<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THAT A FINAL PROSPECTUS +
+SUPPLEMENT IS DELIVERED. THIS PRELIMINARY PROSPECTUS SUPPLEMENT AND THE +
+ACCOMPANYING PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE +
+SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS SUPPLEMENT (Subject to Completion, Issued February 27, 1998)
(To Prospectus dated May 22, 1997)
$250,000,000
Provident Financing Trust I
% CAPITAL SECURITIES
(Liquidation Amount $1,000 Per Capital Security)
fully and unconditionally guaranteed, to the extent described herein, by
Provident Companies, Inc.
-----------
The % Capital Securities (the "Capital Securities") offered hereby
represent preferred undivided beneficial interests in the assets of Provident
Financing Trust I, a statutory business trust created under the laws of the
State of Delaware (the "Provident Trust"). Provident Companies, Inc., a
Delaware corporation (the "Company"), will be the owner of all of the undivided
beneficial interests in the assets of the Provident Trust represented by common
securities of the Provident Trust (the "Common Securities," and, collectively
with the Capital Securities, the "Securities"). The Chase Manhattan Bank is the
Property Trustee of the Provident Trust. The Provident Trust exists for the
sole purpose of issuing the Securities and investing the proceeds thereof in
% Junior Subordinated Deferrable Interest Debentures, Series A (the
"Junior Subordinated Debentures") to be issued by the Company, which mature on
March 1, 2038 (the "Stated Maturity"). In connection with the public offering
of the Capital Securities (the "Capital Securities Offering"), the Company
expects to consummate the public offering (the "Note Offering") of $250.0
million aggregate amount of % Senior Notes due March 1, 2028 (the "Notes").
The Note Offering is being made pursuant to a separate prospectus supplement
and the accompanying Prospectus.
(continued on next page)
-----------
SEE "RISK FACTORS" BEGINNING ON PAGE S-14 HEREOF AND ON PAGE 5 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.
-----------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
DISCOUNTS AND PROVIDENT
PRICE TO PUBLIC(1) COMMISSIONS(2) TRUST(1)(3)(4)
------------------ -------------- --------------
<S> <C> <C> <C>
Per Capital Security...... $1,000 (3) $1,000
Total..................... $250,000,000 (3) $250,000,000
</TABLE>
- - -----
(1) Plus accumulated Distributions, if any, from March , 1998.
(2) The Provident Trust and the Company have each agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriters."
(3) In view of the fact that the proceeds of the sale of the Capital
Securities will be invested in the Junior Subordinated Debentures, the
Company has agreed to pay to the Underwriters, as compensation for their
arranging the investment therein of such proceeds, $ per Capital
Security (or $ in the aggregate). See "Underwriters."
(4) Expenses of the Capital Securities Offering, which are payable by the
Company, are estimated at $ .
-----------
The Capital Securities 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 Capital Securities will be
made in book-entry form through the facilities of The Depository Trust Company,
on or about March , 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 , 1998
<PAGE>
(cover page continued)
The Capital Securities will have a preference under certain circumstances
with respect to Distributions (as defined herein) and amounts payable on
liquidation, redemption or otherwise over the Common Securities. See "Certain
Terms of Capital Securities--Subordination of Common Securities." The Capital
Securities will constitute "Preferred Securities," as such term is used and
defined in the accompanying Prospectus.
Holders of the Capital Securities will be entitled to receive preferential
cumulative cash distributions accruing from the date of original issuance and
payable semi-annually in arrears on the first day of March and September of
each year, commencing September 1, 1998, at the annual rate of % of the
Liquidation Amount (as defined herein) of $1,000 per Capital Security
("Distributions"). Subject to certain exceptions described herein, the Company
has the right to defer payment of interest on the Junior Subordinated
Debentures at any time or from time to time for a period not exceeding ten
consecutive semi-annual periods with respect to each deferral period (each, an
"Extension Period"), provided that no Extension Period may end on a day other
than the Interest Payment Date (as defined herein) or may extend beyond the
Stated Maturity of the Junior Subordinated Debentures. Upon the termination of
any such Extension Period and the payment of all amounts then due, the Company
may elect to begin a new Extension Period subject to the requirements set
forth herein. If interest payments on the Junior Subordinated Debentures are
so deferred, Distributions on the Capital Securities will also be deferred and
the Company will not be permitted, subject to certain exceptions described
herein, to declare or pay any cash distributions with respect to the Company's
capital stock or debt securities of the Company that rank pari passu with or
junior to the Junior Subordinated Debentures. During an Extension Period,
interest on the Junior Subordinated Debentures will continue to accrue (and
the amount of Distributions to which holders of the Capital Securities are
entitled will accumulate) at the rate of % per annum, compounded semi-
annually from the relevant payment date for such interest, and holders of the
Capital Securities will be required to recognize income (in the form of
original issue discount) for United States federal income tax purposes. See
"Certain Terms of Junior Subordinated Debentures--Option to Extend Interest
Payment Period" and "Certain Federal Income Tax Consequences--Interest Income
and Original Issue Discount."
The Junior Subordinated Debentures are unsecured and subordinated to all
Senior Debt (as defined herein) of the Company. Because the Company is a
holding company, the right of the Company to participate in any distribution
of assets of any subsidiary upon such subsidiary's liquidation or
reorganization or otherwise, is subject to the prior claims of creditors of
that subsidiary, except to the extent that the Company may itself be
recognized as a creditor of that subsidiary. Accordingly, the Junior
Subordinated Debentures (and therefore the Capital Securities) will be
effectively subordinated to all existing and future liabilities of the
Company's subsidiaries, and holders thereof should look only to the assets of
the Company for payments on the Junior Subordinated Debentures. See "'Certain
Terms of Junior Subordinated Debentures" herein and "Description of Debt
Securities--Subordination" in the accompanying Prospectus.
The Company has, through the Guarantee, the Declaration, the Junior
Subordinated Debentures, the Indenture and the Expense Agreement (each as
defined herein), taken together, fully and unconditionally guaranteed all of
Provident Trust's obligations under the Capital Securities. See "Relationship
Among Capital Securities, Junior Subordinated Debentures and Guarantee". The
Guarantee of the Company guarantees the payment of Distributions and payments
on liquidation or redemption of the Capital Securities, but only in each case
to the extent of funds held by the Provident Trust, as described herein. See
"Description of Guarantee". If the Company does not make interest payments on
the Junior Subordinated Debentures held by the Provident Trust, the Provident
Trust will have insufficient funds to pay Distributions on the Capital
Securities. The Guarantee does not cover payment of Distributions when the
S-2
<PAGE>
(cover page continued)
Provident Trust does not have sufficient funds to pay such Distributions. In
such event, a holder of the Capital Securities may institute a legal
proceeding directly against the Company to enforce payment of such
Distributions to such holder. See "Certain Terms of Junior Subordinated
Debentures--Enforcement of Certain Rights by Holders of Capital Securities."
The obligations of the Company under the Guarantee and the Capital Securities
are unsecured and are subordinate and junior in right of payment to all Senior
Debt of the Company.
The Capital Securities are subject to mandatory redemption, in whole, but
not in part, (i) upon repayment of the Junior Subordinated Debentures at
maturity or (ii) at any time within 90 days following the occurrence and
continuation of a Tax Event or Investment Company Event (each as defined
herein), at a redemption price equal to the Special Event Redemption Price (as
defined herein). See "Certain Terms of Capital Securities--Redemption."
The holder of the Common Securities (i.e., the Company) will have the right
at any time to dissolve the Provident Trust and, after satisfaction of
liabilities to creditors of the Provident Trust in accordance with applicable
law and the Expense Agreement, cause the Junior Subordinated Debentures to be
distributed to the holders of the Capital Securities in exchange therefor upon
liquidation of the Provident Trust. Such right is subject to the holder of the
Common Securities (i.e., the Company) having received an opinion of counsel to
the effect that such distribution will not be a taxable event to holders of
the Capital Securities for United States federal income tax purposes. See
"Certain Terms of Capital Securities-- Liquidation of Provident Trust and
Distribution of Junior Subordinated Debentures to Holders."
In the event of any liquidation of the Provident Trust, after satisfaction
of liabilities to creditors of the Provident Trust in accordance with
applicable law and the Expense Agreement, the holders of the Capital
Securities will be entitled to receive as a preference a Liquidation Amount of
$1,000 per Capital Security, plus accumulated and unpaid Distributions thereon
to the date of payment, which may be in the form of a distribution of a Like
Amount (as defined herein) of Junior Subordinated Debentures, subject to
certain exceptions. See "Certain Terms of Capital Securities--Liquidation of
Provident Trust and Distribution of Junior Subordinated Debentures to Holders"
and "--Liquidation Distribution Upon Termination."
The Capital Securities will be represented by global securities registered
in the name of a nominee of The Depository Trust Company, as depositary (the
"Depository" or "DTC"). Beneficial interests in the global securities will be
shown on, and transfers thereof will be effected only through, records
maintained by DTC and its participants. Except as described herein or in the
accompanying Prospectus, Capital Securities in definitive form will not be
issued and owners of beneficial interests in the global securities will not be
considered holders of the Capital Securities. See "Book-Entry Issuance."
S-3
<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, THE PROVIDENT TRUST 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 CAPITAL SECURITIES IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO
WHOM, IT IS UNLAWFUL TO MAKE SUCH AN 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-5
Summary................................................................... S-6
Selected Consolidated Financial Data ..................................... S-10
Recent Developments....................................................... S-11
Risk Factors.............................................................. S-14
Use of Proceeds........................................................... S-18
Capitalization............................................................ S-19
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... S-20
The Company............................................................... S-33
The Provident Financing Trust I........................................... S-43
Accounting Treatment...................................................... S-43
Certain Terms of Capital Securities....................................... S-44
Certain Terms of Junior Subordinated Debentures........................... S-54
Book-Entry Issuance....................................................... S-65
Description of Guarantee.................................................. S-67
Relationship Among Capital Securities, Junior Subordinated Debentures and
Guarantee................................................................ S-70
Certain Federal Income Tax Consequences................................... S-71
Certain ERISA Considerations.............................................. S-75
Underwriters.............................................................. S-77
Legal Matters............................................................. S-78
Experts................................................................... S-79
</TABLE>
----------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE CAPITAL
SECURITIES OFFERED HEREBY. SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN
CONNECTION WITH THE OFFERING, AND MAY BID FOR, AND PURCHASE, THE CAPITAL
SECURITIES IN THE OPEN MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"PLAN OF DISTRIBUTION" IN THE ACCOMPANYING PROSPECTUS AND "UNDERWRITERS"
HEREIN.
S-4
<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" herein and in the accompanying Prospectus.
S-5
<PAGE>
SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus Supplement and in the
accompanying Prospectus. The information in this Prospectus Supplement
supplements, and should be read in conjunction with, the information contained
in the accompanying Prospectus. As used herein, (i) the "Indenture" means the
indenture, as amended and supplemented from time to time, between the Company
and The Chase Manhattan Bank, as trustee (the "Debenture Trustee"), pursuant to
which the Junior Subordinated Debentures will be issued, (ii) the "Declaration"
means the Amended and Restated Declaration of Trust, as amended or supplemented
from time to time, relating to the Provident Trust, among the Company, as
depositor, The Chase Manhattan Bank, as property trustee (the "Property
Trustee"), First Union Trust Company, National Association, as Delaware trustee
(the "Delaware Trustee"), the administrative trustees named therein (the
"Administrative Trustees" and together with the Property Trustee and Delaware
Trustee, the "Issuer Trustees"), and the several registered holders from time
to time of the Securities, (iii) the "Guarantee" means the guarantee entered
into by the Company for the benefit of the holders of Capital Securities
pursuant to the guarantee agreement as amended or supplemented from time to
time, between the Company and The Chase Manhattan Bank, as trustee (the
"Guarantee Trustee"), and (iv) the "Expense Agreement" means the agreement as
to expenses and liabilities entered into by the Company, as holder of the
common securities, pursuant to the Declaration. Each of the other 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
S-6
<PAGE>
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 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.
S-7
<PAGE>
THE PROVIDENT TRUST
The Provident Trust is a statutory business trust created under Delaware law
on April 10, 1997. The Provident Trust will be governed by the Declaration. The
Provident Trust exists exclusively for the purposes of (i) issuing and selling
the Securities, (ii) using the proceeds from the sale of the Securities to
acquire the Junior Subordinated Debentures, and (iii) engaging in only those
other activities necessary, convenient or incidental thereto (such as
registering the transfer of the Capital Securities). Accordingly, the Junior
Subordinated Debentures will be the sole assets of the Provident Trust, and
payments under the Junior Subordinated Debentures will be the sole source of
revenue of the Provident Trust.
THE CAPITAL SECURITIES OFFERING AND THE NOTE OFFERING
In connection with the Capital Securities Offering, the Company expects to
consummate the Note Offering. The consummation of the Capital Securities
Offering is not conditioned on the completion of the Note Offering, and the
consummation of the Note Offering is not conditioned on the completion of the
Capital Securities Offering. There can be no assurance that the Note Offering
will be consummated. The Note Offering is being made pursuant to a separate
prospectus supplement and the accompanying Prospectus.
DESCRIPTION OF THE CAPITAL SECURITIES
Securities Offered.......... $250.0 million aggregate Liquidation Amount of
% Capital Securities (Liquidation Amount
$1,000 per Capital Security).
Offering Price.............. $1,000 per Capital Security (Liquidation Amount
$1,000), plus accumulated Distributions, if any,
from the date of original issuance.
Distribution Dates.......... March 1 and September 1, of each year, commencing
September 1, 1998.
Extension Periods........... Distributions on Capital Securities may be
deferred for the duration of any Extension Period
elected by the Company with respect to the
payment of interest on the Junior Subordinated
Debentures. No Extension Period will exceed ten
consecutive semi-annual periods, may end on a day
other than an Interest Payment Date or extend
beyond the Stated Maturity. See "Certain Terms of
Junior Subordinated Debentures--Option to Extend
Interest Payment Period" and "Certain Federal
Income Tax Consequences--Interest Income and
Original Issue Discount."
Ranking..................... The Capital Securities will rank pari passu, and
payments thereon will be made pro rata, with the
Common Securities except as described under
"Certain Terms of Capital Securities--
Subordination of Common Securities." The Junior
Subordinated Debentures will be unsecured and
subordinate and junior in right of payment to the
extent and in the manner set forth in the
Indenture to all Senior Debt and will rank pari
passu with the Company's obligations associated
with the outstanding Capital Securities. See
"Certain Terms of Junior Subordinated
Debentures--Subordination." The Guarantee will
constitute an unsecured obligation of the
S-8
<PAGE>
Company and will rank subordinate and junior in
right of payment to the extent and in the manner
set forth in the Guarantee to all Senior Debt and
will rank pari passu with the Company's
obligations associated with the outstanding
Capital Securities. As of February 24, 1998,
there was $984.2 million Senior Debt of the
Company outstanding. See "Description of
Guarantee."
Redemption.................. The Capital Securities will be subject to
mandatory redemption, in whole, but not in part,
(i) at the Stated Maturity upon repayment of the
Junior Subordinated Debentures or (ii) at any
time within 90 days following the occurrence and
continuation of a Tax Event or Investment Company
Event, in each case at the applicable redemption
price. See "Certain Terms of Capital Securities--
Redemption."
Rating...................... The Capital Securities have been rated "a3" by
Moody's Investors Service, Inc. and "BBB" by
Standard & Poor's Ratings Services. A security
rating is not a recommendation to buy, sell or
hold securities and may be subject to revision or
withdrawal at any time by the assigning rating
organization.
ERISA Considerations........ Prospective purchasers should carefully consider
the information set forth under "Certain ERISA
Considerations."
Absence of Market for the
Capital Securities.........
The Capital Securities will be a new issue of
securities for which there currently is no
market. The Company and the Provident Trust do
not intend to apply for listing of the Capital
Securities on any national securities exchange.
Although the Underwriters have informed the
Provident Trust and the Company that they each
currently intend to make a market in the Capital
Securities, the Underwriters are not obligated to
do so, and any such market making may be
discontinued at any time without notice.
Accordingly, there can be no assurance as to the
development or liquidity of any market for the
Capital Securities. See "Underwriters."
Use of Proceeds............. All the proceeds to the Provident Trust from the
sale of the Capital Securities will be invested
by the Provident Trust in the Junior Subordinated
Debentures. The net proceeds from the Capital
Securities Offering and the Note Offering will be
used to reduce borrowings under the Company's
short-term borrowings. See "Use of Proceeds."
For additional information regarding the Capital Securities, see "Certain
Terms of Capital Securities," "Certain Terms of Junior Subordinated
Debentures," "Book-Entry Issuance," "Description of Guarantee," "Relationship
Among Capital Securities, Junior Subordinated Debentures and Guarantee" and
"Certain Federal Income Tax Consequences."
RISK FACTORS
Prospective investors should carefully consider the matters set forth under
"Risk Factors" beginning on page S-14 hereof and on page 5 of the accompanying
Prospectus.
S-9
<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.
(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.
S-10
<PAGE>
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-11
<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> <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-12
<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-term Group Long-term and Short-term
Disability 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.'s 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-13
<PAGE>
RISK FACTORS
Prospective purchasers of the Capital Securities should carefully review the
information contained in this Prospectus Supplement and in the accompanying
Prospectus and should particularly consider the following matters. In
addition, because holders of Capital Securities may receive Junior
Subordinated Debentures in exchange therefor upon liquidation of the Provident
Trust, prospective purchasers of Capital Securities are also making an
investment decision with regard to the Junior Subordinated Debentures and
should carefully review all the information regarding the Junior Subordinated
Debentures contained herein and in the accompanying Prospectus. See "Risk
Factors" in the accompanying Prospectus.
RANKING OF SUBORDINATED OBLIGATIONS UNDER GUARANTEE AND JUNIOR SUBORDINATED
DEBENTURES
The obligations of the Company under the Guarantee and under the Junior
Subordinated Debentures are unsecured and rank subordinate and junior in right
of payment to all Senior Debt of the Company. Substantially all the Company's
indebtedness constitutes Senior Debt. Because the Company is a holding
company, the right of the Company to participate in any distribution of assets
of any subsidiary, upon such subsidiary's liquidation or reorganization or
otherwise (and thus the ability of holders of the Capital Securities to
benefit indirectly from such distribution), is subject to the prior claims of
creditors of that subsidiary, except to the extent that the Company may itself
be recognized as a creditor of that subsidiary. At December 31, 1997, the
Company's subsidiaries had total liabilities (excluding liabilities owed to
the Company) of approximately $19.2 billion. Accordingly, the Junior
Subordinated Debentures will be effectively subordinated to all existing and
future liabilities of the Company's subsidiaries, and holders of Junior
Subordinated Debentures should look only to the assets of the Company for
payments on the Junior Subordinated Debentures. See "The Company." None of the
Indenture, the Guarantee, the Declaration or the Expense Agreement places any
limitation on the amount of secured or unsecured debt, including Senior Debt,
that may be incurred by the Company or any subsidiary. See "Description of
Guarantee--Status of Guarantee" and "Certain Terms of Junior Subordinated
Debentures--Subordination."
The ability of the Provident Trust to pay amounts due on the Capital
Securities is solely dependent upon the Company making payments on the Junior
Subordinated Debentures as and when required.
