<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the quarterly period ended June 30, 1999.
Commission file number 1-11834
UNUMPROVIDENT CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 62-1598430
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2211 CONGRESS STREET
PORTLAND, MAINE 04122
(Address of principal executive offices)
(Zip Code)
(207) 770-2211
(Registrant's telephone number, including area code)
Provident Companies, Inc., 1 Fountain Square, Chattanooga, Tennessee 37402
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [_]
Indicate the number of shares outstanding for each of the issuer's classes
of common stock, as of the latest practicable date.
<TABLE>
<S> <C>
Class Outstanding at June 30, 1999
----- ----------------------------
Common Stock, $0.10 Par Value 238,790,635
</TABLE>
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- --------------------------------------------------------------------------------
<PAGE>
UNUMPROVIDENT CORPORATION
INDEX
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
Condensed Consolidated Statements of Financial Condition
at June 30, 1999 and December 31, 1998................. 3
Condensed Consolidated Statements of Operations for the
Three and Six Months Ended June 30, 1999 and 1998...... 4
Condensed Consolidated Statements of Stockholders'
Equity for the Six Months Ended June 30, 1999 and
1998................................................... 5
Condensed Consolidated Statements of Cash Flows for the
Six Months Ended
June 30, 1999 and 1998................................. 6
Notes to Condensed Consolidated Financial Statements.... 7
Independent Auditors' Review Report..................... 20
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 21
Item 3. Quantitative and Qualitative Disclosures About Market
Risk................................................... 36
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders..... 38
Item 6. Exhibits and Reports on Form 8-K........................ 40
</TABLE>
2
<PAGE>
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements
UNUMPROVIDENT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)
<TABLE>
<CAPTION>
June 30 December 31
1999 1998
--------- -----------
(in millions of
dollars)
<S> <C> <C>
Assets
Investments:
Fixed Maturity Securities:
Available-for-Sale.................................. $21,807.0 $22,732.2
Held-to-Maturity.................................... 319.2 307.0
Mortgage Loans........................................ 1,328.1 1,321.2
Real Estate........................................... 314.4 309.8
Policy Loans.......................................... 2,239.8 2,227.2
Short-term Investments................................ 196.3 245.1
Other Investments..................................... 42.4 43.5
--------- ---------
Total Investments................................. 26,247.2 27,186.0
Cash and Bank Deposits................................. 186.8 111.2
Premiums Receivable.................................... 749.4 570.1
Reinsurance Receivable................................. 4,893.8 4,871.0
Accrued Investment Income.............................. 523.6 502.5
Deferred Policy Acquisition Costs...................... 2,256.6 2,060.5
Value of Business Acquired............................. 552.5 570.5
Goodwill............................................... 772.3 814.7
Other Assets........................................... 1,295.3 1,502.7
Separate Account Assets................................ 439.8 413.0
--------- ---------
Total Assets...................................... $37,917.3 $38,602.2
========= =========
Liabilities and Stockholders' Equity
Policy and Contract Benefits........................... $ 1,469.5 $ 1,384.9
Reserves for Future Policy and Contract Benefits and
Unearned Premiums..................................... 22,870.8 22,490.7
Other Policyholders' Funds............................. 3,634.1 4,102.7
Federal Income Tax..................................... 489.7 969.8
Short-term Debt........................................ 490.0 323.7
Long-term Debt......................................... 1,226.5 1,225.2
Other Liabilities...................................... 1,605.2 1,246.0
Separate Account Liabilities........................... 439.8 413.0
--------- ---------
Total Liabilities................................. 32,225.6 32,156.0
--------- ---------
Commitments and Contingent Liabilities--Note 10
Company-Obligated Mandatorily Redeemable Preferred
Securities
of Subsidiary Trust Holding Solely Junior Subordinated
Debt Securities of the Company........................ 300.0 300.0
--------- ---------
Stockholders' Equity
Common Stock, $0.10 par Authorized: 725,000,000 shares
Issued: 238,966,930 and 237,802,647 shares............ 23.9 23.8
Additional Paid-in Capital............................. 1,002.5 959.2
Accumulated Other Comprehensive Income................. 265.3 914.7
Retained Earnings...................................... 4,109.2 4,279.2
Treasury Stock at Cost: 176,295 shares................. (9.2) (9.2)
Deferred Compensation.................................. -- (21.5)
--------- ---------
Total Stockholders' Equity........................ 5,391.7 6,146.2
--------- ---------
Total Liabilities and Stockholders' Equity........ $37,917.3 $38,602.2
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
UNUMPROVIDENT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Six Months Ended
Ended June 30 June 30
------------------ ------------------
1999 1998 1999 1998
-------- -------- -------- --------
(in millions of dollars, except
share data)
<S> <C> <C> <C> <C>
Revenue
Premium Income....................... $1,687.4 $1,506.1 $3,368.9 $2,998.7
Net Investment Income................ 518.0 513.5 1,017.6 1,038.6
Net Realized Investment Gains........ 4.2 5.1 11.4 14.4
Other Income......................... 68.0 82.4 148.8 157.5
-------- -------- -------- --------
Total Revenue...................... 2,277.6 2,107.1 4,546.7 4,209.2
-------- -------- -------- --------
Benefits and Expenses
Benefits and Change in Reserves for
Future Benefits..................... 1,690.7 1,304.7 3,192.8 2,618.5
Commissions.......................... 219.6 206.2 462.1 439.6
Interest and Debt Expense............ 33.6 30.7 66.5 58.0
Deferral of Policy Acquisition
Costs............................... (189.0) (158.7) (420.2) (347.7)
Amortization of Deferred Policy
Acquisition Costs................... 111.4 90.0 224.6 178.2
Amortization of Value of Business
Acquired and Goodwill............... 17.5 16.9 60.2 33.8
Other Operating Expenses............. 668.4 351.8 1,072.1 716.0
-------- -------- -------- --------
Total Benefits and Expenses........ 2,552.2 1,841.6 4,658.1 3,696.4
-------- -------- -------- --------
Income (Loss) Before Federal Income
Taxes................................. (274.6) 265.5 (111.4) 512.8
Federal Income Taxes (Credit).......... (83.4) 92.0 (9.5) 174.7
-------- -------- -------- --------
Net Income (Loss)...................... $ (191.2) $ 173.5 $ (101.9) $ 338.1
======== ======== ======== ========
Net Income (Loss) Per Common Share
Basic................................ $ (0.80) $ 0.73 $ (0.43) $ 1.42
Assuming Dilution.................... $ (0.80) $ 0.71 $ (0.43) $ 1.39
Dividends Per Common Share............. $ 0.14 $ 0.14 $ 0.28 $ 0.28
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
UNUMPROVIDENT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
Accumulated
Additional Other
Preferred Common Paid-in Comprehensive Retained Treasury Deferred
Stock Stock Capital Income Earnings Stock Compensation Total
--------- ------ ---------- ------------- -------- -------- ------------ --------
(in millions of dollars)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1997................... $ 156.2 $23.7 $ 954.8 $ 799.0 $3,797.7 $(1.5) $(15.8) $5,714.1
Comprehensive Income,
Net of Tax
Net Income............. 338.1 338.1
Change in Net
Unrealized Gain on
Securities............ 138.8 138.8
Change in Foreign
Currency Translation
Adjustment............ (6.3) (6.3)
--------
Total Comprehensive
Income................ 470.6
--------
Common Stock Activity... (19.0) (7.7) (2.7) (29.4)
Preferred Stock
Redeemed............... (156.2) (156.2)
Dividends to
Stockholders........... (67.9) (67.9)
------- ----- -------- ------- -------- ----- ------ --------
Balance at June 30,
1998................... $ -- $23.7 $ 935.8 $ 931.5 $4,067.9 $(9.2) $(18.5) $5,931.2
======= ===== ======== ======= ======== ===== ====== ========
Balance at December 31,
1998................... $ -- $23.8 $ 959.2 $ 914.7 $4,279.2 $(9.2) $(21.5) $6,146.2
Comprehensive Loss, Net
of Tax Net Loss........ (101.9) (101.9)
Change in Net
Unrealized Gain on
Securities............ (657.0) (657.0)
Change in Foreign
Currency Translation
Adjustment............ 7.6 7.6
--------
Total Comprehensive
Loss.................. (751.3)
--------
Common Stock Activity... 0.1 43.3 21.5 64.9
Dividends to
Stockholders........... (68.1) (68.1)
------- ----- -------- ------- -------- ----- ------ --------
Balance at June 30,
1999................... $ -- $23.9 $1,002.5 $ 265.3 $4,109.2 $(9.2) $ -- $5,391.7
======= ===== ======== ======= ======== ===== ====== ========
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
UNUMPROVIDENT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30
--------------------
1999 1998
--------- ---------
(in millions of
dollars)
<S> <C> <C>
Net Cash Provided by Operating Activities................ $ 740.1 $ 633.8
--------- ---------
Cash Flows from Investing Activities
Proceeds from Sales of Investments..................... 1,472.9 1,268.4
Proceeds from Maturities of Investments................ 705.7 868.9
Purchase of Investments................................ (2,579.5) (2,201.5)
Net Purchases of Short-term Investments................ 48.1 20.5
Disposition of Business................................ -- 58.0
Other.................................................. (48.8) (41.9)
--------- ---------
Net Cash Provided Used by Investing Activities........... (401.6) (27.6)
--------- ---------
Cash Flows from Financing Activities
Deposits to Policyholder Accounts...................... 78.1 150.6
Maturities and Benefit Payments from Policyholder
Accounts.............................................. (480.5) (790.7)
Net Short-term Borrowings.............................. 149.5 548.6
Issuance of Long-term Debt............................. 200.0 250.0
Long-term Debt Repayments.............................. (183.3) (763.0)
Issuance of Company-Obligated Mandatorily Redeemable
Preferred Securities.................................. -- 300.0
Redemption of Preferred Stock.......................... -- (156.2)
Dividends Paid to Stockholders......................... (68.1) (71.1)
Repurchase of Common Stock............................. -- (70.8)
Other.................................................. 42.1 19.7
--------- ---------
Net Cash Used by Financing Activities.................... (262.2) (582.9)
--------- ---------
Effect of Foreign Exchange Rate on Cash.................. (0.7) (0.4)
--------- ---------
Net Increase in Cash and Bank Deposits................... 75.6 22.9
Cash and Bank Deposits at Beginning of Period............ 111.2 94.5
--------- ---------
Cash and Bank Deposits at End of Period.................. $ 186.8 $ 117.4
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
6
<PAGE>
UNUMPROVIDENT CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1--Basis of Presentation
On June 30, 1999, UNUM Corporation (UNUM) merged into Provident Companies,
Inc. (Provident) under the name UNUMProvident Corporation (the Company). The
merger was accounted for as a pooling of interests. The historical financial
results presented herein and the unaudited combined condensed statement of
financial condition as of December 31, 1998, give effect to the merger as if it
had been completed at the beginning of the earliest period presented.
The Company values its available-for-sale fixed maturity and equity
securities at fair value, with unrealized holding gains and losses reported as
a component of comprehensive income. Companies are required to also adjust
deferred acquisition costs and/or certain policyholder liabilities to reflect
the changes that would have been necessary if the unrealized investment gains
and losses related to the available-for-sale securities had been realized.
Prior to the merger, UNUM adjusted policyholder liabilities and Provident
adjusted deferred policy acquisition costs (DPAC) and value of business
acquired (VOBA) for those products where these assets existed. To present
financial information in a common reporting format, management has determined
that the combined entity will adjust policyholder liabilities rather than DPAC
and VOBA. Prior period financial statements have been restated to reflect this
reclassification. The reclassification did not change other comprehensive
income, accumulated other comprehensive income, or fixed maturity and equity
securities. The reclassification reflected in the December 31, 1998,
consolidated statement of financial condition resulted in an increase of $329.7
million in DPAC, $1.5 million in VOBA, and, $331.2 million in reserves for
future policy and contract benefits. Certain additional reclassification
adjustments have been made to conform the companies' presentations in the
condensed consolidated financial statements.
The condensed consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three month and six month periods ended
June 30, 1999, are not necessarily indicative of the results that may be
expected for the year ended December 31, 1999. These results are also not
necessarily indicative of the results of operations that would have been
realized had the merger been completed prior to June 30, 1999. For further
information, refer to the consolidated financial statements and footnotes
thereto included in Provident's and UNUM's reports on Form 10-Q for the six
months ended June 30, 1998, Form 10-K/A for the year ended December 31, 1998,
and Form 10-Q/A for the three months ended March 31, 1999.
Note 2--Merger
On June 30, 1999, prior to the completion of the merger, each outstanding
share of Provident common stock was reclassified and converted into 0.73 of a
share of Provident common stock. Immediately after this reclassification, the
merger was completed, and each share of Provident common stock and UNUM common
stock issued and outstanding immediately prior to the merger was converted into
one share of the Company's common stock, and the par value was reduced from
$1.00 to $0.10 per share. In the merger, the shares of Provident common stock
were not further affected, but thereafter became shares of the Company's common
stock. UNUM common stock held in treasury was retired. Stockholders' equity and
per share amounts have been adjusted to reflect these items.
7
<PAGE>
In the second quarter of 1999 the Company recorded expenses related to the
merger and the early retirement offer to employees as follows (in millions):
<TABLE>
<S> <C>
Employee related expense......................................... $ 45.2
Exit activities related to duplicate facilities/asset
abandonments.................................................... 57.4
Investment banking, legal, and accounting fees................... 39.6
------
Subtotal......................................................... 142.2
Expense related to the early retirement offer to employees....... 125.9
------
Subtotal......................................................... 268.1
Income tax benefit............................................... 74.3
------
Total............................................................ $193.8
======
</TABLE>
Employee related expense consists of employee severance costs, restricted
stock costs which fully vested upon stockholder adoption of the merger
agreement or upon completion of the merger, and outplacement costs to assist
employees who have been involuntarily terminated. Severance benefits and costs
associated with the vesting of restricted stock are $27.7 million and $17.5
million, respectively. The Company currently estimates that in total
approximately 1,400 positions will be eliminated over a twelve month period
beginning June 30, 1999, with an estimated 1,000 of these positions eliminated
through the early retirement offer.
Exit activities related to duplicate facilities/asset abandonments consist
of closing of duplicate offices and write-off of redundant computer hardware
and software. The Company currently expects to close approximately 90 duplicate
field offices over a period of one year after June 30, 1999, the completion
date of the merger. The cost associated with these office closures is
approximately $25.6 million, which represents the cost of future minimum lease
payments less any estimated amounts recovered under subleases. Also, the total
book value of physical assets, primarily computer equipment, redundant systems,
and systems incapable of supporting the combined entity, are being abandoned as
a result of the merger. This abandonment resulted in a write-down of the
assets' book values by approximately $31.8 million.
The expenses related to the merger reduced earnings $142.2 million before
tax and $112.0 million after tax ($0.47 per common share). The expense related
to the early retirement offer reduced earnings $125.9 million before tax and
$81.8 million after tax ($0.34 per common share).
In accordance with Provident's and UNUM's restricted stock and stock option
plan provisions concerning a change in control, 546,362 shares of outstanding
restricted stock became unrestricted and stock options on 5,301,683 shares
became immediately exercisable effective with the merger. The expense related
to restricted stock vesting has been included in merger-related expenses. The
Company applies Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations in accounting for the
stock option plans. Accordingly, no compensation cost was recognized for stock
option vesting.
Prior to the merger, UNUM's process and assumptions used to calculate the
discount rate for claim reserves of certain disability businesses differed from
that used by Provident. While UNUM's and Provident's methods were both in
accordance with generally accepted accounting principles, management believed
that the combined entity should have consistent discount rate accounting
policies and methods for applying those policies for similar products. UNUM's
former methodology used the same investment strategy for assets backing both
liabilities and surplus. Provident's methodology, which allows for different
investment strategies for assets backing surplus than those backing product
liabilities, was determined by management to be the more appropriate approach
for the Company. Accordingly, the Company adopted Provident's method of
calculating the discount rate for claim reserves.
8
<PAGE>
The discount rates affected by this change in UNUM's methodology are as
follows:
<TABLE>
<CAPTION>
June 30, 1999
--------------------------
Current Rates Former Rates
------------- ------------
<S> <C> <C>
Group Long-term Disability (North America)......... 6.75% 7.74%
Group Long-term Disability and Individual
Disability (United Kingdom)....................... 7.45% 8.80%
Individual Disability (North America).............. 6.88% 7.37%
</TABLE>
The unpaid claim reserves for these disability lines as of June 30, 1999
were $5,318.3 million using the former method for determining reserve discount
rates and $5,559.0 million using the current method. The impact on 1999 second
quarter earnings related to the change in method of calculating the discount
rate for claim reserves was $240.7 million before tax and $156.5 million after
tax ($0.66 per common share).
The Company continues to review its accounting policies, including
assumptions underlying the application thereof, as well as its financial
statement classifications and related disclosures. It may be necessary to
further adjust the financial statements to change to those accounting policies,
practices, and classifications that are determined to be most appropriate. The
reviews are expected to be completed by year end and could result in further
changes to accounting policies, accounting estimates, or financial statement
classifications which could be material to the Company's results of operations
for 1999.
The results of operations for the separate companies and the combined
amounts are as follows:
<TABLE>
<CAPTION>
Three Months Six Months Ended
Ended June 30 June 30
------------------ ------------------
1999 1998 1999 1998
-------- -------- -------- --------
(in millions of dollars)
<S> <C> <C> <C> <C>
Revenue
UNUM................................... $1,277.1 $1,124.1 $2,557.8 $2,232.6
Provident.............................. 1,000.5 983.0 1,988.9 1,976.6
-------- -------- -------- --------
Combined Revenue..................... $2,277.6 $2,107.1 $4,546.7 $4,209.2
======== ======== ======== ========
Net Income (Loss)
UNUM................................... $ (205.2) $ 98.7 $ (189.7) $ 192.2
Provident.............................. 14.0 74.8 87.8 145.9
-------- -------- -------- --------
Combined Net Income (Loss)........... $ (191.2) $ 173.5 $ (101.9) $ 338.1
======== ======== ======== ========
</TABLE>
Included in UNUM's net income for the three and six months ended June 30,
1999, is $131.8 million after tax for expenses related to the merger and the
early retirement offer to employees and $156.5 million after tax for the
reserve discount rate change. UNUM's net income for the six months ended June
30, 1999 also includes an after-tax first quarter charge of $88.0 million
related to its reinsurance businesses. Included in Provident's net income for
the three and six months ended June 30, 1999, is $62.0 million after tax for
expenses related to the merger and the early retirement offer to employees.
9
<PAGE>
The balance sheets for the separate companies and the combined amounts are
as follows:
<TABLE>
<CAPTION>
June 30, 1999
-----------------------------
UNUM Provident Combined
--------- --------- ---------
(in millions of dollars)
<S> <C> <C> <C>
Assets
Total Investments................................ $ 9,821.5 $16,425.7 $26,247.2
Reinsurance Receivable........................... 1,862.5 3,031.3 4,893.8
All Other Assets................................. 3,612.3 3,164.0 6,776.3
--------- --------- ---------
Total Assets................................... $15,296.3 $22,621.0 $37,917.3
========= ========= =========
Liabilities and Stockholders' Equity
Policy and Contract Benefits, Reserves for Future
Policy
and Contract Benefits, and Unearned Premiums.... $ 9,594.3 $14,746.0 $24,340.3
Other Policyholders' Funds....................... 878.8 2,755.3 3,634.1
All Other Liabilities............................ 2,417.6 1,833.6 4,251.2
--------- --------- ---------
Total Liabilities.............................. 12,890.7 19,334.9 32,225.6
--------- --------- ---------
Company--Obligated Mandatorily Redeemable
Preferred Securities of Subsidiary Trust Holding
Solely Junior Subordinated Debt Securities of
the Company..................................... -- 300.0 300.0
--------- --------- ---------
Stockholders' Equity............................. 2,405.6 2,986.1 5,391.7
--------- --------- ---------
Total Liabilities and Stockholders' Equity..... $15,296.3 $22,621.0 $37,917.3
========= ========= =========
</TABLE>
Note 3--Liability for Unpaid Claims and Claim Adjustment Expenses
It is the Company's policy to estimate the ultimate cost of settling claims
in each reporting period based upon the information available to management at
the time. Actual claim resolution results are monitored and compared to those
anticipated in claim reserve assumptions. Claim resolution rate assumptions are
based upon industry standards adjusted as appropriate to reflect actual Company
experience as well as Company actions which would have a material impact on
claim resolutions. Company actions for which plans have been established and
committed to by management are factors which would modify past experience in
establishing claim reserves. Adjustments to the reserve assumptions will be
made if expectations change. Given that insurance products contain inherent
risks and uncertainties, the ultimate liability may be more or less than such
estimates indicate.
During the fourth quarter of 1998, the Company recorded a $153.0 million
increase in the reserve for individual and group disability claims incurred as
of December 31, 1998. Incurred claims include claims known as of that date and
an estimate of those claims that have been incurred but not yet reported.
Claims that have been incurred but not yet reported are considered liabilities
of the Company. These claims are expected to be reported during 1999 and will
be affected by the claims operations integration activities. The $153.0 million
claim reserve increase represents the estimated value of cash payments to be
made to these claimants over the life of the claims as a result of the claims
operations integration activities.
Management believes the reserve adjustment was required based upon the
integration plans it has in place and to which it has committed and based upon
its ability to develop a reasonable estimate of the financial impact of the
expected disruption to the claims management process. Claims management is an
integral part of the disability operations. Disruptions in that process can
create material, short-term increases in claim costs. The merger has had a
near-term adverse impact on the efficiency and effectiveness of the Company's
claims management function resulting in some delay in claim resolutions and
additional claim payments to policyholders. Claims personnel have been
distracted from normal claims management activities as a result of planning and
implementing the integration of the two companies' claims organizations. In
addition, employee
10
<PAGE>
turnover and additional training have reduced resources and productivity. An
important part of the claims management process is assisting disabled
policyholders with rehabilitation efforts. This complex activity is important
to the policyholders because it can assist them in returning to productive work
and lifestyles more quickly, and it is important to the Company because it
shortens the duration of claim payments and thereby reduces the ultimate cost
of settling claims.
Immediately following the announcement of the merger and continuing into
December of 1998, senior management of the Company worked to develop the
strategic direction of the Company's claims organization. As part of the
strategic direction, senior management committed claims management personnel to
be involved in developing the detailed integration plans and implementing the
plans during 1999. Knowing that those involved in the claims operations
integration activities would not be available full time to perform their normal
claims management functions, management deemed it necessary to anticipate this
effect on the claim reserves at December 31, 1998. For the first six months of
1999, approximately 90 claims managers and benefit specialists have spent
nearly 40 percent of their time developing the detailed integration plans.
Effective with the merger, all claims personnel are expected to be involved in
the process of implementing the new work processes and required training. The
implementation and training efforts are estimated to require an average of one
month of productive time from each of the claims staff between June 30, 1999
and December 31, 1999. Management now believes that implementation and related
systems conversions will continue over the next 18 months. However, due to
actions taken by management to mitigate effects on resolution rates, the effect
on resolution rates is not anticipated to extend beyond the end of 1999.
Actions by management to mitigate the effect on resolution rates include
aggressive hiring of new claims staff, restrictions on early retirement
elections, selective use of personnel for integration planning, and significant
communications with staff members.
The reserving process begins with the assumptions indicated by past
experience and modifies these assumptions for current trends and other known
factors. The Company anticipated the merger-related developments discussed
above would generate a significant change in claims department productivity,
reducing claim resolution rates, a key assumption when establishing reserves.
Management developed actions to mitigate the impact of the merger on claims
department productivity, including the hiring of additional claims staff and
the restriction of early retirement elections by claims personnel. Where
feasible, management also planned to obtain additional claims management
resources through outsourcing. All such costs are expensed in the period
incurred and are not material in relation to results of operations. Management
reviewed its integration plans and the actions intended to mitigate the impact
of the integration with claims managers to determine the extent of disruption
in normal activities. Considering all of the above, the revised claim
resolution rates, as a percentage of original assumptions (i.e., before
adjusting for the effect of the claims operations integration activities), are
90 percent for the first and second quarters of 1999, 84 percent for the third
quarter, and 89 percent for the fourth quarter of 1999. The revised claim
resolution rates for the third quarter and fourth quarter are lower than the
first and second quarters because all claims personnel are expected to be
involved in the implementation and training efforts. The effect of integration
activities on resolution rates is not expected to extend beyond December 31,
1999.
In order to validate these assumptions, the Company also examined the
historical level and pattern of claims management effectiveness as reflected in
claim resolution rates for the insurance subsidiaries of The Paul Revere
Corporation (Paul Revere) which was acquired in 1997. Subsequent to the Paul
Revere acquisition and integration, management has been able to develop
experience studies for the Paul Revere business. These studies are prepared for
pricing purposes and to identify trends or changes in the business.
These studies, which were not available for the Paul Revere business at the
time of the acquisition, allowed management to gain a greater understanding of
the impact of the claims integration activities on the claim resolution rates
of the Paul Revere business. These studies show that the Paul Revere business
experienced a decline in its claim resolution rates from a base in 1995 of 100
percent to 90.4 percent in 1996 and 80.3 percent in 1997. Changes in morbidity
and other factors were considered and reviewed to determine that a primary
cause of the reduced claim resolution rates was the disruption caused by the
change in the claims management process. Although the circumstances of the
merger are very different from the Paul Revere acquisition, the claims
integration activities are similar, and the Paul Revere experience is relevant.
The
11
<PAGE>
primary circumstances that created claims disruption for Paul Revere were the
initial lack of clarity of the organization, process, and structure, the need
to plan for a significant transition to new claims processes, and the training
and implementation related to those changes. All of those elements have
impacted the Company as a result of the merger. One primary difference is that
the duration of the potential disruption in the merger is not expected to be as
long as was the case with the Paul Revere acquisition. The Company's revised
claim resolution rates assumed for the first two quarters of 1999 were compared
to the Paul Revere experience in 1996, the period preceding the acquisition. It
was determined that the revised assumptions appeared to be reasonable. During
the third and fourth quarters of 1999, the claims integration plans provide for
increased activity due to training and implementation of new processes. The
Company's revised claim resolution rates for the third and fourth quarters of
1999 were compared to the Paul Revere experience in 1997 during the
implementation and training phase of the Paul Revere claims organization when
claims resolution rates declined to 80.3 percent of prior levels. Management
judged that it was reasonable to assume that the impact to the Company would be
less than it was to Paul Revere since some of the Company's claims management
practices will not change. The historical experience of Paul Revere provides a
statistical reference for the expected experience for the Company when adjusted
for the projected effects of the claims integration plans.
In order to evaluate the financial effect of merger-related integration
activities, the Company projected the ultimate cost of settling all claims
incurred as of December 31, 1998, using the revised claim resolution rates.
This projection was compared to the projection excluding the adjustment to the
claim resolution rates to obtain the amount of the charge. The Company reviewed
its estimates of the financial impact of the claims operations integration
activities with its actuaries and independent auditors.
Claim reserves at December 31, 1998 include $153.0 million as the estimated
value of projected additional claim payments resulting from these claims
operations integration activities. This reserve increase was reflected as a
$142.6 million increase in benefits and reserves for future benefits, and a
$10.4 million reduction in other income. If claim resolutions emerge as
expected, there will be no impact to results of operations during 1999. Any
variance from the assumptions will be reflected in operations in the current
period. The adverse impact of the claims operations integration activities on
resolution rates is not expected to continue beyond 1999. As part of the
periodic review of claim reserves, management will review the status and
execution of the claims operations integration plans with the claims management
on a quarterly basis. The review will consider claims operations integration
activities planned for future periods and evaluate whether the future planned
activities will result in claim resolution rates consistent with those
considered in the reserve established at December 31, 1998.
The claim reserves may require further increases or decreases as facts
concerning the merger and its effect on benefits to policyholders emerge. Among
the factors that could affect the reserve assumptions are the level of employee
turnover, timing and complexity of computer system conversions, and the timing
and level of training and integration activities of the claims management staff
relative to the original integration plans of the Company.
Quarterly information concerning the estimated and actual impact of the
claims operations integration activities are as follows:
<TABLE>
<CAPTION>
1999
---------------------------
1st 2nd 3rd 4th
------ ----- ----- -----
(in millions of dollars)
<S> <C> <C> <C> <C>
Revised Claim Resolution Rates at December 31,
1998............................................. 90% 90% 84% 89%
Actual Claim Resolution Rates for the Period...... 89% 90%
Estimated Effect of Lower Claim Resolution Rates
at December 31, 1998............................. $ 36.2 $36.2 $47.6 $33.0
Actual Effect of Lower Claim Resolution Rates for
the Period....................................... $ 39.2 $36.2
Further Increases (Decreases) to the Estimated
Liability at December 31, 1998 Recorded During
the Period....................................... $ -- $ --
Liability Remaining for Claims Operation
Integration Activities at End of Period.......... $116.8 $80.6
</TABLE>
12
<PAGE>
Management expects the remaining claims operations integration activities to
impact claim reserves as anticipated at December 31, 1998. Management will
continue to evaluate the impact of the merger on disability claims experience
and the assumptions related to expected claim resolutions.
Note 4--Reinsurance Businesses
During the first quarter of 1999, the Company recognized a before-tax charge
of $101.1 million ($88.0 million after tax) relating to its reinsurance
businesses. The charge consisted of the following:
Lloyd's of London Estimated Losses--The periodic method of accounting is
followed for Lloyd's of London (Lloyd's) syndicate participation, which
requires the premiums be recognized as revenue over the policy term and claims,
including the estimate of claims incurred but not reported, to be recognized as
incurred. During the first quarter of 1999, the Company received more
information about the Lloyd's market from various sources, including managing
agents/underwriters syndicate reports and published information from Moody's
Investors Service. The information received indicated significant deterioration
in the loss experience of open years of account primarily related to
significant losses in certain syndicates (space and aviation, accident and
health, and other non-marine classes of business) and continued pressure on the
pricing of insurance coverage provided by the Lloyd's market. In addition, the
Company discussed projected results of the Lloyd's market with the underwriters
of the syndicates that are managed through a subsidiary of the Company. These
projected results also indicated future deterioration of the open years of
account. Using this information and recent experience with prior revisions of
estimated losses in this business, the Company performed a review of its claim
reserve liabilities related to its open years of account
The review of estimates related to open years of account was performed based
on a periodic review of these estimates as information was received from the
Lloyd's syndicates. The review resulted in revised best estimates of the
expected ultimate profit (loss) for each open year of account, which were
significantly below the levels estimated in 1998. The resulting charge to
earnings in the amount of $44.0 million was reflected in the Company's income
in the first quarter of 1999 for the open years of account 1996 through 1999.
In addition to the risk participation charge, the Company recorded a charge of
$1.5 million, which represented the reduction of previously recognized profit
commissions related to the Lloyd's management company operations.
Reinsurance Facility Losses--As a result of the review performed on the
Lloyd's syndicates discussed above and other third party publicized reinsurance
exposures, the Company undertook a periodic review of certain other reinsurance
facilities related to new information regarding the ultimate cost of settling
claims. The reinsurance pool business consists of more than 20 different pool
facilities, the majority of which are managed by the subsidiary Duncanson &
Holt, Inc. and a few which are managed by third parties. Reserve assumptions
are periodically reviewed to support the determination of the ultimate cost of
settling claims for certain reinsurance pools. During the first quarter of
1999, the Company reviewed the actuarial assumptions used to set reserves for
certain reinsurance facilities based on the most current information available
from the reinsurance pool managers. The Company also received new information
pertaining to a reinsurance pool managed by a third party that indicated a
reserve increase was required. The Company relied primarily on the third party
pool manager's judgement and recorded its portion of the reserve as reflected
in the reinsurance pool statement from the third party pool manager. The new
information received from the managed facilities and the third party facility
indicated deterioration in loss experience, primarily related to a longer
duration of claims and increased incidence of new claims in certain facilities.
The result of these reviews was an increase to claim reserves of $28.6 million,
which was recorded in the first quarter of 1999. The Company determined that
the increase to reserves was needed based on revised actuarial assumptions to
reflect current and expected trends in claims experience and expenses.
Goodwill Impairment--When an event or change in circumstance occurs that
indicates the recoverability of an asset should be assessed for impairment, a
recoverability test is performed to determine if an impairment has occurred.
Following the poor results of the reinsurance businesses in the first quarter
of 1999, the Company updated the goodwill recoverability test using the most
current results and forecasts. The goodwill
13
<PAGE>
recoverability test used the held for use model that compares the undiscounted
cash flows of these businesses to determine whether those cash flows can
recover the unamortized goodwill. After factoring in the first quarter results
and current revised forecasts due to recent poor performance for these
businesses, future undiscounted cash flows were insufficient to recover the
entire goodwill amount, indicating that the goodwill was impaired. Goodwill
recoverability testing of these businesses performed prior to March 31, 1999,
had indicated that the goodwill was not impaired.
As a result of the impairment, the Company calculated the estimated fair
value of these businesses. In estimating the fair value, two valuation
techniques were utilized, a discount free cash flow model and a multiple of
earnings model. The Company believed that these valuation techniques were
appropriate for this type of business as these techniques were what the Company
would use in evaluating a potential acquisition of this type of business. The
results of the two valuation techniques created a range of fair values from
$47.0 million to $64.0 million. The Company evaluated the range of values
produced by the valuation techniques and using internal management judgement of
the potential liquidation value, the Company determined its best estimate of
fair value of its investment to be the midpoint of the range, or $55.0 million.
The estimated fair value of $55.0 million was compared to $82.0 million of book
value for the investment, resulting in a write-down of goodwill in the amount
of $27.0 million in the first quarter of 1999.
In the second quarter of 1999, the Company stated its intent to sell its
reinsurance management operations, assuming the transaction would achieve the
Company's financial objectives. The Company estimated the fair value of the
operations using the held-for-sale model, which compares the carrying value of
the asset with the fair value less costs to sell the asset. This resulted in an
additional write-down of goodwill in the amount of $2.0 million before and
after tax.
Recent information indicates that in certain reinsurance pools there are
disputes among the pool members and reinsurance participants concerning the
scope of their obligations and liabilities within the complex pool
arrangements, including a pool for which a subsidiary of the Company acted as
pool underwriting agent and another subsidiary is a pool member. It is likely
that the Company's agent subsidiary will be brought into a dispute,
arbitration, or litigation with other pool members or reinsurers of the pool
for which it acted as agent and which have been subject to a recent arbitration
proceeding, but it is unclear what exposure the Company's subsidiary may
ultimately have to share in losses of pool members or reinsurers because of the
subsidiary's activities as agent in placing reinsurance.
Note 5--Debt
On December 4, 1997, the Company borrowed $168.3 million through a private
placement. Under the terms of the agreement, the investor exercised the right
to redeem the private placement at par value during the second quarter of 1999.
The Company refinanced this debt by issuing $200.0 million of variable rate
medium-term notes in June of 1999. The notes are due in June of 2000 and had an
interest rate of 5.135% at June 30, 1999.
Note 6--Federal Income Taxes
A portion of the losses recognized in the first quarter of 1999 relating to
the Company's reinsurance businesses does not receive a tax benefit, which
unfavorably impacted the effective tax rate in the first quarter of 1999.
Additionally, a portion of the second quarter 1999 expenses related to the
merger was non-deductible for federal income tax purposes, resulting in a tax
rate for the quarter and year-to-date that was less than the U.S. federal
statutory tax rate of 35 percent. It is expected that the tax rate will move
closer to the statutory rate by the end of the year.
In the second quarter of 1999, the Company reached a settlement agreement
with the Internal Revenue Service related to an issue in dispute for the 1992
tax year. The Company recorded a tax benefit of $5.1 million and related
interest of $1.4 million.
14
<PAGE>
Note 7--Stockholders' Equity and Earnings Per Common Share
In accordance with the restated certificate of incorporation, the Company
has 25,000,000 shares of preferred stock authorized with a par value of $0.10
per share. At June 30, 1999, no preferred stock had been issued.
Earnings per common share are determined as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
---------------------- ----------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
(in millions of dollars, except share data)
<S> <C> <C> <C> <C>
Numerator:
Net Income (Loss).............. $ (191.2) $ 173.5 $ (101.9) $ 338.1
Preferred Stock Dividends...... -- -- -- 1.9
---------- ---------- ---------- ----------
$ (191.2) $ 173.5 $ (101.9) $ 336.2
========== ========== ========== ==========
Denominator (000s):
Weighted Average Common
Shares--Basic................. 238,438.4 237,021.2 238,108.9 236,824.0
Dilutive Securities............ -- 5,813.7 -- 5,906.4
---------- ---------- ---------- ----------
Weighted Average Common
Shares--Assuming Dilution..... 238,438.4 242,834.9 238,108.9 242,730.4
========== ========== ========== ==========
</TABLE>
In computing earnings per share assuming dilution, only potential common
shares that are dilutive (those that reduce earnings per share) are included.
