)
----------------------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $43.2 $42.9
Fully eligible active plan participants 1.7 2.4
Other active plan participants 14.3 15.4
----- -----
59.2 60.7
Plan assets at fair value 8.5 7.7
----- -----
Accumulated postretirement benefit obligation in excess of plan assets 50.7 53.0
Unrecognized net gain 7.6 7.3
----- -----
Accrued postretirement benefit liability $58.3 $60.3
===== =====
Weighted-average discount rate used in determining the
accumulated postretirement benefit obligation 7.25% 8.50%
</TABLE>
-32-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
PROVIDENT COMPANIES, INC. AND SUBSIDIARIES
NOTE 8--RETIREMENT BENEFITS - CONTINUED
Net periodic postretirement benefit cost included the following components:
<TABLE>
<CAPTION>
Year Ended December 31
1996 1995 1994
(in millions of dollars)
-----------------------------------
<S> <C> <C> <C>
Service cost $ 1.5 $ 1.9 $ 4.1
Interest cost 4.0 4.6 5.0
Actual return on plan assets (0.5) (0.5) (0.6)
Net amortization and deferral (3.0) (3.4) (1.2)
----- ----- -----
$ 2.0 $ 2.6 $ 7.3
===== ===== =====
Expected long-term rate of return on plan assets 8.50% 8.50% 8.50%
</TABLE>
The postretirement benefit costs for 1996, 1995, and 1994 assume a weighted-
average annual rate of increase in the per capita cost of covered health care
benefits of 9 percent, 12 percent, and 12 percent, respectively, decreasing
gradually to 5 percent for 2004 and thereafter. The health care cost trend rate
assumption has a significant effect on the amounts reported. Increasing the
assumed health care cost trend rates by one percentage point in each year would
increase the accumulated postretirement benefit obligation as of December 31,
1996, by $7.1 million and the aggregate of net periodic postretirement benefit
cost for 1996 by $0.8 million.
CURTAILMENT GAINS
During 1995, the Company recognized curtailment gains of $16.6 million and $7.7
million in its pension plan and postretirement plans, respectively. The gains
resulted from the sale of the group medical business (see Note 13) and the
consequent termination of participation in the Company's benefit plans of
certain employees. The gains were included in the determination of the total
gain recognized on the sale.
NOTE 9--INCENTIVE COMPENSATION AND STOCK PURCHASE PLANS
MANAGEMENT INCENTIVE COMPENSATION PLAN
The Company has in effect a two-part management incentive compensation plan, the
first part of which is cash-based and is designed to encourage achievement of
specific annual goals in which key employees participate. The compensation cost
recognized in the consolidated statements of income for this part of the plan is
$3.6 million, $2.9 million, and $2.5 million for 1996, 1995, and 1994,
respectively. The second part of this plan is a stock option plan. The Company
applies Opinion 25 and related interpretations in accounting for the stock
option plan. For those stock options subject to stock price performance, the
compensation cost recognized in the consolidated statements of income is $2.0
million and $2.4 million for 1996 and 1995, respectively. No cost was
recognized for 1994.
Under the 1994 stock plan, the Company may grant options of up to 3,500,000
shares of common stock. The exercise price of each option equals the market
price of the Company's stock on the date of grant. The options cannot be
exercised until at least one year after the date of grant and have a maximum
term of ten years after the date of grant. A portion of the options are also
subject to stock price performance requirements being met prior to exercise. In
January 1997, the Compensation Committee of the Company's Board of Directors
amended the number of options which may be granted under the 1994 plan to
5,000,000 shares, subject to approval by the Company's shareholders.
-33-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
PROVIDENT COMPANIES, INC. AND SUBSIDIARIES
NOTE 9--INCENTIVE COMPENSATION AND STOCK PURCHASE PLANS - CONTINUED
Options granted prior to 1994 were granted under the 1989 stock option plan.
Under that plan, the Company could grant options of up to 700,000 shares of
common stock over the five year term of the plan which ended effective December
31, 1993.
The exercise price of each option equaled the market price of the Company's
stock on the date of grant. The options outstanding under this plan are
currently exercisable and have a maximum term of ten years after the date of
grant.