OPTION TO EXTEND INTEREST PAYMENT PERIOD; TAX CONSEQUENCES
So long as no Debenture Event of Default (an "Event of Default" as defined
in the Indenture) has occurred and is continuing, the Company has the right
under the Indenture to defer the payment of interest on the Junior
Subordinated Debentures at any time or from time to time for a period not
exceeding ten consecutive semi-annual periods with respect to each Extension
Period, provided that no Extension Period may end on a day other than an
Interest Payment Date or may extend beyond the Stated Maturity of the Junior
Subordinated Debentures. As a consequence of any such deferral, semi-annual
Distributions on the Capital Securities by the Provident Trust will be
deferred (and the amount of Distributions to which holders of the Capital
Securities are entitled will accumulate additional Distributions thereon at
the rate of % per annum, compounded semi-annually from the relevant
payment date for such Distributions) during any such Extension Period. During
any such Extension Period, the Company may not, and may not permit any
subsidiary of the Company to, (i) declare or pay any dividends or
distributions on, or redeem, purchase, acquire, or make a liquidation payment
with respect to, any of the Company's capital stock, or (ii) make any payment
of principal, interest or premium, if any, on or repay, repurchase or redeem
any debt securities of the Company (including other unsecured subordinated
debt securities (the "Subordinated Debt Securities")) that rank pari passu in
all respects with or junior in interest to the Junior Subordinated Debentures
(other than (a) repurchases, redemptions or other acquisitions of shares of
capital stock of the Company in connection with any employment contract,
benefit plan or other similar arrangement with or for the benefit of one or
more employees, officers, directors or consultants, in connection with a
dividend reinvestment or stockholder stock purchase plan or in connection with
the issuance of capital stock of the Company (or securities convertible into
or exercisable for such capital stock) as consideration in an acquisition
transaction entered into prior to such Extension Period, (b) as a result of
any exchange or conversion of any
S-14
<PAGE>
class or series of the Company's capital stock (or any capital stock of a
subsidiary of the Company) for any class or series of the Company's capital
stock or of any class or series of the Company's indebtedness for any class or
series of the Company's capital stock, (c) the purchase of fractional
interests in shares of the Company's capital stock pursuant to the conversion
or exchange provisions of such capital stock or the security being converted
or exchanged, (d) any declaration of a dividend in connection with any
stockholder's rights plan, or the issuance of rights, stock or property under
any stockholder's rights plan, or the redemption or repurchase of rights
pursuant thereto, or (e) any dividend in the form of stock, warrants, options
or other rights where the dividend stock or the stock issuable upon exercise
of such warrants, options or other rights is the same stock as that on which
the dividend is being paid or ranks pari passu with or junior to such stock).
Prior to the termination of any such Extension Period, the Company may further
defer the payment of interest, provided that no Extension Period may exceed
ten consecutive semi-annual periods or extend beyond the Stated Maturity of
the Junior Subordinated Debentures. Upon the termination of any Extension
Period and the payment of all interest then accrued and unpaid (together with
interest thereon at the annual rate of %, compounded semi-annually, to
the extent permitted by applicable law), the Company may elect to begin a new
Extension Period, subject to the above requirements. Subject to the foregoing,
there is no limitation on the number of times that the Company may elect to
begin an Extension Period. See "Certain Terms of Capital Securities--
Distributions" and "Certain Terms of Junior Subordinated Debentures--Option to
Extend Interest Payment Period."
Should an Extension Period occur, each holder of the Capital Securities will
be required to recognize income (in the form of original issue discount) for
United States federal income tax purposes in respect of its pro rata share of
the Junior Subordinated Debentures held by the Provident Trust. As a result,
each such holder of the Capital Securities will be required to include such
income in gross income for United States federal income tax purposes in
advance of the receipt of cash attributable to such income and will not
receive such cash from the Provident Trust if the holder disposes of the
Capital Securities prior to the record date for the payment of such cash. See
"Certain Federal Income Tax Consequences--Interest Income and Original Issue
Discount" and "--Sales or Redemption of Capital Securities."
The Company has no current plan to exercise its right to defer payments of
interest by extending the interest payment period on the Junior Subordinated
Debentures. However, should the Company elect to exercise such right in the
future, the market price of the Capital Securities is likely to be affected. A
holder that disposes of its Capital Securities during an Extension Period,
therefore, might not receive the same return on its investment as a holder
that continues to hold its Capital Securities. In addition, as a result of the
existence of the Company's right to defer interest payments, the market price
of the Capital Securities (which represent preferred undivided beneficial
interests in the assets of the Provident Trust) may be more volatile than the
market prices of other securities on which original issue discount accrues
that are not subject to such deferrals.
TAX EVENT OR INVESTMENT COMPANY EVENT REDEMPTION
Upon the occurrence and continuation of a Tax Event or Investment Company
Event, the Company has the right to redeem the Junior Subordinated Debentures
in whole (but not in part) within 90 days following the occurrence of such Tax
Event or Investment Company Event and therefore cause a mandatory redemption
of the Capital Securities. Any such redemption shall be at a price equal to
the Special Event Redemption Price together with accumulated and unpaid
Distributions thereon to, but excluding, the Redemption Date (as defined
herein). See "Certain Terms of Junior Subordinated Debentures--Redemption."
A "Tax Event" means the receipt by the Provident Trust of an opinion of
counsel experienced in such matters (which may be counsel to the Company) to
the effect that, as a result of any amendment to, or change (including any
announced prospective change) in, the laws (or any regulations thereunder) of
the United States or any political subdivision or taxing authority thereof or
therein, or as a result of any official administrative pronouncement or
judicial decision interpreting or applying such laws or regulations, which
amendment or change is effective or which pronouncement or decision is
announced on or after the date of issuance of the Capital Securities under the
Declaration, there is more than an insubstantial risk that (i) the Provident
Trust is, or will be within 90 days of the date of such opinion, subject to
United States federal income tax with respect to income received or accrued on
the Junior Subordinated Debentures, (ii) interest payable by the Company on
the Junior Subordinated Debentures
S-15
<PAGE>
is not, or within 90 days of such opinion, will not be deductible by the
Company, in whole or in part, for United States federal income tax purposes,
or (iii) the Provident Trust is, or will be within 90 days of the date of the
opinion, subject to more than a de minimis amount of other taxes, duties or
other governmental charges. See "--Proposed Tax Legislation" for a discussion
of certain legislative proposals which may permit the Company to cause a
redemption of the Capital Securities prior to their Stated Maturity.
"Investment Company Event" means the receipt by the Provident Trust of an
opinion of counsel to the Company experienced in such matters (which may be
counsel to the Company ) to the effect that, as a result of the occurrence of
a change in law or regulation or a written change (including any announced
prospective change) in interpretation or application of law or regulation by
any legislative body, court, governmental agency or regulatory authority,
there is more than an insubstantial risk that the Provident Trust is or will
be considered an "investment company" that is required to be registered under
the Investment Company Act of 1940, as amended (the "Investment Company Act"),
which change or prospective change becomes effective or would become
effective, as the case may be, on or after the date of the issuance of the
Capital Securities.
EXCHANGE OF CAPITAL SECURITIES FOR JUNIOR SUBORDINATED DEBENTURES
The holder of the Common Securities (i.e., the Company) will have the right
at any time to dissolve the Provident Trust and, after satisfaction of the
liabilities of the Provident Trust in accordance with applicable law and the
Expense Agreement, to cause the Junior Subordinated Debentures to be
distributed to the holders of the Capital Securities in exchange therefor upon
liquidation of the Provident Trust. See "Certain Terms of Capital Securities--
Liquidation of Provident Trust and Distribution of Junior Subordinated
Debentures to Holders."
Under current United States federal income tax law and assuming, as
expected, that the Provident Trust will not be taxable as a corporation, a
distribution of the Junior Subordinated Debentures in exchange for the Capital
Securities upon liquidation of the Provident Trust will not be a taxable event
to holders of the Capital Securities. Should there occur a change in law, a
change in legal interpretation, a Tax Event, or other circumstances, however,
such a distribution of the Junior Subordinated Debentures by the Provident
Trust could be a taxable event to the holders of the Capital Securities. See
"Certain Federal Income Tax Consequences--Distribution of Junior Subordinated
Debentures to Holders of Capital Securities."
MARKET PRICES
There can be no assurance as to the market prices for the Capital
Securities, or the Junior Subordinated Debentures that may be distributed in
exchange for Capital Securities if a liquidation of the Provident Trust
occurs. Accordingly, the Capital Securities that an investor may purchase,
whether pursuant to the offer made hereby or in the secondary market, or the
Junior Subordinated Debentures that a holder of the Capital Securities may
receive on liquidation of the Provident Trust, may trade at a discount to the
price that the investor paid to purchase the Capital Securities offered
hereby. Because holders of the Capital Securities may receive Junior
Subordinated Debentures on termination of the Provident Trust, prospective
purchasers of the Capital Securities are also making an investment decision
with respect to the Junior Subordinated Debentures and should carefully review
all the information regarding the Junior Subordinated Debentures contained
herein and in the accompanying Prospectus. See "Certain Terms of Junior
Subordinated Debentures" herein, and "Description of Debt Securities" in the
accompanying Prospectus.
RIGHTS UNDER GUARANTEE
The Guarantee has been qualified as an indenture under the Trust Indenture
Act of 1939, as amended (the "Trust Indenture Act"). The Chase Manhattan Bank
will act as the indenture trustee under the Guarantee for the purpose of
compliance with the Trust Indenture Act and will hold the Guarantee for the
benefit of the holders of the Capital Securities. The Chase Manhattan Bank
will also act as Debenture Trustee under the Indenture and as Property Trustee
under the Declaration. First Union Trust Company, National Association will
act as Delaware Trustee under the Declaration. The Guarantee guarantees to the
holders of the Capital Securities the following payments, to the extent not
paid by the Provident Trust: (i) any accumulated and unpaid Distributions
required to be paid on the Capital Securities, to the extent that the
Provident Trust has funds on hand available
S-16
<PAGE>
therefor at such time: (ii) the Redemption Price (as defined herein) with
respect to any Capital Securities called for redemption, to the extent that
the Provident Trust has funds on hand available therefor at such time; and
(iii) upon a voluntary or involuntary dissolution, winding-up or liquidation
of the Provident Trust (unless the Junior Subordinated Debentures are
distributed to holders of the Capital Securities), the lesser of (a) the
aggregate of the Liquidation Amount and all accumulated and unpaid
Distributions to the date of payment, to the extent that the Provident Trust
has funds on hand available therefor at such time, and (b) the amount of
assets of the Provident Trust remaining available for distribution to holders
of the Capital Securities in liquidation of the Provident Trust.
The holders of not less than a majority in aggregate Liquidation Amount of
the Capital Securities have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Guarantee Trustee in
respect of the Guarantee or to direct the exercise of any trust power
conferred upon the Guarantee Trustee under the Guarantee. Any holder of the
Capital Securities may institute a legal proceeding directly against the
Company to enforce its rights under the Guarantee without first instituting a
legal proceeding against the Provident Trust, the Guarantee Trustee or any
other person or entity. If the Company were to default on its obligation to
pay amounts payable under the Junior Subordinated Debentures, the Provident
Trust would lack funds for the payment of Distributions or amounts payable on
redemption of the Capital Securities or otherwise, and in such event, holders
of the Capital Securities would not be able to rely upon the Guarantee for
payment of such amounts. Instead, in the event (i) an event of default with
respect to the Junior Subordinated Debentures ("Debenture Event of Default")
shall have occurred and be continuing, and (ii) such event is attributable to
the failure of the Company to pay interest on or principal of the Junior
Subordinated Debentures on the payment date on which such payment is due and
payable, then a holder of the Capital Securities may institute a legal
proceeding directly against the Company for enforcement of payment to such
holder of the principal of or interest on such Junior Subordinated Debentures
having a principal amount equal to the aggregate Liquidation Amount of the
Capital Securities of such holder (a "Direct Action"). In connection with such
Direct Action, the Company will have a right of set-off under the Indenture to
the extent of any payment made by the Company to such holder of the Capital
Securities in the Direct Action. Except as described herein, holders of the
Capital Securities will not be able to exercise directly any other remedy
available to the holders of the Junior Subordinated Debentures or assert
directly any other rights in respect of the Junior Subordinated Debentures.
See "Certain Terms of Junior Subordinated Debentures--Debenture Events of
Default," "Relationship Among Capital Securities, Junior Subordinated
Debentures and Guarantee" and "Description of Guarantee." The Declaration
provides that each holder of the Capital Securities, by acceptance thereof,
agrees to the provisions of the Guarantee and the Indenture.
LIMITED VOTING RIGHTS
Holders of the Capital Securities generally will have limited voting rights
relating only to the modification of the Capital Securities and the exercise
of Provident Trust's rights as holder of Junior Subordinated Debentures and
the Guarantee. Holders of the Capital Securities will not be entitled to vote
to appoint, remove or replace the Property Trustee, the Delaware Trustee or
any Administrative Trustee, and such voting rights are vested exclusively in
the holder of the Common Securities (i.e., the Company), except, with respect
to the Property Trustee and Delaware Trustee, upon the occurrence of certain
events described in the accompanying Prospectus. The Property Trustee, the
Administrative Trustees and the Company may amend the Declaration without the
consent of holders of the Capital Securities to ensure that the Provident
Trust will be classified for United States federal income tax purposes as a
grantor trust or as other than as an association taxable as a corporation,
unless such action materially adversely affects the interests of such holders.
See "Certain Terms of Capital Securities--Voting Rights; Amendment of
Declaration" and "--Removal of Issuer Trustee."
TRADING CHARACTERISTICS OF CAPITAL SECURITIES
The Capital Securities, or Junior Subordinated Debentures that may be
distributed in exchange for the Capital Securities if a liquidation of the
Provident Trust occurs, are new issues of securities with no established
trading market and will not be listed on any securities exchange. No assurance
can be given as to (i) the existence or liquidity of the secondary market for
the Capital Securities or the Junior Subordinated Debentures, (ii) the
S-17
<PAGE>
ability of the holders of the Capital Securities or the Junior Subordinated
Debentures to sell them, or (iii) the prices at which the Capital Securities
or the Junior Subordinated Debentures may be sold. The Underwriters have
informed the Provident Trust and the Company that the Underwriters intend to
make a market in the Capital Securities offered hereby; however, the
Underwriters are not obligated to do so and any such market making activity
will be subject to the limits imposed by applicable law and may be
discontinued at any time without notice. Therefore, there can be no assurance
that an active trading market for the Capital Securities will develop. If a
trading market for the Capital Securities does develop, the Capital Securities
may trade at a discount from their initial offering price depending upon
prevailing interest rates, the market for similar securities, the performance
of the Company and other factors.
The Capital Securities may trade at prices that do not fully reflect the
value of accrued but unpaid interest with respect to the underlying Junior
Subordinated Debentures. A holder of the Capital Securities that disposes of
its Capital Securities between record dates for payments of Distributions (and
consequently does not receive a Distribution from the Provident Trust for the
period prior to such disposition) nevertheless may be required to include
accrued but unpaid interest on the Junior Subordinated Debentures through the
date of disposition in income as ordinary income and to add such amount to its
adjusted tax basis in the Capital Securities disposed of. Such holder would
recognize a capital loss to the extent the selling price (which may not fully
reflect the value of accrued but unpaid interest) is less than its adjusted
tax basis (which will include accrued but unpaid interest). Subject to certain
limited exceptions, capital losses cannot be applied to offset ordinary income
for United States federal income tax purposes. See "Certain Federal Income Tax
Consequences--Sales or Redemption of Capital Securities."
PROPOSED TAX LEGISLATION
In recent years legislation has been proposed which, if enacted, could
result in the denial of interest deduction on instruments with features
similar to those of the Junior Subordinated Debentures. No such legislation
has been enacted. No assurance, however, can be given that future legislation
enacted after the date hereof will not include provisions that will adversely
affect the federal income tax treatment of the Junior Subordinated Debentures.
Accordingly, there can be no assurance that a Tax Event will not occur. See
"Certain Terms of Capital Securities-- Redemption."
USE OF PROCEEDS
The net proceeds to the Provident Trust from the sale of the Capital
Securities will be $250.0 million. All of the proceeds from the sale of
Capital Securities will be invested by the Provident Trust in the Junior
Subordinated Debentures. The Company intends to use the net proceeds it
receives from the sale of the Junior subordinated Debentures to reduce the
Company's short-term borrowings, which had an outstanding balance of $984.2
million as of February 24, 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, to
redeem 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 24,
1998); and (ii) $484.2 million of short-term debt generated through securities
repurchase transactions with variable maturity dates and various interest
rates (average interest rate was 5.59% as of February 24, 1998). 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.
S-18
<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
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 FOR
SUBSEQUENCE THE
ACTUAL TRANSACTIONS OFFERINGS
-------- ------------ -----------
(IN MILLIONS)
<S> <C> <C> <C>
SHORT-TERM DEBT:
Short-term debt............................ $ -- $ 881.2(1) $
LONG-TERM DEBT:
Revolving credit facility.................. 725.0 -- --
% Senior Notes due March 1, 2028.......... -- -- 250.0
-------- -------- --------
Total long-term debt...................... 725.0 -- 250.0
-------- -------- --------
Guaranteed preferred beneficial interests in
the Company's Junior Subordinated
Debentures to be held by Provident Trust
(2)........................................ -- -- 250.0
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 $3,789.7
======== ======== ========
</TABLE>
- - --------
(1) The 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 Company's 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-19
<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-20
<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.
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
S-21
<PAGE>
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-22
<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-23
<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-24
<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-25
<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 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
S-26
<PAGE>
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-27
<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-28
<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 five-year 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. 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 commitment 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 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 company 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-29
<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-30
<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-31
<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-32
<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
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<PAGE>
integrate and simplify coverages, control costs and improve efficiency for
employers with significant disability and related claims. The Company also
expects Genex to play an increasingly significant role in helping the Company
manage its own exposure to individual and group disability claims.
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
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<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-35
<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-36
<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 the
ten-year level-term policies. These products have level premiums for an
initial ten-year period after which the policyholder may resubmit to the
underwriting process and possibly qualify for a new ten year period at the
attained age premiums; otherwise, premiums revert to a yearly renewable term
premium which increases annually. When measured by annualized premiums,
universal life with the flexibility and features described above was the
largest product category sold by Provident in this segment in recent years.
Paul Revere's largest product category is interest-sensitive whole life
insurance.
Premium rates for the Company's life insurance products are based on
assumptions as to future mortality, investment yields, expenses, and lapses.
Although a margin for profit is included in setting premium rates, the actual
profitability of products is significantly affected by the variation of actual
experience from assumed experience. Profitability of fixed premium products is
also dependent upon investment income on reserves. The profitability of
interest-sensitive products is determined primarily by the ultimate
underwriting experience and the ability to maintain anticipated investment
spreads. The Company believes that the historical claim experience for these
products has been satisfactory.
From the Company's viewpoint, the risks involved with interest-sensitive
products include actual versus assumed mortality, achieving investment returns
that at least equal the current declared rate, competitive position of
declared rates on the policies, meeting the contractually guaranteed minimum
crediting rate, and recovery of policy acquisition costs. From the
policyholder's perspective, the risk involved with interest-sensitive products
is whether or not the declared rates on the policy will compare favorably with
the returns available elsewhere in the marketplace.
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-37
<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 $1877.3 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.
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<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 LAPSES IN FORCE NUMBER OF
BEGINNING OTHER 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 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
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<PAGE>
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.
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
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<PAGE>
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 $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.
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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 is set for March 5, 1998. Although the Company believes
the likelihood of success of the appeal is remote, there can be no absolute
assurance that such appeal 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,
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 sales practices in
the sales of certain types of life insurance products. These claims
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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. 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 and
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 such policies will not have a material adverse
effect on the Company in the future.
THE PROVIDENT FINANCING TRUST I
The Provident Trust is a statutory business trust created under Delaware law
pursuant to (i) the original Declaration of Trust, dated as of April 10, 1997,
and (ii) the filing of a certificate of trust with the Delaware Secretary of
State on April 10, 1997. The Provident Trust will be governed by the
Declaration. The Provident Trust's business and affairs are conducted by the
Issuer Trustees: The Chase Manhattan Bank, as Property Trustee; First Union
Trust Company, National Association, as Delaware Trustee; and two individual
Administrative Trustees who are employees or officers of or affiliated with
the Company. The Provident Trust exists exclusively for the purposes of (i)
issuing and selling the Securities, (ii) using the proceeds from the sale of
the Securities to acquire the Junior Subordinated Debentures, and (iii)
engaging in only those other activities necessary, convenient or incidental
thereto (such as registering the transfer of the Capital Securities).