Potential common shares are not used when computing earnings per share assuming
dilution if the result would be antidilutive, such as when a net loss is
reported or if options are out-of-the-money. In-the-money options to purchase
approximately 4.3 million common shares for both the three and six month
periods ended June 30, 1999, were not considered dilutive due to net losses
being reported for the periods. Options which were not considered dilutive due
to the options being out-of-the-money were immaterial for the three and six
month periods ended June 30, 1999 and 1998.
Note 8--Comprehensive Income (Loss)
The components of other comprehensive income, net of deferred tax, are as
follows:
<TABLE>
<CAPTION>
June 30 December 31
1999 1998
------------ ---------------
(in millions of dollars)
<S> <C> <C>
Net Unrealized Gain on Securities................ $ 312.4 $ 969.4
Foreign Currency Translation Adjustment.......... (47.1) (54.7)
------------ ------------
Accumulated Other Comprehensive Income........... $ 265.3 $ 914.7
============ ============
</TABLE>
15
<PAGE>
The components of comprehensive income (loss) and the related deferred tax
(credit) are as follows:
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30 Ended June 30
--------------- ---------------
1999 1998 1999 1998
------- ------ ------- ------
(in millions of dollars)
<S> <C> <C> <C> <C>
Net Income (Loss)............................. $(191.2) $173.5 $(101.9) $338.1
------- ------ ------- ------
Change in Net Unrealized Gain on Securities:
Change Before Reclassification Adjustment... (478.2) 202.6 (974.5) 226.6
Reclassification Adjustment for Net Realized
Investment Gains Included in Net Income
(Loss)..................................... (4.2) (5.1) (11.4) (14.4)
Change in Foreign Currency Translation
Adjustment................................... 12.2 (16.8) 15.1 (9.3)
------- ------ ------- ------
(470.2) 180.7 (970.8) 202.9
Change in Deferred Tax (Credit)............... (146.7) 63.8 (321.4) 70.4
------- ------ ------- ------
Other Comprehensive Income (Loss)............. (323.5) 116.9 (649.4) 132.5
------- ------ ------- ------
Comprehensive Income (Loss)................... $(514.7) $290.4 $(751.3) $470.6
======= ====== ======= ======
</TABLE>
16
<PAGE>
Note 9--Segment Information
Selected data by segment is as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
-------------------- ------------------
1999 1998 1999 1998
--------- --------- -------- --------
(in millions of dollars)
<S> <C> <C> <C> <C>
Premium Income
Employee Benefits................. $ 960.7 $ 827.2 $1,914.0 $1,633.6
Individual........................ 427.3 414.4 860.4 836.9
Voluntary Benefits................ 173.1 166.8 344.3 331.3
Other............................. 126.3 97.7 250.2 196.9
--------- --------- -------- --------
1,687.4 1,506.1 3,368.9 2,998.7
Net Investment Income and Other
Income
Employee Benefits................. 183.5 166.2 360.3 328.2
Individual........................ 233.8 223.6 461.3 442.7
Voluntary Benefits................ 26.8 24.8 53.4 49.9
Other............................. 135.0 168.4 276.4 358.5
Corporate......................... 6.9 12.9 15.0 16.8
--------- --------- -------- --------
586.0 595.9 1,166.4 1,196.1
Total Revenue (Excluding Net
Realized
Investment Gains and Losses)
Employee Benefits................. 1,144.2 993.4 2,274.3 1,961.8
Individual........................ 661.1 638.0 1,321.7 1,279.6
Voluntary Benefits................ 199.9 191.6 397.7 381.2
Other............................. 261.3 266.1 526.6 555.4
Corporate......................... 6.9 12.9 15.0 16.8
--------- --------- -------- --------
2,273.4 2,102.0 4,535.3 4,194.8
Benefits and Expenses
Employee Benefits................. 1,191.5 847.3 2,156.1 1,677.1
Individual........................ 614.1 557.2 1,194.0 1,119.8
Voluntary Benefits................ 168.8 160.7 335.1 323.0
Other............................. 253.6 229.5 580.0 498.7
Corporate......................... 324.2 46.9 392.9 77.8
--------- --------- -------- --------
2,552.2 1,841.6 4,658.1 3,696.4
Income (Loss) Before Net Realized
Investment
Gains and Losses and Federal Income
Taxes
Employee Benefits................. (47.3) 146.1 118.2 284.7
Individual........................ 47.0 80.8 127.7 159.8
Voluntary Benefits................ 31.1 30.9 62.6 58.2
Other............................. 7.7 36.6 (53.4) 56.7
Corporate......................... (317.3) (34.0) (377.9) (61.0)
--------- --------- -------- --------
(278.8) 260.4 (122.8) 498.4
Net Realized Investment Gains....... 4.2 5.1 11.4 14.4
--------- --------- -------- --------
Income (Loss) Before Federal Income
Taxes.............................. (274.6) 265.5 (111.4) 512.8
Federal Income Taxes (Credit)....... (83.4) 92.0 (9.5) 174.7
--------- --------- -------- --------
Net Income (Loss)................... $ (191.2) $ 173.5 $ (101.9) $ 338.1
========= ========= ======== ========
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
June 30 December 31
--------- -----------
1999 1998
--------- -----------
(in millions of
dollars)
<S> <C> <C>
Assets
Employee Benefits........................................ $ 9,503.8 $ 9,275.7
Individual............................................... 15,671.5 15,887.7
Voluntary Benefits....................................... 2,058.4 2,057.3
Other.................................................... 9,151.0 9,610.2
Corporate................................................ 1,532.6 1,771.3
--------- ---------
$37,917.3 $38,602.2
========= =========
</TABLE>
The Employee Benefits segment includes group long-term and short-term
disability insurance, group life insurance, accidental death and dismemberment
coverages, group long-term care, and the results of managed disability. The
Individual segment includes results from the individual disability, individual
life, and individual long-term care lines of business. The Voluntary Benefits
segment includes the results of products sold to employees through payroll
deduction at the work site. These products include life insurance and health
products, primarily disability, accident and sickness, and cancer. The Other
operating segment includes results from products no longer actively marketed,
including corporate-owned life insurance, group pension, health insurance,
individual annuities, and reinsurance pools and management. The Corporate
segment includes investment earnings on corporate assets not specifically
allocated to a line of business, corporate interest expense, amortization of
goodwill, and certain corporate expenses not allocated to a line of business.
Note 10--Commitments and Contingent Liabilities
In 1997, two alleged class action lawsuits were filed in Superior Court in
Worcester, Massachusetts (the Court) against the Company--one purporting to
represent all career agents of subsidiaries of Paul Revere whose employment
relationships ended on June 30, 1997 and were offered contracts to sell
insurance policies as independent producers and the other purporting to
represent independent brokers who sold certain Paul Revere individual
disability income policies with benefit riders. Motions filed by the Company to
dismiss most of the counts in the complaints, which allege various breach of
contract and statutory claims, have been denied, but the cases remain at a
preliminary stage. To date no class has been certified in either lawsuit. The
Company has filed a conditional counterclaim in each action which requests a
substantial return of commissions should the Court agree with the plaintiff's
interpretation of the contract. The Company has strong defenses to both
lawsuits and will vigorously defend its position and resist certification of
the classes. In addition, the same plaintiff's attorney who has filed the
purported class action lawsuits has filed 44 individual lawsuits on behalf of
current and former Paul Revere sales managers alleging various breach of
contract claims. The Company has filed a motion in federal court to compel
arbitration for 16 of the plaintiffs who are licensed by the National
Association of Securities Dealers and have executed the Uniform Application for
Registration or Transfer in the Securities Industry (Form U-4). The Company has
strong defenses and will vigorously defend its position in these cases as well.
Although the alleged class action lawsuits and the 44 individual lawsuits are
in the early stages, management does not currently expect these suits to
materially affect the financial position or results of operations of the
Company.
Various lawsuits against the Company have arisen in the normal course of
business. Contingent liabilities that might arise from litigation are not
deemed likely to materially affect the financial position or results of
operations of the Company.
Note 11--Changes in Accounting Principles and Accounting Pronouncement
Outstanding
Effective January 1, 1999, the Company adopted the provisions of Statement
of Position 97-3 (SOP 97-3), Accounting by Insurance and Other Enterprises for
Insurance-Related Assessments. SOP 97-3 provides guidance for determining when
an entity should recognize a liability or an asset for insurance-related
assessments and how to measure these items. UNUM and Provident adopted the
provisions of Statement of
18
<PAGE>
Position 98-1 (SOP 98-1), Accounting for the Costs of Computer Software
Developed for or Obtained for Internal Use, effective January 1, 1998 and
January 1, 1999, respectively. SOP 98-1 requires the capitalization of certain
costs incurred in connection with developing or obtaining software for internal
use. The effect of the adoptions of SOP 97-3 and SOP 98-1 on the Company's
financial position and results of operations was immaterial.
In June 1999, Statement of Financial Accounting Standards No. 137 (SFAS
137), Accounting for Derivative Instruments and Hedging Activities--Deferral of
the Effective Date of FASB Statement No. 133 was issued. SFAS 137 defers for
one year the effective date of Statement of Financial Accounting Standards
No. 133 (SFAS 133), Accounting for Derivative Instruments and Hedging
Activities. The Company plans to adopt the provisions of SFAS 133 effective
January 1, 2001. At this time the Company has not determined the effects that
adoption of SFAS 133 will have on its financial statements.
19
<PAGE>
Independent Auditors' Review Report
Board of Directors and Shareholders
UNUMProvident Corporation
We have reviewed the accompanying condensed consolidated statement of
financial condition of UNUMProvident Corporation and Subsidiaries as of June
30, 1999, and the related condensed consolidated statements of operations for
the three and six month periods ended June 30, 1999 and 1998, and the condensed
consolidated statements of stockholders' equity and cash flows for the six
month periods ended June 30, 1999 and 1998. These financial statements are the
responsibility of the Company's management.
We were furnished with the report of other accountants on their review of
the interim information of the former UNUM Corporation and Subsidiaries whose
total assets as of June 30, 1999, and whose revenues for the three-month and
six-month periods then ended constituted 40 percent, 56 percent, and 56
percent, respectively, of the related consolidated totals.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data, and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, which will be
performed for the full year with the objective of expressing an opinion
regarding the financial statements taken as a whole. Accordingly, we do not
express such an opinion.
Based on our reviews and the report of other accountants, we are not aware
of any material modifications that should be made to the accompanying financial
statements for them to be in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Chattanooga, Tennessee
August 2, 1999
20
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Cautionary Statement Regarding Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 (the Act) provides a
"safe-harbor" for forward-looking statements which are identified as such and
are accompanied by the identification of important factors which could cause
actual results to differ materially from the forward-looking statements.
UNUMProvident Corporation (the Company) claims the protection afforded by the
safe harbor in the Act. Certain information contained in this discussion, or in
any other written or oral statements made by the Company, is or may be
considered as forward-looking. Examples of disclosures that contain such
information include, among others, sales estimates, income projections,
reserves and related assumptions, and the year 2000 date conversion. Forward-
looking statements are those not based on historical information, but rather
relate to future operations, strategies, financial results, or other
developments. These statements may be made directly in this document or may be
made part of this document by reference to other documents filed with the
Securities and Exchange Commission by the Company, which is known as
"incorporation by reference". You can find many of these statements by looking
for words such as "may," "should," "believes," "expects," "anticipates,"
"estimates," "intends," "projects," "goals," "objectives," or similar
expressions in this document or in documents incorporated herein.
These forward-looking statements are subject to numerous assumptions, risks,
and uncertainties. Factors that may cause actual results to differ materially
from those contemplated by the forward-looking statements include, among
others, the following possibilities:
. Competitive pressures in the insurance industry may increase
significantly through industry consolidation, competitor
demutualization, or otherwise.
. General economic or business conditions, both domestic and foreign,
whether relating to the economy as a whole or to particular sectors, may
be less favorable than expected, resulting in, among other things, lower
than expected revenues, and the Company could experience higher than
expected claims or claims with longer duration than expected.
. Insurance reserve liabilities can fluctuate as a result of changes in
numerous factors, and such fluctuations can have material positive or
negative effects on net income.
. Costs or difficulties related to the integration of the business of the
Company following the merger may be greater than expected, including
with respect to the management of claims.
. Legislative or regulatory changes may adversely affect the businesses in
which the Company is engaged.
. Necessary technological changes, including changes to address year 2000
data systems issues, may be more difficult or expensive to make than
anticipated, and year 2000 issues at other companies may adversely
affect operations.
. Adverse changes may occur in the securities market.
. Changes in the interest rate environment may adversely affect profit
margins and the Company's investment portfolio.
. The rate of customer bankruptcies may increase.
. Incidence and recovery rates may be influenced by, among others, the
emergence of new diseases, new trends and developments in medical
treatments, and the effectiveness of risk management programs.
For further discussion of risks and uncertainties which could cause actual
results to differ from those contained in the forward-looking statements, see
"Forward-Looking Information" in UNUM Corporation's
21
<PAGE>
Form 10-K/A and "Cautionary Statement Regarding Forward-Looking Statements" and
"Risk Factors" in Provident Companies Inc.'s Form 10-K/A, in each case for the
fiscal year ended December 31, 1998.
All subsequent written and oral forward-looking statements attributable to
the Company or any person acting on its behalf are expressly qualified in their
entirety by the cautionary statements contained or referred to in this section.
The Company does not undertake any obligation to release publicly any revisions
to such forward-looking statements to reflect events or circumstances after the
date of this document or to reflect the occurrence of unanticipated events.
Introduction
On June 30, 1999, UNUM Corporation (UNUM) merged into Provident Companies,
Inc. (Provident) under the name UNUMProvident Corporation. The merger was
accounted for as a pooling of interests. The historical financial results
discussed herein give effect to the merger as if it had been completed at the
beginning of the earliest period presented. See Notes 1 and 2 of the "Notes to
Condensed Consolidated Financial Statements" for further discussion.
The following should be read in conjunction with the condensed consolidated
financial statements and notes thereto in Part I, Item 1 contained herein and
with the discussion, analysis, and consolidated financial statements and notes
thereto in Part I, Item 1 and Part II, Items 6, 7, 7A, and 8 of Provident's and
UNUM's Annual Reports on Form 10-K/A.
This discussion of consolidated operating results and operating results by
segment excludes net realized investment gains and losses from revenue and
income before taxes. The Company's investment focus has been on investment
income to support its insurance liabilities as opposed to the generation of
realized investment gains. Due to the nature of the Company's business, a long-
term focus is necessary to maintain profitability over the life of the
business. The realization of investment gains and losses will impact future
earnings levels as the underlying business is long-term in nature and requires
that the Company be able to sustain the assumed interest rates in its
liabilities. However, income excluding realized investment gains and losses
does not replace net income as a measure of the Company's profitability.
Management believes that the trends in new annualized sales in the Employee
Benefits, Individual, and Voluntary Benefits segments are important for
investors to assess in their analysis of the Company's results of operations.
The trends in new sales are indicators of the level of market acceptance of new
products, particularly in the individual disability income line of business,
and the Company's potential for growth in its respective markets. The Company
has closely linked its various incentive compensation plans for management and
employees to the achievement of its goals for new sales. Management's goals,
over time, are to achieve sales growth of 15 percent and premium growth of over
10 percent.
Accounting Policy Changes, Financial Statement Reclassifications, and Merger
Expenses
As a result of the merger, certain accounting policy changes and
reclassification adjustments were made. The following summarizes these changes
and reclassifications as well as the expenses related to the merger and the
early retirement offer to employees that were recorded in the second quarter.
In the second quarter of 1999, the Company recorded a before-tax charge of
$240.7 million ($156.5 million after tax) as a result of changing the method of
calculating the discount rate for claim reserves on certain of the Company's
disability businesses. Prior to the merger, UNUM's process and assumptions used
to calculate the discount rate for claim reserves of certain disability
businesses differed from that used by Provident. While UNUM's and Provident's
methods for calculating the discount rate for disability claim reserves were
both in accordance with generally accepted accounting principles, management
believed that the combined entity should have consistent discount rate
accounting policies and methods for applying these policies for similar
products. The previous UNUM methodology used the same investment strategy for
assets
22
<PAGE>
backing both liabilities and surplus. Provident's methodology, which allows for
different investment strategies for assets backing surplus than those backing
product liabilities, was determined by management to be the more appropriate
approach for the combined entity. Accordingly, UNUM adopted Provident's method
of calculating the discount rate for claim reserves. The impact of the charge
in the second quarter of 1999 was a $191.7 million, $38.9 million, and $10.1
million increase in benefits to policyholders reflected in the Employee
Benefits, Individual, and Other segments, respectively. See Note 2 of the
"Notes to Condensed Consolidated Financial Statements" for further discussion.
The Company values its available-for-sale fixed maturity and equity
securities at fair value, with unrealized holding gains and losses reported as
a component of comprehensive income. Companies are required to also adjust
deferred acquisition costs and/or certain policyholder liabilities to reflect
the changes that would have been necessary if the unrealized investment gains
and losses related to the available-for-sale securities had been realized.
Prior to the merger, UNUM adjusted policyholder liabilities and Provident
adjusted deferred policy acquisition costs (DPAC) and value of business
acquired (VOBA) for those products where these assets existed. To present
financial information in a common reporting format, management has determined
that the combined entity will adjust policyholder liabilities rather than DPAC
and VOBA. Prior period financial statements have been restated to reflect this
reclassification. The reclassification did not change other comprehensive
income, accumulated other comprehensive income, or fixed maturity and equity
securities. The reclassification reflected in the December 31, 1998,
consolidated statement of financial condition resulted in an increase of $329.7
million in DPAC, $1.5 million in VOBA, and $331.2 million in reserves for
future policy and contract benefits.
The Company continues to review its accounting policies, including
assumptions underlying the application thereof, as well as its financial
statement classifications and related disclosures. It may be necessary to
further adjust the financial statements to change to those accounting policies,
practices, and classifications that are determined to be most appropriate. The
reviews include within their scope the assumptions underlying liabilities for
current and future policy and contract benefits and will compare assumptions as
well as consider the expected effect of current and future trends in morbidity
and mortality on the assumptions underlying pricing and reserves.
In addition, the Company is implementing pricing changes in the group
disability line of business to improve its profitability. Price changes will be
increases or decreases by market segment, as appropriate, to respond to current
claim experience and various other factors and assumptions. Considering these
changes, the Company is also reviewing the period over which it will amortize
deferred policy acquisition costs related to future new business.
The reviews are expected to be completed by year end and may result in
further changes to accounting policies, accounting estimates, or financial
statement classifications which could be material to the Company's results of
operations for 1999.
The Company is also reviewing its method of reporting new annualized sales
for Employee Benefits. New sales in this segment are currently reported based
on the date the application is submitted to the Company rather than the
effective date of the policy. The Company is evaluating whether to adopt the
effective date as the date to report a new sale. Premiums are recognized as
premium income over the premium paying period; therefore, a change in new sales
reporting policy will have no impact on reported premium income or reported
income.
On the date the merger was completed, the Company recorded before-tax
expenses related to the merger of approximately $142.2 million ($112.0 million
after tax) for severance and related costs, exit costs for duplicative
facilities and asset abandonments, and investment banking, legal, and
accounting fees. The Company also recorded in the second quarter a before-tax
expense of approximately $125.9 million ($81.8 million after tax) related to
the early retirement offer to the Company's employees. These expenses are
reported in the Corporate segment as other operating expenses and are further
discussed in the section "Corporate
23
<PAGE>
Segment Operating Results." Additionally, in the three and six months ended
June 30, 1999 the Company expensed $20.0 million ($13.0 million after tax) of
incremental costs associated with the merger. These incremental costs consist
primarily of compensation, training, integration, and licensing costs.
Consolidated Operating Results
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
--------------------------- ---------------------------
1999 1998 % Change 1999 1998 % Change
-------- -------- -------- -------- -------- --------
(in millions of dollars)
<S> <C> <C> <C> <C> <C> <C>
Premium Income.......... $1,687.4 $1,506.1 12.0% $3,368.9 $2,998.7 12.3%
Net Investment Income... 518.0 513.5 0.9 1,017.6 1,038.6 (2.0)
Other Income............ 68.0 82.4 (17.5) 148.8 157.5 (5.5)
-------- -------- -------- --------
Total Revenue........... 2,273.4 2,102.0 8.2 4,535.3 4,194.8 8.1
Benefits and Expenses... 2,552.2 1,841.6 38.6 4,658.1 3,696.4 26.0
-------- -------- -------- --------
Income (Loss) Before
Federal Income Taxes
and Net Realized
Investment Gains....... (278.8) 260.4 (122.8) 498.4
Federal Income Taxes
(Credit)............... (84.9) 90.3 (13.5) 169.9
-------- -------- -------- --------
Income (Loss) Before Net
Realized Investment
Gains.................. (193.9) 170.1 (109.3) 328.5
Net Realized Investment
Gains.................. 2.7 3.4 (20.6) 7.4 9.6 (22.9)
-------- -------- -------- --------
Net Income (Loss)....... $ (191.2) $ 173.5 $ (101.9) $ 338.1
======== ======== ======== ========
</TABLE>
During the first quarter of 1999, the Company recognized a before-tax charge
of $101.1 million ($88.0 million after tax) related to its reinsurance
businesses. The charge included $45.5 million related to the Lloyd's of London
managed and non-managed syndicates. Included in the $45.5 million was $44.0
million related to the Company's risk participation in various Lloyd's of
London syndicates, which primarily consisted of the recognition of estimated
losses for all open syndicate years.
The remaining $1.5 million represented a reduction of profit commissions
related to the reinsurance management company operations. The charge also
included a reserve increase of $28.6 million for expected ultimate losses in
certain reinsurance pools in which the Company participates and a $27.0 million
write-down to recognize goodwill impairment on the Company's reinsurance
management company. Based upon the poor results to date and revisions to future
expected earnings from these businesses, management determined that the
goodwill associated with the reinsurance management company was not recoverable
when measured using the estimated future undiscounted cash flows. The
impairment represented the difference between the carrying value of the
reinsurance management company and the estimated fair value using both an
earnings valuation model and a discounted free cash flow valuation model. A
portion of these losses does not receive a tax benefit, which unfavorably
impacted the effective tax rate in the first quarter of 1999. The impact of the
charge in the first quarter of 1999 was a $72.6 million reserve increase in the
provision for future benefits and a $1.5 million reduction in other income,
both of which were reflected in the Other segment, and a $27.0 million increase
in other operating expenses reflected in the Corporate segment.
In the second quarter of 1999, the Company stated its intent to sell its
reinsurance management operations, assuming the transaction would achieve the
Company's financial objectives. The Company estimated the fair value of the
operations using the held-for-sale model, which compares the carrying value of
the asset with the fair value less costs to sell. This valuation resulted in an
additional before-tax write-down of goodwill of $2.0 million ($2.0 million
after tax), reflected in the Corporate segment. The $2.0 million additional
write-down is an estimate of the costs to sell as required when performing a
valuation using the held-for-sale model. Management continues to work with
interested buyers. See Note 4 of the "Notes to Condensed Consolidated Financial
Statements" for further discussion.
As noted above, the Company recorded before-tax expenses related to the
merger of approximately $142.2 million in the second quarter of 1999. A portion
of these expenses is non-deductible for federal income
24
<PAGE>
tax purposes, resulting in a tax rate for the quarter that was less than the
U.S. federal statutory tax rate of 35 percent. It is expected that the tax rate
will move closer to the statutory rate by the end of the year.
In the second quarter of 1999, the Company reached a settlement agreement
with the Internal Revenue Service related to an issue in dispute for the 1992
tax year. The Company recorded a tax benefit of $5.1 million and related
interest of $1.4 million.
In the following discussion of operating results by segment, "revenue"
includes premium income, net investment income, and other income. "Income"
excludes net realized investment gains and losses and federal income taxes.
Employee Benefits Segment Operating Results
<TABLE>
<CAPTION>
Three Months Ended June
30 Six Months Ended June 30
------------------------ ------------------------
1999 1998 % Change 1999 1998 % Change
------- ------ -------- ------- ------- --------
(in millions of dollars)
<S> <C> <C> <C> <C> <C> <C>
Premium Income
Group Long-term
Disability................ $ 499.0 $441.9 12.9% $ 997.1 $ 874.2 14.1%
Group Short-term
Disability................ 115.9 90.2 28.5 227.1 176.1 29.0
Group Life................. 288.8 244.8 18.0 575.8 479.5 20.1
Accidental Death &
Dismemberment............. 46.2 43.8 5.5 93.9 90.4 3.9
Group Long-term Care....... 10.8 6.5 66.2 20.1 13.4 50.0
------- ------ ------- -------
Total Premium Income......... 960.7 827.2 16.1 1,914.0 1,633.6 17.2
Net Investment Income........ 148.7 136.5 8.9 292.7 269.1 8.8
Other Income................. 34.8 29.7 17.2 67.6 59.1 14.4
------- ------ ------- -------
Total Revenue................ 1,144.2 993.4 15.2 2,274.3 1,961.8 15.9
Benefits and Expenses........ 1,191.5 847.3 40.6 2,156.1 1,677.1 28.6
------- ------ ------- -------
Income (Loss) Before Federal
Income Taxes and Net
Realized Investment Gains... $ (47.3) $146.1 $ 118.2 $ 284.7 (58.5)
======= ====== ======= =======
</TABLE>
The Employee Benefits segment includes group long-term and short-term
disability insurance, group life insurance, accidental death and dismemberment
coverages, group long-term care, and the results of managed disability.
The increases in premium income result from strong sales trends over the
past several quarters. Employee Benefits new annualized sales increased 29.6
percent to $262.6 million in the second quarter of 1999 from $202.6 million in
the second quarter of 1998. New annualized sales for this segment increased
31.9 percent to $510.9 million for the first six months of 1999 from $387.3
million in the same period of 1998. Sales related to employee benefits can
fluctuate significantly from quarter to quarter due to large case size and
timing of sales submissions. Because of this fluctuation and the pricing
changes which are being implemented, management expects that the rate of growth
in new annualized group disability and other employee benefit sales will
moderate during the balance of 1999.
Revenue from the managed disability line of business, which includes GENEX
Services, Inc. and Options and Choices, Inc., totaled $27.4 million in the
second quarter of 1999 compared to $24.4 million in the second quarter of 1998.
On a year-to-date basis, this revenue was $53.2 million in 1999 compared to
$47.7 million in 1998.
Group Disability
Group disability revenue increased to $743.0 million in the second quarter
of 1999 versus $649.3 million in 1998. Premium growth for group long-term
disability was driven by favorable persistency, prior period sales,
25
<PAGE>
and strong new annualized sales, which were $101.4 million in the second
quarter of 1999 compared to $90.9 million in the same period of 1998. New
annualized sales for group short-term disability increased 20.3 percent to
$50.3 million in the second quarter of 1999 as compared to the second quarter
of 1998, reflecting management's continuing efforts to cross-sell group short-
term disability products with other employee benefits products.
Group disability reported a loss of $109.6 million for the second quarter of
1999, as compared with $100.0 million of income for the same period in 1998. As
discussed in the preceding "Accounting Policy Changes, Financial Statement
Reclassifications, and Merger Expenses," the Company lowered the discount rate
used to calculate certain of UNUM's disability claim reserves to conform with
Provident's process and assumptions, which decreased group disability before-
tax earnings by $191.7 million for the quarter and year-to-date. Excluding the
effect of the discount rate change, this line reported a higher benefit ratio
for its domestic business in the second quarter of 1999 as compared with 1998,
primarily due to higher new claims incidence and the lengthening duration of
claims incurred in 1999 in both long-term and short-term disability. Also
contributing to the 1999 versus 1998 increase in the benefit ratio was the
positive impact in the second quarter of 1998 of updated factors used in
calculating social security offset amounts. The higher incidence level, which
was noted in the first quarter of 1999, continued through the second quarter of
1999. The higher level of incidence for long-term disability was noted in the
health services and manufacturing sectors. The health services sector has
experienced higher incidence levels in recent quarters. This higher level of
claim incidence is being taken into account in the pricing of new business and
renewal of existing cases.
Group disability reported a loss of $4.1 million for the first six months of
1999, as compared with $196.1 million of income for the same period in 1998.
New annualized sales for the first six months of 1999 were $207.0 million and
$94.9 million for group long-term and short-term disability, respectively,
compared to $175.5 million and $78.0 million for the comparable period in 1998.
As discussed under "Cautionary Statement Regarding Forward-Looking
Statements," certain risks and uncertainties are inherent in the Company's
business. Components of claims experience, including but not limited to,
incidence levels and claims duration, may continue for some period of time at
or above the higher levels experienced in 1998. Therefore, management continues
to monitor claims experience in group disability and responds to changes by
periodically adjusting prices, refining underwriting guidelines, changing
product features, and strengthening risk management policies and procedures.
The Company expects to price new business and re-price existing business, at
contract renewal dates, in an attempt to mitigate the effect of these and other
factors, including interest rates, on new claim liabilities. However, given the
competitive market conditions for the Company's disability products, it is
uncertain whether pricing actions can mitigate the entire effect.
In the fourth quarter of 1998, the Company recorded a $50.3 million before-
tax charge for the group long-term disability line of business in the Employee
Benefits segment for the expected increase in claims durations due to
management's expectation that productivity in the claims organization will be
impacted as a result of planning, consolidation, and integration efforts
related to the merger. Management expects the claims integration efforts to
have some benefits, primarily related to claims incurred in future periods, as
well as the potential for improved customer satisfaction and lower ultimate
claim costs as best practices in return-to-work and claims management are
implemented. As benefits related to the integration become known, reserve
assumptions will be revised, if appropriate. Insurance policies that are
impacted by the temporary change in claim resolution rates will not perform as
anticipated when priced. However, since the cause of the additional claim cost
is of a temporary nature, it is not anticipated to have an effect on future
policy pricing. The $50.3 million reserve increase is not considered material
from a capital adequacy position.
During the first and second quarters of 1999, those claim operations
integration activities progressed as assumed. At December 31, 1998, management
assumed the revised claim resolution rates for the first and second quarters of
1999 to be 90 percent of assumptions, before adjusting for the impact of the
claim operations integration activities. The actual experience was 89 percent
for the first quarter of 1999 and 90 percent for the second quarter. If the
impact of merger-related claim operations integration activities on claim
26
<PAGE>
durations had not been anticipated at December 31, 1998, second quarter and six
months 1999 before-tax income for the group long-term disability line of
business would have been negatively impacted by $11.8 million and $23.6
million, respectively. Management expects the remaining claim operations
integration activities to impact claim reserves as anticipated at December 31,
1998. Management will continue to evaluate the impact of the merger on
disability claims experience and the assumptions related to expected claim
resolutions. If the claim operations integration activities take longer than
expected to implement or if they result in unforeseen difficulties, claim
durations could continue to increase and income could be adversely affected.
See Note 3 of the "Notes to Condensed Consolidated Financial Statements" for
further discussion.
Group Life, Accidental Death and Dismemberment, and Long-term Care
Group life, accidental death and dismemberment, and long-term care reported
income of $61.0 million in the second quarter of 1999 compared to $44.7 million
in the second quarter of 1998. The increase resulted from the growth in premium
income, which was driven by strong sales, and a favorable benefit ratio in the
accidental death and dismemberment line. New annualized sales increased 58.7
percent to $110.9 million in the second quarter of 1999. Year-to-date 1999
income was $119.5 million versus $86.3 million in 1998. Year-to-date new
annualized sales were $209.0 million in 1999 compared to $133.8 million in
1998.
Individual Segment Operating Results
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
------------------------------- ------------------------
1999 1998 % Change 1999 1998 % Change
--------- --------- ----------- ------- ------- --------
(in millions of dollars)
<S> <C> <C> <C> <C> <C> <C>
Premium Income
Individual Disability.. $ 383.9 $ 377.8 1.6% $ 775.2 $ 765.2 1.3%
Individual Life....... 21.8 22.2 (1.8) 44.4 44.0 0.9
Individual Long-term
Care................. 21.6 14.4 50.0 40.8 27.7 47.3
--------- --------- ------- -------
Total Premium Income.... 427.3 414.4 3.1 860.4 836.9 2.8
Net Investment Income... 222.7 205.7 8.3 432.0 405.0 6.7
Other Income............ 11.1 17.9 (38.0) 29.3 37.7 (22.3)
--------- --------- ------- -------
Total Revenue........... 661.1 638.0 3.6 1,321.7 1,279.6 3.3
Benefits and Expenses... 614.1 557.2 10.2 1,194.0 1,119.8 6.6
--------- --------- ------- -------
Income Before Federal
Income Taxes and Net
Realized Investment
Gains.................. $ 47.0 $ 80.8 (41.8) $ 127.7 $ 159.8 (20.1)
========= ========= ======= =======
</TABLE>
The Individual segment includes results from the individual disability,
individual life, and individual long-term care lines of business.
Individual Disability
New annualized sales in the individual disability income line of business
were up 4.3 percent in the second quarter of 1999, rising to $31.4 million from
$30.1 million in the second quarter of 1998. Excluding discontinued products,
new annualized sales increased 17.8 percent to $27.8 million in the second
quarter of 1999 from $23.6 million in the comparable year ago period. Year-to-
date new annualized sales were $65.3 million, an 11.8 percent increase over the
comparable period of 1998. The persistency of existing individual disability
income business continued to be favorable. Management expects that premium
income in the individual disability income line will grow on a year-over-year
basis as the product transition produces increasing levels of new sales of
individual disability products. Income in the individual disability income line
of business decreased to $35.2 million in the second quarter of 1999 from $69.3
million in the second quarter of 1998. On a year-to-date basis, income was
$106.8 million in 1999 and $141.1 million in 1998. As discussed in the
preceding "Accounting Policy Changes, Financial Statement Reclassifications,
and Merger Expenses," the Company lowered the discount rate used to calculate
certain of UNUM's disability claim reserves to
27
<PAGE>
conform with Provident's process and assumptions, which decreased individual
disability before-tax earnings by $38.9 million for the quarter and six months.
Excluding the effect of the discount rate change, this line reported an
increase in the benefit ratio compared to the second quarter of 1998, primarily
due to a decrease in claim resolutions on claims incurred in 1999. However,
when compared to the prior three quarters, the claim resolution rate has
improved. Individual disability experienced slightly lower new claim levels for
the quarter as compared to second quarter 1998.
As noted in the "Employee Benefits Segment Operating Results," claim
resolution rates were revised downward in the fourth quarter of 1998 for claim
operations integration activities related to the merger. The Company recorded a
$100.3 million before-tax charge in the fourth quarter of 1998 in the
Individual segment related to the revised claim resolution rates for individual
disability. At December 31, 1998, management assumed the revised claim
resolution rates for the first and second quarters of 1999 to be 90 percent of
assumptions, before adjusting for the impact of the claim operations
integration activities. The actual experience for the Company in the first and
second quarters of 1999 was 89 percent and 90 percent, respectively. If the
impact of merger-related claim operations integration activities on claim
durations had not been anticipated at December 31, 1998, second quarter and
year-to-date 1999 before-tax operating income for the individual disability
line of business would have been negatively impacted by $23.8 million and
$47.6 million, respectively. The $100.3 million reserve increase in the
Individual segment is not considered material from a capital adequacy position.
See Note 3 of the "Notes to Condensed Consolidated Financial Statements" for
further discussion.
Individual Life and Long-term Care
The individual long-term care line of business reported increased premium
income for the quarter and year-to-date, primarily due to new sales growth. New
annualized sales were $10.5 million and $18.1 million for the quarter and year-
to-date, an increase of 150.0 percent and 144.6 percent, respectively. The
Company expects the strong sales momentum in individual long-term care to
continue.
Income in the individual life and long-term care lines of business increased
to $11.8 million in the second quarter of 1999 from $11.5 million in the second
quarter of 1998. Year-to-date income was $20.9 million or 11.8 percent higher
than the first six months of 1998, due primarily to the increase in premium
income and an improvement in the individual life benefit ratio.