Summaries of the Company's stock options are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------------------- ------------------------- -------------------------
Shares Weighted-Average Shares Weighted-Average Shares Weighted-Average
(000) Exercise Price (000) Exercise Price (000) Exercise Price
------- ---------------- ------- ---------------- ------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at January 1 1,648 $24.82 885 $27.35 564 $25.11
Granted 674 31.13 1,003 22.70 481 29.13
Exercised (161) 24.17 (49) 20.72 (88) 20.74
Forfeited (31) 30.81 (103) 26.05 (51) 30.75
Expired (10) 29.30 (88) 26.89 (21) 27.57
----- ----- ----
Outstanding at December 31 2,120 26.77 1,648 24.82 885 27.35
===== ===== ====
December 31
1996 1995 1994
(shares in thousands)
-----------------------------------------------------------
Exercisable 1,477 476 265
Exercisable based on
additional service 643 975 460
Exercisable based on
stock price performance 0 197 160
----- ----- ----
Outstanding 2,120 1,648 885
===== ===== ====
</TABLE>
<TABLE>
<CAPTION>
December 31, 1996
-------------------------------------------------------------------------
Options Outstanding Options Exercisable
------------------------------------------- ----------------------------
Weighted-Average
Range of Shares Remaining Weighted-Average Shares Weighted-Average
Exercise Prices (000) Contractual Life Exercise Price (000) Exercise Price
- ------------------ ------- ---------------- ---------------- ------- ------------------
<S> <C> <C> <C> <C> <C>
$18.00 to 24.99 931 5.0 years $22.52 931 $22.52
25.00 to 31.99 1,145 5.8 29.91 546 28.85
32.00 to 51.99 44 8.1 34.75 - -
----- -----
18.00 to 51.99 2,120 5.5 26.77 1,477 24.86
===== =====
</TABLE>
-34-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
PROVIDENT COMPANIES, INC. AND SUBSIDIARIES
NOTE 9--INCENTIVE COMPENSATION AND STOCK PURCHASE PLANS - CONTINUED
EMPLOYEE STOCK PURCHASE PLAN
In 1995, the Company established an employee stock purchase plan to promote and
maintain widespread employee stock ownership. The plan became effective in the
fourth quarter of 1995 and conforms to Internal Revenue Code Section 423. Under
the plan, the Company is authorized to issue up to 1,000,000 shares of common
stock to its employees, nearly all of whom are eligible to participate. Under
the terms of the plan, eligible employees may purchase common stock of the
Company at the end of each three-month financial quarter. The purchase price of
the stock is 85 percent of the lower of its beginning of the quarter or end of
the quarter market price. The maximum amount of stock a participating employee
may purchase under the plan in any one calendar year is limited to $25,000 in
fair market value of the stock as determined at the beginning of each purchase
period. The Company sold 34,311 and 31,935 shares to employees with a weighted-
average exercise price of $29.36 and $23.06 per share in 1996 and 1995,
respectively. The Company applies Opinion 25 and related interpretations in
accounting for the stock purchase plan. Accordingly, no compensation cost has
been recognized.
COMPENSATION COST UNDER THE FAIR VALUE APPROACH (SFAS 123)
Compensation cost for the Company's management incentive compensation plan and
employee stock purchase plan under the fair value approach was estimated as of
the grant date using the Black-Scholes option pricing model with the following
weighted-average assumptions:
<TABLE>
<CAPTION>
Year Ended December 31
1996 1995
----------------------------
<S> <C> <C>
Volatility 18.2% 19.1%
Risk-free rate of return 5.7% 7.6%
Dividend payout rate per share $0.72 $0.72
Time of exercise
Management Incentive Compensation Plan
Executives 7 years 5 years
Non-executives 6 years 4 years
Employee Stock Purchase Plan 3 months 3 months
Weighted-average fair value of options granted during the year
Management Incentive Compensation Plan $7.36 $4.92
Employee Stock Purchase Plan $6.77 $5.26
</TABLE>
Had compensation cost for the two plans been determined in accordance with the
provisions of SFAS 123, the Company's pro forma net income for the years ended
December 31, 1996 and 1995 would have been $143.6 million and $114.2 million,
respectively. There are no significant differences between earnings per common
share as reported and pro forma earnings per common share on a primary or fully
diluted basis for the years ended December 31, 1996 and 1995.