Accordingly, the Junior Subordinated Debentures will be the sole asset of the
Provident Trust, and payments under the Junior Subordinated Debentures will be
the sole source of revenue of the Provident Trust. All of the Common
Securities will be owned by the Company. The Common Securities will rank pari
passu, and payments will be made thereon pro rata, with the Capital
Securities, except that upon the occurrence and continuance of an Event of
Default (as defined herein) under the Declaration resulting from a Debenture
Event of Default, the rights of the Company as holder of the Common Securities
to payment in respect of Distributions and payments upon liquidation,
redemption or otherwise will be subordinated to the rights of the holders of
the Capital Securities. See "Certain Terms of Capital Securities--
Subordination of Common Securities." The Company will acquire the Common
Securities in an aggregate stated amount equal to approximately three percent
of the total capital of the Provident Trust. The Provident Trust has a term of
45 years, but may dissolve earlier as provided in the Declaration. See "The
Provident Trust" in the accompanying Prospectus.
It is anticipated that the Provident Trust will not be subject to the
reporting requirements under the Securities Exchange Act of 1934, as amended
(the "Exchange Act").
ACCOUNTING TREATMENT
For financial reporting purposes, the Provident Trust will be treated as a
subsidiary of the Company, and accordingly, the accounts of the Provident
Trust will be included in the consolidated financial statements of the
Company. The Capital Securities will be presented as a separate line item in
the consolidated balance sheets of the Company which will be classified
similar to minority interests and appropriate disclosures about the Capital
Securities, the Guarantee and the Junior Subordinated Debentures will be
included in the notes to the consolidated financial statements. For financial
reporting purposes, the Company will record Distributions payable on the
Capital Securities as an expense in the Company's consolidated statements of
income.
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CERTAIN TERMS OF CAPITAL SECURITIES
The following summary of certain terms and provisions of the Capital
Securities, which describes the material terms thereof, supplements the
description of the terms and provisions of the Preferred Securities (including
the Capital Securities) set forth in the accompanying Prospectus under the
heading "Description of Preferred Securities," to which description reference
is hereby made. This summary of certain terms and provisions of the Capital
Securities does not purport to be complete and is subject to, and qualified in
its entirety by reference to, the Declaration. The Declaration has been filed
as an exhibit to the Registration Statement of which this Prospectus
Supplement and the accompanying Prospectus form a part.
GENERAL
The Capital Securities will be limited to $250.0 million aggregate
Liquidation Amount outstanding. The Capital Securities of the Provident Trust
will rank pari passu, and payments thereon will be made pro rata, with the
Common Securities of the Provident Trust except as described under "--
Subordination of Common Securities." Legal title to Junior Subordinated
Debentures will be held by the Property Trustee in trust for the benefit of
the holders of the Capital Securities and Common Securities. The Guarantee
Agreement executed by the Company for the benefit of the holders of Capital
Securities will be a guarantee on a subordinated basis with respect to the
Capital Securities but will not guarantee payment of Distributions or amounts
payable on redemption or liquidation of Capital Securities when Provident
Trust does not have funds on hand available to make such payments. See
"Description of Guarantee."
DISTRIBUTIONS
The Capital Securities represent preferred undivided beneficial interests in
the assets of the Provident Trust, and Distributions on each Capital Security
will be payable as a preference at the annual rate of % of the stated
amount of $1,000 per Capital Security (the "Liquidation Amount"), semi-
annually in arrears on March 1 and September 1 of each year, to the holders of
the Capital Securities on the relevant record dates. The record dates will be,
for so long as the Capital Securities remain in book-entry form, one Business
Day (as defined herein) prior to the relevant Distribution payment dates and,
in the event the Capital Securities are not in book-entry form, the 15th day
of the months prior to the months in which the relevant Distribution payment
dates occur. Subject to any applicable laws and regulations and the provisions
of the Declaration, each such payment will be made as described under "Book-
Entry Issuance." Distributions will accumulate from the date of original
issuance. The first Distribution payment date for the Capital Securities will
be September 1, 1998. The amount of Distributions payable for any period will
be computed on the basis of a 360-day year of twelve 30-day months. In the
event that any date on which Distributions are payable on the Capital
Securities is not a Business Day, then payment of the Distributions payable on
such date will be made on the next succeeding Business Day (and without any
additional Distributions or other payment in respect of any such delay),
except that, if such Business Day is in the next succeeding calendar year,
such payment shall be made on the immediately preceding Business Day, in each
case with the same effect as if made on the date such payment was originally
payable. A "Business Day" shall mean any day other than a Saturday or a
Sunday, or a legal holiday or a day on which banking institutions in the City
of New York are authorized or required by law or executive order to remain
closed or a day on which the corporate trust office of the Property Trustee or
the Debenture Trustee is closed for business.
So long as no Debenture Event of Default has occurred and is continuing, the
Company has the right under the Indenture to defer the payment of interest on
the Junior Subordinated Debentures at any time or from time to time for a
period not exceeding ten consecutive semi-annual periods with respect to each
Extension Period, provided that no Extension Period may extend beyond the
Stated Maturity of the Junior Subordinated Debentures. As a consequence of any
such election, semi-annual Distributions on the Capital Securities will be
deferred by the Provident Trust during any such Extension Period.
Distributions to which holders of the Capital Securities are entitled will
accumulate additional Distributions thereon at the rate per annum of %
thereof, compounded semi-annually from the relevant payment date for such
Distributions. The term "Distributions" as used herein shall include any such
additional Distributions. During any such Extension Period, the Company may
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not, and may not permit any subsidiary of the Company to, (i) declare or pay
any dividends or distributions on, or redeem, purchase, acquire, or make a
liquidation payment with respect to, any of the Company's capital stock or
(ii) make any payment of principal, interest or premium, if any, on or repay,
repurchase or redeem any debt securities of the Company (including other
Subordinated Debt Securities) that rank pari passu in all respects with or
junior in interest to the Junior Subordinated Debentures (other than (a)
repurchases, redemptions or other acquisitions of shares of capital stock of
the Company in connection with any employment contract, benefit plan or other
similar arrangement with or for the benefit of one or more employees,
officers, directors or consultants, in connection with a dividend reinvestment
or stockholder stock purchase plan or in connection with the issuance of
capital stock of the Company (or securities convertible into or exercisable
for such capital stock) as consideration in an acquisition transaction entered
into prior to such Extension Period, (b) as a result of any exchange or
conversion of any class or series of the Company's capital stock (or any
capital stock of a subsidiary of the Company) for any class or series of the
Company's capital stock or of any class or series of the Company's
indebtedness for any class or series of the Company's capital stock, (c) the
purchase of fractional interests in shares of the Company's capital stock
pursuant to the conversion or exchange provisions of such capital stock or the
security being converted or exchanged, (d) any declaration of a dividend in
connection with any stockholder's rights plan, or the issuance of rights,
stock or other property under any stockholder's rights plan, or the redemption
or repurchase of rights pursuant thereto, or (e) any dividend in the form of
stock, warrants, options or other rights where the dividend stock or the stock
issuable upon exercise of such warrants, options or other rights is the same
stock as that on which the dividend is being paid or ranks pari passu with or
junior to such stock). Prior to the termination of any such Extension Period,
the Company may further defer the payment of interest, provided that no
Extension Period may exceed ten consecutive semi-annual periods or extend
beyond the Stated Maturity of the Junior Subordinated Debentures. Upon the
termination of any such Extension Period and the payment of all amounts then
due, the Company may elect to begin a new Extension Period. Subject to the
foregoing, there is no limitation on the number of times that the Company may
elect to begin an Extension Period. See "Certain Terms of Junior Subordinated
Debentures--Option to Extend Interest Payment Period" and "Certain Federal
Income Tax Consequences--Interest Income and Original Issue Discount."
The Company has no current plan to exercise its right to defer payments of
interest by extending the interest payment period on the Junior Subordinated
Debentures.
The revenue of the Provident Trust available for distribution to holders of
the Capital Securities will be limited to payments under the Junior
Subordinated Debentures in which the Provident Trust will invest the proceeds
from the issuance and sale of the Capital Securities. See "Certain Terms of
Junior Subordinated Debentures." If the Company does not make payments on the
Junior Subordinated Debentures, the Provident Trust may not have funds
available to pay Distributions or other amounts payable on the Capital
Securities. The payment of Distributions and other amounts payable on the
Capital Securities (if and to the extent the Provident Trust has funds legally
available for and cash sufficient to make such payments) is guaranteed by the
Company on a limited basis as set forth herein under "Description of
Guarantee."
REDEMPTION
Upon the repayment or redemption of the Junior Subordinated Debentures,
whether at Stated Maturity or upon earlier redemption as provided in the
Indenture and described below, the proceeds from such repayment or redemption
shall be applied by the Property Trustee to redeem a Like Amount (as defined
herein) of the Securities, upon not less than 30 nor more than 60 days notice
prior to the date fixed for repayment or redemption, at a redemption price
(the "Redemption Price"); however, the Redemption Price with respect to the
Capital Securities, in the case of repayment or redemption of the Junior
Subordinated Debentures at Stated Maturity, is equal to the aggregate
Liquidation Amount of such Capital Securities plus accumulated and unpaid
Distributions thereon to but excluding the date of repayment or redemption
(the "Redemption Date"). See "Certain Terms of Junior Subordinated
Debentures--Redemption."
As provided in the Indenture, the Company has the right to redeem the Junior
Subordinated Debentures in whole, but not in part, at any time within 90 days
following the occurrence and continuation of a Tax Event or
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Investment Company Event. A redemption of the Junior Subordinated Debentures
would cause a mandatory redemption of the Capital Securities and Common
Securities.
The Redemption Price, in the case of a redemption following a Tax Event or
Investment Company Event as described above shall be equal to the Special
Event Redemption Price (as defined herein).
If a Tax Event or Investment Company Event in respect of the Capital
Securities and Common Securities shall occur and be continuing, the Company
has the right to redeem the Junior Subordinated Debentures in whole (but not
in part) and thereby cause a mandatory redemption of such Capital Securities
and Common Securities in whole (but not in part) at the Special Event
Redemption Price within 90 days following the occurrence of such Tax Event or
Investment Company Event. In the event a Tax Event or Investment Company Event
in respect of the Capital Securities and Common Securities has occurred and is
continuing and the Company does not elect to redeem the Junior Subordinated
Debentures and thereby cause a mandatory redemption of Capital Securities and
Common Securities or to liquidate the Provident Trust and cause the Junior
Subordinated Debentures to be distributed to holders of Capital Securities and
Common Securities in exchange therefor upon liquidation of the Provident Trust
as described above, the Capital Securities and Common Securities will remain
outstanding and Additional Sums may be payable on the Junior Subordinated
Debentures.
"Additional Sums" means the additional amounts as may be necessary in order
that the amount of Distributions then due and payable by the Provident Trust
on the outstanding Capital Securities and Common Securities of the Provident
Trust shall not be reduced as a result of any additional taxes, duties and
other governmental charges to which the Provident Trust has become subject as
a result of a Tax Event.
"Like Amount" means (i) with respect to a redemption of the Securities, the
Securities having a Liquidation Amount equal to that portion of the principal
amount of Junior Subordinated Debentures to be contemporaneously redeemed in
accordance with the Indenture, allocated to the Common Securities and to the
Capital Securities based upon the relative Liquidation Amounts of such
classes, and the proceeds of which will be used to pay the Redemption Price of
the Securities, and (ii) with respect to a distribution of Junior Subordinated
Debentures to holders of the Securities in connection with a dissolution or
liquidation of the Provident Trust, Junior Subordinated Debentures having a
principal amount equal to the Liquidation Amount of the Securities of the
holder to whom the Junior Subordinated Debentures are distributed.
"Liquidation Amount" means the stated amount of $1,000 per Security.
After the liquidation date fixed for the distribution of the Junior
Subordinated Debentures in exchange for the Capital Securities (i) the Capital
Securities will no longer be deemed to be outstanding, (ii) DTC or its
nominee, as the record holder of Capital Securities, will receive a registered
global certificate or certificates representing the Junior Subordinated
Debentures to be delivered upon such distribution, and (iii) any certificates
representing the Capital Securities not held by DTC or its nominee will be
deemed to represent the Junior Subordinated Debentures having a principal
amount equal to the Liquidation Amount of Capital Securities, and bearing
accrued and unpaid interest in an amount equal to the accrued and unpaid
Distributions on the Capital Securities until such certificates are presented
to the Administrative Trustees or their agent for transfer or reissuance.
A "Tax Event" means the receipt by the Provident Trust of an opinion of
counsel experienced in such matters (which may be counsel to the Company) to
the effect that, as a result of any amendment to, or change (including any
announced prospective change) in, the laws (or any regulations thereunder) of
the United States or any political subdivision or taxing authority thereof or
therein, or as a result of any official administrative pronouncement or
judicial decision interpreting or applying such laws or regulations, which
amendment or change is effective or which pronouncement or decision is
announced on or after the date of issuance of the Capital Securities under the
Declaration, there is more than an insubstantial risk that (i) the Provident
Trust is, or will be within 90 days of the date of such opinion, subject to
United States federal income tax with respect to income received or accrued on
the Junior Subordinated Debentures, (ii) interest payable by the Company on
the Junior Subordinated Debentures
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is not, or within 90 days of such opinion, will not be deductible by the
Company, in whole or in part, for United States federal income tax purposes,
or (iii) the Provident Trust is, or will be within 90 days of the date of the
opinion, subject to more than a de minimis amount of other taxes, duties or
other governmental charges.
"Investment Company Event" means the receipt by the Provident Trust of an
opinion of counsel to the Company experienced in such matters (which may be
counsel to the Company ) to the effect that, as a result of the occurrence of
a change in law or regulation or a written change (including any announced
prospective change) in interpretation or application of law or regulation by
any legislative body, court, governmental agency or regulatory authority,
there is more than an insubstantial risk that the Provident Trust is or will
be considered an "investment company" that is required to be registered under
the Investment Company Act, which change or prospective change becomes
effective or would become effective, as the case may be, on or after the date
of the issuance of the Capital Securities.
There can be no assurance as to the market prices for the Capital
Securities, or the Junior Subordinated Debentures that may be distributed in
exchange for the Capital Securities, if a liquidation of the Provident Trust
were to occur. Accordingly, the Capital Securities that an investor may
purchase, or the Junior Subordinated Debentures that the investor may receive
on dissolution and liquidation of the Provident Trust, may trade at a discount
to the price that the investor paid to purchase the Capital Securities.
REDEMPTION PROCEDURES
Capital Securities redeemed on each Redemption Date shall be redeemed at the
applicable Redemption Price with the applicable proceeds from the
contemporaneous redemption of the Junior Subordinated Debentures. Redemptions
of the Capital Securities shall be made and the Redemption Price shall be
payable on each Redemption Date only to the extent that the Provident Trust
has funds on hand and available for the payment of such Redemption Price. See
"--Subordination of Common Securities."
If the Property Trustee gives a notice of redemption in respect of the
Capital Securities, then by 12:00 noon, New York City time, on the Redemption
Date, to the extent funds are available, the Property Trustee will deposit
irrevocably with DTC funds sufficient to pay the applicable Redemption Price
and will give DTC irrevocable instructions and authority to pay the Redemption
Price to the holders of such Capital Securities. See "Book-Entry Issuance." If
such Capital Securities are no longer in book-entry form, the Property
Trustee, to the extent funds are available, will irrevocably deposit with the
Paying Agent (as defined herein) for such Capital Securities funds sufficient
to pay the applicable Redemption Price and will give such Paying Agent
irrevocable instructions and authority to pay the Redemption Price to the
holders thereof upon surrender of their certificates evidencing such Capital
Securities. Notwithstanding the foregoing, Distributions payable on or prior
to the Redemption Date for any Capital Securities called for redemption shall
be payable to the holders of such Capital Securities on the relevant record
dates for the related Distribution Dates. If notice of redemption shall have
been given and funds deposited as required, then upon the date of such
deposit, all rights of the holders of such Capital Securities so called for
redemption will cease, except the right of the holders of such Capital
Securities to receive the Redemption Price and any unpaid Distributions
payable in respect of the Capital Securities on or prior to the Redemption
Date, but without additional Distributions thereon, and such Capital
Securities will cease to be outstanding. In the event that any date fixed for
redemption of Capital Securities is not a Business Day, then payment of the
Redemption Price payable on such date will be made on the next succeeding day
which is a Business Day (and without any interest or other payment in respect
of any such delay), except that, if such Business Day falls in the next
calendar year, such payment will be made on the immediately preceding Business
Day. In the event that payment of the Redemption Price in respect of Capital
Securities called for redemption is improperly withheld or refused and not
paid either by the Provident Trust or by the Company pursuant to the Guarantee
as described under "Description of Guarantee", Distributions on such Capital
Securities will continue to accrue at the then applicable rate, from the
Redemption Date originally established by the Provident Trust for such Capital
Securities to the date such Redemption Price is actually paid, in which case
the actual payment date will be the date fixed for redemption for purposes of
calculating the Redemption Price.
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Subject to applicable law (including, without limitation, United States
federal securities law), the Company or its subsidiaries may at any time and
from time to time purchase outstanding Capital Securities by tender, in the
open market or by private agreement.
Payment of the Redemption Price on any Capital Securities (or any
distribution of Junior Subordinated Debentures in exchange for Capital
Securities upon liquidation of the Provident Trust) shall be made to the
applicable recordholders thereof as they appear on the register for such
Capital Securities on the relevant record date, which shall be one Business
Day prior to the relevant Redemption Date (or liquidation date); provided,
however, that in the event that any Capital Securities are not in book-entry
form, the relevant record date for such Capital Securities shall be a date at
least 15 days prior to the Redemption Date (or liquidation date).
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the Redemption Date to each holder of Capital Securities to be
redeemed at its registered address. Unless the Company defaults in payment of
the Redemption Price on the Junior Subordinated Debentures, on and after the
Redemption Date interest will cease to accrue on such Junior Subordinated
Debentures or portions thereof (and Distributions will cease to accrue on such
Capital Securities or portions thereof) called for redemption.
SUBORDINATION OF COMMON SECURITIES
Payment of Distributions on, and the Redemption Price of, the Capital
Securities and Common Securities, as applicable, shall be made pro rata (based
upon Liquidation Amounts) of such Capital Securities and Common Securities;
provided, however, that if, on any Distribution Date or Redemption Date (or
liquidation date), a Debenture Event of Default shall have occurred and be
continuing, no payment of any Distribution on, or Redemption Price of (or
Liquidation Distribution (as defined herein) in respect of) any of the Common
Securities, and no other payment on account of the redemption, liquidation or
other acquisition of such Common Securities, shall be made unless payment in
full in cash of all accumulated and unpaid Distributions on all of the
outstanding Capital Securities for all Distribution periods terminating on or
prior thereto, or in the case of payment of the Redemption Price the full
amount of such Redemption Price on all of the outstanding Capital Securities
then called for redemption (or in the case of payment of the Liquidation
Distribution the full amount of such liquidation on all outstanding Capital
Securities), shall have been made or provided for, and all funds available to
the Property Trustee shall first be applied to the payment in full in cash of
all Distributions on, or Redemption Price of (or Liquidation Distribution in
respect of), the Capital Securities then due and payable.
In the case of any Event of Default with respect to the Capital Securities
resulting from a Debenture Event of Default with respect to the Junior
Subordinated Debentures, the Company as holder of the Common Securities will
be deemed to have waived any right to act with respect to any such Event of
Default until the effect of all such Events of Default with respect to such
Capital Securities have been cured, waived or otherwise eliminated. See "--
Events of Default; Notice." Until any such Events of Default with respect to
such series of Capital Securities have been so cured, waived or otherwise
eliminated, the Property Trustee shall act solely on behalf of the holders of
such series of Capital Securities and not on behalf of the holder of the
Common Securities (i.e., the Company), and only the holders of such series of
Capital Securities will have the right to direct the Property Trustee to act
on their behalf.
