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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
[X] Definitive Proxy Statement Rule 14a-6(e)(2))
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
PROVIDENT COMPANIES
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(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
[X] No Filing Fee Required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(4) Date Filed:
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Notes:
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[LETTERHEAD OF PROVIDENT COMPANIES, INC. APPEARS HERE]
Provident Companies, Inc.
1 Fountain Square
Chattanooga, TN 37402
April 6, 1998
Dear Fellow Stockholder:
Our Annual Meeting of Stockholders will be held in the Atrium of the West
Building of our Home Office at 1 Fountain Square, Chattanooga, Tennessee. You
are invited to join us on Wednesday, May 6, 1998 at 9:30 a.m. for refreshments
and for the business meeting which follows at 10:00 a.m. Free parking is
available in our lot at Walnut and Fifth streets.
The following Proxy Statement outlines the business to be conducted at the
meeting. We urge you to read the Proxy Statement carefully and then complete,
date, sign and return the enclosed Proxy card, even if you intend to attend
the meeting.
At the meeting, we ask that you sign an attendance card at one of the tables
in the receiving area. This will help us determine who will vote in person and
who by proxy.
I hope to see you on May 6.
Sincerely,
/s/ J. Harold Chandler
J. Harold Chandler
Chairman, President and
Chief Executive Officer
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PROVIDENT COMPANIES, INC.
1 FOUNTAIN SQUARE
CHATTANOOGA, TN 37402
April 6, 1998
Notice of Annual Meeting
To the Stockholders of Provident Companies, Inc.:
The Annual Meeting of the Stockholders of Provident Companies, Inc. (the
"Company") will be held on Wednesday, May 6, 1998, at 10:00 a.m. Eastern
Daylight Time at the Home Office of the Company, 1 Fountain Square,
Chattanooga, Tennessee, to consider and take action on the following:
1. Election of Directors;
2. Approval of Amended and Restated Annual Management Incentive
Compensation Plan of 1994;
3. Approval of the Stock Plan of 1999;
4. Approval of Provident Companies, Inc. Non - Employee Director
Compensation Plan of 1998;
5. Approval of the selection of Ernst & Young LLP as independent
auditors; and
6. Such other business as may properly come before the meeting or any
adjournments thereof.
Stockholders of record at the close of business on March 9, 1998, are
entitled to notice of and to vote at the Annual Meeting or any adjournment
thereof.
Please complete, date, sign and return the enclosed proxy card in the
accompanying postage paid, addressed envelope. This procedure is necessary to
give all stockholders a chance to vote, especially those who will be unable to
attend the Annual Meeting in person. You may revoke your proxy at any time
before the authority granted by the proxy is exercised by giving written
notice of revocation to the Corporate Secretary, by submitting a subsequent
validly executed proxy, or by voting in person. If you attend the meeting and
intend to vote in person, please notify the tellers prior to the beginning of
the meeting of your intent.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Susan N. Roth
Susan N. Roth
Vice President, Secretary and
Counsel
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PROXY STATEMENT
This statement is being furnished in connection with the solicitation of
proxies on behalf of the Board of Directors of Provident Companies, Inc. (the
"Company") to be voted at the Annual Meeting of Stockholders (the "Meeting")
to be held on May 6, 1998, and any adjournment thereof. Stockholders will be
asked to vote upon: ITEM 1. ELECTION OF DIRECTORS; ITEM 2. APPROVAL OF THE
AMENDED AND RESTATED ANNUAL MANAGEMENT INCENTIVE COMPENSATION PLAN OF 1994;
ITEM 3. APPROVAL OF THE STOCK PLAN OF 1999; ITEM 4. APPROVAL OF THE NON-
EMPLOYEE DIRECTOR COMPENSATION PLAN OF 1998; ITEM 5. SELECTION OF ERNST &
YOUNG LLP AS INDEPENDENT AUDITORS. The 1997 Annual Report to Stockholders,
including audited financial statements of the Company for the fiscal year
ended December 31, 1997, and the proxy card enclosed with this Proxy Statement
are being mailed to stockholders on or about April 6, 1998.
Shares eligible to be voted and for which a proxy card is properly signed
and returned prior to the beginning of the Annual Meeting will be voted as
directed. If directions are not given or directions are not in accordance with
the options listed on a signed and returned proxy card, such shares will be
voted FOR each proposition for which the Board of Directors recommends a vote
FOR. Unsigned or unreturned proxies, including those not returned by banks,
brokers or other record holders, will not be counted for quorum or voting
purposes. For issues as to which it is a choice on the proxy, a vote to
abstain will be counted for purposes of determining the existence of a quorum,
and counted as an "ABSTENTION" rather than as either a vote "FOR" or
"AGAINST". You may revoke your proxy at any time prior to the exercise of the
authority granted in the proxy by giving written notice of revocation to the
Corporate Secretary, by submitting a subsequent validly executed proxy, or by
voting in person. If you attend the Meeting and intend to vote in person,
please notify the tellers prior to the beginning of the meeting of your
intent.
As of March 9, 1998, the record date for determination of stockholders
entitled to vote at the Meeting, there were outstanding 135,250,678 shares of
Common Stock of the Company. Each share of Common Stock entitles the holder to
one vote. The Common Stock has a par value of $1.00 per share and is the only
outstanding class of equity securities of the Company entitled to vote at this
meeting.
The Company will bear the cost of soliciting proxies from its stockholders.
Proxies will be solicited by mail and may also be solicited personally or by
telephone by directors, officers and employees of the Company. The Company has
also retained the services of Corporate Investor Communications, Inc. ("CIC"),
a proxy soliciting firm for the purpose of assisting the Company in the
solicitation of proxies for the Annual Meeting. The Company's arrangements
with CIC provides that CIC will (1) assist in distributing proxy materials and
collecting proxies held by holders of the Company's Common Stock, (2)
telephone stockholders as the Company may determine and (3) advise the Company
regarding additional soliciting material if any, that may be used. The Company
estimates the fees of CIC for these services, not counting expenses of
distributing proxy materials which the Company will pay, will be approximately
$8,000. The Company will make appropriate arrangements with brokerage houses,
banks and other custodians, nominees and fiduciaries to facilitate
solicitation of proxies from their principals.
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ITEM 1. ELECTION OF DIRECTORS
INFORMATION CONCERNING THE NOMINEES
Unless otherwise instructed by the stockholder, all signed proxies given on
the enclosed form which are received by the Board of Directors will be voted
FOR the election of the nominees named below to be the Directors of the
Company to hold office until the next Annual Meeting of Stockholders, or until
their respective successors shall be elected and qualified. All nominees are
incumbent directors elected at the 1997 stockholders' meeting. If at the time
of the Annual Meeting any of the nominees should be unable or unwilling to
serve, such proxies may be voted for a substitute nominee or nominees chosen
by the present Board of Directors. The Board of Directors knows of no reason
why any nominee will be unavailable or unable to serve. THE BOARD OF DIRECTORS
RECOMMENDS A VOTE FOR THE NOMINEES PRESENTED HEREIN. Directors are elected by
a plurality of the votes cast by the shares entitled to vote in the election
at a meeting at which a quorum is present.
Following are the names and ages (as of March 31, 1998) of those persons
nominated to be Directors of the Company, as well as their principal
occupations (which have continued for the past five years, unless otherwise
noted), directorships held by them in certain other publicly held companies,
the year in which they became a director of the Company or the Company's
predecessor Provident Life and Accident Insurance Company of America
("America"), and certain other information with respect to such Directors. All
nominees, except Messrs. Bolinder and Watjen, became directors of the Company
on December 27, 1995, the effective date of the Share Exchange between the
Company and America. Mr. Watjen became a director on March 26, 1997.
Mr. Bolinder became a director on March 27, 1997, effective with the closing
of the transaction involving the purchase by Zurich Insurance Company
("Zurich") or one or more of its affiliates of 9,523,819 shares of the
Company's Common Stock in connection with financing the Company's acquisition
of The Paul Revere Corporation ("Paul Revere"). Under an agreement between the
Company and Zurich related to the acquisition of Paul Revere, Zurich has
certain rights in connection with designating two persons to serve as
directors of the Company while Zurich remains the beneficial owner of 10% or
more of the outstanding shares of the Company's Common Stock. Messrs. Bolinder
and Gluckstern were Zurich's original designees. Mr. Gluckstern, and one other
director, Mr. William B. Johnson, will not be standing for re-election.
Each of the persons listed below as a nominee to be a director of the
Company will also be a director of the principal wholly owned subsidiaries of
the Company including Provident Life and Accident Insurance Company
("Accident"), Provident Life and Casualty Insurance Company ("Casualty"),
Provident National Assurance Company ("National"), and Paul Revere, as well as
its principal subsidiary, The Paul Revere Life Insurance Company. GENEX
Services, Inc. has a board of directors whose members include some Company
board members as well as other employees of the Company. As the context
requires, Company may include direct and indirect subsidiaries.
NOMINEES
WILLIAM L. ARMSTRONG, 61 DIRECTOR SINCE 1991
From 1979 to 1991, Senator Armstrong served as a Senator from Colorado in
the United States Senate. He has been Chairman of Ambassador Media Corporation
since 1984, Chairman of Cherry Creek Mortgage Company, Inc. since 1991,
Chairman of El Paso Mortgage Company since 1993, Chairman of Centennial State
Mortgage Company, Frontier Real Estate, Inc. and Frontier Title, LLC since
1994, Chairman of Frontier Real Estate since 1994, and Chairman of Transland
Financial Services, Inc. since 1996. He is also a director of Storage
Technology Corporation, and Helmerich and Payne, Inc.
WILLIAM H. BOLINDER, 54 DIRECTOR SINCE 1997
Mr. Bolinder is a member of the Corporate Executive Board of the Zurich
Insurance Company, headquartered in Zurich, Switzerland. He also serves as
Chairman of the direct life and non-life operations of
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the Zurich Group in the U.S. and is a director of many of Zurich's other
affiliated companies in the U.S. The Zurich Group is a leading international
insurance organization providing global coverage in all lines of insurance
along with asset management services.
J. HAROLD CHANDLER, 48 DIRECTOR SINCE 1993
Mr. Chandler became Chairman of the Company April 28, 1996, and President
and Chief Executive Officer and a Director of America, Capital, Accident and
Casualty effective November 8, 1993. Immediately prior to his employment with
Accident, he served as President of NationsBank Mid-Atlantic Banking Group
which includes the NationsBank and Maryland National Corporation entities in
the District of Columbia, Maryland, and northern Virginia. He formerly served
as President of the Citizens and Southern National Bank of South Carolina, a
predecessor company of NationsBank. He is a director of AmSouth
Bancorporation, Herman Miller, Inc., and Storage Technology.
CHARLOTTE M. HEFFNER, 60 DIRECTOR SINCE 1995
Ms. Heffner is a trustee of The Maclellan Foundation. She is the sister of
Hugh O. Maclellan, Jr.
HUGH B. JACKS, 63 DIRECTOR SINCE 1988
Mr. Jacks retired in December 1991 as President and Chief Executive Officer
of BellSouth Services, Incorporated, a provider of lead staff, strategic
planning and support for BellSouth Companies. He is President of Potential
Enterprises, Inc.
HUGH O. MACLELLAN, JR., 58 DIRECTOR SINCE 1975
Mr. Maclellan, Jr. is President of The Maclellan Foundation and a director
of SunTrust Bank, Chattanooga, N. A., and Covenant Transport. Mr. Maclellan is
the brother of Charlotte M. Heffner.
A. S. (PAT) MACMILLAN, 54 DIRECTOR SINCE 1995
Mr. MacMillan has served as the Chief Executive Officer of Team Resources,
Inc., since 1980. The company specializes in the areas of team and
organizational design and development, including management consulting,
management training, and organizational audits and surveys. He is also a
trustee of The Maclellan Foundation.
C. WILLIAM POLLARD, 59 DIRECTOR SINCE 1992
Mr. Pollard has served as Chairman of the Board of Directors of
ServiceMaster since January 1994. From June 1990 to December 1993 he served as
Chairman and Chief Executive Officer of ServiceMaster. ServiceMaster provides
professional cleaning, termite and pest control, maid service, lawn care, and
appliance and other home equipment and maintenance, as well as management of
plant operations, laundry and linen, clinical equipment maintenance, and food
service for health care, educational and industrial facilities. He is a
director of Herman Miller, Inc.
SCOTT L. PROBASCO, JR., 69 DIRECTOR SINCE 1962
Mr. Probasco has served as a director and Chairman of the Executive
Committee of SunTrust Bank, Chattanooga, N.A. since 1989. He also serves as a
director of Coca-Cola Enterprises, Chattem, Inc., and SunTrust Banks, Inc.
STEVEN S REINEMUND, 49 DIRECTOR SINCE 1995
Mr. Reinemund has served as Chairman and Chief Executive Officer of Frito-
Lay, Inc. since June 1992. He served as President and Chief Executive Officer
of Pizza Hut, Inc. from 1986 to 1992. He also serves as a director of PepsiCo
and The ServiceMaster Company.
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BURTON E. SORENSEN, 68 DIRECTOR SINCE 1985
From December 1984 until December 1995, Mr. Sorensen served as Chairman and
Chief Executive Officer of Lord Securities Corp., an investment banking firm.
Prior to that time, Mr. Sorensen was a General Partner of Goldman, Sachs &
Co., investment bankers. He is a director of The ServiceMaster Company.
THOMAS R. WATJEN, 43 DIRECTOR SINCE 1997
Mr. Watjen became Vice - Chairman of the Company on March 26, 1997, and
retains his position as Chief Financial Officer. He became Executive Vice
President and Chief Financial Officer of America, Capital, Accident, Casualty,
and National on July 1, 1994. Prior to that time, he served as a Managing
Director of the insurance practice of the investment banking firm, Morgan
Stanley & Co., which he joined in 1987.
BOARD OF DIRECTORS
ATTENDANCE
During 1997, there were seven meetings of the Board of Directors. With the
exception of Messrs. Gluckstern and Reinemund, no director attended fewer than
75% of the aggregate of (a) the total number of meetings of the Board of
Directors (held during the period for which each was a director) and (b) the
total number of meetings held by all committees of the board on which a
director served (during the periods that such director served).
COMMITTEES
In 1997, the Board of Directors of the Company had five standing committees:
Audit, Compensation, Executive, Finance and Nominating. In addition to the
duties described below, each may be assigned additional duties by the Board of
Directors from time to time and each is charged with reporting its activities
to the Board of Directors. Membership of the Committees is given as of
December 31, 1997.
AUDIT COMMITTEE
Members were C. William Pollard, Chairman, William L. Armstrong, William B.
Johnson and Burton E. Sorensen. The committee met five times in 1997. The
committee's duties included recommending independent public accountants for
selection by the Board of Directors and reviewing and approving the audit
plans of the independent public accountants and the Company's Internal Audit
Department. The committee monitors the internal and external auditors,
including their work with regard to financial audits, systems security
oversight, fraud detection, and internal financial and accounting controls.
The Committee also monitors progress on the Company's Year 2000 project.
COMPENSATION COMMITTEE
Members were Hugh B. Jacks (Chairman), Steven M. Gluckstern, C. William
Pollard, Scott L. Probasco, Jr., and Steven S Reinemund. The committee met six
times during 1997. The committee's duties include reviewing and approving
compensation philosophy and guidelines for executive officers and senior
management. The committee consults with the Chief Executive Officer concerning
compensation matters affecting senior management, including those affecting or
affected by management succession planning. The committee reviews the
performance of the Chief Executive Officer and recommends appropriate
compensation for approval by the Board of Directors. The committee reviews all
employee benefit plans and policies, including pension and profit-sharing
plans, as well as the incentive and stock option plans described below under
"Executive Compensation." As to such incentive and stock option plans, the
committee reviews management's recommendations and approves such awards under
the plans as it deems appropriate within the terms of such plans.
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EXECUTIVE COMMITTEE
Members were Hugh O. Maclellan, Jr. (Chairman), J. Harold Chandler, Steven
M. Gluckstern, A.S. MacMillan and C. William Pollard. The committee met six
times during 1997. The duties of the committee include review of strategic
plans, issues and direction, and of the operating results of the Company. The
committee may review significant financial issues including dividend policy,
mergers, acquisitions and divestitures and report to the Board of Directors.
The committee serves as a sounding board for the Chief Executive Officer and
other directors as to the composition, duties and powers of Board committees
and meeting agenda.
FINANCE COMMITTEE
Members were William L. Armstrong (Chairman), William H. Bolinder, Charlotte
M. Heffner, Burton E. Sorensen and Thomas R. Watjen. The committee met five
times during 1997. The committee develops and monitors appropriate policy and
strategies to guide and govern the lending and investment of funds held by the
Company. In accordance with Tennessee Code Annotated Section 56-3-301, the
committee has established and oversees an Investment Subcommittee to carry out
the daily activities required to authorize and oversee the loans and
investments of its insurance subsidiaries.
NOMINATING COMMITTEE
Members were A. S. MacMillan (Chairman), Charlotte M. Heffner, Hugh B.
Jacks, Hugh O. Maclellan, Jr., and Steven S Reinemund. The committee met one
time during 1997. The duties of the committee include standardizing and
formalizing the process for nominating persons to be elected or re-elected to
the Board of Directors. The committee develops its own nominations and accepts
nominations submitted in writing from stockholders. It considers and makes
recommendations concerning issues relating to the composition and size of the
Board, and also as to tenure, retirement age, honorary directorships and term
limits.
COMPENSATION OF DIRECTORS
Directors of the Company who are also employees of the Company or any
subsidiary are not compensated for their services as directors of the Company
or of any of its direct or indirect subsidiaries.
The Company pays its non-employee directors an annual retainer of $5,000
which is paid in shares of Common Stock of the Company. Non-employee directors
receive fees aggregating $29,000, including the retainer paid by the Company
and the respective subsidiaries, as well as attendance fees for seven meetings
during 1997. The annual cash retainers from the other companies are as
follows: Accident, $16,000; Casualty, $1,000. Directors of the Company also
serve on various committees of the Boards of Directors of these companies. As
to such service, non-employee directors receive annual retainers only from
Accident ranging from $3,000 to $7,000 per committee (depending on the
committees on which they serve) and meeting fees of $1,000 per meeting.
Messrs. Armstrong, Bolinder, and Sorensen and Ms. Heffner were also
directors of Assurance. Each non-employee director beginning the Board year
May 1997, received an annual retainer of $2,000 in cash.
Certain non-employee directors of the Company who have reached age 55 at the
time of retirement from the Board of Directors and have at least five years of
service on the Board of Directors would be eligible for the benefits described
below. The annual benefit payable is a base of 50 percent of an amount equal
to the retainer in effect at the time of retirement plus an additional 10
percent of the amount of the retainer for each full year of service in excess
of five years. The maximum annual benefit is 100 percent of an amount of the
retainer in effect at the time of retirement. Payments to eligible directors
are to be in monthly installments for the lesser of (a) a period equal to the
number of months of service as a non-employee director, or (b) 144 months.
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Non-employee Directors elected to the Board for the first time on or after
May 4, 1994, are precluded from participation in the existing retirement
benefits program. Instead, such Directors receive annual grants of stock
options under the Stock Plan of 1994 as amended by the stockholders in May
1994. Non-employee members of the Board of Directors appointed prior to 1994
were required in 1994 to elect either (i) to continue building credits under
the retirement plan or (ii) to limit such retirement plan credits to those
earned prior to 1994 and to receive stock options in the future. The total
number of stock options granted to all non-employee directors may not exceed
in the aggregate 200,000 shares (40,000 annually) for the duration of the
Stock Plan of 1994.
The Board of Directors is proposing that the current director compensation
program and retirement program be terminated and that the proposed Non-
Employee Director Compensation Plan of 1998 be approved. For a description of
the proposed plan, see ITEM 4. APPROVAL OF NON-EMPLOYEE DIRECTOR COMPENSATION
PLAN OF 1998 and Appendix C to this Proxy Statement.
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ITEM 2. APPROVAL OF THE AMENDED AND RESTATED ANNUAL
MANAGEMENT INCENTIVE COMPENSATION PLAN OF 1994
CURRENT MICP
In May 1994, the stockholders approved the Annual Management Incentive
Compensation Plan ("MICP"). The MICP currently consists of three components:
(i) an annual cash incentive compensation award to selected management
participants based on the achievement of certain performance goals designated
from time to time by the Compensation Committee of the Board of Directors (the
"Committee") (the "MICP Non-Equity Subplan"); (ii) the Key Contributor Plan,
under which awards of shares of Common Stock may be granted subject to such
restrictions on vesting transfer or otherwise as the Committee may establish,
and (iii) a phantom stock deferral program, whereby persons entitled to an
award under the MICP Non-Equity Subplan will receive a portion of such award
in the form of performance shares, plus a "gross up" grant of performance
shares, which shares will increase or decrease in value in tandem with the
Common Stock of the Company (the "Performance Share Subplan").
In order for a portion of the MICP Non-Equity Subplan awards to satisfy the
requirements of "performance-based" compensation under Code Section 162(m),
the Board sought and received stockholder approval in 1997 for dividing the
MICP Non-Equity Subplan into the Corporate Performance Subplan and the
Individual Performance Subplan. Performance measures were also approved for
the Corporate Performance Subplan at that time.
Target awards under the MICP are currently set at percentages of base salary
- - 100% for the CEO; 75% for the Executive Vice President and Chief Financial
Officer; 50% for Senior Vice Presidents (with appropriate percentages to be
assigned by the Committee for other designated senior officers); and
percentages from 35% to 10% for all other participants based on assessment of
their contribution the Company's success. Due to a printing error, the Proxy
Statement issued in connection with the 1997 Annual Meeting of Stockholders
erroneously stated that the target award for the CEO was 50% of base salary,
instead of the 100% target established by the Committee and included in the
existing MICP.
PROPOSED AMENDMENTS
The Board is now seeking approval by the stockholders of further amendments
to the MICP as set forth in the Amended and Restated Annual MICP ("Amended
MICP"), as more fully described below. The following summaries of the proposed
amendments to the MICP, and the Amended MICP are qualified in their entirety
by reference to the full text of the Amended MICP, as set forth in Appendix A
hereto.
Subparts of MICP. The Amended MICP consists of two subparts (i) the Annual
Incentive Plan, under which annual incentive awards are based upon the
achievement of one year goals; and (ii) the Performance Share Plan, pursuant
to which participants are granted deferred compensation units in the form of
performance shares which are payable in cash or shares of Common Stock upon a
subsequent payment date.
Annual Incentive Plan. The Non-Equity Subplan of the MICP will be renamed
the "Annual Incentive Plan". Awards thereunder will be based entirely on the
achievement of one year goals, with each plan year to run from January 1 to
December 1. Overall or selected sales growth would be added to the existing
factors as a performance measure under the Corporate Performance Subplan. The
target awards under the Corporate Performance Subplan would be set by the
Committee as percentages of base salary which percentages may differ from
participant to participant and from year to year. This would enable the
Committee to more appropriately encourage and award performance of individuals
who might hold the same officer's title, but have different potential for
contribution to the Company in a given year. Under the Amended MICP, target
awards will be set annually by the Committee, rather than having such target
awards, specified in the plan document.
Key Contributor Plan. This Subplan of the MICP will be discontinued under
the Amended MICP and awards of the type previously issued under this Subplan
will instead be made under the Stock Plan of 1994 or, after December 31, 1998,
under the Stock Plan of 1999, if approved by the stockholders. See ITEM 3.
APPROVAL OF THE STOCK PLAN OF 1999.
Performance Share Plan. The Amended MICP would divide the Performance Share
Plan into two subplans - the Performance Share Plan I ("Plan I") and the
Performance Share Plan II ("Plan II"). Awards
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under the Annual Incentive Plan would be paid partly in cash and partly in
performance share units. A performance share is a unit of deferred
compensation, equal in value to one share of Company Common Stock. The
proposed Plan I would be essentially the same as the Performance Share Plan
currently in place under the MICP. Participants under Plan I would be the
Chief Executive Officer, President, Vice Chairman, Executive Vice Presidents
and such other senior officers as the Committee selects, as well as certain
producers of the Company or its Subsidiaries. The MICP Amendment would add
Plan II. Plan II would provide that each person who receives an award under
the MICP and is not otherwise participating in that year in Plan I, will
automatically be a participant in Plan II. Participants in Plan II will
receive a portion of their MICP annual incentive award in performance shares.
Under Plan II the percentage of the award received in the form of performance
shares would depend upon the total amount of the award. If the MICP award
earned in a year is less than $20,000, 15% of the award would be paid in
performance shares under Plan II. If the award is $20,000 or more, 25% of the
award would be paid in performance shares. Plan I includes a 30% "gross-up" in
the number of shares awarded to reflect the increased risk of volatility in
the stock price, particularly during the deferral period, as well as, lack of
liquidity and marketability. Plan II does not provide for a "gross-up" award.
Participants in Plan I may elect to receive an additional portion of their
MICP in performance shares. Plan II does not provide for such an election.
Dividend equivalents would be credited to participants' accounts under both
Plan I and Plan II.
SUMMARY OF THE AMENDED MICP
General. The purpose of the Amended MICP is to motivate the participants to
perform in a way that will enable the Company and its subsidiaries to reach
its short-term and long-term goals. As of March 1, 1998, there were
approximately 240 persons eligible to participate in the Amended MICP.