-35-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
PROVIDENT COMPANIES, INC. AND SUBSIDIARIES
NOTE 10--REINSURANCE
The Company routinely assumes and cedes reinsurance with other insurance
companies. The primary purpose of ceded reinsurance is to limit losses from
large exposures; however, if the reinsurer is unable to meet its obligations,
the originating issuer of the insurance coverage retains the liability. Premium
income, policy and contract benefits, and change in reserves for future policy
and contract benefits and policyholders' funds are presented in the consolidated
statements of income net of reinsurance ceded.
On May 1, 1995, the Company entered into an indemnity and assumption reinsurance
agreement with Healthsource Insurance Company in connection with the sale of the
group medical business (see Note 13). Under the terms of the reinsurance
agreement, the Company cedes to Healthsource Insurance Company premium income
and associated obligations and liabilities arising with respect to medical
indemnity and dental and vision insurance issued by the Company in certain
states where Healthsource Insurance Company is not currently licensed and
approved to transact this type of business. Total premium income and policy and
contract benefits ceded under this reinsurance agreement were $224.6 million and
$188.5 million, respectively, for the year ended December 31, 1996, and $170.6
million and $137.5 million, respectively, for the year ended December 31, 1995.
Once Healthsource Insurance Company obtains the necessary licenses and approvals
to transact this business in all states, the group medical reinsurance agreement
will be terminated.
The total amounts deducted for reinsurance ceded are as follows:
<TABLE>
<CAPTION>
Year Ended December 31
1996 1995 1994
(in millions of dollars)
--------------------------
<S> <C> <C> <C>
Premium Income $305.5 $249.2 $61.3
Policy and Contract Benefits 265.5 202.7 49.2
Change in Reserves for Future Policy and
Contract Benefits and Policyholders' Funds 26.4 44.7 53.2
</TABLE>
-36-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
PROVIDENT COMPANIES, INC. AND SUBSIDIARIES
NOTE 10--REINSURANCE - Continued
Reinsurance ceded and assumed consists of the following:
<TABLE>
<CAPTION>
Year Ended December 31
1996 1995 1994
(in millions of dollars)
------------------------------
<S> <C> <C> <C>
CEDED
Life Insurance in Force (Amount of Insurance) $4,347.9 $4,258.5 $4,202.6
Premium Income
Individual Life and Disability 48.2 47.8 41.0
Employee Benefits 31.9 29.9 18.9
Other Operations 225.4 171.5 1.4
ASSUMED
Life Insurance in Force (Amount of Insurance) $ 437.0 $ 460.2 $ 499.2
Premium Income
Individual Life and Disability 35.3 36.9 39.1
Employee Benefits 16.2 15.4 0.4
</TABLE>
-37-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
PROVIDENT COMPANIES, INC. AND SUBSIDIARIES
NOTE 11-- LIABILITY FOR UNPAID CLAIMS AND CLAIM ADJUSTMENT EXPENSES
Changes in the liability for unpaid claims and claim adjustment expenses were as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
(in millions of dollars)
---------------------------------
<S> <C> <C> <C>
BALANCE AT JANUARY 1 $2,824.7 $2,472.9 $2,143.9
Less Reinsurance Recoverables 343.2 237.6 180.9
-------- -------- --------
Net Balance at January 1 2,481.5 2,235.3 1,963.0
-------- -------- --------
Incurred Related to:
Current Year 910.6 960.0 1,062.4
Prior Years 107.8 123.9 115.9
-------- -------- --------
Total Incurred 1,018.4 1,083.9 1,178.3
-------- -------- --------
Paid Related to:
Current Year 322.4 359.0 456.3
Prior Years 502.1 478.7 449.7
-------- -------- --------
Total Paid 824.5 837.7 906.0
-------- -------- --------
Net Balance at December 31 2,675.4 2,481.5 2,235.3
Plus Reinsurance Recoverables 372.1 343.2 237.6
-------- -------- --------
BALANCE AT DECEMBER 31 $3,047.5 $2,824.7 $2,472.9
======== ======== ========
</TABLE>
The majority of the net balances are related to disabled lives claims with long-
tail payouts on which interest earned on assets backing liabilities is an
integral part of pricing and reserving. The incurred amounts shown above have
not been adjusted for interest.