Voluntary Benefits Segment Operating Results
<TABLE>
<CAPTION>
Six Months Ended
Three Months Ended June 30 June 30
-----------------------------------------------------
1999 1998 % Change 1999 1998 % Change
--------- --------- ----------------- ------ --------
(in millions of dollars)
<S> <C> <C> <C> <C> <C> <C>
Premium Income.......... $ 173.1 $ 166.8 3.8% $344.3 $331.3 3.9%
Net Investment Income... 25.2 23.2 8.6 50.1 45.4 10.4
Other Income............ 1.6 1.6 -- 3.3 4.5 (26.7)
--------- --------- ------ ------
Total Revenue........... 199.9 191.6 4.3 397.7 381.2 4.3
Benefits and Expenses... 168.8 160.7 5.0 335.1 323.0 3.7
--------- --------- ------ ------
Income Before Federal
Income Taxes and Net
Realized Investment
Gains.................. $ 31.1 $ 30.9 0.6 $ 62.6 $ 58.2 7.6
========= ========= ====== ======
</TABLE>
The Voluntary Benefits segment includes the results of products sold to
employees through payroll deduction at the work site. These products include
life insurance and health products, primarily disability, accident and
sickness, and cancer.
Revenue in the Voluntary Benefits segment increased to $199.9 million in the
second quarter of 1999 from $191.6 million in the second quarter of 1998. On a
year-to-date basis, revenue for 1999 was $397.7 million compared to $381.2
million in 1998. The increase in premium income is driven by sales growth and
favorable
28
<PAGE>
persistency. New annualized sales in this segment increased 10.6 percent to
$58.3 million in the second quarter of 1999 from $52.7 million in the
comparable period of 1998. For the six months, new annualized sales were $117.1
million in 1999 and $104.2 million in 1998. These sales are not necessarily
indicative of the levels that may be attained in the future. Management
continues its efforts to increase sales through the realignment of the sales
organization and the enhancement of collaborative sales. Income in the
Voluntary Benefits segment in the second quarter of 1999 was $31.1 million
versus $30.9 million in 1998. For the first six months, income was $62.6
million in 1999 and $58.2 million in 1998. The increase in income is primarily
due to the increase in premium income in all of the product lines, partially
offset by a slightly higher benefit ratio in the accident, sickness, and
disability product line.
Other Segment Operating Results
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
--------------------- -----------------------
1999 1998 % Change 1999 1998 % Change
------ ----- -------- ------ ------ --------
(in millions of dollars)
<S> <C> <C> <C> <C> <C> <C>
Premium Income................... $126.3 $97.7 29.3% $250.2 $196.9 27.1%
Net Investment Income............ 114.5 135.6 (15.6) 228.0 302.8 (24.7)
Other Income..................... 20.5 32.8 (37.5) 48.4 55.7 (13.1)
------ ----- ------ ------
Total Revenue.................... 261.3 266.1 (1.8) 526.6 555.4 (5.2)
Benefits and Expenses............ 253.6 229.5 10.5 580.0 498.7 16.3
------ ----- ------ ------
Income (Loss) Before Federal
Income Taxes and Net Realized
Investment Gains................ $ 7.7 $36.6 (79.0) $(53.4) $ 56.7
====== ===== ====== ======
</TABLE>
The Other operating segment includes results from products no longer
actively marketed, including corporate-owned life insurance, group pension,
health insurance, individual annuities, and reinsurance pools and management.
It is expected that revenue and earnings in this segment will decline over time
as these business lines wind down. The run-off of the group pension line
results in a decline in assets under management and, in turn, a continued
decline in the net investment income produced by the assets. Management expects
to reinvest the capital supporting these lines of business in the future growth
of the Employee Benefits, Individual, and Voluntary Benefits segments. The
closed blocks of business have been segregated for reporting and monitoring
purposes.
Corporate-Owned Life
Income from this line of business increased to $9.6 million in the second
quarter of 1999 compared to $5.6 million in the same period of 1998. Income was
$14.2 million in the first six months of 1999 versus $11.0 million in 1998.
These results reflect better mortality experience in the second quarter of 1999
and wider spreads between interest earned and credited rates.
Group Pension
Income in the group pension line of business was $9.7 million in the second
quarter of 1999 versus $6.7 million in the second quarter of 1998. For the
first six months, income was $14.5 million in 1999 compared to $14.4 million in
1998. The increase in income in the second quarter of 1999 over the second
quarter of 1998 is the result of higher investment income than required for
crediting purposes. On a year-to-date basis, the 1998 results were lower due to
a $1.9 million charge for guaranty fund assessments.
Individual Annuities
In the second quarter of 1998, the Company closed the sale of Provident's
in-force individual and tax-sheltered annuity business to affiliates of
American General Corporation (American General). The sale was effected by
reinsurance in the form of 100 percent coinsurance agreements. The in-force
business sold
29
<PAGE>
consisted primarily of individual fixed annuities and tax-sheltered annuities.
In addition, American General acquired a number of miscellaneous group pension
lines of business sold in the 1970s and 1980s which were no longer actively
marketed. The sale did not include Provident's block of guaranteed investment
contracts or group single premium annuities, which will continue in a run-off
mode. In consideration for the transfer of the approximately $2.4 billion of
statutory reserves, American General paid the Company a ceding commission of
approximately $58.0 million. The before-tax gain included in other income for
the second quarter of 1998 was $12.2 million.
Reinsurance Pools and Management
Premium income increased $25.2 million and $59.1 million for the three and
six months, respectively, to $99.8 million and $203.6 million due primarily to
increased participation in the Lloyd's of London syndicates. The reinsurance
pools and management reported a loss of $12.6 million in the second quarter of
1999 compared to income of $4.2 million in the second quarter of 1998. As
discussed in the preceding "Accounting Policy Changes, Financial Statement
Reclassifications, and Merger Expenses," the Company lowered the discount rate
used to calculate certain of UNUM's disability claim reserves to conform with
Provident's process and assumptions, which decreased group long-term disability
reinsurance second quarter 1999 before-tax earnings by $10.1 million.
The reinsurance pools and management reported a loss of $86.6 million in the
first six months of 1999 compared to income of $9.9 million in 1998. During the
first quarter of 1999, the Company conducted a comprehensive strategic review
of its reinsurance businesses to determine the appropriateness of their fit
within the context of the merged entity. These businesses include the
reinsurance management operations and the risk assumption (reinsurance pool
participation, direct reinsurance, and Lloyd's of London syndicate
participation). In the second quarter of 1999, the Company concluded that these
businesses were not solidly aligned with its strength in the disability
insurance market and stated its intent to sell its reinsurance management
operations assuming the transaction would achieve the Company's financial
objectives. Year-to-date earnings in the reinsurance pools and management line
decreased $74.1 million due to the first quarter charge related to the
reinsurance businesses. See previous discussion under "Consolidated Operating
Results" and Note 4 of the "Notes to Condensed Consolidated Financial
Statements."
In the fourth quarter of 1998, the Company recorded a $2.4 million before-
tax charge related to the revised claim resolution rates for group long-term
disability reinsurance. If the impact of merger-related claim operations
integration activities on claim duration had not been anticipated at December
31, 1998, second quarter and six months 1999 before-tax earnings for the
reinsurance pools and management line of business would have been negatively
impacted by $0.6 million and $1.2 million, respectively. See Note 3 of the
"Notes to Condensed Consolidated Financial Statements" for further discussion.
Other
Effective January 1, 1998, the Company entered into an agreement with
Connecticut General Life Insurance Company (Connecticut General) for
Connecticut General to reinsure, on a 100 percent coinsurance basis, its in-
force medical stop-loss insurance coverages sold to clients of CIGNA Healthcare
and its affiliates (CIGNA). This reinsured block constitutes substantially all
of the Company's medical stop-loss insurance business. The small portion
remaining consists of medical stop-loss coverages sold to clients other than
those of CIGNA. The medical stop-loss business produced revenue of $14.1
million in 1998.
Corporate Segment Operating Results
The Corporate segment includes investment earnings on corporate assets not
specifically allocated to a line of business, corporate interest expense,
amortization of goodwill, and certain corporate expenses not allocated to a
line of business.
30
<PAGE>
Revenue in the Corporate segment was $6.9 million in the second quarter of
1999 and $12.9 million in the second quarter of 1998. For the first six months,
revenue was $15.0 million in 1999 and $16.8 million in 1998. The Corporate
segment reported a loss of $317.3 million in the second quarter of 1999
compared to a loss of $34.0 million in the second quarter of 1998. On a year-
to-date basis, the losses were $377.9 million for 1999 and $61.0 million for
1998. Interest and debt expense increased to $33.6 million and $66.5 million
for the second quarter and six months of 1999 compared to $27.7 million and
$55.0 million for the comparable periods of 1998 due to a higher average debt
balance. In addition, the Company recorded a before-tax write-down of goodwill
of $27.0 million and $2.0 million in the 1999 first quarter and second quarter,
respectively. As discussed in the preceding section "Accounting Policy Changes,
Financial Statement Reclassifications, and Merger Expenses," in the second
quarter of 1999 the Company recorded before-tax expenses related to the merger
of approximately $142.2 million and a before-tax expense of approximately
$125.9 million related to the early retirement offer to the Company's
employees.
The expenses related to the merger and to the early retirement offer to
employees consist of the following (in millions):
<TABLE>
<S> <C>
Employee related expense............................................. $ 45.2
Exit activities related to duplicate facilities/asset abandonments... 57.4
Investment banking, legal, and accounting fees....................... 39.6
------
Subtotal............................................................. 142.2
Expense related to the early retirement offer to employees........... 125.9
------
Subtotal............................................................. 268.1
Income tax benefit................................................... 74.3
------
Total................................................................ $193.8
======
</TABLE>
Employee related expense consists of employee severance costs, restricted
stock costs which fully vested upon stockholder adoption of the merger
agreement or upon completion of the merger, and outplacement costs to assist
employees who have been involuntarily terminated. Severance benefits and costs
associated with the vesting of restricted stock are $27.7 million and $17.5
million, respectively. The Company currently estimates that in total
approximately 1,400 positions will be eliminated over a twelve month period
beginning June 30, 1999, with an estimated 1,000 of these positions eliminated
through the early retirement offer. As further opportunities for cost
reductions are identified, there may be additional expenses for severance costs
and exit activities.
Exit activities related to duplicate facilities/asset abandonments consist
of closing of duplicate offices and write-off of redundant computer hardware
and software. The Company currently expects to close approximately 90 duplicate
field offices over a period of one year after June 30, 1999, the completion
date of the merger. The cost associated with these office closures is
approximately $25.6 million, which represents the cost of future minimum lease
payments less any estimated amounts recovered under subleases. Also, the total
book value of physical assets, primarily computer equipment, redundant systems,
and systems incapable of supporting the combined entity, are being abandoned as
a result of the merger. This abandonment resulted in a write-down of the
assets' book values by approximately $31.8 million.
These expenses are $35.1 million higher on a before-tax basis than the
estimated expenses disclosed in the Joint Proxy Statement/Prospectus of UNUM
and Provident dated June 2, 1999, primarily because the actual number of
employees who accepted the early retirement offer was approximately 350
employees higher than estimated, resulting in additional before-tax expense of
approximately $32.0 million. Partially offsetting this increase was a reduction
in employee severance and outplacement costs in that fewer positions will be
involuntarily terminated due to the early retirement election.
The financial statements do not reflect any benefit expected from revenue
enhancements or derived from potential cost savings related to the merger.
Although management anticipates revenue enhancements and costs
31
<PAGE>
savings will result from the merger, there can be no assurance that these items
will be achieved. Economies of scale, the elimination of duplicative
expenditures, and the consistent use of the best practices of Provident and
UNUM are expected to enable the Company to achieve annual cost savings of
approximately $130 million in 2000.
In addition to the expenses described above, in the three and six months
ended June 30, 1999, the Company has expensed $20.0 million of other
incremental costs associated with the merger, $17.1 million of which are
included in the Corporate segment. These expenses consist primarily of
compensation, training, integration, and licensing costs.
Investments
Investment activities are an integral part of the Company's business, and
profitability is significantly affected by investment results. Invested assets
are segmented into portfolios, which support the various product lines.
Generally, the investment strategy for the portfolios is to match the effective
asset durations with related expected liability durations and to maximize
investment returns, subject to constraints of quality, liquidity,
diversification, and regulatory considerations. The Company is reviewing its
investment strategies in the context of the combined entity and is extending
the duration of its investments and shifting the mix of assets in the portfolio
by repositioning approximately $2.0 billion of its investments. Management
believes this strategy will reduce its vulnerability to interest rate risk in
the future and anticipates that, as a result, investment income may increase on
an annualized basis approximately $30.0 million.
Fixed Maturity Securities
The Company's investment in mortgage-backed securities was approximately
$1.9 billion on an amortized cost basis at June 30, 1999, and $2.1 billion at
December 31, 1998. At June 30, 1999, the mortgage-backed securities had an
average life of 11.5 years and effective duration of 8.9 years. The mortgage-
backed securities are valued on a monthly basis using valuations supplied by
the brokerage firms that are dealers in these securities. The primary risk
involved in investing in mortgage-backed securities is the uncertainty of the
timing of cash flows from the underlying loans due to prepayment of principal.
The Company uses models which incorporate economic variables and possible
future interest rate scenarios to predict future prepayment rates. The Company
has not invested in mortgage-backed derivatives, such as interest-only,
principal-only or residuals, where market values can be highly volatile
relative to changes in interest rates.
Below-investment-grade bonds are inherently more risky than investment-grade
bonds since the risk of default by the issuer, by definition and as exhibited
by bond rating, is higher. Also, the secondary market for certain below-
investment-grade issues can be highly illiquid. Management does not anticipate
any liquidity problem caused by the investments in below-investment-grade
securities, nor does it expect these investments to adversely affect its
ability to hold its other investments to maturity.
The Company's exposure to below-investment-grade fixed maturity securities
at June 30, 1999, was $1,601.7 million, representing 6.1 percent of invested
assets, below the Company's internal limit of 10.0 percent of invested assets
for this type of investment. The Company's exposure to below-investment-grade
fixed maturities totaled $1,452.6 million at December 31, 1998, representing
5.3 percent of invested assets.
Mortgage Loans and Real Estate
The Company's mortgage loan portfolio was $1,328.1 million and $1,321.2
million at June 30, 1999, and December 31, 1998, respectively. The Company uses
a comprehensive rating system to evaluate the investment and credit risk of
each mortgage loan and to identify specific properties for inspection and
reevaluation. The Company establishes allowances for probable mortgage loan
losses based on a review of individual loans and the overall loan portfolio,
considering the value of the underlying collateral.
The mortgage loan portfolio is well diversified geographically and among
property types. The incidence of new problem mortgage loans and foreclosure
activity has remained low in 1999 and 1998, reflecting
32
<PAGE>
improvements in overall economic activity and improving real estate markets in
the geographic areas where the Company has mortgage loans. Management expects
the level of delinquencies and problem loans to remain low in the future.
At June 30, 1999, and December 31, 1998, impaired loans totaled $18.3
million and $20.7 million, respectively. Included in the impaired loans at June
30 were $6.7 million of loans which had a related, specific allowance for
probable losses of $2.4 million and $11.6 million of loans which had no
related, specific allowance for probable losses. Impaired mortgage loans are
not expected to have a material impact on the Company's liquidity, financial
position, or results of operations.
Restructured mortgage loans totaled $12.3 million at June 30, 1999, compared
to $14.5 million at December 31, 1998, and represent loans that have been
refinanced with terms more favorable to the borrower. Interest lost on
restructured loans was immaterial for the six and twelve month periods ended
June 30, 1999, and December 31, 1998.
Real estate was $314.4 million and $309.8 million at June 30, 1999, and
December 31, 1998. Investment real estate is carried at cost less accumulated
depreciation. Real estate acquired through foreclosure is valued at fair value
at the date of foreclosure and may be classified as investment real estate if
it meets the Company's investment criteria. If investment real estate is
determined to be permanently impaired, the carrying amount of the asset is
reduced to fair value. Occasionally, investment real estate is reclassified to
real estate held for sale when it no longer meets the Company's investment
criteria. Real estate held for sale, which is valued net of a valuation
allowance that reduces the carrying value to the lower of cost or fair value
less estimated cost to sell, amounted to $114.5 million at June 30, 1999, and
$15.6 million at December 31, 1998. The Company reasonably expects to sell this
real estate during 1999. The sale is not expected to have a material impact on
the Company's liquidity, financial position, or results of operations.
Allowances for probable losses on mortgage loans and real estate held for
sale are established based on a review of specific assets as well as on an
overall portfolio basis, considering the value of the underlying assets and
collateral. If a decline in value is considered to be other than temporary or
if the asset is deemed permanently impaired, the investment is reduced to
estimated net realizable value, and the reduction is recorded as a realized
investment loss. The allowance for probable losses on mortgage loans and real
estate was $32.9 million and $53.0 million, respectively, at June 30, 1999.
Management monitors the risk associated with the invested asset portfolio and
regularly reviews and adjusts the allowance for probable losses.
Other
The Company's exposure to non-current investments totaled $15.1 million at
June 30, 1999, or 0.05 percent of invested assets. These non-current
investments are mortgage loans that became more than thirty days past due in
principal and interest payments.
The Company utilizes forward interest rate swaps, forward treasury
purchases, and options on forward interest rate swaps or forward treasuries to
manage duration and increase yield on cash flows expected from current
holdings. All transactions are hedging in nature and not speculative. Almost
all transactions are associated with the individual disability product
portfolio. All other product portfolios are periodically reviewed to determine
if hedging strategies would be appropriate for risk management purposes.
Liquidity and Capital Resources
The Company's liquidity requirements are met primarily by cash flows
provided from operations, principally in its insurance subsidiaries. Premium
and investment income, as well as maturities and sales of invested assets,
provide the primary sources of cash. Cash is applied to the payment of policy
benefits, costs of acquiring new business (principally commissions) and
operating expenses as well as purchases of new investments. The Company has
established an investment strategy that management believes will provide for
adequate cash flows from operations. Cash flows from operations were $740.1
million for the six months ended June 30, 1999, as compared to $633.8 million
in the comparable period in 1998.
33
<PAGE>
The Company believes the cash flows from its operations will be sufficient
to meet its operating and financial cash flow requirements excluding the strain
placed on capital as a result of the charges recorded in connection with the
merger and the early retirement program. As a result of the effect of the
reserve increase, the merger related expenses, and the cost of the early
retirement program on capital as well as refinancing requirements, the Company
will need to raise approximately $500 million in capital during the remainder
of 1999. Approximately half of this is incremental to the June 30, 1999
balance. The Company expects to raise the capital for its insurance
subsidiaries through the debt markets and is currently exploring the
alternatives available. The Company intends to file a shelf registration later
this year in order to provide funding flexibility through the issuance of debt
or equity securities. The funding will be used to finance, among other
requirements, the capital need referenced above and to fund internal expansion,
acquisitions, investment opportunities, and the retirement of the Company's
debt and equity.
At June 30, 1999, the Company had short-term and long-term debt totaling
$490.0 million and $1,226.5 million, respectively. Included in the short-term
debt was $150.6 million used to finance investment activities. At June 30,
1999, approximately $308.8 million was available for additional financing under
the existing revolving credit facility. Contingent upon market conditions and
corporate needs, management may refinance short-term notes payable for longer-
term securities. In the normal course of business, the Company enters into
letters of credit, primarily to satisfy capital requirements related to certain
subsidiary transactions. The Company had outstanding letters of credit of
$156.8 million at June 30, 1999.
In the fourth quarter of 1997, the Company borrowed $168.3 million through a
private placement. Under the terms of the agreement, the investor exercised the
right to redeem the private placement at par value during the second quarter of
1999. The Company refinanced this debt by issuing $200.0 million of variable
rate medium-term notes in June of 1999, due in June of 2000. The notes had an
interest rate of 5.135% at June 30, 1999.
In 1998, the Company rescinded its stock repurchase program as a result of
the pending merger. As a result, no shares of common stock were repurchased
during the first six months of 1999. During the first six months of 1998, the
Company acquired approximately 1.3 million shares of its common stock in the
open market at an aggregate cost of $70.8 million. At the completion of the
merger, UNUM common stock held in treasury was retired.
Ratings
Standard & Poor's Corporation (S&P), Moody's Investors Service (Moody's),
and A.M. Best Company (AM Best) are among the third parties that provide the
Company assessments of its overall financial position. Ratings from these
agencies for financial strength are available for the individual U.S. domiciled
insurance company subsidiaries. Financial strength ratings are based primarily
on U.S. statutory financial information for the individual U.S. domiciled
insurance companies. Debt ratings for the Company are based primarily on
consolidated financial information prepared using generally accepted accounting
principles. Both financial strength ratings and debt ratings incorporate
qualitative analyses by rating agencies on an ongoing basis.
34
<PAGE>
The rating agencies reviewed and, in some instances, revised their ratings
to reflect the completion of the merger. The table below reflects the most
recent debt ratings for the Company and the financial strength ratings for the
U.S. domiciled insurance company subsidiaries.
<TABLE>
<CAPTION>
S&P Moody's AM Best
---------------- ------------------------- ------------
<S> <C> <C> <C>
UNUMProvident
Corporation
Senior Debt........... A (Strong) A2 (Upper Medium Grade) Not Rated
Junior Subordinated
Debt................. BBB+ (Good) A3 (Upper Medium Grade) Not Rated
Commercial Paper...... A-1 (Strong) Prime-1 (Superior Ability) Not Rated
U.S. Insurance
Subsidiaries
Provident Life &
Accident............. AA- (Very Strong) Aa3 (Excellent) A+ (Superior)
Provident Life &
Casualty............. Not Rated Not Rated A+ (Superior)
Provident National
Assurance............ Not Rated Aa3 (Excellent) A+ (Superior)
UNUM Life of America.. AA- (Very Strong) Aa3 (Excellent) A+ (Superior)
First UNUM Life....... AA- (Very Strong) Aa3 (Excellent) A+ (Superior)
Colonial Life &
Accident............. AA- (Very Strong) Aa3 (Excellent) A+ (Superior)
Paul Revere Life...... AA- (Very Strong) Aa3 (Excellent) A+ (Superior)
Paul Revere Variable.. AA- (Very Strong) Aa3 (Excellent) A+ (Superior)
Paul Revere
Protective........... AA- (Very Strong) Aa3 (Excellent) A+ (Superior)
</TABLE>
Year 2000 Date Conversion
As are many other businesses in this country and abroad, the Company is
affected in numerous ways, both by its own computer information systems and by
third parties with which it has business relationships, in the processing of
date data relating to the year 2000 and beyond. Failure to adequately address
and substantially resolve year 2000 issues could, and as to mission critical
systems in certain circumstances would, have a material adverse effect on the
Company's business, results of operations, or financial condition. While there
can be no assurance as to its success, the Company has a project underway which
is intended and designed to avoid and/or mitigate any such material adverse
effect from year 2000 issues.
The Company's program for the year 2000 is organized into a number of phases
for rectifying its internal computer systems, including assessment, code
remediation, testing and deployment. As of June 30, 1999, the Company had
completed the assessment and code remediation phases for all of its critical
and non-critical business systems with over 90 percent completing the
compliance testing phase. Deployment is substantially completed for most
critical and non-critical systems. As previously discussed in Provident's and
UNUM's Annual Reports on Form 10-K/A, management continues to expect completion
of all phases by the end of 1999.
There are numerous instances in which third parties having a relationship
with the Company have year 2000 issues to address and resolve. These include,
among others, vendors of hardware and software, holders of group insurance
policies, issuers of investment securities, financial institutions,
governmental agencies, and suppliers. An aspect of the Company's year 2000
program has been to assess its critical external dependencies and, as part of
its due diligence efforts, to contact certain third parties seeking written
assurance as to their expectancy to be year 2000 compliant. The nature of the
Company's follow up to its written requests to third parties depends upon its
assessment of the response and of the materiality of the effect of non-
compliance by the third party on the Company. In some instances the Company is
performing site visits to certain third party businesses and testing their
systems for compliance. In addition, the Company is testing external electronic
interfaces with certain critical business partners. To date, no significant
issues from critical external dependencies have been identified; however, there
can be no guarantee that the computer systems of these third parties will be
year 2000 compliant. The Company is developing contingency plans to alleviate
the potential business impact of third parties not being year 2000 compliant.
Management expects these plans to be finalized and ready for implementation in
third quarter 1999. The effort of internal business and systems personnel
35
<PAGE>
devoted to the project has been considerable. Temporary personnel and subject
matter consultants have been utilized, when appropriate, to assist full time
personnel in some phases or aspects of the project. The Company has utilized
compensation programs to retain project personnel in order to keep the project
on schedule. While the project has required systems management to more closely
scrutinize the prioritization of information technology projects, it is not
believed that any deferral of information technology projects has had a
material impact on the Company. The Company has also had occasional contact
with certain peer companies comparing approaches to year 2000 issues.
Given the range of possibilities that may occur in connection with non-
compliance with year 2000 that could affect the Company, particularly as a
consequence of third parties, the Company is unable to provide an estimate of
the impact of such non-compliance on its business, results of operations, or
financial condition. With regard to non-compliance resulting from the Company's
systems, which the Company believes to be less likely than that resulting from
third parties, the Company would devote its financial and personnel resources
to remediate the problem as soon as possible. With regard to non-compliance
resulting from third party failure, the Company is finalizing appropriate
contingency arrangements that will minimize such impact; however, given the
range of possibilities, no assurance can be given that the Company's efforts
will be successful. In addition, the Company is developing detailed plans for
activities for managing the year-end rollover period. This includes plans for
appropriate backup of data, year-end processing schedules, limiting
installations of new code, and the availability of special response teams
tasked with identifying and resolving any issues which might occur during the
rollover period. These teams include both information technology and business
professionals.
The foregoing discussion of the year 2000 issue contains forward-looking
statements relating to such matters as financial performance and the business
of the Company. The Private Securities Litigation Reform Act of 1995 provides a
safe harbor for forward-looking statements. In order for the Company to comply
with the terms of the safe harbor, the Company notes that a variety of factors
could cause the Company's actual results and experience relating to compliance
with year 2000 to differ materially from the anticipated results or other
expectations expressed in the Company's forward-looking statements concerning
year 2000 issues, which involve certain risks and uncertainties. These factors
include (i) the unanticipated material impact of a system fault of the Company
relating to year 2000, (ii) the failure to successfully remediate, in spite of
testing, material systems of the Company, (iii) the time it may take to
successfully remediate a failure once it occurs, as well as the resulting costs
and loss of revenues, and (iv) the failure of third parties to properly
remediate material year 2000 problems.
Since inception of the project, the Company has expensed approximately $29.4
million through June 30, 1999, in connection with incremental cost of the year
2000 project and estimates an additional $3.0 million to complete the project.
The costs of the project and the date on which the Company plans to complete
year 2000 modifications are based on management's best estimates, derived using
numerous assumptions about future events. However, there can be no guarantee
that these estimates will be achieved, and actual results could differ
materially from those plans. See Part II, Item 7 of Provident's and UNUM's
Annual Reports on Form 10-K/A for further discussion of the year 2000 issues.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is subject to various market risk exposures including interest
rate risk and foreign exchange rate risk. The Company employs various
derivative programs to manage these material market risks. The operations of
the Company are subject to risk resulting from interest rate fluctuations,
primarily long-term U.S. interest rates. Changes in interest rates and
individuals' behavior affect the amount and timing of asset and liability cash
flows. Management continually models and tests asset and liability portfolios
to improve interest rate risk management and net yields. Testing the asset and
liability portfolios under various interest rate and economic scenarios allows
management to choose the most appropriate investment strategy within acceptable
risk tolerances. This analysis is the precursor to the Company's activities in
derivative financial instruments.
36
<PAGE>
The Company uses interest rate swaps, interest rate forward contracts,
exchange-traded interest rate futures contracts, and options to hedge interest
rate risks and to match asset durations and cash flows with corresponding
liabilities.
The Company is also subject to foreign exchange risk arising from its
foreign operations and certain foreign dollar denominated investment
securities. Foreign operations represent 6.6 percent and 6.5 percent of total
assets at June 30, 1999 and December 31, 1998, respectively, and 9.3 percent
and 9.9 percent of total revenue for the six month periods ended June 30, 1999
and 1998, respectively. At June 30, 1999, there were no outstanding derivatives
hedging this foreign currency risk.
See Part II, Items 7, 7A, and 8 of Provident's and UNUM's Annual Reports on
Form 10-K/A for further discussion of the qualitative and quantitative aspects
of market risk, including derivative financial instrument activity. During the
first six months of 1999, there was no substantive change to the Company's
market risk.
37
<PAGE>
PART II--OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of the Stockholders of Provident held at 8:30 a.m. on
June 30, 1999, Provident stockholders elected all of management's nominees for
the Board of Directors as listed in the proxy statement and set forth below and
approved the following proposals:
<TABLE>
<CAPTION>
Votes in Votes
Favor Withheld
----------- --------
<S> <C> <C>
1. Election of Directors
William L. Armstrong..................................... 122,289,161 372,751
William H. Bolinder...................................... 122,289,150 372,762
J. Harold Chandler....................................... 122,258,709 403,203
Charlotte M. Heffner..................................... 122,285,850 376,062
Hugh B. Jacks............................................ 122,285,974 375,938
Hugh O. Maclellan, Jr.................................... 122,286,452 375,460
A.S. MacMillan........................................... 122,289,510 372,402
C. William Pollard....................................... 122,289,915 371,997
Steven S Reinemund....................................... 122,287,801 374,111
Burton E. Sorensen....................................... 122,284,824 377,088
Thomas R. Watjen......................................... 122,287,370 374,542
</TABLE>
<TABLE>
<CAPTION>
Votes Votes
Votes For Against Abstaining Broker Non-votes
----------- --------- ---------- ----------------
<S> <C> <C> <C> <C>
2. Adoption of Agreement and
Plan of Merger............ 116,541,445 106,410 330,400 5,683,657
3. Approval of Amendment to
the Amended and Restated
Certificate of
Incorporation............. 116,455,548 171,557 351,150 5,683,657
4. Approval of Amendment to
Stock Plan of 1999........ 116,688,387 5,555,781 417,744 0
</TABLE>
Effective upon the merger with UNUM, Messrs. Bolinder, Jacks, and Watjen and
Ms. Heffner resigned from the board, and the following persons, each of whom
was a director of UNUM immediately prior to the merger were appointed to fill
vacancies on the Board:
<TABLE>
<S> <C> <C>
James F. Orr III Cynthia A. Montgomery Lois Dickson Rice
Ronald E. Goldsberry James L. Moody, Jr. John W. Rowe
George J. Mitchell Lawrence R. Pugh
</TABLE>
38
<PAGE>
REVIEW BY INDEPENDENT AUDITORS
The condensed consolidated financial statements at June 30, 1999, and for
the three month and six month periods then ended, have been reviewed, prior to
filing, by Ernst & Young LLP, the Company's independent auditors, and their
report is included herein.
39
<PAGE>
PART II--OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<C> <S>
(a)Exhibit 3.1 Restated Certificate of Incorporation
Exhibit 3.2 Amended and Restated Bylaws
Exhibit 10.1 Employment Agreement between the Company and James F. Orr III
Exhibit 10.2 Employment Agreement between the Company and J. Harold Chandler
Exhibit 10.3 Employment Agreement between the Company and F. Dean Copeland
Exhibit 10.4 Employment Agreement between the Company and Robert W. Crispin
Exhibit 10.5 Employment Agreement between the Company and Elaine D. Rosen
Exhibit 10.6 Employment Agreement between the Company and Thomas R. Watjen
Exhibit 15 Letter re unaudited interim financial information
Exhibit 18 Letter re change in accounting principles
Exhibit 27 Financial data schedules (for SEC use only)
(b)Reports on Form 8-K:
Form 8-K filed on June 30, 1999, relating to the completion of the merger with UNUM
Corporation.
</TABLE>
40
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNUMProvident Corporation
(Registrant)
Date: August 12, 1999
/s/ J. Harold Chandler
_____________________________________
J. Harold Chandler
President and Chief Operating
Officer
Date: August 12, 1999
/s/ Thomas R. Watjen
_____________________________________
Thomas R. Watjen
Executive Vice President--Finance
(principal financial officer)
Date: August 12, 1999
/s/ Robert E. Broatch
_____________________________________
Robert E. Broatch
Senior Vice President and Chief
Financial Officer (chief
accounting officer)
41
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
EXHIBITS
TO
FORM 10-Q
----------------
UNUMPROVIDENT CORPORATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
42
<PAGE>
INDEX OF EXHIBITS
<TABLE>
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EXHIBIT PAGE
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Exhibit 3.1 Restated Certificate of Incorporation.....................
Exhibit 3.2 Amended and Restated Bylaws...............................
Exhibit 10.1 Employment Agreement between the Company and James F. Orr
III.......................................................
Exhibit 10.2 Employment Agreement between the Company and J. Harold
Chandler..................................................
Exhibit 10.3 Employment Agreement between the Company and F. Dean
Copeland..................................................
Exhibit 10.4 Employment Agreement between the Company and Robert W.
Crispin...................................................
Exhibit 10.5 Employment Agreement between the Company and Elaine D.
Rosen.....................................................
Exhibit 10.6 Employment Agreement between the Company and Thomas R.
Watjen....................................................
Exhibit 15 Letter re unaudited interim financial information.........
Exhibit 18 Letter re change in accounting principles.................
Exhibit 27 Financial data schedules (for SEC use only)...............
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EXHIBIT 3.1
RESTATED
CERTIFICATE OF INCORPORATION
OF
UNUMPROVIDENT CORPORATION
FIRST: The name of the Corporation is UNUMProvident Corporation.
SECOND: The address of the registered office of the Corporation in the
state of Delaware is 1209 Orange Street, in the city of Wilmington, county of
New Castle. The name of the Corporation's registered agent at that address is
The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of Delaware as set forth in Title 8 of the Delaware Code (the "GCL").
FOURTH: A. The total number of shares of capital stock which the
Corporation shall have authority to issue is 750,000,000 shares, consisting of
725,000,000 shares of Common Stock, par value $.10 per share (the "Common
Stock") and 25,000,000 shares of Preferred Stock, par value $.10 per share (the
"Preferred Stock").
B. Shares of Preferred Stock may be issued from time to time in one or more
classes or series as may be determined from time to time by the Board of
Directors of the Corporation (the "Board of Directors"), each such class or
series to be distinctly designated. Except in respect of the particulars fixed
by the Board of Directors for classes or series provided for by the Board of
Directors as permitted hereby, all shares of Preferred Stock shall be of equal
rank and shall be identical. All shares of any one series of Preferred Stock so
designated by the Board of Directors shall be alike in every particular, except
that shares of any one series issued at different times may differ as to the
dates from which dividends thereon shall be cumulative. The voting rights, if
any, of each such class or series and the preferences and relative,
participating, optional and other special rights of each such class or series
and the qualifications, limitations and restrictions thereof, if any, may differ
from those of any and all other classes or series at any time outstanding; and
the Board of Directors of the Corporation is hereby expressly granted authority
to fix, by resolutions duly adopted prior to the issuance of any shares of a
particular class or series of Preferred Stock so designated by the Board of
Directors, the voting powers of stock of such class or series, if any, and the
designations, preferences and relative, participating, optional and other
special rights and the qualifications, limitations and restrictions of such
class or series, including, but without limiting the generality of the
foregoing, the following:
(1) The distinctive designation of, and the number of shares of
Preferred Stock which shall constitute, such class or series, and such
number may be increased (except where otherwise provided by the Board of
Directors) or decreased (but not below the number of shares thereof then
outstanding) from time to time by like action of the Board of Directors;
(2) The rate and time at which, and the terms and conditions upon
which, dividends, if any, on Preferred Stock of such class or series shall
be paid,
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the extent of the preference or relation, if any, of such dividends to the
dividends payable on any other class or classes, or series of the same or
other classes of stock and whether such dividends shall be cumulative or
non-cumulative;
(3) The right, if any, of the holders of Preferred Stock of such
class or series to convert the same into, or exchange the same for, shares
of any other class or classes or of any series of the same or any other
class or classes of stock and the terms and conditions of such conversion
or exchange;
(4) Whether or not Preferred Stock of such class or series shall be
subject to redemption, and the redemption price or prices and the time or
times at which, and the terms and conditions upon which, Preferred Stock of
such class or series may be redeemed;
(5) The rights, if any, of the holders of Preferred Stock of such
class or series upon the voluntary or involuntary liquidation of the
Corporation;
(6) The terms of the sinking fund or redemption or purchase
account, if any, to be provided for the Preferred Stock of such class or
series; and
(7) The voting powers, if any, of the holders of such class or
series of Preferred Stock.
