<PAGE>
PROSPECTUS SUPPLEMENT
(To Prospectus dated May 22, 1997)
Pursuant to rule: 424(b)5
Registration Number: 333-25009
$200,000,000
Provident Companies, Inc.
7 1/4% SENIOR NOTES DUE MARCH 15, 2028
--------------
Interest payable March 15 and September 15
--------------
THE 7 1/4% SENIOR NOTES DUE MARCH 15, 2028 (THE "NOTES") OFFERED HEREBY ARE
BEING ISSUED BY PROVIDENT COMPANIES, INC. (THE "COMPANY") IN AN AGGREGATE
PRINCIPAL AMOUNT OF $200.0 MILLION. THE NOTES WILL MATURE ON MARCH 15, 2028
AND ARE REDEEMABLE AS A WHOLE OR IN PART AT THE OPTION OF THE COMPANY, IN
THE MANNER AND AT THE REDEMPTION PRICE DESCRIBED HEREIN UNDER "DESCRIPTION
OF THE NOTE--REDEMPTION." THE NOTES WILL NOT HAVE THE BENEFIT OF ANY
SINKING FUND. THE NOTES WILL BE REPRESENTED BY A GLOBAL SECURITY
REGISTERED IN THE NAME OF THE DEPOSITORY TRUST COMPANY ("DTC") OR ITS
NOMINEE. BOOK-ENTRY INTERESTS IN THE GLOBAL SECURITY WILL BE SHOWN ON,
AND TRANSFERS THEREOF WILL BE EFFECTED ONLY THROUGH, RECORDS
MAINTAINED BY DTC OR ITS NOMINEE. SEE "DESCRIPTION OF THE NOTES." IN
CONNECTION WITH THE PUBLIC OFFERING OF THE NOTES (THE "NOTE
OFFERING"), PROVIDENT FINANCING TRUST I, AN AFFILIATE OF THE COMPANY
(THE "PROVIDENT TRUST"), EXPECTS TO CONSUMMATE THE PUBLIC OFFERING
OF CAPITAL SECURITIES (THE "CAPITAL SECURITIES") WITH AN AGGREGATE
LIQUIDATION AMOUNT OF $300.0 MILLION (THE "CAPITAL SECURITIES
OFFERING"). THE CAPITAL SECURITIES OFFERING IS BEING MADE
PURSUANT TO A SEPARATE PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS.
--------------
SEE "RISK FACTORS" ON PAGE 7 OF THE ACCOMPANYING PROSPECTUS FOR
INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
--------------
PRICE 99.818% AND ACCRUED INTEREST, IF ANY
--------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC (1) COMMISSIONS (2) COMPANY (1)(3)
---------- --------------- --------------
<S> <C> <C> <C>
Per Note............................ 99.818% .875% 98.943%
Total............................... $199,636,000 $1,750,000 $197,886,000
</TABLE>
- -------
(1) Plus accrued interest, if any, from March 16, 1998.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriters."
(3) Before deducting expenses payable by the Company estimated at $262,000.
--------------
The Notes are being offered, subject to prior sale, when, as and if accepted
by the Underwriters and subject to approval of certain legal matters by
LeBoeuf, Lamb, Greene & MacRae, L.L.P., counsel for the Underwriters. It is
expected that delivery of the Notes will be made in book-entry form through
the facilities of DTC, on or about March 16, 1998, against payment therefor in
immediately available funds.
--------------
MORGAN STANLEY DEAN WITTER
BEAR, STEARNS & CO. INC.
CHASE SECURITIES INC.
CREDIT SUISSE FIRST BOSTON
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
March 11, 1998
<PAGE>
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS
SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS IN CONNECTION WITH THE OFFERING
COVERED BY THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS. IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. NEITHER THIS
PROSPECTUS SUPPLEMENT NOR THE ACCOMPANYING PROSPECTUS CONSTITUTES AN OFFER TO
SELL, OR THE SOLICITATION OF AN OFFER TO BUY, THE NOTES IN ANY JURISDICTION
WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE
ACCOMPANYING PROSPECTUS NOR ANY SALE MADE HEREUNDER OR THEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN
THE FACTS SET FORTH IN THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Forward Looking Statements................................................ S-3
Summary................................................................... S-4
Selected Consolidated Financial Data...................................... S-7
Recent Developments....................................................... S-8
Use of Proceeds........................................................... S-11
Capitalization............................................................ S-12
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... S-13
The Company............................................................... S-26
Description of the Notes.................................................. S-36
Underwriters.............................................................. S-40
Legal Matters............................................................. S-41
Experts................................................................... S-41
</TABLE>
----------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE NOTES.
SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE OFFERING,
AND MAY BID FOR AND PURCHASE, THE NOTES IN THE OPEN MARKET. FOR A DESCRIPTION
OF THESE ACTIVITIES, SEE "PLAN OF DISTRIBUTION" IN THE ACCOMPANYING PROSPECTUS
AND "UNDERWRITERS" HEREIN.
S-2
<PAGE>
FORWARD LOOKING STATEMENTS
This Prospectus Supplement, the accompanying Prospectus, and the information
incorporated by reference herein, contains and incorporates by reference
certain forward looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995 with respect to the results of
operations and businesses of the Company. These forward looking statements
involve certain risks and uncertainties. Factors that may cause actual results
to differ materially from those contemplated or projected, forecast, estimated
or budgeted in such forward looking statements include, among others, the
following possibilities: (i) heightened competition, including specifically
the intensification of price competition, the entry of new competitors and the
development of new products by new and existing competitors; (ii) adverse
state and federal legislation and regulation, including limitations on premium
levels, increases in minimum capital and reserves, and other financial
viability requirements; (iii) failure to develop multiple distribution
channels in order to obtain new customers or failure to retain existing
customers; (iv) inability to carry out product design, marketing and sales
plans, including, among others, planned changes to certain existing products
(which may result in reduced market acceptance of the revised products) or
planned strategies to penetrate new market segments; (v) loss of key
executives; (vi) changes in interest rates causing a reduction of investment
income; (vii) general economic and business conditions which are less
favorable than expected; (viii) unanticipated changes in industry trends; (ix)
inaccuracies in assumptions regarding future morbidity, persistency, mortality
and interest rates used in calculating reserve amounts; (x) failure to
continue improvement of the Company's disability insurance claims management
process; and (xi) with respect to cost savings that may be realized from, and
costs associated with, the acquisition of The Paul Revere Corporation ("Paul
Revere") (the "Paul Revere Merger"), the following possibilities: (a) the
expected cost savings (through the implementation of a restructuring program
that includes combining certain functions of the Company and Paul Revere,
restructuring the field organizations of both companies to eliminate redundant
facilities and better serve the combined company's customers, and reducing
staff) are less than anticipated or cannot be fully realized because elements
of the restructuring program are not implemented or because of unanticipated
offsetting costs; and (b) costs or difficulties related to the integration of
the businesses of the Company and Paul Revere are greater than expected. See
"Risk Factors" in the accompanying Prospectus.
S-3
<PAGE>
SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus Supplement. The information
in this Prospectus Supplement supplements, and should be read in conjunction
with, the information contained in the accompanying Prospectus. Each of the
capitalized terms used in this Prospectus Supplement and not otherwise defined
in this Prospectus Supplement has the meaning set forth in the accompanying
Prospectus.
THE COMPANY
The Company, through its subsidiaries, is the largest provider of individual
disability insurance and the second largest overall disability insurer in North
America on the basis of in-force premiums. It also provides a complementary
portfolio of life insurance products, including life insurance, employer- and
employee-paid group benefits and related services. The Company is the parent
holding company for a group of insurance companies that collectively operate in
all 50 states, the District of Columbia, Puerto Rico, and Canada. The Company's
two principal operating subsidiaries are Provident Life and Accident Insurance
Company ("Accident") and The Paul Revere Life Insurance Company ("Paul Revere
Life").
Since 1994, the Company has completed a comprehensive corporate repositioning
that has prepared it to support growth and increase stockholder value. A new
management team headed by J. Harold Chandler, who joined the Company in
November 1993, initiated a strategic review of the business. As a result of its
review, management refocused the Company's strategy to (i) serve the individual
and employee benefits insurance markets, (ii) leverage the Company's disability
insurance expertise, (iii) utilize multiple distribution channels to reach
broader market segments, and (iv) more closely align the interests of the
Company's employees with those of its stockholders.
The Company has successfully undertaken a number of major initiatives in
pursuing this strategy. Specifically, the Company (i) sold its group medical
business for $231.0 million in cash and stock, (ii) began winding down its
guaranteed investment contract ("GIC") business which carried high capital
requirements, (iii) reduced the annual dividend on the Company's common stock,
par value $1.00 per share (the "Common Stock"), from $1.04 to $.80 per share to
preserve capital to fund future growth, (iv) simplified the corporate legal
structure and eliminated a dual class of common stock that had special voting
rights in order to present a more conventional corporate structure profile to
the investing market, (v) sold in six transactions $1,459.6 million in
commercial mortgage loans as part of repositioning its investment portfolio,
(vi) restructured its marketing and distribution channels, along with the
support areas of product development, underwriting and claims, to better reach
and serve individual and employee benefits customers, (vii) strengthened its
claims management procedures in the disability income insurance business, on
which the Company took a $423.0 million pre-tax charge in the third quarter of
1993 to strengthen reserves on a portion of that block of business, and (viii)
began restructuring its disability income products to discontinue the sale of
policies which combined noncancelable contracts with long-term own-occupation
provisions and to offer in their place an income replacement contract with more
reasonable limits and better pricing for elective provisions.
The acquisitions of Paul Revere and GENEX Services, Inc. ("Genex") in early
1997 and the disposition of certain non-core lines of business are the latest
accomplishments under the Company's strategic plan. These actions strengthen
the Company's disability insurance capabilities and enable the Company to offer
a comprehensive and well-focused portfolio of products and services to its
customers. See "The Company--General."
Paul Revere is a specialist in disability insurance, with $972.8 million of
disability premium income (86 percent of its total premium income) in 1996.
From 1989 through 1996 it was the largest provider of individual disability
insurance in the United States and Canada on the basis of in-force premiums. By
combining Paul Revere's operations with those of the Company, the Company has
begun to realize significant operating
S-4
<PAGE>
efficiencies, including leveraging both companies' knowledge of disability
risks, specialized claims and underwriting skills, and sales expertise. The
Company also has begun to realize cost savings as a result of combining the
corporate, administrative, and financial operations of the two companies.
Genex provides the Company with specialized skills in disability case
management and vocational rehabilitation that advance the Company's goal of
providing products that enable disabled policyholders to return to work. Genex
provides a full range of disability management services, including worksite
injury management, telephonic early intervention services for injured workers,
medical case management, vocational rehabilitation, and disability cost
analysis, to third party administrators, corporate clients and insurance
companies.
As it has acquired operations that complement its core business, the Company
has also continued to exit non-core lines. On June 30, 1997, the Company
announced that it had agreed to transfer its dental business to Ameritas Life
Insurance Corporation ("Ameritas"). The dental block, which was acquired in the
Paul Revere Merger, produced $48.3 million in premium income in 1996 and $36.1
million in the first nine months of 1997. The full transition of the dental
business to Ameritas was completed in November 1997.
On December 18, 1997, the Company entered into a definitive agreement to sell
Provident's in-force individual and tax-sheltered annuity business to various
affiliates of American General Corporation ("American General"). The Company
and American General also entered into preliminary reciprocal marketing
agreements whereby American General will market the Company's individual
disability products and the Company will market American General's individual
annuity products. The in-force business being sold consists primarily of
single-premium fixed annuities and tax-sheltered annuities in Accident,
Provident National Assurance Company ("National"), Paul Revere Life, and The
Paul Revere Variable Annuity Life Insurance Company ("Paul Revere Variable").
In addition, American General is acquiring a number of miscellaneous group
pension lines of business sold in the 1970's and 1980's, which are no longer
actively marketed. The sale does not include the Company's block of traditional
GICs, or group single premium annuities, which will continue in a run-off mode
until such time as these blocks are completely discontinued. In consideration
for the transfer of the annuity reserves, American General is paying the
Company a ceding commission of approximately $58 million. The annuities being
sold to American General represent $2.4 billion of statutory reserves. The
transaction, which is subject to requisite regulatory approvals and certain
other conditions, is expected to close by March 31, 1998.
The Company's principal executive offices are located at 1 Fountain Square,
Chattanooga, Tennessee 37402, and its telephone number is (423) 755-1011.
THE NOTE OFFERING AND THE CAPITAL SECURITIES OFFERING
In connection with the Note Offering, the Provident Trust expects to
consummate the Capital Securities Offering. The consummation of the Note
Offering is not conditioned on the completion of the Capital Securities
Offering, and the consummation of the Capital Securities Offering is not
conditioned on the completion of the Note Offering. There can be no assurance
that the Capital Securities Offering will be consummated. The Capital
Securities Offering is being made pursuant to a separate prospectus supplement.
S-5
<PAGE>
DESCRIPTION OF THE NOTES
<TABLE>
<S> <C>
Securities Offered................ $200.0 million aggregate principal amount of
7 1/4% Senior Notes due March 15, 2028.
Maturity Date..................... March 15, 2028.
Interest.......................... 7 1/4% per annum.
Interest Payment Dates............ March 15 and September 15 of each year,
commencing September 15, 1998
Ranking........................... The Notes will be senior unsecured
obligations of the Company and will rank pari
passu in right of payment with the Company's
obligations under all existing and future
indebtedness of the Company (including bank
credit facilities) and senior in right of
payment to all existing and future
indebtedness of the Company that is expressly
subordinated to the Notes.
Redemption........................ The Notes will be redeemable in whole or in
part, at the option of the Company at any
time, at a redemption price equal to the
greater of (i) 100% of their principal amount
or (ii) the sum of the present values of the
remaining scheduled payments of principal and
interest thereon discounted to the date of
redemption on a semiannual basis at the
Treasury Rate (as defined herein) plus 20
basis points, plus in the case of each of
clause (i) and (ii) accrued interest to the
date of redemption. See "Description of the
Notes-- Redemption."
Use of Proceeds................... The net proceeds from the Note Offering and
the Capital Securities Offering will be used
to reduce the Company's short-term
borrowings. See "Use of Proceeds."
</TABLE>
For additional information regarding the Notes see "Description of the
Notes."
RISK FACTORS
Prospective investors should carefully consider the matters set forth under
"Risk Factors" beginning on page 7 of the accompanying Prospectus.
S-6
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected historical financial data as of and for the five years
in the period ended December 31, 1996 have been derived from the audited
consolidated financial statements of the Company, which are incorporated herein
by reference. The following selected pro forma financial data reflect
consummation of the Paul Revere Merger and have been derived from pro forma
financial information of the Company incorporated herein by reference. Interim
unaudited data for the nine months ended September 30, 1997 and 1996 reflect,
in the opinion of management of the Company, all adjustments (consisting only
of normal recurring adjustments) necessary for a fair presentation of such
data. Results for the nine months ended September 30, 1997 and 1996 are not
necessarily indicative of results which may be expected for any other interim
period or for the year as a whole. The information set forth below should be
read in conjunction with the Company's and Paul Revere's respective
consolidated financial statements (including the notes thereto), and the pro
forma financial information relating to the Paul Revere Merger (including the
notes thereto) and the Company's Annual Report on Form 10-K for the year ended
December 31, 1996 and the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997, both of which are incorporated by reference
herein. See "Available Information" and "Incorporation of Certain Documents by
Reference" in the accompanying Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31, YEAR ENDED DECEMBER 31,
-------------------- 1996 ---------------------------------------------------------
1997 1996 PRO FORMA(1) 1996 1995 1994 1993 1992
--------- --------- ------------ --------- --------- --------- --------- ---------
(UNAUDITED)
(IN MILLIONS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenue:
Premium income......... $ 1,471.5 $ 883.3 $ 2,306.0 $ 1,175.7 $ 1,251.9 $ 1,382.6 $ 1,400.2 $ 1,490.7
Net investment income.. 990.1 822.1 1,498.4 1,090.1 1,221.3 1,238.6 1,318.7 1,241.8
Net realized investment
gains (losses)........ 13.1 (10.0) 40.0 (8.6) (31.7) (30.1) 43.6 (30.8)
Other income........... 87.5 28.0 40.0 34.7 113.8 171.1 175.5 165.0
--------- --------- --------- --------- --------- --------- --------- ---------
Total revenue......... 2,562.2 1,723.4 3,884.4 2,291.9 2,555.3 2,762.2 2,938.0 2,866.7
--------- --------- --------- --------- --------- --------- --------- ---------
Benefits and expenses:
Policy and contract
benefits and change in
reserves.............. 1,719.9 1,262.4 3,110.7 1,661.2 1,904.6 1,981.2 2,502.8 2,102.6
Expenses other than
interest.............. 548.0 287.3 782.4 384.8 450.3 550.9 545.2 555.6
Interest expense....... 31.3 15.3 34.2 19.7 24.4 29.2 30.1 28.7
--------- --------- --------- --------- --------- --------- --------- ---------
Total benefits and
expenses............. 2,299.2 1,565.0 3,927.3 2,065.7 2,379.3 2,561.3 3,078.1 2,686.9
--------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) before
income taxes........... 263.0 158.4 (42.9) 226.2 176.0 200.9 (140.1) 179.8
Federal income taxes
(credit)............... 91.5 56.7 (8.5) 80.6 60.4 65.6 (58.9) 67.2
--------- --------- --------- --------- --------- --------- --------- ---------
Net income (loss)...... $ 171.5 $ 101.7 $ (34.4)(2) $ 145.6 $ 115.6 $ 135.3 $ (81.2) $ 112.6
========= ========= ========= ========= ========= ========= ========= =========
OTHER DATA (3):
Ratio of earnings to
fixed charges.......... 9.0x 12.0x (1.4)x(4) 12.9x 9.5x 8.9x (5.1)x(5) 8.3x
Ratio of earnings to
combined fixed charges
and preferred stock
dividends.............. 6.1x 6.1x (0.9)x(4) 6.5x 5.3x 5.3x (3.3)x(5) 8.3x
BALANCE SHEET DATA (AT
PERIOD END):
Total assets............ $22,839.5 $15,191.3 $22,642.2 $14,992.5 $16,301.3 $17,149.9 $16,891.9 $15,925.1
Long-term debt including
capital lease
obligations............ 725.0 200.0 581.2 200.0 200.0 202.5 247.6 206.2
Total debt.............. 725.0 353.3 607.4 200.0 201.4 216.9 276.6 477.3
Common stockholders'
equity................. 2,908.5 1,518.7 2,322.4 1,582.4 1,496.1 1,012.9 1,245.4 1,387.5
</TABLE>
- -------
(1) Reflects consummation of the Paul Revere Merger as of January 1, 1996 for
statement of operations data and as of December 31, 1996 for balance sheet
data. Does not reflect the acquisition of Genex, which occurred in the
first quarter of 1997. The pro forma financial data may not necessarily be
indicative of the results that actually would have occurred if the Paul
Revere Merger had been in effect as of the dates indicated or which may be
obtained in the future.
(2) Includes reserve strengthening of $380.0 million, before income taxes,
recorded by Paul Revere in the third quarter of 1996, which resulted in a
decrease in net income of $244.3 million.
S-7
<PAGE>
(3) The consolidated ratio of earnings to fixed charges for the Company
including its consolidated subsidiaries is computed by dividing earnings by
fixed charges. The ratio of earnings to combined fixed charges and
preferred stock dividends is computed by dividing earnings by the sum of
fixed charges and preferred stock dividend requirements. For these purposes
earnings consist primarily of income (loss) from continuing operations
before income taxes adjusted for fixed charges. Fixed charges consist
primarily of interest (whether expensed or capitalized), amortization of
debt expense and discount or premium relating to any indebtedness, whether
expensed or capitalized, and the portion of rental expense representative
of the interest factor in these rentals.
(4) Excluding the $380.0 million pre-tax reserve adjustment recorded by Paul
Revere Life, the "Ratio of earnings to fixed charges" and "Ratio of
earnings to fixed charges and preferred stock dividends" would have been
9.7x and 6.2x, respectively.
(5) Excluding the $423.0 million pre-tax reserve adjustment recorded by the
Provident insurance companies, the "Ratio of earnings to fixed charges" and
"Ratio of earnings to fixed charges and preferred stock dividends" would
have been 9.0x and 5.8x, respectively.
RECENT DEVELOPMENTS
The Company's net income for the year ended December 31, 1997 was $247.3
million compared to $145.6 for 1996. Included in these net income figures are
net realized after-tax investment gains of $9.8 million for 1997 and losses of
$5.4 million for 1996.
After-tax operating earnings (excluding net realized investment gains and
losses) were $237.5 million for 1997 and $151.0 million for 1996.
Revenue (excluding net realized investment gains and losses) in the
Individual Life and Disability and Employee Benefits segments increased 76.3
percent to $2.79 billion for the year 1997. These two segments represent the
lines of business that the Company is focusing on for growth in the future.
Total revenue including the Other Operations segment, which consists of product
lines closed to new business, totaled $3.54 billion for the year 1997. This
represents an increase of 53.8 percent from the $2.30 billion reported for the
year 1996, primarily due to the acquisition of Paul Revere.
The Individual Life and Disability segment reported income before net
realized investment gains and losses and federal income taxes ("income") of
$81.5 million in the fourth quarter of 1997, compared to $35.8 million in the
fourth quarter of 1996. This segment includes the results of the individual
disability income line of business, which recorded income of $74.2 million in
the fourth quarter of 1997, compared to income of $29.7 million in the year ago
quarter. The increase in the fourth quarter of 1997 is due to the inclusion of
the results of the Paul Revere block of individual disability income business.
Premium income in this segment totaled $382.6 million in the fourth quarter of
1997, compared to $163.4 million in the fourth quarter of 1996, reflecting the
acquisition of Paul Revere. New annualized sales in the individual disability
income line totaled $29.8 million in the fourth quarter of 1997.
The Employee Benefits segment reported income of $18.7 million in the fourth
quarter of 1997, compared to $13.9 million in the fourth quarter of 1996. The
improvement is the result of the inclusion of Paul Revere, which added to
earnings in the group life line of business, as well as improved year-over-year
results in the voluntary benefits and affinity group lines. Premium income for
the Employee Benefits segment totaled $179.1 million in the fourth quarter of
1997, compared to $111.5 million in the fourth quarter of 1996, reflecting the
acquisition of Paul Revere and continued strong sales growth.
The Other Operations segment reported income of $15.1 million in the fourth
quarter of 1997, compared to $16.7 million in the fourth quarter of 1996. The
decline is primarily the result of the run-off of the group pension business,
lower results in the medical stop-loss business, and the interest expense and
goodwill amortization related to the acquisitions of Paul Revere and Genex.
Revenue (excluding net realized investment gains and losses) in this segment
increased in the fourth quarter of 1997 to $188.4 million from $168.0 million
in the fourth quarter of 1996. This increase is attributed to the acquisition
of Paul Revere's individual annuity line of business.
S-8
<PAGE>
The following table presents certain information for the three-month periods
and the years ended December 31, 1997 and 1996.
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
-------------------- --------------------
1997 1996 1997 1996
--------- --------- --------- ---------
(IN MILLIONS, EXCEPT RATIOS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue
Premium income............... $ 582.2 $ 292.4 $ 2,053.7 $ 1,175.7
Net investment income........ 364.6 268.0 1,354.7 1,090.1
Net realized investment gains
(losses).................... 2.0 1.4 15.1 (8.6)
Other income................. 42.2 6.7 129.7 34.7
--------- --------- --------- ---------
Total revenue............... 991.0 568.5 3,553.2 2,291.9
--------- --------- --------- ---------
Benefits and expenses
Policy and contract benefits
and change in reserves...... 638.2 398.8 2,358.1 1,661.2
Expenses other than interest. 219.8 97.5 767.8 384.8
Interest expense............. 15.7 4.4 47.0 19.7
--------- --------- --------- ---------
Total benefits and expenses. 873.7 500.7 3,172.9 2,065.7
--------- --------- --------- ---------
Income before income taxes.... 117.3 67.8 380.3 226.2
Federal income taxes.......... 41.5 23.9 133.0 80.6
--------- --------- --------- ---------
Net income (1).............. $ 75.8 $ 43.9 $ 247.3 $ 145.6
========= ========= ========= =========
Income before net realized
investment gains and losses... $ 74.8 $ 42.8 $ 237.5 $ 151.0
OTHER DATA (2):
Ratio of earnings to fixed
charges...................... 8.3x 16.1x 8.8x 12.9x
Ratio of earnings to combined
fixed charges and preferred
stock dividends.............. 6.4x 7.7x 6.2x 6.5x
BALANCE SHEET DATA (AT END OF
PERIOD):
Total assets.................. $23,206.0 $14,992.5
Long-term debt including capi-
tal lease obligations........ 725.0 200.0
Total debt.................... 875.7 200.0
Common stockholders' equity... 3,123.1 1,582.4
</TABLE>
- --------
(1) Except as otherwise indicated in this table, income includes net realized
investment gains and losses.
(2) The consolidated ratio of earnings to fixed charges for the Company
including its consolidated subsidiaries is computed by dividing earnings by
fixed charges. The ratio of earnings to combined fixed charges and
preferred stock dividends is computed by dividing earnings by the sum of
fixed charges and preferred stock dividend requirements. For these purposes
earnings consist primarily of income (loss) from continuing operations
before income taxes adjusted for fixed charges. Fixed charges consist
primarily of interest (whether expensed or capitalized), amortization of
debt expense and discount or premium relating to any indebtedness, whether
expensed or capitalized, and the portion of rental expense representative
of the interest factor in these rentals.
S-9
<PAGE>
The results of operations do not include the results for Paul Revere for the
year 1996 nor for the three months ended December 31, 1996 because the Paul
Revere Merger was accounted for by the purchase method with an effective date
as of the close of business on March 31, 1997. For the same reason, the results
for the year 1997 do not include the results of operations for Paul Revere for
the first three months of 1997.
Effective with year-end 1997, the Company has changed its reporting segments
to reflect the lines of business the Company will continue to focus on for
growth in the future. The segments as they have been historically constituted
and as they will be constituted in the future are shown in the table below.
<TABLE>
<CAPTION>
SEGMENTS HISTORICAL STRUCTURE REVISED STRUCTURE
-------- ---------------------------- ----------------------------
<S> <C> <C>
INDIVIDUAL LIFE AND
DISABILITY: Individual Disability Income Individual Disability Income
Individual Life Individual Life
Individual Annuities Excess Risk Reinsurance
EMPLOYEE BENEFITS: Voluntary Benefits Voluntary Benefits
Group Life Group Life
Group Long-term and Short- Group Long-term and Short-
term Disability term Disability
Packaged Products Packaged Products
Medical Stop Loss
OTHER OPERATIONS: COLI COLI
Group Pension Group Pension
Medical and Dental Medical and Dental
Excess Risk Reinsurance Individual Annuities
Medical Stop Loss
</TABLE>
The following table presents certain interim unaudited financial data by
segment for the three-month period ended December 31, 1997 and certain pro
forma financial data by segment for the three-month period ended December 31,
1996 and the years ended December 31, 1997 and 1996.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
--------------- -------------------
1997 1996(1) 1997(1) 1996(1)
------- ------- --------- ---------
(UNAUDITED)
(IN MILLIONS)
<S> <C> <C> <C> <C>
PREMIUM INCOME:
Individual Life and Disability...... $ 382.6 $ 370.4 $ 1,500.3 $ 1,464.5
Employee Benefits................... 179.1 178.3 740.9 704.8
Other Operations.................... 20.5 32.2 109.0 136.7
------- ------- --------- ---------
Total.............................. $ 582.2 $ 580.9 $ 2,350.2 $ 2,306.0
======= ======= ========= =========
REVENUE EXCLUDING NET REALIZED
INVESTMENT GAINS AND LOSSES:
Individual Life and Disability...... $ 560.4 $ 522.6 $ 2,179.4 $ 2,061.1
Employee Benefits................... 240.2 235.5 975.5 929.4
Other Operations.................... 188.4 224.7 803.2 939.7
------- ------- --------- ---------
Total.............................. $ 989.0 $ 982.8 $ 3,958.1 $ 3,930.2
======= ======= ========= =========
INCOME (LOSS) BEFORE FEDERAL INCOME
TAXES AND NET
REALIZED INVESTMENT GAINS AND
LOSSES:
Individual Life and Disability...... $ 81.5 $ 49.0 $ 238.9 $ (218.2)
Employee Benefits................... 18.7 20.5 71.2 70.8
Other Operations.................... 15.1 18.1 67.1 66.1
------- ------- --------- ---------
Total.............................. $ 115.3 $ 87.6 $ 377.2 $ (81.3)
======= ======= ========= =========
</TABLE>
- -------
(1) Gives effect to the Paul Revere Merger and the Genex acquisition as if they
had occurred at the beginning of each year shown. Data is based on the
historical financial statements previously reported by Provident Companies,
Inc. Paul Revere, and Genex. Paul Revere is included in Provident
Companies, Inc. reported financial results from April 1, 1997 and Genex
from March 1, 1997. Certain prior period reclassifications have been made
to conform to current year reporting. The pro forma financial data may not
necessarily be indicative of the results that actually would have occurred
if the Paul Revere Merger and the Genex acquisition had been in effect as
of the dates indicated or which may be obtained in the future.
S-10
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Notes are approximately
$197.6 million, after deducting underwriters' discounts and commissions and
expenses payable by the Company. The Company intends to use the net proceeds
it receives from the Note Offering and from the Capital Securities Offering to
reduce the Company's short-term borrowings, which had an outstanding balance
of $1,029.6 million as of February 28, 1998 (the "Short-term Borrowings").
The Short-term Borrowings were incurred in connection with the repayment of
borrowings under the Company's former revolving bank credit facility, and the
redemption of the Company's outstanding 8.10% Cumulative Preferred Stock (the
"Preferred Stock"), which had an aggregate value of $156.2 million, and for
general corporate purposes. The Short-term Borrowings consist of: (i) a $500.0
million short-term bank credit facility from The Chase Manhattan Bank which is
due March 30, 1998 and has a variable interest rate (6.075% as of February 28,
1998); and (ii) $529.6 million of short-term debt generated through securities
repurchase transactions with variable maturity dates and various interest
rates (average interest rate was 5.60% as of February 28, 1998). The Company
intends to apply the net proceeds from the Note Offering and from the Capital
Securities Offering first to the repayment of the short-term bank credit
facility and then to the repayment of the short-term debt generated through
securities repurchase transactions.
S-11
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1997 (i) on an actual basis, (ii) as adjusted to give effect on
a pro forma basis to the Short-term Borrowings which were incurred to repay
the borrowings under the Company's former revolving bank credit facility and
to redeem the Preferred Stock, and (iii) as adjusted further to give effect to
the Note Offering and the Capital Securities Offering and the application of
the net proceeds therefrom to reduce the Short-term Borrowings. The Company
redeemed the Preferred Stock on February 24, 1998. The information set forth
below should be read in conjunction with the Company's and Paul Revere's
respective consolidated financial statements (including the notes thereto) and
the pro forma financial information relating to the Paul Revere Merger
(including the notes thereto), incorporated by reference herein. See
"Available Information" and "Incorporation of Certain Documents by Reference"
in the accompanying Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
----------------------------------
AS ADJUSTED AS ADJUSTED
FOR FURTHER
SUBSEQUENT FOR THE
ACTUAL TRANSACTIONS OFFERINGS
-------- ------------ -----------
(IN MILLIONS)
<S> <C> <C> <C>
SHORT-TERM DEBT:
Short-term debt............................ $ -- $ 881.2(1) $ 387.0
LONG-TERM DEBT:
Revolving credit facility.................. 725.0 -- --
7 1/4% Senior Notes due March 15, 2028..... -- -- 200.0
-------- -------- --------
Total long-term debt...................... 725.0 -- 200.0
-------- -------- --------
Guaranteed preferred beneficial interests in
the Company's Junior Subordinated
Debentures to be held by Provident Trust
(2)........................................ -- -- 300.0
STOCKHOLDERS' EQUITY:
Preferred stock, 25,000,000 shares
authorized, 1,041,534 shares of 8.10%
Cumulative Preferred Stock issued and
outstanding as of September 30, 1997...... 156.2 -- --
Common stock, $1.00 par value; 150,000,000
shares authorized, 135,119,909 shares
issued and outstanding.................... 135.1 135.1 135.1
Additional paid-in capital................. 749.6 749.6 749.6
Net unrealized gain on securities available
for sale.................................. 455.9 455.9 455.9
Retained earnings.......................... 1,567.9 1,567.9 1,567.9
-------- -------- --------
Total stockholders' equity................ 3,064.7 2,908.5 2,908.5
-------- -------- --------
Total capitalization..................... $3,789.7 $3,789.7 $3,795.5
======== ======== ========
</TABLE>
- --------
(1) Short-term debt shown is the amount incurred to repay the borrowings under
the Company's former revolving bank credit facility of $725.0 million and
to redeem the Preferred Stock, which had an aggregate value of $156.2
million.