Prior year claim reserves include strengthening (reserve releases) of $(2.0)
million, $(33.5) million, and $35.1 million for 1996, 1995, and 1994,
respectively.
-38-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
PROVIDENT COMPANIES, INC. AND SUBSIDIARIES
NOTE 12--SEGMENT INFORMATION
Selected data by segment is as follows:
<TABLE>
<CAPTION>
Year Ended December 31
1996 1995 1994
(in millions of dollars)
--------------------------------------
<S> <C> <C> <C>
REVENUE (EXCLUDING NET REALIZED INVESTMENT
GAINS AND LOSSES)
Individual Life and Disability $ 1,047.6 $ 1,019.3 $ 956.6
Employee Benefits 606.1 582.7 555.3
Other Operations 646.8 985.0 1,280.4
--------- --------- ---------
Total $ 2,300.5 $ 2,587.0 $ 2,792.3
========= ========= =========
INCOME BEFORE NET REALIZED INVESTMENT
GAINS AND LOSSES AND FEDERAL INCOME TAXES
Individual Life and Disability $ 117.3 $ 36.5 $ 53.2
Employee Benefits 56.3 48.6 71.8
Other Operations 61.2 122.6 106.0
--------- --------- ---------
Total $ 234.8 $ 207.7 $ 231.0
========= ========= =========
REVENUE (INCLUDING NET REALIZED INVESTMENT
GAINS AND LOSSES)
Individual Life and Disability $ 1,056.1 $ 1,024.0 $ 962.4
Employee Benefits 606.2 586.6 556.9
Other Operations 629.6 944.7 1,242.9
--------- --------- ---------
Total $ 2,291.9 $ 2,555.3 $ 2,762.2
========= ========= =========
INCOME BEFORE FEDERAL INCOME TAXES
Individual Life and Disability $ 125.8 $ 41.2 $ 59.0
Employee Benefits 56.4 52.5 73.4
Other Operations 44.0 82.3 68.5
--------- --------- ---------
Total $ 226.2 $ 176.0 $ 200.9
========= ========= =========
ASSETS
Individual Life and Disability $ 6,051.3 $ 5,746.1 $ 4,597.1
Employee Benefits 1,505.8 1,426.5 1,238.3
Other Operations 7,435.4 9,128.7 11,314.5
--------- --------- ---------
Total $14,992.5 $16,301.3 $17,149.9
========= ========= =========
</TABLE>
Total revenue (excluding net realized investment gains and losses) includes
premium income, net investment income, and other income. Total revenue
(including net realized investment gains and losses) includes premium income,
net investment income, net realized investment gains and losses, and other
income. Assets have been allocated to the segments based upon identifiable
liabilities and allocated stockholders' equity.
-39-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
PROVIDENT COMPANIES, INC. AND SUBSIDIARIES
NOTE 13--SALE OF A PORTION OF A LINE OF BUSINESS
In December 1994, the Company entered into an Asset and Stock Purchase Agreement
with Healthsource, Inc. (Healthsource) whereby Healthsource agreed to acquire
certain assets and assume certain liabilities of the Company's group medical
business. The sale was completed on May 31, 1995, effective April 30, 1995. The
Company received $131.0 million in cash and $100.0 million of a new issue of
Healthsource 6.25% preferred stock which was redeemed at par in the first
quarter of 1996. Pursuant to the Asset and Stock Purchase Agreement, assets were
transferred to Healthsource which had a carrying value of approximately $297.5
million. Liabilities assumed by Healthsource in connection with the transferred
business totaled $221.5 million. Total revenue and income before federal income
taxes for the group medical business were $146.2 million and $3.3 million,
respectively, for the four month period ended April 30, 1995. The gain on sale
of the Company's group medical business increased 1995 operating earnings by
$21.8 million ($0.48 per common share) before taxes and $14.2 million ($0.31 per
common share) after taxes.
NOTE 14--COMMITMENTS AND CONTINGENT LIABILITIES
COMMITMENT TO ACQUIRE THE PAUL REVERE CORPORATION
On April 29, 1996, the Company entered into a definitive agreement (the
Agreement) to acquire The Paul Revere Corporation (Paul Revere), a provider of
life and disability insurance products, at a price of approximately $1.2
billion. The public shareholders of Paul Revere may elect to receive per share
$26 in cash; a combination of $20 cash and a number of shares of the Company's
common stock equal to the product of 6 and the Exchange Ratio; or a number of
shares of the Company's common stock equal to the product of 26 and the Exchange
Ratio. The public shareholders' Exchange Ratio (as defined in the Agreement) is
based on the Company's common stock price during a defined period prior to
closing and is subject to certain maximum and minimum share amounts.