LIQUIDATION OF PROVIDENT TRUST AND DISTRIBUTION OF JUNIOR SUBORDINATED
DEBENTURES TO HOLDERS
The amount payable on the Capital Securities in the event of any liquidation
of the Provident Trust is $1,000 per Capital Security plus accumulated and
unpaid Distributions, subject to certain exceptions, which may be in the form
of a distribution of such amount in Junior Subordinated Debentures.
The holder of the Common Securities (i.e., the Company) will have the right
at any time to dissolve the Provident Trust and, after satisfaction of
liabilities to creditors of the Provident Trust in accordance with applicable
law and the Expense Agreement, cause the Junior Subordinated Debentures to be
distributed to the holders of the Capital Securities in exchange therefor upon
liquidation of the Provident Trust. Such right is
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subject to the holder of the Common Securities (i.e., the Company) having
received an opinion of counsel to the effect that such distribution will not
be a taxable event to holders of the Capital Securities for United States
federal income tax purposes.
Under current United States federal income tax law, a distribution of the
Junior Subordinated Debentures in exchange for Capital Securities will not be
a taxable event to holders of the Capital Securities. Should there be a change
in law, a change in legal interpretation, a Tax Event or other circumstances,
however, the distribution could be a taxable event to holders of the Capital
Securities. See "Certain Federal Income Tax Consequences --Distribution of
Junior Subordinated Debentures to Holders of Capital Securities." If the
Company elects neither to redeem the Junior Subordinated Debentures prior to
maturity nor to terminate the Provident Trust and distribute the Junior
Subordinated Debentures to holders of the Capital Securities in exchange
therefor, the Capital Securities will remain outstanding until the Stated
Maturity of the Junior Subordinated Debentures.
LIQUIDATION DISTRIBUTION UPON TERMINATION
Pursuant to the Declaration, the Provident Trust shall automatically
dissolve upon expiration of its term and shall terminate on the first to occur
of:
(i) certain events of bankruptcy, dissolution or liquidation of the
holder of its Common Securities (i.e., the Company);
(ii) the distribution of a Like Amount of Junior Subordinated Debentures
to the holders of the Securities, if the holder of the Common Securities
(i.e., the Company) has given written direction to the Property Trustee to
dissolve the Provident Trust (which direction is optional and wholly within
the discretion of the holder of the Common Securities (i.e., the Company));
(iii) redemption of all of its Capital Securities as described under "--
Redemption"; and
(iv) the entry of an order for the dissolution of the Provident Trust by
a court of competent jurisdiction.
If an early dissolution occurs as described in clause (i), (ii) or (iv)
above, the Provident Trust shall be liquidated by the Issuer Trustees as
expeditiously as the Issuer Trustees determine to be possible by distributing,
after satisfaction of liabilities to creditors of such Provident Trust in
accordance with applicable law and the Expense Agreement, to the holders of
the Securities in exchange therefor a Like Amount of the Junior Subordinated
Debentures, unless such distribution is determined by the Property Trustee not
to be practical, in which event the holders will be entitled to receive out of
the assets of the Provident Trust available for distribution to holders, after
satisfaction of liabilities to creditors of Provident Trust in accordance with
applicable law and the Expense Agreement, an amount equal to, in the case of
holders of Capital Securities, the aggregate of the Liquidation Amount of such
Capital Securities, plus accrued and unpaid Distributions thereon to the date
of payment (such amount being the "Liquidation Distribution"). If such
Liquidation Distribution can be paid only in part because the Provident Trust
has insufficient assets available to pay in full the aggregate Liquidation
Distribution, then the amounts payable directly by the Provident Trust on its
Capital Securities shall be paid on a pro rata basis. The holder of the Common
Securities (i.e., the Company) will be entitled to receive distributions upon
any such liquidation pro rata with the holders of the Capital Securities,
except that if a Debenture Event of Default has occurred and is continuing,
such Capital Securities shall have a priority over the Common Securities.
EVENTS OF DEFAULT; NOTICE
Any one of the following events constitutes an "Event of Default" under the
Declaration (an "Event of Default") with respect to the Capital Securities
(whatever the reason for such Event of Default and whether it shall be
voluntary or involuntary or be effected by operation of law or pursuant to any
judgment, decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(i) the occurrence of a Debenture Event of Default under the Indenture
(see "Certain Terms of Junior Subordinated Debentures--Debenture Events of
Default"); or
(ii) default by the Property Trustee in the payment of any Distribution
when it becomes due and payable, and continuation of such default for a
period of 30 days; or
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(iii) default by the Property Trustee in the payment of any Redemption
Price of any Security when it becomes due and payable; or
(iv) default in the performance, or breach, in any material respect, of
any covenant or warranty of the Issuer Trustees in the Declaration (other
than a covenant or warranty a default in the performance of which or the
breach of which is dealt with in clause (ii) or (iii) above), and
continuation of such default or breach for a period of 60 days after there
has been given, by registered or certified mail, to the defaulting Issuer
Trustee or Trustees by the holders of at least 25 percent in aggregate
Liquidation Amount of the outstanding Capital Securities of the Provident
Trust, a written notice specifying such default or breach and requiring it
to be remedied and stating that such notice is a "Notice of Default" under
the Declaration; or
(v) the occurrence of certain events of bankruptcy or insolvency with
respect to the Property Trustee and the failure by the Company to appoint a
successor Property Trustee within 90 days thereof.
Within five Business Days after the occurrence of any Event of Default
actually known to the Property Trustee, the Property Trustee shall transmit
notice of such Event of Default to the holders of the Capital Securities, the
Administrative Trustees and the Company, as Depositor, unless such Event of
Default shall have been cured or waived. The Company, as Depositor, and the
Administrative Trustees are required to file annually with the Property
Trustee a certificate as to whether or not they are in compliance with all the
conditions and covenants applicable to them under the Declaration.
If a Debenture Event of Default has occurred and is continuing, Capital
Securities shall have a preference over Common Securities as described above.
See "--Liquidation Distribution Upon Termination." The existence of an Event
of Default does not entitle the holders of Capital Securities to accelerate
the maturity thereof.
REMOVAL OF ISSUER TRUSTEES
Unless a Debenture Event of Default shall have occurred and be continuing,
any Issuer Trustee may be removed at any time by the holder of the Common
Securities (i.e., the Company). If a Debenture Event of Default has occurred
and is continuing, the Property Trustee and the Delaware Trustee may be
removed at such time by the holders of a majority in Liquidation Amount of the
outstanding Capital Securities. In no event will the holders of the Capital
Securities have the right to vote to appoint, remove or replace the
Administrative Trustees, which voting rights are vested exclusively in the
Company as the holder of the Common Securities. No resignation or removal of
an Issuer Trustee and no appointment of a successor trustee shall be effective
until the acceptance of appointment by the successor trustee in accordance
with the provisions of the Declaration.
CO-TRUSTEES AND SEPARATE PROPERTY TRUSTEE
Unless an Event of Default shall have occurred and be continuing, at any
time or from time to time, for the purpose of meeting the legal requirements
of the Trust Indenture Act or of any jurisdiction in which any part of the
assets of an Provident Trust may at the time be located, the Company, as the
holder of the Common Securities, and the Administrative Trustees shall have
power to appoint one or more persons either to act as a co-trustee, jointly
with the Property Trustee, of all or any part of such assets, or to act as
separate trustee of any such assets, in either case with such powers as may be
provided in the instrument of appointment, and to vest in such person or
persons in such capacity any property, title, right or power deemed necessary
or desirable, subject to the provisions of the Declaration. In case a
Debenture Event of Default has occurred and is continuing, the Property
Trustee alone shall have power to make such appointment.
MERGER OR CONSOLIDATION OF ISSUER TRUSTEES
Any Person into which the Property Trustee, the Delaware Trustee or any
Administrative Trustee that is not a natural person may be merged or converted
or with which it may be consolidated, or any Person resulting from any merger,
conversion or consolidation to which such Trustee shall be a party, or any
Person succeeding to all or substantially all the corporate trust business of
such Trustee, shall be the successor of such Trustee under the Declaration,
provided such Person shall be otherwise qualified and eligible.
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MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF PROVIDENT TRUST
Provident Trust may not merge with or into, consolidate, amalgamate, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to any corporation or other Person, except as
described below or as otherwise indicated in the Declaration. The Provident
Trust may, at the request of the holder of the Common Securities (i.e., the
Company), with the consent of the Administrative Trustees and without the
consent of the holders of the Capital Securities of the Provident Trust, merge
with or into, consolidate, amalgamate, or be replaced by or convey, transfer
or lease its properties and assets substantially as an entirety to a trust
organized as such under the laws of any state; provided, that (i) such
successor entity either (a) expressly assumes all of the obligations of
Provident Trust with respect to the Capital Securities, or (b) substitutes for
the Capital Securities other securities having substantially the same terms as
the Capital Securities (the "Successor Securities") so long as the Successor
Securities rank the same as the Capital Securities in priority with respect to
distributions and payments upon liquidation, redemption and otherwise, (ii)
the Company expressly appoints a trustee of such successor entity possessing
the same powers and duties as the Property Trustee as the holder of the Junior
Subordinated Debentures, (iii) the Successor Securities are listed, or any
Successor Securities will be listed upon notification of issuance, on any
national securities exchange or other organization on which the Capital
Securities are then listed, if any, (iv) such merger, consolidation,
amalgamation, replacement, conveyance, transfer or lease does not cause the
Capital Securities (including any Successor Securities) to be downgraded by
any nationally recognized statistical rating organization, (v) such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease does
not adversely affect the rights, preferences and privileges of the holders of
the Capital Securities (including any Successor Securities) in any material
respect, (vi) such successor entity has a purpose substantially identical to
that of the Provident Trust, (vii) prior to such merger, consolidation,
amalgamation, replacement, conveyance, transfer or lease, the holder of the
Common Securities has received an opinion from independent counsel to the
Provident Trust experienced in such matters to the effect that (a) such
merger, consolidation, amalgamation, replacement, conveyance, transfer or
lease does not adversely affect the rights, preferences and privileges of the
holders of the Capital Securities (including any Successor Securities) in any
material respect, and (b) following such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease, neither the Provident Trust nor
such successor entity will be required to register as an investment company
under the Investment Company Act, and (viii) the Company or any permitted
successor or assignee owns all of the common securities of such successor
entity and guarantees the obligations of such successor entity under the
Successor Securities at least to the extent provided by the Guarantee.
Notwithstanding the foregoing, the Provident Trust shall not, except with the
consent of holders of 100 percent in Liquidation Amount of the Capital
Securities, consolidate, amalgamate, merge with or into, or be replaced by or
convey, transfer or lease its properties and assets substantially as an
entirety to any other entity or permit any other entity to consolidate,
amalgamate, merge with or into, or replace it if such consolidation,
amalgamation, merger, replacement, conveyance, transfer or lease would cause
the Provident Trust or the successor entity to be classified as an association
taxable as a corporation and as other than a grantor trust for United States
federal income tax purposes.
VOTING RIGHTS; AMENDMENT OF THE DECLARATION
Except as provided below and under "Description of Guarantee -- Amendments
and Assignment" and as otherwise required by law and the Declaration, the
holders of Capital Securities will have no voting rights.
The Declaration may be amended from time to time by the Company, the
Property Trustee and the Administrative Trustees, without the consent of the
holders of Capital Securities, (i) to cure any ambiguity, correct or
supplement any provisions in the Declaration that may be inconsistent with any
other provision, or to make any other provisions with respect to matters or
questions arising under the Declaration, which shall not be inconsistent with
the other provisions of the Declaration, or (ii) to modify, eliminate or add
to any provisions of the Declaration to such extent as shall be necessary to
ensure that the Provident Trust will not be classified for United States
federal income tax purposes as an association taxable as a corporation or as
other than a grantor trust at all times that any Securities are outstanding or
to ensure that the Provident Trust will not be required to register as an
"investment company" under the Investment Company Act; provided, however, that
in the case
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of clause (i), such action shall not adversely affect in any material respect
the interests of any holder of Capital Securities, and any such amendments of
the Declaration shall become effective when notice thereof is given to the
holders of Securities. The Declaration may be amended by the Issuer Trustees
and the Company with (i) the consent of holders representing not less than a
majority (based on Liquidation Amounts) of the outstanding Securities and (ii)
receipt by the Issuer Trustees of an opinion of counsel experienced in such
matters (which may be counsel to the Company) to the effect that such
amendment or the exercise of any power granted to the Issuer Trustees in
accordance with such amendment will not cause the Provident Trust to be
classified as an association taxable as a corporation for United States
federal income tax purposes or the Provident Trust's exemption from status as
an "investment company" under the Investment Company Act, provided that
without the consent of each holder of Securities, the Declaration may not be
amended to (i) change the amount or timing of any Distribution on the
Securities or otherwise adversely affect the amount of any Distribution
required to be made in respect of the Securities as of a specified date, or
(ii) restrict the right of a holder of Securities to institute suit for the
enforcement of any such payment on or after such date.
So long as any Junior Subordinated Debentures are held by the Property
Trustee, the Issuer Trustees shall not (i) direct the time, method and place
of conducting any proceeding for any remedy available to the Debenture
Trustee, or executing any trust or power conferred on the Property Trustee
with respect to such Junior Subordinated Debentures, (ii) waive any past
default that is waiveable under the Indenture, (iii) exercise any right to
rescind or annul a declaration that the principal of such Junior Subordinated
Debentures shall be due and payable, or (iv) consent to any amendment,
modification or termination of the Indenture or such Junior Subordinated
Debentures, where such consent shall be required, without, in each case,
obtaining the prior approval of the holders of a majority in aggregate
Liquidation Amount of all outstanding Capital Securities; provided, however,
that where a consent under the Indenture would require the consent of each
holder of such Junior Subordinated Debentures, no such consent shall be given
by the Property Trustee without the prior consent of each holder of the
Capital Securities. The Issuer Trustees shall not revoke any action previously
authorized or approved by a vote of the holders of the Capital Securities
except by subsequent vote of the holders of the Capital Securities. The
Property Trustee shall notify each holder of such Capital Securities of any
notice of default with respect to the Junior Subordinated Debentures. In
addition to obtaining the foregoing approvals of the holders of the Capital
Securities, prior to taking any of the foregoing actions, the Issuer Trustees
shall obtain an opinion of counsel experienced in such matters (which may be
counsel to the Company) to the effect that the Provident Trust will not be
classified as an association taxable as a corporation for United States
federal income tax purposes on account of such action.
Any required approval of the holders of Capital Securities may be given at a
meeting of the holders of Capital Securities convened for such purpose or
pursuant to written consent. The Property Trustee will cause a notice of any
meeting at which the holders of Capital Securities are entitled to vote, or of
any matter upon which action by written consent of such holders is to be
taken, to be given to each holder of record of the Capital Securities in the
manner set forth in the Declaration.
No vote or consent of the holders of Capital Securities will be required for
the Provident Trust to redeem or cancel Capital Securities in accordance with
the Declaration.
Notwithstanding that the holders of Capital Securities are entitled to vote
or consent under any of the circumstances described above, any Capital
Securities that are owned by the Company, the Issuer Trustees or any affiliate
of the Company or any Issuer Trustee, shall, for purposes of such vote or
consent, be treated as if they were not outstanding.
PAYMENT AND PAYING AGENCY
Payments in respect of the Capital Securities shall be made to DTC, which
shall credit the relevant accounts at DTC on the applicable Distribution Dates
or, if any of the Capital Securities are not held by DTC, such payments shall
be made by check mailed to the address of the holder entitled thereto as such
address shall appear on the applicable securities register. The Paying Agent
shall initially be the Property Trustee and any co-paying
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agent chosen by the Property Trustee and acceptable to the Administrative
Trustees. The Paying Agent shall be permitted to resign as Paying Agent upon
30 days' written notice to the Property Trustee. In the event that the
Property Trustee shall no longer be the Paying Agent, the Administrative
Trustees shall appoint a successor (which shall be a bank or trust company
acceptable to the Administrative Trustees) to act as Paying Agent.
REGISTRAR AND TRANSFER AGENT
The Property Trustee will act as registrar and transfer agent for the
Capital Securities.
Registration of transfers of Capital Securities will be effected without
charge by or on behalf of the Provident Trust, but upon payment of any tax or
other governmental charges that may be imposed in connection with any transfer
or exchange. The Provident Trust will not be required to register or cause to
be registered the transfer of their Capital Securities after such Capital
Securities have been called for redemption.
INFORMATION CONCERNING PROPERTY TRUSTEE
The Property Trustee, other than during the occurrence and continuance of an
Event of Default, undertakes to perform only such duties as are specifically
set forth in the Declaration and, after such Event of Default, must exercise
the same degree of care and skill as a prudent person would exercise or use in
the conduct of his or her own affairs. Subject to this provision, the Property
Trustee is under no obligation to exercise any of the powers vested in it by
the Declaration at the request of any holder of Capital Securities unless it
is offered reasonable indemnity against the costs, expenses and liabilities
that might be incurred thereby. If no Event of Default has occurred and is
continuing under the Declaration and the Property Trustee is required to
decide between alternative causes of action, construe ambiguous provisions in
the Declaration or is unsure of the application of any provision of the
Declaration, and the matter is not one on which holders of Capital Securities
are entitled under the Declaration to vote, then the Property Trustee shall
take such action as is directed by the Company and if not so directed, shall
take such action as it deems advisable and in the best interests of the
holders of the Capital Securities and will have no liability except for its
own bad faith, negligence or willful misconduct.
For additional information concerning the relationship between The Chase
Manhattan Bank, the Property Trustee, and the Company, see "Description of
Junior Subordinated Debentures--Information Concerning Debenture Trustee."
MISCELLANEOUS
The Administrative Trustees for the Provident Trust are authorized and
directed to conduct the affairs of and to operate the Provident Trust in such
a way that the Provident Trust will not be deemed to be an "investment
company" required to be registered under the Investment Company Act and will
not be classified as an association taxable as a corporation or as other than
a grantor trust for United States federal income tax purposes, and so that the
Junior Subordinated Debentures held by the Provident Trust will be treated as
indebtedness of the Company for United States federal income tax purposes. In
this connection, the Company and the Administrative Trustees are authorized to
take any action, not inconsistent with applicable law, the certificate of
trust of the Provident Trust or the Declaration, that the Company and the
Administrative Trustees determine in their sole discretion to be necessary or
desirable for such purposes, as long as such action does not materially
adversely affect the interests of the holders of the Capital Securities.
Holders of the Securities have no preemptive or similar rights.
The Provident Trust will not borrow money or issue debt or mortgage or
pledge any of its assets.
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CERTAIN TERMS OF JUNIOR SUBORDINATED DEBENTURES
The following summary of certain terms and provisions of the Junior
Subordinated Debentures, which describes the material terms thereof,
supplements the description of the terms and provisions of the Junior
Subordinated Debentures set forth in the accompanying Prospectus under the
heading "Description of Debt Securities". The summary of certain terms and
provisions of the Junior Subordinated Debentures set forth below does not
purport to be complete and is subject to, and qualified in its entirety by
reference to, the Indenture. The form of Indenture has been filed as an
exhibit to the Registration Statement of which this Prospectus Supplement and
the accompanying Prospectus form a part.