The Amended MICP authorizes the granting of awards ("Awards") to officers
and other key employees of the Company whose judgments, decisions, and actions
have a discernible impact on the profitability of the Company. Independent
producers who sell products of the Company or its subsidiaries may also
participate in the Amended MICP. Participation in the Amended MICP will be
based on recommendation of Company management and subject to the approval of
the Compensation Committee. Awards may be in the form of cash and/or
performance shares.
The aggregate number of shares of Common Stock reserved and available to be
used as a basis of measurement for or to determine the value of an Award under
the Amended MICP is 1,500,000, subject to adjustment as provided in the
Amended MICP. No more than 100,000 shares may be awarded to a participant in a
calendar year.
Administration. The Amended MICP will be administered by the Committee of
the Board of Directors. The Committee has the power, authority and discretion
to designate participants; approve the amount, if any, to be paid to a
participant; and to construe and interpret the Amended MICP. The Committee
may, in its discretion, delegate its general administrative duties to an
officer, employee or committee composed of officers or employees of the
Company, but may not delegate its authority to interpret or construe the
Amended MICP or approve awards.
Annual Incentive Plan. The Annual Incentive Plan shall include the Corporate
Performance Subplan and the Individual Performance Subplan. Awards will be
based entirely on the achievement of one-year goals. The plan year will run
from January 1 to December 31. Thresholds established by the Committee must be
met before any award may be made under this plan. Awards may be paid in cash
and/or performance shares.
The Corporate Performance Subplan will be based solely on the achievement of
objective corporate performance goals. The awards under this subplan will be
determined on the basis of one or more of the following measures of corporate
performance to be used alone or in combination, for the Company as a whole or
for any division or business unit: (a) return on equity (b) overall or
selected premium or sales growth, (c) stock performance, (d) expense
efficiency ratios (ratio of expenses to premium income), (e) earnings per
share, (f) market share, (g) revenue, (h) customer service measures or
indices, (i) underwriting efficiency and/or quality, and (j) persistency
factors. Measurement of the Company's performance against such corporate goals
established
8
<PAGE>
by the Committee shall be objectively determinable, and to the extent such
goals are expressed in standard accounting terms, performance will be measured
in accordance with generally accepted accounting principles. The Committee
will have the right for any reason to reduce or eliminate, but not increase,
any award to be made under the Corporate Performance Subplan. The Committee
will establish, at the beginning of each plan year, performance goals, target
awards, and any formula for payouts in excess of targets based on achievement
of measurable goals. The target awards will be set as a percentage of base
salary and may differ from participant to participant and from year to year.
The Individual Performance Subplan will be based on an individual's
contribution to the business of the Company as determined by the Committee.
The contribution may be assessed on non-objective and objective measures. The
Committee will determine target awards and limits on payouts in excess of
targets, if any. The target awards will be set by the Committee as percentages
of base salary and may differ from participant to participant and year to
year. Awards under the Individual Performance Plan will not be contingent on
the failure to achieve performance goals set under the Corporate Performance
Subplan.
Acceleration Upon Certain Events. Change in Control. In the event of a
Change in Control, the Committee will determine the Annual Incentive Plan
awards for each participant that would have been earned if the plan year had
ended on the date of the Change in Control, based on actual performance
through the date of the Change in Control (the "Vested Awards"). Thereafter
(a) each participant who is in active employment at the end of the plan year
shall be entitled to the greater of his or her Vested Award and an award based
on actual performance for the entire plan year; (b) if the MICP is terminated
during a plan year after the date a Change in Control occurs, each participant
who is in active employment at the time of such termination shall be entitled
to the greater of his or her Vested Award and an award based on actual
performance through the date of termination of the plan; and (c) if a
participant's employment is terminated without Cause by the Company during a
plan year after the Change in Control occurs, such participant shall be
entitled to the greater of his or her Vested Award and an award based on
actual performance through the date of termination of employment.
Performance Share Plan. The Performance Share Plan shall include two
subplans: Performance Share Plan I and Performance Share Plan II. These
subplans may be set forth in one or more separate subplan documents approved
and amended from time to time by the Committee. Performance Share Plan I shall
be applicable to senior officers and producers selected by the Committee on
the recommendation of the Chief Executive Officer. Performance Share Plan II
is applicable to all other persons who receive annual incentive awards under
the MICP who are not participating in Performance Share Plan I in that year.
Performance Share Plan I The Chief Executive Officer, Vice Chairman,
Executive Vice Presidents, and such other senior officers selected by the
Committee will participate in Performance Share Plan I. Certain producers of
the Company or its subsidiaries may also be participants in Performance Share
Plan I. The officers who are participants have company stock ownership
requirements. They are required to receive a portion of their MICP annual
incentive awards in performance shares based on the following table:
<TABLE>
<CAPTION>
PERCENT PAID IN
MICP INCENTIVE EARNED PERFORMANCE SHARES
--------------------- ------------------
<S> <C>
Less than $100,000..................................... 25.0%
$100,000 - $249,999.................................... 37.5%
$250,000 or more....................................... 50.0%
</TABLE>
Participants may elect to receive any portion or all of their MICP awards
above the required percentages in performance shares. The number of
performance shares to be awarded to any participant under this subplan is
determined by dividing the amount of the MICP award being paid in performance
shares by the Fair Market Value of a share of the Company's Common Stock on
the date the amount of the award is being determined, and then dividing that
number by .70. This 30% "gross-up" is intended to reflect the increased risk
of the volatility of stock price particularly during the deferral period, as
well as lack of liquidity and marketability. The shares attributable to the
gross-up factor are subject to risk of forfeiture during the three year period
following the award. The remaining performance shares are not subject to risk
of forfeiture. Participants may elect to extend
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<PAGE>
athe deferral period for payment of performance shares asset forth in the
Amended Plan. Dividend equivalents will be credited to the participant's
accounts during the period of deferral.
PERFORMANCE SHARE PLAN II. Each person receiving an annual incentive award
under the MICP who is not otherwise participating in Performance Share Plan I
in that year, shall automatically be a participant in Performance Plan Share
II. The participants in this subplan are required to receive a percentage of
their annual award in performance shares as set forth below. The number of
performance shares to be awarded to any participant is determined by dividing
the amount of the MICP award being paid in performance shares by the Fair
Market Value of a share of Company common stock on the date the amount of the
MICP award is determined. Participants may elect to extend the deferral period
for payment of performance shares as set forth in the Amended MICP.
Participant accounts will be credited with dividend equivalents during the
period of deferral.
<TABLE>
<CAPTION>
PERCENT PAID IN
MICP INCENTIVE EARNED PERFORMANCE SHARES
--------------------- ------------------
<S> <C>
Less that $20,000..................................... 15%
$20,000 or more....................................... 25%
</TABLE>
Limitations on Transfer. No grants or awards under the Amended MICP may be
transferred or assigned in any manner.
CERTAIN FEDERAL INCOME TAX EFFECTS
Based on the Company's interpretation of existing federal tax law, including
the regulations under Code Section 162(m), it is intended that annual
incentive MICP awards under the Corporate Performance Subplan would satisfy
the requirements of "performance-based" compensation and would be fully
deductible by the Company. The portion, if any, of an MICP award to a Covered
Employee that does not qualify as performance-based compensation under Code
Section 162(m) (such as certain awards under the Individual Performance Plan
and certain related portions of awards under the Performance Share Plan) could
be non-deductible by the Company, in whole or in part, depending on such
Covered Employee's total compensation in the applicable year. Awards under the
Corporate Performance Subplan or the Individual Performance Subplan will be
taxable to the participant in the year received, except to the extent such
awards are taken in the form of performance shares under the Performance Share
Subplan. Awards under the Performance Share Subplan will be taxable to the
participant in the earlier of the year received or the year such awards become
available to the participant. In each case, subject to Code Section 162(m)
restrictions if applicable, the Company will be entitled to a deduction in the
year that the participant recognizes income.
BENEFITS TO NAMED EXECUTIVE OFFICERS AND OTHERS
Since future annual cash incentive awards under the MICP will be based on
the achievement of performance goals, the performance of which has not been
completed, it is not presently possible to determine, with respect to (i) the
executive officers named in the Summary Compensation Table, (ii) all current
executive officers as a group, or (iii) all employees, including all current
officers who are not executive officers, as a group, either the benefits or
amounts that will be received by such persons or groups pursuant to the MICP,
as proposed to be amended, or the benefits or amounts that would have been
received by such persons or groups if the MICP, as proposed to be amended, had
been in effect during fiscal year 1997.
ADDITIONAL INFORMATION
The affirmative vote of the holders of a majority of the shares present or
represented by proxy and entitled to vote at the meeting on this proposal will
constitute approval of the Amended and Restated MICP. If not so approved by
the stockholders, the proposed amendments to the Amended and Restated MICP
will not become effective.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" APPROVAL OF THE
AMENDED AND RESTATED ANNUAL MANAGEMENT INCENTIVE COMPENSATION PLAN OF 1994.
10
<PAGE>
ITEM 3. APPROVAL OF THE STOCK PLAN OF 1999
The Company currently maintains the Provident Life and Accident Insurance
Company Stock Plan of 1994 (the "1994 Stock Plan"), under which stock options,
stock appreciation rights and restricted stock may be awarded to employees and
directors of the Company and producers of business for the Company. There are
currently 2,152,545 shares remaining available for awards under the 1994 Stock
Plan which terminates by its terms on December 31, 1998. On March 26, 1998,
the Board of Directors adopted the Provident Companies, Inc. Stock Plan of
1999 (the "Stock Plan"), subject to approval thereof by the stockholders at
the Annual Meeting. The Company has reserved 4,000,000 shares of its Common
Stock for issuance in connection with options and awards under the Stock Plan.
If approved by the stockholders at the Annual Meeting, the Stock Plan will be
effective as of January 1, 1999.
A summary of the Plan is set forth below. The summary is qualified in its
entirety by reference to the full text of the Stock Plan, which is attached to
this Proxy Statement as Appendix B.
GENERAL
The purpose of the Stock Plan is to promote the success, and enhance the
value, of the Company by linking the personal interests of employees,
officers, producers and directors to those of the stockholders, and by
providing such persons with an incentive for outstanding performance. As of
March 1, 1998, there were approximately 300 persons eligible (not including
producers, of whom the Company expects no more than 50 to participate in any
one year) to participate in the Stock Plan.
The Stock Plan authorizes the granting of awards ("Awards") to employees,
officers, consultants (including producers) and directors of the Company or
its affiliated companies in the following forms: (i) options to purchase
shares of Common Stock ("Options"), which may be incentive stock options or
non - qualified, (ii) stock appreciation rights ("SARs"); (iii) restricted
stock ("Restricted Stock"); and (iv) dividend equivalents ("Dividend
Equivalents").
Pursuant to Section 162(m) of the Internal Revenue Code of 1986, as amended
(the "Code"), the Company may not deduct compensation in excess of $1 million
paid to the Chief Executive Officer and the four next most highly compensated
executive officers of the Company. The Stock Plan is designed to comply with
Code Section 162(m) so that the grant of Options and SARs under the plan, and
other Awards that are conditioned on the performance goals described in
Section 13.13 of the plan, will be excluded from the calculation of annual
compensation for purposes of Code Section 162(m) and will be fully deductible
by the Company.
Subject to adjustment as provided in the Stock Plan, the aggregate number of
shares of Common Stock reserved and available for Awards or which may be used
to provide a basis of measurement for or to determine the value of an Award
(such as with a SAR) is 4,000,000, of which no more than 20% may be granted in
the form of restricted stock awards. The maximum number of shares of Common
Stock with respect to one or more Options and/or SARs that may be granted
during any one calendar year under the Stock Plan to any one participant is
1,000,000. The maximum Fair Market Value (measured as of the date of grant) of
any Awards other than Options and SARs that may be received by a participant
(less any consideration paid by the participant for such Award) during any one
calendar year under the Stock Plan is $10,000,000.
ADMINISTRATION
The Stock Plan will be administered by the Compensation Committee of the
Board of Directors of the Company (the "Committee") or, at the discretion of
the Board from time to time, the Plan may be administered by the Board. The
Committee has the power, authority and discretion to designate participants;
determine the type or types of Awards to be granted to each participant and
the terms and conditions thereof; establish, adopt or revise any rules and
regulations as it may deem necessary or advisable to administer the Stock
Plan; and make
11
<PAGE>
all other decisions and determinations that may be required under, or as the
Committee deems necessary or advisable to administer, the Stock Plan. During
any time that the Board is acting as administrator of the Plan, it shall have
all the powers of the Committee under the Plan.
AWARDS
Stock Options. The Committee is authorized to grant Options, which may be
incentive stock options ("ISOs") or non - qualified stock options ("NSOs"), to
participants. All Options will be evidenced by a written Award Agreement
between the Company and the participant, which will include such provisions as
may be specified by the Committee. The terms of any ISO must meet the
requirements of Section 422 of the Code.
Stock Appreciation Rights. The Committee may grant SARs to participants.
Upon the exercise of a SAR, the participant has the right to receive the
excess, if any, of: the Fair Market Value of one share of Common Stock on the
date of exercise, over the grant price of the SAR as determined by the
Committee, which will not be less than the Fair Market Value of one share of
Common Stock on the date of grant in the case of any SAR related to an ISO.
All awards of SARs will be evidenced by an Award Agreement, reflecting the
terms, methods of exercise, methods of settlement, form of consideration
payable in settlement, and any other terms and conditions of the SAR, as
determined by the Committee at the time of grant.
Restricted Stock Awards. The Committee may make awards of Restricted Stock
to participants, which will be subject to such restrictions on transferability
and other restrictions as the Committee may impose (including, without
limitation, limitations on the right to vote Restricted Stock or the right to
receive dividends, if any, on the Restricted Stock).
Dividend Equivalents. The Committee is authorized to grant Dividend
Equivalents to participants subject to such terms and conditions as may be
selected by the Committee. Dividend Equivalents entitle the participant to
receive payments equal to dividends with respect to all or a portion of the
number of shares of Common Stock subject to an Award, as determined by the
Committee. The Committee may provide that Dividend Equivalents be paid or
distributed when accrued or be deemed to have been reinvested in additional
shares of Common Stock, or otherwise reinvested.
Performance Goals. The Committee may determine that any Award will be
determined solely on the basis of (a) the achievement by the Company, or an
individual or a business unit of the Company or a parent or subsidiary, of a
specified target with respect to, or target growth in, any of the following
areas: (i) return on equity or on assets, (ii) overall or selected premium or
sales growth, (iii) revenues, net income or earnings per share, (iv) expense
efficiency ratios (ratio of expenses to premium income), (v) customer service
measures or indices, (vi) underwriting efficiency and/or quality, (vii) market
share, or (vii) persistency factors, or (b) the Company's or a parent's or
subsidiary's stock performance, or (c) any combination of the goals set forth
in any of (a) or (b) above. If an Award is made on such basis, the Committee
must establish goals prior to the beginning of the period for which such
performance goal relates (or such later date as may be permitted under Code
Section 162(m)), and the Committee may for any reason reduce or eliminate (but
not increase) any Award, notwithstanding the achievement of a specified goal.
Any payment of an Award granted with performance goals will be conditioned on
the written certification of the Committee in each case that the performance
goals and any other material conditions were satisfied.
Limitations on Transfer; Beneficiaries. No unexercised or restricted Award
will be assignable or transferable by a participant other than by will or the
laws of descent and distribution or, except in the case of an ISO, pursuant to
a qualifying domestic relations order; provided, however, that the Committee
may (but need not) permit other transfers where the Committee concludes that
such transferability (i) does not result in accelerated taxation, (ii) does
not cause any Option intended to be an ISO to fail to be described in Code
Section 422(b), and (iii) is otherwise appropriate and desirable, taking into
account any factors deemed relevant, including without limitation, any state
or federal tax or securities laws or regulations applicable to transferable
Awards. A participant may, in the manner determined by the Committee,
designate a beneficiary to exercise the rights of the participant and to
receive any distribution with respect to any Award upon the participant's
death.
12
<PAGE>
Acceleration Upon Certain Events. Upon the participant's death, retirement
or disability, all outstanding Options, SARs, and other Awards in the nature
of rights that may be exercised will become fully exercisable and all
restrictions on outstanding Awards will lapse. Any Options or SARs will
thereafter continue or lapse in accordance with the other provisions of the
Stock Plan and the Award Agreement. In the event of a Change in Control of the
Company (as defined in the Stock Plan), all outstanding Options, SARs, and
other Awards in the nature of rights that may be exercised will become fully
vested and all restrictions on all outstanding Awards will lapse. In the event
of the occurrence of any circumstance, transaction or event not constituting a
Change in Control as defined in the Stock Plan but which the Board of
Directors deems to be, or to be reasonably likely to lead to, an effective
change in control of the Company, the Committee or the Board may in its sole
discretion declare all outstanding Options, SARs, and other Awards in the
nature of rights that may be exercised to become fully vested, and/or all
restrictions on all outstanding Awards to lapse, in each case as of such date
as the Committee or the Board may, in its sole discretion, declare, which may
be on or before the consummation of such transaction or event.
TERMINATION AND AMENDMENT
With the approval of the Board, at any time and from time to time, the
Committee may terminate, amend or modify the Stock Plan without stockholder
approval; provided, however, that the Committee may condition any amendment on
the approval of stockholders of the Company if such approval is necessary or
deemed advisable with respect to tax, securities or other applicable laws,
policies or regulations. No termination, amendment, or modification of the
Stock Plan may adversely affect any Award previously granted under the Stock
Plan, without the written consent of the participant.
CERTAIN FEDERAL INCOME TAX EFFECTS
Non-qualified Stock Options. Under present federal income tax regulations,
there will be no federal income tax consequences to either the Company or the
participant upon the grant of a non-discounted NSO. However, the participant
will realize ordinary income on the exercise of the NSO in an amount equal to
the excess of the Fair Market Value of the Common Stock acquired upon the
exercise of such option over the exercise price, and the Company will receive
a corresponding deduction (subject to the provisions of Section 162(m) of the
Code). A subsequent sale or exchange of such shares will result in gain or
loss measured by the difference between (i) the exercise price, increased by
any compensation reported upon the participant's exercise of the option, and
(ii) the amount realized on such sale or exchange. Such gain or loss will be
capital in nature if the shares were held as a capital asset and will be long-
term if such shares were held for the applicable long-term capital gain
holding period.
Incentive Stock Options. Under present federal income tax regulations, there
will be no federal income tax consequences to either the Company or the
participant upon the grant of an ISO or the exercise thereof by the
participant. If the participant holds the shares of Common Stock for the
greater of two years after the date the Option was granted or one year after
the acquisition of such shares of Common Stock (the "required holding
period"), the difference between the aggregate exercise price and the amount
realized upon disposition of the shares of Common Stock will constitute a
capital gain or loss, and the Company will not be entitled to a federal income
tax deduction. If the shares of Common Stock are disposed of in a sale,
exchange or other "disqualifying disposition" during the required holding
period, the participant will realize taxable ordinary income in an amount
equal to the excess (if any) of the Fair Market Value of the Common Stock
purchased at the time of exercise (or, if less, the amount realized on the
disposition of the shares) over the aggregate exercise price, and the Company
will be entitled to a federal income tax deduction equal to such amount
(subject to the provisions of Section 162(m) of the Code). Upon exercise of an
ISO, the participant may be subject to alternative minimum tax on certain
items of tax preference. If an ISO is exercised at a time when it no longer
qualifies as an incentive stock option, the option will be treated as an NSO.
SARs. Under present federal income tax regulations, a participant receiving
a non-discounted SAR will not recognize income, and the Company will not be
allowed a tax deduction, at the time the Award is granted.
13
<PAGE>
When a participant exercises the SAR, the amount of cash and the Fair Market
Value of any shares of Common Stock received will be ordinary income to the
participant and will be allowed as a deduction for federal income tax purposes
to the Company.
Restricted Stock. Under present federal income tax regulations, and unless
the participant makes an election to accelerate recognition of the income to
the date of grant, a participant receiving a Restricted Stock Award will not
recognize income, and the Company will not be allowed a tax deduction, at the
time the Award is granted. When the restrictions lapse, the participant will
recognize ordinary income equal to the fair market value of the Common Stock,
and the Company will be entitled to a corresponding tax deduction at that
time.
BENEFITS TO NAMED EXECUTIVE OFFICERS AND OTHERS
As of March 1, 1998, no awards had been granted or approved for grant under
the Stock Plan. Any future awards will be made at the discretion of the
Committee. Therefore, it is not presently possible to determine with respect
to (i) the executive officers named in the Summary Compensation Table, (ii)
all current executive officers, as a group, (iii) all current directors who
are not executive officers, as a group, or (iv) all employees, including all
current officers who are not executive officers, as a group, either the
benefits or amounts that will be received by such persons or groups pursuant
to the Stock Plan or the benefits or amounts that would have been received by
such persons or groups under the Stock Plan if it had been in effect during
the last fiscal year.
ADDITIONAL INFORMATION
The closing price of the Common Stock, as reported by the New York Stock
Exchange on March 26, 1998, was $36.25.
The affirmative vote of the holders of a majority of the shares present or
represented by proxy and entitled to vote at the meeting on this proposal will
constitute approval of the Stock Plan.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE PROPOSAL TO
APPROVE THE STOCK PLAN OF 1999.
14
<PAGE>
ITEM 4. APPROVAL OF NON-EMPLOYEE
DIRECTOR COMPENSATION PLAN OF 1998
On February 11, 1998, the Board adopted the Provident Companies, Inc. Non-
Employee Director Compensation Plan of 1998 (the "Plan"), subject to
shareholder approval at the 1998 Annual Meeting of the Company. In conjunction
with the Plan, the Board also established a stock ownership target for each
director of 10,000 shares of the Company's common stock to be met within the
next five years.
BACKGROUND AND PURPOSE
In 1997, the Board began a review of its director compensation structure and
current developments in Board compensation, criteria for Board membership and
evaluation of Board performance. It designated a working group from the Board
(the "Special Committee") to research and develop appropriate policies on
these issues. The Special Committee worked with consultants and compensation
professionals of the Company to establish a director compensation program
based on certain guiding principles. The intent was to develop a plan that:
. aligns the interests of directors, executives and shareholders in
support of the Company's strategic objectives;
. provides a fair level of compensation for committed, capable
contribution;
. is progressive but not in the highest percentiles;
. meets the diverse needs of Board members;
. is straightforward and easy to understand; and
. integrates a number of the best practices for board compensation (as
outlined in the 1995 Report of the National Association of Corporate
Directors Blue Ribbon Commission on Director Compensation) and
contributes to continuing Board development.
The Special Committee also reviewed director compensation plans from other
insurance companies and selected a comparison group of 12 other insurance
companies considered as being useful comparables. The Special Committee made
interim reports to the Board in July and October 1997 and a final report was
presented in January 1998 at which time the Board adopted the proposed Plan.
The Special Committee is continuing to develop criteria for Board membership
and a method for evaluation of the Board's performance, and anticipates that
these will be in place for use during the 1998 Board year.
Non-employee directors currently receive an annual retainer from the company
and certain of its subsidiaries, retainers for serving on committees, and
meeting fees, with $5,000 of the annual retainer paid in the form of Common
Stock of the Company. Certain directors also receive stock options in lieu of
payments made under the existing retirement benefits program (the "Retirement
Program"). For a discussion of the current arrangement and the Retirement
Program, see "Compensation of Directors". If the Plan is approved at the
Annual Meeting, the annual retainer to be paid for the 1998 Board year will be
$80,000, which is higher than the value of the current retainers, fees and
option awards. This proposed increase is based on the findings of the Special
Committee that the value of the average director compensation paid by the
Company during 1996 was near the average director compensation reported by the
companies in its comparison group for 1996, but was generally weighted towards
cash compensation, rather than compensation in forms of equity instruments,
which the Board regards as the current trend in aligning the Board's interest
with stockholder interest.
The Special Committee recognized that the valuation of a company's total
compensation for directors varies based upon stock prices used in valuing the
various equity-oriented components. The Special Committee sought information
from the comparison group that would place the Company's annual retainer above
the 50th percentile but not in the top quarter. Based on an average of
representative stock prices, the Special Committee believes the proposed
annual retainer of $80,000 would approximate director compensation in the
Company's comparison group generally between the 65th and 70th percentiles.
The Special Committee also recognized that the Company's proposed director
compensation plan relative to that of its comparison group may vary from year
15
<PAGE>
to year in percentile relationship because of different approaches to the use
of equity components and alternative elections that may exist among the
companies' plans, as well as the effect of differing stock prices relative to
the components and director elections of the other companies in the comparison
group at given points in time.
A principal feature of the proposed Plan is the increased availability of
equity ownership by directors. If the Plan is approved by the stockholders,
committee retainers and meeting fees for non-employee directors will be
eliminated. Instead, one annual retainer will be paid, which for the 1998
Board year will be $80,000. If approved, the Plan would permit directors who
are not employees of the company or its subsidiaries to elect on an annual
basis to receive up to 100% of the annual retainer in the form of either (i)
options to acquire Common Stock ("Options") or (ii) rights to receive Common
Stock in the future ("Deferred Share Rights" or "DSRs"). A participant may not
elect to receive both Options and DSRs in any one plan year. Any amount of the
annual retainer not elected to be received in the form of Options or DSRs will
be paid to the participant in cash. The ultimate financial return a director
receives from any election that includes either Options or DSRs could be
higher or lower than if the same amount had been taken in cash, depending on
the director's individual election and the performance of the Company's Common
Stock. This equity participation means that the non-employee directors will
share in the risk related to the Company's performance as the other
stockholders do.