On November 4, 1996, the Company entered into an amended definitive agreement
(Amended Agreement). The Amended Agreement affected only the terms related to
the acquisition of Textron Inc.'s 83 percent ownership interest in Paul Revere.
Under the terms of the Amended Agreement, the Company has agreed to pay to
Textron Inc. $20 per share in cash and a number of shares of newly issued common
stock equal to the product of 6 and the Textron Inc. Exchange Ratio.
The transaction will be financed through common equity issued to Zurich
Insurance Company, a Swiss insurer, or one or more of its affiliates, common
equity issued to Paul Revere shareholders, debt, and internally generated funds.
The transaction is subject to regulatory approval and is expected to close
during the first quarter of 1997. The acquisition will be accounted for by the
purchase method.
CONTINGENT LIABILITIES
Various lawsuits against the Company have arisen in the normal course of
business. Contingent liabilities that might arise from litigation are not
deemed likely to materially affect the financial position or results of
operations of the Company.
-40-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
PROVIDENT COMPANIES, INC. AND SUBSIDIARIES
NOTE 15--STATUTORY FINANCIAL INFORMATION
STATUTORY NET INCOME, STOCKHOLDER'S EQUITY, AND DIVIDENDS
The Company's insurance subsidiaries' statutory net income, as reported in
conformity with statutory accounting practices prescribed by state regulatory
authorities, for the years ended December 31, 1996, 1995, and 1994, was $104.9
million, $67.1 million, and $33.8 million, respectively. Statutory
stockholder's equity at December 31, 1996 and 1995, was $674.2 million and
$570.4 million, respectively.
Regulatory restrictions limit the amount of dividends available for distribution
to the Company from its insurance subsidiaries, without prior approval by
regulatory authorities, to the greater of ten percent of an insurer's statutory
surplus as regards policyholders as of the preceding year end or the statutory
net gain from operations, excluding realized investment gains and losses, of the
preceding year. The payment of dividends is further limited to the amount of
statutory unassigned surplus. Based on these restrictions, $107.0 million will
be available for the payment of dividends to the Company from its insurance
subsidiaries during 1997.
PERMITTED STATUTORY ACCOUNTING PRACTICES
The Company's insurance subsidiaries prepare their statutory-basis financial
statements in accordance with accounting practices prescribed or permitted by
the National Association of Insurance Commissioners (NAIC) and the Tennessee
Department of Commerce and Insurance. Prescribed statutory accounting practices
include state laws, regulations, and general administrative rules, as well as a
variety of publications of the NAIC. Permitted statutory accounting practices
encompass all accounting practices that are not prescribed; such practices may
differ from state to state, may differ from company to company within a state,
and may change in the future. At December 31, 1996, the Company has not applied
any permitted accounting practices that differ from prescribed statutory
accounting practices.
The NAIC currently is in the process of recodifying statutory accounting
practices, the result of which is expected to standardize prescribed statutory
accounting practices. Accordingly, that project, which is expected to be
completed in 1997, will likely change, to some extent, prescribed statutory
accounting practices and may result in changes to the accounting practices that
the Company's insurance subsidiaries use to prepare their statutory financial
statements.
DEPOSITS
At December 31, 1996, the Company's insurance subsidiaries had on deposit with
regulatory authorities securities with a book value of $173.9 million held for
the protection of policyholders.
NOTE 16--SUBSEQUENT EVENTS
On February 28, 1997, the Company acquired GENEX Services, Inc. and GENEX
Services of Canada, Inc. (GENEX), subsidiaries of First Data Corporation, at a
price of approximately $70.0 million. GENEX is a provider of case management,
vocational rehabilitation, and related services to corporations, third party
administrators, and insurance companies. These services are utilized in the
management of disability and worker's compensation cases. The acquisition,
financed through borrowings on the Company's revolving credit facility, was
accounted for by the purchase method.