(2) The Capital Securities will be reflected separately in the Company's
consolidated financial statements as "Guaranteed preferred beneficial
interests in the Company's 7.405% Junior Subordinated Deferrable Interest
Debentures, Series A (the "Junior Subordinated Debentures") to be held by
Provident Financing Trust I" with a footnote indicating that all of the
Common Securities of the Provident Trust, which are the only voting
securities of the Provident Trust, are owned by the Company, that the sole
assets of the Provident Trust are the Junior Subordinated Debentures
(indicating the principal amount, interest rate and maturity date
thereof), and that the Provident Trust's obligations with respect to the
Capital Securities, through the Guarantee, the Junior Subordinated
Debentures, the Indenture and the Declaration, taken together, are fully
and unconditionally guaranteed by the Company.
S-12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The following analysis of consolidated results of operation and financial
condition of the Company should be read in conjunction with the Company's and
Paul Revere's respective consolidated financial statements (including the
notes thereto) and the pro forma financial information relating to the Paul
Revere Merger (including the notes thereto), incorporated by reference herein.
See "Available Information" and "Incorporation of Certain Documents by
Reference" in the accompanying Prospectus.
For the periods presented herein, the Company's Individual Life and
Disability reporting segment included individual disability insurance,
individual life insurance and individual annuities. The Employee Benefits
segment included group long- and short-term disability insurance, group life
insurance, accident and sickness and accidental death and dismemberment
coverages, medical stop loss insurance, and voluntary benefits (employer-
sponsored individual products sold at the worksite through payroll deduction).
For 1997, the Employee Benefits segment also included the results of Genex.
The Company's Other Operations segment included the results from products the
Company no longer produces for sale, including GICs, group single premium
annuities, corporate-owned life insurance ("COLI"), the group medical business
sold in 1995 and Paul Revere's dental insurance business. Since December 31,
1997, individual annuities and medical stop loss insurance are reported in the
Company's Other Operations segment. See "Recent Developments."
OPERATING RESULTS--NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
The Company acquired Genex and Paul Revere on February 28, 1997, and March
27, 1997, respectively. The financial information incorporated by reference
herein includes the accounts and operating results of Genex and Paul Revere
from the respective dates of acquisition. Since Genex and Paul Revere are
reflected in 1997 results and not in 1996 results, the difference in
comparability of the periods is frequently attributable to that fact as
indicated below.
In the first nine months of 1997, revenue excluding net realized investment
gains and losses (hereinafter, "revenue") increased $815.7 million, or 47.1
percent, to $2,549.1 million from $1,733.4 million in the first nine months of
1996. The increase was the result of higher revenue in the Individual Life and
Disability segment ($637.0 million) and Employee Benefits segment ($216.5
million), which was partly offset by lower revenue in the Other Operations
segment ($37.8 million).
In the first nine months of 1997, income before net realized investment
gains and losses and federal income taxes (hereinafter, "income") increased
$81.5 million, or 48.4 percent, to $249.9 million, from $168.4 million in the
first nine months of 1996. The increase was the result of increased income in
the Individual Life and Disability segment ($80.6 million) and the Employee
Benefits segment ($11.8 million), which was partly offset by lower income in
the Other Operations segment ($10.9 million).
For the first nine months of 1997, net income increased $69.8 million, or
68.6 percent, to $171.5 million, from $101.7 million in the first nine months
of 1996. Net realized investment gains after taxes were $8.8 million in the
first nine months of 1997, compared to after-tax losses of $6.5 million in the
first nine months of 1996.
INDIVIDUAL LIFE AND DISABILITY
For the first nine months of 1997, revenue in the Individual Life and
Disability segment increased $637.0 million, or 81.6 percent, to $1,418.1
million, from $781.1 million in the first nine months of 1996. The increase
was primarily the result of the acquisition of Paul Revere, which contributed
$616.8 million of revenue to this segment since the date of acquisition.
Premium income in this segment increased $411.9 million, or 85.3 percent, to
$894.8 million in the first nine months of 1997, from $482.9 million in the
first nine months of 1996, reflecting
S-13
<PAGE>
the acquisition of Paul Revere. Premium income in the individual disability
income line of business increased $397.2 million, or 91.2 percent, to $832.5
million in the first nine months of 1997, from $435.3 million in the first
nine months of 1996. The increase was primarily the result of the acquisition
of Paul Revere.
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). Similarly, the Company is phasing out the sale of
individual noncancelable disability policies with long-term own-occupation
provisions by the Paul Revere insurance subsidiaries. The Company is focusing
on replacing the traditional noncancelable own-occupation contracts with "loss
of earnings" contracts which insure income rather than occupation. Following
the discontinuation of sales of these individual noncancelable disability
contracts, Provident in general experienced a decline in annualized new sales
premiums through the first quarter of 1997. Since that time, sales have been
generally flat, reflecting the disruption associated with the consolidation of
Provident and Paul Revere sales offices and the continued product transition
from higher premium products to lower premium products. During the transition
to the new products in the Paul Revere insurance subsidiaries, annualized new
premiums in this line have declined as a result of a period of lower premiums
associated with the new products and the consolidation of Paul Revere's field
offices, which was substantially completed in December 1997, and the combining
of the operations of Paul Revere and the Company following the Paul Revere
Merger. Revenue is not expected to be significantly impacted due to continued
favorable persistency. The magnitude and duration of the decline in sales are
dependent on the response of customers and competitors in the industry.
For the first nine months of 1997, income in the Individual Life and
Disability segment increased $80.6 million, or 99.9 percent, to $161.3 million
from $80.7 million in the first nine months of 1996. The increase is primarily
due to the acquisition of Paul Revere and improved results in the Company's
individual disability income line of business. Management believes substantial
investments in the individual disability claims management process since the
first quarter of 1995 helped produce the improvement that has occurred in this
line over the past two years. 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 this line, income increased $64.0
million, or 103.9 percent, to $125.6 million in the first nine months of 1997,
from $61.6 million in the first nine months of 1996. This improvement is due
primarily to the acquisition of Paul Revere and, to a lesser extent, to a
lower level of new claims in the first nine months of 1997 compared to the
first nine months of 1996 and to a lower level of reopened claims. The
individual life line of business produced income of $21.4 million in the first
nine months of 1997, compared to $18.0 million in the first nine months of
1996. The individual annuities line of business produced income of $14.3
million in the first nine months of 1997, compared to $1.1 million in the
first nine months of 1996. Both of these lines of business benefited from the
acquisition of Paul Revere.
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 ("GAAP")
due to the significant decline in interest rates in 1993 and the increased
level of morbidity experienced by the Company. Since 1993, the Company has
performed annual reserve adequacy studies to determine the continued adequacy
of the reserves that were established. Based upon the December 1996 reserve
adequacy study, which incorporated management's best estimate for the
assumptions used, reserves were adequate at December 31, 1996.
The Company continually studies and refines 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. Current indicators
suggest a sufficiency in the Company's reserves.
S-14
<PAGE>
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 a material deterioration in morbidity, interest rates,
and/or expenses. As part of its ongoing management of this line of business,
the Company conducts an annual reserve adequacy study to validate the
continued adequacy of current reserves.
EMPLOYEE BENEFITS
Accidental death and dismemberment and accident and sickness are now
reported in the group life and group disability lines of business,
respectively; in previous years, both were included with affinity groups in
the packaged products line. Prior year results have been reclassified to
conform to current period reporting. The reclassification did not change total
revenue or total income for the employee benefits segment.
For the first nine months of 1997, revenue in this segment increased $216.5
million, or 47.4 percent, to $672.8 million from $456.3 million in the first
nine months of 1996. Premium income increased $142.3 million, or 37.5 percent,
to $521.3 million in the first nine months of 1997, from $379.0 million in the
first nine months of 1996. The increase is the result of the acquisition of
Paul Revere, which added $141.5 million of premium income to the group life
and group disability lines of business since the date of acquisition. Genex's
revenue since the date of acquisition totaled $50.3 million.
For the first nine months of 1997, income increased $11.8 million, or 29.5
percent, to $51.8 million, from $40.0 million in the first nine months of
1996. The increase is primarily the result of increased income in the group
disability and affinity groups lines of business and the acquisitions of Paul
Revere and Genex, which were partly offset by lower income in the group life
and medical stop-loss lines of business.
OTHER OPERATIONS
The Other Operations segment includes the Company's group pension products,
its COLI product, Paul Revere's dental business, the excess risk reinsurance
line of business of Paul Revere, corporate interest expense, goodwill
amortization, and corporate (unallocated) capital and assets. These closed
blocks of business have been segregated for reporting and monitoring purposes.
The group pension products include the Company's traditional GICs, group
single premium annuities ("SPAs"), and synthetic GICs.
On June 30, 1997, the Company announced that it had agreed to transfer its
dental business to Ameritas. The dental block, which was acquired in the Paul
Revere acquisition, produced $48.3 million in premium income in 1996 and $36.1
million in the first nine months of 1997. The full transition of the dental
business to Ameritas was completed in November 1997.
For the first nine months of 1997, revenue in this segment declined $37.8
million, or 7.6 percent, to $458.2 million, from $496.0 million in the first
nine months of 1996. The decline is primarily the result of a decrease in
funds under management resulting from the discontinuation of the sale of
products in the group pension business offset in part by revenue from lines of
business in the Paul Revere Merger. Revenue in this line declined $82.1
million, or 26.0 percent, to $234.1 million in the first nine months of 1997,
from $316.2 million in the first nine months of 1996.
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 $3.43 billion at September 30, 1997,
compared to $5.03 billion at September 30, 1996, a decrease of 31.8 percent.
Also, 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 is selling this block of business through an assumptive
reinsurance transaction. The last of these contracts was transferred in
January 1998. Synthetic GIC funds totaled $1.51 billion at September 30, 1997,
and $2.18 billion at December 31, 1996.
S-15
<PAGE>
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.
For the first nine months of 1997, income in this segment declined $10.9
million to $36.8 million, from $47.7 million in the first nine months of 1996.
The decline is primarily the result of lower income in the group pension line,
which produced income of $28.0 million in the first nine months of 1997,
compared to $38.8 million in the first nine months of 1996. Interest expense
on the long-term debt in the first nine months of 1997 totaled $27.1 million,
compared to $9.4 million in the first nine months of 1996.
Management expects that income in 1998 from the group pension line will
decline from the levels recorded in 1997 as the funds under management
decline.
OPERATING RESULTS--YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Revenue declined $286.5 million in 1996, or 11.1 percent, to $2.30 billion
in 1996 from $2.59 billion in 1995. This decline resulted from decreased
revenue of $338.2 million in the Other Operations segment. This decline was
partly offset by increased revenue of $28.3 million and $23.4 million in the
Individual Life and Disability segment and Employee Benefits segment,
respectively.
In 1995, revenue declined $205.3 million, or 7.4 percent, to $2.59 billion
from $2.79 billion in 1994. This decline resulted from decreased revenue of
$295.4 million in the Other Operations segment. This decline was partly offset
by increased revenue of $62.7 million in the Individual Life and Disability
segment and of $27.4 million in the Employee Benefits segment.
Income increased $27.1 million, or 13.0 percent, to $234.8 million in 1996
from $207.7 million in 1995. The increase resulted from higher income of $80.8
million in the Individual Life and Disability segment and of $7.7 million in
the Employee Benefits segment. These increases were partly offset by decreased
income of $61.4 million in the Other Operations segment.
In 1995, income was $207.7 million, compared to $231.0 million in 1994. The
decline resulted from decreased income of $23.2 million in the Employee
Benefits segment and of $16.7 million in the Individual Life and Disability
segment. These declines were only partly offset by increased income of $16.6
million in the Other Operations segment.
Net income totaled $145.6 million in 1996, compared to $115.6 million in
1995 and $135.3 million in 1994. Net realized investment losses after federal
income taxes were $5.4 million in 1996, $20.7 million in 1995, and $22.5
million in 1994.
S-16
<PAGE>
INDIVIDUAL LIFE AND DISABILITY OPERATING RESULTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1996 1995 1994
-------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
REVENUE EXCLUDING NET REALIZED INVESTMENT GAINS:
Premium income
Individual disability income...................... $ 582.8 $ 584.5 $ 578.7
Individual life and annuities..................... 63.5 62.9 66.2
-------- -------- --------
Total premium income............................ 646.3 647.4 644.9
Net investment income............................... 393.6 361.3 302.4
Other income........................................ 7.7 10.6 9.3
-------- -------- --------
Total........................................... 1,047.6 1,019.3 956.6
-------- -------- --------
BENEFITS AND EXPENSES:
Policy and contract benefits........................ 477.1 443.7 381.3
Change in reserves for future policy and contract
benefits and policyholders' funds.................. 220.5 303.6 297.6
Amortization of deferred policy acquisition costs... 55.6 59.0 53.0
Other expenses...................................... 177.1 176.5 171.5
-------- -------- --------
Total........................................... 930.3 982.8 903.4
-------- -------- --------
Income before net realized investment gains and
federal income taxes............................... 117.3 36.5 53.2
Net realized investment gains....................... 8.5 4.7 5.8
-------- -------- --------
Income before federal income taxes.................. $ 125.8 $ 41.2 $ 59.0
======== ======== ========
SALES--ANNUALIZED NEW PREMIUMS:
Individual disability income........................ $ 45.1 $ 55.2 $ 65.0
Individual life..................................... 6.7 7.1 9.2
DEPOSITS--DEFERRED ANNUITIES........................ 21.2 82.4 141.8
LIFE INSURANCE IN FORCE............................. 12,585.2 12,709.1 12,683.6
</TABLE>
Revenue in the Individual Life and Disability segment increased $28.3
million, or 2.8 percent, to $1,047.6 million in 1996 from $1,019.3 million in
1995. Net investment income increased $32.3 million, or 8.9 percent, to $393.6
million in 1996 from $361.3 million in 1995. This increase was primarily the
result of an increased allocation of capital to the individual disability
income line of business. Premium income in this segment declined $1.1 million
or .2 percent, to $646.3 million in 1996 from $647.4 million in 1995. In the
individual disability income line of business, premium income declined $1.7
million, or .3 percent, to $582.8 million in 1996 from $584.5 million in 1995.
In the individual life line of business, premium income increased $.4 million,
or .6 percent, to $63.3 million in 1996 from $62.9 million in 1995.
In 1995, revenue in the Individual Life and Disability segment increased
$62.7 million, or 6.6 percent, to $1,019.3 million from $956.6 million in
1994. This increase was primarily the result of higher net investment income.
Net investment income in this segment increased $58.9 million, or 19.5
percent, due to an increased allocation of capital to the individual
disability income line of business and higher investment income from the
individual annuity line of business. Premium income in this segment increased
$2.5 million to $647.4 million in 1995 from $644.9 million in 1994. In the
individual disability income line, premium income was $584.5 million in 1995,
compared to $578.7 million in 1994, while the individual life line of business
experienced a decline in premium income from $66.2 million in 1994 to $62.9
million in 1995.
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.
S-17
<PAGE>
Income in the Individual Life and Disability segment increased $80.8 million
to $117.3 million in 1996 from $36.5 million in 1995. The improvement was
primarily due to improved results in the individual disability income and the
individual life lines of business. In the individual disability income line,
income increased $78.2 million to $91.3 million in 1996, from $13.1 million in
1995. This significant improvement was primarily due to a lower level of new
claims in the third and fourth quarters of 1996 along with higher levels of
claim resolutions. In addition, net investment income in this line increased
due to a higher allocation of capital to this line of business. Income in the
individual life line of business increased $3.2 million, or 15.3 percent, to
$24.1 million in 1996 from $20.9 million in 1995, while the individual
annuities line of business produced income of $1.9 million in 1996 compared to
$2.5 million in 1995.
In 1995, income in the Individual Life and Disability segment declined $16.7
million, or 31.4 percent, to $36.5 million, compared to $53.2 million in 1994.
The decline was primarily due to the individual disability income line which
produced income of $13.1 million in 1995, compared to $27.1 million in 1994.
Poor results in the first quarter of 1995 from adverse claim experience on
individual noncancelable disability income contracts with long-term own-
occupation provisions which were issued between 1983 and 1989 were the primary
reason for the decline. Specifically, the average size of new claims in the
first quarter of 1995 was higher than the average level experienced for all of
1994, and the level of claim resolutions was lower relative to 1994. During
the last three quarters of 1995, claim resolutions were higher relative to the
first quarter of 1995 and all of 1994. Management believes that the
improvement in the final three quarters of 1995 was primarily the result of
the allocation of significant resources to the Company's disability claims
management unit. Lower income from the individual life and individual
annuities lines of business also contributed to the decreased income in this
segment. Income in the individual life line declined to $20.9 million in 1995,
compared to $22.9 million in 1994, while income from the individual annuities
line declined to $2.5 million in 1995 from $3.2 million in 1994.
Deposits on deferred annuities sold through financial institutions totaled
$8.1 million in 1996, compared to $78.2 million in 1995 and $131.8 million in
1994. This decline was primarily the result of the termination of certain
marketing relationships. Deposits on annuities sold through other distribution
channels were $13.1 million in 1996, compared to $4.2 million in 1995 and
$10.0 million in 1994.
S-18
<PAGE>
EMPLOYEE BENEFITS OPERATING RESULTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1996 1995 1994
--------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C>
REVENUE EXCLUDING NET REALIZED INVESTMENT GAINS:
Premium income
Voluntary benefits............................. $ 70.6 $ 66.3 $ 58.7
Group life..................................... 177.8 167.0 167.6
Medical stop-loss.............................. 49.4 62.2 66.9
Group disability............................... 69.4 59.5 53.6
Packaged products.............................. 134.2 130.9 118.8
--------- --------- ---------
Total premium income......................... 501.4 485.9 465.6
Net investment income............................ 97.9 90.6 85.5
Other income..................................... 6.8 6.2 4.2
--------- --------- ---------
Total........................................ 606.1 582.7 555.3
--------- --------- ---------
BENEFITS AND EXPENSES:
Policy and contract benefits..................... 362.9 382.2 334.2
Change in reserves for future policy and contract
benefits and policyholders' funds............... 73.7 48.1 54.1
Amortization of deferred policy acquisition
costs........................................... 8.4 12.0 6.4
Other expenses................................... 104.8 91.8 88.8
--------- --------- ---------
Total........................................ 549.8 534.1 483.5
--------- --------- ---------
Income before net realized investment gains and
federal income taxes............................ 56.3 48.6 71.8
Net realized investment gains.................... .1 3.9 1.6
--------- --------- ---------
Income before federal income taxes............... $ 56.4 $ 52.5 $ 73.4
========= ========= =========
SALES--ANNUALIZED NEW PREMIUMS:
Voluntary benefits............................... $ 23.0 $ 20.2 $ 20.6
Group life....................................... 37.8 24.2 16.7
Group disability................................. 16.5 10.7 14.4
LIFE INSURANCE IN FORCE.......................... 87,079.7 83,276.3 71,460.5
</TABLE>
Revenue in the Employee Benefits segment increased $23.4 million, or 4.0
percent, to $606.1 million in 1996 from $582.7 million in 1995. The increase
was primarily due to higher premium income which increased $15.5 million, or
3.2 percent, to $501.4 million in 1996 from $485.9 million in 1995. The
increase was primarily the result of higher premium income in the voluntary
benefits, group life, group disability, and packaged products lines of
business, which more than offset lower premium income in the medical stop-loss
line of business. Net investment income in this segment increased $7.3
million, or 8.1 percent, to $97.9 million in 1996 from $90.6 million in 1995.
In 1995, revenue in the Employee Benefits segment increased $27.4 million,
or 4.9 percent, to $582.7 million from $555.3 million in 1994. Premium income
increased $20.3 million, or 4.4 percent, to $485.9 million in 1995 from $465.6
million in 1994. The increase in premium income in this segment was primarily
the result of higher premium income in the voluntary benefits, group
disability, and packaged products lines of business, which more than offset
lower premium income in the group life and medical stop-loss lines of
business. Net investment income in this segment increased $5.1 million, or 6.0
percent, to $90.6 million in 1995, compared to $85.5 million in 1994.
Income in the Employee Benefits segment increased $7.7 million, or 15.8
percent, to $56.3 million in 1996 from $48.6 million in 1995. The increase was
primarily due to improved results in the voluntary benefits and
S-19
<PAGE>
group disability lines of business. Income in the voluntary benefits line was
$14.7 million in 1996 compared to $7.9 million in 1995. Income in the group
disability line was $2.9 million in 1996 compared to a loss of $12.8 million
in 1995. Both lines benefited from improved profitability following repricing
actions in 1995. The improvement in income in these lines of business was
partly offset by lower income in the group life, medical stop-loss, and
packaged products lines of business.
In 1995, income in the Employee Benefits segment declined to $48.6 million,
compared to $71.8 million in 1994. This decline was primarily the result of
lower income in the medical stop-loss and group disability lines of business.
Income in the medical stop-loss line declined to $16.4 million in 1995 as
compared to $26.6 million in 1994, primarily as a result of lower premium
income and higher loss ratios. Income in the group disability line declined to
a loss of $12.8 million in 1995 from a loss of $4.5 million in 1994, primarily
due to higher claim incidence and severity. These losses were primarily
attributable to business associated with the medical and legal occupations.
During the first quarter of 1995, the Company notified the existing group
disability customers in the medical and legal occupational categories that
coverages would be terminated under the terms of the existing contracts during
1995, and the Company would no longer accept proposals for group disability
coverage of new medical or legal groups. This action impacted approximately 15
percent of the group disability block of business. The group life and
voluntary benefits lines of business also produced lower income in 1995
compared to 1994, while the packaged products line reported an increase in
income.
OTHER OPERATIONS OPERATING RESULTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1996 1995 1994
-------- -------- ---------
(IN MILLIONS)
<S> <C> <C> <C>
REVENUE EXCLUDING NET REALIZED INVESTMENT
LOSSES:
Premium income
Corporate-owned life.......................... $ 23.6 $ 24.8 $ 26.1
Group single premium annuities................ 1.9 .5 4.7
Other......................................... 2.5 93.3 241.3
-------- -------- ---------
Total premium income........................ 28.0 118.6 272.1
Net investment income........................... 598.6 769.4 850.7
ASO fees........................................ -- 37.2 110.9
Gain on sale of group medical business.......... -- 21.8 --
Other income.................................... 20.2 38.0 46.7
-------- -------- ---------
Total....................................... 646.8 985.0 1,280.4
-------- -------- ---------
BENEFITS AND EXPENSES:
Policy and contract benefits.................... 376.5 593.8 791.3
Change in reserves for future policy and
contract benefits and policyholders' funds..... 150.5 133.2 122.7
Other expenses.................................. 58.6 135.4 260.4
-------- -------- ---------
Total....................................... 585.6 862.4 1,174.4
-------- -------- ---------
Income before net realized investment losses and
federal income taxes........................... 61.2 122.6 106.0
Net realized investment losses.................. (17.2) (40.3) (37.5)
-------- -------- ---------
Income before federal income taxes.............. $ 44.0 $ 82.3 $ 68.5
======== ======== =========
FUNDS UNDER MANAGEMENT AND EQUIVALENTS AT END OF
YEAR:
Group single premium annuities.................. $1,188.1 $1,197.8 $ 1,209.5
Traditional GICs................................ 3,204.3 4,838.0 7,042.6
Separate account GICs........................... 68.3 146.1 138.9
Synthetic GICs.................................. 2,176.6 2,571.9 1,626.8
Other........................................... 304.7 301.1 275.5
-------- -------- ---------
Total....................................... $6,942.0 $9,054.9 $10,293.3
======== ======== =========
LIFE INSURANCE IN FORCE......................... $2,999.6 $2,967.2 $ 2,641.5
</TABLE>
S-20
<PAGE>
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 was due largely to the sale of the
medical services line of business, which produced $90.9 million of premium
income prior to its sale in the second quarter of 1995.
In 1995, revenue in the Other Operations segment declined $295.4 million, or
23.1 percent, to $985.0 million as compared to $1,280.4 million in 1994.
Premium income in this segment declined $153.5 million to $118.6 million in
1995 as compared to $272.1 million in 1994. The primary reason for this
decline was the sale of the medical services business which produced premium
income of $241.3 million in 1994 and $90.9 million in 1995 prior to its sale
effective April 30, 1995. Net investment income declined $81.3 million to
$769.4 million in 1995 from $850.7 million in 1994. The primary reason for
this decline was the decrease in funds under management in the group pension
line of business. Net investment income in the group pension line declined
$80.0 million to $574.2 million in 1995 as compared to $654.2 million in 1994.
In addition, net investment income from corporate (unallocated) capital and
assets declined due to additional capital being allocated to the individual
disability income line of business. Administrative services only fees
associated with the medical services business declined due to the sale of the
medical services business in 1995. These fees totaled $110.9 million in 1994
and $37.2 million in 1995.
The Company announced in December 1994 that it would discontinue the sale of
traditional GICs. Funds under management for the group pension line excluding
deposits for synthetic GICs totaled $4.77 billion at December 31, 1996,
compared to $6.48 billion at December 31, 1995, a decrease of 26.5 percent. In
1995, funds under management decreased 25.2 percent, from $8.67 billion at
December 31, 1994.
In 1995, the Company extended an offer to GIC contract holders to surrender
their contracts on a more favorable basis than would otherwise be available to
them. Contracts with a book value of $291.7 million were surrendered under the
offer. The Company has no plans for another offer of this kind. Early
surrenders of traditional GICs totaled $40.8 million in 1996 and $662.1
million in 1995. The Company does not anticipate significant early withdrawals
on its remaining GICs as virtually all of the contracts are subject to a
market value adjustment for early withdrawal.
Income in 1996 declined $61.4 million to $61.2 million from $122.6 million
in 1995. This decline was partially due to the 1995 sale of the medical
services line of business, which produced operating income of $3.2 million and
a gain from the sale of $21.8 million during 1995. In addition, the decline in
this segment was due to lower income in the group pension line of business,
which declined $26.1 million, or 35.4 percent, to $47.6 million in 1996 from
$73.7 million in 1995. The decline in this line was primarily the result of
lower funds under management and lower income from a reduced amount of capital
allocated to this line. Income from the COLI line of business declined
slightly to $19.7 million in 1996 as compared to $20.5 million in 1995.
Income in this segment increased $16.6 million to $122.6 million in 1995
from $106.0 million in 1994. Higher income in the group pension line of
business and the gain from the sale of the medical services line were the
primary reasons for the increase in income. The group pension line produced
income of $73.7 million in 1995, compared to $48.8 million in 1994. This line
of business benefited from an improvement in the spread between interest
credited on contracts and the interest earned on the invested assets, as well
as income from bond call premiums, early surrender penalties, and lower
expenses. Income from the block of COLI declined slightly to $20.5 million in
1995 from $21.1 million in 1994. This decline in income was primarily
attributable to a decline in premium income in this line of business. Income
from the medical services line of business declined to $3.2 million for the
four months of 1995 from $16.9 million for the year 1994. In addition, the
Other
Operations segment in 1995 included an unusually high level of corporate
expenses related to several initiatives underway within the Company.
S-21
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
On March 27, 1997, the Company consummated the Paul Revere Merger. The Paul
Revere Merger was financed through common equity issuance to Zurich Insurance
Company, a Swiss insurer, and its affiliates, common equity issuance and cash
to Paul Revere stockholders, debt, and internally generated funds. The debt
financing was provided through an $800.0 million revolving bank credit
facility with various domestic and international banks. The revolving bank
credit facility was established in 1996 to provide partial financing for the
purchase of Paul Revere, to refinance the existing bank term notes of $200.0
million, and for general corporate uses. At September 30, 1997 and December
31, 1996, outstanding borrowings under the revolving bank credit facility were
$725.0 million and $200.0 million, respectively. The revolving bank credit
facility was repaid on February 24, 1998 and the Preferred Stock was redeemed
on February 24, 1998. The repayment and redemption were funded through the
Short-term Borrowings.
In May 1997, the SEC declared effective a shelf registration statement
pursuant to which the Company may issue up to $900.0 million in debt and/or
equity securities, including the Notes and the Capital Securities. The
proceeds from the Note Offering and the Capital Securities Offering will be
used to reduce the Short-term Borrowings. The Company intends to apply net
proceeds from the Note Offering and from the Capital Securities Offering first
to the repayment of the short-term bank credit facility and then to the
repayment of the short-term debt generated through securities repurchase
transactions. Upon completion of the Note Offering and the Capital Securities
Offering, the Company will have a balance of $400.0 million in debt and/or
equity securities available for issuance pursuant to the shelf registration
statement. In addition, the Company has signed a committment letter with The
Chase Manhattan Bank for a new $300 million revolving bank credit facility.
The Company believes the cash flow from its operations will be sufficient to
meet its operating and financing cash flow requirements. Periodically, the
Company may issue debt or equity securities to fund internal expansion,
acquisitions, investment opportunities and the retirement of the Company's
debt and equity.
As a holding company, the Company is dependent upon payments from its
wholly-owned insurance subsidiaries and Genex to pay dividends to its
stockholders and to pay its expenses. These payments by the Company's
subsidiaries may take the form of either dividends or interest payments on
amounts loaned to such subsidiaries by the Company.
State insurance laws generally restrict the ability of insurance companies
to pay cash dividends or make other payments to their affiliates in excess of
certain prescribed limitations. In Tennessee, the state of domicile for
Accident, Provident Life and Casualty Insurance Company ("Casualty"), and
National, regulatory approval is required if an insurance company seeks to
make loans to affiliates in amounts equal to or in excess of three percent of
the insurer's admitted assets, or to pay cash dividends in any 12-month period
in excess of the greater of such company's net gain from operations of the
preceding year or ten percent of its surplus as regards policyholders, as
determined at the end of the preceding year, each as determined in accordance
with accounting practices prescribed or permitted by Tennessee insurance
regulatory authorities. Paul Revere Life and Paul Revere Variable are
domiciled in the Commonwealth of Massachusetts. The maximum annual dividend
which a Massachusetts insurance company is permitted to pay without the prior
approval of the Massachusetts Commissioner of Insurance is the greater of (a)
ten percent of the insurance company's surplus to policyholders as of the
thirty-first day of December next preceding or (b) the insurance company's
statutory net gain from operations for the 12-month period ending the thirty-
first day of December next preceding. Legislation enacted in Massachusetts
further provides that any dividend not paid out of earned surplus may be made
only with prior approval of the Massachusetts Commissioner of Insurance. Under
Massachusetts law, 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. The Paul Revere Protective Life
Insurance Company, which is a Delaware domiciled company and subject to
Delaware law in addition to the insurance holding company regulations of
Massachusetts, is subject to restrictions on the payment of dividends similar
to those set forth in Massachusetts law. An aggregate of $141.5 million was
available in 1997 for the payment of dividends and other distributions by the
Company's top-tier insurance subsidiaries without regulatory approval, of
which amount $109.9 million was paid. The Company anticipates that $151.9
million will be available in 1998 for such purposes.
S-22
<PAGE>
The Company's requirements are met primarily by cash flow provided from
operations, principally in its insurance subsidiaries. Premium and investment
income as well as maturities and sales of invested assets provide the primary
sources of cash. Cash flow from operations was sufficient in the third quarter
of 1997. 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.
During the third quarter of 1997, the Company sold $242.6 million of
commercial mortgage loans acquired through the Paul Revere Merger. The purpose
of this transaction was to increase the liquidity and improve the asset
quality and asset/liability management of the investment portfolio.
As a result of the release of capital generated by the run-off of the GIC
portfolio, the sale of the commercial mortgage loans, 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 acquisitions of
Paul Revere and Genex. Management continues to analyze potential opportunities
to utilize the capital to further enhance stockholder value, including
exploring options that would support the Company's growth initiatives.
INVESTMENTS
Investment activities are an integral part of the Company's business, and
profitability is significantly affected by investment results. Invested assets
are segmented into portfolios which support the various product lines.
Generally, the investment strategy for the portfolios is to match the
effective asset durations with related expected liability durations and to
maximize investment returns, subject to constraints of quality, liquidity,
diversification, and regulatory considerations. This discussion should be read
in connection with Note 3 of the Notes to Consolidated Financial Statements
incorporated by reference herein. See "Available Information" and
"Incorporation of Certain Documents by Reference" in the accompanying
Prospectus. The following table provides the distribution of invested assets
for the years indicated.