In addition, if the Plan is adopted, the Retirement Program will be
eliminated and participants will be required to convert the net present value
accrued thereunder to Options or DSRs under the Plan. This aspect of the Plan
reflects the Board's desire to eliminate retirement-type benefits for
directors and to increase their stock ownership, further aligning their
interests with those of the Company's stockholders.
The number of Options issued under the Plan on any date will be determined
by reference to a percentage determined by the Committee from time to time as
being the fair value of an Option relative to a share of Common Stock (the
"Option Valuation Percentage"). Options granted by the Company to directors in
connection with the director retirement benefits program have, over the past
four years, been valued using a Black-Scholes valuation method. The option
valuation has varied over this period, but generally ranged between 30.5-39.5%
of the market price of the Common Stock. Consequently, the Special Committee
recommended, and the Board approved, an initial Option Valuation Percentage of
33% for Options granted under the Plan. The Committee may change the Option
Valuation Percentage prior to the beginning of any plan year if it believes
that another percentage better represents the value of Options in relation to
the then-current market value of the Common Stock; provided, however, that the
Option Valuation Percentage may not be less than 30%.
The number of DSRs granted under the Plan on any date will be calculated to
recognize a discount of 10% off the fair market value of the Common Stock on
the date of grant. This discount is intended to reflect the lack of liquidity
of the DSRs over the deferral period and the risk associated with the fact
that DSRs are unfunded and unsecured obligations of the Company to grant
Common Stock to the participant in the future.
SUMMARY OF THE PLAN
A summary of the Plan is set forth below. The summary is qualified in its
entirety by reference to the full text of the Plan, which is attached to this
Proxy Statement as Appendix C.
The Company has reserved 500,000 shares of its Common Stock for issuance in
connection with the Plan, which may be authorized and unissued shares or
treasury shares. If approved by the stockholders at the Annual Meeting, the
Plan will be effective as of as of its adoption by stockholders.
The purpose of the Plan is to attract, retain and compensate highly-
qualified individuals who are not employees of the Company or any of its
subsidiaries or affiliates for service as members of the Board by providing
them with an opportunity to increase their ownership interest in the Common
Stock. The Company intends that the Plan will benefit the Company and its
stockholders by allowing non-employee directors to have a personal financial
stake in the Company through an ownership interest in the Common Stock and
will closely associate the interests of non-employee directors with that of
the Company's stockholders. As of March 1, 1998, there were 10 directors
standing for re-election who are eligible to participate in the Plan.
16
<PAGE>
ADMINISTRATION
The Plan will be administered by the Compensation Committee of the Board.
Subject to the provisions of the Plan, the Committee will be authorized to
interpret the Plan, to establish, amend and rescind any rules and regulations
relating to the Plan, and to make all other determinations necessary or
advisable for the administration of the Plan; provided, however, that the
Committee will have no discretion with respect to the eligibility or selection
of non-employee directors to receive awards under the Plan, the number of
shares subject to any such awards or the time at which any such awards are to
be granted.
TERMS OF THE PLAN
Pursuant to the Plan, a non-employee director of the Company may elect on or
before the election date for a plan year to receive up to 100% of his or her
annual retainer in the form of either Options or DSRs. A participant may not
elect to receive both Options and DSRs in any one plan year. Any amount of the
annual retainer not elected to be received in the form of Options or DSRs will
be paid to the participant in cash. In addition, if each non-employee director
having an accrued account balance in the Retirement Program as of the
effective date of the Plan will be required to convert the net present value
of such account either 100% to Options or 100% to DSRs, in accordance with the
same procedures described in the Plan with respect to annual retainer
elections.
STOCK OPTIONS
Election to Receive Options. Options will be granted to each non-employee
director who, during the applicable election period, filed with the Committee
a written irrevocable election to receive Options as payment of some or all of
such non-employee director's annual retainer payable in the following plan
year. Such Options will be granted on the date the annual retainer for such
plan year is otherwise payable.
Number of Options. The number of Shares subject to an Option granted
pursuant to the Plan will be the number of whole shares equal to (i) the
dollar amount of the annual retainer that the non-employee director elects
will be payable in the form of Options, divided by (ii) the Option Valuation
Percentage times the Fair Market Value per share of Common Stock on the grant
date. In determining the number of shares subject to an Option, shares will be
rounded to the nearest 100 shares. For example, a non-employee director
electing to receive $50,000 of his or her annual retainer in the form of
Options (at a time when the Option Valuation Percentage is 33% and the fair
market value per share of Common Stock is $36) would be granted 4,200 Options
with an exercise price of $36 as payment of the $50,000 compensation. $50,000
divided by 33% of $36 FMV = 4,200 Options granted (rounded to the nearest 100
shares). The ultimate value of these Options will depend on the performance of
the Common Stock.
Exercise Price. The exercise price paid per share under each Option granted
under the Plan will be the Fair Market Value (as defined) per share on the
grant date.
Exercise of Options. An Option, or portion thereof, may be exercised in
whole or in part only with respect to whole shares. Each Option will be fully
exercisable on the first anniversary of the date of grant or on the earlier
death, disability or retirement of the participant or the occurrence of a
change in control of the Company (as defined in the Plan). Each Option will
remain exercisable for 10 years from the grant date; provided, however, that
(i) if a participant terminates his or her service as a director for any
reason after four years of service on the board, or due to retirement, death
or disability, his or her unexercised Options will expire on the earlier of
the original expiration date of the Option or the fifth anniversary of such
termination of service; and (ii) if a participant has served as a director for
fewer than four years and terminates his or her service as a director for any
reason other than retirement, death or disability, his or her unexercised
Options will expire on the date of such termination of service.
17
<PAGE>
Transferability of Options. No Option will be assignable or transferable by
the Optionee other than by will or the laws of descent and distribution or to
(i) one or more of the following family members of the Optionee: spouse,
former spouse, child (whether natural or adopted), stepchild, any other lineal
descendent of the Optionee; (ii) a trust, partnership or other entity
established and existing for the sole benefit of, or under the sole control
of, one or more of the above family members of the Optionee, or (iii) any
other transferee specifically approved by the Committee after taking into
account any state or federal tax, securities or other laws applicable to
transferable Options (collectively, a "Permitted Transferee"). An Option
transferred to a Permitted Transferee will not be assignable or transferable
by the Permitted Transferee other than by will or the laws of descent and
distribution and such Options will continue to be subject to all the terms and
conditions of the Option as applicable to the original Optionee (other than
the ability to further transfer the Option).
DEFERRED SHARE RIGHTS
Election to Receive DSRs. DSRs will be granted to each non-employee director
who, during the applicable election period, filed with the Committee a written
irrevocable election to receive DSRs as payment of some or all of such non-
employee director's annual retainer payable in the following plan year. Such
DSRs will be granted on the date the annual retainer for such plan year is
otherwise payable.
Number of DSRs. The number of DSRs granted will be the number of whole
shares equal to (i) the dollar amount of the annual retainer that the non-
employee director elects will be payable in the form of DSRs, divided by (ii)
90% of the fair market value per share of Common Stock on the grant date. In
determining the number of DSRs, any fraction will be rounded to the next
highest whole number of DSRs. For example, a non-employee director electing to
defer $50,000 of his or her annual retainer (at a time when the fair market
value per share of Common Stock is $36) would be granted 1,544 DSRs. $50,000
divided by (90% of $36 FMV) = 1,544 DSRs granted (rounded to the next highest
whole number). The ultimate value of these DSRs will depend on the performance
of the Common Stock.
Nature of Deferred Share Rights. Each DSR constitutes the right to receive
one share of Common Stock on the earlier of (i) the participant's termination
of service as a director or (ii) another designated date at least three years
after the date of such deferral election (in either case, the "Deferral
Termination Date"). The participant may, at least one year in advance of the
original Deferral Termination Date, designate a later Deferral Termination
Date. Pursuant to the election form, the participant will elect whether the
shares of Common Stock will be (a) granted within 30 days after the Deferral
Termination Date or (b) granted in approximately equal annual installments of
shares over a period of three, five or seven years (as the participant may
elect) after the Deferral Termination Date. No shares of Common Stock will be
issued until the applicable payment date(s). The participant will have no
rights as a stockholder with respect to the DSRs, and the DSRs will be
unsecured. The Board may accelerate the settlement of all or a portion of a
participant's DSRs on account of financial hardship, subject to certain
conditions described in the Plan.
Deferred Dividend Account. If any dividends or other rights or distributions
of any kind ("Distributions") are distributed to holders of Common Stock
during the deferral period but prior to the participant's termination of
service, an amount equal to the cash value of such Distributions on their
distribution date, as such value is determined by the Committee, will be
credited to a deferred dividend account for the participant, as follows: the
account will be credited with the right to receive shares of Common Stock
having a Fair Market Value as of the date of the distribution equal to the
cash value of the distribution. The Company will issue such shares to the
participant within 30 days after the participant's Deferral Termination Date.
If a Distribution is made after the participant's Deferral Termination Date
but prior to the settlement in full of the participant's DSRs, an amount equal
to the cash value of such Distribution pertaining to any outstanding DSRs will
be converted into shares of Common Stock equivalent in value to the
Distribution (based on the Fair Market Value as of the date of Distribution)
and such shares will be issued to the participant as soon as practical after
the date of the distribution.
18
<PAGE>
Transferability of DSRs. DSRs will not be assignable or transferable by the
participant other than by will or the laws of descent and distribution. No
right or interest in the DSRs or in the deferred dividend account will be
subject to liability for the debts, contracts or engagements of the
participant or will be subject to disposition by any means, and any attempted
disposition thereof will be null and void and of no effect.
TERMINATION AND AMENDMENT
The Plan will remain in effect for five years from its effective date,
unless earlier terminated. The Committee may terminate or suspend the Plan at
any time, without stockholder approval. The Committee may amend the Plan at
any time and for any reason without stockholder approval; provided, however,
that the Committee may condition any amendment on the approval of stockholders
if such approval is necessary or deemed advisable with respect to tax,
securities or other applicable laws, policies or regulations. No termination,
modification or amendment of the Plan may, without the consent of a
participant, adversely affect the participant's rights under a previously-
granted award.
ADJUSTMENTS
If the Committee determines that any distribution, recapitalization,
reclassification, stock split, reorganization, merger, consolidation, split-
up, spin-off, combination, repurchase, or other similar corporate transaction
or event, in the Committee's sole discretion, affects the Common Stock such
that an adjustment is determined to be appropriate in order to prevent
dilution or enlargement of the benefits or potential benefits intended to be
made available under the Plan or with respect to an award thereunder, the
Committee may adjust the number and type of shares (or other securities or
property) which may be granted under the Plan (including, but not limited to,
adjustments of the maximum number and kind of securities which may be issued).
In the event of any corporate transaction or similar event which results in
shares of Common Stock being exchanged for or converted into cash, securities
or other property (including securities of another corporation), all DSRs
granted under the Plan will become the right to receive such cash, securities
or other property, and there will be substituted on an equitable basis for
each share of Common Stock then subject to an Option the consideration payable
with respect to the outstanding shares of Common Stock in connection with such
corporate transaction or event, all without any change in the aggregate
purchase price for the shares then subject to the Option.
CERTAIN FEDERAL INCOME TAX EFFECTS
Cash Payments. A participant receiving some or all of the annual retainer in
cash will recognize ordinary income equal to the cash amount received, and the
Company will be entitled to a corresponding tax deduction at that time.
Options. Under present federal income tax regulations, there will be no
federal income tax consequences to either the Company or the participant upon
the grant of an Option under the Plan. However, the participant will realize
ordinary income on the exercise of the Option in an amount equal to the excess
of the Fair Market Value of the Common Stock acquired upon the exercise of
such Option over the exercise price, and the Company will receive a
corresponding deduction. A subsequent sale or exchange of such shares will
result in gain or loss measured by the difference between (i) the exercise
price, increased by any compensation reported upon the participant's exercise
of the Option, and (ii) the amount realized on such sale or exchange. Such
gain or loss will be capital in nature if the shares were held as a capital
asset and will be long-term if such shares were held for the applicable long-
term capital gain holding period.
DSRs. Under present federal income tax regulations, a participant receiving
a DSR (a right to receive stock in the future) will not recognize income, and
the Company will not be allowed a tax deduction, at the time such right is
granted. When the stock is actually granted or the participant otherwise has
the right to receive such stock, the participant will recognize ordinary
income equal to the fair market value of the stock, and the Company will be
entitled to a corresponding tax deduction at that time.
19
<PAGE>
BENEFITS TO NON-EMPLOYEE DIRECTORS
Only non-employee directors of the Company are entitled to participate in
the Plan. The following table shows the benefits that would accrue under the
plan in 1998 to the 10 non-employee directors who are standing for re-
election, if the Plan is approved by the stockholders assuming that all
directors elect to convert account balances under the Retirement Program and
receive their 1998 annual retainer as all Options or all DSRs.
<TABLE>
<CAPTION>
NAME AND POSITION DOLLAR VALUE ($) NO. OF OPTIONS / DSRS
----------------- ---------------- ---------------------
<S> <C> <C>
All non-employee directors, as a Group (10 $1,284,148(1) 108,100 Options(2)
persons)........................................ or
39,634 DSRs(2)
</TABLE>
- --------
(1) Assumes an annual retainer of $80,000 for 1998 and accrued account
balances under the Retirement Program of $484,148 in the aggregate.
(2) Assumes that all participants elect to receive 100% in Options or
alternatively 100% in DSRs, and a Fair Market Value of $36.00 per share of
Common Stock on the grant date. The initial valuation for Options for the
1998 Board year is 33% of the current market price of the Common Stock.
The Plan permits the Committee to change the Option Valuation Percentage
prior to the commencement of each Board year if the Committee believes
that another percentage better represents the value of Options in relation
to current market value of the Common Stock; provided, however, that the
Committee may not establish an Option Valuation Percentage of less than
30%.
ADDITIONAL INFORMATION
The closing price of the Common Stock on the New York Stock Exchange on
March 26, 1998, was $36.25 per share. The Plan requires stockholder approval
to become effective. The affirmative vote of a majority of the shares present
or represented by proxy and entitled to vote at the meeting on this proposal
and the affirmative vote of a majority of the shares entitled to vote at the
meeting other than shares held by or voted under the control of non-employee
directors, will constitute stockholder approval of the Non-Employee Director
Compensation Plan of 1998.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE PROPOSAL TO
APPROVE THE NON-EMPLOYEE DIRECTOR COMPENSATION PLAN OF 1998.
20
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors (the "Committee") is
composed entirely of non-employee directors. The Committee is responsible for
establishing and administering the Company's executive compensation programs.
This report addresses the Company's compensation policies and practices, and
the Committee's decisions regarding 1997 compensation and long-term incentive
as they affected the Chief Executive Officer and the four other most highly
paid executive officers of the Company (the five individuals collectively
called the "Named Executive Officers"). These policies and practices also
generally affect the compensation of the Company's other officers and high
level executives.
EXECUTIVE COMPENSATION POLICIES
The Committee is responsible for establishing and administering the
Company's executive compensation programs. The Committee establishes
compensation according to the following guiding principles:
(a) Compensation should be directly linked to the Company's operating and
financial performance.
(b) Total compensation should be competitive when compared to
compensation levels of executives of companies against which the
Company competes for management.
(c) Performance-related pay should be a significant component of total
compensation, placing a substantial portion of an executive's
compensation at risk.
(d) Stock ownership guidelines and programs should encourage significant
stock ownership in the Company by its executives to align their
interests with the interests of stockholders.
STOCK OWNERSHIP REQUIREMENT
The foundation for the Company's executive compensation program is ownership
of the Company's common stock by members of the senior management group. This
ownership requirement, involving a substantial portion of each executive's net
worth, is intended to motivate the executive to think and act like a
stockholder, and to assume responsibility for profitability and improving
total stockholder return. The stock ownership requirement can be met with
shares beneficially owned by the executive, through purchase of shares via the
Employee Stock Purchase Plan, exercise of stock options, shares allocated to
the executive through the Company's 401(k) retirement plan (MoneyMaker),
phantom shares or restricted stock issued under the annual incentive
compensation plan through the Performance Share and the Key Contributor
Subplans, other restricted stock awards, or open market purchases from
personal funds. Unexercised stock options do not apply toward the ownership
requirement.
BASE SALARY
A competitive base salary program is necessary to attract and retain key
executives. It is the Company's practice to establish executive salaries at a
conservative level relative to the median for salaries for comparable
positions in other companies in its competitor group. For the named executive
officers other than the CEO (see "CEO Compensation" below), one of the
executive's 1997 base salary was above the median and three of these
executives' 1997 base salaries were below the median.
The companies in the competitor group are life, health and multi-line
insurance companies that the Company has determined are its primary
competitors for key executives. (For compensation purposes the competitor
group is comprised of a size, measured by assets, comparable to the Company
that compete with the Company for business and key executives. This is a
smaller group of companies than is included in the "Insurance Index" used for
the "Comparison of Five-Year Cumulative Total Return" chart below. The group
of companies in the "Insurance Index" is comprised of firms the Committee has
determined are competing with the Company in the capital markets and includes
some companies which are not included in the compensation comparison group.)
21
<PAGE>
Merit increases in salary generally are awarded annually by the Committee,
based primarily on an assessment of the Company's position relative to
competitors and on an appraisal of the executive's contribution. The
assessment of salary position relative to competitors is performed by use of a
national survey of the competitor group of life and health insurance companies
as described above, conducted by a recognized compensation consulting firm and
also by use of internally generated surveys of data gathered from proxy
statements. Salary levels for 1997 were established by the Committee following
the policies described.
ANNUAL INCENTIVE COMPENSATION
Annual incentive awards in 1997 for all officers were based on performance
measures included in the Annual Management Incentive Compensation Plan of 1994
("MICP"). The annual incentive portion of the MICP includes the Corporate
Performance Subplan and the Individual Performance Subplan.
The Corporate Performance Subplan of the MICP is based solely on the
achievement of objective corporate performance goals. At the beginning of each
plan year, the Committee establishes measurable performance goals based on one
or more corporate performance criteria, and establishes target awards and any
formula for payouts in excess of target based on the achievement of these
goals. Target awards under the Corporate Performance Subplan are set by the
Committee as percentages of base salary, which percentages may differ from
participant to participant and from year to year. Under the Corporate
Performance Subplan, the three performance measures for 1997 were Return on
Equity, Premium Growth and Relative Stock Performance. Above-target payouts
resulted due to the Company exceeding established goals.
The Individual Performance Subplan of the MICP is based on an individual's
contribution to the business of the Company, as determined by the Committee.
This contribution may be assessed on non-objective as well as objective
measures. Additional bonuses are payable under this subplan, also based on
percentages of salary.
Based on 1997 results, awards under the MICP to the Named Executive Officers
ranged from 54% of salary to 123% percent of salary.
LONG-TERM INCENTIVE COMPENSATION
Stock Plan of 1994
This Plan permits the grant to executive officers and certain other key
employees of restricted stock, stock appreciation rights and options to
purchase shares of the Company's common stock. The purposes of this Plan are
to encourage and enable the acquisition of a financial interest in the Company
by key employees and to reward key employees for the long-term growth in the
market value of the stock. As shown in the tables following this report,
options were granted on January 13, 1997 to each of the Named Executive
Officers. In addition, in connection with the successful purchase of the Paul
Revere Insurance Group, the Committee approved grants of 150,000 shares of
restricted stock to Mr. Chandler; 50,000 shares of restricted stock to
Mr. Watjen; 2,000 shares of restricted stock to Mr. Best; and 2,000 shares of
restricted stock to Mr. Heys. These awards were made on March 25, 1997. The
Committee approved no other grants under the Stock Plan of 1994 to any Named
Executive Officer in 1997.
CEO COMPENSATION
Compensation of the Chief Executive Officer follows the general principles
for executive compensation as set forth above. Specific applications of these
principles to Mr. Chandler's pay for 1997 were as follows:
BASE SALARY
Base salary for Mr. Chandler was set pursuant to his employment agreement
described in the 1994 proxy statement and will be reviewed annually and
adjusted as deemed appropriate by the Committee. For 1997, Mr. Chandler's
salary was increased to a level reflecting pay of chief executive officers of
companies in the Company's competitor group.
22
<PAGE>
ANNUAL INCENTIVE COMPENSATION
For 1997, Mr. Chandler received an annual incentive under the MICP of
$922,500. Of this total, $697,500 was paid under the Corporate Performance
Subplan (93% of his base salary) and $225,000 was paid under the Individual
Performance Subplan (30% of his base salary) for the achievement of goals
established by the Committee which were specific to Mr. Chandler.
STOCK PLAN OF 1994
The Committee believes that it is appropriate to make stock option grants to
the CEO at a higher multiple of salary than for other senior executives. This
higher level of award is in recognition of the higher level of responsibility
and accountability of the CEO and also to produce compensation at a level
comparable to competitor companies. On January 13, 1997, Mr. Chandler was
granted options to purchase 1,200,000 shares of Company common stock as shown
in the tables following this report.
Million Dollar Deduction Limitation (IRC Section 162(m))
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), limits the Company's ability to deduct compensation in excess of
$1,000,000 paid during a tax year to the Chief Executive Officer and the four
other highest paid executive officers at year end. Certain performance-based
compensation is not subject to such deduction limit. Annual bonuses under the
Corporate Performance Subplan of the MICP are designed to meet the criteria of
"performance-based" compensation that is fully deductible under Code Section
162(m), as are awards of stock options under the Company's Stock Plan of 1994.
It is the Committee's intent to maximize the deductibility of executive
compensation while retaining the discretion necessary to compensate executive
officers in a manner commensurate with performance and the competitive market
of executive talent.
CONCLUSION
The Company's compensation program described above closely links pay with
performance and the creation of stockholder value. The Committee believes that
the program has been and will continue to be successful in supporting the
Company's financial, growth and other business objectives.
Hugh B. Jacks, Chairman
Steven M. Gluckstern
C. William Pollard
Scott L. Probasco, Jr.
Steven S Reinemund
23
<PAGE>
COMPENSATION TABLES
The following table summarizes the compensation of the Chief Executive
Officer and the four other most highly compensated executive officers (the
"Named Executive Officers") for the years 1995, 1996, and 1997:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
------------------------------------ ---------------------------------
AWARDS PAYOUTS
------------------------- -------
OTHER RESTRICTED SECURITIES
ANNUAL STOCK UNDERLYING LTIP ALL OTHER
NAME AND COMPENSATION AWARD(S) OPTIONS PAYOUTS COMPENSATION
PRNCIPAL POSITIONI YEAR SALARY ($) BONUS ($) ($) ($)(6) (#) (12) ($) ($)
- ------------------ ---- ---------- --------- ------------ ---------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
J. Harold
Chandler......... 1997 736,539 922,500(1) 0 4,590,670(7) 1,200,000 0 1,615(13)
President/CEO 1996 686,539 1,076,157 0 309,000 400,000 0 2,375
1995 650,000 1,879,902 0 0 1,000,000 0 2,250
Thomas R. Watjen........ 1997 461,539 500,000(2) 0 1,559,152(8) 500,000 0 0
Vice Chairman & 1996 418,269 427,164 0 105,888 100,000 0 0
CFO 1995 400,000 514,207 0 0 100,000 0 0
Jeffrey F. Olingy....... 1997 232,308 126,900(3) 0 27,193(9) 150,000 0 1,763(13)
EVP, Field Sales 1996 162,693 110,644 62,275 55,148 100,000 0 0
1995 0 0 0 0 0 0 0
Robert O. Best.......... 1997 230,962 150,000(4) 0 80,045(10) 150,000 0 2,375(13)
EVP/CIO 1996 217,308 113,685 0 18,271 40,000 0 2,375
1995 210,000 192,461 0 0 61,000 0 727
Thomas B. Heys, Jr...... 1997 228,269 139,238(5) 0 78,315(11) 150,000 0 2,375(13)
EVP, Institutional 1996 207,308 103,268 0 25,168 50,000 0 2,375
Sales 1995 200,000 128,293 0 0 60,000 0 24,415
</TABLE>
- --------
(1) Bonus comprised of $922,500 Incentive Bonus all of which was deferred in
the form of phantom shares and accounted for under the Performance Share
Plan.
(2) Bonus comprised of $500,000 Incentive Bonus of which $375,000 was
deferred in the form of phantom shares and accounted for under the
Performance Share Plan.
(3) Bonus comprised of $126,900 Incentive Bonus of which $63,450 was deferred
in the form of phantom shares and accounted for under the Performance
Plan.
(4) Bonus comprised of $150,000 Incentive Bonus of which $56,250 was deferred
in the form of phantom shares and accounted for under the Performance
Plan.
(5) Bonus comprised of $139,238 Incentive Bonus of which $52,214 was deferred
in the form of phantom shares and accounted for under the Performance
Plan.
(6) As of December 31, 1997, the Named Executive Officers held the following
aggregate shares of restricted stock, with the following values (based on
December 31, 1997 closing price of $38.625 per share): Mr. Chandler,
150,000 shares valued at $5,793,750; Mr. Watjen, 50,000 shares valued at
$1,931,250; Mr. Olingy 666 shares valued at $25,724; Mr. Best, 2,000
shares valued at $77,250; and Mr. Heys, 2,000 shares valued at $77,250.
Dividends will be paid on the restricted shares. Additionally, each Named
Executive Officer held premium phantom shares which were issued in
February 1997 under the Performance Share Plan upon deferral of the 1997
incentive award into phantom shares. These phantom shares are subject to
a risk of forfeiture for three years. The number of phantom shares held
along with their value as of December 31, 1997 are as follows: Mr.