C. Except as otherwise provided in this Certificate of Incorporation, the
Board of Directors shall have authority to authorize the issuance, from time to
time without any vote or other action by the stockholders, of any or all shares
of stock of the Corporation of any class or series at any time authorized, and
any securities convertible into or exchangeable for any such shares, and any
options, rights or warrants to purchase or acquire any such shares, in each case
to such persons and on such terms (including as a dividend or distribution on or
with respect to, or in connection with a split or combination of, the
outstanding shares of stock of the same or any other class) as the Board of
Directors from time to time in its discretion lawfully may determine; PROVIDED,
HOWEVER, that the consideration for the issuance of shares of stock of the
Corporation having par value (unless issued as such a dividend or distribution
or in connection with such a split or combination) shall not be less than such
par value. Shares so issued shall be fully paid stock, and the holders of such
stock shall not be liable to any further call or assessments thereon.
D. Except as provided in this Certificate of Incorporation, each holder of
Common Stock shall be entitled to one vote for each share of Common Stock held
by him.
FIFTH: The following provisions are inserted for the management of the
business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
the Board of Directors and stockholders:
(1) The business and affairs of the Corporation shall be managed by
or under the direction of the Board of Directors.
(2) The Board of Directors shall consist of not less than three nor
more than fifteen directors. The exact number of directors shall be
determined from time to time by resolution adopted by the affirmative vote
of a majority of the Board of Directors, subject to Article III, Section 11
of
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the By-laws of the Corporation. The Directors shall be divided into three
classes, designated Class I, Class II and Class III. Each class shall
consist, as nearly as may be possible, of one-third of the total number of
Directors constituting the entire Board of Directors.
(3) Upon, or as soon as practicable following, the filing of the
Certificate of Merger to which this Certificate of Incorporation is
attached, Class I Directors shall be elected for a one-year term, Class II
Directors for a two-year term and Class III Directors for a three-year
term. At each succeeding annual meeting of stockholders, successors to the
class of Directors whose term expires at that annual meeting shall be
elected for a three-year term. If the number of Directors is changed in
accordance with the terms of this Certificate of Incorporation or the By-
laws, any increase or decrease shall be apportioned among the classes so as
to maintain the number of Directors in each class as nearly equal as
possible, and any additional Director of any class elected to fill a
vacancy resulting from an increase in such class shall hold office for a
term that shall coincide with the remaining term of that class, but in no
case will a decrease in the number of Directors shorten the term of any
incumbent Director. A Director shall hold office until the annual meeting
for the year in which his term expires and until his successor shall be
elected and shall qualify, subject, however, to the Director's prior death,
resignation, disqualification or removal from office. The stockholders
shall not have the right to remove any one or all of the Directors except
for cause and in that event only by the affirmative vote of the holders of
eighty percent (80%) of the votes entitled to be cast by the holders of all
outstanding shares of Voting Stock (as hereinafter defined) voting together
as a single class. Any vacancy on the Board of Directors that results from
a newly created Directorship shall only be filled by the affirmative vote
of a majority of the Board of Directors then in office, and any other
vacancy occurring on the Board of Directors shall only be filled by a
majority of the Directors then in office, although less than a quorum, or
by a sole remaining Director. Any Director elected to fill a vacancy not
resulting from an increase in the number of Directors shall have the same
remaining term as that of his predecessor.
(4) Notwithstanding the foregoing, whenever the holders of any one or
more classes or series of Preferred Stock issued by the Corporation shall
have the right, voting separately by class or series, to elect Directors at
an annual or special meeting of stockholders, the election, term of office,
filling of vacancies and other features of such Directorships shall be
governed by the terms of this Certificate of Incorporation applicable
thereto (including the resolutions adopted by the Board of Directors
pursuant to Section B of Article FOURTH), and such Directors so elected
shall not be divided into classes pursuant to Paragraph (2) of this Article
FIFTH unless expressly provided by such terms. Election of Directors need
not be by written ballot unless the By-Laws so provide.
(5) The Board of Directors may from time to time determine whether,
to what extent, at what times and places and under what conditions and
regulations the accounts, books and papers of the Corporation, or any of
them, shall be open to the inspection of the stockholders, and no
stockholder shall have any right to inspect any account, book or document
of the Corporation, except as and to the extent expressly provided by law
with
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reference to the right of stockholders to examine the original or duplicate
stock ledger, or otherwise expressly provided by law, or except as
expressly authorized by resolution of the Board of Directors.
(6) In addition to the powers and authority hereinbefore or by
statute expressly conferred upon them, the Directors are hereby empowered
to exercise all such powers and do all such acts and things as may be
exercised or done by the Corporation, subject, nevertheless, to the
provisions of the statutes of Delaware, this Certificate of Incorporation,
and the By-laws.
(7) Except as may be otherwise determined by the Board of Directors
in fixing the terms of any class or series of Preferred Stock pursuant to
Article FOURTH hereof, no action shall be taken by stockholders of the
Corporation except at an annual or special meeting of stockholders of the
Corporation and the right of stockholders to act by written consent in lieu
of a meeting is specifically denied.
SIXTH: A. The Board of Directors shall have concurrent power with the
stockholders as set forth in this Certificate of Incorporation to make, alter,
amend, change, add to or repeal the By-Laws of the Corporation.
B. Subject to Article III, Section 11 of the By-laws, the Board of
Directors may amend the By-Laws of the Corporation upon the affirmative vote of
the number of directors which shall constitute, under the terms of the By-Laws,
the action of the Board of Directors. Stockholders may not amend the By-Laws of
the Corporation except upon the affirmative vote of at least eighty percent
(80%) of the votes entitled to be cast by the holders of all outstanding shares
of Voting Stock voting together as a single class.
SEVENTH: A. In addition to any affirmative vote required by law, this
Certificate of Incorporation, the By-Laws of the Corporation or otherwise,
except as otherwise expressly provided in Section B of this Article SEVENTH, the
Corporation shall not engage, directly or indirectly, in any Business
Combination (as hereinafter defined) with an Interested Stockholder (as
hereinafter defined) without the affirmative vote of (i) not less than eighty
percent (80%) of the votes entitled to be cast by the holders of all outstanding
shares of Voting Stock voting together as a single class, and (ii) not less than
a majority of the votes entitled to be cast by the holders of all outstanding
shares of Voting Stock which are beneficially owned by persons other than such
Interested Stockholder voting together as a single class. Such affirmative vote
shall be required notwithstanding the fact that no vote may be required, or that
a lesser percentage or separate class vote may be specified, by law or in any
agreement with any national securities exchange or otherwise.
B. The provisions of Section A of this Article SEVENTH shall not be
applicable to any particular Business Combination, and such Business Combination
shall require only such affirmative vote, if any, as is required by law, this
Certificate of Incorporation, the By-Laws of the Corporation, or otherwise, if
such Business Combination shall have been approved by a majority (whether such
approval is made prior to or subsequent to the acquisition of beneficial
ownership of Voting Stock that caused the Interested Stockholder to become an
Interested Stockholder) of the Continuing Directors (as hereinafter defined).
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C. For the purposes of this Certificate of Incorporation:
(1) The term "Business Combination" shall mean:
(a) any merger or consolidation of this Corporation or any
Subsidiary (as hereinafter defined) with (i) any Interested Stockholder
or (ii) any other corporation (whether or not itself an Interested
Stockholder) which is or after such merger or consolidation would be an
Affiliate or Associate of an Interested Stockholder; or
(b) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of transactions) between
the Corporation or any Subsidiary and any Interested Stockholder or any
Affiliate or Associate of any Interested Stockholder involving any
assets or securities of the Corporation, any Subsidiary or any
Interested Stockholder or any Affiliate or Associate of any Interested
Stockholder the value of which would constitute, immediately prior to
such transaction, a Substantial Part (as hereinafter defined) of the
assets of the Corporation; or
(c) the adoption of any plan or proposal for the liquidation or
dissolution of, or similar transaction involving, the Corporation
proposed by or on behalf of an Interested Stockholder or any Affiliate
or Associate of any Interested Stockholder; or
(d) any reclassification of securities (including any reverse stock
split), or recapitalization of the Corporation, or any merger or
consolidation of the Corporation with any of its Subsidiaries or any
other transaction (whether or not with or otherwise involving an
Interested Stockholder) that has the effect, directly or indirectly, of
increasing the proportionate share of any class or series of Capital
Stock, or any securities convertible into Capital Stock or into equity
securities of any Subsidiary, that is beneficially owned by any
Interested Stockholder or any Affiliate or Associate of any Interested
Stockholder; or
(e) any agreement, contract or other arrangement providing for any
one or more of the actions specified in the foregoing clauses (a) to
(d).
(2) The term "Capital Stock" shall mean all capital stock of the
Corporation authorized to be issued from time to time under Article FOURTH
of this Certificate of Incorporation, and the term "Voting Stock" shall
mean all Capital Stock which by its terms may be voted on all matters
submitted to stockholders of the Corporation generally.
(3) The term "person" shall mean any individual, firm, corporation or
other entity and shall include any group comprised of any person and any
other person with whom such person or any Affiliate or Associate of such
person has any agreement, arrangement or understanding, directly or
indirectly, for the purpose of acquiring, holding, voting or disposing of
Capital Stock.
(4) The term "Interested Stockholder" shall mean any person (other than
the Corporation or any Subsidiary and other than any profit-sharing,
employee stock ownership or other employee benefit plan of the Corporation
or any Subsidiary or any trustee of or fiduciary with respect to any such
plan or any trust or any other entity formed for the purposes of holding
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Voting Stock for the purpose of funding any such plan or funding other
employee benefits for employees of the Corporation or any Subsidiary, in
each case when acting in such capacity) who (a) is the beneficial owner of
Voting Stock representing fifteen percent (15%) or more of the votes
entitled to be cast by the holders of all then outstanding shares of Voting
Stock; or (b) is an Affiliate or Associate of the Corporation and at any
time within the two-year period immediately prior to the date in question
was the beneficial owner of Voting Stock representing fifteen percent (15%)
or more of the votes entitled to be cast by the holders of all then
outstanding share of Voting Stock.
(5) A person shall be a "beneficial owner" of any Capital Stock (a)
which such person or any of its Affiliates or Associates beneficially owns,
directly or indirectly; (b) which such person or any of its Affiliates or
Associates has, directly or indirectly, (i) the right to acquire (whether
such right is exercisable immediately or subject only to the passage of
time), pursuant to any agreement, arrangement or understanding or upon the
exercise of conversion rights, exchange rights, warrants or options, or
otherwise, or (ii) the right to vote pursuant to any agreement, arrangement
or understanding; or (c) which are beneficially owned, directly or
indirectly, by any other person with which such person or any of its
Affiliates or Associates has any agreement, arrangement or understanding
for the purpose of acquiring, holding, voting or disposing of any shares of
Capital Stock. For the purposes of determining whether a person is an
Interested Stockholder pursuant to Paragraph 4 of this Section C, the
number of shares of Capital Stock deemed to be outstanding shall include
shares deemed beneficially owned by such person through application of
Paragraph 5 of this Section C, but shall not include any other shares of
Capital Stock that may be issuable pursuant to any agreement, arrangement
or understanding, or upon exercise of conversion rights, warrants or
options, or otherwise.
(6) The terms "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 under the Securities Exchange
Act of 1934, as amended (the "Act"), (the term "registrant" in Rule 12b-2
meaning in this case the Corporation).
(7) The term "Subsidiary" means any corporation of which a majority of
any class of equity security is beneficially owned by the Corporation;
PROVIDED, HOWEVER, that for the purposes of the definition of Interested
Stockholder set forth in Paragraph 4 of this Section C, the term
"Subsidiary" shall mean only a corporation of which a majority of each
class of equity security is beneficially owned by the Corporation.
(8) The term "Continuing Director" means any member of the Board of
Directors, while such person is a member of the Board of Directors, who is
not an Affiliate or Associate or representative of the Interested
Stockholder and was a member of the Board prior to the time that the
Interested Stockholder became an Interested Stockholder, and any successor
of a Continuing Director, while such successor is a member of the Board of
Directors, who is not an Affiliate or Associate or representative of the
Interested Stockholder and is recommended or elected to succeed the
Continuing Director by a majority of Continuing Directors. In order for a
Business Combination or other action to be approved, or a fact or other
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matter to be determined, "by a majority of the Continuing Directors"
hereunder, there must be one or more Continuing Directors then serving on
the Board of Directors.
(9) The term "Substantial Part" means assets having an aggregate Fair
Market Value (as hereinafter defined) in excess of ten percent (10%) of the
book value of the total consolidated assets of the Corporation and its
Subsidiaries as of the end of the Corporation's most recent fiscal year
ending prior to the time the stockholders of the Corporation would be
required to approve or authorize the Business Combination involving assets
constituting any such Substantial Part.
(10) The term "Fair Market Value" means (a) in the case of cash, the
amount of such cash; (b) in the case of stock, the highest closing sale
price, during the 30-day period immediately preceding the date in question,
of a share of such stock on the Composite Tape for New York Stock Exchange,
Inc. Listed Stocks, or, if such stock is not quoted on the Composite Tape,
on the New York Stock Exchange, Inc., or, if such stock is not listed on
such exchange, on the principal United States securities exchange
registered under the Act on which such stock is listed, or if such stock is
not listed on any such exchange, the highest closing bid quotation with
respect to a share of such stock, during the 30-day period preceding the
date in question, on the National Association of Securities Dealers, Inc.
Automated Quotation System or any similar system then in use, or if no such
quotations are available, the fair market value on the date in question of
a share of such stock as determined by a majority of the Continuing
Directors in good faith; and (c) in the case of property other than cash or
stock, the fair market value of such property on the date in question as
determined in good faith by a majority of the Continuing Directors.
D. A majority of the Continuing Directors shall have the power and duty to
determine for the purposes of this Article SEVENTH, on the basis of information
known to them after reasonable inquiry, (a) whether a person is an Interested
Stockholder, (b) the number of shares of Capital Stock or other securities
beneficially owned by any person, (c) whether a person is an Affiliate or
Associate of another and (d) whether the assets that are the subject of any
Business Combination have, or the consideration to be received for the issuance
or transfer of securities by this Corporation or any Subsidiary in any Business
Combination has, an aggregate Fair Market Value in excess of the amount set
forth in Paragraph 1(b) of Section C of this Article SEVENTH. Any such
determination made in good faith shall be binding and conclusive on all parties.
E. Nothing contained in this Article SEVENTH shall be construed to relieve
any Interested Stockholder from any fiduciary obligation imposed by law.
EIGHTH: When considering a merger, consolidation, Business Combination or
similar transaction, the Board of Directors, committees of the Board, individual
directors and individual officers may, in considering the best interests of the
Corporation and its stockholders, consider the effects of any such transaction
upon the employees, customers and suppliers of the Corporation, and upon
communities in which offices of the Corporation are located.
NINTH: Notwithstanding any other provisions of this Certificate of
Incorporation or the By-Laws of the Corporation (and notwithstanding the fact
that a lesser percentage or separate class vote may be specified by law, this
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Certificate of Incorporation or the By-Laws of the Corporation), (i) the
affirmative vote of the holders of not less than eighty percent (80%) of the
votes entitled to be cast by the holders of all outstanding shares of Voting
Stock, voting together as a single class, shall be required to amend or repeal,
or adopt any provisions inconsistent with, Articles FIFTH and SIXTH, and (ii)
the affirmative vote of the holders of (x) not less than eighty percent (80%) of
the votes entitled to be cast by the holders of all outstanding shares of Voting
Stock voting together as a single class, and (y) not less than a majority of the
votes entitled to be cast by the holders of all outstanding shares of Voting
Stock which are beneficially owned by persons other than Interested
Stockholders, if any, voting together as a single class, shall be required to
amend or repeal, or adopt any provisions inconsistent with, Articles SEVENTH and
NINTH; PROVIDED, HOWEVER, that, with respect to Articles FIFTH, SIXTH, SEVENTH
and NINTH such special voting requirements shall not apply to, and such special
votes shall not be required for, any amendment, repeal or adoption recommended
by the Board if a majority of the directors then in office are persons who would
be eligible to serve as Continuing Directors.
TENTH: No director shall be personally liable to the Corporation or any of
its stockholders for monetary damages for any breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) pursuant to Section 174 of the Delaware General Corporation Law or
(iv) for any transaction from which the director derived an improper personal
benefit. Any repeal of modification of this Article TENTH by the stockholders of
the Corporation shall not adversely affect any right of protection of a director
of the Corporation existing at the time of such repeal or modification with
respect to acts or omissions occurring prior to such repeal or modification.
ELEVENTH: Subject to the provisions of this Certificate of Incorporation,
the Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
thereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
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EXHIBIT 3.2
AMENDED AND RESTATED BYLAWS
OF
UNUMPROVIDENT CORPORATION
(HEREINAFTER CALLED THE "CORPORATION")
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the Corporation
shall be in the City of Wilmington, County of New Castle, State of Delaware.
SECTION 2. OTHER OFFICES. The Corporation may also have offices at such
other places both within and without the State of Delaware as the Board of
Directors may from time to time determine.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. PLACE OF MEETINGS. Meetings of the stockholders for the
election of directors or for any other purpose shall be held at such time and
place, either within or without the State of Delaware as shall be designated
from time to time by the Board of Directors and stated in the notice of the
meeting or in a duly executed waiver of notice thereof.
SECTION 2. ANNUAL MEETINGS. The Annual Meetings of Stockholders shall be
held on such date and at such time as shall be designated from time to time by
the Board of Directors and stated in the notice of the meetings, at which
meetings the stockholders shall elect by a plurality vote the directors to be
elected at such meetings, and transact such other business as may properly be
brought before the meetings. Written notice of the Annual Meeting stating the
place, date and hour of the meeting shall be given to each stockholder entitled
to vote at such meeting not less than ten nor more than sixty days before the
date of the meeting.
SECTION 3. SPECIAL MEETINGS. Unless otherwise prescribed by law or by the
Certificate of Incorporation, Special Meetings of Stockholders, for any purpose
or purposes, may be called by either (i) the Chairman, if there be one, (ii) the
Chief Executive Officer or (iii) the President, and shall be called by any such
officer at the request in writing of a majority of the Board of Directors. Such
request shall state the purpose or purposes of the proposed meeting. Written
notice of a Special Meeting stating the place, date and hour of the meeting and
the purpose or purposes for which the meeting is called shall be given not less
than ten nor more than sixty days before the date of the meeting to each
stockholder entitled to vote at such meeting.
SECTION 4. QUORUM. Except as otherwise provided by law or by the
Certificate of Incorporation, the holders of a majority of the capital stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business. If, however, such quorum shall not
be present or represented at any meeting of the stockholders, the stockholders
entitled to vote thereat, present in person or represented by proxy, shall have
power to adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present or represented. At
such adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally noticed. If the adjournment is for more than thirty days, or if after
the adjournment a new record date is fixed for the adjourned meeting, a notice
of the adjourned meeting shall be given to each stockholder entitled to vote at
the meeting. The foregoing provisions shall be subject to the voting rights of
holders of any Preferred Stock of the Corporation and any quorum requirements
relating thereto.
SECTION 5. VOTING. Unless otherwise required by law, applicable stock
exchange rules or regulations, the Certificate of Incorporation or these
By-Laws, any question brought before any meeting of stockholders shall be
decided by a majority of the votes entitled to be cast by the holders of stock
represented and entitled to vote thereat and each stockholder represented at a
meeting of stockholders shall be entitled to cast one vote for each share of the
capital stock entitled to vote thereat held by such stockholder. Such votes may
be cast in person or by proxy but no proxy shall be voted on or after three
years from its date, unless such proxy provides for a longer period. The Board
of Directors, in its discretion, or the officer of the Corporation presiding at
a meeting of stockholders, in his discretion, may require that any votes cast at
such meeting shall be cast by written ballot.
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SECTION 6. PROPER BUSINESS AT ANNUAL MEETINGS. At any annual meeting of
the stockholders, only such business shall be conducted as shall have been
properly brought before such meeting. To be properly brought before an annual
meeting, business must be specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the Board of Directors, or otherwise
properly brought before the meeting by or at the direction of the Board of
Directors, or otherwise properly brought before the meeting by a stockholder.
For business to be properly brought before an annual meeting by a stockholder,
the stockholder must have given timely notice thereof in writing to the
Secretary of the Corporation, must be a stockholder of the Corporation of record
at the time of the delivery of said notice and must be entitled to vote at the
meeting. To be timely, a stockholder's notice must be delivered to, or mailed
and received at, the principal executive offices of the Corporation, not less
than 60 days nor more than 90 days prior to the annual meeting; PROVIDED,
HOWEVER, that in the event that less than 75 days' notice or prior public
disclosure of the date of such meeting is given or made to stockholders, notice
by the stockholder to be timely must be so received not later than the close of
business on the 15th day following the day on which such notice of the date of
the annual meeting was mailed or such public disclosure was first made. A
stockholder's notice to the Secretary shall set forth as to each matter the
stockholder proposes to bring before the annual meeting (i) a brief description
of the business desired to be brought before the annual meeting, including the
complete text of any resolutions to be presented at the meeting with respect to
such business, and the reasons for conducting such business at the annual
meeting, (ii) the name and address of record of the stockholder proposing such
business and the beneficial owner, if any, on whose behalf the proposal is made,
(iii) the class and number of shares of the Corporation which are beneficially
owned by the stockholder and such beneficial owner, (iv) any material interest
of the stockholder and such beneficial owner in such business and (v) a
representation that the stockholder is a holder of record of shares of the
Corporation entitled to vote at such meeting and intends to appear in person or
by proxy at the meeting to propose such business. The chairman of an annual
meeting shall, if the facts warrant, determine and declare to the meeting that
such business was not properly brought before the meeting in accordance with
these provisions, and if he should so determine, he shall so declare to the
meeting and any such business not properly brought before the meeting shall not
be transacted.
SECTION 7. LIST OF STOCKHOLDERS ENTITLED TO VOTE. The officer of the
Corporation who has charge of the stock ledger of the Corporation shall prepare
and make, at least ten days before every meeting of stockholders, a complete
list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder of the Corporation who is
present.
SECTION 8. STOCK LEDGER. The stock ledger of the Corporation shall be the
only evidence as to who are the stockholders entitled to examine the stock
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ledger, the list required by Section 7 of this Article II or the books of the
Corporation, or to vote in person or by proxy at any meeting of stockholders.
SECTION 9. (a) ORGANIZATION. Meetings of stockholders shall be presided
over by the Chairman of the Board, if any, or in his absence by the Vice
Chairman of the Board, if any, or in his absence by the Chief Executive Officer,
or in his absence by the President, or in his absence by a Vice President, or in
the absence of the foregoing persons by a chairman designated by the Board of
Directors, or in the absence of such designation by a chairman chosen at the
meeting. The Secretary shall act as secretary of the meeting, but in his absence
the chairman of the meeting may appoint any person to act as secretary of the
meeting.
(b) CONDUCT OF MEETINGS. The date and time of the opening and the closing
of the polls for each matter upon which the stockholders will vote at a meeting
shall be announced at the meeting by the person presiding over the meeting. The
Board of Directors may adopt by resolution such rules and regulations for the
conduct of the meeting of stockholders as it shall deem appropriate. Except to
the extent inconsistent with such rules and regulations as adopted by the Board
of Directors, the chairman of any meeting of stockholders shall have the right
and authority to prescribe such rules, regulations and procedures and to do all
such acts as, in the judgment of such chairman, are appropriate for the proper
conduct of the meeting. Such rules, regulations or procedures, whether adopted
by the Board of Directors or prescribed by the chairman of the meeting, may
include, without limitation, the following: (i) the establishment of an agenda
or order of business for the meeting; (ii) rules and procedures for maintaining
order at the meeting and the safety of those present; (iii) limitations on
attendance at or participation in the meeting to stockholders of record of the
corporation, their duly authorized and constituted proxies or such other persons
as the chairman of the meeting shall determine; (iv) restrictions on entry to
the meeting after the time fixed for the commencement thereof and (v)
limitations on the time allotted to questions or comments by participants.
Unless and to the extent determined by the Board of Directors or the chairman of
the meeting, meetings of stockholders shall not be required to be held in
accordance with the rules of parliamentary procedure.
ARTICLE III
DIRECTORS
SECTION 1. NUMBER AND ELECTION OF DIRECTORS. Subject to Article III,
Section 11 of these By-laws, the number of directors constituting the Board of
Directors shall be fixed from time to time by the Board of Directors in the
manner prescribed in the Certificate of Incorporation and shall initially be 15,
eight of whom shall be designated by UNUM Corporation and seven of whom shall be
designated by Provident Companies, Inc. Except as provided in Section 3 of this
Article, the directors to be elected at each Annual Meeting of Stockholders
shall be elected by a plurality of the votes cast at such Annual Meeting of
Stockholders, and each director so elected shall hold office until the third
Annual Meeting following such election and until his successor is duly elected
and qualified, or until his earlier resignation, retirement or removal. No
person elected or re-elected a director shall, after such person's
seventy-second birthday, serve as a director of the Corporation beyond the date
of the Corporation's annual meeting ending the term for which such person has
been elected; PROVIDED, that, no person shall be required to retire because of
their age prior to such date. Any director may resign at any time upon notice to
the Corporation. Directors need not be stockholders.
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SECTION 2. NOMINATION PROCEDURES. Only persons who are nominated in
accordance with the following procedures shall be eligible for election as
Directors. Nominations of persons for election to the Board of Directors of the
Corporation may be made at a meeting of stockholders by or at the direction of
the Board of Directors, by any nominating committee or person appointed by the
Board of Directors or by any stockholder of the Corporation entitled to vote for
the election of Directors at the meeting. Such nominations, other than those
made by or at the direction of the Board of Directors, shall be made pursuant to
timely notice in writing to the Secretary of the Corporation by a stockholder of
the Corporation of record at the time of the delivery of said notice who is
entitled to vote at the meeting. To be timely, a stockholder's notice shall be
delivered to, or mailed and received at, the principal executive offices of the
Corporation not less than 60 days nor more than 90 days prior to the meeting;
PROVIDED, HOWEVER, that in the event that less than 75 days' notice or prior
public disclosure of the date of the meeting is given or made to stockholders,
notice by the stockholder to be timely must be so received not later than the
close of business on the 15th day following the day on which such notice of the
date of the meeting was mailed or such public disclosure was first made. Such
stockholder's notice shall set forth (a) as to each person whom the stockholder
proposes to nominate for election or re-election as a director, (i) the name,
age, business address and residence address of the person, (ii) the principal
occupation or employment of the person, (iii) the class and number of shares of
the Corporation which are beneficially owned by the person, (iv) a description
of all arrangements, understandings or relationships between the stockholder and
each nominee and any other person or persons (naming such person or persons)
pursuant to which the nomination or nominations are to be made by the
stockholder and (v) any other information relating to the person that is
required to be disclosed in solicitations of proxies for election of Directors
pursuant to Rule 14(a) under the Securities Exchange Act of 1934, as amended
(the "Act"), and any other applicable laws or rules or regulations of any
governmental authority or of any national securities exchange or similar body
overseeing any trading market on which shares of the Corporation are traded, and
(b) as to the stockholder giving the notice (i) the name and address of record
of the stockholder and the beneficial owner, if any, on whose behalf the
nomination is made, and (ii) the class and number of shares of the Corporation
which are beneficially owned by the stockholder and such beneficial owner and
(iii) a representation that the stockholder is a holder of record of shares of
the Corporation entitled to vote at such meeting and intends to appear in person
or by proxy at the meeting to nominate the person or persons specified in the
notice. No person shall be eligible for election as a Director of the
Corporation unless nominated in accordance with the procedures set forth herein.
The chairman of the meeting shall, if the facts warrant, determine and declare
to the meeting that a nomination was not made in accordance with the foregoing
procedure, and if he should so determine, he shall so declare to the meeting and
the defective nomination shall be disregarded.
SECTION 3. VACANCIES. Subject to the provisions of the Certificate of
Incorporation, vacancies and newly created directorships resulting from any
increase in the authorized number of directors, which increase shall be subject
to Article III, Section 11, shall only be filled by a majority of the directors
then in office, though less than a quorum, or by a sole remaining director, and
the directors so chosen shall hold office until the next annual election and
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until their successors are duly elected and qualified, or until their earlier
resignation or removal.
SECTION 4. DUTIES AND POWERS. The business of the Corporation shall be
managed by or under the direction of the Board of Directors which may exercise
all such powers of the Corporation and do all such lawful acts and things as are
not by statute or by the Certificate of Incorporation or by these By-Laws
directed or required to be exercised or done by the stockholders.
SECTION 5. MEETINGS. The Board of Directors of the Corporation may hold
meetings, both regular and special, either within or without the state of
Delaware. Regular meetings of the Board of Directors may be held without notice
at such time and at such place as may from time to time be determined by the
Board of Directors. Special meetings of the Board of Directors may be called by
the Chairman, if there be one, the Chief Executive Officer, the President, or
any three directors. Notice thereof stating the place, date and hour of the
meeting shall be given to each director either by mail not less than forty-eight
(48) hours before the date of the meeting, by telephone or telegram on
twenty-four (24) hours' notice, or on much shorter notice as the person or
persons calling such meeting may deem necessary or appropriate in the
circumstances.
SECTION 6. QUORUM. Except as may be otherwise specifically provided by
law, the Certificate of Incorporation or these By-Laws, at all meetings of the
Board of Directors, a majority of the entire Board of Directors shall constitute
a quorum for the transaction of business and the act of a majority of the
directors present at any meeting at which there is a quorum shall be the act of
the Board of Directors. If a quorum shall not be present at any meeting of the
Board of Directors, the directors present thereat may adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum shall be present.
SECTION 7. ACTIONS OF BOARD. Unless otherwise provided by the Certificate
of Incorporation or these By-Laws, any action required or permitted to be taken
at any meeting of the Board of Directors or of any committee thereof may be
taken without a meeting, if all the members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
SECTION 8. MEETINGS BY MEANS OF CONFERENCE TELEPHONE OR SIMILAR
COMMUNICATIONS EQUIPMENT. Unless otherwise provided by the Certificate of
Incorporation or these By-Laws, members of the Board of Directors of the
Corporation, or any committee designated by the Board of Directors, may
participate in a meeting of the Board of Directors or such committee by means of
a conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and participation in a
meeting pursuant to this Section 8 shall constitute presence in person at such
meeting.
SECTION 9. COMMITTEES. (a) The Board of Directors may, by resolution
passed by a majority of the entire Board of Directors, designate one or more
committees, each committee to consist of one or more of the directors of the
Corporation. The Board of Directors may designate one or more directors as
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alternate members of any committee, who may replace any absent or disqualified
member at any meeting of any such committee. In the absence or disqualification
of a member of a committee, and in the absence of a designation by the Board of
Directors of an alternate member to replace the absent or disqualified member,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any absent or disqualified member. Any committee, to the extent allowed by law
and provided in the resolution establishing such committee, shall have and may
exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation. Each committee shall
keep regular minutes and report to the Board of Directors when required.
(b) The Corporation shall have an Executive Committee which, among any
other powers which shall from time to time be granted to such committee by
resolution of the Board of Directors, shall have the sole power and authority to
recommend nominees on behalf of the Corporation to the Board of Directors (i)
for election to the Board of Directors at the stockholders meetings at which
directors are to be elected, (ii) to fill vacancies on the Board of Directors of
the Corporation in between such stockholders meetings and (iii) to serve on, and
fill vacancies in, any committee of the Board of Directors.
(c) Notwithstanding anything to the contrary contained in these By-laws,
until July 1, 2001, the Executive Committee will consist of three directors
which were initially designated by UNUM Corporation, which will include the
Chief Executive Officer initially serving the Corporation (who will serve as
Chairman of such committee), and three directors which were initially designated
by Provident Companies, Inc., which will include the President initially serving
the Corporation, in each case in accordance with the Agreement and Plan of
Merger, dated as of November 22, 1998, between UNUM Corporation and Provident
Companies, Inc. (the "Merger Agreement").
SECTION 10. INTERESTED DIRECTORS. No contract or transaction between the
Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction, or solely because his or their votes are
counted for such purpose if (i) the material facts as to his or their
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board of Directors or the committee, and the Board of Directors
or committee in good faith authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested directors, even though the
disinterested directors be less than a quorum; or (ii) the material facts as to
his or their relationship or interest and as to the contract or transaction are
disclosed or are known to the shareholders entitled to vote thereon, and the
contract or transaction is specifically approved in good faith by vote of the
shareholders; or (iii) the contract or transaction is fair as to the Corporation
as of the time it is authorized, approved or ratified, by the Board of
Directors, a committee thereof or the shareholders. Common or interested
directors may be counted in determining the presence of a quorum at a meeting of
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the Board of Directors or of a committee which authorizes the contract or
transaction.
SECTION 11. CERTAIN MODIFICATIONS. Notwithstanding anything to the
contrary contained in these By-laws, until July 1, 2001, the following actions
taken either directly or indirectly by the Board of Directors shall, when a
quorum is present, require the affirmative vote of not less than seventy-five
percent of the directors voting at a meeting for which proper notice of the
actions taken was duly given: (i) any change in the size of the Board of
Directors or in the size of any class of directors; (ii) any change in the
composition or power and authority of the Executive Committee of the Board of
Directors or the chairmanship thereof; (iii) any change or amendment to these
By-laws; and (iv) any proposals to be submitted to the stockholders of the
Corporation by the Board of Directors. From and after July 1, 2001, any of the
actions set forth in clauses (i) through (iv) of the immediately preceding
sentence may be taken upon the affirmative vote of the number of directors which
shall constitute, under the terms of these By-laws, the action of the Board of
Directors.
ARTICLE IV
OFFICERS
SECTION 1. GENERAL. The officers of the Corporation shall be chosen by
the Board of Directors and shall be a Chief Executive Officer, a President, a
Secretary and a Treasurer. The Board of Directors, in its discretion, may also
choose a Chairman of the Board of Directors (who must be a director) and one or
more Vice-Presidents, Assistant Secretaries, Assistant Treasurers and other
officers. Any number of offices may be held by the same person, unless otherwise
prohibited by law, the Certificate of Incorporation or these By-Laws. The
officers of the Corporation need not be stockholders of the Corporation nor,
except in the case of the Chairman of the Board of Directors, need such officers
be directors of the Corporation.
SECTION 2. ELECTION. The Board of Directors shall elect the officers of
the Corporation who shall hold their offices for such terms and shall exercise
such powers and perform such duties as shall be determined from time to time by
the Board of Directors; and all officers of the Corporation shall hold office
until their successors are chosen and qualified, or until their earlier
resignation or removal. Any officer elected by the Board of Directors may be
removed at any time by the affirmative vote of a majority of the Board of
Directors. Any vacancy occurring in any office of the Corporation shall be
filled by the Board of Directors.
SECTION 3. VOTING SECURITIES OWNED BY THE CORPORATION. Powers of
attorney, proxies, waivers of notice of meeting, consents and other instruments
relating to securities owned by the Corporation may be executed in the name of
and on behalf of the Corporation by the Chief Executive Officer, the President
or any Vice-President and any such officer may, in the name of and on behalf of
the Corporation, take all such action as any such officer may deem advisable to
vote in person or by proxy at any meeting of security holders of any corporation
in which the Corporation may own securities and at any such meeting shall
possess and may exercise any and all rights and power incident to the ownership
of such securities and which, as the owner thereof, the Corporation might have
exercised and possessed if present. The Board of Directors may, by resolution,
from time to time confer like powers upon any other person or persons.
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SECTION 4. CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of the Board
of Directors, if there be one, shall preside at all meetings of the stockholders
and of the Board of Directors. Except where by law the signature of the Chief
Executive Officer or the President is required, the Chairman of the Board of
Directors shall possess the same power as the Chief Executive Officer or the
President to sign all contracts, certificates and other instruments of the
Corporation which may be authorized by the Board of Directors. During the
absence or disability of the Chief Executive Officer and the President, the
Chairman of the Board of Directors shall exercise all the powers and discharge
all the duties of the Chief Executive Officer or the President. The Chairman of
the Board of Directors shall also perform such other duties and may exercise
such other powers as from time to time may be assigned to him by these By-Laws
or by the Board of Directors.
SECTION 5. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall,
subject to the control of the Board of Directors, have general supervision of
the business of the Corporation and shall see that all orders and resolutions of
the Board of Directors are carried into effect. He shall execute all bonds,
mortgages, contracts and other instruments of the Corporation requiring a seal,
under the seal of the Corporation, except where required or permitted by law to
be otherwise signed and executed and except that the other officers of the
Corporation may sign and execute documents when so authorized by these By-Laws,
the Board of Directors, the Chief Executive Officer or the President. In the
absence or disability of the Chairman of the Board of Directors, or if there be
none, the Chief Executive Officer shall preside at all meetings of the
stockholders and the Board of Directors. The Chief Executive Officer shall also
perform such other duties and may exercise such other powers as from time to
time may be assigned to him by these By-Laws or by the Board of Directors.