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Investment-grade fixed maturity securities........... 77.0% 79.3% 72.6%
Below-investment-grade fixed maturity securities..... 6.7 6.2 4.6
Equity securities.................................... .1 -- .1
Mortgage loans....................................... -- .7 10.0
Real estate.......................................... 1.1 1.4 1.6
Policy loans......................................... 13.1 10.7 9.1
Other................................................ 2.0 1.7 2.0
----- ----- -----
Total.............................................. 100.0% 100.0% 100.0%
===== ===== =====
</TABLE>
The following table provides certain investment information and results for
the years indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C>
Average cash and invested assets........ $14,056.3 $14,914.4 $15,047.3
Net investment income................... 1,090.1 1,221.3 1,238.6
Average yield*.......................... 7.8% 8.2% 8.2%
Net realized investment losses.......... $ (8.6) $ (31.7) $ (30.1)
</TABLE>
- --------
* Average yield is determined by dividing net investment income by the
average cash and invested assets for the year. Excluding net unrealized
gains and losses on securities, the yield is 8.1%, 8.3%, and 8.3% for
1996, 1995, and 1994, respectively. See Notes 1 and 3 of the Notes to
Consolidated Financial Statements incorporated by reference herein.
S-23
<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 totaled $19.9 million at September 30, 1997, or .10 percent of
invested assets, as compared to $7.3 million at December 31, 1996, or .05
percent of invested assets, $31.9 million at December 31, 1995, or .22 percent
of invested assets, and $88.5 million at December 31, 1994, or .59 percent of
invested assets.
The Company sold a substantial portion of its commercial mortgage loan
portfolio in 1995. The remaining exposure of $104.8 million of mortgage loans
was liquidated during 1996.
During 1996, the Company sold four foreclosed properties with a book value
of $11.8 million. During 1995, the Company sold twelve foreclosed properties
with a book value of $39.6 million.
The Company's investment in mortgage-backed securities totaled $3.1 billion
at September 30, 1997. Investments in mortgage-backed securities excluding
Paul Revere totaled $2.4 billion on an amortized cost basis at December 31,
1996 and $2.9 billion at December 31, 1995. At September 30, 1997, the
mortgage-backed securities for the combined companies had an average life of
9.4 years and effective duration of 7.1 years as compared to an average life
of 8.3 years and effective duration of 6.0 years at December 31, 1996. 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.
Below-investment-grade bonds are inherently more risky than investment-grade
bonds since the risk of default by the issuer, by definition and as exhibited
by bond rating, is higher. Also, the secondary market for certain below-
investment-grade issues can be highly illiquid. Management does not anticipate
any liquidity problem caused by the investments in below-investment-grade
securities, nor does it expect these investments to adversely affect its
ability to hold its other investments to maturity.
The Company's exposure to below-investment-grade fixed maturity securities
at September 30, 1997, was $1,217.5 million, representing 6.4 percent of
invested assets, below the Company's internal limit of 7.5 percent of invested
assets for this type of investment. Subsequent to September 30, 1997, this
internal limit was raised to 10.0 percent. The Company's exposure to below-
investment-grade fixed maturities excluding Paul Revere totaled $891.1 million
at December 31, 1996, representing 6.7 percent of invested assets and $911.8
million at December 31, 1995, or 6.2 percent of invested assets. Included in
the below-investment-grade portfolio was the Company's holding of $100.0
million of Healthsource, Inc. ("Healthsource") 6.25% preferred stock, received
as part of the consideration for the sale of the group medical services
business. The preferred stock was redeemed in cash at par by Healthsource
during 1996.
During the first quarter of 1997, the Company executed a series of cash flow
hedges in its individual disability income portfolio, hedging $205.0 million
of expected cash flows in the years 2001 and 2002 using forward interest rate
swaps and $85.0 million of expected future cash flows in the years 2000 and
2001 using options on forward interest rate swaps.
During the second quarter of 1997, the Company executed a series of cash
flow hedges in its individual disability income portfolio, hedging $250.0
million of cash flows in the year 1997 using futures contracts, $215.0 million
of cash flows in years 1999 through 2002 using forward interest rate swaps,
and $510.0 million of cash flows in the years 1998 through 2002 using options
on forward interest rate swaps. The options on futures produced a deferred
gain of $2.8 million.
S-24
<PAGE>
During the third quarter of 1997, $30.0 million notional amount of forward
interest rate swaps were unwound, producing a net investment yield of 9.07
percent. Also, $50.0 million of forwards were unwound, producing a net yield
of 8.31 percent.
Also in the third quarter, $65.0 million of options on interest rate swaps
were written. Options of $240.0 million were written to hedge cash flows in
the years 1997, 1998, 1999 and 2002. The purpose of these actions in the
individual disability income portfolio was to hedge the reinvestment of future
cash flows and protect the Company from the potential adverse impact of
declining interest rates over the next five years.
During the first quarter of 1997, $100.0 million notional amount of forward
interest rate swaps related to the group pension cash match hedge settled,
producing a realized investment loss of $1.4 million. This was offset by a
$1.6 million realized gain on the sale of the hedged assets. In addition,
$150.0 million of options on forward interest rate swaps were added to hedge
expected future cash flows for the single premium annuity portfolio in the
years 2002 and 2003.
During the second quarter of 1997, $100.0 million notional amount of forward
interest rate swaps related to the group pension cash match hedge settled,
producing a realized investment loss of $1.1 million. This was offset by a
$1.1 million realized gain on the sale of the hedged assets. In addition,
$150.0 million of options on forward interest rate swaps were added to hedge
expected future cash flows for the single premium annuity portfolio in the
years 2002 and 2003. During the third quarter of 1997, an additional $100.0
million notional amount of forward interest rate swaps settled, producing a
realized investment loss of $1.6 million which was offset by a $1.6 million
realized gain on the sale of the hedged assets. The purpose of these actions
was to hedge the reinvestment of future cash flows and protect the Company
from the potential adverse impact of declining interest rates.
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.
YEAR 2000 ISSUES
In 1996 the Company completed the planning phase of a project to modify its
computer information systems enabling proper processing of date data relating
to the year 2000 and beyond. The Company is now in the process of executing
its plan and expects all systems to be compliant by the end of 1998. The total
cost of the project is estimated to be between $6.7 million and $8.3 million.
The Company is expensing all costs associated with these system changes.
S-25
<PAGE>
THE COMPANY
GENERAL
The Company, through its subsidiaries, is the largest provider of individual
disability insurance and the second largest overall disability insurer in
North America on the basis of in-force premiums. It also provides a
complementary portfolio of life insurance products, including life insurance,
employer- and employee-paid group benefits and related services. The Company
is the parent holding company for a group of insurance companies that
collectively operate in all 50 states, the District of Columbia, Puerto Rico,
and Canada. The Company's two principal operating subsidiaries are Accident
and Paul Revere Life.
Since 1994, the Company has completed a comprehensive corporate
repositioning that has prepared it to support growth and increase stockholder
value. A new management team headed by J. Harold Chandler, who joined the
Company in November 1993, initiated a strategic review of the business. As a
result of its review, management refocused the Company's strategy to (i) serve
the individual and employee benefits insurance markets, (ii) leverage the
Company's disability insurance expertise, (iii) utilize multiple distribution
channels to reach broader market segments, and (iv) more closely align the
interests of the Company's employees with those of its stockholders.
The Company has successfully undertaken a number of major initiatives in
pursuing this strategy. Specifically, the Company (i) sold its group medical
business for $231.0 million in cash and stock, (ii) began winding down its GIC
business which carried high capital requirements, (iii) reduced the annual
dividend on the Common Stock from $1.04 to $.80 per share to preserve capital
to fund future growth, (iv) simplified the corporate legal structure and
eliminated a dual class of common stock that had special voting rights in
order to present a more conventional corporate structure profile to the
investing market, (v) sold in six transactions $1,459.6 million in commercial
mortgage loans as part of repositioning its investment portfolio, (vi)
restructured its marketing and distribution channels, along with the support
areas of product development, underwriting and claims, to better reach and
serve individual and employee benefits customers, (vii) strengthened its
claims management procedures in the disability income insurance business, on
which the Company took a $423.0 million pre-tax charge in the third quarter of
1993 to strengthen reserves on a portion of that block of business, and (viii)
began restructuring its disability income products to discontinue the sale of
policies which combined noncancelable contracts with long-term own-occupation
provisions and to offer in their place an income replacement contract with
more reasonable limits and better pricing for elective provisions.
The acquisitions of Paul Revere and Genex in early 1997 and the disposition
of certain non-core lines of business are the latest accomplishments under the
Company's strategic plan. These actions strengthen the Company's disability
insurance capabilities and enable the Company to offer a comprehensive and
well-focused portfolio of products and services to its customers. Paul Revere
is a specialist in disability insurance, with $972.8 million of disability
premium income (86 percent of its total premium income) in 1996. From 1989
through 1996 it was the largest provider of individual disability insurance in
the United States and Canada on the basis of in-force premiums. By combining
Paul Revere's operations with those of Provident, the Company has begun to
realize significant operating efficiencies, including leveraging both
companies' knowledge of disability risks, specialized claims and underwriting
skills, and sales expertise. The Company also has begun to realize cost
savings as a result of combining the corporate, administrative, and financial
operations of the two companies.
Genex provides the Company with specialized skills in disability case
management and vocational rehabilitation that advance the Company's goal of
providing products that enable disabled policyholders to return to work. Genex
provides a full range of disability management services, including worksite
injury management, telephonic early intervention services for injured workers,
medical case management, vocational rehabilitation, and disability cost
analysis, to third party administrators, corporate clients and insurance
companies. It employs 1,300 people, including 1,100 medical and vocational
rehabilitation experts, in 120 offices in the United States and Canada. While
Genex has historically focused on the worker's compensation market, Genex and
the Company are now offering customized disability programs for the employee
benefits market that are intended to integrate and simplify coverages, control
costs and improve efficiency for employers with
S-26
<PAGE>
significant disability and related claims. The Company also expects Genex to
play an increasingly significant role in helping the Company manage its own
exposure to individual and group disability claims.
As it has acquired operations that complement its core business, the Company
has also continued to exit non-core lines. On June 30, 1997, the Company
announced that it had agreed to transfer its dental business to Ameritas. The
dental block, which was acquired in the Paul Revere Merger, produced $48.3
million in premium income in 1996 and $36.1 million in the first nine months
of 1997. The full transition of the dental business to Ameritas was completed
in November 1997.
On December 18, 1997, the Company entered into a definitive agreement to
sell Provident's in-force individual and tax-sheltered annuity business to
various affiliates of American General. The Company and American General also
entered into preliminary reciprocal marketing agreements whereby American
General will market the Company's individual disability products and the
Company will market American General's individual annuity products. The in-
force business being sold consists primarily of single-premium fixed annuities
and tax-sheltered annuities in Accident, National, Paul Revere Life, and Paul
Revere Variable. In addition, American General is acquiring a number of
miscellaneous group pension lines of business sold in the 1970's and 1980's,
which are no longer actively marketed. The sale does not include the Company's
block of traditional GICs, or group single premium annuities, which will
continue in a run-off mode until such time as these blocks are completely
discontinued. In consideration for the transfer of the annuity reserves,
American General is paying the Company a ceding commission of approximately
$58 million. The annuities being sold to American General represent $2.4
billion of statutory reserves. The transaction, which is subject to requisite
regulatory approvals and certain other conditions, is expected to close by
March 31, 1998.
BUSINESS STRATEGIES
The Company's objective is to grow its business and improve its
profitability by continuing to follow the strategies set forth below.
Serve the Individual and Employee Benefits Markets. The Company believes
that the broad individual and employee benefits insurance markets are
attractive for a company with its specialty focus on disability insurance.
First, the Company believes disability insurers have not traditionally served
the broad market's potential demand for protection against loss of income due
to disability, as evidenced by the industry's size. The total in-force premium
from disability products is approximately $9 billion, compared to $50 billion
for annuities and $97 billion for life insurance. The Company believes that,
if it is responsive to the needs of its markets, there is opportunity for
growth in the disability industry.
Second, individual disability insurance has traditionally been sold
primarily in the medical and physician markets, where market penetration has
been significant. The Company believes that expanding its marketing to other
market segments offers greater opportunities for growth. The penetration of
the attorney, executive and professional markets, for example, is far less
than that of the medical and physician markets. The market of middle managers
and front-line workers has not been significantly developed by individual
disability insurers. Each of these markets is significantly larger than the
medical and physician market. The Company's strategy is to design products and
services that meet the needs of these underpenetrated market segments,
offering them both individual disability insurance and related life insurance,
annuities and other products.
Third, the Company believes that the markets for group disability insurance
are also underpenetrated. The Company is focused on creating customized
solutions for employee benefits customers that include group disability
insurance and related employee- and employer-paid benefits as well as
disability management services. The employee benefits market is undergoing a
change as employers seek to simplify coverages, control costs and improve
efficiency. The Company has positioned itself to package its products and
services to meet this growing demand for managed disability programs and 24-
hour coverage.
The Company encourages its sales representatives and producers to respond to
the needs of customers by cross-selling complementary products to each
account. In the past several years, for example, the Company has
S-27
<PAGE>
made ease of meeting customers' needs the priority for its information systems
investments. The Company can now offer combined proposals that include pre-
approved life insurance with individual disability policies and bill a range
of voluntary product offerings through a single payroll deduction entry on an
employee's paycheck. The Company has also recently introduced new employee and
producer compensation plans that reward the sale of several of the Company's
products rather than single product sales, including grants of stock options
to selected producers and a new multi-line producer compensation plan designed
to leverage a producer's production and overall compensation.
Leverage Disability Insurance Expertise and Risk Management Skills. In
serving its markets, the Company leads with its disability insurance
expertise. The Company is the largest provider of individual disability
insurance with $1.4 billion of premium income in 1996 (pro forma for the Paul
Revere Merger), and the second largest overall disability insurer in North
America, on the basis of in-force premiums, with an additional $258.4 million
of group disability insurance premium. The skills required for disability risk
management are substantially different from those used in managing the risk of
other life insurance products. The Company believes that its risk management
skills represent a competitive advantage in the disability businesses. The
Company has made a number of recent improvements to its capabilities. In the
claims management area, for example, the Company has shifted from a geographic
distribution of workflow to an organization focused on impairments
(psychiatric, orthopedic, partial disabilities, etc.) in order to provide
claimants with more specialized attention. The addition of Genex's case
management and vocational rehabilitation expertise has enabled the Company to
further refine its efforts to assist disabled claimants to return to gainful
employment.
Utilize Multiple Distribution Channels to Reach Different Market
Segments. The Company's experience is that different distribution channels
reach different market segments. Therefore, its strategy is to distribute its
products through a number of channels in order to reach the broad individual
and employee benefits markets. The Company distributes its individual products
primarily through independent insurance brokers and agents, and corporate
marketing agreements with other insurance companies, associations and
financial institutions. It distributes employee benefits products primarily
through brokers, benefits consultants and a direct sales force that calls on
large corporations. All products and distribution channels are supported
through a network of 70 integrated sales and service offices in the United
States, nine offices in Canada, and non-field sales organizations located in
Chattanooga, Tennessee, Worcester, Massachusetts and Burlington, Ontario.
The Company believes there are substantial opportunities to increase sales
by improving the productivity of each of these distribution channels and
opening new distribution channels for its products. For example, the National
Accounts distribution system, which involves the sales of the Company's
products by agents of other insurance companies, generates sales from a small
percentage of the agents of the National Account companies. A major focus for
1998 is increasing the penetration of these National Account relationships.
Align the Interests of the Company's Employees and Producers With Those of
its Stockholders. The Company's strategic plan is supported by the goal of
raising employee stock ownership in the Company. Beginning in 1994, the
Company shifted its long-term cash compensation program for executives to a
stock-based plan, introduced ownership requirements of several times salary
for executive management, and instituted stock option and share grant plans
for executive and middle management. The Company continued to introduce new
programs to encourage ownership in 1995, establishing an employee stock
purchase plan open to all employees, introducing stock-based incentive awards,
and expanding the option program to field sales employees. Most recently, the
Company has created a stock-based plan for executives' short-term compensation
and has expanded its option plans to producers who meet certain sales and
profitability goals. These programs are intended to more closely align the
interests of employees, producers and stockholders.
Prior to the implementation of these programs in 1994, there was little
employee ownership of Common Stock. The Company had 1,128,434 outstanding
options for shares of Common Stock on a split-adjusted basis as of December
31, 1993. As of December 31, 1997, employees owned more than 550,000 shares of
Common Stock through the employee stock purchase and 401(k) plans, and the
Company had 6,938,108 outstanding options for shares of Common Stock.
Approximately 50 percent of Provident's employees participate in one or more
of these stock ownership programs.
S-28
<PAGE>
REPORTING SEGMENTS
The Company is organized around its customers, with reporting segments that
reflect its major market segments: Individual Life and Disability and Employee
Benefits. The Other Operations segment includes products that the Company no
longer produces for sale. For a discussion of the operating results of each of
the reporting segments, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Individual Life and Disability. The Individual Life and Disability segment
includes the results of disability, life and annuity products sold to
policyholders on an individual basis. Individual disability comprises the
majority of the segment, with $582.8 million of premium income in 1996 and
$1,366.6 million of premium income on a pro forma basis. Individual life
insurance products generated $63.3 million of premium income in 1996 and $97.8
million of premium income on a pro forma basis. The annuity block of business
will be sold to American General under a reinsurance agreement signed on
December 8, 1997, and the sale is expected to close in the first quarter of
1998. Since December 31, 1997, individual annuities are reported in the
Company's Other Operations segment.
Individual disability income insurance provides the insured with a portion
of earned income lost as a result of sickness or injury. Under an individual
disability income policy, monthly benefits generally are fixed at the time the
policy is written. The benefits typically range from 30 percent to 75 percent
of the insured's monthly earned income. Various options with respect to length
of benefit periods and waiting periods before payment begins are available and
permit tailoring of the policy to a specific policyholder's needs. Provident
also markets individual disability income policies which include payments for
transfer of business ownership and business overhead expenses. Individual
disability income products do not provide for the accumulation of cash values.
Premium rates for these products are varied by age, sex, and occupation
based on assumptions concerning morbidity, persistency, policy related
expenses, and investment income. The Company develops its assumptions based on
its own claim experience and published industry tables. The Company's
underwriters evaluate the medical and financial condition of prospective
policyholders prior to the issuance of a policy.
Almost all of the Company's in-force individual disability income insurance
was written on a noncancelable basis. Under a noncancelable policy, as long as
the insured continues to pay the fixed annual premium for the policy's
duration, the policy cannot be canceled by the Company nor can the premium be
raised. Due to the noncancelable, fixed premium nature of the policies
marketed in the past, profitability of this part of Provident's business is
largely dependent upon achieving the morbidity and interest rate assumptions
set in the 1993 loss recognition study with respect to the business written in
1993 and prior and those set in the pricing of business written after 1993.
The profitability of the Paul Revere business will be largely dependent on
meeting the assumptions included in the purchase accounting adjustments
recorded in connection with the Paul Revere Merger. As of December 31, 1996,
reserves were adequate for Provident and for Paul Revere. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the pro forma financial information incorporated herein by reference.
The Company's lead disability product is currently a noncancelable loss of
earnings ("LE") contract instead of the traditional noncancelable, long-term,
own-occupation contract. The LE contract insures income rather than
occupation. In 1995, Provident discontinued selling individual noncancelable
contracts with long-term own-occupation provisions (other than conversion
policies available under existing contractual arrangements), lifetime benefits
and high maximum issue and participation limits that were identified as the
cause of the 1993 loss recognition. In contrast to these policies, for which
benefits are determined based on whether the insured can work in his or her
original occupation, the LE policy requires policyholder to satisfy two
conditions for benefits to begin: reduced ability to work due to accident or
sickness and earnings loss of at least 20 percent. These policies are aimed at
repositioning the individual disability income product by making it more
attractive to a broader market of individual consumers, including middle to
upper income individuals and corporate benefit buyers.
S-29
<PAGE>
The Company's life insurance offerings include term, universal life, and
interest-sensitive life insurance products. Universal life products provide
permanent life insurance with adjustable interest rates applied to the 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 1996 and 1997 were ten-
year level-term policies. These products have level premiums for an initial
ten-year period after which the policyholder may resubmit to the underwriting
process and possibly qualify for a new ten year period at the attained age
premiums; otherwise, premiums revert to a yearly renewable term premium which
increases annually. When measured by annualized premiums, universal life with
the flexibility and features described above was the largest product category
sold by Provident in this segment in recent years. Paul Revere's largest
product category is interest-sensitive whole life insurance.
Premium rates for the Company's life insurance products are based on
assumptions as to future mortality, investment yields, expenses, and lapses.
Although a margin for profit is included in setting premium rates, the actual
profitability of products is significantly affected by the variation of actual
experience from assumed experience. Profitability of fixed premium products is
also dependent upon investment income on reserves. The profitability of
interest-sensitive products is determined primarily by the ultimate
underwriting experience and the ability to maintain anticipated investment
spreads. The Company believes that the historical claim experience for these
products has been satisfactory.
From the Company's viewpoint, the risks involved with interest-sensitive
products include actual versus assumed mortality, achieving investment returns
that at least equal the current declared rate, competitive position of
declared rates on the policies, meeting the contractually guaranteed minimum
crediting rate, and recovery of policy acquisition costs. From the
policyholder's perspective, the risk involved with interest-sensitive products
is whether or not the declared rates on the policy will compare favorably with
the returns available elsewhere in the marketplace.
Employee Benefits. The Employee Benefits segment includes the results of
group products sold to employers for the benefit of employees and individual
products sold to groups of employees through payroll deduction at the worksite
("voluntary benefits products"). The Company's Employee Benefits product
offerings include group disability, group life insurance, and other related
group products, and voluntary life, disability, and cancer products. Group
life comprises the majority of the segment, with $177.8 million of premium
income in 1996 ($231.2 million of premium income on a pro forma basis). Group
disability generated $69.4 million of premium income in 1996 and $258.4
million of premium income on a pro forma basis.
Group long-term disability insurance provides employees with insurance
coverage for loss of income in the event of extended work absences due to
sickness or injury. Services are offered to employers and insureds to
encourage and facilitate rehabilitation, retraining, and re-employment.
Premiums for this product are generally based on expected claims of a pool of
similar risks plus provisions for administrative expenses and profit. Some
cases, however, carry experience rating provisions. Premiums for experience
rated group disability business are based on the specific claim experience of
the client with some credibility for the experience of the specific group. A
few accounts are handled on an administrative services only basis with
responsibility for funding claim payments remaining with the customer.
Profitability of group disability insurance is affected by deviations of
actual claims experience from expected claims experience and the ability of
the Company to control its administrative expenses. Morbidity is an important
factor in disability claim experience. Also important is the general state of
the economy; for
S-30
<PAGE>
example, during a recession the incidence of claims tends to increase under
this type of insurance. In general, experience rated disability coverage for
large groups has narrower profit margins and represents less risk to the
Company than business of this type sold to small employers. This is because
the Company must bear all of the risk of adverse claim experience in small
case coverages while larger employers often bear much of this risk themselves.
For disability coverages, case management and rehabilitation activities with
regard to claims, along with appropriate pricing and expense control, are
important factors contributing to profitability.
Group life insurance consists primarily of renewable term life insurance
with the coverages frequently linked to employees' wages. Profitability in
group life is affected by deviations of actual claim experience from expected
claim experience and the ability of the Company to control administrative
expenses. The Company also markets several group benefits products and
services including accident and sickness indemnity, accidental death and
dismemberment policies, and life and health benefits packages for affinity
groups.
Voluntary benefits products are offered through employer-sponsored payroll
deduction programs. Provident's in-force business in 1996 consisted primarily
of universal life and interest-sensitive life products (83.7 percent) as well
as health products, principally intermediate disability income policies.
Profitability in voluntary benefits is affected by the level of employee
participation, persistency, deviations of actual morbidity and mortality
experience from expected experience and the ability of the Company to control
administrative expenses.
Other Operations. The Other Operations segment includes the results of GICs,
group SPAs, a closed block of COLI, the medical services business sold in
1995, Paul Revere's dental insurance business, and any capital and assets that
are not allocated to the principal business segments. COLI and GICs comprise
the majority of the segment, with $1,883.8 million and $1,877.3 million,
respectively, of funds under management as of September 30, 1997. Traditional
GICs accounted for $3,204.3 million and group SPAs accounted for $1,188.1
million of accumulated funds under management at December 31, 1996.
GIC products include traditional GICs, separate account GICs and synthetic
GICs, in which the assets underlying the contract continue to be owned and
retained by the trustee of the contract holder instead of the Company. In the
first quarter of 1997, the Company announced that the synthetic GIC business
was being sold through an assumptive reinsurance transaction. The sale, which
is subject to the approval of the contract holders and respective state
regulators, was completed in January 1998.
Traditional GICs have comprised a major portion of this segment's products
sold since 1982. Under traditional GICs, the Company guarantees the principal
and interest to the contract holder for a specified period, generally three to
five years. The Company marketed GICs for use in corporate tax-qualified
retirement plans and derives profits from GICs on the spread between the
amount of interest earned on invested funds and the fixed rate guaranteed in
the GIC. Separate-account GICs, which were introduced in 1992, differ from
traditional GICs in that the assets underlying the contract are segregated
from the general account of Provident and held solely for the benefit of the
specific contract involved. In December 1994, Provident discontinued the sale
of traditional GICs, but continues to service its block of existing business.
Sales of separate-account GICs were discontinued in 1996, and none remained at
September 30, 1997. See "--Reserves." Group SPAs are used as funding vehicles
primarily when defined benefit pension plans are terminated. The Company also
offers annuities as an employer-sponsored option for retirees receiving their
distributions from 401(k) plans. Pursuant to a group SPA contract, the Company
receives a one-time premium payment and in turn agrees to pay a fixed monthly
retirement benefit to specified employees. Sales of group SPAs were
discontinued in 1996.
The Company believes that there are three primary sources of risk associated
with traditional GICs and group SPAs. Underwriting risk represents the risk
that a GIC has been priced properly to reflect the risk of withdrawal and for
group SPAs, that the mortality rates and the ages and frequency at which
annuitants will retire have been accurately projected. Asset/liability risk
represents the risk that the investments purchased to back the GIC or group
SPA will adequately match the future cash flows. Investment risk represents
the risk that the underlying investments backing the GICs and group SPAs will
perform according to the expectations of the Company at the time of purchase.
S-31
<PAGE>
COLI is a tax-leveraged policy sold from 1983 to 1990, with most of the
block having been sold before June 21, 1986. Beginning in 1986, Congress began
to enact tax legislation that significantly reduced the ability of
policyholders to deduct policy loan interest on these products which detracted
from the internal rate of return which theretofore had been available. In
1988, Congress went further by enacting legislation that had adverse tax
consequences for distributions/policy loans from modified endowment contracts.
Under this legislation, new sales of the majority of Provident's COLI products
would have been subject to adverse tax treatment as modified endowment
contracts due to their high premium level. As a consequence, many of these
products were withdrawn, and revised products which would not be considered
modified endowment contracts were introduced. Policies issued prior to June
21, 1986, however, were grandfathered from the modified endowment provisions.
In 1996, Congress enacted tax legislation which generally eliminates tax
deductions for policy loan interest on COLI products issued on or after June
21, 1986.
Medical stop-loss insurance is provided to protect the insured against
significant adverse claim experience with respect to group medical coverage.
Under a variety of stop-loss arrangements, the Company charges a premium in
exchange for an obligation that it will absorb (or reimburse the employer or
plan) for claims in excess of a stated amount on an aggregate or individual
basis. Profitability in medical stop-loss arrangements depends upon the
ability of the Company to accurately predict actual claim trends relative to
expected trends, predict rates of medical cost inflation, and analyze the
claim practices of the underlying plan.
CONSOLIDATED LIFE INSURANCE IN FORCE
The following table sets forth the changes to life insurance in force and
the number of policies in force for the Company's business segments for the
indicated years. Reinsurance assumed has been included in these figures.
Reinsurance ceded has not been deducted.
<TABLE>
<CAPTION>
FACE AMOUNT
--------------------------------------------------------------------
IN FORCE IN FORCE NUMBER OF
BEGINNING OTHER LAPSES AND OTHER END OF POLICIES IN FORCE
OF YEAR SALES INCREASES DEATHS SURRENDERS DECREASES YEAR END OF YEAR
--------- --------- --------- ------ ---------- --------- ---------- -----------------
(IN MILLIONS, EXCEPT NUMBER OF POLICIES)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1996:
Individual Life and
Disability............. $12,709.1 $ 1,109.2 $ 239.6 $ 48.5 $ 1,109.9 $314.3 $ 12,585.2 173,330
Employee Benefits....... 83,276.3 13,664.0 2,011.8 201.1 11,558.2 113.1 87,079.7 415,394
Other Operations........ 2,967.2 4.2 66.2 28.8 5.0 4.2 2,999.6 25,597
--------- --------- -------- ------ --------- ------ ---------- -------
Total.................. $98,952.6 $14,777.4 $2,317.6 $278.4 $12,673.1 $431.6 $102,664.5 614,321
========= ========= ======== ====== ========= ====== ========== =======
1995:
Individual Life and
Disability............. $12,683.6 $ 1,062.7 $ 260.3 $ 45.8 $ 1,050.4 $201.3 $ 12,709.1 179,310
Employee Benefits....... 71,460.5 9,133.1 6,287.9 193.6 3,324.3 87.3 83,276.3 367,601
Other Operations........ 2,641.5 8.9 344.6 12.3 12.2 3.3 2,967.2 25,844
--------- --------- -------- ------ --------- ------ ---------- -------
Total.................. $86,785.6 $10,204.7 $6,892.8 $251.7 $ 4,386.9 $291.9 $ 98,952.6 572,755
========= ========= ======== ====== ========= ====== ========== =======
1994:
Individual Life and
Disability............. $12,877.4 $ 1,299.6 $ 210.0 $ 50.9 $ 1,406.7 $245.8 $ 12,683.6 185,440
Employee Benefits....... 68,064.8 7,027.2 1,214.5 188.2 4,342.3 315.5 71,460.5 340,110
Other Operations........ 2,351.7 5.7 307.0 12.1 10.2 .6 2,641.5 25,995
--------- --------- -------- ------ --------- ------ ---------- -------
Total.................. $83,293.9 $ 8,332.5 $1,731.5 $251.2 $ 5,759.2 $561.9 $ 86,785.6 551,545
========= ========= ======== ====== ========= ====== ========== =======
</TABLE>
REINSURANCE
The Company routinely reinsures portions of its business with other
insurance companies. In a reinsurance transaction a reinsurer agrees to
indemnify another insurer for part or all of its liability under a policy or
policies it has issued for an agreed upon premium. The maximum amount of risk
retained by the Company and not
S-32
<PAGE>
reinsured is $1 million on any individual life insured and $500,000 on
individual accidental death insurance. The amount of risk retained by the
Company on individual disability income products varies by policy type and
year of issue. The Company also reinsures against catastrophic losses in the
Employee Benefits segment. Since the ceding of reinsurance by the Company does
not discharge its primary liability to the policyholder, the Company has
control procedures with regard to reinsurance ceded. These procedures include
the exchange and review of financial statements filed with regulatory
authorities, exchange of Insurance Regulatory Information System results,
review of ratings by A.M. Best Co., determination of states in which the
reinsurer is licensed to do business, on-site visits before entering a
contract to assess the operations and management of the reinsurer,
consideration of the need for collateral, such as letters of credit, and
audits of the Company's reinsurance activities by its Internal Audit staff.
The Company also assumes reinsurance from other insurers.
RESERVES
The applicable insurance laws under which insurance companies operate
require that they report, as liabilities, policy reserves to meet future
obligations on their outstanding policies. These reserves are the amounts
which, with the additional premiums to be received and interest thereon
compounded annually at certain assumed rates, are calculated to be sufficient
to meet the various policy and contract obligations as they mature. These laws
specify that the reserves shall not be less than reserves calculated using
certain specified mortality and morbidity tables, interest rates, and methods
of valuation. The reserves reported in the Company's financial statements
incorporated herein by reference are calculated based on GAAP and differ from
those specified by the laws of the various states and carried in the statutory
financial statements of the life insurance subsidiaries. These differences
arise from the use of mortality and morbidity tables and interest assumptions
which are believed to be more representative of the actual business than those
required for statutory accounting purposes and from differences in actuarial
reserving methods.