GENERAL
Concurrently with the issuance of the Capital Securities, the Provident
Trust will invest the proceeds thereof, together with the consideration paid
by the Company for the Common Securities, in the Junior Subordinated
Debentures issued by the Company. The Junior Subordinated Debentures will bear
interest payable, at the annual rate of % of the principal amount
thereof, semi-annually in arrears on March 1 and September 1 of each year
(each, an "Interest Payment Date"), commencing September 1, 1998, to the
person in whose name each Junior Subordinated Debenture is registered, subject
to certain exceptions, at the close of business on the Business Day next
preceding such Interest Payment Date. It is anticipated that, until the
liquidation, if any, of the Provident Trust, each Junior Subordinated
Debenture will be held in the name of the Property Trustee in trust for the
benefit of the holders of the Capital Securities. The amount of interest
payable for any period will be computed on the basis of a 360-day year of
twelve 30-day months. In the event that any date on which interest is payable
on the Junior Subordinated Debentures is not a Business Day, then payment of
the interest payable on such date will be made on the next succeeding Business
Day (and without any interest or other payment in respect of any such delay),
except that, if such Business Day is in the next succeeding calendar year,
such payment shall be made on the immediately preceding Business Day, in each
case with the same force and effect as if made on the date such payment was
originally payable. Accrued interest that is not paid on the applicable
Interest Payment Date will bear additional interest on the amount thereof (to
the extent permitted by law) at the rate per annum of % thereof,
compounded semi-annually. The term "interest" as used herein shall include
semi-annual interest payments, interest on semi-annual interest payments not
paid on the applicable Interest Payment Date and Additional Sums (as defined
herein), as applicable.
The Junior Subordinated Debentures will be issued as a series of junior
subordinated deferrable interest debentures under the Indenture, each a
Subordinated Debt Security. The Junior Subordinated Debentures will mature on
March 1, 2038.
The Junior Subordinated Debentures will be unsecured and will rank junior
and subordinate in right of payment to all Senior Debt of the Company. Because
the Company is a holding company, the right of the Company to participate in
any distribution of assets of any subsidiary, upon such subsidiary's
liquidation or reorganization or otherwise (and thus the ability of holders of
the Capital Securities to benefit indirectly from such distribution), is
subject to the prior claims of creditors of that subsidiary, except to the
extent that the Company may itself be recognized as a creditor of that
subsidiary. Accordingly, the Junior Subordinated Debentures will be
effectively subordinated to all existing and future liabilities of the
Company's subsidiaries, and holders of Junior Subordinated Debentures should
look only to the assets of the Company for payments on the Junior Subordinated
Debentures. The Indenture does not limit the incurrence or issuance of other
secured or unsecured debt of the Company, including Senior Debt, whether under
the Indenture or any existing or other indenture that the Company may enter
into in the future or otherwise. See "--Subordination."
OPTION TO EXTEND INTEREST PAYMENT PERIOD
So long as no Debenture Event of Default has occurred and is continuing, the
Company has the right to defer the payment of interest on the Junior
Subordinated Debentures at any time or from time to time for a period not
exceeding ten consecutive semi-annual periods with respect to each Extension
Period; provided, however,
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that no Extension Period may extend beyond the Stated Maturity of the Junior
Subordinated Debentures. At the end of such Extension Period, the Company must
pay all interest then accrued and unpaid (together with interest thereon at
the annual rate of %, compounded semi-annually, to the extent permitted
by applicable law). During an Extension Period, interest will continue to
accrue and holders of Junior Subordinated Debentures (or holders of Capital
Securities while such series is outstanding) will be required to recognize
income (in the form of original issue discount) for United States federal
income tax purposes. See "Certain Federal Income Tax Consequences--Interest
Income and Original Issue Discount."
During any such Extension Period, the Company may not, and may not permit
any subsidiary of the Company to, (i) declare or pay any dividends or
distributions on, or redeem, purchase, acquire, or make a liquidation payment
with respect to, any of the Company's capital stock, or (ii) make any payment
of principal, interest or premium, if any, on or repay, repurchase or redeem
any debt securities of the Company (including other Subordinated Debt
Securities) that rank pari passu in all respects with or junior in interest to
the Junior Subordinated Debentures (other than (a) repurchases, redemptions or
other acquisitions of shares of capital stock of the Company in connection
with any employment contract, benefit plan or other similar arrangement with
or for the benefit of one or more employees, officers, directors or
consultants, in connection with a dividend reinvestment or stockholder stock
purchase plan or in connection with the issuance of capital stock of the
Company (or securities convertible into or exercisable for such capital stock)
as consideration in an acquisition transaction entered into prior to such
Extension Period, (b) as a result of any exchange or conversion of any class
or series of the Company's capital stock (or any capital stock of a subsidiary
of the Company) for any class or series of the Company's capital stock or of
any class or series of the Company's indebtedness for any class or series of
the Company's capital stock, (c) the purchase of fractional interests in
shares of the Company's capital stock pursuant to the conversion or exchange
provisions of such capital stock or the security being converted or exchanged,
(d) any declaration of a dividend in connection with any stockholder's rights
plan, or the issuance of rights, stock or other property under any
stockholder's rights plan, or the redemption or repurchase of rights pursuant
thereto, or (e) any dividend in the form of stock, warrants, options or other
rights where the dividend stock or the stock issuable upon exercise of such
warrants, options or other rights is the same stock as that on which the
dividend is being paid or ranks pari passu with or junior to such stock).
Prior to the termination of any such Extension Period, the Company may further
defer the payment of interest, provided that no Extension Period may exceed
ten consecutive semi-annual periods or extend beyond the Stated Maturity of
the Junior Subordinated Debentures. Upon the termination of any such Extension
Period and the payment of all amounts then due on any Interest Payment Date,
the Company may elect to begin a new Extension Period subject to the above
requirements. No interest shall be due and payable during an Extension Period,
except at the end thereof. The Company must give the Property Trustee, the
Administrative Trustees and the Debenture Trustee notice of its election of
such Extension Period at least one Business Day prior to the earlier of (i)
the date the Distributions on the Capital Securities would have been payable
except for the election to begin such Extension Period, or (ii) the date the
Administrative Trustees are required to give notice to the New York Stock
Exchange ("NYSE"), the Nasdaq National Market or other applicable self-
regulatory organization or to holders of the Capital Securities of the record
date for such Distributions or the date such Distributions are payable, but in
any event not less than one Business Day prior to such record date. The
Debenture Trustee shall give notice of the Company's election to begin a new
Extension Period to the holders of the Junior Subordinated Debentures, and, if
the Capital Securities are outstanding, the Property Trustee shall give notice
of the Company's election to begin a new Extension Period to the holders of
the Capital Securities. There is no limitation on the number of times that the
Company may elect to begin an Extension Period. See "--Option to Extend
Interest Payment Date."
ADDITIONAL SUMS
If the Provident Trust is required to pay any additional taxes, duties or
other governmental charges as a result of a Tax Event, the Company will pay as
additional amounts on the Junior Subordinated Debentures such Additional Sums
as shall be required so that the Distributions payable by the Provident Trust
shall not be reduced as a result of any such additional taxes, duties or other
governmental charges.
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REDEMPTION
If a Tax Event or Investment Company Event shall occur and be continuing,
the Company may, at its option, redeem Junior Subordinated Debentures in
whole, but not in part, at any time within 90 days of the occurrence of such
Tax Event or Investment Company Event, at a Redemption Price (the "Special
Event Redemption Price") equal to the greater of (i) 100 percent of the
principal amount of the Junior Subordinated Debentures or (ii) the sum, as
determined by a Quotation Agent, of the present value of (x) 100 percent of
the principal amount of the Junior Subordinated Debentures that would be
payable of March 1, 2038 and (y) scheduled payments of interest from the
prepayment date to March 1, 2038 (the "Remaining Life"), in each case
discounted to the Redemption Date on a semi-annual basis (assuming a 360-day
year consisting of twelve 30-day months) at the Adjusted Treasury Rate, plus,
in each case, accrued interest thereon to the Redemption Date.
"Adjusted Treasury Rate" means, with respect to any Redemption Date, the
Treasury Rate, plus (i) . % if such prepayment date occurs on or prior to
March 1, 1999, and (ii) . % in all other cases.
"Comparable Treasury Issue" means the United States Treasury security
selected by the Quotation Agent as having a maturity comparable to the
Remaining Life 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.
"Quotation Agent" means the Reference Treasury Dealer appointed by the
Debenture Trustee after consultation with the Company. "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 therefor another Primary Treasury Dealer, and
(ii) any other Primary Treasury Dealer selected by the Debenture Trustee after
consultation with the Company.
"Treasury Rate" means (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 Remaining Life (if no
maturity is within three months before or after the Remaining Life, yields for
the two published maturities most closely corresponding to the Remaining Life
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.
"Comparable Treasury Price" means (A) the average of five Reference Treasury
Dealer Quotations for such Redemption Date, after excluding the highest and
lowest such Reference Treasury Dealer Quotations, or (B) if the Debenture
Trustee obtains fewer than five such Reference Treasury Dealer Quotations, the
average of all such Quotations.
"Reference Treasury Dealer Quotations" means, with respect to each Reference
Treasury Dealer and any Redemption Date, the average, as determined by the
Debenture Trustee, 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 Debenture Trustee by such Reference Treasury Dealer at 5:00
p.m., New York City time, on the third Business Day preceding such Redemption
Date.
DENOMINATIONS, REGISTRATION AND TRANSFER
The Junior Subordinated Debentures will be issuable only in registered form
without coupons in denominations of $1,000 and any integral multiple thereof.
The Junior Subordinated Debentures will be
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exchangeable for other Subordinated Debt Securities of the same issue and
series, of any authorized denominations, of a like aggregate principal amount,
of the same original issue date and Stated Maturity and bearing the same
interest rate or rates.
Junior Subordinated Debentures may be presented for exchange as provided
above, and may be presented for registration of transfer (with the form of
transfer endorsed thereon, or a satisfactory written instrument of transfer,
duly executed), at the office of the appropriate Securities Registrar or at
the office of any transfer agent designated by the Company for such purpose
with respect to the Junior Subordinated Debentures and referred to in the
applicable Prospectus Supplement, without service charge and on payment of any
taxes and other governmental charges as described in the Indenture. The
Company will appoint the Debenture Trustee as Securities Registrar under the
Indenture. The Company may at any time designate additional transfer agents
with respect to the Junior Subordinated Debentures.
In the event of any redemption, neither the Company nor the Debenture
Trustee shall be required to (i) issue, register the transfer of or exchange
Junior Subordinated Debentures during a period beginning at the opening of
business 15 days before the day of selection for redemption of Junior
Subordinated Debentures and ending at the close of business on the day of
mailing of the relevant notice of redemption, or (ii) transfer or exchange any
Junior Subordinated Debentures so selected for redemption, except, in the case
of any Junior Subordinated Debentures being redeemed in part, any portion
thereof not to be redeemed.
PAYMENT AND PAYING AGENTS
Payment of principal of (and premium, if any) and any interest on Junior
Subordinated Debentures will be made at the office of the Debenture Trustee in
the City of New York or at the office of such paying agent or paying agents
("Paying Agents") as the Company may designate from time to time, except that
at the option of the Company payment of any interest may be made (i) except in
the case of Global Junior Subordinated Debentures, by check mailed to the
address of the Person entitled thereto as such address shall appear in the
Securities Register, or (ii) by transfer to an account maintained by the
Person entitled thereto as specified in the Securities Register, provided that
proper transfer instructions have been received by the applicable Regular
Record Date. Payment of any interest on Junior Subordinated Debentures will be
made to the Person in whose name such Junior Subordinated Debenture is
registered at the close of business on the Regular Record Date for such
payment, except in the case of Defaulted Interest (as defined in the
Indenture). The Company may at any time designate additional Paying Agents or
rescind the designation of any Paying Agent; however the Company will at all
times be required to maintain a Paying Agent in each Place of Payment for each
series of Junior Subordinated Debentures.
Any moneys deposited with the Debenture Trustee or any Paying Agent, or then
held by the Company in trust, for the payment of the principal of (and
premium, if any) or interest on any Junior Subordinated Debenture and
remaining unclaimed for two years after such principal (and premium, if any)
or interest has become due and payable shall, at the request of the Company,
be repaid to the Company and the holder of such Junior Subordinated Debenture
shall thereafter look, as a general unsecured creditor, only to the Company
for payment thereof.
RESTRICTIONS ON CERTAIN PAYMENTS
The Company will also covenant, as to the Junior Subordinated Debentures,
that it will not, and will not permit any subsidiary of the Company to, (i)
declare or pay any dividends or distributions on, or redeem, purchase,
acquire, or make a liquidation payment with respect to, any of the Company's
capital stock, or (ii) make any payment of principal, interest or premium, if
any, on or repay, repurchase or redeem any debt securities of the Company
(including other Subordinated Debt Securities) that rank pari passu in all
respects with or junior in interest to the Junior Subordinated Debentures or
make any guarantee payments with respect to any guarantee by the Company of
the debt securities of any subsidiary of the Company if such guarantee ranks
pari passu in all respects with or junior in interest to the Junior
Subordinated Debentures (other than (a) repurchases,
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redemptions or other acquisitions of shares of capital stock of the Company in
connection with any employment contract, benefit plan or other similar
arrangement with or for the benefit of one or more employees, officers,
directors or consultants, in connection with a dividend reinvestment or
stockholder stock purchase plan or in connection with the issuance of capital
stock of the Company (or securities convertible into or exercisable for such
capital stock) as consideration in an acquisition transaction theretofore
entered into, (b) as a result of any exchange or conversion of any class or
series of the Company's capital stock (or any capital stock of a subsidiary of
the Company) for any class or series of the Company's capital stock or of any
class or series of the Company's indebtedness for any class or series of the
Company's capital stock, (c) the purchase of fractional interests in shares of
the Company's capital stock pursuant to the conversion or exchange provisions
of such capital stock or the security being converted or exchanged, (d) any
declaration of a dividend in connection with any stockholder's rights plan, or
the issuance of rights, stock or other property under any stockholder's rights
plan, or the redemption or repurchase of rights pursuant thereto, or (e) any
dividend in the form of stock, warrants, options or other rights where the
dividend stock or the stock issuable upon exercise of such warrants, options
or other rights is the same stock as that on which the dividend is being paid
or ranks pari passu with or junior to such stock), if at such time (i) there
shall have occurred any event of which the Company has actual knowledge that
(a) with the giving of notice or the lapse of time, or both, would constitute
a Debenture Event of Default with respect to the Junior Subordinated
Debentures, and (b) in respect of which the Company shall not have taken
reasonable steps to cure, (ii) if the Junior Subordinated Debentures are held
by the Provident Trust of Capital Securities, the Company shall be in default
with respect to its payment of any obligations under the Guarantee relating to
such Capital Securities, or (iii) the Company shall have given notice of its
selection of an Extension Period as provided in the Indenture with respect to
the Junior Subordinated Debentures and shall not have rescinded such notice,
or such Extension Period, or any extension thereof, shall be continuing.
MODIFICATION OF INDENTURE
Modification and amendment of the Indenture may be made only with the
consent of the holders of not less than a majority in principal amount of the
outstanding Junior Subordinated Debentures 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 Junior Subordinated Debenture affected thereby, (i) change the Stated
Maturity of the principal of (or premium or Make-Whole Amount (as defined in
the Indenture), if any), or any installment of principal of or interest or
Additional Amounts, if any, payable on, any such Junior Subordinated
Debenture, (ii) reduce the 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 (as defined in the Indenture), if any, payable with
respect to any such Junior Subordinated Debenture, or reduce the amount of
principal of an Original Issue Discount SecuritY (as defined in the Indenture)
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 Junior
Subordinated Debenture, (iii) change the Place of Payment (as defined in the
Indenture) 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 Junior Subordinated Debenture, is payable, (iv)
impair the right to institute suit for the enforcement of any payment on or
with respect to any such Junior Subordinated Debenture, (v) reduce the
percentage of the holders of outstanding Junior Subordinated Debentures of any
series necessary to modify or amend the 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 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 Junior Subordinated Debenture.
The holders of not less than a majority in principal amount of the
outstanding Junior Subordinated Debentures issued under the Indenture have the
right to waive compliance by the Company with certain covenants in such
Indenture.
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Modifications and amendments of the Indenture may be made by the Company and
the Debenture Trustee thereunder without the consent of any holder of Junior
Subordinated Debentures 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 the Subordinated Debt Securities or to surrender any
right or power conferred upon the Company in the Indenture; (iii) to add
Events of Default for the benefit of all or any series of the Subordinated
Debt Securities; (iv) to add or change any provisions of the Indenture to
facilitate the issuance of, or to liberalize certain terms of, Junior
Subordinated Debentures in bearer form, or to permit or facilitate the
issuance of Junior Subordinated Debentures in uncertificated form, provided
that such action shall not adversely affect the interests of the holders of
the Subordinated Debt Securities of any series in any material respect; (v) to
add, change or eliminate any provisions of the Indenture, provided that any
such addition, change or elimination shall become effective only when there
are no outstanding Junior Subordinated Debentures created prior thereto which
are entitled to the benefit of such provision; (vi) to secure the Junior
Subordinated Debentures; (vii) to establish the form or terms of Subordinated
Debt Securities of any series, including the provisions and procedures, if
applicable, for the conversion of such Subordinated 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 Debenture
Trustee or facilitate the administration of the trusts under the Indenture by
more than one Debenture Trustee; (ix) to make provision with respect to the
conversion or exchange rights of any holder, pursuant to the Indenture; (x) to
cure any ambiguity, defect or inconsistency in the Indenture, provided that
such action shall not adversely affect the interests of holders of
Subordinated Debt Securities of any series issued under the Indenture; (xi) to
close the Indenture with respect to the authentication and delivery of
additional series of Subordinated Debt Securities or to qualify, or maintain
qualification of, the Indenture under the Trust Indenture Act; or (xii) to
supplement any of the provisions of the Indenture to the extent necessary to
permit or facilitate defeasance and discharge of any series of such
Subordinated Debt Securities, provided that such action shall not adversely
affect the interests of the holders of the Subordinated Debt Securities of any
series in any material respect.
DEBENTURE EVENTS OF DEFAULT
The Indenture provides that the following events are "Events of Default"
with respect to the Junior Subordinated Debentures issued thereunder: (i)
default for 30 days in the payment of any installment of interest or
Additional Amounts, if any, payable on any Junior Subordinated Debenture of
such series; (ii) default in the payment of the principal of (or premium or
Make-Whole Amount, if any, on) any Junior Subordinated Debenture when due,
either at maturity, redemption or otherwise; (iii) default in making any
sinking fund payment as required for any Junior Subordinated Debenture; (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 Subordinated Debt Securities
issued thereunder other than such series, continued for 60 days after written
notice as provided in the 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 Junior Subordinated
Debentures.