Chandler, 11,928 shares valued at $460,719; Mr. Watjen, 4,088 shares
valued at $157,899; Mr. Olingy, 915 shares valued at $35,342; Mr. Best,
705 shares valued at $27,231; and Mr. Heys, 960 shares valued at $37,080.
The value of the 1997 premium phantom shares is not included in this
column.
(7) Of this amount, $4,195,313 represents the grant date value of 150,000
shares of restricted stock given as a one-time special award for the
successful purchase of Paul Revere Insurance Group. This stock has the
following vesting schedule: 75,000 shares on March 31, 2000 and 75,000
shares on March 31, 2001. The number of shares presented has been
adjusted to reflect the 2 for 1 stock split on September 30, 1997 which
24
<PAGE>
was in the form of a 100% stock dividend. The remainder of the amount
represents premium phantom shares issued in February 1998 under the
Performance Share Plan upon deferral of the 1997 incentive award into
phantom shares. These phantom shares are subject to risk of forfeiture for
three years.
(8) Of this amount, $1,398,438 represents the grant date value of 50,000
shares of restricted stock given as a one - time special award for the
successful purchase of Paul Revere Insurance Group. This stock has the
following vesting schedule: 25,000 shares on March 31, 2000 and 25,000
shares on March 31, 2001. The number of shares presented has been
adjusted to reflect the 2 for 1 stock split on September 30, 1997 which
was in the form of a 100% stock dividend. The remainder of the amount
represents premium phantom shares issued in February 1998 under the
Performance Share Plan upon deferral of the 1997 incentive award into
phantom shares. These phantom shares are subject to risk of forfeiture
for three years.
(9) This amount represents premium phantom shares issued in February 1998
under the Performance Share Plan upon deferral of the 1997 incentive
award into phantom shares. These phantom shares are subject to risk of
forfeiture for three years.
(10) Of this amount, $55,938 represents the grant date value of 2,000 shares
of restricted stock given as a one - time special award for the
successful purchase of Paul Revere Insurance Group. This stock has will
vest on March 25, 2000. The number of shares presented has been adjusted
to reflect the 2 for 1 stock split on September 30, 1997 which was in the
form of a 100% stock dividend. The remainder of the amount represents
premium phantom shares issued in February 1998 under the Performance
Share Plan upon deferral of the 1997 incentive award into phantom shares.
These phantom shares are subject to risk of forfeiture for three years.
(11) Of this amount, $55,938 represents the grant date value of 2,000 shares
of restricted stock given as a one - time special award for the
successful purchase of Paul Revere Insurance Group. This stock has will
vest on March 25, 2000. The number of shares presented has been adjusted
to reflect the 2 for 1 stock split on September 30, 1997 which was in the
form of a 100% stock dividend. The remainder of the amount represents
premium phantom shares issued in February 1998 under the Performance
Share Plan upon deferral of the 1997 incentive award into phantom shares.
These phantom shares are subject to risk of forfeiture for three years.
(12) Share amounts have been adjusted to reflect the 2 for 1 stock split on
September 30, 1997 which was in the form of a 100% stock dividend.
Additionally, the amounts for Mr. Watjen exclude the options of which he
relinquished ownership and economic interest pursuant to a domestic
relations order in January 1997. This exclusion includes 100,000 from the
1996 grant and 100,000 from the 1997 grant.
(13) The amounts reported represent the Company's match of the officer's
contributions to the MoneyMaker, a long - term 401(k) retirement plan
("MoneyMaker").
25
<PAGE>
The following table describes the options granted to the named individuals
for 1997:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
GRANT DATE
INDIVIDUAL GRANTS VALUE
------------------------------------------------------ ----------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED
OPTIONS GRANTED TO EMPLOYEES EXERCISE EXPIRATION GRANT DATE
NAME (#)(1) IN FISCAL YEAR PRICE ($/SH) DATE VALUE (2)
---- --------------- -------------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
J. Harold Chandler....... 1,200,000(3) 35.17 $23.7188 01/12/07 $5,788,656
Thomas R. Watjen......... 500,000(4) 14.65 $23.7188 01/12/07 2,693,760
Jeffrey F. Olingy........ 150,000(5) 4.40 $23.7188 01/12/07 856,440
Robert O. Best........... 150,000(5) 4.40 $23.7188 01/12/07 856,440
Thomas B. Heys, Jr....... 150,000(5) 4.40 $23.7188 01/12/07 856,440
Thomas B. Heys, Jr....... 1,210(6) .04 $29.2500 01/04/02 8,942
Thomas B. Heys, Jr....... 6,906(6) .20 $31.4063 02/07/99 33,011
</TABLE>
- --------
(1) Options granted are non - qualified stock options, with the exercise price
equal to fair market value on the date of the grant. All options granted
were for Company Common Stock. Share totals have been adjusted to reflect
the 2 for 1 stock split on September 30, 1997 which was in the form of a
100% stock dividend. To encourage increased ownership, the Plan includes
what is commonly referred to as a "reload" feature. Under this arrangement,
when options are exercised, payment for the option shares by delivery of
shares already owned by the optionee would entitle the optionee to a new
stock option grant equal to the number of shares delivered. The new option
grant would acquire the remaining exercise period with respect to the
options exercised and the option price would be the then - current fair
market value of the common stock.
(2) The grant date present value of options granted in 1997 was determined
using the Black - Scholes option pricing model. The underlying assumptions
were as follows:
VOLATILITY. Volatility for Provident's common stock was calculated using
28 quarterly stock prices for all grants except the last two reload grants
to Mr. Heys in which 54 months and 73 weeks respectively were used. The
volatility was 18.2% for all grants except the last two for Mr. Heys in
which the volatility was 20.6% and 26.6% respectively.
RISK - FREE RATE OF RETURN. Rates of return were based on U.S. Treasury
strip rates of return for an investment whose term is equal to the time of
exercise of the option (as defined below). The rate for the January 13,
1997 grant was 6.56%, the rate for June 16, 1997 was 6.24% and the rate for
August 13, 1997 was 5.88%.
DIVIDEND PAYOUT RATE. The dividend payout rates were determined by
dividing the expected annual dividend rate by the exercise price.
TIME OF EXERCISE. The time of exercise was assumed to be 7 years from the
date of grant on all grants except the last two reload grants for Mr. Heys
in which the time of exercise was assumed to be the time to expiration.
A discount was applied in determining the grant date present value of
these options to recognize the risk of forfeiture. The discounts were as
follows: Mr. Chandler 34.1%; Mr. Watjen 26.4%; Messrs. Heys, Best and
Olingy, 22.0%. No discount was applied to Mr. Heys' reload grants.
(3) Mr. Chandler's options vest as follows: 10% on January 13, 1999, 20% on
January 13, 2000, 20% on January 13, 2001 and 50% on January 13, 2002.
Expiration of Mr. Chandler's options is determined in accordance with the
terms of his employment contract.
(4) The options granted to Mr. Watjen vest as follows: 10% on January 13, 1998,
20% on January 13, each year in 1999, 2000, 2001 and 30% on January 13,
2002. Mr. Watjen's options expire on the earliest of the following dates:
(a) upon termination of employment other than by death or disability; (b)
three years after the date of death or disability; or (c) ten years after
the date of grant. In the event of a change in control, options would
become immediately exercisable, or the Compensation Committee can exercise
its discretion to cash out any unvested options.
26
<PAGE>
(5) The options for Messrs. Olingy, Best, and Heys vest at the rate of 20% per
year beginning on January 13, 1998. All options expire on the earliest of
the following dates: (a) upon termination of employment other than by
death or disability; (b) three years after the date of death or
disability; or (c) ten years after the date of grant. In the event of a
change in control, options would become immediately exercisable, or the
Compensation Committee can exercise its discretion to cash out any
unvested options.
(6) These option grants to Mr. Heys are reload grants which vest immediately.
The options expire on the earliest of the following dates: (a) upon
termination of employment other than by death or disability; (b) three
years after the date of death or disability; or (c) the remaining term of
the original grant under which he received the reload.
The following table shows information concerning options for Company Common
Stock exercised by the named individuals during 1997 and the value of
unexercised options held by the named individuals at December 31, 1997:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY - END OPTION VALUE
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN - THE -
OPTIONS AT FY - MONEY OPTIONS
NAME END (#) AT FY - END ($)
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
ON EXERCISE (#)(1) REALIZED ($) UNEXERCISABLE (1) UNEXERCISABLE (2)
------------------ ------------ ---------------------- -----------------------
- --------------------------
<S> <C> <C> <C> <C>
J. Harold Chandler...... 0 0 2,000,000/1,200,000 $51,073,106/$17,887,440
Thomas R. Watjen(3)..... 0 0 300,000/ 500,000 7,690,620/ 7,453,100
Jeffrey F. Olingy....... 100,000 1,584,375 0/ 150,000 0/ 2,235,930
Robert O. Best.......... 0 0 162,000/ 150,000 4,119,154/ 2,235,930
Thomas B. Heys.......... 28,500 470,916 130,448/ 150,000 3,174,870/ 2,235,930
</TABLE>
- --------
(1) Share amounts have been adjusted to reflect the 2 for 1 stock split on
September 30, 1997 which was in the form of a 100% stock dividend.
(2) Calculated as the difference between the fair market value of a share of
Company Common Stock on December 31, 1997 ($38.625) and the exercise price
of the options.
(3) The amounts for Mr. Watjen exclude 300,000 options of which he
relinquished ownership and economic interest pursuant to a domestic
relations order in January 1997. In 1997, 100,000 of those options were
exercised at a value of $1,409,375. The value of the remaining options
transferred pursuant to the domestic relations order, all of which are
exercisable, is $5,081,250.
27
<PAGE>
PENSION PLAN TABLE
The following table shows the estimated annual aggregate benefits payable at
normal retirement under the tax-qualified, defined benefit Retirement Plan for
Salaried Employees for various combinations of compensation and years of
service:
<TABLE>
<CAPTION>
AVERAGE BASE
SALARY IN FIVE 1997
CONSECUTIVE HIGHEST ESTIMATED ANNUAL BENEFIT FOR
PAID YEARS REPRESENTATIVE YEARS OF SERVICE CREDIT
------------------- ---------------------------------------
15 YEARS 20 YEARS 25 YEARS 30 YEARS
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
$150,000 $ 37,860 $ 53,160 $ 60,960 $ 68,760
175,000 45,360 63,156 72,204 81,252
200,000 52,860 73,152 83,460 93,756
225,000 60,360 83,148 94,704 106,260
250,000 67,860 93,156 105,960 118,752
300,000 82,860 113,160 128,460 143,760
350,000 97,860 133,152 150,960 168,756
400,000 112,860 153,156 173,460 193,752
450,000 127,860 173,160 195,960 218,760
500,000 142,860 193,152 218,460 243,756
</TABLE>
Benefits are based on a percentage based on service of the average base
salary earned during the five consecutive years of highest compensation
preceding retirement date plus $5 per each year of service subject to a
maximum of 30 years, subject to a partial offset for the Social Security
benefits to which the participant is entitled upon retirement. Credit for
years of service cease after 30 years. A reduction of 4% is applied for
retirement before age 62. As of December 31, 1997, Chandler, Watjen, Best,
Heys and Olingy had approximately 4, 3, 3, 23 and 2 years of credited service,
respectively.
The Company also provides a Supplemental Executive Retirement Plan ("SERP")
pursuant to which certain current officers of the Company may be entitled to
retirement benefits in addition to those that may be funded or paid through a
tax-qualified plan such as the Retirement Plan. Such benefits are not included
in the Pension Plan Table above. Generally, participants in the SERP become
entitled to benefits upon retirement at or after age 65, age 55 with 20 years
of service or age 62 with consent of the Compensation Committee of the Board
of Directors. The maximum annual amount of such additional benefits is the
greater of (a) 50 percent of the average of the participant's compensation for
the five highest consecutive calendar years of active service with Provident
(which will be achieved when the participant has 20 years of service), plus
$1,800, offset by the benefits payable under the Retirement Plan and certain
social security benefits; or (b) the difference between the benefits which are
payable under the Retirement Plan and the benefits which would be payable
under the Retirement Plan to the participant without the limitations on annual
benefits imposed by Section 415 of the Internal Revenue Code of 1986, as
amended (the "Code") (for 1997, $160,000). Proportionately smaller
supplemental retirement benefits are payable under the SERP upon retirement
before age 65. Mr. Chandler will be covered under the Retirement Plan for
Salaried Employees, the SERP, and the supplemental retirement benefit ("SRB")
described in his employment agreement.
SEVERANCE AGREEMENTS
The Company offers severance agreements to certain other of its key
executives as determined by the Board of Directors acting on the
recommendation of the Compensation Committee. While agreements can vary
slightly in details, the basic arrangements require the Company to make
certain payments and provide certain benefits in the event that the
executive's employment terminates for any reason except death, disability,
retirement, or for good cause by the Company or without good reason by the
executive within two years following a change of control as that term is
defined below. The amounts and benefits are (1) a multiple of one to three
times the executive's annual base salary at the highest rate in effect at any
time immediately prior to the change in control until the termination date;
(2) participation at no additional direct costs to the executive in the life,
accident and
28
<PAGE>
health insurance plans in effect prior to the change in control (or equivalent
benefits) for one to three years following the termination date; (3) up to
$10,000 of reasonable expenses associated with outplacement through a
professional placement firm for a period of not more than one year. In
addition, each is entitled to death or long - term disability benefits no less
favorable than those to which the executive would have been entitled if death
or termination for disability occurred within six months prior to the change
in control. Messrs. Watjen, Best, Heys, and Olingy entered into agreements
providing the amounts and benefits described above.
EMPLOYMENT CONTRACT
J. Harold Chandler has an agreement with the Company by which he became
President and Chief Executive Officer of the Company, Capital, Provident and
Casualty effective November 8, 1993. The period of employment covered by the
Agreement is one year with automatic extensions for additional one year terms
unless either party terminates the Agreement. Compensation under the Agreement
includes (i) a base annual salary of $650,000, subject to being increased
annually upon recommendation of the Compensation Committee; (ii) a transition
bonus of $130,000; (iii) a special bonus of $170,000; (iv) an annual incentive
bonus for 1993 of not less than $200,000; (v) 29,216 shares of restricted
Class B Common Stock, 7,304 shares of which became vested and unrestricted on
December 31, 1993, and 7,304 shares of which shall become unrestricted by
vesting and being delivered on each December 31 of 1994, 1995, and 1996; (vi)
a grant of options for 190,000 shares of Class B Common Stock on November 8,
1993 (having a two year vesting and a five year exercise period); (vii) a
grant of options on January 6, 1994 for 110,000 shares of Class B Common Stock
(having a two year vesting and a five year exercise period); and (viii) such
other options or other stock grants to be recommended by the Compensation
Committee from time to time over a ten year period beginning November 8, 1993
within the terms of the approved stock option plan then in effect for
approximately an additional 700,000 shares of Class B Common Stock. The
Agreement states the intent of the Company and Mr. Chandler that he have the
opportunity to acquire 2 - 3% of the Company's outstanding Common Stock. The
Agreement also grants eligibility to participate in the Employer's Retirement
Plan for Salaried Employees ("Qualified Plan") and the Supplemental Executive
Retirement Plan ("SERP"). In addition, a supplemental retirement benefit
("SRB") calculated using the SERP formula applied to the annual base salary
will be provided. Rights to receive the SRB will vest at 10% per year provided
that employment continues for five years. Generally, if employment is
terminated prior to the expiration of the five year period none of the SRB
will be payable. Any SRB payments will be reduced by amounts paid under the
other plans listed in this paragraph and any qualified or nonqualified
retirement benefit paid by Mr. Chandler's previous employer. The Company
agreed to pay reasonable relocation expenses including the purchase of Mr.
Chandler's former house. Certain other benefits including club memberships and
up to $10,000 in 1993 and $4,000 in each year of employment thereafter for
personal financial planning were also included.
CHANGE IN CONTROL
For purposes of accelerating benefits under one or more of the incentive
compensation plans (annual and stock option), and for purposes of the
severance agreements for certain executive officers, and for purposes of
certain termination provisions in Mr. Chandler's employment contract described
below, a change in control will be deemed to have occurred if either of the
following sets of events happen: (a) both (i) the Maclellan family holdings
must fall below 30 percent of the outstanding stock of the Company, and (ii)
concurrently at least 30 percent of the outstanding stock of the Company must
be owned by a person or group other than the Maclellan family; or (b)
stockholders approve (i) a merger or consolidation of the Company in which the
Company is not the surviving entity, (ii) a plan of complete liquidation of
the Company, or (iii) an agreement for the sale of or disposition of all or
substantially all of the assets of the Company.
If within 24 months following a change in control as defined above, Mr.
Chandler voluntarily resigns or retires or his employment is terminated except
for disability, death or cause, benefits include (i) payment of 299% of Mr.
Chandler's average (for the preceding years of service up to five years of
such prior service) base salary and annual incentive bonus; (ii) vesting of
unvested options and restricted stock as of the date of such termination; and
(iii) a cash payment equal to the value of any options anticipated to be
granted during the three years following such termination.
29
<PAGE>
TERMINATION OF EMPLOYMENT
Mr. Chandler's employment agreement provides benefits in the event of a
termination for the following reasons:
DISABILITY: Benefits include (i) payment of base salary for two years
from the date of notice of termination; (ii) full vesting of nonvested
restricted stock, stock options and other equity awards and of SRB
benefits; (iii) two annual payments each equal to the average of the annual
incentive bonus received for the two years prior to the year in which the
notice of termination is given, less any amounts paid to Mr. Chandler under
the Company's disability plan. In addition, the Company will continue to
provide, for a period of two years from the date of the notice of
termination, such health benefits and life insurance benefits as were in
effect immediately prior to such termination for disability.
DEATH: Benefits include (i) the amount of base salary which would have
been paid for the remainder of the year in which death occurs; (ii) the sum
of any unpaid transition, special and annual incentive bonuses which would
have been payable during the period of employment; (iii) vesting of granted
but unvested stock options or other equity awards and of SRB benefits.
CAUSE: Only earned but unpaid base salary through the date of termination
for cause will be paid, while all nonvested benefits held as of the date of
such termination shall be canceled as of such date.
VOLUNTARY RESIGNATION OR RETIREMENT: Benefits include (i) earned but
unpaid base salary through the date of voluntary resignation or retirement;
(ii) such health benefits and life insurance benefits as were in effect
immediately prior to such termination; and such other payments or benefits
as may be negotiated.
WITHOUT CAUSE: Benefits include (i) payment of up to $2,250,000 less the
total of all base salary and annual incentive bonus received from November
8, 1993, to the effective date of the termination, but in no event would
the total payable be greater than two times the sum of the then current
base salary and target annual incentive bonus for the year in which such
termination occurs; (ii) for a period of two years from the date of the
notice of termination, such health benefits and life insurance benefits as
were in effect immediately prior to such termination; immediate and full
vesting of all unvested stock options and other equity awards as well as
the SRB benefit.
CHANGE IN CONTROL: If within 24 months following a change in control as
defined above, Mr. Chandler voluntarily resigns or retires or his
employment is terminated except for disability, death or cause, benefits
include (i) payment of 299% of Mr. Chandler's average (for the preceding
years of service up to five years of such prior service) base salary and
annual incentive bonus; (ii) vesting of unvested options and restricted
stock as of the date of such termination; and (iii) a cash payment equal to
the value of any options anticipated to be granted during the three years
following such termination.
COMPENSATION COMMITTEE INTERLOCKS AND
INSIDER PARTICIPANTS IN COMPENSATION DECISION
DURING 1997:
1. No member of the Compensation Committee:
(a) was an employee or officer of the Company or any of its subsidiaries;
or
(b) had any relationship requiring disclosure under Item 404 of
Regulation S-K.
2. No executive officer of the Company served as a:
(a) member of a compensation committee (or its equivalent or the board of
directors in the absence of such a committee) of another entity, one
of whose executive officers served on the Company's Compensation
Committee or was a director of the Company; and
(b) director of an entity, one of whose executive officers served on the
Company's Compensation Committee.
30
<PAGE>
COMPANY PERFORMANCE
The following graph shows a five year comparison of cumulative total returns
for the Common Stock of the Company (NYSE symbol: PVT), Class B Common Stock
of America (NYSE symbol: PVB), the Class A Common Stock of America (NYSE
symbol: PVA), the S&P Composite Index, and the Insurance Index (non-weighted
average of "total returns" from the S&P Life Index and the S&P Multi-line
Index.) Effective December 27, 1995, all shares of America were exchanged for
shares of the Company.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
PVT, PVB, PVA, S&P 500, INSURANCE INDEX
LOGO
Assumes $100 invested in each at December 1992 with dividends reinvested
The following table contains the values used to plot the performance graph
above:
<TABLE>
<CAPTION>
DEC. 1992 DEC. 1993 DEC. 1994 DEC. 1995 DEC. 1996 DEC. 1997
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
PVA................ $100.00 $106.45 $ 83.14 $139.52 $203.12 $328.30
PVB................ $100.00 $112.30 $ 82.32 $131.88 $192.03 $310.60
Insurance Index.... $100.00 $106.57 $100.83 $146.78 $183.34 $259.39
S&P 500............ $100.00 $110.08 $111.53 $153.45 $188.68 $251.63
</TABLE>
31
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
The following reflects the beneficial ownership based on voting power of the
Company's Common Stock by its directors and executive officers as of March 1,
1998. The table also shows Performance Shares held as of March 1, 1998, by
executive officers under the Performance Share Plan of the Company's
Management Incentive Compensation Plan as described in footnote 6. These
Performance Shares are not included in the calculations of percentage of
ownership.
<TABLE>
<CAPTION>
PERCENT OF
PERCENT OF COMMON STOCK
BENEFICIAL OWNERSHIP OUTSTANDING
---------------------- ------------
AOUNT AND NATURE OFM PERFORMANCE
NAM OF BENEFICIAL OWNERE COMMON SHARES COMMON
- ------------------------ ------ ----------- ------
<S> <C> <C> <C>
William L. Armstrong(3)................................. 14,036 0 *
William H. Bolinder..................................... 816 0 *
Steven M. Gluckstern.................................... 816 0 *
Charlotte M. Heffner(1)................................. 7,705,862 0 5.70
Hugh B. Jacks........................................... 5,553 0 *
William B. Johnson...................................... 2,768 0 *
Hugh O. Maclellan, Jr.(1)............................... 36,729,465 0 27.15
A. S. "Pat" MacMillan(1)................................ 2,858 0 *
C. William Pollard...................................... 13,558 0 *
Scott L. Probasco, Jr.(2)............................... 782,204 0 *
Steven S Reinemund...................................... 8,960 0 *
Burton E. Sorensen...................................... 23,084 0 *
J. Harold Chandler(3)................................... 2,450,245 78,592 1.79
Thomas R. Watjen(3)..................................... 464,000 29,410 *
Robert O. Best(3)....................................... 224,154 4,719 *
Thomas B. Heys, Jr.(3).................................. 218,547 5,398 *
Jeffrey F. Olingy(3).................................... 96,507 5,722 *
All Directors and Executive Officers as a group
(20 persons) (3),(4),(5)............................... 48,867,443 130,234 35.34
</TABLE>
- --------
* = Less than one percent.
(1) Information concerning the nature of the ownership of the securities
listed here may be found in the section of this Proxy Statement entitled
"Beneficial Ownership of Company Securities." Information concerning
shares for which ownership is disclaimed may also be found in that
section.
(2) Mr. Probasco has sole voting and investment power with respect 782,204
shares of Common Stock. However, he disclaims beneficial ownership of
350,000 shares of Common Stock of which he has sole voting and investment
power as these shares are held in a family trust for the benefit of Mr.
Probasco's sister.
(3) The following, included in the respective share totals above, are shares
which the named persons or the group have the right to acquire through
the exercise of options within 60 days of March 1, 1998:
<TABLE>
<CAPTION>
COMMON STOCK
------------
<S> <C>
Armstrong....................................................... 7,500
MacMillan....................................................... 5,000
Chandler........................................................ 2,000,000
Watjen.......................................................... 350,000
Best............................................................ 192,000
Heys............................................................ 190,448
Olingy.......................................................... 180,000
Reinemund....................................................... 5,000
Directors and Executive Officers as a Group..................... 3,029,548
</TABLE>
32
<PAGE>
(4) Shares beneficially owned by more than one person have been counted only
once for purposes of this total.
(5) Based on information provided to the Company, as to the shares listed for
the officers and directors as a group (excluding the shares listed as
beneficially owned by Ms. Heffner , Mr. Maclellan, Jr., Mr. MacMillan and
Mr. Probasco), shared voting and investment power is held with respect to
2,000 shares of Common Stock. The beneficial owners have sole investment
and voting power as to the remaining shares.
(6) These Performance Shares represent deferred compensation based on the
value of the market price of the Company's Common Stock at the time the
compensation is earned. The Performance Shares include shares awarded and
shares resulting from the "gross - up" described in the Plan ("premium
shares"). Performance Shares cannot be converted into stock for a period
of three years, unless (with respect to the awarded shares only) the
participant terminates employment with the Company. The premium shares
are subject to forfeiture for a period of three years. The portion of the
units representing premium shares are as follows: Chandler 23,578; Watjen
8,823, Best 1,416, Heys 1,619; Olingy 1,716.51; all executive officers as
a group 39,068.
(7) Shares owned by Mr. Chandler, Mr. Watjen, Mr. Best, Mr. Heys, Mr. Olingy
and the executive officers as a group include shares owned in the
Company's 401(k) Plan, The MoneyMaker, and the Company's Employee Stock
Purchase Plan.