The consolidated statements of income include the annual change in reserves
for future policy and contract benefits. The change reflects a normal
accretion for premium payments and interest buildup and decreases for policy
terminations such as lapses, deaths, and annuity benefit payments.
In addition to reserves for future policy and contract benefits, the Company
maintains a balance sheet liability for policyholders' funds. Traditional GICs
were over 85 percent of the Company's policyholders' funds balance at December
31, 1996. They are structured with a specific maturity and provide for
withdrawals for payment of benefits to contract holders or other
beneficiaries.
Policyholders' funds, as shown on the Company's consolidated statements of
financial condition as of December 31, 1996, were $3,717.1 million. Of this
amount, $3,204.3 million reflected the Company's outstanding GICs, the
maturity of which is as follows (in millions):
<TABLE>
<S> <C>
1 year or less................................ $1,453.8
Over 1 year but less than 2 years............. 997.5
Over 2 years but less than 3 years............ 567.9
Over 3 years but less than 4 years............ 155.6
Over 4 years but less than 5 years............ 22.7
Over 5 years.................................. 6.8
--------
Total....................................... $3,204.3
========
</TABLE>
In the third quarter of 1996, Paul Revere recorded a reserve strengthening
of $380.0 million, before income taxes. The reserve strengthening recorded was
prompted by the results of a comprehensive study of the adequacy of its
individual disability reserves under GAAP completed in October 1996. In
connection with such reserve study, Paul Revere received an actuarial report
from an independent actuarial firm, which report concluded that the net
individual disability reserves of $2.2 billion reported by Paul Revere at
September 30, 1996, which reflected the $380.0 million reserve strengthening
adjustment, were adequate on a GAAP basis, based on the assumptions reflected
therein.
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<PAGE>
Subsequently, Paul Revere completed, in cooperation with the Massachusetts
Division of Insurance, a comprehensive study of the adequacy of its statutory
individual disability reserves, as a result of which Paul Revere's statutory
reserves were increased by $144.0 million. Pursuant to an agreement with the
Company, dated as of April 29, 1996, Textron, Inc., then the largest
shareholder of Paul Revere, contributed to Paul Revere $121.0 million,
representing the amount of required statutory reserve increases, net of tax
benefits.
See "Risk Factors--Reserves" in the accompanying Prospectus.
COMPETITION
There is intense competition among insurance companies for the individual
and group insurance products of the types sold by the Company. At the end of
1996, there were over 2,000 legal reserve life insurance companies in the
United States, many offering one or more insurance products similar to those
marketed by the Company. The Company's principal competitors in the employee
benefits market include the largest insurance companies in the United States,
many of which have substantially greater financial resources and larger staffs
than the Company. In addition, in the individual life and annuities markets,
the Company competes with banks, investment advisers, mutual funds, and other
financial entities for investment of savings and retirement funds in general.
In the individual and group disability markets, the Company competes in the
United States and Canada with a limited number of major companies and
regionally with other companies offering specialty products.
All areas of the employee benefits markets are highly competitive due to the
yearly renewable term nature of the products and the large number of insurance
companies offering products in this market. The Company competes with other
companies in attracting and retaining independent agents and brokers to
actively market its products. The principal competitive factors affecting the
Company's business are price and quality of service.
REGULATION
The Company and its insurance subsidiaries are subject to detailed
regulation and supervision in the jurisdictions in which each does business.
With respect to the insurance subsidiaries, such regulation and supervision is
primarily for the protection of policyholders rather than for the benefit of
investors or creditors. Although the extent of such regulation varies, state
insurance laws generally establish supervisory agencies with broad
administrative powers.
These supervisory and administrative powers relate chiefly to the granting
and revocation of the licenses to transact business, the licensing of agents,
the approval of policy forms, reserve requirements, and the form and content
of required financial statements. As to the type and amounts of its
investments, the Company's insurance subsidiaries must meet the standards and
tests promulgated by the insurance laws and regulations of Tennessee,
Massachusetts, New York, Delaware and certain other states in which they
conduct business.
The Company and its insurance subsidiaries are required to file various,
usually quarterly and/or annual, financial statements and are subject to
periodic and intermittent review with respect to their financial condition and
other matters by the various departments having jurisdiction in the states in
which they do business. The last such examination of the Provident insurance
subsidiaries was completed on April 30, 1997, and covered operations for the
five-year period ending December 31, 1995. The final report was issued in the
second quarter of 1997 and no objections were raised by the reviewing
authorities as a result of that examination. The field work related to the
last financial examination of Paul Revere Life and Paul Revere Variable was
completed on March 27, 1997 and covered the operations for the four-year
period ending December 31, 1994. As a result of the examination, statutory
reserves were increased by $35 million, which adjustment was reflected in the
statutory financial statements of Paul Revere Life as of December 31, 1995.
The scope of the examination was extended to include a review of the
individual disability income reserves as of September 30, 1996. As a result of
that review, which was completed on February 5, 1997, Paul Revere Life was
required to increase its statutory reserves by $144 million on a pre-tax basis
or $121 million on an after-tax basis. As a result of the reserve
strengthening required, the former parent of Paul Revere Life made additional
capital contributions totaling
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<PAGE>
$121 million: $83.5 million was contributed in December 1996 and the balance
of $37.5 million was contributed on February 5, 1997. The Paul Revere
Protective Life Insurance Company is currently undergoing a financial
examination for the three-year period ending December 31, 1996. As of February
17, 1998, no issues or objections had been raised.
The laws of the states of Tennessee, Massachusetts, New York and Delaware
require the registration of and periodic reporting by insurance companies
domiciled within their jurisdiction which control or are controlled by other
corporations or persons so as to constitute a holding company system. The
Company is registered as a holding company system in Tennessee, Massachusetts,
New York and Delaware. The holding company statutes require periodic
disclosure concerning stock ownership and prior approval of certain
intercompany transactions within the holding company system. The Company may
from time to time be subject to regulation under the insurance and insurance
holding company statutes of one or more additional states. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
The NAIC and insurance regulators are re-examining existing laws and
regulations and their application to insurance companies. In particular, this
re-examination has focused on insurance company investment and solvency issues
and, in some instances, has resulted in new interpretations of existing law,
the development of new laws, and the implementation of non-statutory
guidelines. The NAIC has formed committees and appointed advisory groups to
study and formulate regulatory proposals on such diverse issues as the use of
surplus notes, accounting for reinsurance transactions, and the adoption of
risk-based capital rules. The NAIC is currently in the process of recodifying
statutory accounting practices, the result of which is expected to standardize
prescribed statutory accounting practices. Accordingly, this project, which is
expected to be completed in 1998, 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.
LEGAL PROCEEDINGS
An appeal of the decision of the Massachusetts Commissioner of Insurance
approving the acquisition of control of the Paul Revere insurance subsidiaries
domiciled in Massachusetts by the Company was filed by George E. Ginther and
Niagara Financial Services, Inc. (the "Petitioners"). Mr. Ginther appeared and
testified at the hearing held in connection with such acquisition of control
prior to the approval on March 24, 1997 by the Massachusetts Commissioner of
Insurance. The appeal alleged that the findings in the decision were
unsubstantiated by the evidence and that the statutory criteria for approval
of the merger were not met. The appeal requested a trial de novo before a
state court to determine if the merger meets the statutory criteria under
Massachusetts law and requested that the application of the order approving
the merger be stayed and that the merger be ultimately disapproved, or
conditionally approved. The Company filed a motion to dismiss and the
Massachusetts lower court dismissed the appeal based upon the Petitioners'
lack of standing. The Petitioners have appealed to the Massachusetts Supreme
Judicial Court for review of the decision of the lower court. Oral argument on
Petitioners' appeal took place on March 5, 1998. Although the Company believes
the likelihood of Petitioners' success in the proceeding is remote, there can
be no absolute assurance that the proceeding will not result in a decision
that is materially adverse to the Company.
Two alleged class action lawsuits have been filed in Superior Court in
Worcester, Massachusetts against the Company--one purporting to represent all
career agents of Paul Revere whose employment relationships ended on June 30,
1997 and were offered contracts to sell insurance policies as independent
producers, and the other purporting to represent independent brokers who sold
certain Paul Revere individual disability income policies with benefit riders.
Motions have been filed by the Company to dismiss most of the counts in the
complaints, which allege various breach of contract and statutory claims. To
date no class has been certified in either lawsuit. The Company has strong
defenses to both lawsuits and will vigorously defend its position and resist
certification of the classes. In addition, the same plaintiff's attorney who
has filed the purported class action lawsuits has filed 41 individual lawsuits
on behalf of current and former Paul Revere sales managers alleging various
breach of contract claims. The Company has strong defenses and will vigorously
defend its position in these cases as well. Although the alleged class action
lawsuits and the 41 individual lawsuits are in the very early stages,
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management does not currently expect these suits to materially affect the
financial position or results of operations of the Company.
In recent years, many U.S. life insurance companies have faced claims,
including class-action lawsuits, alleging various improper practices in the
sales of certain types of life insurance products. These claims often relate
to the selling of whole life and universal life policies that accumulate cash
values which may be utilized to fund the cost of insurance in later years of
the policy. Due to the subsequent reductions in dividends or interest credited
or due to other factors, the cash values have not accumulated sufficiently to
cover costs of insurance, resulting in the need for ongoing premium payments.
Although never a principal product line for the Company or Paul Revere, both
companies have sold a modest amount of interest sensitive whole life and
universal life policies. Paul Revere Variable has been named as a defendant in
a lawsuit filed in New Jersey state court related to the sale of certain
universal life policies. The plaintiff in such lawsuit seeks to represent a
national class of Paul Revere Variable policyholders. This case is in an early
stage and has not been certified as a class action. In addition, Accident is a
defendant in two lawsuits filed by individuals related to the sale of certain
life insurance policies. The Company intends to defend all of the foregoing
cases vigorously. There can be no assurance that any claims relating to sales
of policies will not have a material adverse effect on the Company in the
future.
DESCRIPTION OF THE NOTES
GENERAL
The Notes will be issued under the Indenture, dated as of March 11, 1998,
between the Company and The Chase Manhattan Bank, as trustee (the "Trustee"),
as supplemented from time to time (the "Indenture"). The form of the Indenture
is filed as an exhibit to the Registration Statement of which this Prospectus
Supplement and the accompanying Prospectus are a part (the "Registration
Statement"). The following summary of certain provisions of the Indenture and
of the Notes (referred to in the accompanying Prospectus as the "Debt
Securities") supplements, and to the extent inconsistent therewith replaces,
the summaries of certain provisions of the Debt Securities set forth in the
accompanying Prospectus, to which reference is hereby made. Such summary does
not purport to be complete and is subject to, and is qualified in its entirety
by reference to, all provisions of the Indenture, including the definitions
therein of certain terms.
The Notes offered hereby will be limited to $200.0 million aggregate
principal amount and will mature on March 15, 2028. Each Note will bear
interest at the rate of 7 1/4% per annum, computed on the basis of a 360-day
year of twelve 30-day months, from March 16, 1998 or from the most recent
interest payment date to which interest has been paid or provided for, payable
semiannually on March 15 and September 15 of each year, beginning on September
15, 1998. Interest payable on any Note which is punctually paid or duly
provided for on any interest payment date shall be paid to the person in whose
name such Note is registered at the close of business on March 1 or September
1 as the case may be, preceding such interest payment date.
The Notes will be subject to defeasance and covenant defeasance as provided
in the accompanying Prospectus.
REDEMPTION
The Notes will be redeemable as a whole or in part at the option of the
Company at any time, at a redemption price equal to the greater of (i) 100% of
their principal amount or (ii) the sum of the present values of the remaining
scheduled payments of principal and interest thereon discounted to the date of
redemption on a semiannual basis (assuming a 360-day year consisting of twelve
30-day months) at the Treasury Rate plus 20 basis points, plus in the case of
each of clause (i) and (ii) accrued interest to the date of redemption.
"Comparable Treasury Issue" means the United States Treasury security
selected by the Independent Investment Banker as having a maturity comparable
to the remaining term (the "Remaining Life") of the Notes
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<PAGE>
to be redeemed that would be utilized, at the time of selection and in
accordance with customary financial practice, in pricing new issues of
corporate debt securities of comparable maturity to the Remaining Life.
"Independent Investment Banker" means an independent investment banking
institution of international standing appointed by the Company.
"Comparable Treasury Price" means (A) the average of five Reference Treasury
Quotations for such redemption date, after excluding the highest and lowest
Reference Treasury Quotations, or (B) if the Independent Investment Banker
obtains fewer than five such Reference Treasury Quotations, the average of all
such Quotations.
"Treasury Rate" means with respect to any redemption date (i) the yield,
under the heading which represents the average for the immediately preceding
week, appearing in the most recently published statistical release designated
"H.15(519)" or any successor publication which is published weekly by the
Federal Reserve and which establishes yields on actively traded United States
Treasury securities adjusted to constant maturity under the caption "Treasury
Constant Maturities," for the maturity corresponding to the Comparable
Treasury Issue (if no maturity is within three months before or after the
Remaining Life, yields for the two published maturities most closely
corresponding to the Comparable Treasury Issue shall be determined and the
Treasury Rate shall be interpolated or extrapolated from such yields on a
straight line basis, rounding to the nearest month) or (ii) if such release
(or any successor release) is not published during the week preceding the
calculation date or does not contain such yields, the rate per annum equal to
the semi-annual equivalent yield to maturity of the Comparable Treasury Issue,
calculated using a price for the Comparable Treasury Issue (expressed as a
percentage of its principal amount) equal to the Comparable Treasury Price for
such redemption date. The Treasury Rate shall be calculated on the third
business day preceding the redemption date.
"Reference Treasury Dealer" means: (i) Morgan Stanley & Co. Incorporated and
its successors; provided, however, that if the foregoing shall cease to be a
primary U.S. Government securities dealer in New York City (a "Primary
Treasury Dealer"), the Company shall substitute another Primary Securities
Dealer, and (ii) any other Primary Treasury Dealer selected by the Independent
Investment Banker after consultation with the Company.
"Reference Treasury Quotations" means, with respect to each Reference
Treasury Dealer and any redemption date, the average, as determined by the
Independent Investment Banker, of the bid and asked prices for the Comparable
Treasury Issue (expressed in each case as a percentage of its principal
amount) quoted in writing to the Independent Investment Banker at 5:00 p.m.,
New York City time, on the third business day preceding such redemption date.
Holders of the Notes to be redeemed will receive notice thereof by first-
class mail at least 30 and not more than 60 days prior to the date fixed for
redemption.
The Notes will not have the benefit of any sinking fund.
BOOK-ENTRY SYSTEM
The Notes will be represented by registered global securities (the
"Registered Global Securities") registered in the name of a nominee of The
Depository Trust Company (the "Depositary"). Except as described in the
accompanying Prospectus, Notes in definitive form will not be issued. The
Depositary has advised the Company as follows: Depositary is a limited-purpose
trust company organized under the New York Banking Law, a "banking
organization" within the meaning of the New York Banking Law, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the New
York Uniform Commercial Code and a "clearing agency" registered pursuant to
the provisions of Section 17A of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). Depositary holds securities that its
participants ("Participants") deposit with Depositary. Depositary also
facilitates the settlement among Participants of securities transactions, such
as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in Participants'
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<PAGE>
accounts, thereby eliminating the need for physical movement of securities
certificates. Participants in Depositary include securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations ("Direct Participants"). Depositary is owned by a number of its
Participants and by the New York Stock Exchange, the American Stock Exchange,
Inc., and the National Association of Securities Dealers, Inc. Access to the
Depositary system is also available to others, such as securities brokers and
dealers, banks and trust companies that clear transactions through or maintain
a direct or indirect custodial relationship with a Direct Participant either
directly or indirectly ("Indirect Participants"). The rules applicable to
Depositary and its Participants are on file with the Securities and Exchange
Commission.
Purchases of Notes under the Depositary's system must be made by or through
Direct Participants, which will receive a credit for such Notes on the
Depositary's records. The ownership interest of each actual purchaser of each
Offered Security represented by a Registered Global Security ("Beneficial
Owner") is in turn to be recorded on the Direct and Indirect Participants'
records. Beneficial Owners will not receive written confirmation from the
Depositary of their purchase, but Beneficial Owners are expected to receive
written confirmations providing details of the transaction, as well as
periodic statements of their holdings, from the Direct or Indirect
Participants through which such Beneficial Owners entered into the
transaction. Transfers of ownership interests in a Registered Global Security
representing Notes are to be accomplished by entries made on the books of
Participants acting on behalf of Beneficial Owners. Beneficial Owners of a
Registered Global Security representing Notes will not receive Notes in
definitive form representing their ownership interest therein, except in the
event that use of the book-entry system for such Notes is discontinued or upon
the occurrence of certain other events described herein.
To facilitate subsequent transfers, all Registered Global Securities
representing Notes which are deposited with the Depositary are registered in
the name of the Depositary's nominee. The deposit of Registered Global
Securities with the Depositary and their registration in the name of the
nominee effect no change in beneficial ownership. The Depositary has no
knowledge of the actual beneficial owners of the Registered Global Securities
representing the Notes: the Depositary's records reflect only the identity of
the Direct Participants to whose accounts such Notes are credited, which may
or may not be the Beneficial Owners. The Participants will remain responsible
for keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by the Depositary to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed
by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time.
Neither the Depositary nor its nominee will consent or vote with respect to
the Registered Global Security representing the Notes. Under its usual
procedures, the Depositary mails an omnibus proxy (an "Omnibus Proxy") to the
Company as soon as possible after the applicable record date. The Omnibus
Proxy assigns the nominee's consenting or voting rights to those Direct
Participants to whose accounts the Notes are credited on the applicable record
date (identified in a listing attached to the Omnibus Proxy).
The nominee of the Depositary, as holder of record of the Registered Global
Securities, will be entitled to receive payments of principal and interest by
wire transfer in same day funds for payment to Beneficial Owners in accordance
with customary procedures established from time to time by the Depositary. The
Depositary's practice is to credit Direct Participant's accounts on the
relevant payment date in accordance with their respective holdings shown on
the Depositary's records unless the Depositary has reason to believe that it
will not receive payment on such date. Payments by Participants to Beneficial
Owners will be governed by standing instructions and customary practices, as
is the case with securities held for the accounts of customers in bearer form
or registered in "street name," and will be the responsibility of such
Participants and not of the Depositary, the Trustee, or the Company, subject
to any statutory or regulatory requirements as may be in effect from time to
time. Payment of principal, premium and interest to the Depositary is the
responsibility of the Company or the Trustee, disbursement of such payments to
Direct Participants shall be the responsibility of the Depositary, and
disbursement of such payments to the Beneficial Owners shall be the
responsibility of Direct and Indirect
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<PAGE>
Participants. Neither the Company nor the Trustee will have any responsibility
or liability for the disbursements of payments in respect of ownership
interests in the Notes by the Depositary or the Direct or Indirect
Participants or for maintaining or reviewing any records of the Depositary or
the Direct or Indirect Participants relating to ownership interests in the
Notes or the disbursement of payments in respect thereof.
The Depositary may discontinue providing its services as securities
depository with respect to the Notes at any time by giving reasonable notice
to the Company or the Trustee. Under such circumstances, and in the event that
a successor securities depositary is not obtained, Offered Securities in
definitive form are required to be printed and delivered. The Company may
decide to discontinue use of a system of book-entry transfers through the
Depositary (or a successor securities depository). In that event, Notes in
definitive form will be printed and delivered.
The information in this section concerning the Depositary and the
Depositary's system has been obtained from sources that the Company believes
to be reliable, but is subject to any changes to the arrangements between the
Company and the Depositary and any changes to such procedures that may be
instituted unilaterally by the Depositary.
In the event that Notes are issued in definitive form, principal of and
interest on the Notes will be payable at the office or agency of the Company
to be maintained in the Borough of Manhattan, the City of New York, provided,
however, that at the option of the Company payment of interest may be made by
check mailed to the address of the person entitled thereto as such address
shall appear in the register of holders of Notes. Transfers of Notes issued in
definitive form will be registrable and the Notes will be exchangeable at such
office or agency. On the date hereof, the agent for the payment, transfer and
exchange of the Notes is The Chase Manhattan Bank, acting through its
corporate trust office at 450 West 33rd Street, Global Trust Services, 15th
Floor, New York, New York 10001.
SUBORDINATION
Most of the assets of the Company are owned by its subsidiaries and,
accordingly, the Notes are effectively subordinated to all existing and future
liabilities of the Company's subsidiaries. At February 28, 1998, outstanding
debt of the Company's subsidiaries equaled $529.6 million. At February 28,
1998, outstanding debt of the Company (excluding subsidiaries) equaled $500.0
million, all of which debt ranks pari passu with the Notes.
INFORMATION CONCERNING THE TRUSTEE
The Chase Manhattan Bank is the Trustee under the Indenture and is one of a
number of banks with which the Company and its subsidiaries maintain banking
relationships in the ordinary course of business. Among other services it
performs for the Company, The Chase Manhattan Bank is providing the Company's
$500.0 million short-term bank credit facility, provides custodial services
for the Company's bond and stock portfolios, and provides general banking
services. In addition, the Company has signed a committment letter with The
Chase Manhattan Bank for a new $300.0 million revolving bank credit facility.
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<PAGE>
UNDERWRITERS
Subject to the terms and conditions set forth in the Underwriting Agreement
(the "Underwriting Agreement") among the Company and Morgan Stanley & Co.
Incorporated ("Morgan Stanley"), Bear, Stearns & Co. Inc., Chase Securities
Inc., Credit Suisse First Boston Corporation and Donaldson, Lufkin & Jenrette
Securities Corporation (collectively, the "Underwriters"), the Company has
agreed that it will sell to each of the Underwriters, and the Underwriters
have agreed, severally and not jointly, to purchase from the Company, the
respective principal amount of Notes set forth below opposite their respective
names.
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT OF
NAME NOTES
---- -------------------
<S> <C>
Morgan Stanley & Co. Incorporated........................ $ 40,000,000
Bear, Stearns & Co. Inc.................................. 40,000,000
Chase Securities Inc..................................... 40,000,000
Credit Suisse First Boston Corporation................... 40,000,000
Donaldson, Lufkin & Jenrette Securities Corporation...... 40,000,000
------------
Total................................................. $200,000,000
============
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the Notes are subject to
approval of certain legal matters by their counsel and to certain other
conditions. The Underwriters are obligated to take and pay for all of the
Notes if any are taken.
The Underwriters have advised the Company that they initially propose to
offer the Notes to the public at the public offering price set forth on the
cover page of this Prospectus Supplement and to certain dealers at such price
less a concession not in excess of .50% of the principal amount of such Notes.
Any Underwriter may allow, and such dealers may reallow, a concession not in
excess of .25% of the principal amount of the Notes to certain other dealers.
After the initial offering of the Notes, the offering price and other selling
terms may from time to time be varied by the Underwriters.
The Company has agreed that during the period beginning on the date of the
Underwriting Agreement and continuing to and including the date of the closing
under the Underwriting Agreement, it will not offer, sell, contract to sell or
otherwise dispose of any debt securities of the Company or warrants to
purchase debt securities of the Company that are substantially similar to the
Notes (other than (i) the Notes and (ii) commercial paper issued in the
ordinary course of business) without the prior written consent of Morgan
Stanley.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act").
The Company does not intend to apply for listing of the Notes on a national
securities exchange, but has been advised by the Underwriters that they
presently intend to make a market in the Notes, as permitted by applicable
laws and regulations. The Underwriters are not obligated, however, to make a
market in the Notes and any such market making may be discontinued at any time
at the sole discretion of the Underwriters. Accordingly, no assurance can be
given as to the liquidity of, or trading markets for, the Notes.
In order to facilitate the offering of the Notes, the Underwriters may
engage in transactions that stabilize, maintain or otherwise affect the price
of the Notes. Specifically, the Underwriters may overallot in connection with
the Note Offering, creating a short position in the Notes for their own
account. In addition, to cover overallotments or to stabilize the price of the
Notes, the Underwriters may bid for, and purchase, the Notes in the open
market. Finally, the underwriting syndicate may reclaim selling concessions
allowed to an underwriter or a dealer for distributing the Notes in the Note
Offering if the syndicate repurchases previously distributed Notes in
transactions to cover syndicate short positions, in stabilization transactions
or otherwise. Any of these activities may stabilize or maintain the market
price of the Notes above independent market levels. The Underwriters are not
required to engage in these activities, and may end any of these activities at
any time.
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<PAGE>
Certain of the Underwriters or their affiliates have provided from time to
time, and expect to provide in the future, general financing, investment or
commercial banking services to the Company and its affiliates, for which such
Underwriters or their affiliates have received or will receive customary fees
and commissions.
The Chase Manhattan Bank, the Trustee, is an affiliate of Chase Securities,
Inc., one of the Underwriters, and is the lender to the Company under its
short-term bank credit facility. The Chase Manhattan Bank will be repaid under
the short-term bank credit facility with the proceeds of the Note Offering and
the Capital Securities Offering. See "Use of Proceeds." Because more than 10%
of the net proceeds of the Note Offering and the Capital Securities Offering
will be paid to an affiliate of a member of the National Association of
Securities Dealers, Inc. (the "NASD") who is participating in such offerings,
the Note Offering and the Capital Securities Offering are being made pursuant
to Rule 2710(c)(8) of the Conduct Rules of the NASD.
LEGAL MATTERS
The legality of the Notes offered hereby and certain other legal matters in
connection with the sale of the Notes offered hereby will be passed upon for
the Company by Alston & Bird LLP, Atlanta, Georgia. Certain other legal
matters in connection with the sale of the Notes offered hereby will be passed
upon for the Company by F. Dean Copeland, Executive Vice President and General
Counsel of the Company. As of March 11, 1998, Mr. Copeland beneficially owned
approximately 14,000 shares of Common Stock of the Company, held performance
shares giving him a right to receive 6,393 shares of Common Stock of the
Company at a later date and held options to purchase 200,000 shares of Common
Stock of the Company. Certain legal matters in connection with the sale of the
Notes offered hereby will be passed upon for the Underwriters by LeBoeuf,
Lamb, Greene & MacRae, L.L.P., a limited liability partnership including
professional corporations, New York, New York. LeBoeuf, Lamb, Greene & MacRae,
L.L.P. provides certain legal services to the Company from time to time.
EXPERTS
The consolidated financial statements of the Company incorporated by
reference in its Annual Report on Form 10-K for the year ended December 31,
1996, and the consolidated financial statements of The Paul Revere Corporation
for the year ended December 31, 1996, included in Provident Companies, Inc.'s
Current Report on Form 8-K, dated March 27, 1997, have been audited by Ernst &
Young LLP, independent auditors, as set forth in their reports thereon
incorporated by reference or set forth therein and incorporated herein by
reference. Such consolidated financial statements are incorporated herein by
reference in reliance upon such reports given upon the authority of such firm
as experts in accounting and auditing.
With respect to the Company's unaudited condensed consolidated interim
financial information for the three-, six-, and nine-month periods ended March
31, 1997, June 30, 1997 and September 30, 1997, incorporated by reference in
the registration statement on Form S-3 (file No. 333-25009) (the "Registration
Statement"), Ernst & Young LLP have reported that they have applied limited
procedures in accordance with professional standards for a review of such
information. However, their separate reports, included in the Company's
Quarterly Reports on Form 10-Q for the quarters ended March 31, 1997, June 30,
1997 and September 30, 1997, and incorporated by reference in the Registration
Statement, state that they did not audit and they do not express an opinion on
that interim financial information. Accordingly, the degree of reliance on
their reports on such information should be restricted considering the limited
nature of the review procedures applied. The independent auditors are not
subject to the liability provisions of Section 11 of the Securities Act for
their reports on the unaudited interim financial information because these
reports are not a "report" or a "part" of the Registration Statement, prepared
or certified by the auditors within the meaning of Sections 7 and 11 of the
Securities Act.
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<PAGE>
PROSPECTUS
$900,000,000
PROVIDENT COMPANIES, INC.
SENIOR DEBT SECURITIES, SUBORDINATED DEBT SECURITIES, PREFERRED STOCK, COMMON
STOCK, WARRANTS,STOCK PURCHASE CONTRACTS AND STOCK PURCHASE UNITS
PROVIDENT FINANCING TRUST I
PREFERRED SECURITIES FULLY AND UNCONDITIONALLY GUARANTEED, AS DESCRIBED
HEREIN, BY PROVIDENT COMPANIES, INC.
Provident Companies, Inc. (the "Company") may offer and sell from time to
time (i) its unsecured senior debt securities ("Senior Debt Securities"), and
unsecured subordinated debt securities ("Subordinated Debt Securities"),
consisting of debentures, notes or other evidences of indebtedness, (ii)
shares of its preferred stock, par value $1.00 per share (the "Preferred
Stock"), (iii) shares of its common stock, par value $1.00 per share (the
"Common Stock"), (iv) warrants to purchase any of the foregoing Senior Debt
Securities, Subordinated Debt Securities, Preferred Stock or Common Stock (the
"Warrants"), (v) stock purchase contracts ("Stock Purchase Contracts") to
purchase Common Stock or (vi) stock purchase units ("Stock Purchase Units"),
each representing ownership of a Stock Purchase Contract and (x) Senior Debt
Securities or Subordinated Debt Securities, (y) Preferred Securities (as
defined below), or (z) debt obligations of third parties, including U.S.
Treasury Securities, securing the holder's obligation to purchase the Common
Stock under the Stock Purchase Contract, in each case in one or more series
and in amounts, at prices and on terms to be determined at or prior to the
time of sale. Such securities may be offered in one or more separate classes
or series, in amounts, at prices and on terms to be determined by market
conditions at the time of sale and to be set forth in a supplement or
supplements to this Prospectus (a "Prospectus Supplement"). Such securities
may be sold for U.S. dollars, foreign denominated currency or currency units
and amounts payable with respect to any such securities may likewise be
payable in U.S. dollars, foreign denominated currency or currency units, in
each case as the Company specifically designates.
Provident Financing Trust I (the "Provident Trust"), a statutory business
trust created under the laws of the State of Delaware, may offer, from time to
time, preferred securities, which may be designated as preferred securities or
capital securities, representing undivided beneficial interests in the assets
of the Provident Trust ("Preferred Securities"). The payment of periodic cash
distributions ("Distributions") with respect to Preferred Securities out of
monies held by the Provident Trust, and payments on liquidation, redemption or
otherwise with respect to such Preferred Securities, will be guaranteed by the
Company to the extent described herein (a "Trust Guarantee"). See "Description
of Preferred Securities" and "Description of Trust Guarantees." The Company's
obligations under the Trust Guarantees will rank junior and subordinate in
right of payment to all other liabilities of the Company, except those made
subordinate or pari passu by their terms, and pari passu with its obligations
under the most senior preferred or preference stock of the Company. See
"Description of Trust Guarantees--Status of the Trust Guarantees."
Subordinated Debt Securities may be issued and sold from time to time by the
Company in one or more series to the Provident Trust or a Trustee of the
Provident Trust in connection with the investment of the proceeds from the
offering of Preferred Securities and Common Securities (as defined herein) of
the Provident Trust. Subordinated Debt Securities purchased by the Provident
Trust may be subsequently distributed pro rata to holders of Preferred
Securities and Common Securities in connection with the dissolution of the
Provident Trust upon the occurrence of certain events as may be described in
an accompanying Prospectus Supplement.