SECTION 6. PRESIDENT. The President shall, subject to the control of the
Board of Directors and the Chief Executive Officer (provided that until July 1,
2000, the President and the Chief Executive Officer will participate equally in
setting the overall strategic direction of the Corporation), have general
supervision of the business of the Corporation and shall see that all orders and
resolutions of the Board of Directors are carried into effect. He shall execute
all bonds, mortgages, contracts and other instruments of the Corporation
requiring a seal, under the seal of the Corporation, except where required or
permitted by law to be otherwise signed and executed and except that the other
officers of the Corporation may sign and execute documents when so authorized by
these By-Laws, the Board of Directors, the Chief Executive Officer or the
President. In the absence or disability of the Chairman of the Board of
Directors and the Chief Executive Officer, or if neither shall exist, the
President shall preside at all meetings of the stockholders and the Board of
Directors. The President shall also perform such other duties and may exercise
such other powers as from time to time may be assigned to him by these By-Laws
or by the Board of Directors. From the Effective Time until July 1, 2000, the
President initially serving the Corporation shall also be the Chief Operating
Officer.
SECTION 7. VICE-PRESIDENTS. At the request of the Chief Executive Officer
or the President or in the event of either of their absences or inability or
refusal to act (and if there be no Chairman of the Board of Directors), the
Vice-President or the Vice-Presidents if there is more than one (in the order
designated by the Board of Directors) shall perform the duties of the Chief
Executive Officer and President, and when so acting, shall have all the powers
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of and be subject to all the restrictions upon the Chief Executive Officer and
President. Each Vice-President shall perform such other duties and have such
other powers as the Board of Directors from time to time may prescribe. If there
be no Chairman of the Board of Directors and no Vice-President, the Board of
Directors shall designate the officer of the Corporation who, in the absence of
the Chief Executive Officer and President or in the event of the inability or
refusal of the Chief Executive Officer and President to act, shall perform the
duties of the Chief Executive Officer and President, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the Chief
Executive Officer and President.
SECTION 8. SECRETARY. The Secretary shall attend all meetings of the
Board of Directors and all meetings of stockholders and record all the
proceedings thereat in a book or books to be kept for that purpose; the
Secretary shall also perform like duties for the standing committees when
required. The Secretary shall give, or cause to be given, notice of all meetings
of the stockholders and special meetings of the Board of Directors, and shall
perform such other duties as may be prescribed by the Board of Directors, the
Chief Executive Officer or President, under whose supervision he shall be. If
the Secretary shall be unable or shall refuse to cause to be given notice of all
meetings of the stockholders and special meetings of the Board of Directors, and
if there be no Assistant Secretary, then either the Board of Directors, the
Chief Executive Officer or the President may choose another officer to cause
such notice to be given. The Secretary shall have custody of the seal of the
Corporation and the Secretary or any Assistant Secretary, if there be one, shall
have authority to affix the same to any instrument requiring it and when so
affixed, it may be attested by the signature of the Secretary or by the
signature of any such Assistant Secretary. The Board of Directors may give
general authority to any other officer to affix the seal of the Corporation and
to attest the affixing by his signature. The Secretary shall see that all books,
reports, statements, certificates and other documents and records required by
law to be kept or filed are properly kept or filed, as the case may be.
SECTION 9. TREASURER. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. The Treasurer shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the Chief Executive Officer, the President
and the Board of Directors, at its regular meetings, or when the Board of
Directors so requires, an account of all his transactions as Treasurer and of
the financial condition of the Corporation. If required by the Board of
Directors, the Treasurer shall give the Corporation a bond in such sum and with
such surety or sureties as shall be satisfactory to the Board of Directors for
the faithful performance of the duties of his office and for the restoration to
the Corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the Corporation.
SECTION 10. ASSISTANT SECRETARIES. Except as may be otherwise provided in
these By-Laws, Assistant Secretaries, if there be any, shall perform such duties
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and have such powers as from time to time may be assigned to them by the Board
of Directors, the Chief Executive Officer, the President, any Vice-President, if
there be one, or the Secretary, and in the absence of the Secretary or in the
event of his disability or refusal to act, shall perform the duties of the
Secretary, and when so acting, shall have all the powers of and be subject to
all the restrictions upon the Secretary.
SECTION 11. ASSISTANT TREASURERS. Assistant Treasurers, if there be any,
shall perform such duties and have such powers as from time to time may be
assigned to them by the Board of Directors, the Chief Executive Officer, the
President, any Vice-President, if there be one, or the Treasurer, and in the
absence of the Treasurer or in the event of his disability or refusal to act,
shall perform the duties of the Treasurer, and when so acting, shall have all
the powers of and be subject to all the restrictions upon the Treasurer. If
required by the Board of Directors, an Assistant Treasurer shall give the
Corporation a bond in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of his office and for the restoration to the Corporation, in case of his
death, resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in his possession or under
his control belonging to the Corporation.
SECTION 12. OTHER OFFICERS. Such other officers as the Board of Directors
may choose shall perform such duties and have such powers as from time to time
may be assigned to them by the Board of Directors. The Board of Directors may
delegate to any other officer of the Corporation the power to choose such other
officers and to prescribe their respective duties and powers.
SECTION 13. CERTAIN ACTIONS. Notwithstanding anything to the contrary
contained in these By-laws and other than in accordance with their respective
employment contracts, until July 1, 2001, the removal of the current Chairman
and Chief Executive Officer or the current President and Chief Operating Officer
as of the effective date of the merger contemplated by the Merger Agreement, any
modification to the provisions of either of their respective employment
contracts which provide their respective terms of office or any modification to
either of their respective roles, duties or authority shall, when a quorum is
present, require the affirmative vote of seventy-five percent of the directors
voting at a meeting for which proper notice of the actions taken was duly given.
From and after July 1, 2001, any of the actions set forth in the immediately
preceding sentence may be taken upon the affirmative vote of the number of
directors which shall constitute, under the terms of these By-laws, the action
of the Board of Directors.
ARTICLE V
STOCK
SECTION 1. FORM OF CERTIFICATES. Every holder of stock in the Corporation
shall be entitled to have a certificate signed, in the name of the Corporation
(i) by the Chairman of the Board of Directors, the Chief Executive Officer, the
President or a Vice-President and (ii) by the Treasurer or an Assistant
Treasurer, or the Secretary or an Assistant Secretary of the Corporation,
certifying the number of shares owned by him in the Corporation.
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SECTION 2. SIGNATURES. Where a certificate is countersigned by (i) a
transfer agent other than the Corporation or its employee, or (ii) a registrar
other than the Corporation or its employee, any other signature on the
certificate may be a facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if he were such officer, transfer agent or registrar at the date of issue.
SECTION 3. LOST CERTIFICATES. The Board of Directors may direct a new
certificate to be issued in place of any certificate theretofore issued by the
Corporation alleged to have been lost, stolen or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen or destroyed. When authorizing such issue of a new certificate, the
Board of Directors may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
certificate, or his legal representative, to advertise the same in such manner
as the Board of Directors shall require and/or to give the Corporation a bond in
such sum as it may direct as indemnity against any claim that may be made
against the Corporation with respect to the certificate alleged to have been
lost, stolen or destroyed.
SECTION 4. TRANSFERS. Stock of the Corporation shall be transferable in
the manner prescribed by law and in these By-Laws. Transfers of stock shall be
made on the books of the Corporation only by the person named in the certificate
or by his attorney lawfully constituted in writing and upon the surrender of the
certificate therefor, which shall be canceled before a new certificate shall be
issued.
SECTION 5. RECORD DATE. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock, or for the purpose of
any other lawful action, the Board of Directors may fix, in advance, a record
date, which shall not be more than sixty days nor less than ten days before the
date of such meeting, nor more than sixty days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; PROVIDED,
HOWEVER, that the Board of Directors may fix a new record date for the adjourned
meeting.
SECTION 6. BENEFICIAL OWNERS. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise provided by
law.
ARTICLE VI
NOTICES
SECTION 1. NOTICES. Whenever written notice is required by law, the
Certificate of Incorporation or these By-Laws, to be given to any director,
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member of a committee or stockholder, such notice may be given by mail,
addressed to such director, member of a committee or stockholder, at his address
as it appears on the records of the Corporation, with postage thereon prepaid,
and such notice shall be deemed to be given at the time when the same shall be
deposited in the United States mail. Written notice may also be given personally
or by telegram, telex or cable.
SECTION 2. WAIVERS OF NOTICE. Whenever any notice is required by law, the
Certificate of Incorporation or these By-Laws, to be given to any director,
member of a committee or stockholder, a waiver thereof in writing, signed by the
person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto.
ARTICLE VII
GENERAL PROVISIONS
SECTION 1. DIVIDENDS. Dividends upon the capital stock of the Corporation,
subject to the provisions of the Certificate of Incorporation, if any, may be
declared by the Board of Directors at any regular or special meeting, and may be
paid in cash, in property, or in shares of the capital stock. Before payment of
any dividend, there may be set aside out of any funds of the Corporation
available for dividends such sum or sums as the Board of Directors from time to
time, in its absolute discretion, deems proper as a reserve or reserves to meet
contingencies, or for equalizing dividends, or for repairing or maintaining any
property of the Corporation, or for any proper purpose, and the Board of
Directors may modify or abolish any such reserve.
SECTION 2. DISBURSEMENTS. All checks or demands for money and notes of
the Corporation shall be signed by such officer or officers or such other person
or persons as the Board of Directors may from time to time designate.
SECTION 3. FISCAL YEAR. The fiscal year of the Corporation shall be fixed
by resolution of the Board of Directors.
SECTION 4. CORPORATE SEAL. The corporate seal shall have inscribed
thereon the name of the Corporation, the year of its organization and the words
"Corporate Seal, Delaware". The seal may be used by causing it or a facsimile
thereof to be impressed or affixed or reproduced or otherwise.
ARTICLE VIII
INDEMNIFICATION
SECTION 1. INDEMNIFICATION IN ACTIONS, SUITS, OR PROCEEDINGS OTHER THAN
THOSE BY OR IN THE RIGHT OF THE CORPORATION. Subject to Section 3 of this
Article VIII, the Corporation shall indemnify each person who is or was, or is
threatened to be made, a party to or witness in any threatened, pending or
completed action, suit, proceeding or claim, whether civil, criminal,
administrative or investigative (other than one by or in the right of the
Corporation), by reason of the fact that he is or was a director, officer or
employee of the Corporation or of Union Mutual Life Insurance Company, a Maine
mutual insurance company (the "Mutual Company"), or is or was serving at the
request of the Corporation or the Mutual Company as a director, officer,
employee or trustee of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise, against expenses (including
attorney's fees and expenses), judgments,
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fines, penalties, and amounts paid in settlement, incurred by him in connection
with defending, investigating, preparing to defend, or being or preparing to be
a witness in, such action, suit, proceeding or claim, if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful.
SECTION 2. INDEMNIFICATION IN ACTIONS, SUITS OR PROCEEDINGS BY OR IN THE
RIGHT OF THE CORPORATION. Subject to Section 3 of this Article VIII, the
Corporation shall indemnify each person who is or was, or is threatened to be
made, a party to or witness in any threatened, pending or completed action,
suit, proceeding or claim by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer or employee of the Corporation or of the Mutual Company or is or was
serving at the request of the Corporation or the Mutual Company as a director,
officer, employee or trustee of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise, against expenses (including
attorney's fees and expenses), and, if and to the extent permitted by applicable
law, judgments, penalties and amounts paid in settlement, incurred by him in
connection with defending, investigating, preparing to defend, or being or
preparing to be a witness in, such action, suit, proceeding or claim, if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Corporation; PROVIDED, HOWEVER, that no
indemnification shall be made in respect of any such claim or any issue or
matter in any such action, suit or proceeding as to which such person shall have
been adjudged to be liable to the Corporation unless (and only to the extent
that) the Court of Chancery or the court in which such claim, action, suit or
proceeding was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnification for such expenses
and amounts which the Court of Chancery or such other court shall deem proper.
SECTION 3. AUTHORIZATION OF INDEMNIFICATION. (a) Any indemnification
under this Article VIII (unless ordered by a court) shall be made by the
Corporation only as authorized in the specific case upon a determination that
indemnification of the person seeking indemnification is proper in the
circumstances because he has met the applicable standard of conduct set forth in
Section 1 or 2 of this Article VIII, as the case may be. Such determination (and
determinations under Sections 5 and 6 of this Article VIII) shall be made (i) by
the Board of Directors by a majority vote of a quorum consisting of directors
who were not parties to the action, suit, proceeding or claim with respect to
which indemnification is sought ("disinterested directors"), or (ii) if such a
quorum is not obtainable, or if a quorum of disinterested directors so directs,
in a written opinion of independent legal counsel chosen by the Board of
Directors, or (iii) by the stockholders; PROVIDED, HOWEVER, that if a Change in
Control (as defined in this Section 3) has occurred and the person seeking
indemnification so requests, such determination (and determination under
Sections 5 and 6 of this Article VIII) shall be made in a written opinion
rendered by independent legal counsel chosen by the person seeking
indemnification and not reasonably objected to by the Board of Directors (whose
fees and expenses shall be paid by the Corporation). To the extent, however,
that a director, officer, employee or trustee or former director, officer,
employee or trustee has been successful on the merits or otherwise in defense of
any action, suit, proceeding or claim described above, or in defense of any
claim, issue or matter therein, he shall be indemnified against expenses
(including attorney's fees and expenses) incurred by him in connection
therewith, without the necessity of authorization in the specific case.
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(b) For purposes of the proviso to the second sentence of Section 3(a),
"independent legal counsel" shall mean legal counsel other than an attorney, or
a firm having associated with it an attorney, who has been retained by or who
has performed services for the Corporation, the Mutual Company or the person
seeking indemnification within the previous three years.
(c) A "Change in Control" shall mean a change in control of the Corporation
of a nature that would be required to be reported in response to Item 5(f) of
Schedule 14A of Regulation 14A promulgated under the Act, whether or not the
Corporation is then subject to such reporting requirement; provided that,
without limitation, such a change in control shall be deemed to have occurred if
(i) any "person" (as such term is used in sections 13(d) and 14(d) of the Act)
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Act),
directly or indirectly, of securities of the Corporation representing 35% or
more of the combined voting power of the Corporation's then outstanding
securities without the prior approval of at least two-thirds of the members of
the Board of Directors in office immediately prior to such acquisition, or (ii)
the Corporation is a party to a merger, consolidation, sale of assets or other
reorganization, or proxy contest, as a consequence of which members of the Board
of Directors in office immediately prior to such transaction or event constitute
less than a majority of the Board of Directors thereafter, or (iii) during any
period of two consecutive years, individuals who at the beginning of such period
constituted the Board of Directors (including for this purpose any new director
whose election or nomination for election by the Corporation's stockholders was
approved by a vote of at least two-thirds of the directors then still in office
who were directors at the beginning of the period) cease for any reason to
constitute at least a majority of the Board of Directors.
SECTION 4. GOOD FAITH DEFINED, ETC. (a) For purposes of any determination
under Section 3 of this Article VIII, a person shall be deemed to have acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation, or, with respect to any criminal action or
proceeding, to have had no reasonable cause to believe his conduct was unlawful,
if such person relied on the records or books of account of the Corporation, the
Mutual Company or another enterprise, or on information supplied to him by the
officers of the Corporation, the Mutual Company or another enterprise, or on
information or records given or reports made to the Corporation, the Mutual
Company or another enterprise by an independent certified public accountant or
by an appraiser or other expert selected with reasonable care by the
Corporation, the Mutual Company or another enterprise. The term "another
enterprise" as used in this Section 4(a) shall mean any other corporation or any
partnership, joint venture, trust, employee benefit plan or other enterprise of
which such person is or was serving at the request of the Corporation or the
Mutual Company as a director, officer, employee or trustee.
(b) The termination of any action, suit, proceeding or claim by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the Corporation, or, with respect to any
criminal action or proceeding, that he had no reasonable cause to believe that
his conduct was unlawful.
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(c) References in this Article VIII to "penalties" include any excise taxes
assessed on a person with respect to an employee benefit plan; references in
this Article VIII to "serving at the request of the Corporation or the Mutual
Company" include any service as a director, officer or employee or former
director, officer or employee of the Corporation or the Mutual Company which
imposes duties on, or involves services by, such person with respect to an
employee benefit plan or its participants or beneficiaries; and a person who
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the participants or beneficiaries of such an
employee benefit plan shall be deemed to have acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the Corporation.
(d) The provisions of this Section 4 shall not be deemed to be exclusive or
to limit in any way the circumstances in which a person may be deemed to have
met the applicable standard of conduct set forth in Section 1 or 2 of this
Article VIII, as the case may be.
SECTION 5. RIGHT TO INDEMNIFICATION UPON APPLICATION; PROCEDURE UPON
APPLICATION; ETC. Except as otherwise provided in the proviso to Section 2 of
this Article VIII:
(a) Any indemnification under Section 1 or 2 of this Article VIII shall be
made no later than 45 days after receipt by the Corporation of the written
request of the director, officer, employee or trustee or former director,
officer, employee or trustee unless a determination is made within said 45-day
period in accordance with Section 3 of this Article VIII that such person has
not met the applicable standard of conduct set forth in Section 1 or 2 of this
Article VIII.
(b) The right to indemnification under Section 1 or 2 of this Article VIII
or advances under Section 6 of this Article VIII shall be enforceable by the
director, officer, employee or trustee or former director, officer, employee or
trustee in any court of competent jurisdiction. Following a Change in Control,
the burden of proving that indemnification is not appropriate shall be on the
Corporation. Neither the absence of any prior determination that indemnification
is proper in the circumstances, nor a prior determination that indemnification
is not proper in the circumstances, shall be a defense to the action or create a
presumption that the director, officer, employee or trustee or former director,
officer, employee or trustee has not met the applicable standard of conduct. The
expenses (including attorney's fees and expenses) incurred by the director,
officer, employee or trustee or former director, officer, employee or trustee in
connection with successfully establishing his right to indemnification, in whole
or in part, in any such action (or in any action or claim brought by him to
recover under any insurance policy or policies referred to in Section 9 of this
Article VIII) shall also be indemnified by the Corporation.
(c) If any person is entitled under any provision of this Article VIII to
indemnification by the Corporation for some or a portion of expenses, judgments,
fines, penalties or amounts paid in settlement incurred by him, but not,
however, for the total amount thereof, the Corporation shall nevertheless
indemnify such person for the portion of such expenses, judgments, fines,
penalties and amounts to which he is entitled.
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SECTION 6. EXPENSES PAYABLE IN ADVANCE. Expenses (including attorney's
fees and expenses) incurred by a director, officer, employee or trustee or a
former director, officer, employee or trustee in defending, investigating,
preparing to defend, or being or preparing to be a witness in, a threatened or
pending action, suit, proceeding or claim against him, whether civil or
criminal, may be paid by the Corporation in advance of the final disposition of
such action, suit, proceeding or claim upon receipt by the Corporation of a
written request therefor and a written undertaking by or on behalf of the
director, officer, employee or trustee or former director, officer, employee or
trustee to repay such amounts if it shall be determined in accordance with
Section 3 of this Article VIII that he is not entitled to be indemnified by the
Corporation; PROVIDED, HOWEVER, that if he seeks to enforce his rights in a
court of competent jurisdiction pursuant to Section 5(b) of this Article VIII,
said undertaking to repay shall not be applicable or enforceable unless and
until there is a final court determination that he is not entitled to
indemnification as to which all rights of approval have been exhausted or have
expired.
SECTION 7. CERTAIN PERSONS NOT ENTITLED TO INDEMNIFICATION.
Notwithstanding any other provision of this Article VIII, no person shall be
entitled to indemnification under this Article VIII or to advances under Section
6 of this Article VIII with respect to any action, suit, proceeding or claim
brought or made by him against the Corporation or the Mutual Company, other than
an action, suit, proceeding or claim seeking, or defending such person's right
to, indemnification and/or expense advances pursuant to this Article VIII or
otherwise.
SECTION 8. NON-EXCLUSIVITY AND SURVIVAL OF INDEMNIFICATION. The
provisions of this Article VIII shall not be deemed exclusive of any other
rights to which the person seeking indemnification or expense advances may be
entitled under any agreement, contract, or vote of stockholders or disinterested
directors, or pursuant to the direction (howsoever embodied) of any court of
competent jurisdiction, or otherwise, both as to action in his official capacity
and as to action in another capacity while holding such office. Except as
otherwise provided in Section 7 of this Article VIII, but notwithstanding any
other provision of this Article VIII, it is the policy of the Corporation that
indemnification of and expense advances to the persons specified in Sections 1
and 2 of this Article VIII shall be made to the fullest extent permitted by law,
and, accordingly, in the event of any change in law, by legislation or
otherwise, permitting greater indemnification of and/or expense advances to any
such person, the provisions of this Article VIII shall be construed so as to
require such greater indemnification and/or expense advances. The provisions of
this Article VIII shall not be deemed to preclude the indemnification of any
person who is not specified in Section 1 or 2 of this Article VIII but whom the
Corporation has the power to indemnify under the provisions of the General
Corporation Law of the State of Delaware or otherwise. The provisions of this
Article VIII shall continue as to a person who has ceased to be a director,
officer, employee or trustee and shall inure to the benefit of the heirs,
executors and administrators of such person.
SECTION 9. INSURANCE. The Corporation may purchase and maintain at its
expense insurance on behalf of any person who is or was a director, officer or
employee of the Corporation or the Mutual Company or is or was serving at the
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request of the Corporation or the Mutual Company as a director, officer,
employee or trustee of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise against any liability or expense
asserted against or incurred by him in any such capacity, or arising out of his
status as such, whether or not the Corporation would have the power or the
obligation to indemnify him against such liability or expense under the
provisions of this Article VIII or the provisions of Section 145 of the General
Corporation Law of the State of Delaware. The Company shall not be obligated
under this Article VIII to make any payment in connection with any claim made
against any person if and to the extent that such person has actually received
payment therefor under any insurance policy or policies.
SECTION 10. SUCCESSORS; MEANING OF "CORPORATION". This Article VIII shall
be binding upon and enforceable against any direct or indirect successor by
purchase, merger, consolidation or otherwise to all or substantially all of the
business and/or assets of the Corporation. For purposes of this Article VIII,
but subject to the provisions of any agreement relating to any merger or
consolidation of the kind referred to in clause (i) below or of any agreement
relating to the acquisition of any corporation of the kind referred to in clause
(ii) below, references to "the Corporation" shall include (i) any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger with the Corporation which, if its separate existence
had continued, would have had power and authority to indemnify its directors,
officers and employees, so that any person who is or was a director, officer or
employee of such constituent corporation, or is or was serving at the request of
such constituent corporation as a director, officer, employee or trustee of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise, shall stand in the same position under the provisions of this
Article VIII with respect to the Corporation as he would have with respect to
such constituent corporation if its separate existence had continued; and (ii)
any corporation of which at least a majority of the voting power (as represented
by its outstanding stock having voting power generally in the election of
directors) is owned directly or indirectly by the Corporation.
SECTION 11. SEVERABILITY. The provisions of this Article VIII shall be
severable in the event that any provision hereof (including any provision within
a single section, subsection, clause, paragraph or sentence) is held invalid,
void or otherwise unenforceable on any ground by any court of competent
jurisdiction. In the event of any such holding, the remaining provisions of this
Article VIII shall continue in effect and be enforceable to the fullest extent
permitted by law.
ARTICLE IX
AMENDMENTS
SECTION 1. POWER TO AMEND. The Board of Directors shall have concurrent
power with the stockholders as set forth in the By-Laws and the Certificate of
Incorporation to make, alter, amend, change, add to or repeal the By-Laws.
SECTION 2. REQUIRED VOTE. The Board of Directors may amend the By-Laws
upon the affirmative vote of the number of directors which shall constitute,
under the terms of the By-Laws, the action of the Board of Directors.
Notwithstanding anything to the contrary contained in these By-laws including,
without limitation, the last preceding sentence, until July 1, 2001, the
amendment of Article III, Section 11 or Article IV, Section 13 of these By-laws,
shall, when a quorum is present, require the affirmative vote of seventy-five
percent of the directors voting at a meeting for which proper notice of the
actions taken was duly given. Stockholders may not amend the By-Laws except upon
the affirmative vote of at least eighty percent (80%) of the votes entitled to
be cast by the holders of all outstanding shares of Voting Stock (as such term
is defined in the Certificate of Incorporation) voting together as a single
class.
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EXHIBIT 10.1
EMPLOYMENT AGREEMENT
AGREEMENT by and between UNUM Corporation, a Delaware corporation
having its principal executive offices in Portland, Maine ("Unum"), Provident
Companies, Inc., a Delaware corporation ("Provident") and James F. Orr III (the
"Executive") dated as of the 25 day of May, 1999.
Unum and Provident have determined that it is in the best interests of
their respective shareholders to assure that Unum will have the continued
dedication of the Executive pending the merger of Provident and Unum (the
"Merger") pursuant to the Agreement and Plan of Merger dated as of November 22,
1998 (the "Merger Agreement") and to provide the surviving company as defined in
the Merger Agreement (the "Company") with continuity of management. Therefore,
in order to accomplish these objectives, the Executive, Unum and the Company
entered into an employment agreement dated as of November 22, 1998, and desire
to amend and restate such agreement by entering into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Effective Date. The "Effective Date" shall mean the effective
date of the Merger, provided the Executive is employed by Unum on that date. As
of the date hereof, the prior Executive Severance Agreement effective August 1,
1991 ("Former Executive Severance Agreement") between the Executive and Unum
shall terminate and become null and void, provided that upon any termination of
the transactions contemplated by the Merger Agreement, this sentence will be
inapplicable.
2. Employment Period. Unum and the Company hereby agree to continue
to employ the Executive, and the Executive hereby agrees to continue in the
employ of Unum and enter into the employ of the Company subject to the terms and
conditions of this Agreement, for the period commencing on the Effective Date
and ending on June 30, 2005 (the "Employment Period").
3. Terms of Employment.
(a) Position and Duties.
(i) During the Employment Period, the Executive shall serve
as Chairman and Chief Executive Officer ("CEO") of the Company through June
30, 2000 or such earlier date upon which the Executive elects to relinquish
such position (the "Initial Period"), and thereafter as Chairman and Chair
of the Executive Committee of the Board of Directors (the "Board") of the
Company with the appropriate authority, duties and responsibilities
attendant to such
<PAGE>
positions and with the powers and duties set forth in Exhibit B of the
Merger Agreement (as amended as of May 25, 1999) and will participate
equally through the Initial Period with J. Harold Chandler, while he is
serving as President and Chief Operating Officer, in setting the overall
strategic direction of the Company. During the Employment Period,
Executive's status as an employee may be converted to that of a consultant
by the Executive at any time after June 30, 2000 upon Executive's
resignation as Chairman at which time the Employment Period shall end.
Following any such conversion, Executive shall no longer be an employee but
agrees to provide services as a consultant for a period of at least two
years but not beyond June 30, 2006 (the "Consulting Period"). As
compensation for his services as a consultant, Executive shall be paid a
monthly retainer equal to one twelfth of his Annual Base Salary immediately
preceding his becoming a consultant. As a consultant, Executive shall
provide such consulting services to the Company as the Board may request.
(ii) During the Employment Period, and excluding any periods
of vacation and sick leave to which the Executive is entitled, the
Executive agrees to devote substantially all of his attention and time
during normal business hours to the business and affairs of the Company
and, to the extent necessary to discharge the responsibilities assigned to
the Executive hereunder, to use the Executive's reasonable best efforts to
perform faithfully and efficiently such responsibilities. During the
Employment Period it shall not be a violation of this Agreement for the
Executive to (A) serve, with prior approval of the Board, on corporate,
civic or charitable boards or committees (B) deliver lectures, fulfill
speaking engagements or teach at educational institutions and (C) manage
personal investments, so long as such activities do not significantly
interfere with the performance of the Executive's responsibilities as an
employee of the Company in accordance with this Agreement. It is expressly
understood and agreed that to the extent that any such activities have been
conducted by the Executive prior to the Effective Date, the continued
conduct of such activities (or the conduct of activities similar in nature
and scope thereto) subsequent to the Effective Date shall not thereafter be
deemed to interfere with the performance of the Executive's
responsibilities to the Company.
(b) Compensation.
(i) Annual Base Salary. During the Initial Period, the
Executive shall receive an annual base salary ("Annual Base Salary") of at
least $900,000. Thereafter, the Executive shall receive an amount
determined by the Board, but no less than his final Annual Base Salary as
Chief Executive Officer. Any increase in Annual Base Salary shall not serve
to limit or reduce any other obligation to the Executive under this
Agreement. Annual Base Salary shall not be
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reduced after any such increase and the term Annual Base Salary as utilized
in this Agreement shall refer to Annual Base Salary as so increased.
(ii) Annual Bonus. Through the period ending June 30, 2001,
the Executive shall be eligible to receive an annual cash bonus ("Annual
Bonus") with a target level of not less than 100% of Annual Base Salary, or
such greater amount as determined by the Compensation Committee of the
Company's Board of Directors (the "Compensation Committee"). Thereafter, no
Annual Bonus will be paid. The annual bonus for the period January 1, 2001
through June 30, 2001 shall be 50% of the annual bonus that would have been
paid with respect to the full calendar year.
(iii) Incentive Awards. Immediately after the Effective Date,
the Company shall grant the Executive options to purchase 500,000 shares of
the Company's common stock (the "Stock Options") pursuant to the terms of
the Company's Stock Plan of 1999 (the "Plan"). Except as otherwise
provided herein, the Stock Options shall vest in four equal installments,
on the first, second, third, and fourth anniversaries of the date of grant.
Subsequent annual equity grants will be made by the Compensation Committee
based upon competitive market analyses and such other factors it may deem
appropriate and Executive shall be ineligible for equity grants thereafter.
In addition, immediately after the Effective Date, the Company shall make
an award of 250,000 shares of restricted stock pursuant to the terms of the
Plan (the "Restricted Stock"). All restrictions on transfer of the
Restricted Stock and all other restrictions on such Stock shall lapse on
July 1, 2005 if the Executive is still employed by the Company or is
rendering consulting services to the Company as contemplated by Section
3(a)(i) of this Agreement on such date; provided, however, that all such
restrictions may lapse at an earlier date as specified in this Agreement or
as otherwise determined by the Compensation Committee.
(iv) Other Employee Benefit Plans. During the Employment
Period, except as otherwise expressly provided herein, the Executive shall
be entitled to participate in all employee benefit, welfare and other
plans, practices, policies and programs, (collectively, "Employee Benefit
Plans") applicable to senior executive officers of the Company.
(v) Retirement Benefit. Upon the Executive's termination of
employment before June 30, 2001, without Cause (as hereinafter defined) or
for Good Reason (as hereinafter defined) or for any reason after June 30,
2001, the Executive shall be entitled to an annual retirement benefit
payable monthly (the "Retirement Benefit") equal to (a) 50% (the
"Replacement Percentage") of the average of his Base Salary and Annual
Bonus for the five years
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in which such amounts were highest within the last ten years of employment,
less (b) any benefit payable pursuant to the Company's or any of its
affiliated company's tax-qualified defined benefit retirement plan and any
benefit to which he might be entitled under any nonqualified defined
benefit retirement plan maintained by the Company or its affiliated
companies. In calculating the Retirement Benefit, the Replacement
Percentage shall increase by 1% for each full year the Executive is
employed by the Company after his 55th birthday up to a maximum Replacement
Percentage of 60%. In addition, for the portion of the Employment Period
after the Initial Period, the Executive shall be deemed to have received an
Annual Bonus which is the same, as a percentage of Annual Base Salary, as
the Annual Bonus received by the then acting CEO. As used in this
Agreement, the term "affiliated companies" shall include any company
controlled by, controlling or under common control with the Company. The
Retirement Benefit shall be payable for the life of the Executive
commencing the first of the month following the later of Executive's fifty-
fifth birthday and Executive's termination of employment. Upon commencement
of the Retirement Benefit, any amounts owed under the Executive's current
split dollar life policy will be forgiven and the amount forgiven will be
grossed up for applicable federal, state and local taxes. Upon the
Executive's death (whether prior to or after commencement of the Retirement
Benefit), his surviving spouse shall be paid an annual benefit of 75% of
the Retirement Benefit for her life.
4. Termination of Employment.
(a) Death or Disability. The Executive's employment shall terminate
automatically upon the Executive's death during the Employment Period. If the
Company determines in good faith that the Disability of the Executive has
occurred during the Employment Period (pursuant to the definition of Disability
set forth below), it may give to the Executive written notice in accordance with
Section 11(b) of this Agreement of its intention to terminate the Executive's
employment. In such event, the Executive's employment with the Company shall
terminate effective on the 30th day after receipt of such notice by the
Executive (the "Disability Effective Date"), provided that, within the 30 days
after such receipt, the Executive shall not have returned to full-time
performance of the Executive's duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Executive from the Executive's duties
with the Company on a full-time basis for 180 business days during any
consecutive twelve month period as a result of incapacity due to mental or
physical illness which is determined to be total and permanent by a physician
selected by the Company or its insurers and acceptable to the Executive or the
Executive's legal representative.
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(b) Cause. The Company may terminate the Executive's employment
during the Employment Period for Cause. For purposes of this Agreement, "Cause"
shall mean:
(i) the continued failure of the Executive to perform
substantially the Executive's duties with the Company or one of its
affiliates (other than any such failure resulting from incapacity due to
physical or mental illness), after a written demand for substantial
performance is delivered to the Executive by the Board which specifically
identifies the manner in which the Board believes that the Executive has
not substantially performed the Executive's duties, or
(ii) the willful engaging by the Executive in illegal
conduct or gross misconduct which is materially and demonstrably injurious
to the Company, or
(iii) conviction of a felony or guilty or nolo contendere
plea by the Executive with respect thereto.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or upon the instructions of the Chief Executive Officer
(while the Executive does not serve as such) or based upon the advice of counsel
for the Company shall be conclusively presumed to be done, or omitted to be
done, by the Executive in good faith and in the best interests of the Company.
The cessation of employment of the Executive shall not be deemed to be for Cause
unless and until there shall have been delivered to the Executive a copy of a
resolution duly adopted by the affirmative vote of not less than 75% through
2001, and thereafter two thirds of the entire membership of the Board at a
meeting of the Board called and held for such purpose (after reasonable notice
is provided to the Executive and the Executive is given an opportunity, together
with counsel, to be heard before the Board) finding that, in the good faith
opinion of the Board, the Executive is guilty of the conduct described in
subparagraph (i) or (ii) above, and specifying the particulars thereof in
detail.
(c) Good Reason. The Executive's employment may be terminated by the
Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall
mean in the absence of a written consent of the Executive:
(i) the assignment to the Executive of any duties
inconsistent with the Executive's position (including status, offices,
titles and reporting requirements), authority, duties or responsibilities
as contemplated by
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Section 3(a)(i) of this Agreement, or any other action by the Company which
results in a diminution in such position, authority, duties or
responsibilities, excluding for this purpose an isolated, insubstantial and
inadvertent action not taken in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the Executive;
(ii) any failure by the Company to comply with any of the
provisions of Section 3(b) of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith and which
is remedied by the Company promptly after receipt of notice thereof given
by the Executive;
(iii) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by this
Agreement, or any failure to renew this Agreement;
(iv) any failure by the Company to comply with and satisfy
Section 10(c) of this Agreement; or
(v) failure of the Company to appoint the Executive to any
of the positions as specified in Section 3(a)(i) as of the date specified
therein.
(d) Notice of Termination. Any termination by the Company or by the
Executive shall be communicated by Notice of Termination to the other party
hereto given in accordance with Section 11(b) of this Agreement. For purposes
of this Agreement, a "Notice of Termination" means a written notice which (i)
indicates the specific termination provision in this Agreement relied upon, (ii)
to the extent applicable, sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated and (iii) if the Date of Termination
(as defined below) is other than the date of receipt of such notice, specifies
the termination date (which date shall be not more than thirty days after the
giving of such notice). The failure by the Executive or the Company to set
forth in the Notice of Termination any fact or circumstance which contributes to
a showing of Good Reason or Cause shall not waive any right of the Executive or
the Company, respectively, hereunder or preclude the Executive or the Company,
respectively, from asserting such fact or circumstance in enforcing the
Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means if the
Executive's employment is terminated by the Company other than for Disability,
or by the Executive, the date of receipt of the Notice of Termination or any
later date specified therein within 30 days of such notice, and if the
Executive's employment is terminated by
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reason of death or Disability, the Date of Termination shall be the date of
death of the Executive or the Disability Effective Date, as the case may be.