BENEFICIAL OWNERSHIP OF COMPANY SECURITIES
Detailed information about the security ownership of beneficial owners of
more than 5% of Provident Common Stock is set forth beginning on page 36
including beneficial ownership based on sole voting and share voting power and
investment power. Due to the shared voting and investment power relating to a
large portion of the Company Stock, there is significant duplication in the
reported beneficial ownership. This results from ownership of certain members
of the Maclellan family and trusts and foundations established by them or for
their benefit. The following chart is provided to summarize the reported
Maclellan family interests.
<TABLE>
<CAPTION>
PERCENT OF
DIRECT OWNED COMMON STOCK
NAME AND ADDRESS OF DIRECT OWNER (VOTING POWER) OUTSTANDING
- -------------------------------- -------------- ------------
<S> <C> <C>
The Maclellan Foundation, Inc...................... 15,661,693 11.58
Chattanooga, Tennessee
R. J. and Cora L. Maclellan Trusts................. 6,725,350 4.97
for The Maclellan Foundation
Chattanooga, Tennessee
Charitable Trusts.................................. 5,740,994 4.24
Chattanooga, Tennessee
Trusts U/A R. J. Maclellan and..................... 5,082,410 3.76
Trusts U/A Cora L. Maclellan for Families of H. O.
Maclellan, Sr.
and R. L. Maclellan
Chattanooga, Tennessee
Trusts U/A H. O. Maclellan, Sr. for................ 4,468,634 3.30
Children and Grandchildren
Chattanooga, Tennessee
Kathrina H. Maclellan.............................. 2,756,283 2.04
Lookout Mountain, Tennessee
Hugh O. Maclellan, Jr.............................. 1,547,054 1.14
Chattanooga, Tennessee
Charlotte M. Heffner............................... 915,390 0.68
Atlanta, Georgia
Other (Trusts, Estates and Family Ownership)....... 2,901,908 2.15
Chattanooga, Tennessee
</TABLE>
33
<PAGE>
The following tables present information about the beneficial owners of the
Company's Common Stock. Voting power and investment (dispositive) power is
shown separately in the following tables which list those persons holding five
percent (5%) or more of such voting power and those persons holding five
percent (5%) or more of such investment power, respectively. The Company does
not know of any other person that is a beneficial owner of more than five
percent (5%) of Common Stock.
BENEFICIAL OWNERSHIP BASED ON VOTING POWER
<TABLE>
<CAPTION>
AMOUNT PERCENT OF
BENEFICIALLY OWNED(1) COMMON STOCK
NAME AND ADDRESS OF BENEFICIAL OWNER (VOTING POWER) OUTSTANDING
- ------------------------------------ --------------------- ------------
<S> <C> <C>
The Maclellan Foundation, Inc........... 15,661,693(2) 11.58
Chattanooga, Tennessee
R. J. and Cora L. Maclellan............. 6,725,350(3) 4.97
Trusts for The Maclellan Foundation,
Inc.
Chattanooga, Tennessee
Hugh O. Maclellan, Jr................... 36,729,465(2)(3)(4) 27.15
Chattanooga, Tennessee
Kathrina H. Maclellan................... 18,138,435(2)(3)(5) 13.41
(Mrs. Robert L. Maclellan)
Lookout Mountain, Tennessee
Dudley Porter, Jr....................... 9,306,930(3)(6) 6.88
(retired officer of Company)
Chattanooga, Tennessee
Charlotte M. Heffner.................... 7,705,862(2)(7) 5.70
(Mrs. Richard L. Heffner)
Atlanta, Georgia
Zurich Insurance Company................ 19,047,620(8) 14.08
Zurich, Switzerland
</TABLE>
- --------
(1) Beneficial ownership of securities is disclosed according to Rule 13d-3 of
the Securities Exchange Act of 1934. If shares beneficially owned by more
than one person were shown as beneficially owned by only one person, then
the total number of shares owned by The Maclellan Foundation, Inc.; the R.
J. and Cora L. Maclellan Trusts for The Maclellan Foundation, Inc.;
Kathrina H. Maclellan; Hugh O. Maclellan, Jr.; Dudley Porter, Jr.; and
Charlotte M. Heffner would have been equal to 45,799,716 shares of Common
Stock (33.86%).
(2) Trustees of The Maclellan Foundation, Inc. (the "Maclellan Foundation")
were Hugh O. Maclellan, Jr., Kathrina H. Maclellan, Charlotte M. Heffner,
Robert H. Maclellan, A. S. MacMillan, Frank A. Brock, G. Richard
Hostetter and Ronald W. Blue. Hugh O. Maclellan, Jr. held a revocable
proxy to vote the shares of Company Common Stock held by the Maclellan
Foundation. Accordingly, shares owned by the Maclellan Foundation have
been included among those listed for Hugh O. Maclellan, Jr. The Maclellan
Foundation is a charitable organization treated as a private foundation
for federal income tax purposes.
(3) Trustees of the R. J. Maclellan Trust for the Maclellan Foundation and
the Cora L. Maclellan Trust for the Maclellan Foundation were Hugh O.
Maclellan, Jr., Kathrina H. Maclellan, Dudley Porter, Jr., and SunTrust
Banks, Inc. For information concerning the stock ownership of SunTrust
Banks, Inc., see Footnote 12 under "Beneficial Ownership Based on
Investment Power." Voting power with respect to shares owned by these
trusts was held by Hugh O. Maclellan, Jr., Kathrina H. Maclellan and
Dudley Porter, Jr. The R. J. and Cora L. Maclellan Trusts for the
Maclellan Foundation are charitable organizations treated as private
foundations for federal income tax purposes.
(4) Hugh O. Maclellan, Jr. had the power to vote the following shares of
Common Stock:
<TABLE>
<CAPTION>
<S> <C>
Voting Power 4,288,366 Shares - 3.17%
Shared Voting Power 32,441,099 Shares - 23.98%
Total 36,729,465 Shares - 27.15%
</TABLE>
34
<PAGE>
Totals listed above, and below under "Beneficial Ownership Based on
Investment Power", do not include 85,128 shares of Common Stock voted
solely by spouse, Nancy B. Maclellan, of which beneficial interest is
disclaimed. Also totals do not include options to purchase 5,000 shares of
Common Stock which are exercisable at March 1, 1998.
(5) Kathrina H. Maclellan had the power to vote the following shares of
Common Stock:
<TABLE>
<CAPTION>
<S> <C>
Voting Power 2,756,283 Shares - 2.04%
Shared Voting Power 15,382,152 Shares - 11.37%
Total 18,138,435 Shares - 13.41%
</TABLE>
(6) Dudley Porter, Jr. had the power to vote the following shares of Common
Stock:
<TABLE>
<CAPTION>
<S> <C>
Voting Power 5,360 Shares - 0.00%
Shared Voting Power 9,301,570 Shares - 6.88%
Total 9,306,930 Shares - 6.88%
</TABLE>
Totals listed above, and below under "Beneficial Ownership Based on
Investment Power", do not include 41,852 shares of Common Stock voted
solely by spouse, Mary M. Porter, of which beneficial interest is
disclaimed.
(7) Charlotte M. Heffner had the power to vote the following shares of Common
Stock:
<TABLE>
<CAPTION>
<S> <C>
Voting Power 2,401,460 Shares - 1.78%
Shared Voting Power 5,304,402 Shares - 3.92%
Total 7,705,862 Shares - 5.70%
</TABLE>
Totals listed above, and below under "Beneficial Ownership Based on
Investment Power," do not include 65,664 shares of Common Stock voted
solely by spouse, Richard L. Heffner, of which beneficial interest is
disclaimed. Also totals do not include options to purchase 5,000 shares of
Common Stock which are exercisable at March 1, 1998.
With respect to the shares of Common Stock held by SunTrust Bank, the
Company has been informed that as of March 1, 1998: (a) 6,725,350 shares
(4.97%) were owned by the R. J. and Cora L. Maclellan Trusts for the
Maclellan Foundation; and (b) 7,172,012 shares (5.30%) were owned by other
trusts and charitable organizations within the Maclellan family.
Accordingly, of the shares of Common Stock reported as held by SunTrust
Bank, Chattanooga, N. A., as of March 1, 1998, an aggregate of 13,897,362
shares of Provident Common Stock (10.27%) were also included among those
listed as beneficially owned by either the R. J. and Cora L. Maclellan
Trusts for the Maclellan Foundation, Kathrina H. Maclellan, Hugh O.
Maclellan, Jr., Dudley Porter, Jr., or Charlotte M. Heffner.
(8) Zurich Insurance Company has sole voting power of 19,047,620 shares
(14.08%) and sole dispositive power of 12,698,414 shares (9.39%). The
shares as to which Zurich has sole voting power are owned by Zurich and a
number of its wholly-owned subsidiaries, with the exception of 6,349,206
shares which are owned by Longfellow I, LLC. Under the Stock Purchase
Agreement dated March 27, 1997, between Longfellow and Zurich, Longfellow
granted Zurich a proxy to vote the shares of the Company stock held by
Longfellow.
35
<PAGE>
BENEFICIAL OWNERSHIP BASED ON INVESTMENT POWER
<TABLE>
<CAPTION>
AMOUNT PERCENT OF
BENEFICIALLY OWNED(1) COMMON STOCK
NAME AND ADDRESS OF BENEFICIAL OWNER (INVESTMENT POWER) OUTSTANDING
- ------------------------------------ --------------------- ------------
<S> <C> <C>
The Maclellan Foundation, Inc............. 15,661,693(2) 11.58
Chattanooga, Tennessee
R. J. and Cora L. Maclellan............... 6,725,350 4.97
Trusts for The Maclellan Foundation, Inc.
Chattanooga, Tennessee
Hugh O. Maclellan, Jr..................... 36,729,465(2)(3) 27.15
Chattanooga, Tennessee
Kathrina H. Maclellan..................... 33,800,128(2)(4) 24.99
(Mrs. Robert L. Maclellan)
Lookout Mountain, Tennessee
Charlotte M. Heffner...................... 23,491,035(2)(5) 17.37
(Mrs. Richard L. Heffner)
Atlanta, Georgia
Robert H. Maclellan....................... 18,778,459(2)(6) 13.88
Lookout Mountain, Tennessee
Dudley Porter, Jr......................... 9,306,930(2)(7) 6.88
(retired officer of Company)
Chattanooga, Tennessee
Frank A. Brock............................ 16,549,035(2)(8) 12.23
Lookout Mountain, Tennessee
G. Richard Hostetter...................... 15,664,693(2)(9) 11.58
Chattanooga, Tennessee
A. S. MacMillan........................... 15,662,595(2)(10) 11.58
Atlanta, Georgia
Ronald W. Blue............................ 15,661,693(2)(11) 11.58
Atlanta, Georgia
SunTrust Banks, Inc....................... 15,624,105(12) 11.56
Atlanta, Georgia
</TABLE>
- --------
(1) Beneficial ownership of securities is listed according to Rule 13d - 3 of
the Securities Exchange Act of 1934. If shares beneficially owned by more
than one person were shown as beneficially owned by only one person, then
the total number of shares owned by The Maclellan Foundation, Inc.; the
R. J. and Cora L. Maclellan Trusts for the Maclellan Foundation, Inc.;
Kathrina H. Maclellan, Hugh O. Maclellan, Jr.; Charlotte M. Heffner;
Robert H. Maclellan; Dudley Porter, Jr.; Frank A. Brock; G. Richard
Hostetter; A. S. MacMillan; Ronald W. Blue; and SunTrust Banks, Inc.
(with respect to the Maclellan family only) would have been equal
46,240,166 shares of Common Stock (34.18%). The totals shown are for the
total Maclellan family interest only. Shares held by SunTrust Bank which
are included in the totals for the Maclellan family include 13,927,066
shares of Common Stock.
(2) The 15,661,693 shares of Common Stock owned by the Maclellan Foundation
also have been included among those listed for Hugh O. Maclellan, Jr.,
Kathrina H. Maclellan, Charlotte M. Heffner, Robert H. Maclellan, A. S.
MacMillan, Frank A. Brock, G. Richard Hostetter and Ronald W. Blue, the
trustees of the Maclellan Foundation, all of whom share investment power
with respect to these shares.
(3) Hugh O. Maclellan, Jr. had the power to invest the following shares of
Common Stock:
<TABLE>
<CAPTION>
<S> <C>
Sole Investment Power 2,644,974 Shares - 1.95%
Shared Investment Power 34,084,491 Shares - 25.20%
--------------------------
Total 36,729,465 Shares - 27.15%
</TABLE>
36
<PAGE>
These shares listed above as beneficially owned by Mr. Maclellan based upon
investment power include the 15,661,693 shares of Common Stock owned by the
Maclellan Foundation and 6,725,350 shares of Common Stock owned by the R. J.
and Cora L. Maclellan Trust for the Maclellan Foundation. Totals listed
above do not include 85,128 shares of Common Stock for which his spouse,
Nancy B. Maclellan, had sole investment power, and for which beneficial
ownership is disclaimed. Also totals do not include options to purchase
5,000 shares of Common Stock which are exercisable at March 1, 1998.
(4) Kathrina H. Maclellan had the power to invest the following shares of
Common Stock:
<TABLE>
<CAPTION>
<S> <C>
Sole Investment Power 2,756,283 Shares - 2.04%
Shared Investment Power 31,043,845 Shares - 22.95%
--------------------------
Total 33,800,128 Shares - 24.99%
</TABLE>
These shares listed above as beneficially owned by Mrs. Maclellan based upon
investment power include the 15,661,693 shares of Common Stock owned by the
Maclellan Foundation and 6,725,350 shares of Common Stock owned by the R. J.
and Cora L. Maclellan Trust for the Maclellan Foundation.
(5) Charlotte M. Heffner had the power to invest the following shares of
Common Stock:
<TABLE>
<CAPTION>
<S> <C>
Sole Investment Power 915,390 Shares - 0.68%
Shared Investment Power 22,575,645 Shares - 16.69%
--------------------------
Total 23,491,035 Shares - 17.37%
</TABLE>
These shares listed above as beneficially owned by Mrs. Heffner based upon
investment power include 15,661,693 shares of Common Stock owned by the
Maclellan Foundation for which Mrs. Heffner had shared investment power.
Totals listed above do not include 65,664 shares of Common Stock for which
her spouse, Richard L. Heffner, had sole investment power, and for which
beneficial ownership is disclaimed. Also totals do not include options to
purchase 5,000 shares of Common Stock which are exercisable at March 1,
1998.
(6) Robert H. Maclellan had the power to invest the following shares of Common
Stock:
<TABLE>
<CAPTION>
<S> <C>
Sole Investment Power 434,618 Shares - 0.32%
Shared Investment Power 18,343,841 Shares - 13.56%
--------------------------
Total 18,778,459 Shares - 13.88%
</TABLE>
These shares listed above as beneficially owned by Mr. Maclellan based upon
investment power include 15,661,693 shares of Common Stock owned by the
Maclellan Foundation.
(7) Dudley Porter, Jr. had the power to invest the following shares of Common
Stock:
<TABLE>
<CAPTION>
<S> <C>
Sole Investment Power 5,360 Shares - 0.00%
Shared Investment Power 9,301,570 Shares - 6.88%
------------------------
Total 9,306,930 Shares - 6.88%
</TABLE>
Totals listed above do not include 41,852 shares of Common Stock for which
his spouse, Mary M. Porter, had sole investment power, and for which
beneficial ownership is disclaimed.
(8) Frank A. Brock had the power to invest the following shares of Common
Stock:
<TABLE>
<CAPTION>
<S> <C>
Sole Investment Power 1,930 Shares - 0.00%
Shared Investment Power 16,547,105 Shares - 12.23%
--------------------------
Total 16,549,035 Shares - 12.23%
</TABLE>
In addition to the 15,661,693 shares of Common Stock owned by the Maclellan
Foundation for which Mr. Brock had shared investment power, Mr. Brock held
sole investment and sole voting power for 1,930 shares of Common Stock.
37
<PAGE>
(9) G. Richard Hostetter had the power to invest the following shares of
Common Stock:
<TABLE>
<CAPTION>
<S> <C>
Sole Investment Power 3,000 Shares - 0.00%
Shared Investment Power 15,661,693 Shares - 11.58%
--------------------------
Total 15,664,693 Shares - 11.58%
</TABLE>
In addition to the 15,661,693 shares of Common Stock owned by the Maclellan
Foundation for which Mr. Hostetter had shared investment power, Mr.
Hostetter held sole investment and sole voting power for 3,000 shares of
Common Stock.
(10) A. S. MacMillan had the power to invest the following shares of Common
Stock:
<TABLE>
<CAPTION>
<S> <C>
Sole Investment Power 902 Shares - 0.00%
Shared Investment Power 15,661,693 Shares - 11.58%
--------------------------
Total 15,662,595 Shares - 11.58%
</TABLE>
In addition to the 15,661,693 shares of Common Stock owned by the Maclellan
Foundation, for which Mr. MacMillan had shared investment power, Mr.
MacMillan held sole investment and sole voting power for 902 shares of
Common Stock. Also totals do not include options to purchase 5,000 shares
of Common Stock which are exercisable at March 1, 1998.
(11) Ronald W. Blue had the power to invest the following shares of Common
Stock:
<TABLE>
<CAPTION>
<S> <C>
Sole Investment Power 0 Shares - 0.00%
Shared Investment Power 15,661,693 Shares - 11.58%
--------------------------
Total 15,661,693 Shares - 11.58%
</TABLE>
These shares listed above as beneficially owned by Mr. Blue based upon
investment power, include 15,661,693 shares of Common Stock owned by the
Maclellan Foundation.
(12) SunTrust Banks, Inc. ("SunTrust"), a bank holding company, has informed
the Company that as of March 1, 1998, certain subsidiaries of SunTrust
held in various fiduciary capacities an aggregate of 15,624,105 shares
(11.56%) of Common Stock of the Company. As to such shares, all of which
are held in various fiduciary capacities, SunTrust and certain of its
subsidiaries may be deemed beneficial owners; however, SunTrust and such
subsidiaries disclaim any beneficial interest in such shares. Shares
reported include shares also reported for the Maclellan family as well
as other shares held for owners unrelated to the Maclellan family.
SunTrust and its subsidiaries had the power to invest the following shares
of the Company's Common Stock:
<TABLE>
<CAPTION>
<S> <C>
Sole Investment Power 519,980 Shares - 0.38%
Shared Investment Power 15,054,687 Shares - 11.14%
--------------------------
Total 15,574,667 Shares - 11.52%
</TABLE>
SunTrust and its subsidiaries had the power to vote the following shares of
the Company's Common Stock:
<TABLE>
<CAPTION>
<S> <C>
Sole Voting Power 1,646,970 Shares - 1.22%
Shared Voting Power 68,455 Shares - 0.05%
------------------------
Total 1,715,425 Shares - 1.27%
</TABLE>
38
<PAGE>
As to the shares described above, SunTrust has informed the Company that as
of March 1, 1998, an aggregate of 15,494,367 shares (11.46%) of Common
Stock was held in various fiduciary capacities by SunTrust Bank,
Chattanooga, N.A. ("SunTrust"), which is a direct subsidiary of SunTrust
Bank of Tennessee, which is a direct subsidiary of SunTrust Banks, Inc.
As of March 1, 1998, SunTrust Bank, Chattanooga, N. A. had the power to
invest the following shares:
<TABLE>
<CAPTION>
<S> <C>
Sole Investment Power............................ 419,550 Shares - 0.31%
Shared Investment Power.......................... 15,026,629 Shares - 11.1%
---------------------------
Total............................................ 15,446,179 Shares - 11.42%
</TABLE>
As of March 1, 1998, SunTrust Bank, Chattanooga, N. A. had the power to
vote the following shares:
<TABLE>
<CAPTION>
<S> <C>
Sole Voting Power................................... 1,523,482 Shares - 1.13%
Shared Voting Power................................. 62,205 Shares - 0.05%
------------------------
Total............................................... 1,585,687 Shares - 1.18%
</TABLE>
With respect to the shares of Common Stock held by SunTrust Bank,
Chattanooga, N. A., the Company has been informed that as of March 10,
1998: (a) 6,738,881 shares (4.9%) were owned by the R. J. and Cora L.
Maclellan Trusts for the Maclellan Foundation; and (b) 7,738,384 shares
(5.72%) were owned by other trusts and charitable organizations within the
Maclellan family. Accordingly, an aggregate of 14,477,265 shares (10.70%)
were also included among those listed as beneficially owned by either the
R. J. and Cora L. Maclellan Trusts for the Maclellan Foundation, Kathrina
H. Maclellan, Hugh O. Maclellan, Jr., Robert H. Maclellan, Dudley Porter,
Jr., or Charlotte M. Heffner.
COMPLIANCE WITH SECTION 16(A)
Under Section 16(a) of the Exchange Act, the Company's directors, officers
and 10% beneficial holders of Common Stock and Company Depositary Shares are
required to file with the Securities and Exchange Commission certain forms
reporting their beneficial ownership of and transactions in Common Stock and
Company Depositary Shares. Based solely upon information provided to the
Company by each of such persons, the Company believes that each of its
directors, officers and 10% beneficial owners filed all required reports on a
timely basis during the last fiscal year with the following exceptions: Mr.
Chandler made two voluntary purchases in the Company's dividend reinvestment
plan, one in April and one in June, which should have been reported on Form 4.
These transactions were later reported on Form 5. Mr. Madeja, an executive
officer of the Company, purchased shares on the open market in December which
were not reported on Form 4 in a timely fashion.
39
<PAGE>
ITEM 5. SELECTION OF AUDITORS
The Board of Directors, in accordance with the recommendation of its Audit
Committee, has re-appointed Ernst & Young LLP, as independent auditors for the
Company, subject to the ratification by the shareholders. Representatives of
Ernst & Young LLP are expected to be present at the Annual Meeting to respond
to appropriate questions and to make a statement if they so desire.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE RATIFICATION
OF THE SELECTION OF ERNST & YOUNG LLP.
As of the time the Proxy Statement was printed, the Board of Directors was
not aware of any other business to be presented at the Meeting; however, if
any matters other than those referred to above properly come before the
meeting, the persons voting the proxies will vote them in accordance with
their best judgment.
STOCKHOLDER PROPOSALS
Stockholder proposals intended to be presented at the Annual Meeting of
Stockholders in 1999 should be directed to the Corporate Secretary of the
Company and be received by the Company no later than December 31, 1998, to be
considered for qualification for inclusion in the proxy statement and proxy
card relating to that meeting.
40
<PAGE>
APPENDIX A
AMENDED AND RESTATED ANNUAL MANAGEMENT INCENTIVE COMPENSATION PLAN OF 1994
ARTICLE 1
Purpose
The purpose of this Amended and Restated Annual Management Incentive
Compensation Plan ("MICP") is to motivate the participants to perform in a way
that will enable Provident Companies, Inc. and its subsidiaries ("the
Company"), to reach its short-term and long-term goals.
ARTICLE 2
Administration of the Plan
The Compensation Committee of the Board of Directors ("the Committee"), will
administer, construe, and interpret the MICP. No member of the Committee, the
Board of Directors, or any delegatee as the case may be, shall be liable for
any act done in good faith. The construction and interpretation by the
Committee of any provision of the MICP shall be final and conclusive. The
Committee must approve, subject to the provisions of the MICP, the amount, if
any, due a participant. The Committee, may, in its discretion, delegate its
general administrative duties to an officer or employee or committee composed
of officers or employees of the Company, but may not delegate its authority to
construe and interpret the MICP or approve awards. The Committee, subject to
approval by the Board of Directors, may, at any time or from time to time
amend the MICP in any respect without restriction and without the consent of
any participant. However, any modification of the MICP which would increase
materially the benefits accruing to participants, modify materially the
requirements as to eligibility for participation, materially increase the cost
of the MICP to the Company, or permit any member of the Committee to receive
an award, must be approved by the stockholders of the Company.
ARTICLE 3
Elements of the MICP
The MICP consists of two subparts: (i) the Annual Incentive Plan, under
which annual incentive awards are based upon the achievement of one-year
goals; and (ii) the Performance Share Plan, pursuant to which participants are
granted deferred compensation units in the form of performance shares which
are payable in cash or shares of common stock upon a subsequent payment date.
Each of the subparts of the MICP is described below.
ARTICLE 4
Participation in the Plan
Participation in the MICP shall be based on recommendation by Company
management and subject to approval by the Committee. Participation in all
portions of the MICP except the Performance Share Plan (as described below)
will be limited to officers and other key employees of the Company and its
subsidiaries whose judgments, decisions and actions can have a discernible
impact on the profitability of the Company. The Committee will establish
participation criteria and make decisions on eligibility based on such
criteria.
41
<PAGE>
ARTICLE 5
Stock To Be Awarded
Stock awards will be for shares of Company common stock. Stock subject to
the Plan may be unissued shares, reacquired shares or shares bought on the
open market for purposes of the Plan. The total number of shares of common
stock that may be awarded to all participants under the Plan may not exceed
1,500,000 shares. No more than 100,000 shares may be awarded to a participant
in a calendar year.
ARTICLE 6
Annual Incentive Plan
6.1 General. The Annual Incentive Plan portion of the MICP shall include the
Corporate Performance Subplan and the Individual Performance Subplan, as more
specifically described below. Awards under the Annual Incentive Plan will be
based entirely upon achievement of one-year goals. Each plan year runs from
January 1 to December 31.