Specific terms of the particular Senior Debt Securities, Subordinated Debt
Securities, Preferred Stock, Common Stock, Warrants, Stock Purchase Contracts,
the Stock Purchase Units and Preferred Securities and the related Trust
Guarantees, in respect of which this Prospectus is being delivered (the
"Offered Securities") will be set forth in an accompanying Prospectus
Supplement or Supplements, together with the terms of the offering of the
Offered Securities, the initial price thereof and the net proceeds from the
sale thereof. A Prospectus Supplement will set forth with regard to the
particular Offered Securities, certain terms thereof, including, where
applicable, (i) in the case of Senior Debt Securities and Subordinated Debt
Securities, the ranking as senior or subordinated Debt Securities, the
specific designation, aggregate principal amount, purchase price, maturity,
interest rate (which may be fixed or variable), if any, the time and method of
calculating interest payments, if any, time of payment of interest, if any,
listing, if any, on a securities exchange, authorized denomination, any
exchangeability, conversion, redemption, prepayment or sinking fund
provisions, the currency or currencies or currency unit or units in which
principal, premium, if any, or interest, if any, is payable, public offering
price and any other specific terms of the Debt Securities; (ii) in the case of
Preferred Stock, the specific designation, number of shares, purchase price
and the rights, preferences and privileges thereof and any qualifications or
restrictions thereon (including dividends, liquidation value, voting rights,
terms for the redemption, conversion or exchange thereof and any other
specific terms of the Preferred Stock), listing, if any, on a securities
exchange; (iii) in the case of Common Stock, the number of shares offered, the
initial offering price, market price and dividend information; (iv) in the
case of Warrants, the specific designation, the number, purchase price and
terms thereof, any listing of the Warrants or the underlying securities on a
securities exchange or any other terms in connection with the offering, sale
and exercise of the Warrants, as well as the terms on which and the securities
for which such Warrants may be exercised; (v) in the case of Stock Purchase
Contracts, the designation and number of shares of Common Stock issuable
thereunder, the purchase price of the Common Stock, the date or dates on which
the Common Stock is required to be purchased by the holders of the Stock
Purchase Contracts, any periodic payments required to be made by the Company
to the holders of the Stock Purchase Contracts or vice versa, and the terms of
the offering and sale thereof; (vi) in the case of Stock Purchase Units, the
specific terms of the Stock Purchase Contracts and any Debt Securities or
Preferred Securities or debt obligations of third parties securing the
holder's obligation to purchase the Common Stock under the Stock Purchase
Contracts, and the terms of the offering and sale thereof; and (vii) in the
case of Preferred Securities, the specific designation, number of securities,
liquidation amount per security, the purchase price, any listing on a
securities exchange, distribution rate (or method of calculation thereof),
dates on which distribution shall be payable and dates from which distribution
shall accrue, any voting rights, terms for any conversion or exchange into
other securities, any redemption, exchange or sinking fund provisions, any
other rights, preferences, privileges, limitations or restrictions relating to
the Preferred Securities and the terms upon which the proceeds of the sale of
the Preferred Securities shall be used to purchase a specific series of
Subordinated Debt Securities of the Company.
The Offered Securities may be offered in amounts, at prices and on terms to
be determined at the time of offering; provided, however, that the aggregate
offering price to the public of the Offered Securities will be limited to
$900,000,000. Any Prospectus Supplement relating to any Offered Securities
will contain information concerning certain United States federal income tax
considerations, if applicable, to such Offered Securities.
The Offered Securities may be offered directly by the Company, through
agents designated from time to time by the Company, or to or through
underwriters or dealers. If any agents or underwriters are involved in the
sale of any of the Offered Securities, their names, and any applicable
purchase price, fee, commission or discount arrangements between or among
them, will be set forth, or will be calculable from the information set forth,
in the applicable Prospectus Supplement. See "Plan of Distribution." No
Offered Securities may be sold without delivery of the applicable Prospectus
Supplement or a term sheet describing the method and terms of the offering of
such series of Offered Securities.
This Prospectus may not be used to consummate sales of the Offered
Securities unless accompanied by a Prospectus Supplement.
SEE "RISK FACTORS" ON PAGE 7 FOR INFORMATION THAT SHOULD BE CONSIDERED BY
PROSPECTIVE INVESTORS.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is May 22, 1997.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Available Information..................................................... 3
Forward Looking Statements................................................ 4
Incorporation of Certain Documents by Reference........................... 4
The Company............................................................... 5
The Provident Trust....................................................... 6
Risk Factors.............................................................. 7
Use of Proceeds........................................................... 9
Consolidated Ratios of Earnings to Fixed Charges and Earnings to Combined
Fixed Charges and Preferred Stock Dividends.............................. 10
Description of Debt Securities............................................ 11
Description of Preferred Stock............................................ 24
Description of Common Stock............................................... 28
Description of Warrants................................................... 31
Description of Stock Purchase Contracts and Stock Purchase Units.......... 32
Description of Preferred Securities....................................... 32
Description of Trust Guarantee............................................ 34
Effect of Obligations Under the Subordinated Debt Securities and the Trust
Guarantee................................................................ 37
Plan of Distribution...................................................... 38
Legal Opinions............................................................ 39
Experts................................................................... 39
</TABLE>
NOTICE TO NORTH CAROLINA RESIDENTS: THESE SECURITIES HAVE NOT BEEN APPROVED
OR DISAPPROVED BY THE COMMISSIONER OF INSURANCE FOR THE STATE OF NORTH
CAROLINA, NOR HAS THE COMMISSIONER OF INSURANCE FOR THE STATE OF NORTH
CAROLINA RULED UPON THE ACCURACY OR ADEQUACY OF THIS DOCUMENT.
State insurance holding company laws and regulations applicable to the
Company generally provide that no person may acquire control of the Company,
and thus indirect control of its insurance subsidiaries, unless such person
has provided certain required information to, and such acquisition is approved
(or not disapproved) by, the appropriate insurance regulatory authorities.
Generally, any person acquiring beneficial ownership of 10% or more of the
Common Stock would be presumed to have acquired such control, unless the
appropriate insurance regulatory authorities upon advance application
determine otherwise.
No dealer, salesman or other individual has been authorized to give any
information or to make any representations not contained in this Prospectus,
any accompanying Prospectus Supplement or the documents incorporated or deemed
incorporated herein in connection with the offering covered by this Prospectus
or any accompanying Prospectus Supplement. If given or made, such information
or representations must not be relied upon as having been authorized by the
Company, or any underwriter, dealer or agent. This Prospectus and any
accompanying Prospectus Supplement do not constitute an offer to sell, or a
solicitation of an offer to buy, any securities other than the registered
securities to which it relates in any jurisdiction where, or to any person to
whom, it is unlawful to make such offer or solicitation. Neither the delivery
of this Prospectus or any accompanying Prospectus Supplement nor any sale made
hereunder shall, under any circumstances, create any implication that there
has not been any change in the facts set forth in this Prospectus or any
accompanying Prospectus Supplement or in the affairs of the Company since the
date hereof or thereof.
----------------
Unless otherwise indicated, currency amounts in this Prospectus and any
Prospectus Supplement are stated in United States dollars ("$," "dollars" or
"U.S.$").
2
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and the rules and regulations promulgated
thereunder (the "Exchange Act"), and in accordance therewith files reports,
proxy and information statements and other information with the Securities and
Exchange Commission (the "Commission"). Such reports, proxy and information
statements and other information filed by the Company with the Commission can
be inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549; and
at the Commission's Northeast Regional Office, 7 World Trade Center, Suite
1300, New York, New York 10048, and Midwest Regional Office, Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of
such material can also be obtained at prescribed rates from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington D.C.
20549. The Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants such as the
Company that file electronically with the Commission. The address of such site
is http://www.sec.gov. In addition, such reports, proxy and information
statements and other information concerning the Company may be inspected at
the offices of the New York Stock Exchange, Inc. (the "NYSE"), 20 Broad
Street, New York, New York 10005.
The Company and the Provident Trust have filed a Registration Statement on
Form S-3 (together with all amendments and exhibits filed or to be filed in
connection therewith, the "Registration Statement") with the Commission
pursuant to the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the Offered Securities, of which this Prospectus forms a part.
This Prospectus does not contain all the information set forth in the
Registration Statement and the exhibits thereto, certain parts of which are
omitted in accordance with the rules and regulations of the Commission. In
addition, certain documents filed by the Company with the Commission have been
incorporated in this Prospectus by reference. See "Incorporation of Certain
Documents by Reference." Such additional information may be obtained from the
Commission's principal office in Washington, D.C. Any statements contained
herein concerning the provisions of any documents do not purport to be
complete and are necessarily summaries of such documents and, in each
instance, are qualified in all respects by reference to the copy of such
document filed as an exhibit to the Registration Statement or otherwise filed
with the Commission. Each such statement is subject to and qualified in its
entirety by such reference. For further information with respect to the
Company, the Provident Trust and the Offered Securities, reference is made to
the Registration Statement, including the exhibits thereto, and the documents
incorporated herein by reference.
No separate financial statements of the Provident Trust have been included
or incorporated by reference herein. The Company does not consider that such
financial statements would be material to holders of Preferred Securities
because (i) all of the voting securities of the Preferred Trust will be owned,
directly or indirectly, by the Company, a reporting company under the Exchange
Act, (ii) the Provident Trust has and will have no independent operations but
exists for the sole purpose of issuing securities representing undivided
beneficial interests in its assets and investing the proceeds thereof in
Subordinated Debt Securities issued by the Company, and (iii) the Company's
obligations described herein and in any accompanying Prospectus Supplement,
under the Declaration of Trust for the Provident Trust (including the
obligation to pay expenses of the Provident Trust), the Subordinated Indenture
and any supplemental indentures thereto, the Subordinated Debt Securities
issued to the Provident Trust and the Trust Guarantees taken together,
constitute a full and unconditional guarantee by the Company of payments due
on the Preferred Securities. See "Description of Preferred Securities" and
"Description of Trust Guarantees."
3
<PAGE>
FORWARD LOOKING STATEMENTS
This Prospectus contains and incorporates by reference certain forward
looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995 with respect to the results of operations and businesses of
the Company. These forward looking statements involve certain risks and
uncertainties. Factors that may cause actual results to differ materially from
those contemplated or projected, forecast, estimated or budgeted in such
forward looking statements include, among others, the following possibilities:
(i) heightened competition, including specifically the intensification of
price competition, the entry of new competitors and the development of new
products by new and existing competitors; (ii) adverse state and federal
legislation and regulation, including limitations on premium levels, increases
in minimum capital and reserves, and other financial viability requirements;
(iii) failure to develop multiple distribution channels in order to obtain new
customers or failure to retain existing customers; (iv) inability to carry out
marketing and sales plans, including, among others, changes to certain
products and acceptance of the revised products in the market; (v) loss of key
executives; (vi) changes in interest rates causing a reduction of investment
income; (vii) general economic and business conditions which are less
favorable than expected; (viii) unanticipated changes in industry trends; (ix)
inaccuracies in assumptions regarding future morbidity, persistency, mortality
and interest rates used in calculating reserve amounts; (x) failure to
continue improvement of the claims management process; and (xi) with respect
to cost savings that will be realized from, and costs associated with, the
acquisition of The Paul Revere Corporation ("Paul Revere") (the "Paul Revere
Merger"), the following possibilities: (a) the expected cost savings to be
realized beginning primarily in 1997 through combining certain functions of
both the Company and Paul Revere, restructuring the field organizations of
both companies to eliminate redundant facilities and better serve the combined
company's customers, and reductions in staff cannot be fully realized because
the changes are not made or unanticipated offsetting costs are incurred; and
(b) costs or difficulties related to the integration of the businesses of the
Company and Paul Revere are greater than expected. See "Risk Factors."
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents have been filed by the Company (File No. 1-11834)
with the Commission pursuant to the Exchange Act, and are incorporated herein
by reference:
1. The Company's Annual Report on Form 10-K for the year ended December
31, 1996;
2. The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1997;
3. The Company's Current Reports on Form 8-K dated March 27, 1997; and
4. The description of the Company's capital stock set forth in the
Company's registration statement filed with the Commission pursuant to
Section 12 of the Exchange Act, and any amendment or report filed for the
purpose of updating any such description.
In addition, all documents filed by the Company pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date hereof and prior to the
termination of the offering hereunder shall be deemed to be incorporated by
reference in this Prospectus or any Prospectus Supplement and to be part
hereof from the date of filing of such documents. Any statement contained in a
document incorporated by reference herein or in any Prospectus Supplement
shall be deemed to be modified or superseded for all purposes to the extent
that a statement contained herein or in any other subsequently filed document
which is deemed to be incorporated by reference herein or in any Prospectus
Supplement modifies or supersedes such statement. Any statement so modified or
superseded shall not be deemed, except as modified or superseded, to
constitute a part of this Prospectus or any Prospectus Supplement.
The Company will provide, without charge, to each person to whom a copy of
this Prospectus is delivered, upon the written or oral request of such person,
a copy of any and all of the documents incorporated by reference (not
including the exhibits to such documents, unless such exhibits are
specifically incorporated by reference in such documents). Requests for such
copies should be directed to Susan N. Roth, Secretary, Provident Companies,
Inc., 1 Fountain Square, Chattanooga, Tennessee 37402, or by telephone at
(423) 755-1011 or facsimile at (423) 755-3194.
4
<PAGE>
THE COMPANY
The Company is the largest provider of individual disability insurance and
the second largest overall disability insurer in the United States on the
basis of in-force premiums. It also provides a complementary portfolio of life
insurance products, including life insurance, annuities, employer- and
employee-paid group benefits and related services. The Company is the parent
holding company for a group of insurance companies that collectively operate
in all 50 states, the District of Columbia, Puerto Rico, and Canada.
Since 1994, the Company has completed a comprehensive corporate
repositioning that has prepared it to support growth and increase stockholder
value. A new management team headed by J. Harold Chandler, who joined the
Company in November 1993, initiated a strategic review of the business. As a
result of its review, management refocused the Company's strategy to (i) serve
the individual and employee benefits insurance markets, (ii) leverage the
Company's disability insurance expertise, (iii) utilize multiple distribution
channels to reach broader market segments, and (iv) more closely align the
interests of the Company's employees with those of its stockholders.
The Company has successfully undertaken a number of major initiatives in
pursuing this strategy. These initiatives include strengthening its capital
position and investment portfolio, reorganizing internally, and reassessing
its product offerings. The acquisitions of Paul Revere and GENEX Services,
Inc. in early 1997 are the latest accomplishments under the Company's
strategic plan. Both acquisitions strengthen the Company's disability
insurance capabilities and enable the Company to offer a more complete
portfolio of products and services to its customers.
The Company's principal executive offices are located at 1 Fountain Square,
Chatanooga, Tennessee 34702, and its telephone number is (423) 755-1011.
5
<PAGE>
THE PROVIDENT TRUST
The Provident Trust is a statutory business trust created under Delaware law
pursuant to (i) a declaration of trust (as amended and restated, the
"Declaration") executed by the Company as sponsor for such trust (the
"Sponsor"), and certain of the Provident Trustees (as defined herein) of such
trust and (ii) the filing of a certificate of trust with the Secretary of
State of the State of Delaware on April 10, 1997. The Provident Trust exists
for the exclusive purposes of (i) issuing the Preferred Securities and common
securities representing undivided beneficial interests in the assets of the
Provident Trust (the "Common Securities" and, together with the Preferred
Securities, the "Trust Securities"), (ii) investing the gross proceeds from
the sale of the Trust Securities in Subordinated Debt Securities, and (iii)
engaging in only those other activities necessary or incidental thereto. All
of the Common Securities will be directly or indirectly owned by the Company.
The Common Securities will rank pari passu, and payments will be made thereon
pro rata, with the Preferred Securities, except that, if any event of default
under the Declaration has occurred and is continuing, the rights of the
holders of the Common Securities to payment in respect of distributions and
payments upon liquidation, redemption and otherwise will be subordinated to
the rights of the holders of the Preferred Securities. The Company will
directly or indirectly acquire Common Securities in an aggregate liquidation
amount equal to at least 3% of the total capital of the Provident Trust.
The Provident Trust has a term of approximately 45 years but may dissolve
earlier, as provided in the Declaration. The Provident Trust's business and
affairs will be conducted by the trustees (the "Provident Trustees") appointed
by the Company as the direct or indirect holder of all the Common Securities.
The holder of the Common Securities will be entitled to appoint, remove or
replace any of, or increase or reduce the number of, the Provident Trustees.
The duties and obligations of the Provident Trustees shall be governed by the
Declaration. A majority of the Provident Trustees (the "Regular Trustees")
will be persons who are employees or officers of or who are affiliated with
the Company. One Provident Trustee will be a financial institution that is
unaffiliated with the Company and has a minimum amount of combined capital and
surplus of not less than $50,000,000, which shall act as property trustee and
as indenture trustee for the purpose of compliance with the provisions of the
Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"), pursuant
to the terms set forth in the applicable Prospectus Supplement (the "Property
Trustee"). In addition, unless the Property Trustee maintains a principal
place of business in the State of Delaware and otherwise meets the
requirements of applicable law, one Provident Trustee will be an entity having
a principal place of business in the State of Delaware (the "Delaware
Trustee"). The Company will pay all fees and expenses related to the Provident
Trust and the offering of the Trust Securities.
The Property Trustee is The Chase Manhattan Bank, 450 West 33rd Street, 15th
Floor, New York, New York 10001. The Delaware Trustee is First Union Trust
Company, National Association and its address in the State of Delaware is One
Rodney Square, 920 King Street, 1st floor, Wilmington, Delaware 19801. The
principal place of business of the Provident Trust shall be c/o Provident
Companies, Inc., 1 Fountain Square, Chattanooga, Tennessee 37402; telephone
(423) 755-1011.
6
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus,
prospective investors should consider carefully the following factors before
making an investment in the Offered Securities offered hereby. Any one or more
of such factors may cause the Company's actual results for various financial
reporting periods to differ materially from those expressed in any forward-
looking statements made by or on behalf of the Company.
RESERVES
The Company maintains reserves for future policy benefits and unpaid claims
expenses which include policy reserves and claim reserves established for its
individual disability insurance, group insurance, and individual life
insurance products. Policy reserves represent the portion of premiums received
which are reserved to provide for future claims. Claim reserves are
established for future payments not yet due on claims already incurred,
primarily relating to individual disability and group disability insurance
products. Reserves, whether calculated under generally accepted accounting
principles ("GAAP") or statutory accounting practices, do not represent an
exact calculation of future benefit liabilities but are instead estimates made
by the Company using actuarial and statistical procedures. There can be no
assurance that any such reserves would be sufficient to fund future
liabilities of the Company in all circumstances. Future loss development could
require reserves to be increased, which would adversely affect earnings in
current and future periods. Adjustments to reserve amounts may be required in
the event of changes from the assumptions regarding future morbidity (the
incidence of claims and the rate of recovery, including the effects thereon of
inflation, and other societal and economic factors), persistency, mortality,
and interest rates used in calculating the reserve amounts.
CAPITAL ADEQUACY
The capacity for an insurance company's growth in premiums is in part a
function of its statutory surplus. Maintaining appropriate levels of statutory
surplus, as measured by state insurance regulators, is considered important by
state insurance regulatory authorities and the private agencies that rate
insurers' claims-paying abilities and financial strength. Failure to maintain
certain levels of statutory surplus could result in increased regulatory
scrutiny, action by state regulatory authorities or a downgrade by the private
rating agencies.
Effective in 1993, the National Association of Insurance Commissioners
("NAIC") adopted a risk-based capital ("RBC") formula, which prescribes a
system for assessing the adequacy of statutory capital and surplus for all
life and health insurers. The basis of the system is a risk-based formula that
applies prescribed factors to the various risk elements in a life and health
insurer's business to report a minimum capital requirement proportional to the
amount of risk assumed by the insurer. The life and health RBC formula is
designed to measure annually (i) the risk of loss from asset defaults and
asset value fluctuation, (ii) the risk of loss from adverse mortality and
morbidity experience, (iii) the risk of loss from mismatching of asset and
liability cash flow due to changing interest rates and (iv) business risks.
The formula is to be used as an early warning tool to identify companies that
are potentially inadequately capitalized. The formula is intended to be used
as a regulatory tool only and is not intended as a means to rank insurers
generally.
Based on computations made by the Company in accordance with the prescribed
life and health RBC formula, each of the Company's life insurance subsidiaries
exceeded the minimum capital requirements at December 31, 1996.
During 1995 and 1996, the Division of Insurance of the Commonwealth of
Massachusetts (the "Massachusetts Division of Insurance") conducted a
quadrennial examination of The Paul Revere Life Insurance Company ("Paul
Revere Life") and The Paul Revere Variable Annuity Insurance Company ("Paul
Revere Varible") for the period ended December 31, 1994. In connection with
this examination, as well as in consideration of a comprehensive study
undertaken by Paul Revere in 1995 and early 1996 of its statutory reserves,
Paul Revere Life and The Paul Revere Protective Life Insurance Company ("Paul
Revere Protective") strengthened their individual disability statutory
reserves by a combined total of $35.0 million and reflected this strengthening
in the annual statutory financial statements for the year ended December 31,
1995.
7
<PAGE>
During the third quarter of 1996, Paul Revere initiated a comprehensive
study of the adequacy of its individual disability reserves under GAAP and
under statutory accounting principles to consider experience through September
30, 1996. The results of such study prompted Paul Revere to strengthen its
GAAP individual disability reserves by $380.0 million before taxes in the
quarter ended September 30, 1996. The Massachusetts Division of Insurance
subsequently updated its examination of Paul Revere's statutory reserves to
review the results of Paul Revere's statutory reserve study, with the result
that Paul Revere's statutory reserves were strengthened by $144.0 million. In
connection with the Paul Revere Merger, Textron Inc. ("Textron"), the
principal stockholder of Paul Revere, contributed $121.0 million, representing
the amount of the statutory reserve increases, net of tax benefits, as
additional capital to Paul Revere prior to the effective time of the Paul
Revere Merger.
DISABILITY INSURANCE
Disability insurance may be affected by a number of social, economic,
governmental, competitive, and other factors. Changes in societal attitudes,
work ethics, motivation, stability, and mores can significantly affect the
demand for and underwriting results from disability products. Economic
conditions affect not only the market for disability products, but also
significantly affect the claims rates and length of claims. The climate and
the nature of competition in disability insurance have also been markedly
affected by the growth of Social Security, worker's compensation, and other
governmental programs in the workplace. The nature of that portion of the
Company's outstanding insurance business that consists of noncancelable
disability policies, whereby the policy is guaranteed renewable through the
life of the policy at a fixed premium, does not permit the Company to adjust
its premiums on business in-force on account of changes resulting from such
factors. Disability insurance products are important products for the Company.
To the extent that disability products are adversely affected in the future as
to sales or claims, the business or results of operations of the Company could
be materially adversely affected.
INDUSTRY FACTORS
All of the Company's businesses are highly regulated and competitive. The
Company's profitability is affected by a number of factors, including rate
competition, frequency and severity of claims, lapse rates, government
regulation, interest rates, and general business considerations. There are
many insurance companies which actively compete with the Company in its lines
of business, some of which are larger and have greater financial resources
than the Company, and there is no assurance that the Company will be able to
compete effectively against such companies in the future.
In recent years, some U.S. life insurance companies have faced claims,
including class-action lawsuits, alleging various improper sales practices in
the sales of certain types of life insurance products. These claims often
relate to the selling of whole life and universal life policies that
accumulate cash values which may be utilized to fund the cost of insurance in
later years of the policy. Due to subsequent reductions in dividends or
interest credited or due to other factors, the cash values have not
accumulated sufficiently to cover costs of insurance, resulting in the need
for ongoing premium payments. Although never a principal product line for the
Company or Paul Revere, both companies have sold a modest amount of interest
sensitive whole life and universal life policies. There can be no assurance
that any future claims relating to sales of such policies will not have a
material adverse effect on the Company.
EFFECT OF THE PAUL REVERE MERGER; INTEGRATION OF OPERATIONS
The success of the Paul Revere Merger will be determined by various factors,
including the financial performance of the combined company's operations and
management's ability to realize expected cost savings through combining
certain functions of both the Company and Paul Revere and restructuring the
field organizations of both companies. The integration of the operations of
Paul Revere and the Company may be negatively affected if, among other things,
the proposed changes are not made, customers do not react positively to some
of the planned changes intended to increase service or integrate the
businesses of the two companies,
8
<PAGE>
unanticipated offsetting costs are incurred, or costs or difficulties related
to the integration of the businesses of the Company and Paul Revere are
greater than expected. There can be no assurance that the anticipated benefits
of the Paul Revere Merger will be realized or that the Paul Revere Merger will
not adversely affect the future operating results of the Company.
FOREIGN CURRENCY RISKS
An investment in the Offered Securities denominated in other than U.S.
dollars entails significant risks that are not associated with a similar
investment in a security denominated in U.S. dollars. Such risks include,
without limitation, the possibility of significant changes in rates of
exchange between the U.S. dollar and the various foreign currencies or
composite currencies, and the possibility of the imposition or modification of
foreign exchange controls by either the U.S. or foreign governments. Such
risks generally depend on economic and political events over which the Company
has no control. In recent years, rates of exchange between the U.S. dollar and
certain foreign currencies have been highly volatile, and such volatility may
be expected to continue in the future. Fluctuations in any particular exchange
rate that have occurred in the past are not necessarily indicative, however,
of fluctuations in the rate that may occur during the term of any Offered
Security. Depreciation of the specified currency other than U.S. dollars
against the U.S. dollar would result in a decrease in the effective yield of
such Offered Security below its coupon rate, and in certain circumstances
could result in a loss to the investor on a U.S. dollar basis.
Governments have imposed from time to time and may in the future impose
exchange controls that could affect exchange rates as well as the availability
of a specified foreign currency at an offered Security's maturity. Even if
there are no actual exchange controls, it is possible that the specified
currency for any particular Offered Security would not be available at such
Offered Security's maturity. In that event, the Company will repay such
Offered Security at maturity in U.S. dollars on the basis of the most recently
available Exchange Rate.
This Prospectus does not describe all the risks of an investment in Offered
Securities denominated in other than U.S. dollars. Prospective investors
should consult their own financial and legal advisors as to the risks entailed
by an investment in Offered Securities denominated in other than U.S. dollars.
Offered Securities denominated in other than U.S. dollars are not an
appropriate investment for investors who are unsophisticated about foreign
currency transactions.
Currently, there are limited facilities in the United States for conversion
of U.S. dollars into certain foreign currencies, and vice versa.
USE OF PROCEEDS
Unless otherwise specified in the applicable Prospectus Supplement for any
offering of the Offered Securities, the net proceeds received by the Company
from the sale of the Offered Securities will be used for general corporate
purposes, which may include without limitation funding investments in, or
extensions of credit to, the Company's subsidiaries, repayment of maturing
obligations, redemption of outstanding indebtedness or other securities,
financing possible future acquisitions and for working capital. Pending such
use, the Company may temporarily invest the net proceeds or may use them to
reduce short-term indebtedness. The proceeds from the sale of Preferred
Securities by the Provident Trust will be invested in Subordinated Debt
Securities of the Company. The Company does not have any present plans, and is
not engaged in any negotiations, for the use of any such proceeds, or the
issuance of Common Stock, in any future acquisition. Any proposal to use
proceeds from any offering of the Offered Securities in connection with an
acquisition will be disclosed in the Prospectus Supplement relating to such
offering.
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CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES AND EARNINGS TO COMBINED
FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
The consolidated ratio of earnings to fixed charges for the Company
including its consolidated subsidiaries is computed by dividing earnings by
fixed charges. The ratio of earnings to combined fixed charges and preferred
stock dividends is computed by dividing earnings by the sum of fixed charges
and preferred stock dividend requirements. For these purposes earnings consist
primarily of income (loss) from continuing operations before income taxes
adjusted for fixed charges. Fixed charges consist primarily of interest
(whether expensed or capitalized), amortization of debt expense and discount
of premium relating to any indebtedness, whether expensed or capitalized, and
the portion of rental expense representative of the interest factor in these
rentals.
The following table sets forth the Company's consolidated ratios of earnings
to fixed charges and ratios of earnings to fixed charges and preferred
dividends for the periods shown:
<TABLE>
<CAPTION>
THREE MONTHS YEAR ENDED DECEMBER 31,
ENDED -------------------------
MARCH 31, 1997 1996 1995 1994 1993 1992
-------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed
Charges(a)(b)....................... 16.4 12.9 9.5 8.9 (5.1) 8.3
Ratio of Earnings to Combined Fixed
Charges and Preferred Stock
Dividends(b)........................ 7.2 6.5 5.3 5.3 (3.3) 8.3
</TABLE>
- --------
(a) Excludes preferred stock dividends.
(b) This financial information does not reflect the anticipated effects of the
Paul Revere Merger.
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DESCRIPTION OF DEBT SECURITIES
GENERAL
The following description of the terms of the Senior Debt Securities and
Subordinated Debt Securities (collectively, the "Debt Securities") sets forth
certain general terms and provisions of the Debt Securities to which any
Prospectus Supplement may relate. The particular terms of the Debt Securities
offered by any Prospectus Supplement and the extent, if any, to which such
general provisions may not apply to the Debt Securities so offered will be
described in the Prospectus Supplement relating to such Debt Securities.
The Senior Debt Securities are to be issued under an indenture (the "Senior
Indenture"), to be entered into between the Company and The Chase Manhattan
Bank, as Trustee. The Subordinated Debt Securities are to be issued under an
indenture (the "Subordinated Indenture"), also to be entered into between the
Company and The Chase Manhattan Bank, as Trustee. The term "Trustee" as used
herein shall refer to The Chase Manhattan Bank, or such other bank or trust
company as the Company may appoint as trustee pursuant to the terms of the
applicable Indenture, in its or their capacity as Trustee for the Senior Debt
Securities or the Subordinated Debt Securities, as appropriate. The forms of
the Senior Indenture and the Subordinated Indenture (being sometimes referred
to herein collectively as the "Indentures" and individually as an "Indenture")
are filed as exhibits to the Registration Statement. The Indentures are
subject to and governed by the Trust Indenture Act, and may be supplemented
from time to time following execution. The statements made under this heading
relating to the Debt Securities and the Indentures are summaries of the
provisions thereof and do not purport to be complete and are qualified in
their entirety by reference to the Indentures and such Debt Securities. All
section and article references below are to sections of the Indentures and
capitalized terms used but not defined herein shall have the respective
meanings set forth in the Indentures. Wherever particular sections or defined
terms of the Indentures are referred to, it is intended that such sections or
defined terms shall be incorporated herein by reference.
TERMS
The Debt Securities will be direct, unsecured obligations of the Company.
The indebtedness represented by the Senior Debt Securities will rank pari
passu with all other unsecured and unsubordinated debt of the Company. The
indebtedness represented by the Subordinated Debt Securities will rank junior
and subordinate in right of payment, to the extent and in the manner set forth
in the Subordinated Indenture, to the prior payment in full of the Senior Debt
of the Company as described under "Subordination."
The amount of Debt Securities offered by this Prospectus will be limited to
the amount described on the cover of this Prospectus. Each Indenture provides
that the Debt Securities may be issued without limit as to aggregate principal
amount, in one or more series, in each case as established from time to time
in, or pursuant to authority granted by, a resolution of the Board of
Directors of the Company or as established in one or more indentures
supplemental to such Indenture. Debt Securities may be issued with terms
different from those of Debt Securities previously issued; all Debt Securities
of one series need not be issued at the same time and, unless otherwise
provided, a series may be reopened, without the consent of the Holders of the
Debt Securities of such series, for issuances of additional Debt Securities of
such series. (Section 301 of each Indenture) The Debt Securities may be
denominated and payable in foreign currencies or units based on or related to
foreign currencies, including European Currency Units. Special United States
federal income tax considerations applicable to any Debt Securities so
denominated are described in the relevant Prospectus Supplement.
Each Indenture provides that there may be more than one Trustee thereunder,
each with respect to one or more series of Debt Securities. Any Trustee under
an Indenture may resign or be removed with respect to one or more series of
Debt Securities, and a successor Trustee may be appointed to act with respect
to such series. (Section 608 of each Indenture) In the event that two or more
persons are acting as Trustee with respect to different series of Debt
Securities, each such Trustee shall be a Trustee of a trust under the
applicable Indenture separate and apart from the trust administered by any
other Trustee (Section 101 and Section 609 of each Indenture), and, except as
otherwise indicated herein, any action described herein to be taken by each
Trustee
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may be taken by each such Trustee with respect to, and only with respect to,
the one or more series of Debt Securities for which it is Trustee under the
applicable Indenture.