5. Obligations of the Company upon Termination.
(a) Good Reason; Other Than for Cause, Death or Disability. If,
during the Employment Period, the Company shall terminate the Executive's
employment other than for Cause or Disability, or the Executive shall terminate
employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in
cash within 30 days after the Date of Termination:
A. the greater of the following amounts: (x) the product
of three (3) times the sum of (1) the highest annual bonus paid to the
Executive for any of the three years prior to the Date of Termination
(the "Recent Annual Bonus") and (2) the Executive's Annual Base
Salary; and (y) the amount equal to the product of (1) the number of
months and portions thereof from the Date of Termination until the end
of the Employment Period divided by twelve and (2) the sum of the
Executive's Annual Base Salary and the Recent Annual Bonus;
B. the sum of (x) the Executive's Annual Base Salary
through the Date of Termination to the extent not theretofore paid,
and (y) the product of (1) the Recent Annual Bonus and (2) a fraction,
the numerator of which is the number of days in the fiscal year in
which the Date of Termination occurs through the Date of Termination
and the denominator of which is 365, to the extent not theretofore
paid (the sum of the amounts described in clauses (x) and (y) shall be
hereinafter referred to as the "Accrued Obligations"); and
C. the actuarial present value of the Retirement Benefit
determined using the actuarial assumptions prescribed under the
Company's tax-qualified defined benefit plan under which the Executive
was eligible for participation at the time of termination of
employment, assuming the Executive had accumulated the greater of (x)
three additional years of employment and (y) the number of years and
portions thereof of employment from the Date of Termination until the
end of the Employment Period. If any portion of the Retirement
Benefit in excess of the amount payable under any tax qualified
defined benefit plan maintained by the Company or its affiliated
companies is not payable in one lump sum, then the Executive shall not
receive a benefit under such plan but shall instead
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receive payment pursuant to this paragraph C. The intent of this
provision is to preclude any duplication of benefits.
(ii) for the remainder of the Executive's life and that of his
spouse, the Company shall continue to provide medical and dental benefits
to the Executive and his spouse on the same basis as such benefits are
provided to the Chief Executive Officer of the Company from time to time
("Medical Benefits"); provided that such Medical Benefits shall be
secondary to any other coverage obtained by the Executive and further
provided that the aggregate amount of premium payments for such coverage
shall not exceed $1,000,000;
(iii) the Restricted Stock shall vest if such termination occurs
after June 30, 2001, the Stock Options shall vest and remain exercisable
for the remainder of their term and all other stock options, restricted
stock awards and other equity-based awards shall vest and options shall
remain exercisable for a period of three years or the earlier expiration of
their initial term; and
(iv) to the extent not theretofore paid or provided, the Company
shall timely pay or provide to the Executive any other amounts or benefits
required to be paid or provided or which the Executive is eligible to
receive under any plan, program, policy or practice or contract or
agreement of the Company and its affiliated companies through the Date of
Termination (such other amounts and benefits shall be hereinafter referred
to as the "Other Benefits").
(b) Death or Disability. If the Executive's employment is terminated
by reason of the Executive's death during the Employment Period, this Agreement
shall terminate without further obligations to the Executive's legal
representatives or to the Executive, as the case may be, under this Agreement,
other than for payment of Accrued Obligations, the timely payment or provision
of Other Benefits and Medical Benefits, and the Retirement Benefit. In
addition, the Stock Options shall vest immediately and remain exercisable for a
period of at least three years or the earlier expiration of their initial term.
Accrued Obligations shall be paid to the Executive, the Executive's estate or
beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of
Termination.
(c) Cause; Other than for Good Reason. If the Executive's employment
shall be terminated for Cause or the Executive terminates his employment without
Good Reason during the Employment Period, this Agreement shall terminate without
further obligations to the Executive other than the obligation to pay to the
Executive (i) his Annual Base Salary through the Date of Termination to the
extent theretofore unpaid, (ii) the Medical Benefits, (iii) the Other Benefits,
and (iv) if the Date of Termination is after June 30, 2001, the Retirement
Benefit.
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<PAGE>
6. Non-exclusivity of Rights. Except as specifically provided,
nothing in this Agreement shall prevent or limit the Executive's continuing or
future participation in any plan, program, policy or practice provided by the
Company or any of its affiliated companies and for which the Executive may
qualify, nor, subject to Section 11(f), shall anything herein limit or otherwise
affect such rights as the Executive may have under any contract or agreement
with the Company or any of its affiliated companies. Amounts which are vested
benefits or which the Executive is otherwise entitled to receive under any plan,
policy, practice or program of or any contract or agreement with the Company or
any of its affiliated companies at or subsequent to the Date of Termination
shall be payable in accordance with such plan, policy, practice or program or
contract or agreement except as explicitly modified by this Agreement provided,
that the Executive shall not be eligible for severance benefits under any other
program or policy of the Company.
7. Full Settlement. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement, and such amounts
shall not be reduced whether or not the Executive obtains other employment. The
Company agrees to pay as incurred, to the full extent permitted by law, all
legal fees and expenses which the Executive may reasonably incur as a result of
any contest (regardless of the outcome thereof) pursued or defended against in
good faith by the Executive regarding the validity or enforceability of, or
liability under, any provision of this Agreement or any guarantee of performance
thereof (including as a result of any contest by the Executive about the amount
of any payment pursuant to this Agreement), plus in each case interest on any
delayed payment at the applicable Federal rate provided for in Section
7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code").
8. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding and
except as set forth below, in the event it shall be determined that any payment
or distribution by the Company to or for the benefit of the Executive (whether
paid or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise, but determined without regard to any additional payments
required under this Section 8) (a "Payment") would be subject to the excise tax
imposed by Section 4999 of the Code or any interest or penalties are incurred by
the Executive with respect to such excise tax (such excise tax, together with
any such interest and penalties, are hereinafter
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collectively referred to as the "Excise Tax"), then the Executive shall be
entitled to receive an additional payment (a "Gross-Up Payment") in an amount
such that after payment by the Executive of all taxes (including any interest or
penalties imposed with respect to such taxes), including, without limitation,
any income taxes (and any interest and penalties imposed with respect thereto)
and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an
amount of the Gross-Up Payment equal to the Excise Tax imposed upon the
Payments. Notwithstanding the foregoing provisions of this Section 8(a), if it
shall be determined that the Executive is entitled to a Gross-Up Payment, but
that the Payments do not exceed 110% of the greatest amount (the "Reduced
Amount") that could be paid to the Executive such that the receipt of Payments
would not give rise to any Excise Tax, then no Gross-Up Payment shall be made to
the Executive and the Payments, in the aggregate, shall be reduced to the
Reduced Amount.
(b) Subject to the provisions of Section 8(c), all determinations
required to be made under this Section 8, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be made by the Company's
independent auditors or such other certified public accounting firm reasonably
acceptable to the Executive as may be designated by the Company (the "Accounting
Firm") which shall provide detailed supporting calculations both to the Company
and the Executive within 15 business days of the receipt of notice from the
Executive that there has been a Payment, or such earlier time as is requested by
the Company. All fees and expenses of the Accounting Firm shall be borne solely
by the Company. Any Gross-Up Payment, as determined pursuant to this Section 8,
shall be paid by the Company to the Executive within five days of the later of
(i) the due date for the payment of any Excise Tax, and (ii) the receipt of the
Accounting Firm's determination. Any determination by the Accounting Firm shall
be binding upon the Company and the Executive. As a result of the uncertainty
in the application of Section 4999 of the Code at the time of the initial
determination by the Accounting Firm hereunder, it is possible that Gross-Up
Payments which will not have been made by the Company should have been made
("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies pursuant to
Section 8(c) and the Executive thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim
by the Internal Revenue Service that, if successful, would require the payment
by the Company of the Gross-Up Payment. Such notification shall be given as soon
as practicable but no later than ten business days after the Executive is
informed in writing of such claim and shall apprise the Company of the nature of
such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to
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the expiration of the 30-day period following the date on which it gives such
notice to the Company (or such shorter period ending on the date that any
payment of taxes with respect to such claim is due). If the Company notifies the
Executive in writing prior to the expiration of such period that it desires to
contest such claim, the Executive shall:
(i) give the Company any information reasonably requested
by the Company relating to such claim,
(ii) take such action in connection with contesting such
claim as the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with respect
to such claim by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
(iv) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions
of this Section 8(c), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forgo any
and all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option, either
direct the Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and the Executive agrees to prosecute such
contest to a determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and shall indemnify and hold
the Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such advance;
and further provided that any extension of the statute of limitations relating
to payment of taxes for the taxable year of the Executive with respect to which
such contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable
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hereunder and the Executive shall be entitled to settle or contest, as the case
may be, any other issue raised by the Internal Revenue Service or any other
taxing authority.
(d) If, after the receipt by the Executive of an amount advanced
by the Company pursuant to Section 8(c), the Executive becomes entitled to
receive any refund with respect to such claim, the Executive shall promptly pay
to the Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by the
Executive of an amount advanced by the Company pursuant to Section 8(c), a
determination is made that the Executive shall not be entitled to any refund
with respect to such claim and the Company does not notify the Executive in
writing of its intent to contest such denial of refund prior to the expiration
of 30 days after such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such advance shall offset,
to the extent thereof, the amount of Gross-Up Payment required to be paid.
9. Covenant Not to Compete; Confidential Information.
(a) During the term of this Agreement, and for a one year period
after the Date of Termination or after the end of the Consulting Period, the
Executive shall not directly or indirectly, own, manage, operate, join, control,
or participate in the ownership, management, operation or control of, or be
employed by or connected in any manner with, any competing business, whether for
compensation or otherwise, without the prior written consent of the Company.
For the purposes of this Agreement, a "competing business" shall be any business
which is a significant competitor of the Company, or which the Company
reasonably determines may become a significant competitor, unless the
Executive's primary duties and responsibilities with respect to such business
are not related to the management or operation of disability insurance or
complementary special risk products and services in any country where the
Company is conducting business. Should the Executive, directly or indirectly,
own, manage, operate, join, control or participate in the ownership, management,
operation or control of, or be employed by or connected in any manner with, any
competing business, all payments under this Agreement shall cease.
(b) The Executive hereby acknowledges that, as an employee of the
Company, he will be making use of, acquiring and adding to confidential
information of a special and unique nature and value relating to the Company and
its strategic plan and financial operations. The Executive further recognizes
and acknowledges that all confidential information is the exclusive property of
the Company, is material and confidential, and is critical to the successful
conduct of the business of the Company. Accordingly, the Executive hereby
covenants and agrees that he will use confidential information for the benefit
of the Company only and shall not at any time, directly or indirectly, during
the term of this Agreement, and thereafter for all periods during which
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severance or other amount is paid, divulge, reveal or communicate any
confidential information to any person, firm, corporation or entity whatsoever,
or use any confidential information for his own benefit or for the benefit of
others. In no event shall an asserted violation of the provisions of this
Section 9(b) constitute a basis for deferring or withholding any amounts
otherwise payable to the Executive under this Agreement.
(c) Any termination of the Executive's employment or of this
Agreement shall have no effect on the continuing operation of this Section 9.
(d) In addition to the cessation of payments set forth in Section
9(a), the Executive acknowledges and agrees that the Company will have no
adequate remedy at law, and could be irreparably harmed, if the Executive
breaches or threatens to breach any of the provisions of this Section 9. The
Executive agrees that the Company shall be entitled to equitable and/or
injunctive relief to prevent any breach or threatened breach of this Section 9,
and to specific performance of each of the terms hereof in addition to any other
legal or equitable remedies that the Company may have. The Executive further
agrees that he shall not, in any equity proceeding relating to the enforcement
of the terms of this Section 9, raise the defense that the Company has an
adequate remedy at law.
(e) The terms and provisions of this Section 9 are intended to be
separate and divisible provisions and if, for any reason, any one or more of
them is held to be invalid or unenforceable, neither the validity nor the
enforceability of any other provision of this Agreement shall thereby be
affected. The parties hereto acknowledge that the potential restrictions on the
Executive's future employment imposed by this Section 9 are reasonable in both
duration and geographic scope and in all other respects. If for any reason any
court of competent jurisdiction shall find any provisions of this Section 9
unreasonable in duration or geographic scope or otherwise, the Executive and the
Company agree that the restrictions and prohibitions contained herein shall be
effective to the fullest extent allowed under applicable law in such
jurisdiction.
(f) The parties acknowledge that this Agreement would not have
been entered into and the benefits described in Sections 3 or 5 would not have
been promised in the absence of the Executive's promises under this Section 9.
10. Successors.
(a) This Agreement is personal to the Executive and without the
prior written consent of the Company shall not be assignable by the Executive
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by the Executive's legal
representatives.
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(b) This Agreement shall inure to the benefit of and be binding
upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
11. Miscellaneous.
(a) This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without reference to
principles of conflict of laws. The captions of this Agreement are not part of
the provisions hereof and shall have no force or effect. This Agreement may not
be amended or modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive:
If to the Company:
UNUM Corporation
2211 Congress Street
Portland, Maine 04122
Telecopy Number: (207) 770-4377
Attention: Kevin J. Tierney
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or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement or the failure to assert any
right the Executive or the Company may have hereunder, including, without
limitation, the right of the Executive to terminate employment for Good Reason
pursuant to Section 4(c)(i)-(iv) of this Agreement, shall not be deemed to be a
waiver of such provision or right or any other provision or right of this
Agreement.
(f) From and after the Effective Date this Agreement shall
supersede any other employment, severance or change of control agreement between
the parties with respect to the subject matter hereof.
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IN WITNESS WHEREOF, the Executive has hereunto set the Executive's
hand and, pursuant to the authorization from its Board of Directors, the Company
has caused these presents to be executed in its name on its behalf, all as of
the day and year first above written.
/s/ James F. Orr III
-----------------------------------
Executive
UNUM Corporation
By /s/ Kevin J. Tierney
-----------------------------------
Provident agrees that as of the Effective Date it will honor this
Agreement and treat the Agreement as its own.
Provident Companies, Inc.
By /s/ Dean Copeland
-----------------------------------
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EXHIBIT 10.1
AMENDMENT TO EMPLOYMENT AGREEMENT
AGREEMENT by and between UNUM Corporation, a Delaware corporation
having its principal executive offices in Portland, Maine ("Unum"), Provident
Companies, Inc., a Delaware corporation ("Provident") and James F. Orr III (the
"Executive") dated as of the 29 day of June, 1999.
The Executive, Unum and Provident entered into an employment agreement
dated as of November 22, 1998, which was amended and restated as of May 25, 1999
(the "Agreement"), and desire to further amend such Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Section 3(b)(iii) of the Agreement is amended to provide as
follows:
(iii) Incentive Awards. Immediately after the Effective Date, the Company
shall grant the Executive options to purchase 500,000 shares of the
Company's common stock (the "Stock Options") pursuant to the terms of the
Company's Stock Plan of 1999 (the "Plan"). Except as otherwise provided
herein, the Stock Options shall vest in four equal installments, on the
first, second, third, and fourth anniversaries of the date of grant.
Subsequent annual equity grants will be made by the Compensation Committee
based upon competitive market analyses and such other factors it may deem
appropriate and Executive shall be ineligible for equity grants thereafter.
In addition, immediately after the Effective Date, the Company shall make
an award of 250,000 shares of restricted stock pursuant to the terms of the
Plan or such other stock-based incentive plan as the Company maintains (the
"Restricted Stock"). All restrictions on transfer of the Restricted Stock
and all other restrictions on such Stock shall lapse on July 1, 2005 if the
Executive is still employed by the Company or is rendering consulting
services to the Company as contemplated by Section 3(a)(i) of this
Agreement on such date; provided, however, that all such restrictions may
lapse at an earlier date as specified in this Agreement or as otherwise
determined by the Compensation Committee.
2. This amendment is effective as of the initial date of the
Agreement.
<PAGE>
IN WITNESS WHEREOF, the Executive, Unum and Provident have caused
these presents to be executed, all as of the day and year first above written.
/s/ James F. Orr III
------------------------------
Executive
UNUM Corporation
By /s/ Kevin J. Tierney
--------------------------
Provident Companies, Inc.
By /s/ Dean Copeland
----------------------------
<PAGE>
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
AGREEMENT by and between Provident Companies, Inc., a Delaware
corporation having its principal executive offices in Chattanooga, Tennessee,
(the "Company") and J. Harold Chandler (the "Executive") dated as of the 25 day
of May, 1999.
The Company and UNUM Corporation, a Delaware corporation ("Unum") have
determined that it is in the best interests of their respective shareholders to
assure that the Company will have the continued dedication of the Executive
pending the merger of the Company and Unum (the "Merger") pursuant to the
Agreement and Plan of Merger dated as of November 22, 1998 (the "Merger
Agreement") and to provide the Company after the Merger with continuity of
management. Therefore, in order to accomplish these objectives, the Executive
and the Company entered into an employment agreement dated November 22, 1998 and
desire to amend and restate such agreement by entering into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Effective Date. The "Effective Date" shall mean the effective
date of the Merger, provided the Executive is employed by the Company on that
date. As of the date hereof, the prior Employment Agreement effective November
8, 1993 ("Former Employment Agreement") between the Executive and the Company
shall terminate and become null and void, provided that upon any termination of
the transactions contemplated by the Merger Agreement, this sentence will be
inapplicable.
2. Employment Period. The Company hereby agrees to continue to
employ the Executive, and the Executive hereby agrees to continue in the employ
of the Company subject to the terms and conditions of this Agreement, for the
period commencing on the Effective Date and ending on June 30, 2005 (the
"Employment Period"). Beginning on June 30, 2005, the Employment Period shall
be automatically extended for one year terms unless either the Company or the
Executive shall give the other party not less than ninety (90) days prior
written notice of the intention to terminate this Agreement.
3. Terms of Employment.
(a) Position and Duties.
(i) During the Employment Period, the Executive shall serve as
President and Chief Operating Officer of the Company through June 30, 2000
and thereafter as Chief Executive Officer of the Company with the
appropriate authority, duties and responsibilities attendant to such
positions
<PAGE>
including, when requested, serving in a comparable position with respect to
any subsidiary of the Company and with the powers and duties set forth in
Exhibit B of the Merger Agreement (as amended as of May 25, 1999) ("Exhibit
B") and will participate equally, through June 30, 2000, with the then
acting Chief Executive Officer of the Company in setting the overall
strategic direction of the Company; provided, however, that the Executive
shall become the Chief Executive Officer of the Company on such earlier
date as the person serving in such capacity immediately after the Effective
Date shall cease to hold such position. The Executive shall serve on the
Company's Board of Directors (the "Board") during the Employment Period,
shall be a member of such committees as contemplated pursuant to Exhibit B
or otherwise appointed to by the Board and shall succeed to the position of
Chairman of the Board when the person serving in such capacity immediately
after the Effective Date shall cease to hold that position, but in no event
later than July 1, 2005.
(ii) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the Executive
agrees to devote substantially all of his attention and time during normal
business hours to the business and affairs of the Company and its
subsidiaries and, to the extent necessary to discharge the responsibilities
assigned to the Executive hereunder, to use the Executive's reasonable best
efforts to perform faithfully and efficiently such responsibilities.
During the Employment Period it shall not be a violation of this Agreement
for the Executive to (A) serve, with prior approval of the Board, on
corporate, civic or charitable boards or committees (B) deliver lectures,
fulfill speaking engagements or teach at educational institutions and (C)
manage personal investments, so long as such activities do not
significantly interfere with the performance of the Executive's
responsibilities as an employee of the Company in accordance with this
Agreement. It is expressly understood and agreed that to the extent that
any such activities have been conducted by the Executive prior to the
Effective Date, the continued conduct of such activities (or the conduct of
activities similar in nature and scope thereto) subsequent to the Effective
Date shall not thereafter be deemed to interfere with the performance of
the Executive's responsibilities to the Company.
(b) Compensation.
(i) Annual Base Salary. During the Employment Period, the
Executive shall receive an annual base salary ("Annual Base Salary") of at
least $900,000 or such higher annual base salary that is paid to the
Company's Chief Executive Officer if the Executive is not serving in that
position. Any increase in Annual Base Salary shall not serve to limit or
reduce any other obligation to the Executive under this Agreement. Annual
Base Salary shall not be
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reduced after any such increase and the term Annual Base Salary as utilized
in this Agreement shall refer to Annual Base Salary as so increased.
(ii) Annual Bonus. During the Employment Period, the Executive
shall be eligible to receive an annual cash bonus ("Annual Bonus") with a
target level of not less than 100% of Annual Base Salary, or such greater
amount as determined by the Compensation Committee of the Company's Board
of Directors (the "Compensation Committee").
(iii) Incentive Awards. Immediately after the Effective Date,
the Company shall grant the Executive options to purchase 500,000 shares of
the Company's common stock (the "Stock Options") pursuant to the terms of
the Company's Stock Plan of 1999. Except as otherwise provided herein, the
Stock Options shall vest in four equal installments, on the first, second,
third, and fourth anniversaries of the date of grant. Subsequent annual
equity grants will be made by the Compensation Committee based upon
competitive market analyses and such other factors it may deem appropriate.
(iv) Other Employee Benefit Plans. During the Employment
Period, except as otherwise expressly provided herein, the Executive shall
be entitled to participate in all employee benefit, welfare and other
plans, practices, policies and programs, other than pre-existing split-
dollar life insurance (collectively, "Employee Benefit Plans") applicable
to the Chief Executive Officer of the Company on a basis no less favorable
than that provided to the Chief Executive Officer of the Company. The
Executive shall also be reimbursed for all reasonable costs associated with
the purchase or rental of an additional residence at the Company's
headquarters in Portland, Maine, and all reasonable expenses of relocation
for the Executive and his family. These expenses shall include, but not be
limited to: all costs of the physical move; en route travel expenses
including hotel and meal expenses; temporary living expenses for up to
twelve (12) weeks, including meals; three (3) house-hunting trips for the
Executive and his family; weekly commuting expenses from his prior home to
Portland, Maine, and return until the Executive and his family have moved;
closing costs and real estate commissions incurred in the sale of his
former primary residence and the purchase of a house in the Portland, Maine
area; an additional amount to cover federal, state and local income taxes
incurred as a result of the relocation expenses paid hereunder; and any
other expenses covered pursuant to the Company's normal relocation policy.
Additionally, the Executive agrees to sell and the Company agrees to
purchase the Executive's former home at a value based upon an appraisal by
a mutually satisfactory third party appraiser; provided, however, that the
purchase price shall be not less than the Executive's original purchase
price plus any satisfactorily documented capital improvements.
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(v) Retirement Benefit. Upon the Executive's termination of
employment before June 30, 2001, without Cause (as hereinafter defined) or
for Good Reason (as hereinafter defined) or for any reason after June 30,
2001, the Executive shall be entitled to an annual retirement benefit
payable monthly (the "Retirement Benefit") equal to (a) 50% (the
"Replacement Percentage") of the average of his Base Salary and Annual
Bonus for the five years in which such amounts were highest within the last
ten years of employment less (b) any benefit payable pursuant to the
Company's or any of its affiliated company's tax-qualified defined benefit
retirement plan and any benefit to which he might be entitled under any
nonqualified defined benefit retirement plan maintained by the Company or
its affiliated companies. In calculating the Retirement Benefit, the
Replacement Percentage shall increase by 1% for each full year the
Executive is employed by the Company after his 55th birthday up to a
maximum Replacement Percentage of 60%. As used in this Agreement, the term
"affiliated companies" shall include any company controlled by, controlling
or under common control with the Company. The Retirement Benefit shall be
payable for the life of the Executive commencing the first of the month
following the later of Executive's fifty-fifth birthday and Executive's
termination of employment. Upon the Executive's death (whether prior to or
after commencement of the Retirement Benefit), his surviving spouse shall
be paid an annual benefit of 75% of the Retirement Benefit for her life
provided that if such benefit commences before the Executive's 55th
birthday, it shall be actuarially reduced.
4. Termination of Employment.
(a) Death or Disability. The Executive's employment shall terminate
automatically upon the Executive's death during the Employment Period. If the
Company determines in good faith that the Disability of the Executive has
occurred during the Employment Period (pursuant to the definition of Disability
set forth below), it may give to the Executive written notice in accordance with
Section 11(b) of this Agreement of its intention to terminate the Executive's
employment. In such event, the Executive's employment with the Company shall
terminate effective on the 30th day after receipt of such notice by the
Executive (the "Disability Effective Date"), provided that, within the 30 days
after such receipt, the Executive shall not have returned to full-time
performance of the Executive's duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Executive from the Executive's duties
with the Company on a full-time basis for 180 business days during any
consecutive twelve month period as a result of incapacity due to mental or
physical illness which is determined to be total and permanent by a physician
selected by the Company or its insurers and acceptable to the Executive or the
Executive's legal representative.
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(b) Cause. The Company may terminate the Executive's employment
during the Employment Period for Cause. For purposes of this Agreement, "Cause"
shall mean:
(i) the continued failure of the Executive to perform
substantially the Executive's duties with the Company or one of its
affiliates (other than any such failure resulting from incapacity due to
physical or mental illness), after a written demand for substantial
performance is delivered to the Executive by the Board which specifically
identifies the manner in which the Board believes that the Executive has
not substantially performed the Executive's duties, or
(ii) the willful engaging by the Executive in illegal conduct or
gross misconduct which is materially and demonstrably injurious to the
Company, or
(iii) conviction of a felony or guilty or nolo contendere plea
by the Executive with respect thereto.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or upon the instructions of the Chief Executive Officer
(while the Executive does not serve as such) or based upon the advice of counsel
for the Company shall be conclusively presumed to be done, or omitted to be
done, by the Executive in good faith and in the best interests of the Company.
The cessation of employment of the Executive shall not be deemed to be for Cause
unless and until there shall have been delivered to the Executive a copy of a
resolution duly adopted by the affirmative vote of not less than 75% through
2001, and thereafter two thirds of the entire membership of the Board at a
meeting of the Board called and held for such purpose (after reasonable notice
is provided to the Executive and the Executive is given an opportunity, together
with counsel, to be heard before the Board) finding that, in the good faith
opinion of the Board, the Executive is guilty of the conduct described in
subparagraph (i) or (ii) above, and specifying the particulars thereof in
detail.
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(c) Good Reason. The Executive's employment may be terminated by the
Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall
mean in the absence of a written consent of the Executive:
(i) the assignment to the Executive of any duties inconsistent
with the Executive's position (including status, offices, titles and
reporting requirements), authority, duties or responsibilities as
contemplated by Section 3(a)(i) of this Agreement, or any other action by
the Company which results in a diminution in such position, authority,
duties or responsibilities, excluding for this purpose an isolated,
insubstantial and inadvertent action not taken in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by
the Executive;
(ii) any failure by the Company to comply with any of the
provisions of Section 3(b) of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith and which
is remedied by the Company promptly after receipt of notice thereof given
by the Executive;
(iii) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by this
Agreement, or any failure to renew this Agreement;
(iv) any failure by the Company to comply with and satisfy
Section 10(c) of this Agreement; or
(v) failure of the Company to appoint the Executive to any of
the positions as specified in Section 3(a)(i) as of the date specified
therein.
(d) Notice of Termination. Any termination by the Company or by the
Executive shall be communicated by Notice of Termination to the other party
hereto given in accordance with Section 11(b) of this Agreement. For purposes
of this Agreement, a "Notice of Termination" means a written notice which (i)
indicates the specific termination provision in this Agreement relied upon, (ii)
to the extent applicable, sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated and (iii) if the Date of Termination
(as defined below) is other than the date of receipt of such notice, specifies
the termination date (which date shall be not more than thirty days after the
giving of such notice). The failure by the Executive or the Company to set
forth in the Notice of Termination any fact or circumstance which contributes to
a showing of Good
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Reason or Cause shall not waive any right of the Executive or the Company,
respectively, hereunder or preclude the Executive or the Company, respectively,
from asserting such fact or circumstance in enforcing the Executive's or the
Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means if the
Executive's employment is terminated by the Company other than for Disability,
or by the Executive, the date of receipt of the Notice of Termination or any
later date specified therein within 30 days of such notice, and if the
Executive's employment is terminated by reason of death or Disability, the Date
of Termination shall be the date of death of the Executive or the Disability
Effective Date, as the case may be.
5. Obligations of the Company upon Termination.
(a) Good Reason; Other Than for Cause, Death or Disability. If,
during the Employment Period, the Company shall terminate the Executive's
employment other than for Cause or Disability, or the Executive shall terminate
employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in
cash within 30 days after the Date of Termination:
A. the greater of the following amounts: (x) the product
of three (3) times the sum of (1) the highest annual bonus paid to the
Executive for any of the three years prior to the Date of Termination
(the "Recent Annual Bonus") and (2) the Executive's Annual Base
Salary; and (y) the amount equal to the product of (1) the number of
months and portions thereof from the Date of Termination until the end
of the Employment Period divided by twelve and (2) the sum of the
Executive's Annual Base Salary and the Recent Annual Bonus;
B. the sum of (x) the Executive's Annual Base Salary
through the Date of Termination to the extent not theretofore paid,
and (y) the product of (1) the Recent Annual Bonus and (2) a fraction,
the numerator of which is the number of days in the fiscal year in
which the Date of Termination occurs through the Date of Termination
and the denominator of which is 365, to the extent not theretofore
paid (the sum of the amounts described in clauses (x) and (y) shall be
hereinafter referred to as the "Accrued Obligations"); and
C. the actuarial present value of the Retirement Benefit
determined using the actuarial assumptions prescribed under the tax-
qualified defined benefit plan under which the Executive was eligible
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for participation at the time of termination of employment, assuming
the Executive had accumulated the greater of (x) three additional
years of employment and (y) the number of years and portions thereof
of employment from the Date of Termination until the end of the
Employment Period. If any portion of the Retirement Benefit in excess
of the amount payable under any tax qualified defined benefit plan
maintained by the Company or its affiliated companies is not payable
in one lump sum, then the Executive shall not receive a benefit under
such plan but shall instead receive payment pursuant to this paragraph
C. The intent of this provision is to preclude any duplication of
benefits.
(ii) for the remainder of the Executive's life and that of his
spouse, the Company shall continue to provide medical and dental benefits
to the Executive and his spouse on the same basis as such benefits are
provided to the Chief Executive Officer of the Company from time to time
("Medical Benefits"); provided that such Medical Benefits shall be
secondary to any other coverage obtained by the Executive and further
provided that the aggregate amount of premium payments for such coverage
shall not exceed $1,000,000.
(iii) the Stock Options shall vest and remain exercisable for
the remainder of their term and all other stock options, restricted stock
awards and other equity-based awards shall vest (and options shall remain
exercisable for a period of, at least three years or the earlier expiration
of their initial term); and
(iv) to the extent not theretofore paid or provided, the Company
shall timely pay or provide to the Executive any other amounts or benefits
required to be paid or provided or which the Executive is eligible to
receive under any plan, program, policy or practice or contract or
agreement of the Company and its affiliated companies through the Date of
Termination (such other amounts and benefits shall be hereinafter referred
to as the "Other Benefits").
(b) Death or Disability. If the Executive's employment is terminated
by reason of the Executive's death during the Employment Period, this Agreement
shall terminate without further obligations to the Executive's legal
representatives or to the Executive, as the case may be, under this Agreement,
other than for payment of Accrued Obligations, the timely payment or provision
of Other Benefits and Medical Benefits, and the Retirement Benefit. In
addition, the Stock Options shall vest immediately and remain exercisable for a
period of at least three years or the earlier expiration of their initial term.
Accrued Obligations shall be paid to the Executive, the Executive's estate or
beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of
Termination.
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(c) Cause; Other than for Good Reason. If the Executive's employment
shall be terminated for Cause or the Executive terminates his employment without
Good Reason during the Employment Period, this Agreement shall terminate without
further obligations to the Executive other than the obligation to pay to the
Executive (i) his Annual Base Salary through the Date of Termination to the
extent theretofore unpaid, (ii) the Other Benefits, and (iii) if the Date of
Termination is after June 30, 2001, the Retirement Benefit; provided, however
that the Medical Benefits shall be paid if the Executive's employment is
terminated other than for Cause after he attains age 55.
6. Non-exclusivity of Rights. Except as specifically provided,
nothing in this Agreement shall prevent or limit the Executive's continuing or
future participation in any plan, program, policy or practice provided by the
Company or any of its affiliated companies and for which the Executive may
qualify, nor, subject to Section 11(f), shall anything herein limit or otherwise
affect such rights as the Executive may have under any contract or agreement
with the Company or any of its affiliated companies. Amounts which are vested
benefits or which the Executive is otherwise entitled to receive under any plan,
policy, practice or program of or any contract or agreement with the Company or
any of its affiliated companies at or subsequent to the Date of Termination
shall be payable in accordance with such plan, policy, practice or program or
contract or agreement except as explicitly modified by this Agreement; provided
that the Executive shall not be eligible for severance benefits under any other
program or policy of the Company.
7. Full Settlement. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement, and such amounts
shall not be reduced whether or not the Executive obtains other employment. The
Company agrees to pay as incurred, to the full extent permitted by law, all
legal fees and expenses which the Executive may reasonably incur as a result of
any contest (regardless of the outcome thereof) pursued or defended against in
good faith by the Executive regarding the validity or enforceability of, or
liability under, any provision of this Agreement or any guarantee of performance
thereof (including as a result of any contest by the Executive about the amount
of any payment pursuant to this Agreement), plus in each case interest on any
delayed payment at the applicable Federal rate provided for in Section
7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code").
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8. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding and
except as set forth below, in the event it shall be determined that any payment
or distribution by the Company to or for the benefit of the Executive (whether
paid or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise, but determined without regard to any additional payments
required under this Section 8) (a "Payment") would be subject to the excise tax
imposed by Section 4999 of the Code or any interest or penalties are incurred by
the Executive with respect to such excise tax (such excise tax, together with
any such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties imposed with respect
to such taxes), including, without limitation, any income taxes (and any
interest and penalties imposed with respect thereto) and Excise Tax imposed upon
the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payments. Notwithstanding the
foregoing provisions of this Section 8(a), if it shall be determined that the
Executive is entitled to a Gross-Up Payment, but that the Payments do not exceed
110% of the greatest amount (the "Reduced Amount") that could be paid to the
Executive such that the receipt of Payments would not give rise to any Excise
Tax, then no Gross-Up Payment shall be made to the Executive and the Payments,
in the aggregate, shall be reduced to the Reduced Amount.
(b) Subject to the provisions of Section 8(c), all determinations
required to be made under this Section 8, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be made by the Company's
independent auditors or such other certified public accounting firm reasonably
acceptable to the Executive as may be designated by the Company (the "Accounting
Firm") which shall provide detailed supporting calculations both to the Company
and the Executive within 15 business days of the receipt of notice from the
Executive that there has been a Payment, or such earlier time as is requested by
the Company. All fees and expenses of the Accounting Firm shall be borne solely
by the Company. Any Gross-Up Payment, as determined pursuant to this Section 8,
shall be paid by the Company to the Executive within five days of the later of
(i) the due date for the payment of any Excise Tax, and (ii) the receipt of the
Accounting Firm's determination. Any determination by the Accounting Firm shall
be binding upon the Company and the Executive. As a result of the uncertainty
in the application of Section 4999 of the Code at the time of the initial
determination by the Accounting Firm hereunder, it is possible that Gross-Up
Payments which will not have been made by the Company should have been made
("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts
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its remedies pursuant to Section 8(c) and the Executive thereafter is required
to make a payment of any Excise Tax, the Accounting Firm shall determine the
amount of the Underpayment that has occurred and any such Underpayment shall be
promptly paid by the Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment by
the Company of the Gross-Up Payment. Such notification shall be given as soon
as practicable but no later than ten business days after the Executive is
informed in writing of such claim and shall apprise the Company of the nature of
such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day period
following the date on which it gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes with respect to such claim
is due). If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim,
(ii) take such action in connection with contesting such claim as
the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with respect
to such claim by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
(iv) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions
of this Section 8(c), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forgo any
and all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option, either
direct the Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and the Executive agrees to prosecute such
contest to a determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts, as the
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Company shall determine; provided, however, that if the Company directs the
Executive to pay such claim and sue for a refund, the Company shall advance the
amount of such payment to the Executive, on an interest-free basis and shall
indemnify and hold the Executive harmless, on an after-tax basis, from any
Excise Tax or income tax (including interest or penalties with respect thereto)
imposed with respect to such advance or with respect to any imputed income with
respect to such advance; and further provided that any extension of the statute
of limitations relating to payment of taxes for the taxable year of the
Executive with respect to which such contested amount is claimed to be due is
limited solely to such contested amount. Furthermore, the Company's control of
the contest shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and the Executive shall be entitled to settle or
contest, as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by
the Company pursuant to Section 8(c), the Executive becomes entitled to receive
any refund with respect to such claim, the Executive shall promptly pay to the
Company the amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after the receipt by the Executive
of an amount advanced by the Company pursuant to Section 8(c), a determination
is made that the Executive shall not be entitled to any refund with respect to
such claim and the Company does not notify the Executive in writing of its
intent to contest such denial of refund prior to the expiration of 30 days after
such determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of such advance shall offset, to the extent
thereof, the amount of Gross-Up Payment required to be paid.