6.2 Corporate Performance Subplan. The Corporate Performance Subplan will be
based solely on the achievement of objective corporate performance goals. The
awards under this Subplan may be determined on the basis of one or more of the
following measures of corporate performance, alone or in combination, for the
Company as a whole or for any division or business unit: (a) return on equity,
(b) overall or selected premium or sales growth, (c) stock performance, (d)
expense efficiency ratios (ratio of expenses to premium income), (e) earnings
per share, (f) market share, (g) revenue, (h) customer service measures or
indices (i) underwriting efficiency and/or quality, and (j) persistency
factors. Measurement of performance against such goals established by the
Committee shall be objectively determinable, and to the extent such goals are
expressed in standard accounting terms, performance shall be measured in
accordance with generally accepted accounting principles. The Committee shall
have the right for any reason to reduce or eliminate (but not increase) any
such award, notwithstanding the achievement of a specified goal. The maximum
annual award under the Corporate Performance Subplan to any participant will
be $2.5 million. At the beginning of each plan year, the Committee will
establish performance goals under the Corporate Performance Subplan based on
one or more of the above corporate performance criteria, and establish target
awards and any formula for payouts in excess of target based on the
achievement of measurable goals. Target awards under the Corporate Performance
Subplan are to be set by the Committee as percentages of base salary, which
percentages may differ from participant to participant and from year to year.
6.3 Individual Performance Subplan. Awards under the Individual Performance
Subplan will be based on an individual's contribution to the business of the
Company, as determined by the Committee. This contribution may be assessed on
nonobjective as well as objective measures. The Committee will establish
target awards under the Individual Performance Subplan and limits on payouts
in excess of targets, if any. Target awards under the Individual Performance
Subplan are set at percentages of base salary to be established by the
Committee which may differ from participant to participant and from year to
year. Awards under the Individual Performance Subplan will not be contingent
on the failure to attain the performance goals under the Corporate Performance
Subplan.
6.4 Form and Payment of Awards. Awards under the Annual Incentive Plan will
be approved by the Committee after the end of each plan year. No awards will
be payable to any employee under any measure if thresholds established by the
Committee are not reached. Awards will be paid partly in cash and partly in
Performance Shares, as described below under Article 7.
6.5 Vesting. Any award under the Annual Incentive Plan will be vested
(considered the participant's property) at the time the Committee approves the
award; except that, if a participant dies or becomes disabled after the close
of the plan year for which the award was earned and prior to approval of the
award, the award will be vested as of the date of death or disability.
42
<PAGE>
6.6 Change in Control. In the event of a Change in Control, the Committee
will determine the Annual Incentive Plan awards for each participant that
would have been earned if the plan year had ended on the date of the Change in
Control, based on actual performance through the date of the Change in Control
(the "Vested Awards"). Thereafter:
(a) Each participant who is in active employment at the end of the plan
year shall be entitled to the greater of his or her Vested Award and an
award based on actual performance for the entire plan year.
(b) If the MICP is terminated during a plan year after the date a Change
in Control occurs, each participant who is in active employment at the time
of such termination shall be entitled to the greater of his or her Vested
Award and an award based on actual performance through the date of
termination of the plan.
(c) If a participant's employment is terminated without Cause by the
Company during a plan year after the Change in Control occurs, such
participant shall be entitled to the greater of his or her Vested Award and
an award based on actual performance through the date of termination of
employment.
6.7 Definitions. For purposes of the MICP, the following terms have the
following meanings.
(a) "Cause" shall mean the occurrence of one of the following :
(1) A conviction of the participant of (x) a felony or (y) any lesser
crime or offense involving the property of the Company or one of its
subsidiaries.
(2) The willful engaging by the participant in conduct which has
caused demonstrable and serious injury to the Company, monetary or
otherwise, as evidenced by a determination in a binding and final
judgment, order or decree of a court or administrative agency of
competent jurisdiction, in effect after exhaustion or lapse of all
rights of appeal, in an action, suit or proceeding, whether civil,
criminal, administrative or investigative.
(3) Willful gross dereliction of duty or other willful grave
misconduct by the participant and failure to cure such situation within
thirty (30) days after receipt of notice thereof from the Chairman of
the Committee.
No act or failure to act on the part of the participant shall be deemed
willful if done, or omitted to be done, by the participant in good faith and
with a reasonable belief that his action or omission was in the best interests
of the Company or a subsidiary. The participant shall not be deemed to have
been terminated for "Cause" unless and until there shall have been delivered
to the participant a copy of a resolution duly adopted by the Committee (or
another committee of the Board hereafter succeeding the responsibilities
performed on the effective date of the MICP by the Committee) finding that in
the good faith opinion of the Committee the participant has committed an act
set forth in clause (1), (2) or (3) of this definition and specifying the
particulars thereof in detail.
(b) "Change in Control" shall be deemed to have occurred if at any time
or from time to time after the effective date of the MICP:
(1) any "person" or "group" (as those terms are used in Sections
13(d) and 14(d), respectively, of the Securities Exchange Act of 1934
("Exchange Act")), other than the Maclellan family or a trustee or
other fiduciary holding securities under an employee benefit plan of
the Company, or a corporation owned, directly or indirectly, by the
stockholders of the Company in substantially the same proportions as
their ownership of stock of the Company, is or becomes the "beneficial
owner," (as defined in Rule 13d-3 of the Exchange Act), directly or
indirectly, of securities of the Company representing thirty percent
(30%) or more of the combined voting power of the Company's then
outstanding securities and (ii) the "group" comprised of the Maclellan
family does not then
43
<PAGE>
beneficially own, directly or indirectly, securities of the Company
representing more than thirty percent (30%) of the combined voting
power of the Company's then outstanding securities; or
(2) the stockholders of the Company approve a merger or consolidation
of the Company with any other corporation, other than a merger or
consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting
securities of the surviving entity) more than fifty percent (50%) of
the combined voting power of the voting securities of the Company or
such surviving entity outstanding immediately after such merger or
consolidation, or the stockholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all the Company's
assets.
ARTICLE 7
Performance Share Plan
7.1 General. A Performance Share Plan is also included in the MICP, the
specific terms and conditions of which shall be set forth in one or more
separate subplan documents approved and amended from time to time by the
Committee consistent with the terms of the MICP. One such subplan
("Performance Share Plan I") shall be applicable to senior officers, and
producers of insurance business for the benefit of the Company or its
subsidiaries, selected by the Committee upon the recommendation of the Chief
Executive Officer ("CEO"), who are in a position to contribute materially to
the Company's continued growth and development and to its long term financial
success. For purposes of this Plan, producers shall be deemed to be
consultants of the Company or its subsidiaries. Another such subplan
("Performance Share Plan II") is for all persons who receive MICP annual
incentive awards who are not otherwise participating in such year in
Performance Share Plan I.
7.2 Performance Share Plan I. Participants in Performance Share Plan I are
the CEO, President, Vice Chairman, Executive Vice Presidents and such other
senior officers selected by the Committee upon the recommendation of the CEO
to participate in Performance Share Plan I for a given year. Producers for the
Company who achieve certain performance sales goals may also be selected to
participate in Performance Share Plan I as described below. Approximately 15-
35 officers may participate in any one year. The officers, all of whom have
company stock ownership requirements, are required to receive a portion of
their MICP annual incentive awards in "Performance Shares" based on the
following table:
<TABLE>
<CAPTION>
MICP INCENTIVE EARNED PERCENT PAID IN PERFORMANCE SHARES
--------------------- ----------------------------------
<S> <C>
Less than $100,000........................ 25.0%
$100,000--$249,999........................ 37.5%
$250,000 or more.......................... 50.0%
</TABLE>
Participants in Performance Share Plan I may elect to receive any portion of
their MICP awards above the required percentage in Performance Shares.
A "Performance Share" is a unit of deferred compensation, equal in value to
one share of Company common stock. The number of Performance Shares to be
awarded to any participant in Performance Share Plan I is determined by:
(1) Dividing the amount of MICP award being paid in Performance Shares
(both mandatory and voluntary) by the market price for a share of Company
common stock on the date the amount of the MICP award is determined, and
(2) "Grossing-up" the number of Performance Shares on a 30% basis, to
reflect the increased risk of the volatility of stock price, particularly
during the deferral period, as well as lack of liquidity and marketability.
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Performance Shares granted under Performance Share Plan I are subject to the
following:
(1) The shares attributable to the "gross-up" factor are subject to
forfeiture during a three-year period following the award. The remaining
Performance Shares are not subject to forfeiture.
(2) Participants may elect to extend the deferral period for payment of
Performance Shares beyond the required period of three years, but not
beyond the earliest of retirement, death, or disability. Any such election
must be made prior to the date such shares are credited to the participant.
(3) Generally, Performance Shares will be paid in Company common stock;
however, the Committee has the authority to direct that the value of such
shares be paid in part or entirely in cash.
(4) Participant accounts under Performance Share Plan I will be credited
with dividend equivalents in an amount equal to the cash dividends paid on
Company common stock during the period of deferral. The dividend may be
paid in cash or applied to accumulate additional Performance Shares, at the
election of the participant.
(5) Performance Shares will be counted in the calculation of
participants' total ownership of Company stock for purposes of determining
the extent to which stock ownership requirements have been met.
(6) In the event of death, normal retirement, termination without cause,
or Change in Control of the Company, any shares attributable to the "gross-
up" factor, which otherwise would be subject to forfeiture during a three
year period, will automatically cease to be subject to such forfeiture. In
the event of termination for Cause or voluntary resignation, any shares
subject to the "gross-up" factor will be forfeited. The Committee has the
authority to review such forfeiture on a case by case basis.
Certain producers who achieve performance sales goals may also be selected
to participate Performance Share Plan I. The goals required and the terms of
the producers' participation will be approved by the Committee. However, there
is no "gross-up" of the number of shares to be awarded under Performance Share
Plan I to the producers, and the terms of such participation would be no more
favorable than those applicable to the officers. Management estimates that
approximately ten to thirty-five producers would participate in Performance
Share Plan I each year.
7.3 Performance Share Plan II. Each person who receives an annual incentive
award under the MICP and is not otherwise participating in such year in
Performance Share Plan I, shall automatically be a participant in Performance
Share Plan II. Participants in Performance Share Plan II are required to
receive a portion of the MICP annual incentive awards in "Performance Shares"
based on the following table:
<TABLE>
<CAPTION>
MICP INCENTIVE EARNED PERCENT PAID IN PERFORMANCE SHARES
--------------------- ----------------------------------
<S> <C>
Less than $20,000......................... 15.0% (minimum of 50 shares)
$20,000 or more........................... 25.0%
</TABLE>
The number of Performance Shares to be awarded to any participant in
Performance Share Plan II is determined by dividing the amount of MICP award
being paid in Performance Shares by the market price for a share of Company
common stock on the date the amount of the MICP award is determined.
Performance Shares granted under Performance Share Plan II are subject to
the following:
(1) Participants may elect to extend the deferral period for payment of
Performance Shares for up to two years beyond the required period of three
years, but not beyond the earliest of retirement, death, or disability. Any
such election must be made prior to the date such shares are credited to
the participant.
(2) Generally, Performance Shares will be paid in Company common stock;
however, the Committee has the authority to direct that the value of such
Performance Shares be paid in part or entirely in cash.
Participant accounts under Performance Share Plan II will be credited with
dividend equivalents in an amount equal to the cash dividends paid on Company
common stock during the period of deferral. The dividend will be applied to
accumulate additional Performance Shares in the participant's account.
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Performance Shares will be counted in the calculation of participants' total
ownership of Company stock for purposes of determining the extent to which any
stock ownership requirements have been met.
ARTICLE 8
General Provisions
8.1 Non-Assignability. No grants or awards under the MICP shall be subject
in any manner to alienation, anticipation, sale, transfer, assignment, pledge
or encumbrance.
8.2 No Right to Continued Employment. Participation in the MICP shall not
give any employee any right to remain in the employ of the Company. The MICP
is not to be construed as a contract of employment for any period and does not
alter the at-will status of any participant.
8.3 Source of Benefits. Awards under the MICP will not be prefunded but will
be paid by the Company as and when they become due as provided herein, and the
participant's interest in the award shall be only that of an unsecured
creditor of the Company.
8.4 Withholding. The Company may deduct or withhold, or require a
participant to remit to the Company, an amount sufficient to satisfy federal,
state and local taxes (including the participant's FICA obligation) required
by law to be withheld with respect to any taxable event arising as a result of
the MICP.
8.5 Governing Law. This MICP, and the rights and obligations of the parties
thereunder, will be construed in accordance with the laws of the State of
Tennessee.
The foregoing is hereby acknowledged as being the Provident Companies, Inc.,
Amended and Restated Annual Management Incentive Compensation Plan of 1994 as
adopted by the Board of Directors of the Company on March 26, 1998, and
approved by the Stockholders of the Company on May 6, 1998.
PROVIDENT COMPANIES, INC.
By:__________________________________
Its:_________________________________
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APPENDIX B
PROVIDENT COMPANIES, INC.
STOCK PLAN OF 1999
ARTICLE I
Purpose
1.1 General. The purpose of the Provident Companies, Inc. Stock Plan of 1999
(the "Plan") is to promote the success, and enhance the value, of Provident
Companies, Inc. (the "Corporation"), by linking the personal interests of its
employees, officers, producers and directors to those of Corporation
stockholders and by providing such persons with an incentive for outstanding
performance. The Plan is further intended to provide flexibility to the
Corporation in its ability to motivate, attract, and retain the services of
employees, officers, producers and directors upon whose judgment, interest,
and special effort the successful conduct of the Corporation's operation is
largely dependent. Accordingly, the Plan permits the grant of incentive awards
from time to time to selected employees, officers, producers and directors.
ARTICLE 2
Effective Date
2.1 Effective Date. The Plan shall be effective as of January 1, 1999.
ARTICLE 3
Definitions
3.1 Definitions. When a word or phrase appears in this Plan with the initial
letter capitalized, and the word or phrase does not commence a sentence, the
word or phrase shall generally be given the meaning ascribed to it in this
Section or in Section 1.1 unless a clearly different meaning is required by
the context. The following words and phrases shall have the following
meanings:
(a) "Award" means any Option, Stock Appreciation Right, Restricted Stock
Award, or Dividend Equivalent Award, or any other right or interest
relating to Stock or cash, granted to a Participant under the Plan.
(b) "Award Agreement" means any written agreement, contract, or other
instrument or document evidencing an Award.
(c) "Board" means the Board of Directors of the Corporation.
(d) "Change in Control" means and includes each of the following:
(1) any "person" or "group" (as those terms are used in Sections
13(d) and 14(d), respectively, of the 1934 Act), other than the
Maclellan family or a trustee or other fiduciary holding securities
under an employee benefit plan of the Company, or a corporation
owned, directly or indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership of stock of
the Company, is or becomes the "beneficial owner," (as defined in
Rule 13d-3 of the 1934 Act), directly or indirectly, of securities
of the Company representing thirty percent (30%) or more of the
combined voting power of the Company's then outstanding securities
and (ii) the "group" comprised of the Maclellan family does not then
beneficially own, directly or indirectly, securities of the Company
representing more than thirty percent (30%) of the combined voting
power of the Company's then outstanding securities; or
(2) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than
a merger or consolidation which would result in the voting
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the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) more than fifty
percent (50%) of the combined voting power of the voting securities
of the Company or such surviving entity outstanding immediately
after such merger or consolidation, or the stockholders of the
Company approve a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of all or
substantially all the Company's assets.
(e) "Code" means the Internal Revenue Code of 1986, as amended from time
to time.
(f) "Committee" means the committee of the Board described in Article 4.
(g) "Corporation" means Provident Companies, Inc., a Delaware
corporation.
(h) "Covered Employee" means a covered employee as defined in Code
Section 162(m)(3).
(i) "Disability" means any illness or other physical or mental condition
of a Participant that renders the Participant incapable of performing his
customary and usual duties for the Corporation, or any medically
determinable illness or other physical or mental condition resulting from a
bodily injury, disease or mental disorder which, in the judgment of the
Committee, is permanent and continuous in nature. The Committee may require
such medical or other evidence as it deems necessary to judge the nature
and permanency of the Participant's condition.
(j) "Dividend Equivalent" means a right granted to a Participant under
Article 11.
(k) "Effective Date" has the meaning assigned such term in Section 2.1.
(l) "Fair Market Value", on any date, means (i) if the Common Stock is
listed on a securities exchange or traded over the Nasdaq National Market,
the average of the high and low market prices reported in The Wall Street
Journal at which a Share of Common Stock shall have been sold on such day
or on the next preceding trading day if such date was not a trading day, or
(ii) if the Common Stock is not listed on a securities exchange or traded
over the Nasdaq National Market, the mean between the bid and offered
prices as quoted by Nasdaq for such date, provided that if it is determined
that the fair market value is not properly reflected by such Nasdaq
quotations, Fair Market Value will be determined by such other method as
the Committee determines in good faith to be reasonable.
(m) "Incentive Stock Option" means an Option that is intended to meet the
requirements of Section 422 of the Code or any successor provision thereto.
(n) "Non-Qualified Stock Option" means an Option that is not an Incentive
Stock Option.
(o) "Option" means a right granted to a Participant under Article 7 of
the Plan to purchase Stock at a specified price during specified time
periods. An Option may be either an Incentive Stock Option or a
Non-Qualified Stock Option.
(p) "Parent" means a corporation which owns or beneficially owns a
majority of the outstanding voting stock or voting power of the
Corporation. For Incentive Stock Options, the term shall have the same
meaning as set forth in Code Section 424(e).
(q) "Participant" means a person who, as an employee, officer, Producer
or director of the Corporation or any Parent or Subsidiary, has been
granted an Award under the Plan.
(r) "Plan" means the Provident Companies, Inc. Stock Plan of 1999, as
amended from time to time.
(s) "Producer" means producer of insurance business for the benefit of
the Company or its subsidiaries. For purposes of this Plan, Producers are
deemed to be consultants of the Company or its subsidiaries.
(t) "Restricted Stock Award" means Stock granted to a Participant under
Article 10 that is subject to certain restrictions and to risk of
forfeiture.
(u) "Retirement" means a Participant's voluntary termination of
employment or as a director of the Corporation, Parent or Subsidiary after
attaining age 55 and with the approval of the Committee.
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(v) "Stock" means the $1.00 par value common stock of the Corporation and
such other securities of the Corporation as may be substituted for Stock
pursuant to Article 12.
(w) "Stock Appreciation Right" or "SAR" means a right granted to a
Participant under Article 8 to receive a payment equal to the difference
between the Fair Market Value of a share of Stock as of the date of
exercise of the SAR over the grant price of the SAR, all as determined
pursuant to Article 8.
(x) "Subsidiary" means any corporation, limited liability company,
partnership or other entity of which a majority of the outstanding voting
stock or voting power is beneficially owned directly or indirectly by the
Corporation. For Incentive Stock Options, the term shall have the meaning
set forth in Code Section 424(f).
(y) "1933 Act" means the Securities Act of 1933, as amended from time to
time.
(z) "1934 Act" means the Securities Exchange Act of 1934, as amended from
time to time.
ARTICLE 4
Administration
4.1 Committee. The Plan shall be administered by a committee (the
"Committee") appointed by the Board (which Committee shall consist of two or
more directors) or, at the discretion of the Board from time to time, the Plan
may be administered by the Board. It is intended that the directors appointed
to serve on the Committee shall be "non-employee directors" (within the
meaning of Rule 16b-3 promulgated under the 1934 Act) and "outside directors"
(within the meaning of Code Section 162(m) and the regulations thereunder) to
the extent that Rule 16b-3 and, if necessary for relief from the limitation
under Code Section 162(m) and such relief is sought by the Company, Code
Section 162(m), respectively, are applicable. However, the mere fact that a
Committee member shall fail to qualify under either of the foregoing
requirements shall not invalidate any Award made by the Committee which Award
is otherwise validly made under the Plan. The members of the Committee shall
be appointed by, and may be changed at any time and from time to time in the
discretion of, the Board. During any time that the Board is acting as
administrator of the Plan, it shall have all the powers of the Committee
hereunder, and any reference herein to the Committee (other than in this
Section 4.1) shall include the Board.
4.2 Action By The Committee. For purposes of administering the Plan, the
following rules of procedure shall govern the Committee. A majority of the
Committee shall constitute a quorum. The acts of a majority of the members
present at any meeting at which a quorum is present, and acts approved
unanimously in writing by the members of the Committee in lieu of a meeting,
shall be deemed the acts of the Committee. Each member of the Committee is
entitled to, in good faith, rely or act upon any report or other information
furnished to that member by any officer or other employee of the Corporation
or any Parent or Subsidiary, the Corporation's independent certified public
accountants, or any executive compensation consultant or other professional
retained by the Corporation to assist in the administration of the Plan.
4.3 Authority Of Committee. The Committee has the exclusive power, authority
and discretion to:
(a) Designate Participants;
(b) Determine the type or types of Awards to be granted to each
Participant;
(c) Determine the number of Awards to be granted and the number of shares
of Stock to which an Award will relate;
(d) Determine the terms and conditions of any Award granted under the
Plan, including but not limited to, the exercise price, grant price, or
purchase price, any restrictions or limitations on the Award, any schedule
for lapse of forfeiture restrictions or restrictions on the exercisability
of an Award, and accelerations or waivers thereof, based in each case on
such considerations as the Committee in its sole discretion determines;
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(e) Accelerate the vesting or lapse of restrictions of any outstanding
Award, based in each case on such considerations as the Committee in its
sole discretion determines;
(f) Determine whether, to what extent, and under what circumstances an
Award may be settled in, or the exercise price of an Award may be paid in,
cash, Stock, other Awards, or other property, or an Award may be canceled,
forfeited, or surrendered;
(g) Prescribe the form of each Award Agreement, which need not be
identical for each Participant;
(h) Decide all other matters that must be determined in connection with
an Award;
(i) Establish, adopt or revise any rules and regulations as it may deem
necessary or advisable to administer the Plan;
(j) Make all other decisions and determinations that may be required
under the Plan or as the Committee deems necessary or advisable to
administer the Plan;
(k) Amend the Plan or any Award Agreement as provided herein; and
(l) Delegate its general administrative duties under the Plan to an
officer or employee or committee of officers or employees of the Company,
but the Committee may not delegate its authority to construe and interpret
the Plan or approve the grant or the terms of Awards hereunder, except that
the Committee may authorize the Chairman of the Committee and the Chief
Executive Officer to approve grants subject to and contingent on
ratification by the Committee.
4.4. Decisions Binding. The Committee's interpretation of the Plan, any
Awards granted under the Plan, any Award Agreement and all decisions and
determinations by the Committee with respect to the Plan are final, binding,
and conclusive on all parties. No member of the Committee shall be liable for
any act done in good faith.
ARTICLE 5
Shares Subject To The Plan
5.1. Number Of Shares. Subject to adjustment as provided in Section 12.1,
the aggregate number of shares of Stock reserved and available for Awards or
which may be used to provide a basis of measurement for or to determine the
value of an Award (such as with a Stock Appreciation Right or Performance Unit
Award) shall be 4,000,000, of which not more than (20%) may be granted as
Awards of Restricted Stock or unrestricted Stock Awards.
5.2. Lapsed Awards. To the extent that an Award is canceled, terminates,
expires or lapses for any reason, any shares of Stock subject to the Award
will again be available for the grant of an Award under the Plan and shares
subject to SARs or other Awards settled in cash will be available for the
grant of an Award under the Plan.
5.3. Stock Distributed. Any Stock distributed pursuant to an Award may
consist, in whole or in part, of authorized and unissued Stock, treasury Stock
or Stock purchased on the open market.
5.4. Limitation On Awards. Notwithstanding any provision in the Plan to the
contrary, the maximum number of shares of Stock with respect to one or more
Options and/or SARs that may be granted during any one calendar year under the
Plan to any one Covered Employee shall be 1,000,000. The maximum Fair Market
Value (measured as of the date of grant) of any Awards other than Options and
SARs that may be received by a Covered Employee (less any consideration paid
by the Participant for such Award) during any one calendar year under the Plan
shall be $10,000,000.
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ARTICLE 6
Eligibility
6.1. General. Awards may be granted only to individuals who are employees,
officers, Producers or directors of the Corporation or a Parent or Subsidiary.
ARTICLE 7
Stock Options
7.1. General. The Committee is authorized to grant Options to Participants
on the following terms and conditions:
(a) Exercise Price. The exercise price per share of Stock under an Option
shall be determined by the Committee, provided that the exercise price for
any Option shall not be less than the Fair Market Value as of the date of
the grant.
(b) Time And Conditions Of Exercise. The Committee shall determine the
time or times at which an Option may be exercised in whole or in part. The
Committee also shall determine the performance or other conditions, if any,
that must be satisfied before all or part of an Option may be exercised.
The Committee may waive any exercise provisions at any time in whole or in
part based upon factors as the Committee may determine in its sole
discretion so that the Option becomes exercisable at an earlier date.
(c) Payment. The Committee shall determine the methods by which the
exercise price of an Option may be paid, the form of payment, including,
without limitation, cash, shares of Stock, or other property (including
"cashless exercise" arrangements), and the methods by which shares of Stock
shall be delivered or deemed to be delivered to Participants; provided that
if shares of Stock surrendered in payment of the exercise price were
themselves acquired otherwise than on the open market, such shares shall
have been held by the Participant for at least six months.
(d) Evidence Of Grant. All Options shall be evidenced by a written Award
Agreement between the Corporation and the Participant. The Award Agreement
shall include such provisions, not inconsistent with the Plan, as may be
specified by the Committee.