-41-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
PROVIDENT COMPANIES, INC. AND SUBSIDIARIES
NOTE 17--SUPPLEMENTAL DATA ON QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of unaudited quarterly results of operations for 1996
and 1995:
<TABLE>
<CAPTION>
1996
-----------------------------------------------
4th 3rd 2nd 1st
(in millions of dollars, except per share data)
-----------------------------------------------
<S> <C> <C> <C> <C>
Premium Income $292.4 $287.4 $291.3 $304.6
Net Investment Income 268.0 269.5 274.1 278.5
Net Realized Investment Gains (Losses) 1.4 (4.1) (5.3) (0.6)
Total Revenue 568.5 562.7 569.0 591.7
Income Before Federal Income Taxes 67.8 51.8 53.2 53.4
Net Income 43.9 33.2 34.1 34.4
Net Income Per Common Share .89 .66 .68 .69
</TABLE>
<TABLE>
<CAPTION>
1995
-----------------------------------------------
4th 3rd 2nd 1st
(in millions of dollars, except per share data)
-----------------------------------------------
<S> <C> <C> <C> <C>
Premium Income $285.8 $292.0 $313.1 $361.0
Net Investment Income 296.9 301.6 309.8 313.0
Net Realized Investment Losses (2.3) (0.9) (24.6) (3.9)
Total Revenue 594.7 602.7 644.1 713.8
Income Before Federal Income Taxes 53.4 51.1 51.9 19.6
Net Income 35.4 32.9 35.0 12.3
Net Income Per Common Share .71 .66 .70 .20
</TABLE>
-42-
<PAGE>
Exhibit (21)
Subsidiaries of the Company
(attached)
<PAGE>
Subsidiaries of the Company
Name State of Domicile
---- -----------------
Provident Life and Accident Insurance Company Tennessee
Provident National Assurance Company Tennessee
Provident Life and Casualty Insurance Company Tennessee
GENEX Services, Inc. Pennsylvania
GENEX Services of Canada Province of Ontario
<PAGE>
Exhibit (23)
Consent of Independent Auditors
(attached)
<PAGE>
Exhibit 23
Consent of Independent Auditors
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Provident Companies, Inc. and Subsidiaries of our report dated February 10,
1997, included in the 1996 Annual Report to Stockholders of Provident Companies,
Inc. and Subsidiaries.
Our audit also included the financial statement schedules of Provident
Companies, Inc. and Subsidiaries listed in Item 14(a). These schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits. In our opinion, the financial statement schedules
referred to above, when considered in relation to the basic financial statements
taken as a whole, present fairly in all material respects the information set
forth therein.
We also consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 33-47551, Form S-8 No. 33-88108 and Form S-8 No. 33-62231)
pertaining to the Provident Life and Accident Insurance Company MoneyMaker, A
Long-Term 401(k) Retirement Savings Plan, the Provident Life and Accident
Insurance Company Stock Option Plan of 1994 and the Provident Life and Accident
Insurance Company Employee Stock Purchase Plan of 1995 and in the Registration
Statements (Form S-3 No. 333-17849 and Form S-4 No. 333-17085) of our report
dated February 10, 1997, with respect to the consolidated financial statements
incorporated herein by reference, and our report included in the preceding
paragraph with respect to the financial statement schedules included in this
Annual Report (Form 10-K) of Provident Companies, Inc. and Subsidiaries.
ERNST & YOUNG LLP
Chattanooga, Tennessee
March 21, 1997
<PAGE>
Exhibit (24)
Powers of Attorney
(attached)
<PAGE>
POWER OF ATTORNEY OF DIRECTOR OF
PROVIDENT COMPANIES, INC.
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Provident
Companies, Inc., a Delaware corporation, which proposes to file with the
Securities and Exchange Commission, under the provisions of the Securities
Exchange Act of 1934, an Annual Report on Form 10-K for the year ended December
31, 1996, hereby constitutes and appoints J. Harold Chandler or Susan N. Roth,
as his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution to do any and all acts and things and execute,
for him and in his name, place and stead, said form and any and all amendments
thereto and to file the same, with all exhibits thereto, and any and all other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agent, or their substitutes, may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as
of March 21, 1997.