9. Covenant Not to Compete; Confidential Information.
(a) During the term of this Agreement, and for a one year period
after the Date of Termination, the Executive shall not directly or indirectly,
own, manage, operate, join, control, or participate in the ownership,
management, operation or control of, or be employed by or connected in any
manner with, any competing business, whether for compensation or otherwise,
without the prior written consent of the Company. For the purposes of this
Agreement, a "competing business" shall be any business which is a significant
competitor of the Company, or which the Company reasonably determines may become
a significant competitor, unless the Executive's primary duties and
responsibilities with respect to such business are not related to the management
or operation of disability insurance or complementary special risk products and
services in any country where the Company is conducting business. Should the
Executive, directly or indirectly, own, manage, operate, join, control or
participate in the ownership, management, operation or control of, or be
employed by or connected in any manner with, any competing business, all
payments under this Agreement shall cease.
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(b) The Executive hereby acknowledges that, as an employee of the
Company, he will be making use of, acquiring and adding to confidential
information of a special and unique nature and value relating to the Company and
its strategic plan and financial operations. The Executive further recognizes
and acknowledges that all confidential information is the exclusive property of
the Company, is material and confidential, and is critical to the successful
conduct of the business of the Company. Accordingly, the Executive hereby
covenants and agrees that he will use confidential information for the benefit
of the Company only and shall not at any time, directly or indirectly, during
the term of this Agreement, and thereafter for all periods during which
severance or other amount is paid, divulge, reveal or communicate any
confidential information to any person, firm, corporation or entity whatsoever,
or use any confidential information for his own benefit or for the benefit of
others. In no event shall an asserted violation of the provisions of this
Section 9(b) constitute a basis for deferring or withholding any amounts
otherwise payable to the Executive under this Agreement.
(c) Any termination of the Executive's employment or of this Agreement
shall have no effect on the continuing operation of this Section 9.
(d) In addition to the cessation of payments set forth in Section
9(a), the Executive acknowledges and agrees that the Company will have no
adequate remedy at law, and could be irreparably harmed, if the Executive
breaches or threatens to breach any of the provisions of this Section 9. The
Executive agrees that the Company shall be entitled to equitable and/or
injunctive relief to prevent any breach or threatened breach of this Section 9,
and to specific performance of each of the terms hereof in addition to any other
legal or equitable remedies that the Company may have. The Executive further
agrees that he shall not, in any equity proceeding relating to the enforcement
of the terms of this Section 9, raise the defense that the Company has an
adequate remedy at law.
(e) The terms and provisions of this Section 9 are intended to be
separate and divisible provisions and if, for any reason, any one or more of
them is held to be invalid or unenforceable, neither the validity nor the
enforceability of any other provision of this Agreement shall thereby be
affected. The parties hereto acknowledge that the potential restrictions on the
Executive's future employment imposed by this Section 9 are reasonable in both
duration and geographic scope and in all other respects. If for any reason any
court of competent jurisdiction shall find any provisions of this Section 9
unreasonable in duration or geographic scope or otherwise, the Executive and the
Company agree that the restrictions and prohibitions contained herein shall be
effective to the fullest extent allowed under applicable law in such
jurisdiction.
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(f) The parties acknowledge that this Agreement would not have been
entered into and the benefits described in Sections 3 or 5 would not have been
promised in the absence of the Executive's promises under this Section 9.
10. Successors.
(a) This Agreement is personal to the Executive and without the prior
written consent of the Company shall not be assignable by the Executive
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by the Executive's legal
representatives.
(b) This Agreement shall inure to the benefit of and be binding
upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
11. Miscellaneous.
(a) This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware, without reference to principles of
conflict of laws. The captions of this Agreement are not part of the provisions
hereof and shall have no force or effect. This Agreement may not be amended or
modified otherwise than by a written agreement executed by the parties hereto or
their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
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If to the Executive:
Provident Companies, Inc.
1 Fountain Square
Chattanooga, Tennessee 37402
If to the Company:
Provident Companies, Inc.
1 Fountain Square
Chattanooga, Tennessee 37402
Telecopy Number: (423) 755-5036
Attention: F. Dean Copeland
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement or the failure to assert any
right the Executive or the Company may have hereunder, including, without
limitation, the right of the Executive to terminate employment for Good Reason
pursuant to Section 4(c)(i)-(iv) of this Agreement, shall not be deemed to be a
waiver of such provision or right or any other provision or right of this
Agreement.
(f) From and after the Effective Date this Agreement shall supersede
any other employment, severance or change of control agreement between the
parties with respect to the subject matter hereof.
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IN WITNESS WHEREOF, the Executive has hereunto set the Executive's
hand and, pursuant to the authorization from its Board of Directors, the Company
has caused these presents to be executed in its name on its behalf, all as of
the day and year first above written.
/s/ J. Harold Chandler
--------------------------------------
J. Harold Chandler
Provident Companies, Inc.
By /s/ Dean Copeland
-----------------------------------
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EXHIBIT 10.3
EMPLOYMENT AGREEMENT
AGREEMENT by and between Provident Companies, Inc., a Delaware
corporation having its principal executive offices in Chattanooga, Tennessee
(the "Company"), and F. Dean Copeland (the "Executive") dated as of the 30th day
of June, 1999.
The Company and Unum Corporation, a Delaware corporation ("Unum"),
have determined that it is in the best interests of their respective
shareholders to assure that the Company will have the continued dedication of
the Executive pending the merger of the Company and Unum (the "Merger") pursuant
to the Agreement and Plan of Merger dated as of November 22, 1998 as amended as
of May 25, 1999 (the "Merger Agreement") and to provide the Company after the
Merger with continuity of management. Therefore, in order to accomplish these
objectives, the Executive and the Company desire to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Effective Date. The "Effective Date" shall mean the effective
date of the Merger, provided the Executive is employed by the Company on that
date. As of the Effective Date, the prior Severance Agreement effective June
16, 1997 ("Former Severance Agreement") between the Executive and the Company
shall terminate and become null and void, provided that, upon any termination of
the transactions contemplated by the Merger Agreement, this sentence will be
inapplicable.
2. Term of Agreement. The Company hereby agrees to continue to
employ the Executive, and the Executive hereby agrees to continue in the employ
of the Company subject to the terms and conditions of this Agreement, for the
period commencing on the Effective Date and ending on the third anniversary of
the Effective Date (the "Initial Term"). Beginning on the third anniversary of
the Effective Date, the Initial Term shall be automatically extended for one
year terms unless either the Company or the Executive shall give the other party
not less than ninety (90) days prior written notice of the intention to
terminate this Agreement.
3. Terms of Employment.
(a) Position and Duties.
(i) The Executive shall serve as Executive Vice President,
Legal and Administrative Affairs of the Company with the appropriate authority,
duties and responsibilities attendant to such position, it being understood that
from time to time the scope of such authority, duties and responsibilities will
vary depending upon acquisitions, dispositions and organizational structures of
the Company.
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(ii) Excluding any periods of vacation and sick leave to
which the Executive is entitled, the Executive agrees to devote substantially
all of his attention and time during normal business hours to the business and
affairs of the Company and, to the extent necessary to discharge the
responsibilities assigned to the Executive hereunder, to use the Executive's
reasonable best efforts to perform faithfully and efficiently such
responsibilities. It shall not be a violation of this Agreement for the
Executive to (A) serve, with prior approval of the Board, on corporate, civic or
charitable boards or committees, (B) deliver lectures, fulfill speaking
engagements or teach at educational institutions and (C) manage personal
investments, so long as such activities do not significantly interfere with the
performance of the Executive's responsibilities as an employee of the Company in
accordance with this Agreement. It is expressly understood and agreed that to
the extent that any such activities have been conducted by the Executive prior
to the Effective Date, the continued conduct of such activities (or the conduct
of activities similar in nature and scope thereto) subsequent to the Effective
Date shall not thereafter be deemed to interfere with the performance of the
Executive's responsibilities to the Company.
(b) Compensation.
(i) Annual Base Salary. The Executive shall receive an
annual base salary ("Annual Base Salary") of $350,000. Any increase in Annual
Base Salary shall not serve to limit or reduce any other obligation to the
Executive under this Agreement. Annual Base Salary shall not be reduced after
any such increase and the term Annual Base Salary as utilized in this Agreement
shall refer to Annual Base Salary as so increased.
(ii) Annual Bonus. The Executive shall be eligible to receive
an annual bonus ("Annual Bonus") with a target level of 75% of Annual Base
Salary (the "Target Bonus Amount").
(iii) Incentive Awards. Immediately after the Effective Date,
the Company shall grant the Executive options to purchase 110,000 shares of the
Company's common stock (the "Stock Options") pursuant to the terms of the
Company's Stock Plan of 1999. Except as otherwise provided herein, the Stock
Options shall vest in four equal installments, on the first, second, third, and
fourth anniversaries of the date of grant. Subsequent annual equity grants will
be made by the Compensation Committee of the Company's Board of Directors (the
"Compensation Committee") based upon competitive market analyses and such other
factors it may deem appropriate.
(iv) Other Employee Benefit Plans. Except as otherwise
expressly provided herein, the Executive shall be entitled to participate in all
employee benefit, welfare and other plans, practices, policies and programs
(including relocation programs) (collectively, "Employee Benefit Plans")
applicable to senior executive officers of the Company.
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(v) Retirement Benefit. The Executive shall be entitled to
an annual retirement benefit payable monthly (the "Retirement Benefit") pursuant
to the terms of and under the current formula contained in the UNUM Corporation
Supplemental Executive Retirement Plan (the "Plan"); provided, however, in no
event shall the Executive's accrued Retirement Benefit be retroactively reduced.
In calculating this Retirement Benefit, the Executive shall receive full credit
for all of his years of service with the Company for all purposes.
4. Termination of Employment.
(a) Death or Disability. The Executive's employment shall terminate
automatically upon the Executive's death. If the Company determines in good
faith that the Disability of the Executive has occurred (pursuant to the
definition of Disability set forth below), it may give to the Executive written
notice in accordance with Section 11(b) of this Agreement of its intention to
terminate the Executive's employment. In such event, the Executive's employment
with the Company shall terminate effective on the 30th day after receipt of such
notice by the Executive (the "Disability Effective Date"), provided that, within
the 30 days after such receipt, the Executive shall not have returned to full-
time performance of the Executive's duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Executive from the Executive's duties
with the Company on a full-time basis for any twelve month period as a result of
incapacity due to mental or physical illness which is determined to be total and
permanent by a physician selected by the Company or its insurers and acceptable
to the Executive or the Executive's legal representative.
(b) Cause. The Company may terminate the Executive's employment for
Cause. For purposes of this Agreement, "Cause" shall mean:
(i) the continued failure of the Executive to perform
substantially the Executive's duties with the Company or one of its affiliates
(other than any such failure resulting from incapacity due to physical or mental
illness), after a written demand for substantial performance is delivered to the
Executive by the Chief Executive Officer of the Company ("CEO") or the Chief
Operating Officer of the Company ("COO") which specifically identifies the
manner in which the CEO or COO believes that the Executive has not substantially
performed the Executive's duties, or
(ii) the willful engaging by the Executive in illegal conduct
or gross misconduct which is materially and demonstrably injurious to the
Company, or
(iii) conviction of a felony or guilty or nolo contendere
plea by the Executive with respect thereto.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the
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Company. Any act, or failure to act, based upon authority given pursuant to a
resolution duly adopted by the Board or upon the instructions of the CEO or COO
or based upon the advice of counsel for the Company shall be conclusively
presumed to be done, or omitted to be done, by the Executive in good faith and
in the best interests of the Company. The cessation of employment of the
Executive shall not be deemed to be for Cause unless and until there shall have
been delivered to the Executive a copy of a resolution duly adopted by the
affirmative vote of not less than two thirds of the entire membership of the
Board at a meeting of the Board called and held for such purpose (after
reasonable notice is provided to the Executive and the Executive is given an
opportunity, together with counsel, to be heard before the Board) finding that,
in the good faith opinion of the Board, the Executive is guilty of the conduct
described in subparagraph (i) or (ii) above, and specifying the particulars
thereof in detail.
(c) Good Reason. The Executive's employment may be terminated by the
Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall
mean the following events, provided, however, that clauses (i) through (v) shall
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constitute Good Reason only in the absence of the written consent of the
Executive:
(i) the assignment to the Executive of any duties inconsistent
with the Executive's position (including status, offices, titles and reporting
requirements), authority, duties or responsibilities as contemplated by Section
3(a)(i) of this Agreement and its accompanying schedule, or any other action by
the Company which results in a diminution in such position, authority, duties or
responsibilities, excluding for this purpose an isolated, insubstantial and
inadvertent action not taken in bad faith and which is remedied by the Company
promptly after receipt of notice thereof given by the Executive;
(ii) any failure by the Company to comply with any of the
provisions of Section 3(b) of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by the
Executive;
(iii) any purported termination by the Company of the Executive's
employment otherwise than as expressly permitted by this Agreement, or any
failure to renew this Agreement;
(iv) any failure by the Company to comply with and satisfy
Section 10(c) of this Agreement; or
(v) any required relocation of the Executive, provided that no
required relocation shall be considered to constitute Good Reason unless it
occurs during the CIC Period (as defined in Section 5(a)(i)(A)).
(d) Change in Control. For purposes of this Agreement, "Change of
Control" shall mean the occurrence of any one of the following events:
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(i) during any period of two consecutive years, individuals who,
at the beginning or such period, constitute the Board (the "Incumbent
Directors") cease for any reason to constitute at least a majority of the Board,
provided that any person becoming a director and whose election or nomination
for election was approved by a vote of at least two-thirds of the Incumbent
Directors then on the Board (either by a specific vote or by approval of the
proxy statement of the Company in which such person is named as a nominee for
director, without written objection to such nomination) shall be an Incumbent
Director; provided, however, that no individual initially elected or nominated
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as a director of the Company as a result of an actual or threatened election
contest (as described in Rule 14a-11 under the Act) ("Election Contest") or
other actual or threatened solicitation of proxies or consents by or on behalf
of any "person" (as such term is defined in Section 3(a)(9) of the Act and as
used in Sections 13(d)(3) and 14(d)(2) of the Act) other than the Board ("Proxy
Contest"), including by reason of any agreement intended to avoid or settle any
Election or Contest or Proxy Contest, shall be deemed an Incumbent Director;
(ii) any person is or becomes a "beneficial owner" (as defined in
Rule 13d-3 under the Act), directly or indirectly, of securities of the Company
representing 20% or more of the combined voting power of the Company's then
outstanding securities eligible to vote for the election of the Board (the
"Company Voting Securities"); provided, however, that the event described in
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this paragraph (ii) shall not be deemed to be a Change in Control of the Company
by virtue of any of the following acquisitions: (A) by the Company of any
subsidiary, (B) by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any subsidiary, (C) by an underwriter temporarily
holding securities pursuant to an offering of such securities, (D) pursuant to a
Non-Qualifying Transaction (as defined in paragraph (iii), or (E) a transaction
(other than one described in (iii) below) in which Company Voting Securities are
acquired from the Company, if a majority of the Incumbent Directors approve a
resolution providing expressly that the acquisition pursuant to this clause (E)
does not constitute a Change in Control of the Company under this paragraph
(ii);
(iii) the consummation of a merger, consolidation, statutory share
exchange or similar form of corporate transaction involving the Company or any
of its subsidiaries that requires the approval of the Company's stockholders,
whether for such transaction or the issuance of securities in the transaction (a
"Reorganization"), or sale or other disposition of all or substantially all of
the Company's assets to an entity that is not an affiliate of the Company (a
"Sale"), unless immediately following such Reorganization or Sale: (A) more
than 50% of the total voting power of (x) the corporation resulting from such
Reorganization or the corporation which has acquired all or substantially all of
the assets of the Company (in either case, the "Surviving Corporation"), or (y)
if applicable, the ultimate parent corporation that directly or indirectly has
beneficial ownership of 100% of the voting securities eligible to elect
directors of the Surviving Corporation (the "Parent Corporation"), is
represented by the Company Voting Securities that were outstanding immediately
prior to such Reorganization or Sale (or, if applicable, is represented by
shares into which such Company Voting Securities were converted
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pursuant to such Reorganization or Sale), and such voting power among the
holders thereof is in substantially the same proportion as the voting power of
such Company Voting Securities among the holders thereof immediately prior to
the Reorganization or Sale, (B) no person (other than any employee benefit plan
(or related trust) sponsored or maintained by the Surviving Corporation or the
Parent Corporation) is or becomes the beneficial owner, directly or indirectly,
of 20% or more of the total voting power of the outstanding voting securities
eligible to elect directors of the Parent Corporation (or, if there is no Parent
Corporation, the Surviving Corporation) and (C) at least a majority of the
members of the board of directors of the Parent Corporation (or, if there is no
Parent Corporation, the Surviving Corporation) following the consummation of the
Reorganization or Sale were Incumbent Directors at the time of the Board's
approval of the execution of the initial agreement providing for such
Reorganization or Sale (any Reorganization or Sale which satisfies all of the
criteria specified in (A), (B) and (C) above shall be deemed to be a "Non-
Qualifying Transaction"); or
(iv) the stockholders of the Company approve a plan of
complete liquidation or dissolution of the Company.
Notwithstanding the foregoing, a Change in Control of the Company shall not be
deemed to occur solely because any person acquires beneficial ownership of more
than 20% of the Company Voting Securities as a result of the acquisition of
Company Voting Securities by the Company which reduces the number of Company
Voting Securities outstanding; provided, that if after such acquisition by the
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Company such person becomes the beneficial owner of additional Company Voting
Securities that increases the percentage of outstanding Company Voting
Securities beneficially owned by such person, a Change in Control of the Company
shall then occur.
(e) Notice of Termination. Any termination by the Company or by the
Executive shall be communicated by Notice of Termination to the other party
hereto given in accordance with Section 11(b) of this Agreement. For purposes
of this Agreement, a "Notice of Termination" means a written notice which (i)
indicates the specific termination provision in this Agreement relied upon, (ii)
to the extent applicable, sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated and (iii) specifies the Date of
Termination (as defined below). The failure by the Executive or the Company to
set forth in the Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason or Cause shall not waive any right of
the Executive or the Company, respectively, hereunder or preclude the Executive
or the Company, respectively, from asserting such fact or circumstance in
enforcing the Executive's or the Company's rights hereunder.
(f) Date of Termination. "Date of Termination" means (i) if the
Executive's employment is terminated by the Company other than for Disability,
the date of receipt of the Notice of Termination or any later date specified
therein within 30 days of such notice, (ii) if the Executive's employment is
terminated by reason of death or Disability, the Date of Termination shall be
the date of death of the Executive or the Disability Effective Date, as the
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case may be, and (iii) if the Executive's employment is terminated by the
Executive the Date of Termination shall be thirty days after the giving of such
notice by the Executive provided that the Company may elect to place the
Executive on paid leave for all or any part of such 30-day period.
5. Obligations of the Company upon Termination.
(a) Good Reason; Other Than for Cause, Death or Disability. If, the
Company shall terminate the Executive's employment other than for Cause or
Disability, or the Executive shall terminate employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in
cash within 30 days after the Date of Termination:
A. the product of three (3), if such termination occurs
during the Initial Term or the three (3) year period after a Change in Control
(such Initial Term and three year period being hereafter referred to as the "CIC
Period"), otherwise, two (2) times the sum of (1) the highest annual bonus paid
to the Executive for any of the three years prior to the Date of Termination
(the "Recent Annual Bonus") and (2) the Executive's Annual Base Salary;
B. the sum of (x) the Executive's Annual Base Salary
through the Date of Termination to the extent not theretofore paid, and (y) the
product of (1) the Recent Annual Bonus and (2) a fraction, the numerator of
which is the number of days in the fiscal year in which the Date of Termination
occurs through the Date of Termination and the denominator of which is 365, to
the extent not theretofore paid (the sum of the amounts described in clauses (x)
and (y) shall be hereinafter referred to as the "Accrued Obligations"); and
C. if such termination occurs during the CIC Period, a
lump sum cash payment equal to the difference between (x) the actuarial present
value of the Retirement Benefit determined using the actuarial assumptions
prescribed under the tax-qualified defined benefit plan under which the
Executive was eligible for participation at the time of termination of
employment, assuming the Executive had accumulated three additional years of
employment, and (y) the actuarial present value of the Retirement Benefit
determined using the actuarial assumptions prescribed under the tax-qualified
defined benefit plan under which the Executive was eligible for participation at
the time of termination of employment.
(ii) the Company shall continue to provide, for a period of
three (3), if such termination occurs during the CIC Period, otherwise two (2),
years following the Executive's Date of Termination, the Executive (and the
Executive's dependents, if applicable) with the same level of medical, dental,
accident, disability and life insurance benefits upon substantially the same
terms and conditions (including contributions required by the Executive for such
benefits) as existed immediately prior to the Executive's Date of Termination
(or, if more favorable to the Executive, as such benefits and terms and
conditions existed immediately prior to
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the Change in Control); provided that, if the Executive cannot continue to
participate in the Company plans providing such benefits, the Company shall
otherwise provide such benefits on the same after-tax basis as if continued
participation had been permitted. Notwithstanding the foregoing, in the event
the Executive becomes reemployed with another employer and becomes eligible to
receive welfare benefits from such employer, the welfare benefits described
herein shall be secondary to such benefits during the period of the Executive's
eligibility, but only to the extent that the Company reimburses the Executive
for any increased cost and provides any additional benefits necessary to give
the Executive the benefits provided hereunder.
(iii) the Stock Options shall vest and shall remain exercisable
for a period of two years or the earlier expiration of their initial term, and
if such termination occurs during the CIC Period, all other stock options,
restricted stock awards and other equity based awards granted after the date of
this Agreement (the "Equity Awards") shall vest (and such options shall remain
exercisable for a period of two years or the earlier expiration of their initial
term), otherwise, the Equity Awards will expire as provided under the terms of
their applicable agreements; and
(iv) to the extent not theretofore paid or provided, the
Company shall timely pay or provide to the Executive any other amounts or
benefits required to be paid or provided or which the Executive is eligible to
receive under any plan, program, policy or practice or contract or agreement of
the Company and its affiliated companies through the Date of Termination (such
other amounts and benefits shall be hereinafter referred to as the "Other
Benefits").
(b) Death or Disability. If the Executive's employment is
terminated by reason of the Executive's death, this Agreement shall terminate
without further obligations to the Executive's legal representatives or to the
Executive, as the case may be, under this Agreement, other than for payment of
Accrued Obligations, the timely payment or provision of Other Benefits, and the
Retirement Benefit. In addition, the Stock Options shall vest immediately and
remain exercisable for a period of at least three years or the earlier
expiration of their initial term. Accrued Obligations shall be paid to the
Executive, the Executive's estate or beneficiary, as applicable, in a lump sum
in cash within 30 days of the Date of Termination.
(c) Cause; Other than for Good Reason. If the Executive's
employment shall be terminated for Cause or the Executive terminates his
employment without Good Reason, this Agreement shall terminate without further
obligations to the Executive other than the obligation to pay to the Executive
(i) his Annual Base Salary through the Date of Termination to the extent
theretofore unpaid and, (ii) the Other Benefits.
6. Non-exclusivity of Rights. Except as specifically provided,
nothing in this Agreement shall prevent or limit the Executive's continuing or
future participation in any plan, program, policy or practice provided by the
Company or any of its affiliated companies and for which the Executive may
qualify, nor, subject to Sections 1 and 11(f), shall anything herein limit
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or otherwise affect such rights as the Executive may have under any contract or
agreement with the Company or any of its affiliated companies. Amounts which
are vested benefits or which the Executive is otherwise entitled to receive
under any plan, policy, practice or program of or any contract or agreement with
the Company or any of its affiliated companies at or subsequent to the Date of
Termination shall be payable in accordance with such plan, policy, practice or
program or contract or agreement except as explicitly modified by this
Agreement; provided that the Executive shall not be eligible for severance
benefits under any other program or policy of the Company.
7. Full Settlement. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement, and such amounts
shall not be reduced whether or not the Executive obtains other employment. The
Company agrees to pay as incurred, to the full extent permitted by law, all
legal fees and expenses which the Executive may reasonably incur as a result of
any contest (regardless of the outcome thereof) pursued or defended against in
good faith by the Executive regarding the validity or enforceability of, or
liability under, any provision of this Agreement or any guarantee of performance
thereof (including as a result of any contest by the Executive about the amount
of any payment pursuant to this Agreement), plus in each case interest on any
delayed payment at the applicable Federal rate provided for in Section
7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code").
8. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding and
except as set forth below, in the event it shall be determined that any payment
or distribution by the Company to or for the benefit of the Executive (whether
paid or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise, but determined without regard to any additional payments
required under this Section 8) (a "Payment") would be subject to the excise tax
imposed by Section 4999 of the Code or any interest or penalties are incurred by
the Executive with respect to such excise tax (such excise tax, together with
any such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties imposed with respect
to such taxes), including, without limitation, any income taxes (and any
interest and penalties imposed with respect thereto) and Excise Tax imposed upon
the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payments. Notwithstanding the
foregoing provisions of this Section 8(a), if it shall be determined that the
Executive is entitled to a Gross-Up Payment, but that the Payments do not exceed
110% of the greatest amount (the "Reduced Amount") that could be paid to the
Executive such that the
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receipt of Payments would not give rise to any Excise Tax, then no Gross-Up
Payment shall be made to the Executive and the Payments, in the aggregate, shall
be reduced to the Reduced Amount.
(b) Subject to the provisions of Section 8(c), all determinations
required to be made under this Section 8, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be made by the Company's
independent auditors or such other certified public accounting firm reasonably
acceptable to the Executive as may be designated by the Company (the "Accounting
Firm") which shall provide detailed supporting calculations both to the Company
and the Executive within 15 business days of the receipt of notice from the
Executive that there has been a Payment, or such earlier time as is requested by
the Company. All fees and expenses of the Accounting Firm shall be borne solely
by the Company. Any Gross-Up Payment, as determined pursuant to this Section 8,
shall be paid by the Company to the Executive within five days of the later of
(i) the due date for the payment of any Excise Tax, and (ii) the receipt of the
Accounting Firm's determination. Any determination by the Accounting Firm shall
be binding upon the Company and the Executive. As a result of the uncertainty
in the application of Section 4999 of the Code at the time of the initial
determination by the Accounting Firm hereunder, it is possible that Gross-Up
Payments which will not have been made by the Company should have been made
("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies pursuant to
Section 8(c) and the Executive thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim
by the Internal Revenue Service that, if successful, would require the payment
by the Company of the Gross-Up Payment. Such notification shall be given as soon
as practicable but no later than ten business days after the Executive is
informed in writing of such claim and shall apprise the Company of the nature of
such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day period
following the date on which it gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes with respect to such claim
is due). If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:
(i) give the Company any information reasonably requested by
the Company relating to such claim,
(ii) take such action in connection with contesting such
claim as the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with respect to
such claim by an attorney reasonably selected by the Company,
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(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
(iv) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions
of this Section 8(c), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forgo any
and all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option, either
direct the Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and the Executive agrees to prosecute such
contest to a determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that, if the Company directs the Executive to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and shall indemnify and hold
the Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such advance;
and further provided that any extension of the statute of limitations relating
to payment of taxes for the taxable year of the Executive with respect to which
such contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder and
the Executive shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority.
(d) If, after the receipt by the Executive of an amount advanced by
the Company pursuant to Section 8(c), the Executive becomes entitled to receive
any refund with respect to such claim, the Executive shall promptly pay to the
Company the amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after the receipt by the Executive
of an amount advanced by the Company pursuant to Section 8(c), a determination
is made that the Executive shall not be entitled to any refund with respect to
such claim and the Company does not notify the Executive in writing of its
intent to contest such denial of refund prior to the expiration of 30 days after
such determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of such advance shall offset, to the extent
thereof, the amount of Gross-Up Payment required to be paid.
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9. Covenant Not to Compete; Confidential Information.
(a) During the term of this Agreement, and for a six month period
after the Date of Termination, the Executive shall not directly or indirectly,
own, manage, operate, join, control, or participate in the ownership,
management, operation or control of, or be employed by or connected in any
manner with, any competing business, whether for compensation or otherwise,
without the prior written consent of the Company. Notwithstanding the preceding
sentence, the Executive shall not be prohibited from owning less than one (1%)
percent of any publicly traded corporation, whether or not such corporation is
deemed to be a competing business. For the purposes of this Agreement, a
"competing business" shall be any business which is a significant competitor of
the Company, or which the Company reasonably determines may become a significant
competitor, unless the Executive's primary duties and responsibilities with
respect to such business are not related to the management or operation of
disability insurance or complementary special risk products and services in any
country where the Company is conducting business. Should the Executive,
directly or indirectly, own, manage, operate, join, control or participate in
the ownership, management, operation or control of, or be employed by or
connected in any manner with, any competing business, all payments under this
Agreement shall cease.
(b) The Executive hereby acknowledges that, as an employee of the
Company, he will be making use of, acquiring and adding to confidential
information of a special and unique nature and value relating to the Company and
its strategic plan and financial operations. The Executive further recognizes
and acknowledges that all confidential information is the exclusive property of
the Company, is material and confidential, and is critical to the successful
conduct of the business of the Company. Accordingly, the Executive hereby
covenants and agrees that he will use confidential information for the benefit
of the Company only and shall not at any time, directly or indirectly, during
the term of this Agreement, and thereafter for all periods during which
severance or other amount is paid, divulge, reveal or communicate any
confidential information to any person, firm, corporation or entity whatsoever,
or use any confidential information for his own benefit or for the benefit of
others. In no event shall an asserted violation of the provisions of this
Section 9(b) constitute a basis for deferring or withholding any amounts
otherwise payable to the Executive under this Agreement.
(c) Any termination of the Executive's employment or of this
Agreement shall have no effect on the continuing operation of this Section 9.
(d) In addition to the cessation of payments set forth in Section
9(a), the Executive acknowledges and agrees that the Company will have no
adequate remedy at law, and could be irreparably harmed, if the Executive
breaches or threatens to breach any of the provisions of this Section 9. The
Executive agrees that the Company shall be entitled to equitable and/or
injunctive relief to prevent any breach or threatened breach of this Section 9,
and to specific performance of each of the terms hereof in addition to any other
legal or equitable
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remedies that the Company may have. The Executive further agrees that he shall
not, in any equity proceeding relating to the enforcement of the terms of this
Section 9, raise the defense that the Company has an adequate remedy at law.
(e) The terms and provisions of this Section 9 are intended to be
separate and divisible provisions and if, for any reason, any one or more of
them is held to be invalid or unenforceable, neither the validity nor the
enforceability of any other provision of this Agreement shall thereby be
affected. The parties hereto acknowledge that the potential restrictions on the
Executive's future employment imposed by this Section 9 are reasonable in both
duration and geographic scope and in all other respects. If for any reason any
court of competent jurisdiction shall find any provisions of this Section 9
unreasonable in duration or geographic scope or otherwise, the Executive and the
Company agree that the restrictions and prohibitions contained herein shall be
effective to the fullest extent allowed under applicable law in such
jurisdiction.
(f) The parties acknowledge that this Agreement would not have been
entered into and the benefits described in Sections 3 or 5 would not have been
promised in the absence of the Executive's promises under this Section 9.
10. Successors.
(a) This Agreement is personal to the Executive and without the
prior written consent of the Company shall not be assignable by the Executive
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by the Executive's legal
representatives.
(b) This Agreement shall inure to the benefit of and be binding
upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
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11. Miscellaneous.
(a) This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware, without reference to principles of
conflict of laws. The captions of this Agreement are not part of the provisions
hereof and shall have no force or effect. This Agreement may not be amended or
modified otherwise than by a written agreement executed by the parties hereto or
their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive:
214 Camden Road, NE
Atlanta, Georgia 30309
If to the Company:
1 Fountain Square
Chattanooga, Tennessee 37402
Telecopy Number: (423) 755-8503
Attention: Chief Executive Officer
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement or the failure to assert any
right the Executive or the Company may have hereunder, including, without
limitation, the right of the Executive to terminate employment for Good Reason
pursuant to Section 4(c)(i)-(iv) of this Agreement, shall not be deemed to be a
waiver of such provision or right or any other provision or right of this
Agreement.
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(f) From and after the Effective Date this Agreement shall
supersede any other employment, severance or change of control agreement between
the parties with respect to the subject matter hereof.
12. General Release. All payments under this Agreement to be made in
connection with the Executive's termination of employment will be conditioned on
the Executive signing a general form of release.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's
hand and, pursuant to the authorization from its Board of Directors, the Company
has caused these presents to be executed in its name on its behalf, all as of
the day and year first above written.
EXECUTIVE
/s/ F. Dean Copeland
-----------------------------------------
PROVIDENT COMPANIES, INC.
By: /s/ J. Harold Chandler
------------------------------------
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EXHIBIT 10.4
EMPLOYMENT AGREEMENT
AGREEMENT by and between Unum Corporation, a Delaware corporation
having its principal executive offices in Portland, Maine (the "Company"), and
Robert W. Crispin (the "Executive") dated as of the 30th day of June, 1999.
The Company and Provident Companies, Inc., a Delaware corporation
("Provident"), have determined that it is in the best interests of their
respective shareholders to assure that the Company will have the continued
dedication of the Executive pending the merger of the Company and Provident (the
"Merger") pursuant to the Agreement and Plan of Merger dated as of November 22,
1998 as amended as of May 25, 1999 (the "Merger Agreement") and to provide the
Company after the Merger with continuity of management. Therefore, in order to
accomplish these objectives, the Executive and the Company desire to enter into
this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Effective Date. The "Effective Date" shall mean the effective
date of the Merger, provided the Executive is employed by the Company on that
date. As of the Effective Date, the prior Severance Agreement effective March
25, 1996 ("Former Severance Agreement") between the Executive and the Company
shall terminate and become null and void, provided that, upon any termination of
the transactions contemplated by the Merger Agreement, this sentence will be
inapplicable.
2. Term of Agreement. The Company hereby agrees to continue to
employ the Executive, and the Executive hereby agrees to continue in the employ
of the Company subject to the terms and conditions of this Agreement, for the
period commencing on the Effective Date and ending on the third anniversary of
the Effective Date (the "Initial Term"). Beginning on the third anniversary of
the Effective Date, the Initial Term shall be automatically extended for one
year terms unless either the Company or the Executive shall give the other party
not less than ninety (90) days prior written notice of the intention to
terminate this Agreement.
3. Terms of Employment.
(a) Position and Duties.
(i) The Executive shall serve as Executive Vice President,
Distribution of the Company with the appropriate authority, duties and
responsibilities attendant to such position, it being understood that from time
to time the scope of such authority, duties and responsibilities will vary
depending upon acquisitions, dispositions and organizational structures of the
Company.
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(ii) Excluding any periods of vacation and sick leave to
which the Executive is entitled, the Executive agrees to devote substantially
all of his attention and time during normal business hours to the business and
affairs of the Company and, to the extent necessary to discharge the
responsibilities assigned to the Executive hereunder, to use the Executive's
reasonable best efforts to perform faithfully and efficiently such
responsibilities. It shall not be a violation of this Agreement for the
Executive to (A) serve, with prior approval of the Board, on corporate, civic or
charitable boards or committees, (B) deliver lectures, fulfill speaking
engagements or teach at educational institutions and (C) manage personal
investments, so long as such activities do not significantly interfere with the
performance of the Executive's responsibilities as an employee of the Company in
accordance with this Agreement. It is expressly understood and agreed that to
the extent that any such activities have been conducted by the Executive prior
to the Effective Date, the continued conduct of such activities (or the conduct
of activities similar in nature and scope thereto) subsequent to the Effective
Date shall not thereafter be deemed to interfere with the performance of the
Executive's responsibilities to the Company.
(b) Compensation.