Reference is made to the applicable Prospectus Supplement relating to a
particular series of Debt Securities being offered thereby for the specific
terms thereof, including, but not limited to:
(1) the title of such Debt Securities and whether such Debt Securities
are Senior Debt Securities or Subordinated Debt Securities;
(2) the aggregate principal amount of such Debt Securities and any limit
on such aggregate principal amount;
(3) the price (expressed as a percentage of the principal amount thereof)
at which such Debt Securities will be issued;
(4) the terms, if any, by which such securities may be convertible into
or exchangeable for Common Stock or other securities or property of the
Company;
(5) if convertible or exchangeable, any applicable limitations on the
ownership or transferability of the securities or property into which such
Debt Securities are convertible or exchangeable;
(6) the date or dates, or the method for determining such date or dates,
on which the principal of such Debt Securities will be payable and the
amount of principal payable thereon;
(7) the rate or rates (which may be fixed or variable at which such Debt
Securities will bear interest, if any), or the method by which such rate or
rates shall be determined;
(8) the date or dates, or the method for determining such date or dates,
from which any such interest will accrue, the dates on which any such
interest will be payable, the Regular Record Dates (as defined in the
Indenture) if any, for such interest payable, or the method by which such
dates shall be determined, the Persons to whom such interest shall be
payable, and the basis upon which interest shall be calculated if other
than that of a 360-day year consisting of twelve 30-day months;
(9) the place or places where the principal of and premium or Make-Whole
Amount (as defined in the Indenture, if any), interest, if any, on and
Additional Amounts (as defined in the Indenture), if any, payable in
respect of such Debt Securities will be payable, where such Debt Securities
may be surrendered for conversion or registration of transfer or exchange
and where notices or demands to or upon the Company in respect of such Debt
Securities and the Indenture may be served;
(10) if other than the Trustee, the identity of each Security Registrar
and/or Paying Agent;
(11) the period or periods within which, the price or prices (including
premium or Make-Whole Amount, if any) at which, the currency or currencies,
currency unit or units or composite currency or currencies in which, and
the other terms and conditions upon which such Debt Securities may be
redeemed, as a whole or in part, at the option of the Company if the
Company is to have such an option;
(12) the obligation, if any, of the Company to redeem, repay or purchase
Debt Securities pursuant to any sinking fund or analogous provision or at
the option of a Holder thereof, and the period or periods within which or
the date or dates on which, the price or prices at which, the currency or
currencies, currency unit or units or composite currency or currencies in
which, and other terms and conditions upon which Debt Securities shall be
redeemed, repaid or purchased, in whole or in part, pursuant to such
obligation;
(13) the currency or currencies in which such Debt Securities are being
sold and are denominated and payable, which may be a foreign currency or
units of two or more foreign currencies or a composite currency or
currencies, and the terms and conditions relating thereto;
(13) whether the amount of payment of principal of (and premium or Make-
Whole Amount, if any) or interest, if any, on such Debt Securities may be
determined with reference to an index, formula or other method (which
index, formula or method may, but need not be, based on a currency,
currencies, currency unit or units, composite currency or currencies,
commodities, equity indices or other indices) and the manner in which such
amounts shall be determined;
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<PAGE>
(14) whether the principal of (and premium or Make-Whole Amount, if any)
or interest or Additional Amounts, if any, on such Debt Securities are to
be payable, at the election of the Company or a Holder thereof, in a
currency or currencies, currency unit or units or composite currency or
currencies other than that in which such Debt Securities are denominated or
stated to be payable, the period or periods within which, and the terms and
conditions upon which, such election may be made, and the time and manner
of, and identity of the exchange rate agent with responsibility for,
determining the exchange rate between the currency or currencies, currency
unit or units or composite currency or currencies in which such Debt
Securities are denominated or stated to be payable and the currency or
currencies, currency unit or units or composite currency or currencies in
which such Debt Securities are to be payable;
(15) provisions, if any, granting special rights to the Holders of such
Debt Securities upon the occurrence of such events as may be specified;
(16) any addition to, modifications of or deletions from the terms of
such Debt Securities with respect to the Events of Default or covenants set
forth in the applicable Indenture;
(17) whether such Debt Securities will be issued in certificated or book-
entry form and terms and conditions relating thereto;
(18) whether such Debt Securities will be in registered ("Registered Debt
Securities") or bearer ("Bearer Debt Securities") form and terms and
conditions relating thereto, and if in registered form, the denominations
thereof if other than $1,000 and any integral multiple thereof and, if in
bearer form, the denominations thereof if other than $5,000;
(19) the applicability, if any, of the defeasance and covenant defeasance
provisions of the Indenture;
(20) any applicable United States federal income tax consequences,
including whether and under what circumstances the Company will pay
Additional Amounts, if any, as contemplated in the applicable Indenture on
such Debt Securities to any Holder who is not a United States person in
respect of any tax, assessment or governmental charge withheld or deducted
and, if so, whether the Company will have the option to redeem such Debt
Securities in lieu of paying such Additional Amounts (and the terms of any
such option);
(21) any other covenant or warranty included for the benefit of the Debt
Securities in addition to (and not inconsistent with) those included in the
Indenture for the benefit of Debt Securities of all series, or any other
covenant or warranty included for the benefit of the Debt Securities in
lieu of any covenant or warranty included in the Indenture for the benefit
of Debt Securities of all series or any provision that any covenant or
warranty included in the Indenture for the benefit of Debt Securities of
all series shall not be for the benefit of the Debt Securities, or any
combination of such covenants, warranties or provisions;
(22) the proposed listing, if any, of the Debt Securities on any
securities exchange; and
(23) any other terms of such Debt Securities not inconsistent with the
provisions of the applicable Indenture. (Section 301 of each Indenture)
The Debt Securities may provide for less than the entire principal amount
thereof to be payable upon declaration of acceleration of the maturity thereof
as a result of the occurrence and continuation of an Event of Default
("Original Issue Discount Securities"). (Section 502 of each Indenture) Any
special U.S. federal income tax, accounting and other considerations
applicable to Original Issue Discount Securities will be described in the
applicable Prospectus Supplement.
Debt Securities may be issued, from time to time, with the principal amount
payable on any principal payment date, or the amount of interest payable on
any interest payment date, to be determined by reference to one or more
currency exchange rates, commodity prices, equity indices or other factors.
Holders of such Debt Securities may receive a principal amount on any
principal payment date, or a payment of interest on any interest payment date,
that is greater than or less than the amount of principal or interest
otherwise payable on such dates, depending upon the value on such dates of the
applicable currency, commodity, equity index or other factors. Information as
to the methods for determining the amount of principal or interest payable on
any date, the
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<PAGE>
currencies, commodities, equity indices or other factors to which the amount
payable on such date is linked and certain additional tax considerations will
be set forth in the applicable Prospectus Supplement.
The Indentures do not contain any provisions that afford Holders of the Debt
Securities protection in the event of a highly leveraged or similar
transaction involving the Company.
DENOMINATIONS, INTEREST, REGISTRATION AND TRANSFER
Unless otherwise described in the applicable Prospectus Supplement, the Debt
Securities of any series issued in registered form will be issuable in
denominations of $1,000 and integral multiples thereof. Unless otherwise
described in the applicable Prospectus Supplement, the Debt Securities of any
series issued in bearer form will be issuable in denominations of $5,000.
(Section 302 of each Indenture)
Unless otherwise specified in the applicable Prospectus Supplement, the
principal of (and applicable premium or Make-Whole Amount, if any) and
interest, if any, on any series of Debt Securities will be payable in the
currency designated in the Prospectus Supplement at the corporate trust office
of the Trustee, initially located at The Chase Manhattan Bank, 450 West 33rd,
Global Trust Services, 15th Floor, New York, New York 10001 in the case of
each of the Senior Debt Securities and the Subordinated Debt Securities,
provided that, at the option of the Company, payment of interest may be made
by check mailed to the address of the Person (as defined in the Indentures)
entitled thereto as it appears in the Security Register for such series or by
wire transfer of funds to such Person at an account maintained within the
United States. (Sections 301, 305, 307 and 1002 of each Indenture) The Company
may at any time designate additional Paying Agents or rescind the designation
of any Paying Agents or approve a change in the office through which any
Paying Agent acts, except that the Company will be required to maintain a
Paying Agent in each Place of Payment for such series. All monies paid by the
Company to a Paying Agent for the payment of principal of and premium, if any,
and interest, if any, on any Debt Security which remains unclaimed at the end
of two years after such principal, premium or interest shall have become due
and payable will be repaid to the Company, and the Holder of such Offered Debt
Security will thereafter look only to the Company for payment thereof.
(Section 1003 of each Indenture)
Any interest not punctually paid or duly provided for on any Interest
Payment Date with respect to a Debt Security ("Defaulted Interest") will
forthwith cease to be payable to the Holder on the applicable Regular Record
Date and may either be paid to the person in whose name such Debt Security is
registered at the close of business on a special record date (the "Special
Record Date") for the payment of such Defaulted Interest to be fixed by the
applicable Trustee, notice whereof shall be mailed to each Holder of such Debt
Security not less than 10 days prior to such Special Record Date, or may be
paid at any time in any other lawful manner, all as more completely described
in the applicable Indenture. (Section 307 of each Indenture)
Subject to certain limitations imposed upon Debt Securities issued in book-
entry form, the Debt Securities of any series will be exchangeable for other
Debt Securities of the same series and of a like aggregate principal amount
and tenor of different authorized denominations upon surrender of such Debt
Securities at the corporate trust office of the applicable Trustee referred to
above. In addition, subject to certain limitations imposed upon Debt
Securities issued in book-entry form, the Debt Securities of any series may be
surrendered for conversion or registration of transfer or exchange at the
corporate trust office of the applicable Trustee referred to above. Every Debt
Security surrendered for conversion, registration of transfer or exchange
shall be duly endorsed or accompanied by a written instrument of transfer. No
service charge will be made for any registration of transfer or exchange of
any Debt Securities, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge payable in connection therewith.
(Section 305 of each Indenture) If the applicable Prospectus Supplement refers
to any transfer agent (in addition to the applicable Trustee) initially
designated by the Company with respect to any series of Debt Securities, the
Company may at any time rescind the designation of any such transfer agent or
approve a change in the location through which any such transfer agent acts,
except that the Company will be required to maintain a transfer agent in each
Place of Payment for such series. The Company may at any time designate
additional transfer agents with respect to any series of Debt Securities.
(Section 1002 of each Indenture)
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Neither the Company nor any Trustee shall be required to: (i) issue,
register the transfer of or exchange Debt Securities of any series during a
period beginning at the opening of business 15 days before any selection of
Debt Securities of that series to be redeemed and ending at the close of
business on the day of mailing or publication of the relevant notice of
redemption; (ii) register the transfer of or exchange any Debt Security, or
portion thereof, called for redemption, except the unredeemed portion of any
Debt Security being redeemed in part; (iii) exchange any Bearer Debt Security
selected for redemption, except that such a Bearer Debt Security may be
exchanged for a Registered Debt Security of that series and like tenor,
provided that such Registered Debt Security shall be simultaneously
surrendered for redemption or exchange; or (iv) issue, register the transfer
of or exchange any Debt Security that has been surrendered for repayment at
the option of the Holder, except the portion, if any, of such Debt Security
not to be so repaid. (Section 305 of each Indenture)
GLOBAL DEBT SECURITIES
The registered Debt Securities of a series may be issued in the form of one
or more fully registered global Securities (a "Registered Global Security")
that will be deposited with a depositary (a "Depositary") or with a nominee
for a Depositary identified in the Prospectus Supplement relating to such
series and registered in the name of the Depositary or a nominee thereof. In
such case, one or more Registered Global Securities will be issued in a
denomination or aggregate denominations equal to the portion of the aggregate
principal amount of outstanding registered Debt Securities of the series to be
represented by such Registered Global Security or Securities. Unless and until
it is exchanged in whole for Debt Securities in definitive registered form, a
Registered Global Security may not be transferred except as a whole by the
Depositary for such Registered Debt Security to a nominee of such Depositary
or by a nominee of such Depositary to such Depositary or another nominee of
such Depositary or by such Depositary or any such nominee to a successor of
such Depositary or a nominee of such successor.
The specific terms of the depositary arrangement with respect to any portion
of a series of Debt Securities to be represented by a Registered Global
Security will be described in the Prospectus Supplement relating to such
series. The Company anticipates that the following provisions will apply to
all depositary arrangements.
Ownership of beneficial interests in a Registered Global Security will be
limited to persons that have accounts with the Depositary for such Registered
Global Security ("participants") or persons that may hold interests through
participants. Upon the issuance of a Registered Global Security, the
Depositary for such Registered Global Security will credit, on its book-entry
registration and transfer system, the participants' accounts with the
respective principal amounts of the Debt Securities represented by such
Registered Global Security beneficially owned by such participants. The
accounts to be credited shall be designated by any dealers, underwriters or
agents participating in the distribution of such Debt Securities. Ownership of
beneficial interests in such Registered Global Security will be shown on, and
the transfer of such ownership interests will be effected only through,
records maintained by the Depositary for such Registered Global Security (with
respect to interests of participants) and on the records of participants (with
respect to interests of persons holding through participants). The laws of
some states may require that certain purchasers of securities take physical
delivery of such securities in definitive form. Such limits and such laws may
impair the ability to own, transfer or pledge beneficial interests in
Registered Global Securities.
So long as the Depositary for a Registered Global Security, or its nominee,
is the registered owner of such Registered Global Security, such Depositary or
such nominee, as the case may be, will be considered the sole owner or holder
of the Debt Securities represented by such Registered Global Security for all
purposes under the applicable Indenture. Except as set forth below, owners of
beneficial interests in a Registered Global Security will not be entitled to
have the Debt Securities represented by such Registered Global Security
registered in their names, will not receive or be entitled to receive physical
delivery of such Debt Securities in definitive form and will not be considered
the owners or holders thereof under the applicable Indenture. Accordingly,
each person owning a beneficial interest in a Registered Global Security must
rely on the procedures of the Depositary for such Registered Global Security
and, if such person is not a participant, on the procedures of the participant
through which such person owns its interest, to exercise any rights of a
holder under the applicable Indenture.
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The Company understands that under existing industry practices, if the Company
requests any action of holders or if an owner of a beneficial interest in a
Registered Global Security desires to give or take any action which a holder
is entitled to give or take under the applicable Indenture, the Depositary for
such Registered Global Security would authorize the participants holding the
relevant beneficial interests to give or take such action, and such
participants would authorize beneficial owners owning through such
participants to give or take such action or would otherwise act upon the
instructions of beneficial owners holding through them.
Payments of principal and premium, if any, and interest, if any, of Debt
Securities represented by a Registered Global Security registered in the name
of a Depositary or its nominee will be made to such Depositary or its nominee,
as the case may be, as the registered owners of such Registered Global
Security. None of the Company, the Trustee or any other agent of the Company
or agent of the Trustee will have any responsibility or liability for any
aspect of the records relating to or payments made on account of beneficial
ownership interests in such Registered Global Security or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
The Company expects that the Depositary for any Debt Securities represented
by a Registered Global Security, upon receipt of any payment of principal,
premium or interest in respect of such Registered Global Security, will
immediately credit participants' accounts with payments in amounts
proportionate to their respective beneficial interests in such Registered
Global Security as shown on the records of such Depositary. The Company also
expects that payments by participants to owners of beneficial interests in
such Registered Global Security held through such participants will be
governed by standing customer instructions and customary practices, as is now
the case with the securities held for the accounts of customers in bearer form
or registered in "street name," and will be the responsibility of such
participants.
If the Depositary for any Debt Securities represented by a Registered Global
Security is at any time unwilling or unable to continue as Depositary or
ceases to be a clearing agency registered under the Exchange Act, and a
successor Depositary registered as a clearing agency under the Exchange Act is
not appointed by the Company within 90 days, the Company will issue such Debt
Securities in definitive form in exchange for such Registered Global Security.
In addition, the Company may at any time and in its sole discretion determine
not to have any of the Debt Securities of a series represented by one or more
Registered Global Securities and, in such event, will issue Debt Securities of
such series in a definitive form in exchange for all of the Registered Global
Security or Securities representing such Debt Securities. Any Debt Securities
issued in definitive form in exchange for a Registered Global Security will be
registered in such name or names as the Depositary shall instruct the Trustee.
It is expected that such instructions will be based upon directions received
by the Depositary from participants with respect to ownership of beneficial
interests in such Registered Global Security.
Bearer Debt Securities of a series may also be issued in the form of one or
more global Securities (a "Bearer Global Security") that will be deposited
with a common depositary for Euroclear and CEDEL, or with a nominee for such
depositary identified in the Prospectus Supplement relating to such series.
The specific terms and procedures, including the specific terms of the
depositary arrangement and any specific procedures for the issuance of Debt
Securities in definitive form in exchange for a Bearer Global Security, with
respect to any portion of a series of Debt Securities to be represented by a
Bearer Global Security will be described in the Prospectus Supplement relating
to such series.
MERGER, CONSOLIDATION OR SALE
The Company may consolidate with, or sell, lease or convey all or
substantially all of its assets to, or merge with or into, any other
corporation or trust or entity provided that: (i) either the Company shall be
the continuing entity, or the successor entity (if other than the Company)
formed by or resulting from any such consolidation or merger or which shall
have received the transfer of such assets shall be an entity organized under
the laws of any United States or a state thereof and expressly assume by
supplemental indenture the due and punctual payment of the principal of (and
premium or Make-Whole Amount, if any) and interest (including any Additional
Amounts), if any, on all of the Offered Debt Securities and the due and
punctual performance and observance of
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all of the covenants and conditions contained in each Indenture; (ii)
immediately after giving effect to such transaction and treating any
indebtedness that becomes an obligation of the Company or any Subsidiary as a
result thereof as having been incurred by the Company or such Subsidiary at
the time of such transaction, no Event of Default under the Indenture, and no
event which, after notice or the lapse of time, or both, would become such an
Event of Default, shall have occurred and be continuing; and (iii) certain
other conditions are met. (Sections 801 and 803 of each Indenture)
This covenant would not apply to any recapitalization transaction, a change
of control of the Company or a highly leveraged transaction unless such
transactions or change of control were structured to include a merger or
consolidation or transfer or lease of the Company's assets substantially as an
entirety. Except as may be described in a Prospectus Supplement applicable to
a particular series of Debt Securities, there are no covenants or other
provisions in the Indentures providing for a put or increased interest or that
would otherwise afford holders of Debt Securities additional protection in the
event of a recapitalization transaction, a change of control of the Company or
a highly leveraged transaction.
CERTAIN COVENANTS
Existence. Except as permitted under "Merger, Consolidation or Sale," the
Company will do or cause to be done all things necessary to preserve and keep
in full force and effect its legal existence, rights (charter and statutory)
and franchises; provided, however, that the Company shall not be required to
preserve any right or franchise if it determines that the preservation thereof
is no longer desirable in the conduct of its business and the loss thereof is
not disadvantageous in any material respect to the holders of any Debt
Securities. (Section 1005 of each Indenture)
Maintenance of Properties. The Company will cause all of its material
properties used or useful in the conduct of its business or the business of
any Subsidiary to be maintained and kept in good condition, repair and working
order and supplied with all necessary equipment and will cause to be made all
necessary repairs, renewals, replacements, betterments and improvements
thereof, all as in the judgment of the Company may be necessary so that the
business carried on in connection therewith may be properly and advantageously
conducted at all times; provided, however, that the Company and its
Subsidiaries shall not be prevented from selling or otherwise disposing of
their properties in the ordinary course of business. (Section 1006 of each
Indenture)
Payment of Taxes and Other Claims. The Company will pay or discharge, or
cause to be paid or discharged, before the same shall become delinquent, (i)
all taxes, assessments and governmental charges levied or imposed upon it or
any Subsidiary or upon the income, profits or property of the Company or any
Subsidiary and (ii) all lawful claims for labor, materials and supplies which,
if unpaid, might by law become a lien upon the property of the Company or any
Subsidiary; provided, however, that the Company shall not be required to pay
or discharge or cause to be paid or discharged any such tax, assessment,
charge or claim whose amount, applicability or validity is being contested in
good faith by appropriate proceedings. (Section 1008 of each Indenture)
Provision of Financial Information. Whether or not the Company is subject to
Section 13 or 15(d) of the Exchange Act, the Company will, within 15 days of
each of the respective dates by which the Company would have been required to
file annual reports, quarterly reports and other documents with the Commission
pursuant to such Section 13 and 15(d) if the Company were so subject, (i)
transmit by mail to all Holders of Debt Securities, as their names and
addresses appear in the Security Register (as defined in this Indenture),
without cost to such Holders, copies of the annual reports and quarterly
reports that the Company would have been required to file with the Commission
pursuant to Section 13 or 15(d) of the Exchange Act if the Company were
subject to such Sections, (ii) file with the applicable Trustee copies of the
annual reports, quarterly reports and other documents that the Company would
have been required to file with the Commission pursuant to Section 13 or 15(d)
of the Exchange Act if the Company were subject to such Sections and (iii)
promptly upon written request and payment of the reasonable cost of
duplication and delivery, supply copies of such documents to any prospective
Holder. (Section 1009 of each Indenture)
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Waiver of Certain Covenants. The Company may omit to comply with any term,
provision or condition of the foregoing covenants, and with any other term,
provision or condition with respect to the Debt Securities of any series
specified in Section 301 of the Indentures (except any such term, provision or
condition which could not be amended without the consent of all Holders of
Debt Securities of such series), if before or after the time for such
compliance the Holders of at least a majority in principal amount of all
outstanding Debt Securities of such series, by Act of such Holders, either
waive such compliance in such instance or generally waive compliance with such
covenant or condition except to the extent so expressly waived, and until such
waiver shall become effective, the obligations of the Company and the duties
of the Trustee in respect of any such term, provision or condition shall
remain in full force and effect. (Section 1012 of each Indenture)
Additional Covenants. Any additional covenants with respect to any series of
Debt Securities will be set forth in the Prospectus Supplement relating
thereto.
EVENTS OF DEFAULT, NOTICE AND WAIVER
Except as otherwise provided in a Prospectus Supplement with respect to a
particular series of Debt Securities, each Indenture provides that the
following events are "Events of Default" with respect to any series of Debt
Securities issued thereunder: (i) default for 30 days in the payment of any
installment of interest or Additional Amounts, if any, payable on any Debt
Security of such series; (ii) default in the payment of the principal of (or
premium or Make-Whole Amount, if any, on) any Debt Security of such series
when due, either at maturity, redemption or otherwise; (iii) default in making
any sinking fund payment as required for any Debt Security of such series;
(iv) default in the performance or breach of any other covenant or agreement
of the Company contained in the Indenture other than a covenant added to the
Indenture solely for the benefit of a series of Debt Securities issued
thereunder other than such series, continued for 60 days after written notice
as provided in the applicable Indenture; (v) default under a bond, debenture,
note or other evidence of indebtedness for money borrowed by the Company (or
by any Subsidiary, the repayment of which the Company has guaranteed or for
which the Company is directly responsible or liable as obligor or guarantor)
having a principal amount outstanding in excess of $10,000,000 (other than
indebtedness which is non-recourse to the Company or the Subsidiaries),
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 acceleration having been rescinded or annulled
within 30 days after written notice to the Company as provided in the
Indenture; (vi) certain events of bankruptcy, insolvency or reorganization;
and (vii) any other Event of Default provided with respect to a particular
series of Debt Securities. (Section 501 of each Indenture)
If an Event of Default under an Indenture with respect to Debt Securities of
any series at the time outstanding occurs and is continuing, then in every
such case the applicable Trustee or the Holders of not less than 25% in
aggregate principal amount of the Outstanding Debt Securities (as defined in
the Indentures) of each such affected series (voting as a single class) may
declare the principal amount (or, if the Debt Securities of that series are
Original Issue Discount Securities (as defined in the Indentures) or Indexed
Securities (as defined in the Indentures), such portion of the principal
amount as may be specified in the terms thereof) of and premium or Make-Whole
Amount, if any, on all of the Debt Securities of that series to be due and
payable immediately by written notice thereof to the Company (and to the
applicable Trustee if given by the Holders). However, at any time after such a
declaration of acceleration with respect to Debt Securities of such series (or
of all Debt Securities then Outstanding under the applicable Indenture, as the
case may be) has been made, but before a judgment or decree for payment of the
money due has been obtained by the applicable Trustee, the Holders of not less
than a majority in principal amount of the Outstanding Debt Securities of such
series (or of all Debt Securities then Outstanding under the applicable
Indenture, as the case may be) may rescind and annul such declaration and its
consequences if (i) the Company shall have deposited with the applicable
Trustee all required payments of the principal of (and premium or Make-Whole
Amount, if any) and interest, and any Additional Amounts, on the Debt
Securities of such series (or of all Debt Securities then Outstanding under
the applicable Indenture, as the case may be), plus certain fees, expenses,
disbursements and advances of the applicable Trustee and (ii) all Events of
Default, other than the nonpayment of accelerated principal (or a specified
portion thereof
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and the premium or Make-Whole Amount, if any) or interest, with respect to
Debt Securities of such series (or of all Debt Securities then Outstanding
under the applicable Indenture, as the case may be) have been cured or waived
as provided in the Indenture. (Section 502 of each Indenture) Each Indenture
also provides that the Holders of not less than a majority in principal amount
of the Outstanding Debt Securities of any series (or of all Debt Securities
then Outstanding under the applicable Indenture, as the case may be) may waive
any past default with respect to such series and its consequences, except a
default (x) in the payment of principal of (or premium or Make-Whole Amount,
if any) or interest or Additional Amounts, if any, on any Debt Security of
such series or (y) in respect of a covenant or provision contained in the
applicable Indenture that cannot be modified or amended without the consent of
the Holders of each Outstanding Debt Security affected thereby. (Section 513
of each Indenture)
The Trustee is required to give notice to the Holders of Debt Securities
within 90 days of a default under the applicable Indenture unless such default
shall have been cured or waived; provided, however, that such Trustee may
withhold notice to the Holders of any series of Debt Securities of any default
with respect to such series (except a default in the payment of the principal
of (or premium or Make-Whole Amount, if any) or interest or Additional
Amounts, if any, on any Debt Security of such series or in the payment of any
sinking fund installment in respect of any Debt Security of such series) if
the Responsible Officers (as defined in the Indentures) of such Trustee
consider such withholding to be in the interest of such Holders. (Section 601
of each Indenture) Each Indenture provides that no Holder of Debt Securities
of any series may institute any proceedings, judicial or otherwise, with
respect to such Indenture or for any remedy thereunder, except in the case of
failure of the applicable Trustee, for 60 days, to act after it has received a
written request to institute proceedings in respect of an Event of Default
from the Holders of not less than 25% in principal amount of the Outstanding
Debt Securities of such series, as well as an offer of indemnity reasonably
satisfactory to it. (Section 507 of each Indenture) This provision will not
prevent, however, any Holder of Debt Securities from instituting suit for the
enforcement of payment of the principal of (and premium or Make-Whole Amount,
if any) and interest if any, on or Additional Amounts, if any, payable with
respect to such Debt Securities at the respective due dates thereof. (Section
508 of each Indenture)
Subject to provisions in each Indenture relating to its duties in case of
default, the Trustee is not under an obligation to exercise any of its rights
or powers under such Indenture at the request or direction of any Holders of
any series of Debt Securities then Outstanding under such Indenture, unless
such Holders shall have offered to the Trustee thereunder reasonable security
or indemnity. (Section 602 of each Indenture) Subject to such provisions for
the indemnification of the Trustee, the Holders of not less than a majority in
principal amount of the Outstanding Debt Securities of any series (or of all
Debt Securities then Outstanding under each Indenture, as the case may be)
shall have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the applicable Trustee, or of
exercising any trust or power conferred upon such Trustee. However, the
Trustee may refuse to follow any direction which is in conflict with any law
or the applicable Indenture, which may involve such Trustee in personal
liability or which may be unduly prejudicial to the Holders of Debt Securities
of such series not joining therein. (Section 512 of each Indenture)
Within 120 days after the close of each fiscal year, the Company must
deliver to each Trustee a certificate, signed by one of several specified
officers, stating such officer's knowledge of the Company's compliance with
all the conditions and covenants under the applicable Indenture and, in the
event of any noncompliance, specifying such noncompliance and the nature and
status thereof. (Section 1010 of each Indenture)
MODIFICATION OF THE INDENTURES
Modification and amendment of an Indenture may be made only with the consent
of the Holders of not less than a majority in principal amount of all
Outstanding Debt Securities issued under such Indenture which are affected by
such modification or amendment; provided, however, that no such modification
or amendment may, without the consent of the Holder of each such Debt Security
affected thereby, (i) change the Stated Maturity (as defined in the
Indentures) of the principal of (or premium or Make-Whole Amount, if any), or
any installment of principal of or interest or Additional Amounts, if any,
payable on, any such Debt Security, (ii) reduce the
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principal amount of, or the rate or amount of interest on, or any premium or
Make-Whole Amount, payable on redemption of or any Additional Amount, if any,
payable with respect to any such Debt Security, or reduce the amount of
principal of an Original Issue Discount Security or Make-Whole Amount, if any,
that would be due and payable upon declaration of acceleration of the maturity
thereof or would be provable in bankruptcy, or adversely affect any right of
repayment of the Holder of any such Debt Security, (iii) change the Place of
Payment (as defined in the Indentures) where, or the currency or currencies,
currency units or composite currency or currencies in which payment of the
principal of (and Premium or Make-Whole Amount, if any), or interest on, or
any Additional Amounts payable with respect to, any such Debt Security, is
payable, (iv) impair the right to institute suit for the enforcement of any
payment on or with respect to any such Debt Security, (v) reduce the
percentage of the Holders of outstanding Debt Securities of any series
necessary to modify or amend the applicable Indenture, to waive compliance
with certain provisions thereof or certain defaults and consequences
thereunder or to reduce the quorum or voting requirements set forth in the
applicable Indenture, or (vi) modify any of the foregoing provisions or any of
the provisions relating to the waiver of certain past defaults or certain
covenants, except to increase the required percentage to effect such action or
to provide that certain other provisions may not be modified or waived without
the consent of the Holder of such Debt Security. (Section 902 of each
Indenture)
The Holders of not less than a majority in principal amount of Outstanding
Debt Securities issued under either Indenture have the right to waive
compliance by the Company with certain covenants in such Indenture. (Section
1012 of each Indenture)
Modifications and amendments of an Indenture may be made by the Company and
the respective Trustee thereunder without the consent of any Holder of Debt
Securities for any of the following purposes: (i) to evidence the succession
of another Person to the Company as obligor under such Indenture; (ii) to add
to the covenants of the Company for the benefit of the Holders of all or any
series of Debt Securities or to surrender any right or power conferred upon
the Company in such Indenture; (iii) to add Events of Default for the benefit
of the Holders of all or any series of Debt Securities; (iv) to add or change
any provisions of an Indenture to facilitate the issuance of, or to liberalize
certain terms of, Debt Securities in bearer form, or to permit or facilitate
the issuance of Debt Securities in uncertificated form, provided that such
action shall not adversely affect the interests of the Holders of the Debt
Securities of any series in any material respect; (v) to add, change or
eliminate any provisions of an Indenture, provided that any such addition,
change or elimination shall become effective only when there are no
Outstanding Debt Securities of any series created prior thereto which are
entitled to the benefit of such provision; (vi) to secure the Debt Securities;
(vii) to establish the form or terms of Debt Securities of any series,
including the provisions and procedures, if applicable, for the conversion of
such Debt Securities into Common Stock of the Company or other securities or
property of the Company; (viii) to provide for the acceptance or appointment
of a successor Trustee or facilitate the administration of the trusts under an
Indenture by more than one Trustee; (ix) to cure any ambiguity, defect or
inconsistency in an Indenture, provided that such action shall not adversely
affect the interests of Holders of Debt Securities of any series issued under
such Indenture; (x) to close an Indenture with respect to the authentication
and delivery of additional series of Debt Securities or to qualify, or
maintain qualification of, an Indenture under the TIA; or (xi) to supplement
any of the provisions of an Indenture to the extent necessary to permit or
facilitate defeasance and discharge of any series of such Debt Securities,
provided that such action shall not adversely affect the interests of the
Holders of the Debt Securities of any series in any material respect. (Section
901 of each Indenture)
SUBORDINATION
Unless otherwise indicated in a Prospectus Supplement for a particular
series of Subordinated Debt Securities, the following subordinated provisions
will apply to the Subordinated Debt Securities.
Upon any distribution to creditors of the Company in a liquidation,
dissolution, bankruptcy, insolvency or reorganization, the payment of the
principal of and interest on the Subordinated Debt Securities will be
subordinated to the extent provided in the Subordinated Indenture in right of
payment to the prior payment in full of all Senior Debt (Sections 1701 and
1702 of the Subordinated Indenture), but the obligation of the
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Company to make payment of the principal of and interest on the Subordinated
Securities will not otherwise be affected. (Section 1608 of the Subordinated
Indenture) No payment of principal or interest may be made on the Subordinated
Securities at any time in the event there shall have occurred and be
continuing a default in any payment with respect to Senior Debt, or an event
of default with respect to any Senior Debt resulting in the acceleration of
the maturity thereof, or if any judicial proceeding shall be pending with
respect to any such default and the Company receives notice of the default.
(Section 1703 of the Subordinated Indenture) The Company may resume payments
on the Subordinated Securities when the default is cured or waived if the
subordination provisions of the Subordinated Indenture otherwise permit
payment at that time. (Section 1703 of the Subordinated Indenture) After all
Senior Debt is paid in full and until the Subordinated Debt Securities are
paid in full, Holders will be subrogated to the rights of holders of Senior
Debt to the extent that distributions otherwise payable to Holders have been
applied to the payment of Senior Debt. (Section 1707 of the Subordinated
Indenture) By reason of such subordination, in the event of a distribution of
assets upon insolvency, certain general creditors of the Company may recover
more, ratably, than Holders of the Subordinated Securities.