If an Event of Default under the Indenture with respect to the Junior
Subordinated Debentures at the time outstanding occurs and is continuing, then
in every such case the Debenture Trustee or the holders of not less than 25%
in aggregate principal amount of the Outstanding Junior Subordinated
Debentures (as defined in the Indenture) of such affected series (voting as a
single class) may declare the principal amount (or, if the Junior Subordinated
Debentures are Original Issue Discount Securities (as defined in the
Indentures) or Indexed
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Securities (as defined in the Indentures), such portion of the principal
amount as may be specified in the terms thereof) of the accrued interest, and
the premium or Make-Whole Amount, if any, on all of the Junior Subordinated
Debentures to be due and payable immediately by written notice thereof to the
Company (and to the Debenture Trustee if given by the holders), provided that,
if, upon an Event of Default, the Debenture Trustee or the Holders of not less
than 25% in principal amount of the Outstanding Junior Subordinated Debentures
fail to declare the principal of all the Junior Subordinated Debentures of to
be immediately due and payable, the holders of at least 25% in aggregate
Liquidation Amount (as defined in the Declaration) of the Capital Securities
then outstanding shall have such right by a notice in writing to the Company
and the Debenture Trustee; and upon any such declaration such principal or
specified portion thereof shall become immediately due and payable. However,
at any time after such a declaration of acceleration with respect to the
Junior Subordinated Debentures (or of all Subordinated Debt Securities then
Outstanding under the 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
Debenture Trustee, the holders of not less than a majority in principal amount
of the Outstanding Junior Subordinated Debentures (or of all Subordinated Debt
Securities then Outstanding under the Indenture, as the case may be) may
rescind and annul such declaration and its consequences if (i) the Company
shall have deposited with the Debenture Trustee all required payments of the
principal of (and premium or Make-Whole Amount, if any) and interest, and any
Additional Amounts, on the Junior Subordinated Debentures of such series (or
of all Subordinated Debt Securities then Outstanding under the Indenture, as
the case may be), plus certain fees, expenses, disbursements and advances of
the Debenture Trustee and (ii) all Events of Default, other than the
nonpayment of accelerated principal (or a specified portion thereof and the
premium or Make-Whole Amount, if any) or interest, with respect to the Junior
Subordinated Debentures (or of all Subordinated Debt Securities then
Outstanding under the Indenture, as the case may be) have been cured or waived
as provided in the Indenture. The holders of a majority in aggregate
Liquidation Amount of the Capital Securities shall also have the right to
rescind and annul such declaration and its consequences by written notice to
the Company and the Debenture Trustee, subject to the satisfaction of the
conditions set forth in Clauses (i) and (ii) above. The Indenture also
provides that the holders of not less than a majority in principal amount of
the Outstanding Junior Subordinated Debentures, and the holders of Capital
Securities issued by the Provident Trust may on behalf of the holders of all
the Junior Subordinated Debentures or, in the case of a waiver by holders of
Capital Securities issued by such Provident Trust, by all holders of Capital
Securities issued by the Provident Trust and any related coupons (or of all
Subordinated Debt Securities then Outstanding under the Indenture, as the case
may be) may waive any past default 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 Junior Subordinated Debenture
or (y) in respect of a covenant or provision contained in the Indenture that
cannot be modified or amended without the consent of the holders of each
Outstanding Junior Subordinated Debenture affected thereby.
The Debenture Trustee is required to give notice to the holders of Junior
Subordinated Debentures within 90 days of a default under the Indenture unless
such default shall have been cured or waived; provided, however, that such
Debenture Trustee may withhold notice to the holders of the Junior
Subordinated Debentures of any default (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 Junior Subordinated Debenture or in the
payment of any sinking fund installment in respect of any Junior Subordinated
Debenture) if the Responsible Officers (as defined in the Indenture) of such
Debenture Trustee consider such withholding to be in the interest of such
holders. The Indenture provides that no holder of Junior Subordinated
Debentures 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 Debenture 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 Junior Subordinated Debentures of such series, as well as an
offer of indemnity reasonably satisfactory to it. This provision will not
prevent, however, any holder of Junior Subordinated Debentures 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 Junior Subordinated Debentures
at the respective due dates thereof. Any holder of Capital Securities issued
by the Provident Trust shall have the right, upon the occurrence of an Event
of Default described in Clauses (i) and (ii) in the preceding
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paragraph, to institute a suit directly against the Company for payment to
such holder of principal of (premium, if any) and interest (including any
Additional Amounts) on the Junior Subordinated Debentures having a principal
amount equal to the aggregate Liquidation Amount.
Subject to provisions in the Indenture relating to its duties in case of
default, the Debenture 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 the Junior Subordinated Debentures then Outstanding under the
Indenture, unless such holders shall have offered to the Debenture Trustee
thereunder reasonable security or indemnity. Subject to such provisions for
the indemnification of the Debenture Trustee, the holders of not less than a
majority in principal amount of the Outstanding Junior Subordinated Debentures
(or of all Subordinated Debt Securities then Outstanding under the 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
Debenture Trustee, or of exercising any trust or power conferred upon such
Debenture Trustee. However, the Debenture Trustee may refuse to follow any
direction which is in conflict with any law or the Indenture, which may
involve such Debenture Trustee in personal liability or which may be unduly
prejudicial to the holders of Junior Subordinated Debentures not joining
therein.
Within 120 days after the close of each fiscal year, the Company must
deliver to each Debenture 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 Indenture and, in
the event of any noncompliance, specifying such noncompliance and the nature
and status thereof.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF CAPITAL SECURITIES
If (i) a Debenture Event of Default has occurred and is continuing, and (ii)
such event is attributable to the failure of the Company to pay interest or
principal on the Junior Subordinated Debentures on the date such interest or
principal is due and payable, then a holder of the Capital Securities may
institute a legal proceeding directly against the Company for enforcement of
payment to such holder of the principal of or interest (including any
Additional Interest (as defined in the Indenture)) on such Junior Subordinated
Debentures having a principal amount equal to the aggregate Liquidation Amount
of the Capital Securities of such holder (a "Direct Action"). The Company may
not amend the Indenture to remove the foregoing right to bring a Direct Action
without the prior written consent of the holders of all the Capital Securities
outstanding. If the right to bring a Direct Action is removed, the Provident
Trust may become subject to the reporting obligations under the Exchange Act.
The Company has the right under the Indenture to set-off any payment made to
such holder of Capital Securities by the Company in connection with a Direct
Action.
The holders of a series of Capital Securities would not be able to exercise
directly any remedies other than those set forth in the preceding paragraph
available to the holders of the Junior Subordinated Debentures unless there
shall have been an Event of Default under the Declaration. See "Certain Terms
of Capital Securities--Events of Default; Notice."
CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS
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 Junior Subordinated Debentures and the due and
punctual performance and observance of all of the covenants and conditions
contained in the 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
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become such an Event of Default, shall have occurred and be continuing; and
(iii) in the case of the Junior Subordinated Debentures, such consolidation,
merger, conveyance, transfer or lease is permitted under the Declaration and
the Guarantee and does not give rise to any breach or violation of the
Declaration or Guarantee.
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. There are no covenants or other provisions in the Indenture
providing for a put or increased interest or that would otherwise afford
holders of Junior Subordinated Debentures additional protection in the event
of a recapitalization transaction, a change of control of the Company or a
highly leveraged transaction. See "Description of Debt Securities--Certain
Covenants" in the accompanying Prospectus.
SATISFACTION AND DISCHARGE
Under the Indenture, the Company may discharge certain obligations to
holders of any series of Junior Subordinated Debentures issued thereunder that
have not already been delivered to the applicable Debenture 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 Debenture Trustee, in trust, funds
in such currency or currencies, currency unit or units or composite currency
or currencies in which such Junior Subordinated Debentures are payable in an
amount sufficient to pay the entire indebtedness on such Junior Subordinated
Debentures 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 Junior Subordinated Debentures have become due and payable) or to the
Stated Maturity or Redemption Date, as the case may be. See "Description of
Debt Securities--Discharge, Defeasance And Covenant Defeasance" in the
accompanying Prospectus.
SUBORDINATION
The following subordinated provisions will apply to the Junior Subordinated
Debentures.
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 Junior Subordinated Debentures will be
subordinated to the extent provided in the Indenture in right of payment to
the prior payment in full of all Senior Debt, but the obligation of the
Company to make payment of the principal of and interest on the Junior
Subordinated Debentures will not otherwise be affected. No payment of
principal or interest may be made on the Junior Subordinated Debentures 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. The Company may resume payments on
the Junior Subordinated Debentures when the default is cured or waived if the
subordination provisions of the Indenture otherwise permit payment at that
time. After all Senior Debt is paid in full and until the Junior Subordinated
Debentures 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. 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 Junior Subordinated Debentures.
Senior Debt is defined in the 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
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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 Junior
Subordinated Debentures, or ranks pari passu with the Junior Subordinated
Debentures, (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 Junior Subordinated Debentures
are subordinated, (iii) any indebtedness to a Subsidiary of the Company,
and (iv) the Junior Subordinated Debentures.
There is no limit on the amount of Senior Debt that the Company may incur.
At February 24, 1998, the Company had $984.2 million of Senior Debt
outstanding. There are no restrictions in the Indenture upon the creation of
additional Senior Debt or other indebtedness.
PROVIDENT TRUST EXPENSES
Pursuant to the Expense Agreement, with respect to the Junior Subordinated
Debentures, the Company, as holder of the Common Securities of the Provident
Trust, will unconditionally agree with such Provident Trust that the Company
will pay the full amount of any costs, expenses or liabilities of the
Provident Trust, other than obligations of the Provident Trust to pay to the
holders of the Capital Securities the amounts due such holders pursuant to the
terms thereof. Such payment obligation will include any such costs, expenses
or liabilities of the Provident Trust that are required by applicable law to
be satisfied in connection with a dissolution of the Provident Trust.
INFORMATION CONCERNING DEBENTURE TRUSTEE
The Debenture Trustee, except during the continuance of an event of Default,
undertakes to perform only such duties as are specifically set forth in the
Indenture. If an Event of Default has occurred or an event which, after notice
or lapse of time or both, would become an Event of Default under the Junior
Subordinated Debentures, or upon the occurrence of a default under such other
indenture, the Debenture Trustee may be deemed to have a conflicting interest
with respect to the Junior Subordinated Debentures for purposes of the Trust
Indenture Act and, accordingly, may be required to resign as Debenture Trustee
under the Indenture. In that event, the Company would be required to appoint a
successor Debenture 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. Among other services it performs for the
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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 commitment letter with the Chase Manhattan Bank for a
new $300.0 million revolving bank credit facility.
DISTRIBUTION OF JUNIOR SUBORDINATED DEBENTURES
As described under "Certain Terms of Capital Securities--Liquidation of
Provident Trust and Distribution of Junior Subordinated Debentures to
Holders," under certain circumstances involving the liquidation of the
Provident Trust, the Junior Subordinated Debentures may be distributed to the
holders of the Capital Securities in exchange therefor upon liquidation of the
Provident Trust, after satisfaction of liabilities to creditors of the
Provident Trust in accordance with applicable law and the Expense Agreement.
If distributed to holders of Capital Securities in liquidation, the Junior
Subordinated Debentures will initially be issued in the form of one or more
global securities and DTC, or any successor depositary for the Capital
Securities, will act as depositary for the Junior Subordinated Debentures. It
is anticipated that the depositary arrangements for the Junior Subordinated
Debentures would be substantially identical to those in effect for the Capital
Securities. There can be no assurance as to the market price of any Junior
Subordinated Debentures that may be distributed to the holders of Capital
Securities.
REGISTRATION OF JUNIOR SUBORDINATED DEBENTURES
The Junior Subordinated Debentures will be represented by global securities
registered in the name of DTC or its nominee. Beneficial interests in the
Junior Subordinated Debentures will be shown on, and transfers thereof will be
effected only through, records maintained by DTC and its Participants. Except
as described below and in the accompanying Prospectus, Junior Subordinated
Debentures in certificated form will not be issued in exchange for the global
securities. See "Book-Entry Issuance."
A global security shall be exchangeable for Junior Subordinated Debentures
registered in the names of persons other than DTC or its nominee only if (i)
DTC notifies the Company that it is unwilling or unable to continue as a
depositary for such global security and no successor depositary shall have
been appointed, or if at any time DTC ceases to be a clearing agency
registered under the Exchange Act at a time when DTC is required to be so
registered to act as such depositary, (ii) the Company in its sole discretion
determines that such global security shall be so exchangeable, or (iii) there
shall have occurred and be continuing a Debenture Event of Default with
respect to such global security. Any global security that is exchangeable
pursuant to the preceding sentence shall be exchangeable for definitive
certificates registered in such names as DTC shall direct. It is expected that
such instructions will be based upon directions received by DTC from its
Participants with respect to ownership of beneficial interests in such global
security. In the event that Junior Subordinated Debentures are issued in
certificated form, such Junior Subordinated Debentures will be in
denominations of $1,000 and integral multiples thereof and may be transferred
or exchanged at the offices described below.
Payments on Junior Subordinated Debentures represented by a global security
will be made to DTC, as the depositary for the Junior Subordinated Debentures.
In the event Junior Subordinated Debentures are issued in certificated form,
principal and interest will be payable, the transfer of the Junior
Subordinated Debentures will be registrable, and Junior Subordinated
Debentures will be exchangeable for Junior Subordinated Debentures of other
denominations of a like aggregate principal amount, at the corporate trust
office of the Debenture Trustee in New York, New York, or at the offices of
any paying agent or transfer agent appointed by the Company, provided that
payment of interest may be made at the option of the Company by check mailed
to the addresses of the persons entitled thereto or by wire transfer. In
addition, if the Junior Subordinated Debentures are issued in certificated
form, the record dates for payment of interest will be the first day of the
month in which the relevant payment of interest is scheduled to be made. For a
description of DTC and the terms of the depositary arrangements relating to
payments, transfers, voting rights, redemptions and other notices and other
matters, see "Book-Entry Issuance".
GOVERNING LAW
The Indenture and the Junior Subordinated Debentures will be governed by and
construed in accordance with the laws of the State of New York.
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BOOK-ENTRY ISSUANCE
BOOK ENTRY, DELIVERY AND FORM OF CAPITAL SECURITIES
The Capital Securities will be issued in the form of one or more fully
registered global securities which will be deposited with, or on behalf of,
the Depository and registered in the name of the Depository's nominee. Unless
and until it is exchangeable in whole or in part for the Capital Securities in
definitive form, a global security may not be transferred except as a whole by
the Depository to a nominee of the Depository or by a nominee of the
Depository to the Depository or another nominee of the Depository or by the
Depository or any such nominee to a successor of such Depository or a nominee
of such successor.
Ownership of beneficial interests in a global security will be limited to
persons ("Participants") that have accounts with the Depository or its nominee
or persons that may hold interests through Participants. The Company expects
that, upon the issuance of a global security, the Depository will credit, on
its book-entry registration and transfer system, the Participants' accounts
with their respective principal amounts of the Capital Securities represented
by such global security. Ownership of beneficial interests in such global
security will be shown on, and the transfer of such ownership interests will
be effected only through, records maintained by the Depository (with respect
to interests of Participants) and on the records of Participants (with respect
to interests of Persons held through Participants). Beneficial owners will not
receive written confirmation from the Depository of their purchase, but are
expected to receive written confirmations from the Participants through which
the beneficial owner entered into the transaction. Transfers of ownership
interests will be accomplished by entries on the books of Participants acting
on behalf of the beneficial owners.
So long as the Depository, or its nominee, is the registered owner of a
global security, the Depository or such nominee, as the case may be, will be
considered the sole owner or holder of the Capital Securities represented by
such global security for all purposes under the Indenture. Except as provided
below, owners of beneficial interests in a global security will not be
entitled to receive physical delivery of the Capital Securities in definitive
form and will not be considered the owners or holders thereof under the
Indenture. Accordingly, each person owning a beneficial interest in such a
global security must rely on the procedures of the Depository 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 Indenture. The Company understands that, under the Depository's existing
practices, in the event that the Company requests any action of holders, or an
owner of a beneficial interest in such a global security desires to take any
action which a holder is entitled to take under the Indenture, the Depository
would authorize the Participants holding the relevant beneficial interests to
take such action, and such Participants would authorize beneficial owners
owning through such Participants to take such action or would otherwise act
upon the instructions of beneficial owners owning through them. Redemption
notices will also be sent to the Depository. If less than all of the Capital
Securities are being redeemed, the Company understands that it is the
Depository's existing practice to determine by lot the amount of the interest
of each Participant to be redeemed.
Distributions on the Capital Securities registered in the name of the
Depository or its nominee will be made to the Depository or its nominee, as
the case may be, as the registered owner of the global security representing
such Capital Securities. None of the Company, the Property Trustee, any Paying
Agent or any other agent of the Company or the Property 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 the global
security for such Capital Securities or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests.
Disbursements of Distributions to Participants shall be the responsibility of
the Depository. The Depository's practice is to credit Participant's accounts
on a payable date in accordance with their respective holdings shown on the
Depository's records unless the Depository has reason to believe that it will
not receive payment on such payable 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 Participant and not of the Depository, the Company, the
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Property Trustee, the Paying Agent or any other agent of the Company, subject
to any statutory or regulatory requirements as may be in effect from time to
time.
The Depository may discontinue providing its services as securities
depository with respect to the Capital Securities at any time by giving
reasonable notice to the Company or the Property Trustee. If the Depository
notifies the Company that it is unwilling to continue as such, or if it is
unable to continue or ceases to be a clearing agency registered under the
Exchange Act and a successor depository is not appointed by the Company within
ninety days after receiving such notice or becoming aware that the Depository
is no longer so registered, the Company will issue the Capital Securities in
definitive form upon registration of transfer of, or in exchange for, such
global security. In addition, the Company may at any time and in its sole
discretion determine not to have the Capital Securities represented by one or
more global securities and, in such event, will issue Capital Securities in
definitive form in exchange for all of the global securities representing such
Capital Securities.
DTC has advised the Company and the Issuer Trust as follows: DTC is a
limited purpose trust company organized under the laws of the State of New
York, a member of the Federal Reserve System, a "clearing corporation" within
the meaning of the Uniform Commercial Code and a "clearing agency" registered
pursuant to the provisions of Section 17A of the Exchange Act. DTC was created
to hold securities for its Participants and to facilitate the clearance and
settlement of securities transactions between Participants through electronic
book entry changes to accounts of its Participants, thereby eliminating the
need for physical movement of certificates. Participants include securities
brokers and dealers, banks, trust companies and clearing corporations and may
include certain other organizations such as the Underwriters. Certain of such
Participants (or their representatives), together with other entities, own
DTC. Indirect access to the DTC system is available to others such as banks,
brokers, dealers and trust companies that clear through, or maintain a
custodial relationship with a Participant, either directly or indirectly.
REGISTRATION, DENOMINATION AND TRANSFER OF JUNIOR SUBORDINATED DEBENTURES
The Junior Subordinated Debentures will initially be registered in the name
of the Provident Trust. If the Junior Subordinated Debentures are distributed
to holders of Capital Securities, it is anticipated that the depository
arrangements for the Junior Subordinated Debentures will be substantially
identical to those in effect for the Capital Securities. See "--Book Entry,
Delivery and Form of Capital Securities."
Although DTC has agreed to the procedures described above, it is under no
obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. If DTC is at any time unwilling or
unable to continue as depositary and a successor depositary is not appointed
by the Company within 90 days of receipt of notice from DTC to such effect,
the Company will cause the Junior Subordinated Debentures to be issued in
definitive form.
Payments on Junior Subordinated Debentures represented by a global security
will be made to DTC or its nominees, as the registered holder of the Junior
Subordinated Debentures, as described under "--Book Entry, Delivery and Form
of Capital Securities." If Junior Subordinated Debentures are issued in
certificated form, principal and interest will be payable, the transfer of the
Junior Subordinated Debentures will be registrable, and Junior Subordinated
Debentures will be exchangeable for Junior Subordinated Debentures of other
authorized denominations of a like aggregate principal amount, at the
corporate trust office of the Debenture Trustee in New York, New York or at
the offices of any Paying Agent or transfer agent appointed by the Company,
provided that payment of interest may be made at the option of the Company by
check mailed to the address of the persons entitled thereto. However, a holder
of $1 million or more in aggregate principal amount of Junior Subordinated
Debentures may receive payments of interest (other than interest payable at
the Stated Maturity) by wire transfer of immediately available funds upon
written request to the Debenture Trustee not later than 15 calendar days prior
to the date on which the interest is payable.
Junior Subordinated Debentures will be exchangeable for other Junior
Subordinated Debentures of like tenor, of any authorized denominations, and of
a like aggregate principal amount.
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Junior Subordinated Debentures may be presented for exchange as provided
above, and may be presented for registration of transfer (with the form of
transfer endorsed thereon, or a satisfactory written instrument of transfer,
duly executed), at the office of the securities registrar appointed under the
Junior Subordinated Debenture or at the office of any transfer agent
designated by the Company for such purpose without service charge and upon
payment of any taxes and other governmental charges as described in the Junior
Subordinated Indenture. The Company will appoint the Debenture Trustee as
securities registrar under the Junior Subordinated Indenture. The Company may
at any time designate additional transfer agents with respect to the Junior
Subordinated Debentures.