/s/William L. Armstrong
-----------------------
William L. Armstrong
<PAGE>
POWER OF ATTORNEY OF DIRECTOR OF
PROVIDENT COMPANIES, INC.
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Provident
Companies, Inc., a Delaware corporation, which proposes to file with the
Securities and Exchange Commission, under the provisions of the Securities
Exchange Act of 1934, an Annual Report on Form 10-K for the year ended December
31, 1996, hereby constitutes and appoints J. Harold Chandler or Susan N. Roth,
as her true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution to do any and all acts and things and execute,
for her and in her name, place and stead, said form and any and all amendments
thereto and to file the same, with all exhibits thereto, and any and all other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as she might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agent, or their substitutes, may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as
of March 21, 1997.
/s/Charlotte M. Heffner
-----------------------
Charlotte M. Heffner
<PAGE>
POWER OF ATTORNEY OF DIRECTOR OF
PROVIDENT COMPANIES, INC.
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Provident
Companies, Inc., a Delaware corporation, which proposes to file with the
Securities and Exchange Commission, under the provisions of the Securities
Exchange Act of 1934, an Annual Report on Form 10-K for the year ended December
31, 1996, hereby constitutes and appoints J. Harold Chandler or Susan N. Roth,
as his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution to do any and all acts and things and execute,
for him and in his name, place and stead, said form and any and all amendments
thereto and to file the same, with all exhibits thereto, and any and all other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agent, or their substitutes, may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as
of March 21, 1997.
/s/Hugh B. Jacks
-----------------
Hugh B. Jacks
<PAGE>
POWER OF ATTORNEY OF DIRECTOR OF
PROVIDENT COMPANIES, INC.
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Provident
Companies, Inc., a Delaware corporation, which proposes to file with the
Securities and Exchange Commission, under the provisions of the Securities
Exchange Act of 1934, an Annual Report on Form 10-K for the year ended December
31, 1996, hereby constitutes and appoints J. Harold Chandler or Susan N. Roth,
as his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution to do any and all acts and things and execute,
for him and in his name, place and stead, said form and any and all amendments
thereto and to file the same, with all exhibits thereto, and any and all other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agent, or their substitutes, may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as
of March 21, 1997.
/s/William B. Johnson
-----------------------
William B. Johnson
<PAGE>
POWER OF ATTORNEY OF DIRECTOR OF
PROVIDENT COMPANIES, INC.
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Provident
Companies, Inc., a Delaware corporation, which proposes to file with the
Securities and Exchange Commission, under the provisions of the Securities
Exchange Act of 1934, an Annual Report on Form 10-K for the year ended December
31, 1996, hereby constitutes and appoints J. Harold Chandler or Susan N. Roth,
as his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution to do any and all acts and things and execute,
for him and in his name, place and stead, said form and any and all amendments
thereto and to file the same, with all exhibits thereto, and any and all other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agent, or their substitutes, may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as
of March 21, 1997.
/s/Hugh O. Maclellan, Jr.
-------------------------
Hugh O. Maclellan, Jr.
<PAGE>
POWER OF ATTORNEY OF DIRECTOR OF
PROVIDENT COMPANIES, INC.
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Provident
Companies, Inc., a Delaware corporation, which proposes to file with the
Securities and Exchange Commission, under the provisions of the Securities
Exchange Act of 1934, an Annual Report on Form 10-K for the year ended December
31, 1996, hereby constitutes and appoints J. Harold Chandler or Susan N. Roth,
as his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution to do any and all acts and things and execute,
for him and in his name, place and stead, said form and any and all amendments
thereto and to file the same, with all exhibits thereto, and any and all other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agent, or their substitutes, may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as
of March 21, 1997.
/s/A. S. (Pat) MacMillan
------------------------
A. S. (Pat) MacMillan
<PAGE>
POWER OF ATTORNEY OF DIRECTOR OF
PROVIDENT COMPANIES, INC.
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Provident
Companies, Inc., a Delaware corporation, which proposes to file with the
Securities and Exchange Commission, under the provisions of the Securities
Exchange Act of 1934, an Annual Report on Form 10-K for the year ended December
31, 1996, hereby constitutes and appoints J. Harold Chandler or Susan N. Roth,
as his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution to do any and all acts and things and execute,
for him and in his name, place and stead, said form and any and all amendments
thereto and to file the same, with all exhibits thereto, and any and all other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agent, or their substitutes, may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as
of March 21, 1997.