Senior Debt is defined in the Subordinated Indenture as the principal,
premium, if any, unpaid interest (including interest accruing on or after the
filing of any petition in bankruptcy or for reorganization relating to the
Company whether or not a claim for post-filing interest is allowed in such
proceeding), fees, charges, expenses, reimbursement and indemnification
obligations, and all other amounts payable under or in respect of the
following indebtedness of the Company for money borrowed, whether any such
indebtedness exists as of the date of the Subordinated Indenture or is
created, incurred, assumed or guaranteed after such date:
(1) any debt (i) for money borrowed by the Company, or (ii) evidenced by
a bond, note, debenture, or similar instrument (including purchase money
obligations) given in connection with the acquisition of any business,
property or assets, whether by purchase, merger, consolidation or
otherwise, but shall not include any account payable or other obligation
created or assumed in the ordinary course of business in connection with
the obtaining of materials or services, or (iii) which is a direct or
indirect obligation which arises as a result of banker's acceptances or
bank letters of credit issued to secure obligations of the Company, or to
secure the payment of revenue bonds issued for the benefit of the Company,
whether contingent or otherwise;
(2) any debt of others described in the preceding clause (1) which the
Company has guaranteed or for which it is otherwise liable;
(3) the obligation of the Company as lessee under any lease of property
which is reflected on the Company's balance sheet as a capitalized lease;
and
(4) any deferral, amendment, renewal, extension, supplement or refunding
of any liability of the kind described in any of the preceding clauses (1),
(2), and (3); provided, however, that, in computing the indebtedness of the
Company, there shall be excluded any particular indebtedness if, upon or
prior to the maturity thereof, there shall have been deposited with a
depository in trust money (or evidence of indebtedness if permitted by the
instrument creating such indebtedness) in the necessary amount to pay,
redeem or satisfy such indebtedness as it becomes due, and the amount so
deposited shall not be included in any computation of the assets of the
Company provided, further, that in computing the indebtedness of the
Company hereunder, there shall be excluded (i) any such indebtedness,
obligation or liability referred to in clauses (1) through (4) above as to
which, in the instrument creating or evidencing the same or pursuant to
which the same is outstanding, it is provided that such indebtedness,
obligation or liability is not superior in right of payment to the
Subordinated Debt Securities, or ranks pari passu with the Subordinated
Securities, (ii) any such indebtedness, obligation or liability which is
subordinated to indebtedness of the Company to substantially the same
extent as or to a greater extent than the Subordinated Securities are
subordinated, (iii) any indebtedness to a Subsidiary of the Company, and
(iv) the Subordinated Debt Securities. (Section 101 of the Subordinated
Indenture).
There is no limit on the amount of Senior Debt that the Company may incur.
At March 31, 1997, Senior Debt of the Company aggregated approximately $725
million. There are no restrictions in the Subordinated Indenture upon the
creation of additional Senior Debt or other indebtedness.
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DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
Under each Indenture, the Company may discharge certain obligations to
Holders of any series of Debt Securities issued thereunder that have not
already been delivered to the applicable Trustee for cancellation and that
either have become due and payable or will become due and payable within one
year (or scheduled for redemption within one year) by irrevocably depositing
with the applicable Trustee, in trust, funds in such currency or currencies,
currency unit or units or composite currency or currencies in which such Debt
Securities are payable in an amount sufficient to pay the entire indebtedness
on such Debt Securities in respect of principal (and premium or Make-Whole
Amount, if any) and interest and any Additional Amounts payable to the date of
such deposit (if such Debt Securities have become due and payable) or to the
Stated Maturity or Redemption Date, as the case may be (Section 401 of each
Indenture). Each Indenture provides that, if the provisions of Article
Fourteen thereof are made applicable to the Debt Securities of or within any
series pursuant to Section 301 of such Indenture, the Company may elect either
(i) to defease and be discharged from any and all obligations with respect to
such Debt Securities (except for the obligation to pay Additional Amounts, if
any, upon the occurrence of certain events of tax, assessment or governmental
charge with respect to payments on such Debt Securities and the obligations to
register the transfer or exchange of such Debt Securities, to replace
temporary or mutilated, destroyed, lost or stolen Debt Securities, to maintain
an office or agency in respect of such Debt Securities and to hold moneys for
payment in trust) ("defeasance") (Section 1402 of each Indenture) or (ii) to
be released from its obligations with respect to such Debt Securities under
Sections of each Indenture described under "Certain Covenants" or, if provided
pursuant to Section 301 of each Indenture, its obligations with respect to any
other covenant, and any omission to comply with such obligations shall not
constitute a default or an Event of Default with respect to such Debt
Securities ("covenant defeasance") (Section 1403 of each Indenture), in either
case upon the irrevocable deposit by the Company with the applicable Trustee,
in trust, of an amount, in such currency or currencies, currency unit or units
or composite currency or currencies in which such Debt Securities are payable
at Stated Maturity, or Government Obligations (as defined below), or both,
applicable to such Debt Securities which through the scheduled payment of
principal and interest in accordance with their terms will provide money in an
amount sufficient to pay the principal of (and premium or Make-Whole Amount,
if any) and interest and any Additional Amounts on such Debt Securities, and
any mandatory sinking fund or analogous payments thereon, on the scheduled due
dates therefor.
Such a trust may only be established if, among other things, the Company has
delivered to the applicable Trustee an Opinion of Counsel (as specified in
each Indenture) to the effect that the Holders of such Debt Securities will
not recognize income, gain or loss for United States federal income tax
purposes as a result of such defeasance or covenant defeasance and will be
subject to United States federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such defeasance or
covenant defeasance had not occurred, and such Opinion of Counsel, in the case
of defeasance, must refer to and be based upon a ruling of the Internal
Revenue Service or a change in applicable United States federal income tax
laws occurring after the date of such Indenture. (Section 1404 of each
Indenture)
"Government Obligations" means securities which are (i) direct obligations
of the United States of America or the government which issued the Foreign
Currency (as defined in the Indentures) in which the Debt Securities of a
particular series are payable, for the payment of which its full faith and
credit is pledged or (ii) obligations of a Person controlled or supervised by
and acting as an agency or instrumentality of the United States of America or
the government which issued the Foreign Currency in which the Debt Securities
of such series are payable, the payment of which is unconditionally guaranteed
as a full faith and credit obligation by the United States of America or such
other government, which, in either case, are not callable or redeemable at the
option of the issuer thereof, and shall also include a depository receipt
issued by a bank or trust company as custodian with respect to any such
Government Obligation or a specific payment of interest on or principal of any
such Government Obligation held by such custodian for the account of the
holder of a depository receipt, provided that (except as required by law) such
custodian is not authorized to make any deduction from the amount payable to
the holder of such depository receipt from any amount received by the
custodian in respect of the Government Obligation or the specific payment of
interest on or principal of the Government Obligation evidenced by such
depository receipt. (Section 101 of each Indenture)
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Unless otherwise provided in the applicable Prospectus Supplement, if after
the Company has deposited funds and/or Government Obligations to effect
defeasance or covenant defeasance with respect to Debt Securities of any
series, (i) the Holder of a Debt Security of such series is entitled to, and
does, elect pursuant to Section 301 of either Indenture or the terms of such
Debt Security to receive payment in a currency, currency unit or composite
currency other than that in which such deposit has been made in respect of
such Debt Security, or (ii) a Conversion Event (as defined below) occurs in
respect of the currency, currency unit or composite currency in which such
deposit has been made, the indebtedness represented by such Debt Security
shall be deemed to have been, and will be, fully discharged and satisfied
through the payment of the principal of (and premium or Make-Whole Amount, if
any) and interest and any Additional Amounts on such Debt Security as they
become due out of the proceeds yielded by converting the amount so deposited
in respect of such Debt Security into the currency, currency unit or composite
currency in which such Debt Security becomes payable as a result of such
election or such cessation of usage based on the applicable market exchange
rate (Section 1405 of each Indenture).
Unless otherwise provided in a Prospectus Supplement, "Conversion Event"
means the cessation of use of (i) a currency, currency unit or composite
currency issued by the government of one or more countries other than the
United States both by the government of the country that issued such currency
and for the settlement of transactions by a central bank or other public
institutions of or within the international banking community, (ii) any
currency unit or composite currency for the purposes for which it was
established. (Section 101 of each Indenture) Unless otherwise provided in the
applicable Prospectus Supplement, all payments of principal of (and premium or
Make-Whole Amount, if any) and interest and any Additional Amounts on any Debt
Security that is payable in a Foreign Currency that ceases to be used by its
government of issuance shall be made in United States dollars.
In the event the Company effects covenant defeasance with respect to any
Debt Securities and such Debt Securities are declared due and payable because
of the occurrence of any Event of Default other than the Event of Default
described in clause (iv) under "Events of Default, Notice and Waiver" with
respect to Sections 1004 to 1009, inclusive, of either Indenture (which
Sections would no longer be applicable to such Debt Securities) or described
in clause (vii) under "Events of Default, Notice and Waiver" with respect to a
covenant as to which there has been covenant defeasance, the amount in such
currency, currency unit or composite currency in which such Debt Securities
are payable, and Government Obligations on deposit with the Trustee, will be
sufficient to pay amounts due on such Debt Securities at the time of their
Stated Maturity but may not be sufficient to pay amounts due on such Debt
Securities at the time of the acceleration resulting from such Event of
Default. However, the Company would remain liable to make payment of such
amounts due at the time of acceleration.
The applicable Prospectus Supplement may further describe the provisions, if
any, permitting such defeasance or covenant defeasance, including any
modifications to the provisions described above, with respect to the Debt
Securities of or within a particular series.
CONVERSION AND EXCHANGE RIGHTS
The terms on which Debt Securities of any series are convertible into or
exchangeable for Common Stock or other securities or property of the Company
will be set forth in the Prospectus Supplement relating thereto. Such terms
shall include the conversion or exchange price (or manner of calculation
thereof), the exchange or conversion period, provisions as to whether
conversion or exchange is mandatory, at the option of the Holder or at the
option of the Company, and may include provisions pursuant to which the number
of shares of Common Stock or other securities or property of the Company to be
received by the Holders of Debt Securities would be calculated according to
the market price of Common Stock or other securities or property of the
Company as of a time stated in the Prospectus Supplement. The conversion
exchange price of any Debt Securities of any series that is convertible into
Common Stock of the Company may be adjusted for any stock dividends, stock
splits, reclassification, combinations or similar transactions, as set forth
in the applicable Prospectus Supplement. (Article Sixteen of each Indenture)
GOVERNING LAW
The Indentures are governed by and shall be construed in accordance with the
laws of the State of New York.
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REDEMPTION OF DEBT SECURITIES
The Indentures provide that the Debt Securities may be redeemed at any time
at the option of the Company, in whole or in part. Debt Securities may also be
subject to optional or mandatory redemption on terms and conditions described
in the applicable Prospectus Supplement.
From and after notice has been given as provided in the Indenture, if funds
for the redemption of any Debt Securities called for redemption shall have
been made available on such redemption date, such Debt Securities will cease
to bear interest on the date fixed for such redemption specified in such
notice, and the only right of the Holders of the Debt Securities will be to
receive payment of the Redemption Price (as defined in the Indentures).
CONCERNING THE TRUSTEE
The Chase Manhattan Bank, is one of a number of banks with which the Company
and its subsidiaries maintain banking relationships in the ordinary course of
business. The Company's banking relationship with The Chase Manhattan Bank
includes serving as administrative agent for the Company's $800 million Credit
Agreement dated as of July 1, 1996, providing $44 million of funding as a
participating bank in the $800 million Credit Agreement dated as of July 1,
1996, providing custodial services for the Provident's bond and stock
portfolios, and providing general banking services. Upon the occurrence of an
Event of Default or an event which, after notice or lapse of time or both,
would become an Event of Default under a series of Senior Debt Securities or
Subordinated Debt Securities, or upon the occurrence of a default under such
other indenture, the Trustee may be deemed to have a conflicting interest with
respect to the Senior Debt Securities or the Subordinated Debt Securities for
purposes of the Trust Indenture Act and, accordingly, may be required to
resign as Trustee under the Senior Indenture or the Subordinated Indenture. In
that event, the Company would be required to appoint a successor Trustee.
DESCRIPTION OF PREFERRED STOCK
The following description of the terms of the Preferred Stock sets forth
certain general rules and provisions of the Preferred Stock to which any
Prospectus Supplement may relate. Particular terms of the Preferred Stock
offered by any Prospectus Supplement and the extent, if any, to which such
general provisions may apply to the Preferred Stock so offered will be
described in the Prospectus Supplement relating to such Preferred Stock. The
description of certain provisions of the Preferred Stock set forth below and
in the Prospectus Supplement does not purport to be complete and is subject to
and qualified in its entirety by reference to the Certificate of Designations
relating to the particular series of Preferred Stock, which will be filed with
the Commission at or prior to the time of the sale of such Preferred Stock.
GENERAL
Under the Company's Amended and Restated Certificate of Incorporation (the
"Certificate"), the Board of Directors of the Company is authorized without
further stockholder action to adopt resolutions providing for the issuance of
up to 25,000,000 shares of Preferred Stock, in one or more series, with such
voting powers, full or limited, and with such designations, preferences and
relative, participating, optional or other special rights, and qualifications,
limitations or restrictions, as may be determined by the Board of Directors.
As of the date of this Prospectus, the Company had one series of Preferred
Stock outstanding, which is described below under "Outstanding Preferred
Stock."
Each series of shares of Preferred Stock shall have the dividend,
liquidation, redemption, voting rights and, if applicable, conversion rights
set forth below unless otherwise provided in the Prospectus Supplement
relating to a particular series of Preferred Stock. Reference is made to the
Prospectus Supplement relating to the particular series of Preferred Stock
offered thereby for specific terms, including, where applicable: (i) the
title, designation, number of shares and stated value of such Preferred Stock;
(ii) the price at which such Preferred Stock will be
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issued; (iii) the dividend rates (or method of calculation) and dates on which
dividends shall be payable, whether such dividends will be cumulative or
noncumulative and, if cumulative, the dates from which dividends shall
commence to cumulate; (iv) the dates on which the Preferred Stock will be
subject to redemption and the redemption price; (v) any redemption or sinking
fund provisions; (vi) whether the Preferred Stock are convertible or
exchangeable and, if so, the securities or rights into which such Preferred
Stock are convertible or exchangeable (which may include other Preferred
Stock, Senior Debt Securities, Subordinated Debt Securities, Common Stock or
other securities or rights of the Company (including rights to receive payment
in cash or securities based on the value, rate or price of one or more
specified commodities, currencies or indices) or securities of other issuers
or a combination of the foregoing), and the terms and conditions upon which
such conversions or exchanges will be effected including the initial
conversion or exchange prices or rates, the conversion or exchange period and
any other related provisions; (vii) if other than the currency of the United
States of America, the currency or currencies including composite currencies
in which such Preferred Stock are denominated and/or in which payments will or
may be payable; (viii) the method by which amounts in respect of such
Preferred Stock may be calculated and any commodities, currencies or indices,
or value, rate or price, relevant to such calculation; (ix) the place or
places where dividends and other payments on the Preferred Stock are payable
and the identity of the transfer agent, registrar and dividend disbursement
agent for the Preferred Stock; (x) any additional dividend, liquidation,
redemption, sinking fund, voting and other rights, preferences, privileges,
limitations and restrictions.
Upon their issuance and receipt of payment therefor, the shares of Preferred
Stock will be fully paid and nonassessable, and for each share issued, a sum
equal to the stated value will be credited to the Company's preferred stock
account. Unless otherwise specified in the Prospectus Supplement relating to a
particular series of Preferred Stock, each series of Preferred Stock will rank
on a parity in all respects with each other series of Preferred Stock. See
"Outstanding Preferred Stock," below.
DIVIDENDS
Holders of Preferred Stock will be entitled to receive cash dividends, when
and as declared by the Board of Directors of the Company out of assets of the
Company legally available for payment, at such rates and on such dates as will
be set forth in the applicable Prospectus Supplement. Each dividend will be
payable to holders of record as they appear on the stock books of the Company
on the record dates fixed by the Board of Directors of the Company. Different
series of the Preferred Stock may be entitled to dividends at different rates
or based upon different methods of determination. Such rate may be fixed or
variable or both. Dividends on any series of the Preferred Stock may be
cumulative or noncumulative, as provided in the Prospectus Supplement relating
thereto.
LIQUIDATION RIGHTS
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Company, the holders of each series of Preferred Stock will
be entitled to receive out of assets of the Company available for distribution
to stockholders, before any distribution of assets is made to holders of
Common Stock or any other class of stock ranking junior to such series of
Preferred Stock, liquidating distributions in the amount of the stated value
per share (as set forth in the applicable Prospectus Supplement) plus all
accrued and unpaid dividends up to the date fixed for distribution for the
current dividend period and, if such series of the Preferred Stock is
cumulative, for all dividend periods prior thereto, all as set forth in the
Prospectus Supplement with respect to such shares. If, upon any voluntary or
involuntary liquidation, dissolution or winding up of the Company, the amounts
payable with respect to a series of Preferred Stock and any other shares of
stock of the Company ranking as to any distribution on a parity with such
series of Preferred Stock are not paid in full, the holders of such series of
Preferred Stock and of such other shares will share ratably in any such
distribution of assets of the Company in proportion to the full respective
preferential amounts to which they are entitled. After payment of the full
amount of the liquidating distribution to which they are entitled, the holders
of Preferred Stock will not be entitled to any further participation in any
distribution of assets by the Company.
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Neither the sale, conveyance, exchange or transfer of all or substantially
all the property and assets of the Company, the consolidation or merger of the
Company with or into any other corporation, nor the merger or consolidation of
any other corporation into or with the Company shall be deemed to be a
liquidation, dissolution or winding up of the Company.
REDEMPTION
The terms, if any, on which shares of a series of Preferred Stock may be
subject to optional or mandatory redemption, in whole or in part, will be set
forth in the Prospectus Supplement relating to such series.
VOTING RIGHTS
Except as indicated below or in the applicable Prospectus Supplement, or
except as expressly required by applicable law, the holders of the Preferred
Stock will not be entitled to vote.
CONVERSION AND EXCHANGE RIGHTS
The terms, if any, on which shares of any series of Preferred Stock are
convertible or exchangeable will be set forth in the Prospectus Supplement
relating thereto. The Prospectus Supplement will describe the securities or
rights into which such shares of Preferred Stock are convertible or
exchangeable (which may include other Preferred Stock, Senior Debt Securities,
Subordinated Debt Securities, Common Stock or other securities or rights of
the Company (including rights to receive payment in cash or securities based
on the value, rate or price of one or more specified commodities, currencies
or indices) or securities of other issuers or a combination of the foregoing).
Such terms may include provisions for conversion, either mandatory, at the
option of the holder, or at the option of the Company, in which case the
consideration to be received by the holders of Preferred Stock would be
calculated as of a time and in the manner stated in the Prospectus Supplement.
TRANSFER AGENT AND REGISTRAR
The transfer agent, registrar and dividend disbursement agent for the
Preferred Stock will be designated in the applicable Prospectus Supplement.
The registrar for shares of Preferred Stock will send notices to shareholders
of any meetings at which holders of the Preferred Stock have the right to
elect directors of the Company or to vote on any other matter.
OUTSTANDING PREFERRED STOCK
As of March 31, 1997, the Company's only outstanding series of shares of
Preferred Stock is designated the 8.10% Cumulative Preferred Stock (the
"Cumulative Preferred Stock"), of which 1,041,534 shares were outstanding.
The following summary of the Cumulative Preferred Stock is qualified in its
entirety by reference to the Certificate and to the applicable provisions of
the Delaware General Corporation Law ("DGCL").
Dividends. Holders of the Cumulative Preferred Stock are entitled to
receive, when, as and if declared by the Board of Directors of the Company,
out of assets of the Company legally available for payment, cumulative cash
dividends at the annual rate of 8.10% calculated as a percentage of the
liquidation preference of $150 per share. Dividends on the Cumulative
Preferred Stock are payable quarterly on February 1, May 1, August 1 and
November 1 of each year at such annual rate. Dividends are cumulative from the
date of original issue.
Dividends payable on the Cumulative Preferred Stock for each full dividend
period are computed by dividing the annual dividend rate by four. Dividends
payable on the Cumulative Preferred Stock for any period greater or less than
a full dividend period shall be computed on the basis of a 360-day year
consisting of twelve 30-day months.
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Redemption. The Cumulative Preferred Stock may not be redeemed prior to
February 24, 1998. At any time or from time to time on and after February 24,
1998, the Company, at its option, may redeem the Cumulative Preferred Stock in
whole or in part, upon not less than 30 nor more than 60 days notice, at a
redemption price of $150 per share plus accrued and unpaid dividends thereon
to the date fixed for redemption. In the event that fewer than all of the
outstanding shares of the Cumulative Preferred Stock are to be redeemed, the
shares to be redeemed shall be determined by lot or pro rata or by any other
method as may be determined by the Board of Directors of the Company to be
equitable. The Company will provide notice of any redemption of the Cumulative
Preferred Stock to holders of record of the Cumulative Preferred Stock to be
redeemed not less than 30 nor more than 60 days prior to the date fixed for
redemption. Such notice shall specify, among other things, the redemption
price and the amount of accrued and unpaid dividends to the date of
redemption, whether the Company is calling all or less than all of the
Cumulative Preferred Stock for redemption, and if less than all, which shares
of the Cumulative Preferred Stock are being called, the place or places where
certificates for such shares are to be surrendered for redemption and whether
the Company is depositing with a bank or trust company on or before the
redemption date the cash payable by the Company with respect thereto and the
date for such deposit. Such notice shall be provided by mailing notice of such
redemption to the holders of the Cumulative Preferred Stock to be called. Each
holder of the Cumulative Preferred Stock to be called shall surrender the
certificates representing such Cumulative Preferred Stock to the Company at
the place designated in such notice and shall be entitled to receive payment
following such surrender and following the date of such redemption. If such
notice of redemption shall have been duly given, and if on the redemption date
funds necessary for the redemption shall be set aside therefor, then,
notwithstanding that the certificates evidencing any shares of the Cumulative
Preferred Stock so called for redemption shall not have been surrendered, the
dividends with respect to the shares so called for redemption shall cease to
accrue after the redemption date therefor and all rights with respect to the
shares so called for redemption shall forthwith after such redemption date
cease and terminate, except for the right of the holders to receive the
redemption price plus an amount equal to accrued and unpaid dividends to the
redemption date therefor, without interest, upon surrender of their
certificates therefore. The Company's Certificate does not restrict the
Company's ability to redeem or repurchase shares of the Cumulative Preferred
Stock when dividends on the Cumulative Preferred Stock are in arrears.
Liquidation Preference. In the event of any voluntary or involuntary
dissolution, liquidation or winding up of the affairs of the Company, after
payment or provision for payment of debts and other liabilities of the Company
and before any distribution to the holders of shares of Common Stock or any
stock junior to the Cumulative Preferred Stock as to the distribution of
assets upon liquidation, the holders of the Cumulative Preferred Stock will
receive $150 per share, plus an amount equal to accrued and unpaid dividends
to the date of payment. The rights of the holders of the Cumulative Preferred
Stock to participate in the assets of the Company upon its liquidation will be
subject to the prior claims of the creditors of the Company and its
subsidiaries.
Voting Rights. Holders of the Cumulative Preferred Stock have only those
voting rights described below and those rights applicable to all series of
Preferred Stock as described in "Description of Preferred Stock--Voting
Rights." The Certificate provides that if an amount equal to at least four
quarterly dividend payments on the Cumulative Preferred Stock are accrued and
remain unpaid at the time of any meeting of the stockholders of the Company
for the election of directors, the Board of Directors shall increase the
number of directors of the Company by two directors and provide for the
election of such two directors and the holders of the Cumulative Preferred
Stock, voting separately as a single class with the holders of shares of any
other series of Preferred Stock so entitled, will be entitled to elect two
additional directors to fill such vacancies. The right of the holders of the
Cumulative Preferred Stock and any other series of Preferred Stock to elect
such directors will continue only until all arrearages in dividends on the
outstanding shares of the Cumulative Preferred Stock and such other series
have been eliminated.
Miscellaneous. The Cumulative Preferred Stock does not have any conversion
or preemptive rights and are not subject to any sinking fund or other
obligations of the Company to repurchase or retire the Cumulative Preferred
Stock.
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DESCRIPTION OF COMMON STOCK
This summary of certain terms and provisions of the Common Stock does not
purport to be complete and is subject to, and qualified in its entirety by
reference to, the terms and provisions of the Company's Certificate and
Bylaws, as amended, which are filed as exhibits to the Registration Statement
of which this Prospectus is a part.
The Company is authorized to issue an aggregate of 150,000,000 shares of
Common Stock. As of March 31, 1997, there were 61,132,226 shares of Common
Stock outstanding held by approximately 1,304 shareholders of record. All
outstanding shares of Common Stock are fully paid and nonassessable. The
Common Stock is listed on the NYSE.
DIVIDENDS
Subject to the preferences of holders of Preferred Stock, including the
Cumulative Preferred Stock, holders of Common Stock are entitled to dividends
when, as, and if declared by the Board of Directors out of funds legally
available therefor.
VOTING RIGHTS
Except as otherwise provided by law or by the designation of the
preferences, limitations and relative rights of any series of Preferred Stock,
the voting power of the Company is held by the holders of Common Stock. Each
holder of Common Stock is entitled to one vote for each share held. Holders of
Common Stock are not entitled to cumulative voting rights and, therefore,
holders of a plurality of shares voting in the election of directors may elect
the entire class of the Board of Directors standing for election at a
stockholders' meeting at which a quorum is present. In that event, holders of
the remaining shares of Common Stock would not be able to elect any director
to the Board of Directors. As a general rule, the vote required to take action
at a stockholders' meeting is a majority vote of the shares present and voting
assuming the presence of a quorum, which consists of a majority of the
outstanding shares present in person or by proxy at a meeting. Some matters
under Delaware law, such as an amendment of the certificate of incorporation
or approval of a merger, require the approval of a majority of the shares
outstanding, unless the certificate of incorporation provides for a different
vote. The Company's Certificate provides that mergers, certain sales of
assets, and amendments to the Certificate require the approval of two-thirds
of the outstanding shares of Common Stock. For a description of certain voting
rights of Cumulative Preferred Stock, see "Description of Preferred Stock--
Cumulative Preferred Stock--Voting Rights."
LIQUIDATION AND DISSOLUTION
Except as otherwise provided by the designation of the preferences,
limitations and relative rights of any series of Preferred Stock, in the event
of any liquidation, dissolution, or winding up of the Company, whether
voluntary or involuntary, after payment has been made to the holders of each
series of Preferred Stock of the full amount to which they are entitled
pursuant to the Certificate of Designations of such series, the holders of
shares of Common Stock will be entitled to share, ratably according to the
number of shares of Common Stock held by them, in all remaining assets of
available for distribution to its stockholders. Shares of Cumulative Preferred
Stock have a Stated Liquidation Value of $150 per share.
PREEMPTIVE RIGHTS
Holders of Common Stock are not entitled to any preemptive or preferential
right to purchase or subscribe for shares of capital stock of any class.
REDEMPTION
Common Stock is not subject to mandatory redemption.
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TRANSFER AGENT
The transfer agent and registrar for shares of the Common Stock is First
Chicago Trust Company of New York.
CERTAIN PROVISIONS THAT MAY BE DEEMED TO HAVE AN ANTI-TAKEOVER EFFECT
The Company's Certificate contains several provisions that may be deemed
under some circumstances to have an "anti-takeover" effect in that they could
impede or prevent an acquisition of control of the Company unless the
potential acquiror has obtained the prior approval of the Company's Board of
Directors or a higher stockholder vote than is otherwise required by the DGCL.
The provisions of the Company's Certificate and relevant provisions of
Delaware law described below are collectively referred to herein as the
"Protective Provisions." The purpose of the Protective Provisions in general
is, among other things, to facilitate stability of leadership and enhance the
Board of Directors' role in connection with attempts to acquire control of the
Company so that the Board can further and protect the interests of the
Company, its stockholders, and its other constituencies as appropriate under
the circumstances.
Authorized Capital Stock. The Company's Certificate authorizes the issuance
of up to 150,000,000 shares of Common Stock and up to 25,000,000 shares of
Preferred Stock. Such shares may be issued by the Company's Board of Directors
without further action or authorization by the Company's stockholders, unless
such action is required in a particular case by applicable laws or regulations
or by any stock exchange upon which the Company's capital stock may be listed
and the directors may fix the voting rights, conversion rights, and other
terms thereof without stockholder approval. Preferred Stock will be issuable
in one or more classes or series, with each class or series having such rights
and preferences as the Company's Board of Directors may fix and determine by
resolution.
This authority of the Board of Directors to issue additional shares of
Common Stock and Preferred Stock will provide the Company with the flexibility
necessary to meet its future needs without the time delay resulting from
seeking stockholder approval unless otherwise required. The unissued shares of
Common Stock and Preferred Stock will be issuable from time to time for any
corporate purpose, including, without limitation, stock splits, stock
dividends, employee benefit and compensation plans, acquisitions, and public
or private sales for cash as a means of raising capital. Such shares could be
used to dilute the stock ownership of persons seeking to obtain control of the
Company. In addition, the sale of a substantial number of shares of Common
Stock to persons who have an understanding with the Company concerning the
voting of such shares, or the discriminatory distribution or dividend of
shares of Common Stock (or the right to receive Common Stock) to the
stockholders of the Company, may have the effect of discouraging or increasing
the cost of unsolicited attempts to acquire control of the Company. The
issuance of Preferred Stock may also, under certain circumstances, have an
anti-takeover effect, particularly if such stock has broad class voting rights
or a substantial number of votes per share.
The actual effect of any issuance of Preferred Stock upon the rights of
holders of Common Stock cannot be specified because the Company's Board of
Directors has not determined the issuance prices or terms or the rights of the
holders of any Preferred Stock, other than the Cumulative Preferred Stock.
Such effects might include: (i) restrictions on Common Stock dividends if
Preferred Stock dividends have not been paid; (ii) dilution of the voting
power and equity interest of current holders of Common Stock to the extent
that any Preferred Stock has voting rights or is convertible into Common
Stock; and (iii) current holders of all the shares of Common Stock not being
entitled to share in the Company's assets upon liquidation until satisfaction
of any liquidation preferences granted to holders of Preferred Stock.
Amendment of Certificate. The DGCL generally provides that the approval of a
corporation's board of directors and the affirmative vote of both a majority
of the shares entitled to vote thereon and a majority of the shares of each
class of stock entitled to vote thereon as a class, is required to amend the
corporation's certificate of incorporation, unless the certificate specifies a
greater voting requirement. The Company's Certificate provides that the
provisions of the Company's Certificate may be amended, altered, changed,
repealed, or any inconsistent
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provision adopted, only by the affirmative vote of the holders of sixty-six
and two-thirds percent (66 2/3%) of the outstanding shares of Common Stock.
Merger, Consolidation, Sales of Substantially All of the Assets and
Dissolution. The DGCL generally provides that the approval of a corporation's
board of directors and the affirmative vote of a majority of the shares
entitled to vote thereon is required to approve a merger or consolidation to
which the corporation is party, a sale of substantially all of the assets of
the corporation or a dissolution of the corporation. The Company's Certificate
provides that a merger, consolidation, share exchange, sale of substantially
all of the assets, liquidation or dissolution of the Company requires the
approval of the holders of sixty-six and two-thirds percent (66 2/3%) of the
outstanding Common Stock. The higher vote requirement does not apply to
certain mergers or consolidations which relate to internal reorganizations or
to a disposition of assets to a subsidiary or to facilitate a financing
arrangement.
In addition, the insurance laws and regulations of the jurisdictions in
which the Company's insurance subsidiaries do business may impede or delay a
business combination involving the Company.
Director Exculpation and Limited Liability. Article VI of the Company's
Certificate provides that a director of the Company, to the maximum extent now
or hereafter permitted by Section 102(b)(7) of the DGCL or any successor
provision or provisions, will have no personal liability to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability for (i) any breach of the director's duty of loyalty to
the Company or its stockholders, (ii) acts or omissions not in good faith or
that involve intentional misconduct or a knowing violation of law, (iii) the
payment of certain unlawful dividends and the making of certain unlawful stock
purchases or redemptions or (iv) any transaction from which the director
derived an improper personal benefit. This provision absolves directors of
personal liability for negligence in the performance of their duties,
including gross negligence.