(e) Additional Options Upon Exercise. The Committee may, in its sole
discretion, provide in an Award Agreement, or in an amendment thereto, for
the automatic grant of a new Option to any Participant who delivers shares
of Stock as full or partial payment of the exercise price of the original
Option. Any new Option granted in such a case (i) shall be for the same
number of shares of Stock as the Participant delivered in exercising the
original Option, (ii) shall have an exercise price of 100% of the Fair
Market Value of the surrendered shares of Stock on the date of exercise of
the original Option (the grant date for the new Option), and (iii) shall
have a term equal to the unexpired term of the original Option.
7.2. Incentive Stock Options. The terms of any Incentive Stock Options
granted under the Plan must comply with the following additional rules:
(a) Exercise Price. The exercise price per share of Stock shall be set by
the Committee, provided that the exercise price for any Incentive Stock
Option shall not be less than the Fair Market Value as of the date of the
grant.
(b) Exercise. In no event may any Incentive Stock Option be exercisable
for more than ten years from the date of its grant.
(c) Lapse Of Option. An Incentive Stock Option shall lapse under the
earliest of the following circumstances; provided, however, that the
Committee may, prior to the lapse of the Incentive Stock Option under the
circumstances described in paragraphs (3), (4) and (5) below, provide in
writing that the Option will extend until a later date, but if Option is
exercised after the dates specified in paragraphs (3), (4) and (5) below,
it will automatically become a Non-Qualified Stock Option:
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(1) The Incentive Stock Option shall lapse as of the option
expiration date set forth in the Award Agreement.
(2) The Incentive Stock Option shall lapse ten years after it is
granted, unless an earlier time is set in the Award Agreement.
(3) If the Participant terminates employment for any reason other
than as provided in paragraph (4) or (5) below, the Incentive Stock
Option shall lapse, unless it is previously exercised, three months
after the Participant's termination of employment; provided, however,
that if the Participant's employment is terminated by the Company for
cause or by the Participant without the consent of the Company, the
Incentive Stock Option shall (to the extent not previously exercised)
lapse immediately.
(4) If the Participant terminates employment by reason of his
Disability, the Incentive Stock Option shall lapse, unless it is
previously exercised, one year after the Participant's termination of
employment.
(5) If the Participant dies while employed, or during the three -
month period described in paragraph (3) or during the one - year period
described in paragraph (4) and before the Option otherwise lapses, the
Option shall lapse one year after the Participant's death. Upon the
Participant's death, any exercisable Incentive Stock Options may be
exercised by the Participant's beneficiary, determined in accordance
with Section 11.6.
Unless the exercisability of the Incentive Stock Option is accelerated as
provided in Article 11, if a Participant exercises an Option after termination
of employment, the Option may be exercised only with respect to the shares
that were otherwise vested on the Participant's termination of employment.
(d) Individual Dollar Limitation. The aggregate Fair Market Value
(determined as of the time an Award is made) of all shares of Stock with
respect to which Incentive Stock Options are first exercisable by a
Participant in any calendar year may not exceed $100,000.00.
(e) Ten Percent Owners. No Incentive Stock Option shall be granted to any
individual who, at the date of grant, owns stock possessing more than ten
percent of the total combined voting power of all classes of stock of the
Corporation or any Parent or Subsidiary unless the exercise price per share
of such Option is at least 110% of the Fair Market Value per share of Stock
at the date of grant and the Option expires no later than five years after
the date of grant.
(f) Expiration Of Incentive Stock Options. No Award of an Incentive Stock
Option may be made pursuant to the Plan after the day immediately prior to
the tenth anniversary of the Effective Date.
(g) Right To Exercise. During a Participant's lifetime, an Incentive
Stock Option may be exercised only by the Participant or, in the case of
the Participant's Disability, by the Participant's guardian or legal
representative.
(h) Directors. The Committee may not grant an Incentive Stock Option to a
non - employee director. The Committee may grant an Incentive Stock Option
to a director who is also an employee of the Corporation or Parent or
Subsidiary but only in that individual's position as an employee and not as
a director.
ARTICLE 8
Stock Appreciation Rights
8.1. Grant of SARs. The Committee is authorized to grant SARs to
Participants on the following terms and conditions:
(a) Right To Payment. Upon the exercise of a Stock Appreciation Right,
the Participant to whom it is granted has the right to receive the excess,
if any, of:
(1) The Fair Market Value of one share of Stock on the date of
exercise; over
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(2) The grant price of the Stock Appreciation Right as determined by
the Committee, which shall not be less than the Fair Market Value of
one share of Stock on the date of grant.
(b) Other Terms. All awards of Stock Appreciation Rights shall be
evidenced by an Award Agreement. The terms, methods of exercise, methods of
settlement, form of consideration payable in settlement, and any other
terms and conditions of any Stock Appreciation Right shall be determined by
the Committee at the time of the grant of the Award and shall be reflected
in the Award Agreement.
ARTICLE 9
Restricted Stock Awards
9.1. Grant Of Restricted Stock. The Committee is authorized to make Awards
of Restricted Stock to Participants in such amounts and subject to such terms
and conditions as may be selected by the Committee. All Awards of Restricted
Stock shall be evidenced by a Restricted Stock Award Agreement.
9.2. Issuance And Restrictions. Restricted Stock shall be subject to such
restrictions on transferability and other restrictions as the Committee may
impose (including, without limitation, limitations on the right to vote
Restricted Stock or the right to receive dividends on the Restricted Stock).
These restrictions may lapse separately or in combination at such times, under
such circumstances, in such installments, upon the satisfaction of performance
goals or otherwise, as the Committee determines at the time of the grant of
the Award or thereafter.
9.3. Forfeiture. Except as otherwise determined by the Committee at the time
of the grant of the Award or thereafter, upon termination of employment during
the applicable restriction period or upon failure to satisfy a performance
goal during the applicable restriction period, Restricted Stock that is at
that time subject to restrictions shall be forfeited and reacquired by the
Corporation; provided, however, that the Committee may provide in any Award
Agreement that restrictions or forfeiture conditions relating to Restricted
Stock will be waived in whole or in part in the event of terminations
resulting from specified causes, and the Committee may in other cases waive in
whole or in part restrictions or forfeiture conditions relating to Restricted
Stock.
9.4. Certificates For Restricted Stock. Restricted Stock granted under the
Plan may be evidenced in such manner as the Committee shall determine. If
certificates representing shares of Restricted Stock are registered in the
name of the Participant, certificates must bear an appropriate legend
referring to the terms, conditions, and restrictions applicable to such
Restricted Stock.
ARTICLE 10
Dividend Equivalents
10.1 Grant Of Dividend Equivalents. The Committee is authorized to grant
Dividend Equivalents to Participants subject to such terms and conditions as
may be selected by the Committee. Dividend Equivalents shall entitle the
Participant to receive payments equal to dividends with respect to all or a
portion of the number of shares of Stock subject to an Award, as determined by
the Committee. The Committee may provide that Dividend Equivalents be paid or
distributed when accrued or be deemed to have been reinvested in additional
shares of Stock, or otherwise reinvested.
ARTICLE 11
Provisions Applicable To Awards
11.1. Stand-alone, Tandem, And Substitute Awards. Awards granted under the
Plan may, in the discretion of the Committee, be granted either alone or in
addition to, in tandem with, or in substitution for, any
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other Award granted under the Plan. If an Award is granted in substitution for
another Award, the Committee may require the surrender of such other Award in
consideration of the grant of the new Award. Awards granted in addition to or
in tandem with other Awards may be granted either at the same time as or at a
different time from the grant of such other Awards.
11.2. Exchange Provisions. The Committee may at any time offer to exchange
or buy out any previously granted Award for a payment in cash, Stock, or
another Award (subject to Section 12.1), based on the terms and conditions the
Committee determines and communicates to the Participant at the time the offer
is made.
11.3. Term Of Award. The term of each Award shall be for the period as
determined by the Committee, provided that in no event shall the term of any
Incentive Stock Option or a Stock Appreciation Right granted in tandem with
the Incentive Stock Option exceed a period of ten years from the date of its
grant (or, if Section 7.2(e) applies, five years from the date of its grant).
11.4. Form Of Payment For Awards. Subject to the terms of the Plan and any
applicable law or Award Agreement, payments or transfers to be made by the
Corporation or a Parent or Subsidiary on the grant or exercise of an Award may
be made in such form as the Committee determines at or after the time of
grant, including without limitation, cash, Stock, other Awards, or other
property, or any combination, and may be made in a single payment or transfer,
in installments, or on a deferred basis, in each case determined in accordance
with rules adopted by, and at the discretion of, the Committee.
11.5. Limits On Transfer. No right or interest of a Participant in any
unexercised or restricted Award may be pledged, encumbered, or hypothecated to
or in favor of any party other than the Corporation or a Parent or Subsidiary,
or shall be subject to any lien, obligation, or liability of such Participant
to any other party other than the Corporation or a Parent or Subsidiary. No
unexercised or restricted Award shall be assignable or transferable by a
Participant other than by will or the laws of descent and distribution or,
except in the case of an Incentive Stock Option, pursuant to a domestic
relations order that would satisfy Section 414(p)(1)(A) of the Code if such
Section applied to an Award under the Plan; provided, however, that the
Committee may (but need not) permit other transfers where the Committee
concludes that such transferability (i) does not result in accelerated
taxation, (ii) does not cause any Option intended to be an incentive stock
option to fail to be described in Code Section 422(b), and (iii) is otherwise
appropriate and desirable, taking into account any factors deemed relevant,
including without limitation, any state or federal tax or securities laws or
regulations applicable to transferable Awards.
11.6 Beneficiaries. Notwithstanding Section 11.5, a Participant may, in the
manner determined by the Committee, designate a beneficiary to exercise the
rights of the Participant and to receive any distribution with respect to any
Award upon the Participant's death. A beneficiary, legal guardian, legal
representative, or other person claiming any rights under the Plan is subject
to all terms and conditions of the Plan and any Award Agreement applicable to
the Participant, except to the extent the Plan and Award Agreement otherwise
provide, and to any additional restrictions deemed necessary or appropriate by
the Committee. If no beneficiary has been designated or survives the
Participant, payment shall be made to the Participant's estate. Subject to the
foregoing, a beneficiary designation may be changed or revoked by a
Participant at any time provided the change or revocation is filed with the
Committee.
11.7. Stock Certificates. All Stock certificates delivered under the Plan
are subject to any stop-transfer orders and other restrictions as the
Committee deems necessary or advisable to comply with federal or state
securities laws, rules and regulations and the rules of any national
securities exchange or automated quotation system on which the Stock is
listed, quoted, or traded. The Committee may place legends on any Stock
certificate to reference restrictions applicable to the Stock.
11.8 Acceleration Upon Death, Disability Or Retirement. Notwithstanding any
other provision in the Plan or any Participant's Award Agreement to the
contrary, upon the Participant's death or Disability during his employment or
service as a producer or director or upon the Participant's Retirement, all
outstanding Options,
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Stock Appreciation Rights, and other Awards in the nature of rights that may
be exercised shall become fully exercisable and all restrictions on
outstanding Awards shall lapse. Any Option or Stock Appreciation Rights Awards
shall thereafter continue or lapse in accordance with the other provisions of
the Plan and the Award Agreement. To the extent that this provision causes
Incentive Stock Options to exceed the dollar limitation set forth in Section
7.2(d), the excess Options shall be deemed to be Non-Qualified Stock Options.
11.9. Acceleration Upon A Change In Control. Except as otherwise provided in
the Award Agreement, upon the occurrence of a Change in Control, all
outstanding Options, Stock Appreciation Rights, and other Awards in the nature
of rights that may be exercised shall become fully exercisable and all
restrictions on outstanding Awards shall lapse; provided, however that such
acceleration will not occur if, in the opinion of the Company's accountants,
such acceleration would preclude the use of "pooling of interest" accounting
treatment for a Change in Control transaction that (a) would otherwise qualify
for such accounting treatment, and (b) is contingent upon qualifying for such
accounting treatment. To the extent that this provision causes Incentive Stock
Options to exceed the dollar limitation set forth in Section 7.2(d), the
excess Options shall be deemed to be Non-Qualified Stock Options.
11.10. Acceleration Upon Certain Events Not Constituting A Change In
Control. In the event of the occurrence of any circumstance, transaction or
event not constituting a Change in Control (as defined in Section 3.1) but
which the Board of Directors deems to be, or to be reasonably likely to lead
to, an effective change in control of the Company of a nature that would be
required to be reported in response to Item 6(e) of Schedule 14A of the 1934
Act, the Committee may in its sole discretion declare all outstanding Options,
Stock Appreciation Rights, and other Awards in the nature of rights that may
be exercised to be fully exercisable, and/or all restrictions on all
outstanding Awards to have lapsed, in each case, as of such date as the
Committee may, in its sole discretion, declare, which may be on or before the
consummation of such transaction or event. To the extent that this provision
causes Incentive Stock Options to exceed the dollar limitation set forth in
Section 7.2(d), the excess Options shall be deemed to be Non-Qualified Stock
Options.
11.11. Acceleration For Any Other Reason. Regardless of whether an event has
occurred as described in Section 11.9 or 11.10 above, the Committee may in its
sole discretion at any time determine that all or a portion of a Participant's
Options, Stock Appreciation Rights, and other Awards in the nature of rights
that may be exercised shall become fully or partially exercisable, and/or that
all or a part of the restrictions on all or a portion of the outstanding
Awards shall lapse, in each case, as of such date as the Committee may, in its
sole discretion, declare. The Committee may discriminate among Participants
and among Awards granted to a Participant in exercising its discretion
pursuant to this Section 11.11.
11.12 Effect Of Acceleration. If an Award is accelerated under Section 11.9
or 11.10, the Committee may, in its sole discretion, provide (i) that the
Award will expire after a designated period of time after such acceleration to
the extent not then exercised, (ii) that the Award will be settled in cash
rather than Stock, (iii) that the Award will be assumed by another party to
the transaction giving rise to the acceleration or otherwise be equitably
converted in connection with such transaction, or (iv) any combination of the
foregoing. The Committee's determination need not be uniform and may be
different for different Participants whether or not such Participants are
similarly situated.
11.13. Performance Goals. The Committee may determine that any Award granted
pursuant to this Plan to a Participant (including, but not limited to,
Participants who are Covered Employees) shall be determined solely on the
basis of (a) the achievement by the Company, or an individual or a business
unit of the Company or a Parent or Subsidiary, of a specified target with
respect to, or target growth in, any of the following areas: (i) return on
equity or on assets, (ii) overall or selected premium or sales growth, (iii)
revenues, net income or earnings per share, (iv) expense efficiency ratios
(ratio of expenses to premium income), (v) customer service measures or
indices, (vi) underwriting efficiency and/or quality, (vii) market share, or
(vii) persistency factors, or (b) the Company's or a Parent's or Subsidiary's
stock performance, or (c) any combination of the goals set forth in any of (a)
or (b) above. If an Award is made on such basis, the Committee shall establish
goals prior to the beginning of the period for which such performance goal
relates (or such later date as may be permitted under
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Code Section 162(m) or the regulations thereunder) and the Committee may for
any reason reduce (but not increase) any Award, notwithstanding the
achievement of a specified goal. Any payment of an Award granted with
performance goals shall be conditioned on the written certification of the
Committee in each case that the performance goals and any other material
conditions were satisfied.
11.14. Termination Of Employment. Whether military, government or other
service or other leave of absence shall constitute a termination of employment
shall be determined in each case by the Committee at its discretion, and any
determination by the Committee shall be final and conclusive. A termination of
employment shall not occur in a circumstance in which a Participant transfers
from the Corporation to one of its Parents or Subsidiaries, transfers from a
Parent or Subsidiary to the Corporation, or transfers from one Parent or
Subsidiary to another Parent or Subsidiary.
ARTICLE 12
Changes In Capital Structure
12.1. General. In the event a stock dividend is declared upon the Stock, the
shares of Stock then subject to each Award shall be increased proportionately
without any change in the aggregate purchase price therefor. In the event the
Stock shall be changed into or exchanged for a different number or class of
shares of stock or securities of the Corporation or of another corporation,
whether through reorganization, recapitalization, reclassification, stock
split-up, combination of shares, merger or consolidation, there shall be
substituted for each such share of Stock then subject to each Award the number
and class of shares into which each outstanding share of Stock shall be so
exchanged, all without any change in the aggregate purchase price for the
shares then subject to each Award.
ARTICLE 13
Amendment, Modification And Termination
13.1. Amendment, Modification And Termination. The Board or the Committee
may, at any time and from time to time, amend, modify or terminate the Plan
without stockholder approval; provided, however, that the Board or Committee
may condition any amendment or modification on the approval of stockholders of
the Company if such approval is necessary or deemed advisable with respect to
tax, securities or other applicable laws, policies or regulations.
13.2 Awards Previously Granted. At any time and from time to time, the
Committee may amend, modify or terminate any outstanding Award without
approval of the Participant; provided, however, that such amendment,
modification or termination shall not, without the Participant's consent,
reduce or diminish the value of such Award determined as if the Award had been
exercised, vested, cashed in or otherwise settled on the date of such
amendment or termination; and provided further that, except as otherwise
permitted in the Plan, the exercise price of any Option may not be reduced and
the original term of any Option may not be extended. No termination,
amendment, or modification of the Plan shall adversely affect any Award
previously granted under the Plan, without the written consent of the
Participant.
ARTICLE 14
General Provisions
14.1. No Rights To Awards. No Participant or employee, officer, producer or
director shall have any claim to be granted any Award under the Plan, and
neither the Corporation nor the Committee is obligated to treat Participants
and employees, officers, producers or directors uniformly.
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14.2. No Stockholder Rights. No Award gives the Participant any of the
rights of a stockholder of the Corporation unless and until shares of Stock
are in fact issued to such person in connection with such Award.
14.3. Withholding. The Corporation or any Parent or Subsidiary shall have
the authority and the right to deduct or withhold, or require a Participant to
remit to the Corporation, an amount sufficient to satisfy federal, state, and
local taxes (including the Participant's FICA obligation) required by law to
be withheld with respect to any taxable event arising as a result of the Plan.
With respect to withholding required upon any taxable event under the Plan,
the Committee may, at the time the Award is granted or thereafter, require
that any such withholding requirement be satisfied, in whole or in part, by
withholding shares of Stock having a Fair Market Value on the date of
withholding equal to the amount to be withheld for tax purposes, all in
accordance with such procedures as the Committee establishes.
14.4. No Right To Employment Or Other Status. Nothing in the Plan or any
Award Agreement shall interfere with or limit in any way the right of the
Corporation or any Parent or Subsidiary to terminate any Participant's
employment or status as a producer or director at any time, nor confer upon
any Participant any right to continue as an employee, officer, producer or
director of the Corporation or any Parent or Subsidiary.
14.5. Unfunded Status Of Awards. The Plan is intended to be an "unfunded"
plan for incentive and deferred compensation. With respect to any payments not
yet made to a Participant pursuant to an Award, nothing contained in the Plan
or any Award Agreement shall give the Participant any rights that are greater
than those of a general creditor of the Corporation or any Parent or
Subsidiary.
14.6. Relationship To Other Benefits. No payment under the Plan shall be
taken into account in determining any benefits under any pension, retirement,
savings, profit sharing, group insurance, welfare or benefit plan of the
Corporation or any Parent or Subsidiary unless provided otherwise in such
other plan.
14.7. Expenses. The expenses of administering the Plan shall be borne by the
Corporation and its Parents or Subsidiaries.
14.8. Titles And Headings. The titles and headings of the Sections in the
Plan are for convenience of reference only, and in the event of any conflict,
the text of the Plan, rather than such titles or headings, shall control.
14.9. Gender And Number. Except where otherwise indicated by the context,
any masculine term used herein also shall include the feminine; the plural
shall include the singular and the singular shall include the plural.
14.10. Fractional Shares. No fractional shares of Stock shall be issued and
the Committee shall determine, in its discretion, whether cash shall be given
in lieu of fractional shares or whether such fractional shares shall be
eliminated by rounding up.
14.11. Government and other Regulations. The obligation of the Corporation
to make payment of awards in Stock or otherwise shall be subject to all
applicable laws, rules, and regulations, and to such approvals by government
agencies as may be required. The Corporation shall be under no obligation to
register under the 1933 Act, or any state securities act, any of the shares of
Stock paid under the Plan. The shares paid under the Plan may in certain
circumstances be exempt from registration under the 1933 Act, and the
Corporation may restrict the transfer of such shares in such manner as it
deems advisable to ensure the availability of any such exemption.
14.12. Governing Law. To the extent not governed by federal law, the Plan
and all Award Agreements shall be construed in accordance with and governed by
the laws of the State of Tennessee.
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14.13. Additional Provisions. Each Award Agreement may contain such other
terms and conditions as the Committee may determine; provided that such other
terms and conditions are not inconsistent with the provisions of this Plan.
The foregoing is hereby acknowledged as being the Provident Companies, Inc.
1999 Stock Plan as adopted by the Board of Directors of the Company on March
26, 1998, and approved by the stockholders of the Company on May 6, 1998.
PROVIDENT COMPANIES, INC.
By:
Its:
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APPENDIX C
PROVIDENT COMPANIES, INC.
NON-EMPLOYEE DIRECTOR COMPENSATION PLAN OF 1998
1. Establishment of Plan.
(a) Purpose. The purpose of the Provident Companies, Inc. Non-Employee
Director Compensation Plan of 1998 is to attract, retain and compensate
highly-qualified individuals who are not employees of Provident Companies,
Inc. or any of its subsidiaries or affiliates for service as members of the
Board by providing them with an opportunity to increase their ownership
interest in the Common Stock of the Company. The Company intends that the Plan
will benefit the Company and its stockholders by allowing Non-Employee
Directors to have a personal financial stake in the Company through an
ownership interest in the Common Stock and will closely associate the
interests of Non-Employee Directors with that of the Company's stockholders.
(b) Status of Plan. The Plan is intended, in part, to be a nonqualified,
unfunded plan of deferred compensation under the Internal Revenue Code of
1986, as amended. Although the plan is unfunded for tax purposes, the Company
may establish a trust under Revenue Procedure 92-64 to provide benefits under
the Plan.
(c) Establishment of Trust. As noted above, the Company may establish a
trust to fund benefits provided under the terms of the Plan ("Trust"). It is
intended that a transfer of assets into the Trust will not generate taxable
income (for federal income tax purposes) to the Participants until such assets
are actually distributed or otherwise made available to the Participants.
2. Defined Terms. Unless the context clearly indicates otherwise, the
following terms shall have the following meanings:
"Annual Retainer" means the annual retainer payable by the Company at the
beginning of each Plan Year to a Non-Employee Director for service as a
director of the Company, as such amount may be changed from time to time.
Until changed by the Board, the Annual Retainer will be $80,000.
"Board" means the Board of Directors of the Company.
"Change in Control" means the occurrence of any of the following after the
Effective Date:
(1) any "person" or "group" (as those terms are used in Sections 13(d)
and 14(d), respectively, of the Securities Exchange Act of 1934 ("Exchange
Act")), other than the Maclellan family or a trustee or other fiduciary
holding securities under an employee benefit plan of the Company, or a
corporation owned, directly or indirectly, by the stockholders of the
Company in substantially the same proportions as their ownership of stock
of the Company, is or becomes the "beneficial owner" (as defined in Rule
13d-3 of the Exchange Act), directly or indirectly, of securities of the
Company representing thirty percent (30%) or more of the combined voting
power of the Company's then outstanding securities and (ii) the "group"
comprised of the Maclellan family does not then beneficially own, directly
or indirectly, securities of the Company representing more than thirty
percent (30%) of the combined voting power of the Company's then
outstanding securities; or
(2) the stockholders of the Company approve a merger or consolidation of
the Company with any other corporation, other than a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than fifty percent (50%) of the combined voting
power of the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation, or the
stockholders of the Company approve a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the Company of all
or substantially all the Company's assets.
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"Company" means Provident Companies, Inc., a Delaware corporation.
"Committee" has the meaning assigned such term in Section 3.
"Common Stock" means the common stock, par value $1.00 per share, of the
Company.
"Deferred Share Right" means a right, granted under Section 7, to receive
one share of Common Stock on the Payment Date.
"Deferral Period" has the meaning set forth in Section 7(f) of the Plan.
"Deferral Termination Date" has the meaning set forth in Section 7(e) of the
Plan.
"Disability" means any illness or other physical or mental condition of a
Participant that renders the Participant incapable of performing his customary
and usual duties for the Corporation, or any medically determinable illness or
other physical or mental condition resulting from a bodily injury, disease or
mental disorder which, in the judgment of the Committee, is permanent and
continuous in nature. The Committee may require such medical or other evidence
as it deems necessary to judge the nature and permanency of the Participant's
condition.
"Payment Date" has the meaning set forth in Section 7(e) of the Plan.
"Director Retirement Program" means the Company's program which provides
certain retirement benefits to directors elected for the first time prior to
May 4, 1994.
"Distributions" has the meaning set forth in Section 7(f) of the Plan.
"Election Form" means a form approved by the Committee pursuant to which a
Non-Employee Director elects a method of payment of Annual Retainer and the
payment terms for Deferred Share Rights, if applicable.