/s/C. William Pollard
-----------------------
C. William Pollard
<PAGE>
POWER OF ATTORNEY OF DIRECTOR OF
PROVIDENT COMPANIES, INC.
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Provident
Companies, Inc., a Delaware corporation, which proposes to file with the
Securities and Exchange Commission, under the provisions of the Securities
Exchange Act of 1934, an Annual Report on Form 10-K for the year ended December
31, 1996, hereby constitutes and appoints J. Harold Chandler or Susan N. Roth,
as his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution to do any and all acts and things and execute,
for him and in his name, place and stead, said form and any and all amendments
thereto and to file the same, with all exhibits thereto, and any and all other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agent, or their substitutes, may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as
of March 21, 1997.
/s/Scott L. Probasco, Jr.
-------------------------
Scott L. Probasco, Jr.
<PAGE>
POWER OF ATTORNEY OF DIRECTOR OF
PROVIDENT COMPANIES, INC.
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of Provident
Companies, Inc., a Delaware corporation, which proposes to file with the
Securities and Exchange Commission, under the provisions of the Securities
Exchange Act of 1934, an Annual Report on Form 10-K for the year ended December
31, 1996, hereby constitutes and appoints J. Harold Chandler or Susan N. Roth,
as his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution to do any and all acts and things and execute,
for him and in his name, place and stead, said form and any and all amendments
thereto and to file the same, with all exhibits thereto, and any and all other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agent, or their substitutes, may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney as
of March 21, 1997.
/s/Steve S Reinemund
-----------------------
Steven S Reinemund
<PAGE>
POWER OF ATTORNEY OF DIRECTOR OF
PROVIDENT COMPANIES, INC.
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of
Provident Companies, Inc., a Delaware corporation, which proposes to file with
the Securities and Exchange Commission, under the provisions of the Securities
Exchange Act of 1934, an Annual Report on Form 10-K for the year ended December
31, 1996, hereby constitutes and appoints J. Harold Chandler or Susan N. Roth,
as his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution to do any and all acts and things and execute,
for him and in his name, place and stead, said form and any and all amendments
thereto and to file the same, with all exhibits thereto, and any and all other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agent, or their substitutes, may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of
Attorney as of March 21, 1997.
Burton E. Sorensen
-----------------------
Burton E. Sorensen
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF PROVIDENT COMPANIES, INC. FOR THE YEAR ENDED DECEMBER
31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<DEBT-HELD-FOR-SALE> 10,880,100
<DEBT-CARRYING-VALUE> 264,500
<DEBT-MARKET-VALUE> 263,100
<EQUITIES> 4,900
<MORTGAGE> 0
<REAL-ESTATE> 151,100
<TOTAL-INVEST> 13,317,400
<CASH> 19,300
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 421,800
<TOTAL-ASSETS> 14,992,500
<POLICY-LOSSES> 8,051,300
<UNEARNED-PREMIUMS> 58,800
<POLICY-OTHER> 411,700
<POLICY-HOLDER-FUNDS> 3,881,100
<NOTES-PAYABLE> 200,000
0
156,200
<COMMON> 45,600
<OTHER-SE> 1,536,800
<TOTAL-LIABILITY-AND-EQUITY> 14,992,500
1,175,700
<INVESTMENT-INCOME> 1,090,100
<INVESTMENT-GAINS> (8,600)
<OTHER-INCOME> 34,700
<BENEFITS> 1,661,200
<UNDERWRITING-AMORTIZATION> 64,000
<UNDERWRITING-OTHER> 340,500
<INCOME-PRETAX> 226,200
<INCOME-TAX> 80,600
<INCOME-CONTINUING> 145,600
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 145,600
<EPS-PRIMARY> 2.92
<EPS-DILUTED> 0
<RESERVE-OPEN> 2,481,500
<PROVISION-CURRENT> 910,600
<PROVISION-PRIOR> 107,800
<PAYMENTS-CURRENT> 322,400
<PAYMENTS-PRIOR> 502,100
<RESERVE-CLOSE> 2,675,400
<CUMULATIVE-DEFICIENCY> (2,000)
</TABLE>