In the event of any redemption, neither the Company nor the Debenture
Trustee shall be required to (i) issue, register the transfer of or exchange
Junior Subordinated Debentures during a period beginning at the opening of
business 15 days before the day of selection for redemption of the Junior
Subordinated Debentures to be redeemed and ending at the close of business on
the day of mailing of the relevant notice of redemption or (ii) transfer or
exchange any Junior Subordinated Debentures so selected for redemption,
except, in the case of any Junior Subordinated Debentures being redeemed in
part, any portion thereof not to be redeemed.
Any monies deposited with the Debenture Trustee or any paying agent, or then
held by the Company in trust, for the payment of the principal of (and
premium, if any) or interest on any Junior Subordinated Debenture and
remaining unclaimed for two years after such principal (and premium, if any)
or interest has become due and payable shall, at the request of the Company,
be repaid to the Company and the holder of such Junior Subordinated Debenture
shall thereafter look, as a general unsecured creditor, only to the Company
for payment thereof.
DESCRIPTION OF GUARANTEE
The Guarantee will be executed and delivered by the Company concurrently
with the issuance by the Provident Trust of its Capital Securities. The Chase
Manhattan Bank will act as indenture trustee ("Guarantee Trustee") under the
Guarantee for the purposes of compliance with the Trust Indenture Act and the
Guarantee will be qualified as an indenture under the Trust Indenture Act.
This summary of certain provisions of the Guarantee, which describes the
material terms thereof, does not purport to be complete and is subject to, and
qualified in its entirety by reference to, all of the provisions of the
Guarantee, including the definitions therein of certain terms, and the Trust
Indenture Act. The Guarantee has been filed as an exhibit to the Registration
Statement of which this Prospectus forms a part. The Guarantee Trustee will
hold the Guarantee for the benefit of the holders of the Capital Securities.
General
The Company will unconditionally agree to pay in full on a subordinated
basis, to the extent set forth herein, the Guarantee Payments (as defined
herein) to the holders of the Capital Securities, as and when due, regardless
of any defense, right of set-off or counterclaim that the Provident Trust may
have or assert other than the defense of payment. The following payments with
respect to the Capital Securities, to the extent not paid by or on behalf of
the Provident Trust (the "Guarantee Payments"), will be subject to the
Guarantee: (i) any accumulated and unpaid Distributions required to be paid on
such Capital Securities, to the extent that the Provident Trust has funds on
hand available therefor at such time; (ii) the Redemption Price with respect
to any Capital Securities called for redemption, to the extent that the
Provident Trust has funds on hand available therefor at such time; or (iii)
upon a voluntary or involuntary termination, winding-up or liquidation of the
Provident Trust (unless Junior Subordinated Debentures are distributed to
holders of the Capital Securities in exchange therefor), the lesser of (a) the
Liquidation Distribution, and (b) the amount of assets of the Provident Trust
remaining available for distribution to holders of Capital Securities, after
satisfaction of liabilities to creditors of the Provident Trust in accordance
with applicable law and the Expense Agreement. The Company's obligation to
make the Guarantee Payment may be satisfied by direct payment of the required
amounts by the Company to the holders of the Capital Securities or by causing
the Provident Trust to pay such amounts to such holders.
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The Guarantee will be an unconditional guarantee on a subordinated basis of
the Provident Trust's obligations under the Capital Securities, but will apply
only to the extent that the Provident Trust has funds sufficient to make such
payments, and is not the Guarantee of collection. If the Company does not make
interest payments on the Junior Subordinated Debentures, if any, held by the
Provident Trust, the Provident Trust will not be able to pay Distributions on
the Capital Securities issued by it and will not have funds legally available
therefor.
The Guarantee will rank subordinate and junior in right of payment to all
Senior Debt of the Company. See "--Status of Guarantee." Because the Company
is a holding company, the right of the Company to participate in any
distribution of assets of any subsidiary upon such subsidiary's liquidation or
reorganization or otherwise is subject to the prior claims of creditors of
that subsidiary, except to the extent the Company may itself be recognized as
a creditor of that subsidiary. Accordingly, the Company's obligations under
the Guarantee will be effectively subordinated to all existing and future
liabilities of the Company's subsidiaries, and claimants should look only to
the assets of the Company for payments thereunder. See "The Company." Except
as otherwise provided in this Prospectus Supplement, the Guarantee does not
limit the incurrence or issuance of other secured or unsecured debt of the
Company, including Senior Debt, whether under the Indenture, any other
existing indenture or any other indenture that the Company may enter into in
the future or otherwise.
The Company will, with respect to the Capital Securities, through the
Guarantee, the Declaration, the applicable series of the Junior Subordinated
Debentures, the Indenture and the Expense Agreement, taken together, fully and
unconditionally guarantee all of the Provident Trust's obligations under the
Capital Securities. No single document standing alone or operating in
conjunction with fewer than all of the other documents constitutes the
Guarantee. It is only the combined operation of these documents that has the
effect of providing a full and unconditional guarantee of the Provident
Trust's obligations with respect to the Capital Securities. See "Relationship
Among Capital Securities, Junior Subordinated Debentures and Guarantee."
STATUS OF GUARANTEE
The Guarantee will constitute an unsecured obligation of the Company and
will rank subordinate and junior in right of payment to all Senior Debt of the
Company in the same manner as Junior Subordinated Debentures. The Guarantee
will rank pari passu with any other guarantee issued by the Company. The
Guarantee will constitute the Guarantee of payment and not of collection
(i.e., the guaranteed party may institute a legal proceeding directly against
the Guarantor to enforce its rights under the Guarantee without first
instituting a legal proceeding against any other person or entity). The
Guarantee will be held for the benefit of the holders of the Capital
Securities. The Guarantee will not be discharged except by payment of the
Guarantee Payments in full to the extent not paid by the Provident Trust or
upon distribution to the holders of the Capital Securities of the Junior
Subordinated Debentures in exchange therefor. The Guarantee places no limits
on the amount of additional Senior Debt that may be incurred by the Company.
The Company expects from time to time to incur additional indebtedness
constituting Senior Debt.
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes which do not materially adversely affect
the rights of holders of the Capital Securities (in which case no vote will be
required), the Guarantee may not be amended without the prior approval of the
holders of not less than a majority of the aggregate Liquidation Amount of the
Capital Securities. The manner of obtaining any such approval will be as set
forth under "Certain Terms of Capital Securities--Voting Rights; Amendment of
the Declaration." All guarantees and agreements contained in the Guarantee
shall bind the successors, assigns, receivers, trustees and representatives of
the Company and shall inure to the benefit of the holders of the Capital
Securities then outstanding.
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EVENTS OF DEFAULT
An event of default under the Guarantee will occur upon the failure of the
Company to perform any of its payment or other obligations thereunder. The
holders of not less than a majority in aggregate Liquidation Amount of the
Capital Securities have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Guarantee Trustee in
respect of the Guarantee or to direct the exercise of any trust or power
conferred upon the Guarantee Trustee under the Guarantee.
Any holder of the Capital Securities may institute a legal proceeding
directly against the Company to enforce its rights under the Guarantee without
first instituting a legal proceeding against the Provident Trust, the
Guarantee Trustee or any other person or entity.
The Company, as guarantor, is required to file annually with the Guarantee
Trustee a certificate as to whether or not the Company is in compliance with
all the conditions and covenants applicable to it under the Guarantee.
INFORMATION CONCERNING GUARANTEE TRUSTEE
The Guarantee Trustee, other than during the occurrence and continuance of
an event of default under any Guarantee, undertakes to perform only such
duties as are specifically set forth in the Guarantee and, after an event of
default under the Guarantee, must exercise the same degree of care and skill
as a prudent person would exercise or use in the conduct of his or her own
affairs. Subject to this provision, the Guarantee Trustee is under no
obligation to exercise any of the powers vested in it by any Guarantee at the
request of any holder of the Capital Securities unless it is offered
reasonable indemnity against the costs, expenses and liabilities that might be
incurred thereby.
For additional information concerning the relationship between The Chase
Manhattan Bank, the Guarantee Trustee, and the Company, see "Description of
Junior Subordinated Debentures--Information Concerning Debenture Trustee."
TERMINATION OF GUARANTEE
The Guarantee will terminate and be of no further force and effect upon full
payment of the Redemption Price of the Capital Securities, upon full payment
of the amounts payable upon liquidation of the Provident Trust or upon
distribution of the Junior Subordinated Debentures to the holders of the
Capital Securities in exchange therefor. The Guarantee will continue to be
effective or will be reinstated, as the case may be, if at any time any holder
of the Capital Securities must restore payment of any sums paid under the
Capital Securities or the Guarantee.
GOVERNING LAW
The Guarantee will be governed by and construed in accordance with the laws
of the State of New York.
THE EXPENSE AGREEMENT
Pursuant to the Expense Agreement, the Company will, as holder of the Common
Securities of the Provident Trust, unconditionally guarantee to each person or
entity to whom the Provident Trust becomes indebted or liable the full payment
of any costs, expenses or liabilities of the Provident Trust, other than
obligations of the Provident Trust to pay to the holders of any of the Capital
Securities or other similar interests in the Provident Trust of the amounts
due such holders pursuant to the terms of the Capital Securities or such other
similar interests, as the case may be. The Expense Agreement is intended to be
enforceable by third parties.
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RELATIONSHIP AMONG CAPITAL SECURITIES,
JUNIOR SUBORDINATED DEBENTURES AND GUARANTEE
FULL AND UNCONDITIONAL GUARANTEE
Payments of Distributions and other amounts due on any series of Capital
Securities (to the extent the Provident Trust thereof has funds available for
the payment of such Distributions) are unconditionally guaranteed by the
Company as and to the extent set forth under "Description of Guarantee." Taken
together, with respect to the Capital Securities, the Company's obligations
under the Junior Subordinated Debentures, the Indenture, the Declaration, the
Expense Agreement, and the Guarantee will provide, in the aggregate, a full
and unconditional guarantee of payment of Distributions and other amounts due
on such series of Capital Securities. No single document standing alone or
operating in conjunction with fewer than all of the other documents
constitutes the guarantee. It is only the combined operation of these
documents that will have the effect of providing a full and unconditional
guarantee of the Provident Trust's obligations under the Capital Securities.
If and to the extent that the Company does not make payments on any series of
the Junior Subordinated Debentures, the Provident Trust will not pay
Distributions or other amounts due on its Capital Securities. The Guarantee
does not cover payment of Distributions when the Provident Trust does not have
sufficient funds to pay such Distributions. In such event, the remedy of a
holder of a series of Capital Securities is to institute a legal proceeding
directly against the Company pursuant to the terms of the Indenture for
enforcement of payment of such amounts. The obligations of the Company under
the Guarantee are subordinate and junior in right of payment to all Senior
Debt of the Company.
SUFFICIENCY OF PAYMENTS
As long as payments of interest and other payments are made when due on the
Junior Subordinated Debentures, such payments will be sufficient to cover
Distributions and other payments due on the Capital Securities, primarily
because (i) the aggregate principal amount of the Junior Subordinated
Debentures will be equal to the sum of the aggregate Liquidation Amount of the
Capital Securities and Common Securities; (ii) the interest rate and interest
and other payment dates on the Junior Subordinated Debentures will match the
Distribution rate and Distribution and other payment dates for the Capital
Securities; (iii) the Company shall pay for all and any costs, expenses and
liabilities of the Provident Trust except the Provident Trust's obligations to
holders of its Capital Securities under the Capital Securities; and (iv) the
Declaration further provides that the Provident Trust will not engage in any
activity that is not consistent with the limited purpose of the Provident
Trust.
Notwithstanding anything to the contrary in the Indenture, the Company has
the right to set-off any payment it is otherwise required to make thereunder
with and to the extent the Company has theretofore made, or is concurrently on
the date of such payment making, a payment under the Guarantee.
ENFORCEMENT RIGHTS OF HOLDERS OF CAPITAL SECURITIES
A holder of any Capital Security may institute a legal proceeding directly
against the Company to enforce its rights under the Guarantee without first
instituting a legal proceeding against the Guarantee Trustee, the Provident
Trust or any other person or entity.
A default or event of default under any Senior Debt of the Company would not
constitute a Debenture Event of Default (and, therefore, would not constitute
an Event of Default under the Declaration). However, in the event of payment
defaults under, or acceleration of, Senior Debt of the Company, the
subordination provisions of the Indenture provide that no payments may be made
in respect of any Junior Subordinated Debentures until the Senior Debt has
been paid in full or any payment default thereunder has been cured or waived.
Failure to make required payments on any series of Junior Subordinated
Debentures (subject to the deferral of any interest payment in the case of an
Extension Period) would constitute a Debenture Event of Default (and,
therefore, an Event of Default under the Declaration).
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LIMITED PURPOSE OF PROVIDENT TRUST
The Capital Securities evidence preferred undivided beneficial interests in
the assets of the Provident Trust, and the Provident Trust exists for the sole
purpose of issuing the Capital Securities and the Common Securities and
investing the proceeds thereof in the Junior Subordinated Debentures. A
principal difference between the rights of a holder of such Capital Security
and a holder of Junior Subordinated Debentures is that a holder of Junior
Subordinated Debentures is entitled to receive from the Company the principal
amount of and interest accrued on the Junior Subordinated Debentures held,
while a holder of Capital Securities is entitled to receive Distributions from
the Provident Trust (or from the Company under the Guarantee) if and to the
extent the Provident Trust has funds available for the payment of such
Distributions.
RIGHTS UPON TERMINATION
Upon any voluntary or involuntary dissolution, winding-up or liquidation of
the Provident Trust involving the liquidation of any Junior Subordinated
Debentures, after satisfaction of liabilities to creditors of the Provident
Trust in accordance with applicable law and the Expense Agreement, the holders
of the Capital Securities will be entitled to receive, out of the assets held
by the Provident Trust, the Liquidation Distribution in cash. See "Certain
Terms of Capital Securities--Liquidation Distribution Upon Termination." Upon
any voluntary or involuntary liquidation or bankruptcy of the Company, the
Property Trustee, as holder of the Junior Subordinated Debentures, would be a
subordinated creditor of the Company, subordinated in right of payment to all
Senior Debt of the Company as set forth in the Indenture, but entitled to
receive payment in full of principal and interest before any stockholders of
the Company receive payments or distributions. Since the Company is the
guarantor under the Guarantee and has agreed to pay for all costs, expenses
and liabilities of the Provident Trust (other than the Provident Trust's
obligations to the holders of its Capital Securities), the positions of a
holder of the Capital Securities and a holder of the Junior Subordinated
Debentures relative to other creditors and to stockholders of the Company in
the event of liquidation or bankruptcy of the Company are expected to be
substantially the same.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain material United States federal income
tax consequences of the purchase, ownership and disposition of Capital
Securities. Except as otherwise stated, this summary only addresses the tax
consequences to a person that acquires Capital Securities on their original
issue at their original offering price and that is (i) an individual citizen
or resident of the United States, (ii) a corporation or partnership organized
in or under the laws of the United States or any state thereof or the District
of Columbia, (iii) an estate the income of which is subject to United States
federal income tax regardless of source, or (iv) a trust if a court within the
United States is able to exercise primary supervision over the administration
of the trust and one or more United States persons have the authority to
control all substantial decisions of the trust (a "United States Person").
This summary does not address all tax consequences that may be applicable to a
beneficial owner of Capital Securities, nor does it address the tax
consequences to (a) persons that may be subject to special treatment under
United States federal income tax law, such as banks, insurance companies,
thrift institutions, regulated investment companies, real estate investment
trusts, tax-exempt organizations and dealers in securities or currencies, (b)
persons that will hold Capital Securities as part of a position in a
"straddle" or as part of a "hedging", "conversion" or other integrated
investment transaction for federal income tax purposes, (c) persons whose
functional currency is not the United States dollar, or (d) persons that do
not hold Capital Securities as capital assets. Furthermore, this summary does
not discuss (i) the income tax consequences to shareholders in, or partners or
beneficiaries of, a holder of the Capital Securities, (ii) the United States
federal alternative minimum tax consequences of the purchase, ownership, or
disposition of the Capital Securities, or (iii) any state, local, or foreign
tax consequences of the purchase, ownership, and disposition of Capital
Securities.
This summary is based upon the Internal Revenue Code of 1986, as amended
(the "Code"), Treasury Regulations, Internal Revenue Service rulings and
pronouncements and judicial decisions now in effect, all of which are subject
to change at any time. Such changes may be applied retroactively in a manner
that could cause
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the tax consequences to vary substantially from the consequences described
below, possibly adversely affecting a beneficial owner of Capital Securities.
The authorities on which this summary is based are subject to various
interpretations, and it is therefore possible that the federal income tax
treatment of the purchase, ownership and disposition of Capital Securities may
differ from the treatment described below.
PROSPECTIVE INVESTORS ARE ADVISED TO CONSULT WITH THEIR OWN TAX ADVISORS IN
LIGHT OF THEIR OWN PARTICULAR CIRCUMSTANCES AS TO THE FEDERAL TAX CONSEQUENCES
OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF CAPITAL SECURITIES, AS WELL AS
THE EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
US HOLDERS CHARACTERIZATION OF PROVIDENT TRUST
In the opinion of Alston & Bird LLP, under current law and based on the
representations, facts, and assumptions set forth in this Prospectus
Supplement, and assuming full compliance with the terms of the Declaration
(and other relevant documents) and based on certain facts, assumptions, and
qualifications contained in such opinion, the Provident Trust will be
characterized as a grantor trust and will not be characterized as an
association taxable as a corporation for United States federal income tax
purposes. As a result, each beneficial owner of the Capital Securities (a
"Securityholder") generally will be considered the owner of an undivided
interest in the Junior Subordinated Debentures owned by the Provident Trust
and will be required to include in its gross income its pro rata share of the
interest income, including original issue discount, paid or accrued with
respect to the Junior Subordinated Debentures whether or not cash is actually
distributed to the Securityholders. See "--Interest Income and Original Issue
Discount."
CHARACTERIZATION OF THE JUNIOR SUBORDINATED DEBENTURES
The Company and the Provident Trust will agree to treat the Junior
Subordinated Debentures as indebtedness for all United States federal income
tax purposes. In connection with the issuance of the Junior Subordinated
Debentures, Alston & Bird LLP will render its opinion generally to the effect
that, under then current law and based on the representations, facts and
assumptions set forth in this Prospectus Supplement, and assuming full
compliance with the terms of the Indenture (and other relevant documents), and
based on certain facts, assumptions and qualifications referenced in the
opinion, the Junior Subordinated Debentures will be characterized for United
States federal income tax purposes as indebtedness of the Company. There can
be no assurance, however, that the Internal Revenue Service will not challenge
the characterization of the Junior Subordinated Debentures or that any such
challenge would not be successful. The remainder of this discussion assumes
that the Junior Subordinated Debentures will be characterized as indebtedness
of the Company for the United States federal income tax purposes.
INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT
Under Treasury Regulations applicable to debt instruments issued on or after
August 13, 1996 (the "Regulations"), a "remote" contingency that stated
interest will not be timely paid will be ignored in determining whether a debt
instrument is issued with original issue discount ("OID"). As a result of the
terms and conditions of the Junior Subordinated Debentures that prohibit
certain payments with respect to the Company's capital stock and indebtedness
if the Company elects to defer payment of interest on the Junior Subordinated
Debentures, the Company believes, and this discussion assumes, that the
likelihood of its exercising its option to defer payments is remote within the
meaning of the Regulations. Based on the foregoing, the Company believes that
the Junior Subordinated Debentures will not be considered to be issued with
OID at the time of their original issuance, and, accordingly, a Securityholder
should include in gross income such holder's allocable share of interest on
the Junior Subordinated Debentures.