"Election Period" means the period designated by the Committee each year
during which Non-Employee Directors may elect to receive Options or Deferred
Share Rights as payment of some or all of their Annual Retainer. The Election
Period shall end on or before April 30 of each year for the following Plan
Year.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value", on any date, means (i) if the Common Stock is listed on
a securities exchange or traded over the Nasdaq National Market, the average
of the high and low market prices reported in The Wall Street Journal at which
a Share of Common Stock shall have been sold on such day or on the next
preceding trading day if such date was not a trading day, or (ii) if the
Common Stock is not listed on a securities exchange or traded over the Nasdaq
National Market, the mean between the bid and offered prices as quoted by
Nasdaq for such date, provided that if it is determined that the fair market
value is not properly reflected by such Nasdaq quotations, Fair Market Value
will be determined by such other method as the Committee determines in good
faith to be reasonable.
"Grant Date" means the date on which Options are granted pursuant to Section
6 or Deferred Share Rights are granted pursuant to Section 7, which, in each
case, shall be the date on which the Annual Retainer is payable in each Plan
Year.
"Hardship" has the meaning set forth in Section 7(h) of the Plan.
"Non-Employee Director" means a director of the Company who is not an
employee of the Company or of any of its subsidiaries or affiliates.
"Option" means an option to purchase Shares granted under Section 6. Options
granted under the Plan are not incentive stock options within the meaning of
Section 422 of the Internal Revenue Code.
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"Optionee" means a Non-Employee Director of the Company to whom an Option
has been granted or, in the event of such Non-Employee Director's death prior
to the expiration of an Option, such Non-Employee Director's estate or other
designated beneficiary.
"Option Notice" means a written notice, agreement or certificate with a Non-
Employee Director from the Company evidencing an Option.
"Option Valuation Percentage" means the percentage determined by the
Committee on or before the Election Date in each Plan Year as being the
approximate fair value of an Option relative to a share of Common Stock on the
date of the grant of the Option. The Option Valuation Percentage may not be
less than 30%. Until changed by the Committee, the Option Valuation Percentage
shall be 33%.
"Participant" means any Non-Employee Director who is participating in the
Plan.
"Permitted Transferee" of an Optionee means (i) one or more of the following
family members of the Optionee: spouse, former spouse, child (whether natural
or adopted), stepchild, any other lineal descendent of the Optionee; (ii) a
trust, partnership or other entity established and existing for the sole
benefit of, or under the sole control of, one or more of the above family
members of the Optionee, or (iii) any other transferee specifically approved
by the Committee after taking into account any state or federal tax,
securities or other laws applicable to transferable options.
"Plan" means the Provident Companies, Inc. Non-Employee Director
Compensation Plan of 1998, as amended from time to time.
"Plan Year" means the approximately twelve-month period beginning on the
date of the annual meeting of the stockholders of the Company ("annual
meeting") in any year and ending on the date of the following annual meeting,
which, for purposes of the Plan, is the period for which Annual Retainers are
earned.
"Retirement" means a Participant's termination of service as a director
after attaining mandatory retirement age, or, in the event there is no
mandatory retirement age for directors, as determined by the Committee in its
reasonable judgment.
"Rule 16b-3" means Rule 16b-3, as amended from time to time, of the
Securities and Exchange Commission as promulgated under the Exchange Act.
"Securities Act" means the Securities Act of 1933, as amended.
"Shares" means shares of Common Stock.
3. Administration. The Plan shall be administered by the Compensation
Committee of the Board (the "Committee"). Subject to the provisions of the
Plan, the Committee shall be authorized to interpret the Plan, to establish,
amend and rescind any rules and regulations relating to the Plan, and to make
all other determinations necessary or advisable for the administration of the
Plan; provided, however, that the Committee shall have no discretion with
respect to the eligibility or selection of Non-Employee Directors to receive
awards under the Plan, the number of Shares subject to any such awards or the
time at which any such awards are to be granted. The Committee's
interpretation of the Plan, and all actions taken and determinations made by
the Committee pursuant to the powers vested in it hereunder, shall be
conclusive and binding upon all parties concerned including the Company, its
stockholders and persons granted awards under the Plan. The Committee may
appoint a plan administrator to carry out the ministerial functions of the
Plan, but the administrator shall have no other authority or powers of the
Committee. Notwithstanding the foregoing, the Board shall exercise any and all
rights, duties and powers of the Committee under the Plan to the extent
required by the applicable exemptive conditions of Rule 16b-3, as determined
by the Board its sole discretion.
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4. Shares Subject to Plan. The Shares issued under the Plan shall not exceed
in the aggregate 500,000 Shares of Common Stock. Such Shares may be acquired
on the open market or issued out of authorized and unissued Shares or treasury
Shares.
5. Participation.
(a) Eligibility. All active Non-Employee Directors shall be eligible to
participate in the Plan.
(b) Annual Retainer Elections. A Participant may elect on or before the
Election Date for a Plan Year to receive up to 100% of his or her Annual
Retainer in the form of Options or Deferred Share Rights in accordance with
the terms of the Plan and the Election Form. A Participant may not elect to
receive both Options and Deferred Share Rights in any one Plan Year. Any
amount of the Annual Retainer not elected to be received in the form of
Options of Deferred Share Rights shall be paid to the Participant in cash.
(c) Accrued Balances under Director Retirement Program. Each Non-Employee
Director having an accrued account balance in the Director Retirement Program
as of the Effective Date shall be required to convert the net present value of
such account either 100% to Options in accordance with the procedures
described in Section 6 below with respect to Annual Retainer, or 100% to
Deferred Share Rights, in accordance with the procedures described in Section
7 below with respect to Annual Retainer. The election as to which form of
payment shall be made on an Election Form filed during the Election Period.
(d) Deferral Accounts. For bookkeeping purposes, any amounts which the
Participant elects to receive in the form of Deferred Share Rights, and any
Distributions credited in accordance with Section 7(f), shall be transferred
to and held in individual deferral accounts.
6. Stock Option Awards.
(a) Election to Receive Options. A Non-Employee Director may elect each year
to receive up to 100% of his or her Annual Retainer in the form of Options in
accordance with this Section 6. A Non-Employee Director who wishes to receive
some or all of his or her Annual Retainer for a Plan Year in the form of
Options must irrevocably elect to do so during the Election Period for such
Plan Year, by delivering a valid Election Form to the Committee or the plan
administrator. A Non-Employee Director's participation in Section 6 of the
Plan will be effective with respect to the Annual Retainer to be earned in the
first Plan Year beginning after the Committee or the plan administrator
receives the Non-Employee Director's Election Form.
(b) Irrevocable, Annual Election. Elections to receive Options as payment of
Annual Retainer are irrevocable and shall be valid only for one Plan Year. New
elections must be made for participation in Section 6 of the Plan for
subsequent Plan Years.
(c) Time of Grant. Options shall be granted to each Non-Employee Director
who, during the applicable Election Period, filed with the Committee or the
plan administrator a written irrevocable election to receive Options as
payment of some or all of such Non-Employee Director's Annual Retainer payable
in the following Plan Year. Such Options will be granted on the date the
Annual Retainer for such Plan Year is otherwise payable (the "Grant Date").
(d) Number of Options. The number of Shares subject to an Option granted
pursuant to this Section 6 shall be the number of whole Shares equal to (i)
the dollar amount of the Annual Retainer that the Non- Employee Director
elects shall be payable in the form of Options, divided by (ii) the Option
Valuation Percentage times the Fair Market Value per Share on the Grant Date.
In determining the number of Shares subject to an Option, Shares will be
rounded to the nearest 100 Shares. For example:
Assume that a Non-Employee Director has elected to receive $50,000 of his or
her Annual Retainer in the form of Options, that the Option Valuation
Percentage is 33%, and that the Fair Market Value per Share on the Grant Date
is $36. The Non-Employee Director would be granted 4,200 Options as payment of
the $50,000 compensation. $50,000 divided by 33% of $36 FMV = 4,200 Options
granted (rounded to the nearest 100 Shares).
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(e) Exercise Price. The total price paid per Share under each Option granted
under this Section 6 shall be the Fair Market Value per Share on the Grant
Date.
(f) Exercise of Options. An Option, or portion thereof, may be exercised in
whole or in part only with respect to whole Shares. Each Option shall be fully
exercisable on the first anniversary of the date of grant or upon the earlier
death, Disability or Retirement of the Optionee or the occurrence of a Change
in Control. Each Option will remain exercisable for 10 years from the Grant
Date; provided, however, that:
(i) if a Participant terminates his or her service as a director for any
reason after four years of service on the Board, or due to Retirement,
death or Disability, his or her unexercised Options shall expire on the
earlier of (A) the original expiration date of the Option or (B) the fifth
anniversary of such termination of service; and
(ii) if a Participant has served as a director for fewer than four years
and terminates his or her service as a director for any reason other than
Retirement, death or Disability, his or her unexercised Options shall
expire on the date of such termination of service.
(g) Payment of Exercise Price. Shares shall be issued to the Optionee (or
his or her Permitted Transferee) pursuant to the exercise of an Option only
upon receipt by the Company from the Optionee (or his or her Permitted
Transferee) of payment in full of the exercise price. The exercise price shall
be payable in United States dollars upon the exercise of the Option and may be
paid in cash, by check, or in Shares having a total Fair Market Value on the
date of exercise equal to the exercise price; provided that if the Shares
surrendered in payment of the exercise price were themselves acquired
otherwise than on the open market, such Shares shall have been held for at
least six months. The Committee may permit the use of any cashless exercise
methods that are permitted by law.
(h) Option Notice. Each Option granted under the Plan shall be evidenced by
an Option Notice which shall be executed by an authorized officer of the
Company. Such Option Notice shall contain provisions regarding (a) the number
of Shares that may be issued upon exercise of the Option, (b) the exercise
price per Share of the Option and the means of payment therefor, (c) the term
of the Option, and (d) such other terms and conditions not inconsistent with
the Plan as may be determined from time to time by the Committee.
(i) Transferability of Options. No Option shall be assignable or
transferable by the Optionee other than by will or the laws of descent and
distribution or to a Permitted Transferee. Any transfer to a Permitted
Transferee shall be subject to the following terms and conditions:
(i) An Option transferred to a Permitted Transferee shall not be
assignable or transferable by the Permitted Transferee other than by will
or the laws of descent and distribution.
(ii) Transferred Options shall continue to be subject to all the terms
and conditions of the Option as applicable to the original Optionee (other
than the ability to further transfer the Option).
(iii) The Optionee and the Permitted Transferee shall execute any and all
documents reasonably requested by the Committee or the plan administrator,
including without limitation documents (A) to confirm the status of the
transferee as a Permitted Transferee, (B) to satisfy any requirements for
an exemption for the transfer under applicable federal and state securities
laws, and (C) to evidence the transfer.
(iv) Shares acquired by a Permitted Transferee through exercise of an
Option may not be transferred, nor will any assignee or transferee thereof
be recognized as an owner of such Shares by the Company for any purpose,
unless a registration statement under the Securities Act and any applicable
state securities act with respect to such Shares shall then be in effect or
unless the availability of an exemption from registration with respect to
any proposed transfer or disposition of such Shares shall be established to
the satisfaction of counsel for the Company.
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7. Deferred Share Rights.
(a) Election to Receive Deferred Share Rights. A Non-Employee Director may
elect each year to receive up to 100% of his or her Annual Retainer in the
form of Deferred Share Rights in accordance with this Section 7. A Non-
Employee Director who wishes to receive some or all of his or her Annual
Retainer for a Plan Year in the form of Deferred Share Rights must irrevocably
elect to do so during the Election Period for such Plan Year, by delivering a
valid Election Form to the Committee or the plan administrator. A Non-Employee
Director's participation in Section 7 of the Plan will be effective with
respect to the Annual Retainer to be earned in the first Plan Year beginning
after the Committee or the plan administrator receives the Non-Employee
Director's Election Form.
(b) Irrevocable, Annual Election. Elections to receive Deferred Share Rights
as payment of Annual Retainer shall be valid only for one Plan Year. New
elections must be made for participation in Section 7 of the Plan for
subsequent Plan Years. The deferral Election Form signed by the Participant
prior to the Plan Year will be irrevocable except in case of Hardship (as
defined in Section 7(h)) as determined in good faith by the Board pursuant to
Section 7(h); provided, however, that the Participant may, at least one year
in advance of the original Deferral Termination Date, designate a later
Deferral Termination Date.
(c) Time of Grant. Deferred Share Rights shall be granted to each Non-
Employee Director who, during the applicable Election Period, filed with the
Committee or the plan administrator a written irrevocable election to receive
Deferred Share Rights as payment of some or all of such Non-Employee
Director's Annual Retainer payable in the following Plan Year. Such Deferred
Share Rights will be granted on the date the Annual Retainer for such Plan
Year is otherwise payable (the "Grant Date").
(d) Number of Deferred Share Rights. The number of Deferred Share Rights
granted pursuant to this Section 7 shall be the number of whole Shares equal
to (i) the dollar amount of the Annual Retainer that the Non-Employee Director
elects shall be payable in the form of Deferred Share Rights, divided by (ii)
90% of the Fair Market Value per Share on the Grant Date. In determining the
number of Deferred Share Rights, any fraction of a Deferred Share Right will
be rounded to the next highest whole number of Deferred Share Rights. For
example:
Assume that a Non-Employee Director has elected to defer $50,000 of his or
her Annual Retainer and that the Fair Market Value per Share on the Grant Date
is $36. The Non-Employee Director would be granted 1,544 Deferred Share Rights
as payment of the $50,000 compensation. $50,000 divided by (90% of $36 FMV) =
1,544 Deferred Share Rights granted (rounded to the next highest whole
number).
(e) Nature of Deferred Share Rights. Each Deferred Share Right constitutes
the right to receive one Share of Common Stock on the earlier of (i) the
Participant's termination of service as a director or (ii) another designated
date at least three years after the date of such deferral election (in either
case, the "Deferral Termination Date"). Pursuant to the Election Form, the
Participant will elect whether the Shares will be (a) granted within 30 days
after the Deferral Termination Date or (b) granted in approximately equal
annual installments of Shares over a period of three, five or seven years (as
the Participant may elect) after the Deferral Termination Date, each such
annual grant to be made within 30 days after the anniversary of the Deferral
Termination Date. No Shares will be issued until the payment date(s) (the
"Payment Date") at which time the Company agrees to issue Shares of Common
Stock to the Participant. The Participant will have no rights as a stockholder
with respect to the Deferred Share Rights, and the Deferred Share Rights will
be unsecured.
(f) Deferred Dividend Account. If any dividends or other rights or
distributions of any kind ("Distributions") are distributed to holders of
Common Stock during the period from the applicable Grant Date until the
Deferral Termination Date (the "Deferral Period") but prior to the
Participant's termination of service, an amount equal to the cash value of
such Distributions on their distribution date, as such value is determined by
the Committee, will be credited to a deferred dividend account for the
Participant as follows: the account will be credited with the right to receive
Shares having a Fair Market Value as of the date of the Distribution equal to
the cash value of the Distribution. The Company will issue Shares equal to the
cumulative total of rights to Shares in such account within 30 days after the
Participant's Deferral Termination Date.
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If a Distribution is distributed to holders of Common Stock after the
Participant's Deferral Termination Date but prior to the settlement in full of
the Participant's Deferred Share Rights, an amount equal to the cash value of
such Distributions pertaining to the Participant's outstanding Deferred Share
Rights shall be converted into Shares equivalent in value to the Distribution
(based on the Fair Market Value as of the date of Distribution) and such
Shares will be issued to the Participant as soon as practical after the date
of the Distribution.
(g) Transferability of Deferred Share Rights. No Deferred Share Rights shall
be assignable or transferable by the Participant other than by will or the
laws of descent and distribution. No right or interest in the Deferred Share
Rights or in the deferred dividend account shall be subject to liability for
the debts, contracts or engagements of the Participant or shall be subject to
disposition by transfer, alienation, anticipation, pledge, encumbrance,
assignment or any other means whether such disposition be voluntary or
involuntary or by operation of law by judgment, levy, attachment, garnishment
or any other legal or equitable proceedings (including bankruptcy), and any
attempted disposition thereof shall be null and void and of no effect;
provided, however, that nothing in this Section 7(g) shall prevent transfers
by will or by the applicable laws of descent and distribution.
(h) Hardship. The Board may accelerate the payment in Shares of all or a
portion of a Participant's Deferred Share Rights on account of his or her
Hardship, subject to the following requirements: (i) the value of such
accelerated distribution shall not exceed the amount necessary to satisfy the
Hardship, less the amount which can be satisfied from other resources which
are reasonably available to the Participant, (ii) the denial of the
Participant's request for a Hardship acceleration would result in severe
financial hardship to the Participant, and (iii) the Participant has not
received an accelerated distribution on account of Hardship within the 12-
month period preceding the acceleration. For purposes of this Plan, "Hardship"
of a Participant, as determined by the Board in its discretion on the basis of
all relevant facts and circumstances and in accordance with the following
nondiscriminatory and objective standards uniformly interpreted and
consistently applied, shall mean a severe financial hardship to the
Participant resulting from a sudden and unexpected illness or accident of the
Participant or of his or her dependent, loss of the Participant's property due
to casualty, or other extraordinary and unforeseeable circumstances arising as
a result of events beyond the control of the Participant. A financial need
shall not constitute a Hardship unless it is for at least $1,000,000 or the
entire value of the principal amount of the Participant's Deferred Share
Rights.
(i) Funding. Deferred Share Rights shall be paid from the general assets of
the Company or as otherwise directed by the Company. To the extent that any
Participant acquires the right to receive Deferred Share Rights under the
Plan, such right shall be no greater than that of an unsecured general
creditor of the Company. Participants and their Beneficiaries shall not have
any preference or security interest in the assets of the Company other than as
a general unsecured creditor.
(j) Designation of Beneficiary. Each Participant from time to time may
designate any person or persons (who may be designated contingently or
successively and who may be an entity other than a natural person) as his or
her beneficiary or beneficiaries to whom the Participant's Deferred Share
Rights are to be paid if the Participant dies before receipt of Shares. Each
beneficiary designation shall be on the form prescribed by the Committee and
will be effective only when filed with the Committee during the Participant's
lifetime. Each beneficiary designation filed with the Committee will cancel
all beneficiary designations previously filed with the Committee. The
revocation of a beneficiary designation, no matter how effected, shall not
require the consent of any designated beneficiary.
8. Prorated Grants. If on any date, Shares of Common Stock are not available
under the Plan to grant to Non-Employee Directors the full amount of a grant
(Options or Deferred Share Rights) contemplated by the Plan, then each such
director shall receive an award of Options or Deferred Share Rights, as the
case may be, equal to the number of Shares of Common Stock then available
under the Plan divided by the number of Non-Employee Directors entitled to a
grant of Options or Deferred Share Rights on such date. Fractional Shares
shall be ignored and not granted. Any shortfall resulting from such proration
shall be paid in the form of cash.
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9. Withholding. Except with respect to the exercise of Options transferred
to Permitted Transferees, whenever the Company issues Shares under the Plan,
the Company shall have the right to withhold from sums due the recipient, or
to require the recipient to remit to the Company, any amount sufficient to
satisfy any federal, state and/or local withholding tax requirements prior to
the delivery of any certificate for such Shares.
10. Adjustments.
(a) Notwithstanding any other term of this Plan, in the event that the
Committee determines that any Distribution (whether in the form of cash,
Common Stock, other securities, or other property), recapitalization,
reclassification, stock split, reverse stock split, reorganization, merger,
consolidation, split-up, spin-off, combination, repurchase, or exchange of
Common Stock or other securities of the Company, issuance of warrants or
other rights to purchase Common Stock or other securities of the Company,
or other similar corporate transaction or event, in the Committee's sole
discretion, affects the Common Stock such that an adjustment is determined
by the Committee to be appropriate in order to prevent dilution or
enlargement of the benefits or potential benefits intended to be made
available under the Plan or with respect to an award or awards hereunder,
then the Committee shall, in such manner as it may deem equitable, adjust
the number and type of shares (or other securities or property) which may
be granted under the Plan (including, but not limited to, adjustments of
the maximum number and kind of securities which may be issued).
(b) Notwithstanding any other term of this Plan, in the event of any
corporate transaction or event described in paragraph (a) which results in
Shares being exchanged for or converted into cash, securities or other
property (including securities of another corporation), all Deferred Share
Rights granted under Section 7 shall become the right to receive such cash,
securities or other property, and there shall be substituted on an
equitable basis for each Share of Common Stock then subject to an Option
granted pursuant to Section 6 the consideration payable with respect to the
outstanding Shares of Common Stock in connection with such corporate
transaction or event, all without any change in the aggregate purchase
price for the Shares then subject to the Option.
(c) The number of Shares finally granted under this Plan shall always be
rounded to the next highest whole Share.
(d) Any decision of the Committee pursuant to the terms of this Section
10 shall be final, binding and conclusive upon the Participants, the
Company and all other interested parties.
11. Amendment. The Committee may terminate or suspend the Plan at any time,
without stockholder approval. The Committee may amend the Plan at any time and
for any reason without stockholder approval; provided, however, that the
Committee may condition any amendment on the approval of stockholders of the
Company if such approval is necessary or deemed advisable with respect to tax,
securities or other applicable laws, policies or regulations. No termination,
modification or amendment of the Plan may, without the consent of a
Participant, adversely affect a Participant's rights under an award granted
prior thereto.
12. Responsibility for Investment Choices. Each Participant is solely
responsible for any decision to receive Annual Retainer in the form of Options
or Deferred Share Rights and accepts all investment risks entailed by such
decision, including the risk of loss and a decrease in the value of the
amounts he or she elects to receive in the form of Options or Deferred Share
Rights.
13. Indemnification. Each person who is or has been a member of the
Committee or who otherwise participates in the administration or operation of
this Plan shall be indemnified by the Company against, and held harmless from,
any loss, cost, liability or expense that may be imposed upon or incurred by
him or her in connection with or resulting from any claim, action, suit or
proceeding in which such person may be involved by reason of any action taken
or failure to act under the Plan and shall be fully reimbursed by the Company
for any and all amounts paid by such person in satisfaction of judgment
against him or her in any such action, suit or proceeding, provided he or she
will give the Company an opportunity, by written notice to the Committee, to
defend the same at the Company's own expense before he or she undertakes to
defend it on his or her own behalf. This right of indemnification shall not be
exclusive of any other rights of indemnification.
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The Committee and the Board may rely upon any information furnished by the
Company, its public accountants and other experts. No individual will have
personal liability by reason of anything done or omitted to be done by the
Company, the Committee or the Board in connection with the Plan.
14. Duration of the Plan. The Plan shall remain in effect until the fifth
anniversary of the Effective Date, unless terminated earlier by the Committee.
15. Expenses of the Plan. The expenses of administering the Plan shall be
borne by the Company.
The foregoing is hereby acknowledged as being the Provident Companies, Inc.,
Non-Employee Director Compensation Plan of 1998 as adopted by the Board of
Directors of the Company on March 26, 1998, and approved by the stockholders
of the Company on May 6, 1998.
PROVIDENT COMPANIES, INC.
By:__________________________________
Its:_________________________________
67
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PROVIDENT COMPANIES, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
ANNUAL MEETING OF STOCKHOLDERS MAY 6, 1998 AT 10 A.M., EASTERN DAYLIGHT TIME
PROXY FOR COMMON STOCK
The undersigned hereby appoints J. Harold Chandler and Hugh O. Maclellan,
Jr., and each or either of them, as true and lawful proxies with full power of
substitution in each, to represent the undersigned at the 1998 Annual Meeting
of the Stockholders of Provident Companies, Inc. to be held in the Home Office
of the Company at 1 Fountain Square, Chattanooga, Tennessee, on Wednesday, May
6, 1998 at 10:00 a.m. and at any adjournments thereof, and to vote the shares
of the Company represented by this Proxy as specified on the reverse side.
Please mark, date, sign and return this proxy in the enclosed, pre-paid enve-
lope.
FOLD AND DETACH HERE
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
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<S> <C>
[X] PLEASE MARK YOUR | 7160
VOTES AS IN THIS |
EXAMPLE. ______
WHEN PROPERLY EXECUTED, THIS PROXY WILL BE VOTED AS DIRECTED. IF DIRECTIONS ARE NOT GIVEN, THE SHARES REPRESENTED BY THIS PROXY
WILL BE VOTED FOR ALL OF THE NOMINEES IN ITEM 1 AND FOR ITEMS 2, 3 AND 4.
1. Election of FOR WITHHELD Nominees: William L. Armstrong; 2. Approval of Amended FOR AGAINST ABSTAIN
Directors. [ ] [ ] William H. Bolinder; J. Harold and Restated Annual
(See reverse) Chandler; Charlotte M. Heffner; Management Incentive [ ] [ ] [ ]
Hugh B. Jacks; Hugh O. Compensation Plan of
For, except vote withheld from Maclellan, Jr.; A.S. (Pat) 1994.
the following nominee(s): MacMillan; C. William Pollard;
Scott L. Probasco, Jr.; Steven S. 3. Approval of the Stock
- ------------------------------- Reinemund; Burton E. Sorensen Plan of 1999. [ ] [ ] [ ]
and Thomas R. Watjen.
4. Approval of
Non-Employee Director
Compensation Plan of [ ] [ ] [ ]
1998.
5. Approval of the
selection of
Ernst & Young LLP as [ ] [ ] [ ]
independent auditors
for 1998.
6. Other Matters:
In their discretion,
to vote upon all other [ ] [ ] [ ]
matters as may properly
come before the Meeting
or any adjournments
thereof.
______________________________________________________
______________________________________________________
SIGNATURE(S) DATE
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FOLD AND DETACH HERE
</TABLE>