Although this provision does not affect the availability of injunctive or
other equitable relief as a remedy for a breach of duty by a director, it does
limit the remedies available to a stockholder who has a valid claim that a
director acted in violation of his duties, if the action is among those as to
which liability is limited. Because of this provision, stockholders will not
have a claim for monetary damages based on breach of the directors' duty, even
if the directors' conduct involved gross negligence (including a grossly
negligent business decision involving a takeover proposal for the Company),
unless the conduct is of a type for which the DGCL does not permit limitation
of liability. If the stockholders do not have a claim for monetary damages,
their only remedy may be a suit to enjoin completion of the Board's action or
to rescind completed action. The stockholders may not be aware of a proposed
transaction that might otherwise give rise to a claim until the transaction is
completed or until it is too late to prevent its completion by injunction. In
such a case, the Company and its stockholders may have no effective remedy for
an injury resulting from the Board's action. This provision may reduce the
likelihood of stockholder derivative litigation against directors and may
discourage or deter stockholders or management from bringing a lawsuit against
directors for breach of their duties, even though such action, if successful,
might have benefited the Company and its stockholders. Such a provision could
have an entrenchment effect by making it more difficult for a stockholder to
obtain personal damages against a director.
The Commission has taken the position that similar provisions added to other
corporations' certificates of incorporation would not protect those
corporations' directors from liability for violations of the federal
securities laws. The Company included this exculpation provision in its
Certificate to provide its directors with the maximum protection from personal
liability made available by the DGCL. It is believed that this provision will
help the Company to attract and retain as directors the persons most qualified
for those positions.
Future Plans. The Board of Directors may consider and adopt, or propose to
the stockholders for adoption, certain additional Protective Provisions in the
future if the Board believes such provisions are in the best interest of
Company.
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DESCRIPTION OF WARRANTS
GENERAL
The Company may issue Warrants to purchase Senior Debt Securities,
Subordinated Debt Securities, Preferred Stock, Common Stock or any combination
thereof (collectively, the "Underlying Warrant Securities"), and such Warrants
may be issued independently or together with any such Underlying Warranty
Securities and may be attached or separate from such Underlying Warrant
Securities. Each series of Warrants will be issued under a separate warrant
agreement (each a "Warrant Agreement") to be entered into between the Company
and a warrant agent ("Warrant Agent"). The Warrant Agent will act solely as an
agent of the Company in connection with the Warrants of such series and will
not assume any obligation or relationship of agency for or with holders or
beneficial owners of Warrants. The following sets forth certain general terms
and provisions of the Warrants offered hereby. Further terms of the Warrants
and the applicable Warrant Agreement are set forth in the applicable
Prospectus Supplement.
The applicable Prospectus Supplement will describe the terms of any Warrants
in respect of which this Prospectus is being delivered, including the
following: (i) the title of such Warrants; (ii) the aggregate number of such
Warrants; (iii) the price or prices at which such Warrants will be issued;
(iv) the currency or currencies, including composite currencies, in which the
price of such Warrants may be payable; (v) the designation and terms of the
Underlying Warrant Securities purchasable upon exercise of such Warrants; (vi)
the price at which and the currency or currencies, including composite
currencies, in which the Underlying Warrant Securities purchasable upon
exercise of such Warrants may be purchased; (vii) the date on which the right
to exercise such Warrants shall commence and the date on which such right
shall expire; (viii) whether such Warrants will be issued in registered form
or bearer form; (ix) if applicable, the minimum or maximum amount of such
Warrants which may be exercised at any one time; (x) if applicable, the
designation and terms of the Underlying Warrant Securities with which such
Warrants are issued and the number of such Warrants issued with each such
Underlying Warrant Security; (xi) if applicable, the date on and after which
such Warrants and the related Underlying Warrant Securities will be separately
transferable; (xii) information with respect to book-entry procedures, if any;
(xiii) if applicable, a discussion of certain United States federal income tax
considerations; (xiv) the procedures and conditions relating to the exercise
of such Warrants; and (xv) any other terms of such Warrants, including terms,
procedures and limitations relating to the exchange and exercise of such
Warrants.
Warrant certificates may be exchanged for new warrant certificates of
different denominations, and Warrants may be exercised at the corporate trust
office of the Warrant Agent or any other office indicated in the Prospectus
Supplement. Prior to the exercise of their Warrants, holders of Warrants
exercisable for Debt Securities will not have any of the rights of holders of
the Debt Securities purchasable upon such exercise and will not be entitled to
payments of principal (or premium, if any) or interest, if any, on the Debt
Securities purchasable upon such exercise. Prior to the exercise of their
Warrants for shares of Preferred Stock or Common Stock, holders of such
Warrants will not have any rights of holders of the Preferred Stock or Common
Stock purchasable upon such exercise and will not be entitled to dividend
payments, if any, or voting rights of the Preferred Stock or Common Stock
purchasable upon such exercise.
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DESCRIPTION OF STOCK PURCHASE CONTRACTS AND STOCK PURCHASE UNITS
The Company may issue Stock Purchase Contracts, representing contracts
obligating holders to purchase from the Company, and the Company to sell to
the holders, a specified number of shares of Common Stock at a future date or
dates. The price per share of Common Stock may be fixed at the time the Stock
Purchase Contracts are issued or may be determined by reference to a specific
formula set forth in the Stock Purchase Contracts. The Stock Purchase
Contracts may be issued separately or as a part of units ("Stock Purchase
Units") consisting of a Stock Purchase Contract and (x) Senior Debt Securities
or Subordinated Debt Securities (y) Preferred Securities, or (z) debt
obligations of third parties, including U.S. Treasury securities, securing the
holders obligations to purchase the Common Stock under the Stock Purchase
Contracts. The Stock Purchase Contracts may require the Company to make
periodic payments to the holders of the Stock Purchase Units or vice versa,
and such payments may be unsecured or prefunded on some basis. The Stock
Purchase Contracts may require holders to secure their obligations thereunder
in a specified manner.
The applicable Prospectus Supplement will describe the terms of any Stock
Purchase Contracts or Stock Purchase Units. The description in the Prospectus
Supplement will not purport to be complete and will be qualified in its
entirety by reference to the Stock Purchase Contracts, and, if applicable,
collateral arrangements and depositary arrangements, relating to such Stock
Purchase Contracts or Stock Purchase Units.
DESCRIPTION OF PREFERRED SECURITIES
The Provident Trust may issue, from time to time, only one series of
Preferred Securities having terms described in the Prospectus Supplement
relating thereto. The Declaration authorizes the Regular Trustees of the
Provident Trust to issue on behalf of the Provident Trust one series of
Preferred Securities. The Declaration will be qualified as an indenture under
the Trust Indenture Act. The Property Trustee, The Chase Manhatten Bank, an
independent trustee, will act as indenture trustee for the Preferred
Securities, to be issued by the Provident Trust, for the purposes of
compliance with the provisions of the Trust Indenture Act. The Preferred
Securities will have such terms, including distributions, redemption, voting,
liquidation rights and such other preferred, deferred or other special rights
or such restrictions as shall be set forth in the Declaration or made part of
the Declaration by the Trust Indenture Act, and which will mirror the terms of
the Subordinated Debt Securities held by the Provident Trust and as described
in the Prospectus Supplement related thereto. Reference is made to the
Prospectus Supplement relating to the Preferred Securities of the Provident
Trust for specific terms, including (i) the distinctive designation of such
Preferred Securities; (ii) the number of Preferred Securities issued; (iii)
the annual distribution rate (or method of determining such rate) for
Preferred Securities issued by the Provident Trust and the date or dates upon
which such distributions shall be payable; provided, however, that
distributions on such Preferred Securities shall be payable on a periodic
basis to holders of such Preferred Securities as of a record date in each
period during which such Preferred Securities are outstanding; (iv) whether
distributions on Preferred Securities shall be cumulative, and, in the case of
Preferred Securities having such cumulative distribution rights, the date or
dates or method of determining the date or dates from which distributions on
Preferred Securities shall be cumulative; (v) the amount or amounts which
shall be paid out of the assets to the holders of Preferred Securities upon
voluntary or involuntary dissolution, winding-up or termination of the
Provident Trust; (vi) the obligation, if any, of the Provident Trust to
purchase or redeem Preferred Securities and the price or prices at which, the
period or periods within which, and the terms and conditions upon which,
Preferred Securities shall be purchased or redeemed, in whole or in part,
pursuant to such obligation (with such redemption price to be determined
through negotiations among the Company and the Underwriters based on, among
other factors, redemption prices of securities similar to the Preferred
Securities and market conditions generally); (vii) the voting rights, if any,
of Preferred Securities in addition to those required by law, including the
number of votes per Preferred Security and any requirement for the approval by
the holders of Preferred Securities as a condition to specified action or
amendments to the Declaration of the Provident Trust; (viii) the terms and
conditions, if any, upon which the Subordinated Debt Securities may be
distributed to holders of Preferred Securities; (ix) if applicable, any
securities exchange upon which the Preferred Securities shall be
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listed; and (x) any other relevant rights, preferences, privileges,
limitations or restrictions of Preferred Securities not inconsistent with the
Declaration of the Provident Trust or with applicable law. All Preferred
Securities offered hereby will be guaranteed by the Company to the extent set
forth below under "Description of Trust Guarantee." The Trust Guarantee of
Provident, when taken together with Provident's obligations under the
Subordinated Debt Securities and the relevant Supplemental Indenture, and its
obligations under each Declaration, including obligations to pay costs,
expenses, debts and liabilities of the Provident Trust (other than with
respect to the Trust Securities), would provide a full and unconditional
guarantee of amounts due on Preferred Securities issued by the Provident
Trust. Certain United States federal income tax considerations applicable to
any offering of Preferred Securities will be described in the Prospectus
Supplement relating thereto.
In connection with the issuance of Preferred Securities, the Provident Trust
will issue one series of Common Securities. The Declaration authorizes the
Regular Trustees to issue on behalf of the Provident Trust one series of
Common Securities having such terms including distributions, redemption,
voting, liquidation rights or such restrictions as shall be set forth therein.
The terms of the Common Securities issued by the Provident Trust will be
substantially identical to the terms of the Preferred Securities issued by the
Provident Trust and the Common Securities will rank pari passu, and payments
will be made thereon pro rata, with the Preferred Securities except that, upon
an event of default under the Declaration, the rights of the holders of the
Common Securities to payment in respect of distributions and payments upon
liquidation, redemption and otherwise will be subordinated to the rights of
the holders of the Preferred Securities. Except in certain limited
circumstances, the Common Securities will also carry the right to vote to
appoint, remove or replace any of the Provident Trustees. All of the Common
Securities of the Provident Trust will be directly or indirectly owned by the
Company.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF TRUST PREFERRED SECURITIES
If an Event of Default under the Declaration occurs and is continuing, then
the holders of Preferred Securities would rely on the enforcement by the
Property Trustee of its rights as a holder of the applicable series of
Subordinated Debt Securities against the Company. In addition, the holders of
a majority in liquidation amount of the Preferred Securities will have the
right to direct the time, method and place of conducting any proceeding for
any remedy available to the Property Trustee or to direct the exercise of any
trust or power conferred upon the Property Trustee under the Declaration,
including the right to direct the Property Trustee to exercise the remedies
available to it as a holder of the Subordinated Debt Securities. If the
Property Trustee fails to enforce its rights under the applicable series of
Subordinated Debt Securities, a holder of Preferred Securities may, to the
fullest extent permitted by law, institute a legal proceeding directly against
the Company to enforce the Property Trustee's rights under the applicable
series of Subordinated Debt Securities without first instituting any legal
proceeding against the Property Trustee or any other person or entity.
Notwithstanding the foregoing, if an Event of Default under the applicable
Declaration has occurred and is continuing and such event is attributable to
the failure of the Company to pay interest or principal on the applicable
series of Subordinated Debt Securities on the date such interest or principal
is otherwise payable (or in the case of redemption, on the redemption date),
then a holder of Preferred Securities may directly institute a proceeding for
enforcement of payment to such holder of the principal of or interest on the
applicable series of Subordinated Debt Securities having a principal amount
equal to the aggregate liquidation amount of the Preferred Securities of such
holder (a "Direct Action") on or after the respective due date specified in
the applicable series of Subordinated Debt Securities. In connection with such
Direct Action, the Company will be subrogated to the right of such holder of
Preferred Securities under the Declaration to the extent of any payment made
by the Company to such holder of Preferred Securities in such Direct Action.
PROPOSED TAX LEGISLATION
On February 6, 1997, the revenue portion of President Clinton's Budget
proposal (the "Proposal") was released. The Proposal would, among other
things, deny deductions for interest on a debt instrument issued by a
corporation with a maximum weighted average maturity of more than 40 years or
which has a maximum term of more than 15 years and is not shown as
indebtedness on the separate balance sheet of the issuer. An instrument would
not be shown as indebtedness on a balance sheet merely because it was
described as indebtedness in
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footnotes or other narrative disclosures. The Proposal would apply only to
corporations which file annual financial statements with the Commission, and
the relevant balance sheet would be the balance sheet filed with the
Commission. The Proposal would be effective generally for instruments issued
on or after the date of first committee action. As currently drafted, the
Proposal would affect the Subordinated Debt Securities unless the Subordinated
Debt Securities were issued prior to the first date of any committee action.
In addition, the Proposal could be enacted with retroactive effect. If the
Proposal is enacted so as to apply to the Subordinated Debt Securities, the
Company would not be entitled to an interest deduction with respect to the
Subordinated Debt Securities. There can be no assurance that current or future
legislative proposals or final legislation will not give rise to a Tax Event
(as defined in the Declaration), which would permit the Company to cause a
redemption of the Subordinated Debt Securities or a distribution of the
Subordinated Debt Securities in a liquidation.
See "Description of the Preferred Securities--Special Event Redemption or
Distribution" in the Prospectus Supplement relating thereto.
DESCRIPTION OF TRUST GUARANTEE
Set forth below is a summary of information concerning the Trust Guarantee
which will be executed and delivered by the Company for the benefit of the
holders from time to time of Preferred Securities. The Trust Guarantee will be
qualified as an indenture under the Trust Indenture Act. The Chase Manhattan
Bank, an independent trustee, will act as indenture trustee under the Trust
Guarantee (the "Preferred Guarantee Trustee") for the purposes of compliance
with the provisions of the Trust Indenture Act. The terms of the Trust
Guarantee will be those set forth in the Trust Guarantee and those made part
of the Trust Guarantee by the Trust Indenture Act. The following summary does
not purport to be complete and is subject in all respects to the provisions
of, and is qualified in its entirety by reference to, the form of Trust
Guarantee, which is filed as an exhibit to the Registration Statement of which
this Prospectus forms a part, and the Trust Indenture Act. The Trust Guarantee
will be held by the Preferred Guarantee Trustee for the benefit of the holders
of the Preferred Securities of the Provident Trust.
GENERAL
Pursuant to the Trust Guarantee, the Company will irrevocably and
unconditionally agree, to the extent set forth therein, to pay in full, to the
holders of the Preferred Securities, the Guarantee Payments (as defined
herein) (except to the extent paid by the Provident Trust), as and when due,
regardless of any defense, right of set-off or counterclaim which the
Provident Trust may have or assert. The following payments or distributions
with respect to Preferred Securities issued by the Provident Trust to the
extent not paid by the Provident Trust (the "Guarantee Payments"), will be
subject to the Trust Guarantee (without duplication): (i) any accrued and
unpaid distributions which are required to be paid on such Preferred
Securities, to the extent the Provident Trust shall have funds available
therefore; (ii) the redemption price (the "Redemption Price") and all accrued
and unpaid distributions to the date of redemption to the extent the Provident
Trust has funds available therefore with respect to any Preferred Securities
called for redemption by the Provident Trust; and (iii) upon a voluntary or
involuntary dissolution, winding-up or termination of the Provident Trust
(other than in connection with the distribution of Subordinated Debt
Securities to the holders of Preferred Securities or the redemption of all of
the Preferred Securities), the lesser of (a) the aggregate of the liquidation
amount and all accrued and unpaid distributions on such Preferred Securities
to the date of payment, to the extent the Provident Trust has funds available
therefore and (b) the amount of assets of the Provident Trust remaining
available for distribution to holders of such Preferred Securities in
liquidation of the Provident Trust. The Company's obligation to make a
Guarantee Payment may be satisfied by direct payment of the required amounts
by the Company to the holders of Preferred Securities or by causing the
Provident Trust to pay such amounts to such holders.
The Trust Guarantee will be a guarantee with respect to the Preferred
Securities issued by the Provident Trust, but will not apply to any payment of
distributions except to the extent the Provident Trust shall have funds
available therefor. If the Company does not make interest payments on the
Subordinated Debt Securities
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purchased by the Provident Trust, the Provident Trust will not pay
distributions on the Preferred Securities issued by the Provident Trust and
will not have funds available therefor. See "Description of the Provident Debt
Securities--Particular Terms of the Subordinated Debt Securities." The Trust
Guarantee, when taken together with the Company's obligations under the
Subordinated Debt Securities, the Subordinated Indenture, and the Declaration
will provide a full and unconditional guarantee on a subordinated basis by the
Company of payments due on the Preferred Securities.
The Company has also agreed separately to irrevocably and unconditionally
guarantee the obligations of the Provident Trust with respect to the Common
Securities (the "Common Securities Guarantee") to the same extent as the Trust
Guarantee, except that upon an event of default under the Subordinated
Indenture, holders of Preferred Securities shall have priority over holders of
Common Securities with respect to distributions and payments on liquidation,
redemption or otherwise.
CERTAIN COVENANTS OF THE COMPANY
In the Trust Guarantee, the Company will covenant that, so long as any
Preferred Securities remain outstanding, if there shall have occurred any
event that would constitute an event of default under the Trust Guarantee or
the Declaration, then (a) the Company shall not declare or pay any dividend
on, make any distributions with respect to, or redeem, purchase, acquire or
make liquidation payment with respect to, any of its capital stock (other than
(i) purchases or acquisitions of shares of Common Stock in connection with the
satisfaction by the Company of its obligations under any employee benefit
plans or the satisfaction by the Company of its obligations pursuant to any
contract or security outstanding on the date of such event requiring the
Company to purchase shares of the Company Common Stock, (ii) as a result of a
reclassification of Provident's capital stock or the exchange or conversion of
one class or series of Provident's capital stock for another class or series
of Provident's capital stock or, (iii) the purchase of fractional interests in
shares of Provident's capital stock pursuant to the conversion or exchange
provisions of such Provident capital stock or the security being converted or
exchanged), (b) the Company shall not make any payment of interest, principal
or premium, if any, on or repay, repurchase or redeem any debt securities
(including guarantees) issued by the Company which rank pari passu with or
junior to such Subordinated Debt Securities and (c) the Company shall not make
any guarantee payments with respect to the foregoing (other than pursuant to
the Trust Guarantee).
MODIFICATION OF THE TRUST GUARANTEE; ASSIGNMENT
Except with respect to any changes which do not adversely affect the rights
of holders of Preferred Securities in any material respect (in which case no
vote will be required), the Trust Guarantee may be amended only with the prior
approval of the holders of not less than a majority in liquidation amount of
the outstanding Preferred Securities. The manner of obtaining any such
approval of holders of such Preferred Securities will be as set forth in an
accompanying Prospectus Supplement. All guarantees and agreements contained in
the Trust Guarantee shall bind the successors, assigns, receivers, trustees
and representatives of the Company and shall inure to the benefit of the
holders of the Preferred Securities then outstanding.
TERMINATION
The Trust Guarantee will terminate as to the Preferred Securities issued by
the Provident Trust (a) upon full payment of the Redemption Price of all
Preferred Securities of the Provident Trust, (b) upon distribution of the
Subordinated Debt Securities held by the Provident Trust to the holders of the
Preferred Securities or (c) upon full payment of the amounts payable in
accordance with the Declaration upon liquidation of the Provident Trust. The
Trust Guarantee will continue to be effective or will be reinstated, as the
case may be, if at any time any holder of Preferred Securities must restore
payment of any sums paid under such Preferred Securities or the Trust
Guarantee.
EVENTS OF DEFAULT
An event of default under the Trust Guarantee will occur upon the failure of
the Company to perform any of its payment or other obligations thereunder.
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The holders of a majority in liquidation amount of the Preferred Securities
to which the Trust Guarantee relates have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the
Preferred Guarantee Trustee in respect of the Trust Guarantee or to direct the
exercise of any trust or power conferred upon the Preferred Guarantee Trustee
under the Trust Guarantee. If the Preferred Guarantee Trustee fails to enforce
the Trust Guarantee, any holder of Preferred Securities to which the Trust
Guarantee relates may institute a legal proceeding directly against the
Company to enforce such holder's rights under the Trust Guarantee, without
first instituting a legal proceeding against the Provident Trust, the
Preferred Guarantee Trustee or any other person or entity. Notwithstanding the
foregoing, if the Company has failed to make a Guarantee Payment, a holder of
Preferred Securities may directly institute a proceeding against the Company
for enforcement of the Trust Guarantee for such payment. The Company waives
any right or remedy to require that any action be brought first against the
Provident Trust or an other person or entity before proceeding directly
against the Company.
STATUS OF THE TRUST GUARANTEE
The Trust Guarantee will constitute an unsecured obligation of the Company
and will rank (i) subordinate and junior in right of payment to all other
liabilities of the Company, except those made subordinate or pari passu by
their terms; (ii) pari passu with the most senior preferred or preference
stock now or hereafter issued by the Company and with any guarantee now or
hereafter entered into by the Company in respect of any preferred or
preference stock of any affiliate of the Company; and (iii) senior to the
Company's common stock. The terms of the Preferred Securities provide that
each holder of Preferred Securities by acceptance thereof agrees to the
subordination provisions and other terms of the Trust Guarantee relating
thereto.
The Trust Guarantee will constitute a guarantee of payment and not of
collection (that is, the guaranteed party may institute a legal proceeding
directly against the guarantor to enforce its rights under the guarantee
without instituting a legal proceeding against any other person or entity).
INFORMATION CONCERNING THE PREFERRED GUARANTEE TRUSTEE
The Preferred Guarantee Trustee, prior to the occurrence of a default with
respect to the Trust Guarantee, undertakes to perform only such duties as are
specifically set forth in the Trust Guarantee and, after default, shall
exercise the same degree of care as a prudent individual would exercise in the
conduct of his or her own affairs. Subject to such provisions, the Preferred
Guarantee Trustee is under no obligation to exercise any of the powers vested
in it by the Trust Guarantee at the request of any holder of Preferred
Securities, unless offered reasonable indemnity against the costs, expenses
and liabilities which might be incurred thereby; but the foregoing shall not
relieve the Preferred Guarantee Trustee, upon the occurrence of an event of
default under the Trust Guarantee, from exercising the rights and powers
vested in it by the Trust Guarantee.
GOVERNING LAW
The Trust Guarantee will be governed by and construed in accordance with the
internal laws of the State of New York.
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EFFECT OF OBLIGATIONS UNDER THE SUBORDINATED DEBT SECURITIES AND THE TRUST
GUARANTEE
As set forth in the Declaration, the sole purpose of the Provident Trust is
to issue the Trust Securities evidencing undivided beneficial interests in the
assets of the Provident Trust, and to invest the proceeds from such issuance
and sale in the Subordinated Debt Securities.
As long as payments of interest and other payments are made when due on the
Subordinated Debt Securities, such payments will be sufficient to cover
distributions and payments due on the Trust Securities because of the
following factors: (i) the aggregate principal amount of Subordinated Debt
Securities will be equal to the sum of the aggregate stated liquidation amount
of the Trust Securities; (ii) the interest rate and the interest and other
payment dates on the Subordinated Debt Securities will match the distribution
rate and the Company and other payment dates for the Preferred Securities;
(iii) the Company shall pay all, and the Provident Trust shall not be
obligated to pay, directly or indirectly, all costs, expenses, debt, and
obligations of the Provident Trust (other than with respect to the Trust
Securities); and (iv) the Declaration further provides that the Provident
Trustees shall not take or cause or permit the Provident Trust to, among other
things, engage in any activity that is not consistent with the purposes of the
Provident Trust.
Payments of distributions (to the extent funds therefore are available) and
other payments due on the Preferred Securities (to the extent funds therefore
are available) are guaranteed by the Company as and to the extent set forth
under "Description of the Trust Guarantee." If the Company does not make
interest payments on the Subordinated Debt Securities purchased by the
Provident Trust, it is expected that the Provident Trust will not have
sufficient funds to pay distributions on the Preferred Securities. The Trust
Guarantee does not apply to any payment of distributions unless and until the
Provident Trust has sufficient funds for the payment of such distributions.
The Trust Guarantee covers the payment of distributions and other payments on
the Preferred Securities only if and to the extent that the Company has made a
payment of interest or principal on the Subordinated Debt Securities held by
the Provident Trust as its sole asset. The Trust Guarantee, when taken
together with the Company's obligations under the Subordinated Debt Securities
and the Subordinated Indenture and its obligations under the Declaration,
including its obligations to pay costs, expenses, debts and liabilities of the
Provident Trust (other than with respect to the Trust Securities), provide a
full and unconditional guarantee of amounts on the Preferred Securities.
If the Company fails to make interest or other payments on the Subordinated
Debt Securities when due (taking account of any Extension Period as defined in
the Declaration), the Declaration provides a mechanism whereby the holders of
the Preferred Securities, using the procedures described in "Description of
Preferred Securities--Book-Entry Only Issuance--The Depository Trust Company"
and "--Voting Rights" in any accompanying Prospectus Supplement, may direct
the Property Trustee to enforce its rights under the Subordinated Debt
Securities. If the Property Trustee fails to enforce its rights under the
Subordinated Debt Securities, a holder of Preferred Securities may, to the
fullest extent permitted by law, institute a legal proceeding against the
Company to enforce the Property Trustee's rights under the Subordinated Debt
Securities without first instituting any legal proceeding against the Property
Trustee or any other person or entity. Notwithstanding the foregoing, if a
Declaration Event of Default has occurred and is continuing and such event is
attributable to the failure of the Company to pay interest or principal on the
Subordinated Debt Securities on the date such interest or principal is
otherwise payable (or in the case of redemption on the redemption date), then
a holder of Preferred Securities may institute a Direct Action for payment on
or after the respective due date specified in the Subordinated Debt
Securities. In connection with such Direct Action, the Company will be
subrogated to the rights of such holder of Preferred Securities under the
Declaration to the extent of any payment made by the Company to such holder of
Preferred Securities in such Direct Action. The Company, under the Trust
Guarantee, acknowledges that the Preferred Guarantee Trustee shall enforce the
Trust Guarantee on behalf of the holders of the Preferred Securities. If the
Company fails to make payments under the Trust Guarantee, the Trust Guarantee
provides a mechanism whereby the holders of the Preferred Securities may
direct the Preferred Guarantee Trustee to enforce its rights thereunder. Any
holder of Preferred Securities may institute a legal proceeding directly
against the Company to enforce the Preferred Guarantee Trustee's rights under
the Trust Guarantee without first
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instituting a legal proceeding against the Provident Trust, the Preferred
Guarantee Trustee, or any other person or entity.
The Company and the Provident Trust believe that the above mechanisms and
obligations, taken together, provide a full and unconditional guarantee by the
Company of payments due on the Preferred Securities. See "Description of Trust
Guarantee--General."
PLAN OF DISTRIBUTION
The Company and/or the Provident Trust may offer and sell the Offered
Securities to or through underwriters or dealers, and also may offer and sell
the Offered Securities directly to other purchasers or through designated
agents. Any such underwriter or agent involved in the offer and sale of the
Offered Securities will be named in the applicable Prospectus Supplement.
The distribution of the Offered Securities may be effected from time to time
in one or more transactions at a fixed price or prices, which may be changed,
or at market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. The Company and/or the
Provident Trust also may, from time to time, authorize underwriters acting as
the Company's agents to offer and sell the Offered Securities upon the terms
and conditions set forth in any Prospectus Supplement.
In connection with the sale of Offered Securities, underwriters may receive
compensation from the Company and/or the Provident Trust or from purchasers of
the Offered Securities, for whom they may act as agents, in the form of
discounts, concessions or commissions. Underwriters may sell the Offered
Securities to or through dealers, and such dealers may receive compensation in
the form of discounts, concessions or commissions from the underwriters and/or
commissions from the purchasers for whom they may act as agents. Underwriters,
dealers and agents that participate in the distribution of the Offered
Securities may be deemed to be underwriters, and any discounts or commissions
they receive from the Company and/or the Provident Trust, and any profit on
the resale of the Offered Securities they realize may be deemed to be
underwriting discounts and commissions under the Securities Act. Any such
underwriter or agent will be identified, and any such compensation received
from the Company and/or the Provident Trust will be described, in the
applicable Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, each series
of the Offered Securities will be a new issue with no established trading
market, other than the Common Stock and any series of Preferred Stock which
are listed on the NYSE. Any Common Stock sold pursuant to a Prospectus
Supplement will be listed on the NYSE, subject to official notice of issuance.
The Company may elect to list any of the other Offered Securities on an
exchange, but is not obligated to do so. It is possible that one or more
underwriters may make a market in a series of the Offered Securities, but will
not be obligated to do so and may discontinue any market making at any time
without notice. Therefore, no assurance can be given as to the liquidity of
the trading market for the Offered Securities.
If dealers are utilized in the sale of the Offered Securities, the Company
and/or the Provident Trust will sell such Offered Securities to the dealers as
principals. The dealers may then resell such Offered Securities to the public
at varying prices to be determined by such dealers at the time of resale. The
names of the dealers and the terms of the transaction will be set forth in the
Prospectus Supplement relating thereto.
Under agreements the Company may enter into, underwriters, dealers and
agents who participate in the distribution of the Offered Securities may be
entitled to indemnification by the Company and/or the Provident Trust against
certain liabilities, including liabilities under the Securities Act, or to
contribution with respect to payments which such agents, dealers or
underwriters may be required to make in respect thereof.
Underwriters, dealers and agents may engage in transactions with, or perform
services for, or be customers of, the Company and/or the Provident Trust in
the ordinary course of business.
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If so indicated in the applicable Prospectus Supplement, the Company and/or
the Provident Trust will authorize underwriters or other persons acting as the
Company's or the Provident Trust agents to solicit offers by certain
purchasers to purchase the Offered Securities from the Company and/or the
Provident Trust at the public offering price set forth in the Prospectus
Supplement pursuant to delayed delivery contracts providing for payment and
delivery on a future date. Such contracts will be subject to only those
conditions set forth in the Prospectus Supplement, and the Prospectus
Supplement will set forth the commission payable to the solicitor of such
offers.
LEGAL OPINIONS
Unless otherwise indicated in the applicable Prospectus Supplement, the
legality and validity of the Offered Securities will be passed upon for the
Company by Alston & Bird LLP, Atlanta, Georgia and for the underwriters by
LeBoeuf, Lamb, Greene & MacRae, L.L.P., a limited liability partnership
including professional corporations, New York, New York. LeBoeuf, Lamb, Greene
& MacRae, L.L.P., provides certain legal services to the Company from time to
time. Certain United States federal income taxation matters will be passed
upon for the Company and the Provident Trust by Alston & Bird LLP, Atlanta,
Georgia. Certain matters of Delaware law relating to the validity of the
Preferred Securities will be passed upon for the Provident Trust and the
Company by Richards, Layton & Finger, Wilmington, Delaware.
EXPERTS
The consolidated financial statements of Provident Companies, Inc.
incorporated by reference in its Annual Report on Form 10-K for the year ended
December 31, 1996 and the consolidated financial statements of The Paul Revere
Corporation for the year ended December 31, 1996 included in Provident
Companies, Inc.'s Current Report on Form 8-K, dated March 27, 1997, have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
reports thereon incorporated by reference or set forth therein and
incorporated herein by reference. Such consolidated financial statements are
incorporated herein by reference in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing.
With respect to Provident's unaudited condensed consolidated interim
financial information for the three-month period ended March 31, 1997,
incorporated by reference in this Prospectus, Ernst & Young LLP have reported
that they have applied limited procedures in accordance with professional
standards for a review of such information. However, their report, included in
Provident's Quarterly Report on Form 10-Q for the quarter ended March 31,
1997, and incorporated herein by reference, states that they did not audit and
they do not express an opinion on that interim financial information.
Accordingly, the degree of reliance on their report on such information should
be restricted considering the limited nature of the review procedures applied.
The independent auditors are not subject to the liability provision of Section
11 of the Securities Act for their report on the unaudited interim financial
information because this report is not a "report" or a "part" of the
Registration Statement on Form S-3, of which this Prospectus is a part,
prepared or certified by the auditors within the meaning of Sections 7 and 11
of the Securities Act.
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