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Under the Regulations, if the Company exercised its option to defer any
payment of interest, the Junior Subordinated Debentures would at that time be
treated as reissued with OID, and all stated interest on the Junior
Subordinated Debentures would thereafter be treated as OID as long as the
Junior Subordinated Debentures remained outstanding. In such event, all of a
Securityholder's taxable interest income with respect to the Junior
Subordinated Debentures would be accounted for as OID on an economic accrual
basis regardless of such holder's method of tax accounting, and actual
distributions of stated interest would not be reported as taxable income.
Consequently, a Securityholder would be required to include in gross income
OID even though the Company would not make any actual cash payments during an
Extension Period.
The Regulations have not been addressed in any rulings or other
interpretations by the Internal Revenue Service, and it is possible that the
Internal Revenue Service could take a position contrary to the interpretation
herein.
Because income on the Capital Securities will constitute interest or OID,
corporate Securityholders will not be entitled to a dividends-received
deduction with respect to any income recognized with respect to the Capital
Securities.
Subsequent uses of the term "interest" in this summary include income in the
form of OID.
MARKET DISCOUNT AND BOND PREMIUM
Holders of the Capital Securities other than a holder that purchased the
Capital Securities upon original issuance may be considered to have acquired
their undivided interest in the Junior Subordinated Debentures with "market
discount" or "acquisition premium" as such terms are defined for United States
federal income tax purposes. Such holders are advised to consult their tax
advisors as to the income tax consequences associated with the acquisition,
ownership, and disposition of the Capital Securities.
DISTRIBUTION OF JUNIOR SUBORDINATED DEBENTURES TO HOLDERS OF CAPITAL
SECURITIES
Under current law, a distribution by the Provident Trust of the Junior
Subordinated Debentures as described under "Certain Terms of Capital
Securities--Liquidation of Provident Trust and Distribution of Junior
Subordinated Debentures to Holders" will be non-taxable and will result in the
Securityholder receiving directly its pro rata share of the Junior
Subordinated Debentures previously held indirectly through the Provident
Trust, with a holding period and aggregate tax basis equal to the holding
period and aggregate tax basis such Securityholder had in its Capital
Securities before such distribution. If, however, the liquidation of the
Provident Trust were to occur because the Provident Trust is subject to United
States federal income tax with respect to income accrued or received on the
Junior Subordinated Debentures, the distribution of Junior Subordinated
Debentures to Securityholders by the Provident Trust would be a taxable event
to the Provident Trust and each Securityholder, and each Securityholder would
recognize gain or loss as if the Securityholder had exchanged its Capital
Securities for the Junior Subordinated Debentures it received upon the
liquidation of the Provident Trust. A Securityholder will accrue interest in
respect of Junior Subordinated Debentures received from the Provident Trust in
the manner described above under "--Interest Income and Original Issue
Discount."
SALES OR REDEMPTION OF CAPITAL SECURITIES
A Securityholder that sells (including a redemption for cash) Capital
Securities will recognize gain or loss equal to the difference between its
adjusted tax basis in the Capital Securities and the amount realized on the
sale of such Capital Securities. Assuming that the Company does not exercise
its option to defer payment of interest on the Junior Subordinated Debentures,
and the Junior Subordinated Debentures are not considered issued with OID, a
Securityholder's adjusted tax basis in the Capital Securities generally will
be its initial purchase price. If the Junior Subordinated Debentures are
deemed to be issued with OID as a result of the Company's deferral of any
interest payment, a Securityholder's adjusted tax basis in the Capital
Securities generally will be its initial purchase price, increased by OID
previously includible in such holder's gross income to the date of disposition
and decreased by Distributions or other payments received on the Capital
Securities
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since and including the date of the first Extension Period. Such gain or loss
generally will be a capital gain or loss (except to the extent any amount
realized is treated as a payment of accrued interest with respect to such
Securityholder's pro rata share of the Junior Subordinated Debentures required
to be included in income) and generally will be a long-term capital gain or
loss if the Capital Securities have been held for more than one year. In the
case of an individual, the long-term capital gain will be taxable at a maximum
rate of 20 percent if the Capital Securities have been held for more than 18
months.
The Capital Securities may trade at a price that does not accurately reflect
the value of accrued but unpaid interest with respect to the underlying
securities. A Securityholder who disposes of its Capital Securities between
record dates for payments of distributions thereon will be required to include
accrued but unpaid interest (or OID) on the Junior Subordinated Debentures
through the date of disposition in its taxable income for United States
federal income tax purposes and to deduct that amount from the sales proceeds
received for the Capital Securities (or as to OID only, to add such amount to
such Securityholder's adjusted tax basis in its Capital Securities). To the
extent the selling price is less than the Securityholder's adjusted tax basis
a Securityholder will recognize a capital loss. Subject to certain limited
exceptions, capital losses cannot be applied to offset ordinary income for
United States federal income tax purposes.
NON-US PERSONS
The following discussion applies to Non-US Persons, i.e., individuals,
corporations, partnerships, estates, and trusts which are not United States
Persons.
Under present United States federal income tax law, payments to a
Securityholder that is a Non-US Person generally will not be subject to
withholding of income tax, provided that:
(a) The beneficial owner of the Capital Securities does not (directly or
indirectly, actually or constructively) own 10% or more of the total
combined voting power of all classes of stock of the Company entitled to
vote;
(b) The beneficial owner of the Capital Securities is not a controlled
foreign corporation which is related to the Company through stock
ownership; and
(c) Either (i) the beneficial owner of the Capital Securities or (ii) a
securities clearing organization, a bank, or other financial institution
which holds customers' securities in the ordinary course of its trade or
business and which holds the Capital Securities in such capacity certifies
to the Provident Trust or its agent, under penalties of perjury, that it is
not a United States person, or in the case of an individual, is neither a
citizen nor a resident of the United States, and provides the owner's name
and address to the Provident Trust or its agent.
Non-US Persons generally will not be subject to withholding of income tax on
any gain realized upon the sale or other disposition of Capital Securities.
A Non-US Person that holds Capital Securities in connection with the active
conduct of a trade or business in the United States generally will be subject
to United States federal income tax on all income and gains recognized with
respect to its proportionate share of the Junior Subordinated Debentures.
Non-US Persons are encouraged to contact their tax advisors concerning the
possible tax implications to such holders associated with the purchase,
ownership, and disposition of the Capital Securities.
PROPOSED TAX LEGISLATION
In recent years legislation has been proposed which, if enacted, could
result in the denial of deductions for interest paid on instruments with
features similar to those of the Junior Subordinated Debentures. No such
legislation has been enacted. No assurance, however, can be given that future
legislation enacted after the date hereof will not include provisions that
will adversely affect the federal income tax treatment of the Junior
Subordinated Debentures. Accordingly, there can be no assurance that a Tax
Event will not occur. See "Certain Terms of Capital Securities--Redemption."
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BACKUP WITHHOLDING TAX AND INFORMATION REPORTING
The amount of interest income paid and OID accrued on the Capital Securities
held of record by United States Persons (other than corporations and other
exempt Securityholders) will be reported to the Internal Revenue Service.
"Backup" withholding at a rate of 31 percent will apply to payments of
interest to non-exempt United States Persons unless the Securityholder
furnishes its taxpayer identification number in the manner prescribed in
applicable Treasury Regulations, certifies that such number is correct,
certifies as to no loss of exemption from backup withholding and meets certain
other conditions.
Payment of the proceeds from the disposition of Capital Securities to or
through the United States office of a broker is subject to information
reporting and backup withholding unless the holder or beneficial owner
establishes an exemption from information reporting and backup withholding.
Any amounts withheld from a Securityholder under the backup withholding
rules will be allowed as a refund or a credit against such Securityholder's
United States federal income tax liability, provided the required information
is furnished to the Internal Revenue Service.
It is anticipated that income on the Capital Securities will be reported to
holders on Form 1099 and mailed to holders of the Capital Securities by
January 31 following each calendar year.
CERTAIN ERISA CONSIDERATIONS
Each fiduciary of a pension, profit-sharing or other employee benefit plan
subject to Title I of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") (a "Plan"), should consider the fiduciary standards of ERISA
in the context of the Plan's particular circumstances before authorizing an
investment in the Capital Securities with assets of the Plan. Accordingly,
among other factors, the fiduciary should consider whether the investment
would satisfy the prudence and diversification requirements of ERISA and would
be consistent with the documents and instruments governing the Plan.
Section 406 of ERISA and Section 4975 of the Code prohibit Plans, as well as
individual retirement accounts and Keogh plans subject to Section 4975 of the
Code (also "Plans"), from engaging in certain transactions involving "plan
assets" with persons who are "parties in interest" under ERISA or
"disqualified persons" under the Code ("Parties in Interest") with respect to
such Plan. A violation of these "prohibited transaction" rules may result in
an excise tax or other liabilities under ERISA and/or Section 4975 of the Code
for such persons, unless exemptive relief is available under an applicable
statutory or administrative exemption.
Employee benefit plans that are governmental plans (as defined in Section
3(32) of ERISA), certain church plans (as defined in Section 3(33) of ERISA)
and foreign plans (as described in Section 4(b)(5) of ERISA) are not subject
to the requirements of ERISA or Section 4975 of the Code; however, such plans
may be subject to federal, state or local laws or regulations which affect
their ability to invest in the Capital Securities. Any fiduciary of such a
governmental, church or foreign plan considering an investment in the Capital
Securities should determine the need for, and, if necessary, the availability
of, any exemptive relief under such laws or regulations.
Under a regulation (the "Plan Assets Regulation") issued by the U.S.
Department of Labor (the "DOL"), the assets of the Provident Trust would be
deemed to be "plan assets" of a Plan for purposes of ERISA and Section 4975 of
the Code if "plan assets" of the Plan were used to acquire an equity interest
in the Provident Trust and no exception were applicable under the Plan Assets
Regulation. An "equity interest" is defined under the Plan Assets Regulation
as any interest in an entity other than an instrument which is treated as
indebtedness under applicable local law and which has no substantial equity
features and specifically includes a beneficial interest in a trust.
Pursuant to an exception contained in the Plan Assets Regulation, the assets
of the Provident Trust would not be deemed to be "plan assets" of investing
Plans if, immediately after the most recent acquisition of any equity interest
in the Provident Trust, less that 25% of the value of each class of equity
interests in the Provident Trust were held by Plans, other employee benefit
plans not subject to ERISA or Section 4975 of the Code (such as governmental,
church and foreign plans), and entities holding assets deemed to be "plan
assets" of any Plan
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(collectively, "Benefit Plan Investors"), or if the Capital Securities were
"publicly-offered securities" for purposes of the Plan Assets Regulation. No
assurance can be given that the value of the Capital Securities held by
Benefit Plan Investors will be less than 25% of the total value of such
Capital Securities at the completion of the initial offering or thereafter,
and no monitoring or other measures will be taken with respect to the
satisfaction of the conditions of this exception. In addition, no assurance
can be given that the Capital Securities would be considered to be "publicly-
offered securities" under the Plan Assets Regulation. All of the Common
Securities will be purchased and held by the Company.
Certain transactions involving the Provident Trust could be deemed to
constitute direct or indirect prohibited transactions under ERISA and Section
4975 of the Code with respect to a Plan if the Capital Securities were
acquired with "plan assets" of such Plan and the assets of the Provident Trust
were deemed to be "plan assets" of Plans investing in the Provident Trust. For
example, if the Company were a Party in Interest with respect to a Plan
(either directly or by reason of its ownership of its banking or other
subsidiaries), extensions of credit between the Company and the Provident
Trust (as represented by the Junior Subordinated Debentures and the Guarantee)
would likely be prohibited by Section 406(a)(1)(B) of ERISA and Section
4975(c)(1)(B) of the Code, unless exemptive relief were available under an
applicable administrative exemption (see below). In addition, if the Company
were considered to be a fiduciary with respect to the Provident Trust as a
result of certain powers it holds (such as the powers to remove and replace
the Property Trustee and the Administrative Trustees), certain operations of
the Provident Trust, including the optional redemption or acceleration of the
Junior Subordinated Debentures, could be considered to be prohibited
transactions under Section 406(b) of ERISA and Section 4975(c)(1)(E) of the
Code. In order to avoid such prohibited transactions, each investing plan, by
purchasing Capital Securities, will be deemed to have directed the Provident
Trust to invest in the Junior Subordinated Debentures and to have appointed
the Property Trustee.
The DOL has issued five prohibited transaction class exemptions ("PTCEs")
that may provide exemptive relief if required for direct or indirect
prohibited transactions that may arise from the purchase or holding of the
Capital Securities if assets of the Provident Trust were deemed to be "plan
assets" of Plans investing in the Provident Trust as described above. Those
class exemptions are PTCE 96-23 (for certain transactions determined by in-
house asset managers), PTCE 95-60 (for certain transactions involving
insurance company general accounts), PTCE 91-38 (for certain transactions
involving bank collective investment funds), PTCE 90-1 (for certain
transactions involving insurance company separate accounts), and PTCE 84-14
(for certain transactions determined by independent qualified asset managers).
Because the Capital Securities may be deemed to be equity interests in the
Provident Trust for purposes of applying ERISA and Section 4975 of the Code,
the Capital Securities may not be purchased and should not be held by any
Plan, any entity whose underlying assets include "plan assets" by reason of
any Plan's investment in the entity (a "Plan Asset Entity") or any person
investing "plan assets" of any Plan, unless such purchaser or holder is
eligible for the exemptive relief available under PTCE 96-23, 95-60, 91-38,
90-1 or 84-14 or another applicable exemption. Any purchaser or holder of the
Capital Securities or any interest therein will be deemed to have represented
by its purchase and holding thereof that it either (a) is not a Plan or a Plan
Asset Entity and is not purchasing such securities on behalf of or with "plan
assets" of any Plan, or (b) is eligible for the exemptive relief available
under PTCE 96-23, 95-60, 91-38, 90-1 or 84-14 or another applicable exemption
with respect to such purchase or holding. If a purchaser of the Capital
Securities that is a Plan or a Plan Asset Entity elects to rely on an
exemption other than PTCE 96-23, 95-60, 91-38, 90-1 or 84-14, the Company and
the Provident Trust may require a satisfactory opinion of counsel or other
evidence with respect to the availability of such exemption for such purchase
and holding.
Due to the complexity of these rules and the penalties that may be imposed
upon persons involved in non-exempt prohibited transactions, it is
particularly important that fiduciaries or other persons considering
purchasing the Capital Securities on behalf of or with "plan assets" of any
Plan consult with their counsel regarding the potential consequences if the
assets of the Provident Trust were deemed to be "plan assets" and the
availability of exemptive relief under PTCE 96-23, 95-60, 91-38, 90-1 or 84-14
or any other applicable exemption.
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THE DISCUSSION HEREIN OF ERISA IS GENERAL IN NATURE AND IS NOT INTENDED TO
BE COMPLETE. ANY FIDUCIARY OF A PLAN, GOVERNMENTAL PLAN OR CHURCH PLAN
CONSIDERING AN INVESTMENT IN THE CAPITAL SECURITIES SHOULD CONSULT WITH ITS
LEGAL ADVISORS REGARDING THE CONSEQUENCES AND ADVISABILITY OF SUCH INVESTMENT.
Insurance companies considering an investment in the Capital Securities
should note that the Small Business Job Protection Act of 1996 added new
Section 401(c) of ERISA relating to the status of the assets of insurance
company general accounts under ERISA and Section 4975 of the Code. Pursuant to
Section 401(c), the Department of Labor issued proposed regulations (the
"Proposed General Accounting Regulations") in December, 1997 with respect to
insurance policies that are supported by an insurer's general account. The
Proposed General Accounting Regulations are intended to provide guidance on
which assets held by the insurer constitute "plan assets" of an ERISA Plan for
purposes of the fiduciary responsibility provisions of ERISA and Section 4975
of the Code.
UNDERWRITERS
Subject to the terms and conditions set forth in the Underwriting Agreement
(the "Underwriting Agreement") among the Company, the Provident Trust 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 and the Provident Trust have agreed that the
Provident Trust will sell to each of the Underwriters, and the Underwriters
have agreed, severally and not jointly, to purchase from the Provident Trust,
the respective number of Capital Securities set forth below opposite their
respective names.
<TABLE>
<CAPTION>
NUMBER OF
NAME CAPITAL SECURITIES
---- ------------------
<S> <C>
Morgan Stanley & Co. Incorporated........................
Bear, Stearns & Co. Inc..................................
Chase Securities Inc.....................................
Credit Suisse First Boston Corporation ..................
Donaldson, Lufkin & Jenrette Securities Corporation......
-------
Total................................................. 250,000
=======
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the Capital Securities 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 Capital Securities if any are taken.
The Underwriters have advised the Company that they initially propose to
offer the Capital Securities 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 $ per Capital Security.
Any Underwriter may allow, and such dealers may reallow, a concession not in
excess of $ per Capital Security to certain other dealers. After the
initial offering of the Capital Securities, the offering price and other
selling terms may from time to time be varied by the Underwriters.
In view of the fact that the proceeds of the sale of the Capital Securities
will be invested in the Junior Subordinated Debentures, the Underwriting
Agreement provides that the Company will pay to the Underwriters, as
compensation for their arranging the investment therein of such proceeds,
$ per Capital Security (or $ in the aggregate).
The Company and the Provident Trust have agreed in the Underwriting
Agreement that, subject to certain conditions, prior to the closing under the
Underwriting Agreement, neither will offer, sell, contract to sell or
otherwise dispose of any securities that are substantially similar to the
Capital Securities or that are convertible into or exchangeable for, or
otherwise represent a right to acquire, any such securities, except in the
offering or with the prior written consent of Morgan Stanley.
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The Company does not intend to apply for listing of any of the Capital
Securities on a national securities exchange, but has been advised by the
Underwriters that they presently intend to make a market in the Capital
Securities, as permitted by applicable laws and regulations. The Underwriters
are not obligated, however, to make a market in the Capital Securities 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 Capital Securities.
In order to facilitate the offering of the Capital Securities, the
Underwriters may engage in transactions that stabilize, maintain or otherwise
affect the price of the Capital Securities. Specifically, the Underwriters may
overallot in connection with the Capital Securities Offering, creating a short
position in the Capital Securities for their own account. In addition, to
cover overallotments or to stabilize the price of the Capital Securities, the
Underwriters may bid for, and purchase, the Capital Securities in the open
market. Finally, the underwriting syndicate may reclaim selling concessions
allowed to an underwriter or a dealer for distributing the Capital Securities
in the Capital Securities Offering, if the syndicate repurchases previously
distributed Capital Securities 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 Capital Securities above
independent market levels. The Underwriters are not required to engage in
these activities, and may end any of these activities at any time.
The Company and the Provident Trust have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act").
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 Property Trustee, Debenture Trustee and
Guarantee Trustee, is an affiliate of Chase Securities Inc., one of the
Underwriters, and is 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 Capital Securities Offering and the
Note 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
Certain matters of Delaware law relating to the validity and issuance of the
Capital Securities, the enforceability of the Declaration and the creation of
the Provident Trust will be passed upon by Richards, Layton & Finger, P.A.;
Wilmington, Delaware, special Delaware counsel to the Company and the
Provident Trust. The validity of the Guarantee and the Junior Subordinated
Debentures and certain other legal matters in connection with the sale of the
Capital Securities 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 Capital Securities offered hereby will be passed upon for
the Company by F. Dean Copeland, Executive Vice President, and General Counsel
of the Company. As of December 31, 1997, Mr. Copeland beneficially owned
approximately 12,050 shares of Common Stock of the Company and held options to
purchase 200,000 shares of Common Stock of the Company. Certain legal matters
in connection with the sale of the Capital Securities 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. Alston & Bird LLP and LeBoeuf, Lamb, Greene & MacRae, L.L.P. each
will rely upon the opinion of Richards, Layton & Finger, P.A., as to matters
of Delaware law. Certain federal income tax matters related to the offering of
the Capital Securities have been passed upon for the Company by Alston & Bird
LLP. LeBoeuf, Lamb, Greene & MacRae, L.L.P. provides certain legal services to
the Company from time to time.
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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.
S-79
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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 5 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,
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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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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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