(i) Annual Base Salary. The Executive shall receive an
annual base salary ("Annual Base Salary") of $550,000. Any increase in Annual
Base Salary shall not serve to limit or reduce any other obligation to the
Executive under this Agreement. Annual Base Salary shall not be reduced after
any such increase and the term Annual Base Salary as utilized in this Agreement
shall refer to Annual Base Salary as so increased.
(ii) Annual Bonus. The Executive shall be eligible to
receive an annual bonus ("Annual Bonus") with a target level of 75% of Annual
Base Salary (the "Target Bonus Amount").
(iii) Incentive Awards. Immediately after the Effective Date,
the Company shall grant the Executive options to purchase 160,000 shares of the
Company's common stock (the "Stock Options") pursuant to the terms of the
Company's Stock Plan of 1999. Except as otherwise provided herein, the Stock
Options shall vest in four equal installments, on the first, second, third, and
fourth anniversaries of the date of grant. Subsequent annual equity grants will
be made by the Compensation Committee of the Company's Board of Directors (the
"Compensation Committee") based upon competitive market analyses and such other
factors it may deem appropriate.
(iv) Other Employee Benefit Plans. Except as otherwise
expressly provided herein, the Executive shall be entitled to participate in all
employee benefit, welfare and other plans, practices, policies and programs
(including relocation programs) (collectively, "Employee Benefit Plans")
applicable to senior executive officers of the Company.
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(v) Retirement Benefit. The Executive shall be entitled to
an annual retirement benefit payable monthly (the "Retirement Benefit") pursuant
to the terms of and under the current formula contained in the UNUM Corporation
Supplemental Executive Retirement Plan (the "Plan"); provided, however, in no
event shall the Executive's accrued Retirement Benefit be retroactively reduced.
In calculating this Retirement Benefit, the Executive shall receive full credit
for all of his years of service with the Company for all purposes; provided,
that, (i) until June 30, 2004, the Executive shall receive credit under the Plan
equal to two years of service for each year the Executive is employed by the
Company or its affiliates (the "Additional Service Credit") and (ii) such
Additional Service Credit shall be appropriately taken into account if the
Executive becomes entitled to the benefit described in Section 5(a)(i)(C) before
June 30, 2004 (e.g., if the Executive becomes entitled to such benefit on June
30, 2003, the Executive shall receive credit for four additional years of
employment under Section 5(a)(i)(C).
4. Termination of Employment.
(a) Death or Disability. The Executive's employment shall
terminate automatically upon the Executive's death. If the Company determines in
good faith that the Disability of the Executive has occurred (pursuant to the
definition of Disability set forth below), it may give to the Executive written
notice in accordance with Section 11(b) of this Agreement of its intention to
terminate the Executive's employment. In such event, the Executive's employment
with the Company shall terminate effective on the 30th day after receipt of such
notice by the Executive (the "Disability Effective Date"), provided that, within
the 30 days after such receipt, the Executive shall not have returned to full-
time performance of the Executive's duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Executive from the Executive's duties
with the Company on a full-time basis for any twelve month period as a result of
incapacity due to mental or physical illness which is determined to be total and
permanent by a physician selected by the Company or its insurers and acceptable
to the Executive or the Executive's legal representative.
(b) Cause. The Company may terminate the Executive's employment
for Cause. For purposes of this Agreement, "Cause" shall mean:
(i) the continued failure of the Executive to perform
substantially the Executive's duties with the Company or one of its affiliates
(other than any such failure resulting from incapacity due to physical or mental
illness), after a written demand for substantial performance is delivered to the
Executive by the Chief Executive Officer of the Company ("CEO") or the Chief
Operating Officer of the Company ("COO") which specifically identifies the
manner in which the CEO or COO believes that the Executive has not substantially
performed the Executive's duties, or
(ii) the willful engaging by the Executive in illegal conduct
or gross misconduct which is materially and demonstrably injurious to the
Company, or
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(iii) conviction of a felony or guilty or nolo contendere
plea by the Executive with respect thereto.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or upon the instructions of the CEO or COO or based upon
the advice of counsel for the Company shall be conclusively presumed to be done,
or omitted to be done, by the Executive in good faith and in the best interests
of the Company. The cessation of employment of the Executive shall not be
deemed to be for Cause unless and until there shall have been delivered to the
Executive a copy of a resolution duly adopted by the affirmative vote of not
less than two thirds of the entire membership of the Board at a meeting of the
Board called and held for such purpose (after reasonable notice is provided to
the Executive and the Executive is given an opportunity, together with counsel,
to be heard before the Board) finding that, in the good faith opinion of the
Board, the Executive is guilty of the conduct described in subparagraph (i) or
(ii) above, and specifying the particulars thereof in detail.
(c) Good Reason. The Executive's employment may be terminated by
the Executive for Good Reason. For purposes of this Agreement, "Good Reason"
shall mean the following events, provided, however, that clauses (i) through (v)
-------- -------
shall constitute Good Reason only in the absence of the written consent of the
Executive:
(i) the assignment to the Executive of any duties
inconsistent with the Executive's position (including status, offices, titles
and reporting requirements), authority, duties or responsibilities as
contemplated by Section 3(a)(i) of this Agreement and its accompanying schedule,
or any other action by the Company which results in a diminution in such
position, authority, duties or responsibilities, excluding for this purpose an
isolated, insubstantial and inadvertent action not taken in bad faith and which
is remedied by the Company promptly after receipt of notice thereof given by the
Executive;
(ii) any failure by the Company to comply with any of the
provisions of Section 3(b) of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by the
Executive;
(iii) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by this Agreement,
or any failure to renew this Agreement;
(iv) any failure by the Company to comply with and satisfy
Section 10(c) of this Agreement; or
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(v) any required relocation of the Executive, provided that
no required relocation shall be considered to constitute Good Reason unless it
occurs during the CIC Period (as defined in Section 5(a)(i)(A)).
(d) Change in Control. For purposes of this Agreement, "Change of
Control" shall mean the occurrence of any one of the following events:
(i) during any period of two consecutive years, individuals
who, at the beginning or such period, constitute the Board (the "Incumbent
Directors") cease for any reason to constitute at least a majority of the Board,
provided that any person becoming a director and whose election or nomination
for election was approved by a vote of at least two-thirds of the Incumbent
Directors then on the Board (either by a specific vote or by approval of the
proxy statement of the Company in which such person is named as a nominee for
director, without written objection to such nomination) shall be an Incumbent
Director; provided, however, that no individual initially elected or nominated
-------- -------
as a director of the Company as a result of an actual or threatened election
contest (as described in Rule 14a-11 under the Act) ("Election Contest") or
other actual or threatened solicitation of proxies or consents by or on behalf
of any "person" (as such term is defined in Section 3(a)(9) of the Act and as
used in Sections 13(d)(3) and 14(d)(2) of the Act) other than the Board ("Proxy
Contest"), including by reason of any agreement intended to avoid or settle any
Election or Contest or Proxy Contest, shall be deemed an Incumbent Director;
(ii) any person is or becomes a "beneficial owner" (as
defined in Rule 13d-3 under the Act), directly or indirectly, of securities of
the Company representing 20% or more of the combined voting power of the
Company's then outstanding securities eligible to vote for the election of the
Board (the "Company Voting Securities"); provided, however, that the event
-------- -------
described in this paragraph (ii) shall not be deemed to be a Change in Control
of the Company by virtue of any of the following acquisitions: (A) by the
Company of any subsidiary, (B) by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any subsidiary, (C) by an underwriter
temporarily holding securities pursuant to an offering of such securities, (D)
pursuant to a Non-Qualifying Transaction (as defined in paragraph (iii), or (E)
a transaction (other than one described in (iii) below) in which Company Voting
Securities are acquired from the Company, if a majority of the Incumbent
Directors approve a resolution providing expressly that the acquisition pursuant
to this clause (E) does not constitute a Change in Control of the Company under
this paragraph (ii);
(iii) the consummation of a merger, consolidation, statutory
share exchange or similar form of corporate transaction involving the Company or
any of its subsidiaries that requires the approval of the Company's
stockholders, whether for such transaction or the issuance of securities in the
transaction (a "Reorganization"), or sale or other disposition of all or
substantially all of the Company's assets to an entity that is not an affiliate
of the Company (a "Sale"), unless immediately following such Reorganization or
Sale: (A) more than 50% of the total voting power of (x) the corporation
resulting from such Reorganization or
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the corporation which has acquired all or substantially all of the assets of the
Compan y (in either case, the "Surviving Corporation"), or (y) if applicable,
the ultimate parent corporation that directly or indirectly has beneficial
ownership of 100% of the voting securities eligible to elect directors of the
Surviving Corporation (the "Parent Corporation"), is represented by the Company
Voting Securities that were outstanding immediately prior to such Reorganization
or Sale (or, if applicable, is represented by shares into which such Company
Voting Securities were converted pursuant to such Reorganization or Sale), and
such voting power among the holders thereof is in substantially the same
proportion as the voting power of such Company Voting Securities among the
holders thereof immediately prior to the Reorganization or Sale, (B) no person
(other than any employee benefit plan (or related trust) sponsored or maintained
by the Surviving Corporation or the Parent Corporation) is or becomes the
beneficial owner, directly or indirectly, of 20% or more of the total voting
power of the outstanding voting securities eligible to elect directors of the
Parent Corporation (or, if there is no Parent Corporation, the Surviving
Corporation) and (C) at least a majority of the members of the board of
directors of the Parent Corporation (or, if there is no Parent Corporation, the
Surviving Corporation) following the consummation of the Reorganization or Sale
were Incumbent Directors at the time of the Board's approval of the execution of
the initial agreement providing for such Reorganization or Sale (any
Reorganization or Sale which satisfies all of the criteria specified in (A), (B)
and (C) above shall be deemed to be a "Non-Qualifying Transaction"); or
(iv) the stockholders of the Company approve a plan of
complete liquidation or dissolution of the Company.
Notwithstanding the foregoing, a Change in Control of the Company shall not be
deemed to occur solely because any person acquires beneficial ownership of more
than 20% of the Company Voting Securities as a result of the acquisition of
Company Voting Securities by the Company which reduces the number of Company
Voting Securities outstanding; provided, that if after such acquisition by the
-------- ----
Company such person becomes the beneficial owner of additional Company Voting
Securities that increases the percentage of outstanding Company Voting
Securities beneficially owned by such person, a Change in Control of the Company
shall then occur.
(e) Notice of Termination. Any termination by the Company or by the
Executive shall be communicated by Notice of Termination to the other party
hereto given in accordance with Section 11(b) of this Agreement. For purposes of
this Agreement, a "Notice of Termination" means a written notice which (i)
indicates the specific termination provision in this Agreement relied upon, (ii)
to the extent applicable, sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated and (iii) specifies the Date of
Termination (as defined below). The failure by the Executive or the Company to
set forth in the Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason or Cause shall not waive any right of
the Executive or the Company, respectively, hereunder or preclude the Executive
or the Company, respectively, from asserting such fact or circumstance in
enforcing the Executive's or the Company's rights hereunder.
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(f) Date of Termination. "Date of Termination" means (i) if the
Executive's employment is terminated by the Company other than for Disability,
the date of receipt of the Notice of Termination or any later date specified
therein within 30 days of such notice, (ii) if the Executive's employment is
terminated by reason of death or Disability, the Date of Termination shall be
the date of death of the Executive or the Disability Effective Date, as the case
may be, and (iii) if the Executive's employment is terminated by the Executive
the Date of Termination shall be thirty days after the giving of such notice by
the Executive provided that the Company may elect to place the Executive on paid
leave for all or any part of such 30-day period.
5. Obligations of the Company upon Termination.
(a) Good Reason; Other Than for Cause, Death or Disability. If, the
Company shall terminate the Executive's employment other than for Cause or
Disability, or the Executive shall terminate employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in
cash within 30 days after the Date of Termination:
A. the product of three (3), if such termination occurs
during the Initial Term or the three (3) year period after a Change in Control
(such Initial Term and three year period being hereafter referred to as the "CIC
Period"), otherwise, two (2) times the sum of (1) the highest annual bonus paid
to the Executive for any of the three years prior to the Date of Termination
(the "Recent Annual Bonus") and (2) the Executive's Annual Base Salary;
B. the sum of (x) the Executive's Annual Base Salary
through the Date of Termination to the extent not theretofore paid, and (y) the
product of (1) the Recent Annual Bonus and (2) a fraction, the numerator of
which is the number of days in the fiscal year in which the Date of Termination
occurs through the Date of Termination and the denominator of which is 365, to
the extent not theretofore paid (the sum of the amounts described in clauses (x)
and (y) shall be hereinafter referred to as the "Accrued Obligations"); and
C. if such termination occurs during the CIC Period, a lump
sum cash payment equal to the difference between (x) the actuarial present value
of the Retirement Benefit determined using the actuarial assumptions prescribed
under the tax-qualified defined benefit plan under which the Executive was
eligible for participation at the time of termination of employment, assuming
the Executive had accumulated three additional years of employment, and (y) the
actuarial present value of the Retirement Benefit determined using the actuarial
assumptions prescribed under the tax-qualified defined benefit plan under which
the Executive was eligible for participation at the time of termination of
employment.
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(ii) the Company shall continue to provide, for a period of
three (3), if such termination occurs during the CIC Period, otherwise two (2),
years following the Executive's Date of Termination, the Executive (and the
Executive's dependents, if applicable) with the same level of medical, dental,
accident, disability and life insurance benefits upon substantially the same
terms and conditions (including contributions required by the Executive for such
benefits) as existed immediately prior to the Executive's Date of Termination
(or, if more favorable to the Executive, as such benefits and terms and
conditions existed immediately prior to the Change in Control); provided that,
if the Executive cannot continue to participate in the Company plans providing
such benefits, the Company shall otherwise provide such benefits on the same
after-tax basis as if continued participation had been permitted.
Notwithstanding the foregoing, in the event the Executive becomes reemployed
with another employer and becomes eligible to receive welfare benefits from such
employer, the welfare benefits described herein shall be secondary to such
benefits during the period of the Executive's eligibility, but only to the
extent that the Company reimburses the Executive for any increased cost and
provides any additional benefits necessary to give the Executive the benefits
provided hereunder.
(iii) the Stock Options shall vest and shall remain exercisable
for a period of two years or the earlier expiration of their initial term, and
if such termination occurs during the CIC Period, all other stock options,
restricted stock awards and other equity based awards granted after the date of
this Agreement (the "Equity Awards") shall vest (and such options shall remain
exercisable for a period of two years or the earlier expiration of their initial
term), otherwise, the Equity Awards will expire as provided under the terms of
their applicable agreements; and
(iv) to the extent not theretofore paid or provided, the Company
shall timely pay or provide to the Executive any other amounts or benefits
required to be paid or provided or which the Executive is eligible to receive
under any plan, program, policy or practice or contract or agreement of the
Company and its affiliated companies through the Date of Termination (such other
amounts and benefits shall be hereinafter referred to as the "Other Benefits").
(b) Death or Disability. If the Executive's employment is terminated
by reason of the Executive's death, this Agreement shall terminate without
further obligations to the Executive's legal representatives or to the
Executive, as the case may be, under this Agreement, other than for payment of
Accrued Obligations, the timely payment or provision of Other Benefits, and the
Retirement Benefit. In addition, the Stock Options shall vest immediately and
remain exercisable for a period of at least three years or the earlier
expiration of their initial term. Accrued Obligations shall be paid to the
Executive, the Executive's estate or beneficiary, as applicable, in a lump sum
in cash within 30 days of the Date of Termination.
(c) Cause; Other than for Good Reason. If the Executive's employment
shall be terminated for Cause or the Executive terminates his employment without
Good Reason, this Agreement shall terminate without further obligations to the
Executive other
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than the obligation to pay to the Executive (i) his Annual Base Salary through
the Date of Termination to the extent theretofore unpaid and, (ii) the Other
Benefits.
6. Non-exclusivity of Rights. Except as specifically provided,
nothing in this Agreement shall prevent or limit the Executive's continuing or
future participation in any plan, program, policy or practice provided by the
Company or any of its affiliated companies and for which the Executive may
qualify, nor, subject to Sections 1 and 11(f), shall anything herein limit or
otherwise affect such rights as the Executive may have under any contract or
agreement with the Company or any of its affiliated companies. Amounts which
are vested benefits or which the Executive is otherwise entitled to receive
under any plan, policy, practice or program of or any contract or agreement with
the Company or any of its affiliated companies at or subsequent to the Date of
Termination shall be payable in accordance with such plan, policy, practice or
program or contract or agreement except as explicitly modified by this
Agreement; provided that the Executive shall not be eligible for severance
benefits under any other program or policy of the Company.
7. Full Settlement. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement, and such amounts
shall not be reduced whether or not the Executive obtains other employment. The
Company agrees to pay as incurred, to the full extent permitted by law, all
legal fees and expenses which the Executive may reasonably incur as a result of
any contest (regardless of the outcome thereof) pursued or defended against in
good faith by the Executive regarding the validity or enforceability of, or
liability under, any provision of this Agreement or any guarantee of performance
thereof (including as a result of any contest by the Executive about the amount
of any payment pursuant to this Agreement), plus in each case interest on any
delayed payment at the applicable Federal rate provided for in Section
7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code").
8. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding and
except as set forth below, in the event it shall be determined that any payment
or distribution by the Company to or for the benefit of the Executive (whether
paid or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise, but determined without regard to any additional payments
required under this Section 8) (a "Payment") would be subject to the excise tax
imposed by Section 4999 of the Code or any interest or penalties are incurred by
the Executive with respect to such excise tax (such excise tax, together with
any such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after
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payment by the Executive of all taxes (including any interest or penalties
imposed with respect to such taxes), including, without limitation, any income
taxes (and any interest and penalties imposed with respect thereto) and Excise
Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
Notwithstanding the foregoing provisions of this Section 8(a), if it shall be
determined that the Executive is entitled to a Gross-Up Payment, but that the
Payments do not exceed 110% of the greatest amount (the "Reduced Amount") that
could be paid to the Executive such that the receipt of Payments would not give
rise to any Excise Tax, then no Gross-Up Payment shall be made to the Executive
and the Payments, in the aggregate, shall be reduced to the Reduced Amount.
(b) Subject to the provisions of Section 8(c), all determinations
required to be made under this Section 8, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be made by the Company's
independent auditors or such other certified public accounting firm reasonably
acceptable to the Executive as may be designated by the Company (the "Accounting
Firm") which shall provide detailed supporting calculations both to the Company
and the Executive within 15 business days of the receipt of notice from the
Executive that there has been a Payment, or such earlier time as is requested by
the Company. All fees and expenses of the Accounting Firm shall be borne solely
by the Company. Any Gross-Up Payment, as determined pursuant to this Section 8,
shall be paid by the Company to the Executive within five days of the later of
(i) the due date for the payment of any Excise Tax, and (ii) the receipt of the
Accounting Firm's determination. Any determination by the Accounting Firm shall
be binding upon the Company and the Executive. As a result of the uncertainty
in the application of Section 4999 of the Code at the time of the initial
determination by the Accounting Firm hereunder, it is possible that Gross-Up
Payments which will not have been made by the Company should have been made
("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies pursuant to
Section 8(c) and the Executive thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim
by the Internal Revenue Service that, if successful, would require the payment
by the Company of the Gross-Up Payment. Such notification shall be given as soon
as practicable but no later than ten business days after the Executive is
informed in writing of such claim and shall apprise the Company of the nature of
such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day period
following the date on which it gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes with respect to such claim
is due). If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:
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(i) give the Company any information reasonably requested by
the Company relating to such claim,
(ii) take such action in connection with contesting such
claim as the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with respect to
such claim by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
(iv) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions
of this Section 8(c), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forgo any
and all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option, either
direct the Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and the Executive agrees to prosecute such
contest to a determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that, if the Company directs the Executive to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and shall indemnify and hold
the Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such advance;
and further provided that any extension of the statute of limitations relating
to payment of taxes for the taxable year of the Executive with respect to which
such contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder and
the Executive shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority.
(d) If, after the receipt by the Executive of an amount advanced by
the Company pursuant to Section 8(c), the Executive becomes entitled to receive
any refund with respect to such claim, the Executive shall promptly pay to the
Company the amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after the receipt by the Executive
of an amount advanced by the Company pursuant to Section 8(c), a
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determination is made that the Executive shall not be entitled to any refund
with respect to such claim and the Company does not notify the Executive in
writing of its intent to contest such denial of refund prior to the expiration
of 30 days after such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such advance shall offset,
to the extent thereof, the amount of Gross-Up Payment required to be paid.
9. Covenant Not to Compete; Confidential Information.
(a) During the term of this Agreement, and for a six month period
after the Date of Termination, the Executive shall not directly or indirectly,
own, manage, operate, join, control, or participate in the ownership,
management, operation or control of, or be employed by or connected in any
manner with, any competing business, whether for compensation or otherwise,
without the prior written consent of the Company. Notwithstanding the preceding
sentence, the Executive shall not be prohibited from owning less than one (1%)
percent of any publicly traded corporation, whether or not such corporation is
deemed to be a competing business. For the purposes of this Agreement, a
"competing business" shall be any business which is a significant competitor of
the Company, or which the Company reasonably determines may become a significant
competitor, unless the Executive's primary duties and responsibilities with
respect to such business are not related to the management or operation of
disability insurance or complementary special risk products and services in any
country where the Company is conducting business. Should the Executive,
directly or indirectly, own, manage, operate, join, control or participate in
the ownership, management, operation or control of, or be employed by or
connected in any manner with, any competing business, all payments under this
Agreement shall cease.
(b) The Executive hereby acknowledges that, as an employee of the
Company, he will be making use of, acquiring and adding to confidential
information of a special and unique nature and value relating to the Company and
its strategic plan and financial operations. The Executive further recognizes
and acknowledges that all confidential information is the exclusive property of
the Company, is material and confidential, and is critical to the successful
conduct of the business of the Company. Accordingly, the Executive hereby
covenants and agrees that he will use confidential information for the benefit
of the Company only and shall not at any time, directly or indirectly, during
the term of this Agreement, and thereafter for all periods during which
severance or other amount is paid, divulge, reveal or communicate any
confidential information to any person, firm, corporation or entity whatsoever,
or use any confidential information for his own benefit or for the benefit of
others. In no event shall an asserted violation of the provisions of this
Section 9(b) constitute a basis for deferring or withholding any amounts
otherwise payable to the Executive under this Agreement.
(c) Any termination of the Executive's employment or of this
Agreement shall have no effect on the continuing operation of this Section 9.
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(d) In addition to the cessation of payments set forth in Section
9(a), the Executive acknowledges and agrees that the Company will have no
adequate remedy at law, and could be irreparably harmed, if the Executive
breaches or threatens to breach any of the provisions of this Section 9. The
Executive agrees that the Company shall be entitled to equitable and/or
injunctive relief to prevent any breach or threatened breach of this Section 9,
and to specific performance of each of the terms hereof in addition to any other
legal or equitable remedies that the Company may have. The Executive further
agrees that he shall not, in any equity proceeding relating to the enforcement
of the terms of this Section 9, raise the defense that the Company has an
adequate remedy at law.
(e) The terms and provisions of this Section 9 are intended to be
separate and divisible provisions and if, for any reason, any one or more of
them is held to be invalid or unenforceable, neither the validity nor the
enforceability of any other provision of this Agreement shall thereby be
affected. The parties hereto acknowledge that the potential restrictions on the
Executive's future employment imposed by this Section 9 are reasonable in both
duration and geographic scope and in all other respects. If for any reason any
court of competent jurisdiction shall find any provisions of this Section 9
unreasonable in duration or geographic scope or otherwise, the Executive and the
Company agree that the restrictions and prohibitions contained herein shall be
effective to the fullest extent allowed under applicable law in such
jurisdiction.
(f) The parties acknowledge that this Agreement would not have been
entered into and the benefits described in Sections 3 or 5 would not have been
promised in the absence of the Executive's promises under this Section 9.
10. Successors.
(a) This Agreement is personal to the Executive and without the prior
written consent of the Company shall not be assignable by the Executive
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by the Executive's legal
representatives.
(b) This Agreement shall inure to the benefit of and be binding
upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
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11. Miscellaneous.
(a) This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware, without reference to principles of
conflict of laws. The captions of this Agreement are not part of the provisions
hereof and shall have no force or effect. This Agreement may not be amended or
modified otherwise than by a written agreement executed by the parties hereto or
their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive:
20 Piper Road
Scarborough, Maine 04074
If to the Company:
2211 Congress Street
Portland, Maine 04122
Telecopy Number: (207) 770-4377
Attention: Chief Executive Officer
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement or the failure to assert any
right the Executive or the Company may have hereunder, including, without
limitation, the right of the Executive to terminate employment for Good Reason
pursuant to Section 4(c)(i)-(iv) of this Agreement, shall not be deemed to be a
waiver of such provision or right or any other provision or right of this
Agreement.
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(f) From and after the Effective Date this Agreement shall
supersede any other employment, severance or change of control agreement between
the parties with respect to the subject matter hereof.
12. General Release. All payments under this Agreement to be made in
connection with the Executive's termination of employment will be conditioned on
the Executive signing a general form of release.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's
hand and, pursuant to the authorization from its Board of Directors, the Company
has caused these presents to be executed in its name on its behalf, all as of
the day and year first above written.
EXECUTIVE
/s/ Robert W. Crispin
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UNUM CORPORATION
By: /s/ Kevin J. Tierney
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Provident agrees that as of the Effective Date it will honor this
Agreement and treat the Agreement as its own.
PROVIDENT COMPANIES, INC.
By: /s/ Dean Copeland
------------------------------
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EXHIBIT 10.5
EMPLOYMENT AGREEMENT
AGREEMENT by and between Unum Corporation, a Delaware corporation
having its principal executive offices in Portland, Maine (the "Company"), and
Elaine D. Rosen (the "Executive") dated as of the 30th day of June, 1999.
The Company and Provident Companies, Inc., a Delaware corporation
("Provident"), have determined that it is in the best interests of their
respective shareholders to assure that the Company will have the continued
dedication of the Executive pending the merger of the Company and Provident (the
"Merger") pursuant to the Agreement and Plan of Merger dated as of November 22,
1998 as amended as of May 25, 1999 (the "Merger Agreement") and to provide the
Company after the Merger with continuity of management. Therefore, in order to
accomplish these objectives, the Executive and the Company desire to enter into
this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Effective Date. The "Effective Date" shall mean the effective
date of the Merger, provided the Executive is employed by the Company on that
date. As of the Effective Date, the prior Severance Agreement effective August
1, 1991 ("Former Severance Agreement") between the Executive and the Company
shall terminate and become null and void, provided that, upon any termination of
the transactions contemplated by the Merger Agreement, this sentence will be
inapplicable.
2. Term of Agreement. The Company hereby agrees to continue to
employ the Executive, and the Executive hereby agrees to continue in the employ
of the Company subject to the terms and conditions of this Agreement, for the
period commencing on the Effective Date and ending on the third anniversary of
the Effective Date (the "Initial Term"). Beginning on the third anniversary of
the Effective Date, the Initial Term shall be automatically extended for one
year terms unless either the Company or the Executive shall give the other party
not less than ninety (90) days prior written notice of the intention to
terminate this Agreement.
3. Terms of Employment.
(a) Position and Duties.
(i) The Executive shall serve as Executive Vice President,
Products and Risk Management of the Company with the appropriate authority,
duties and responsibilities attendant to such position, it being understood that
from time to time the scope of such authority, duties and responsibilities will
vary depending upon acquisitions, dispositions and organizational structures of
the Company.
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(ii) Excluding any periods of vacation and sick leave to
which the Executive is entitled, the Executive agrees to devote substantially
all of his attention and time during normal business hours to the business and
affairs of the Company and, to the extent necessary to discharge the
responsibilities assigned to the Executive hereunder, to use the Executive's
reasonable best efforts to perform faithfully and efficiently such
responsibilities. It shall not be a violation of this Agreement for the
Executive to (A) serve, with prior approval of the Board, on corporate, civic or
charitable boards or committees, (B) deliver lectures, fulfill speaking
engagements or teach at educational institutions and (C) manage personal
investments, so long as such activities do not significantly interfere with the
performance of the Executive's responsibilities as an employee of the Company in
accordance with this Agreement. It is expressly understood and agreed that to
the extent that any such activities have been conducted by the Executive prior
to the Effective Date, the continued conduct of such activities (or the conduct
of activities similar in nature and scope thereto) subsequent to the Effective
Date shall not thereafter be deemed to interfere with the performance of the
Executive's responsibilities to the Company.
(b) Compensation.
(i) Annual Base Salary. The Executive shall receive an
annual base salary ("Annual Base Salary") of $500,000. Any increase in Annual
Base Salary shall not serve to limit or reduce any other obligation to the
Executive under this Agreement. Annual Base Salary shall not be reduced after
any such increase and the term Annual Base Salary as utilized in this Agreement
shall refer to Annual Base Salary as so increased.
(ii) Annual Bonus. The Executive shall be eligible to
receive an annual bonus ("Annual Bonus") with a target level of 75% of Annual
Base Salary (the "Target Bonus Amount").
(iii) Incentive Awards. Immediately after the Effective
Date, the Company shall grant the Executive options to purchase 170,000 shares
of the Company's common stock (the "Stock Options") pursuant to the terms of the
Company's Stock Plan of 1999. Except as otherwise provided herein, the Stock
Options shall vest in four equal installments, on the first, second, third, and
fourth anniversaries of the date of grant. Subsequent annual equity grants will
be made by the Compensation Committee of the Company's Board of Directors (the
"Compensation Committee") based upon competitive market analyses and such other
factors it may deem appropriate.
(iv) Other Employee Benefit Plans. Except as otherwise
expressly provided herein, the Executive shall be entitled to participate in all
employee benefit, welfare and other plans, practices, policies and programs
(including relocation programs) (collectively, "Employee Benefit Plans")
applicable to senior executive officers of the Company.
(v) Retirement Benefit. The Executive shall be entitled to
an annual retirement benefit payable monthly (the "Retirement Benefit") pursuant
to the terms of and
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under the current formula contained in the UNUM Corporation Supplemental
Executive Retirement Plan (the "Plan"); provided, however, in no event shall the
Executive's accrued Retirement Benefit be retroactively reduced. In calculating
this Retirement Benefit, the Executive shall receive full credit for all of his
years of service with the Company for all purposes.
4. Termination of Employment.
(a) Death or Disability. The Executive's employment shall
terminate automatically upon the Executive's death. If the Company determines in
good faith that the Disability of the Executive has occurred (pursuant to the
definition of Disability set forth below), it may give to the Executive written
notice in accordance with Section 11(b) of this Agreement of its intention to
terminate the Executive's employment. In such event, the Executive's employment
with the Company shall terminate effective on the 30th day after receipt of such
notice by the Executive (the "Disability Effective Date"), provided that, within
the 30 days after such receipt, the Executive shall not have returned to full-
time performance of the Executive's duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Executive from the Executive's duties
with the Company on a full-time basis for any twelve month period as a result of
incapacity due to mental or physical illness which is determined to be total and
permanent by a physician selected by the Company or its insurers and acceptable
to the Executive or the Executive's legal representative.
(b) Cause. The Company may terminate the Executive's employment
for Cause. For purposes of this Agreement, "Cause" shall mean:
(i) the continued failure of the Executive to perform
substantially the Executive's duties with the Company or one of its affiliates
(other than any such failure resulting from incapacity due to physical or mental
illness), after a written demand for substantial performance is delivered to the
Executive by the Chief Executive Officer of the Company ("CEO") or the Chief
Operating Officer of the Company ("COO") which specifically identifies the
manner in which the CEO or COO believes that the Executive has not substantially
performed the Executive's duties, or
(ii) the willful engaging by the Executive in illegal
conduct or gross misconduct which is materially and demonstrably injurious to
the Company, or
(iii) conviction of a felony or guilty or nolo contendere
plea by the Executive with respect thereto.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or upon the instructions of the CEO or COO or based upon
the advice of
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counsel for the Company shall be conclusively presumed to be done, or omitted to
be done, by the Executive in good faith and in the best interests of the
Company. The cessation of employment of the Executive shall not be deemed to be
for Cause unless and until there shall have been delivered to the Executive a
copy of a resolution duly adopted by the affirmative vote of not less than two
thirds of the entire membership of the Board at a meeting of the Board called
and held for such purpose (after reasonable notice is provided to the Executive
and the Executive is given an opportunity, together with counsel, to be heard
before the Board) finding that, in the good faith opinion of the Board, the
Executive is guilty of the conduct described in subparagraph (i) or (ii) above,
and specifying the particulars thereof in detail.
(c) Good Reason. The Executive's employment may be terminated by
the Executive for Good Reason. For purposes of this Agreement, "Good Reason"
shall mean the following events, provided, however, that clauses (i) through (v)
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shall constitute Good Reason only in the absence of the written consent of the
Executive:
(i) the assignment to the Executive of any duties
inconsistent with the Executive's position (including status, offices, titles
and reporting requirements), authority, duties or responsibilities as
contemplated by Section 3(a)(i) of this Agreement and its accompanying schedule,
or any other action by the Company which results in a diminution in such
position, authority, duties or responsibilities, excluding for this purpose an
isolated, insubstantial and inadvertent action not taken in bad faith and which
is remedied by the Company promptly after receipt of notice thereof given by the
Executive;
(ii) any failure by the Company to comply with any of the
provisions of Section 3(b) of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by the
Executive;
(iii) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by this Agreement,
or any failure to renew this Agreement;
(iv) any failure by the Company to comply with and satisfy
Section 10(c) of this Agreement; or
(v) any required relocation of the Executive, provided that
no required relocation shall be considered to constitute Good Reason unless it
occurs during the CIC Period (as defined in Section 5(a)(i)(A)).
(d) Change in Control. For purposes of this Agreement, "Change of
Control" shall mean the occurrence of any one of the following events:
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(i) during any period of two consecutive years, individuals
who, at the beginning or such period, constitute the Board (the "Incumbent
Directors") cease for any reason to constitute at least a majority of the Board,
provided that any person becoming a director and whose election or nomination
for election was approved by a vote of at least two-thirds of the Incumbent
Directors then on the Board (either by a specific vote or by approval of the
proxy statement of the Company in which such person is named as a nominee for
director, without written objection to such nomination) shall be an Incumbent
Director; provided, however, that no individual initially elected or nominated
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as a director of the Company as a result of an actual or threatened election
contest (as described in Rule 14a-11 under the Act) ("Election Contest") or
other actual or threatened solicitation of proxies or consents by or on behalf
of any "person" (as such term is defined in Section 3(a)(9) of the Act and as
used in Sections 13(d)(3) and 14(d)(2) of the Act) other than the Board ("Proxy
Contest"), including by reason of any agreement intended to avoid or settle any
Election or Contest or Proxy Contest, shall be deemed an Incumbent Director;
(ii) any person is or becomes a "beneficial owner" (as
defined in Rule 13d-3 under the Act), directly or indirectly, of securities of
the Company representing 20% or more of the combined voting power of the
Company's then outstanding securities eligible to vote for the election of the
Board (the "Company Voting Securities"); provided, however, that the event
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described in this paragraph (ii) shall not be deemed to be a Change in Control
of the Company by virtue of any of the following acquisitions: (A) by the
Company of any subsidiary, (B) by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any subsidiary, (C) by an underwriter
temporarily holding securities pursuant to an offering of such securities, (D)
pursuant to a Non-Qualifying Transaction (as defined in paragraph (iii), or (E)
a transaction (other than one described in (iii) below) in which Company Voting
Securities are acquired from the Company, if a majority of the Incumbent
Directors approve a resolution providing expressly that the acquisition pursuant
to this clause (E) does not constitute a Change in Control of the Company under
this paragraph (ii);
(iii) the consummation of a merger, consolidation, statutory
share exchange or similar form of corporate transaction involving the Company or
any of its subsidiaries that requires the approval of the Company's
stockholders, whether for such transaction or the issuance of securities in the
transaction (a "Reorganization"), or sale or other disposition of all or
substantially all of the Company's assets to an entity that is not an affiliate
of the Company (a "Sale"), unless immediately following such Reorganization or
Sale: (A) more than 50% of the total voting power of (x) the corporation
resulting from such Reorganization or the corporation which has acquired all or
substantially all of the assets of the Company (in either case, the "Surviving
Corporation"), or (y) if applicable, the ultimate parent corporation that
directly or indirectly has beneficial ownership of 100% of the voting securities
eligible to elect directors of the Surviving Corporation (the "Parent
Corporation"), is represented by the Company Voting Securities that were
outstanding immediately prior to such Reorganization or Sale (or, if applicable,
is represented by shares into which such Company Voting Securities were
converted pursuant to such Reorganization or Sale), and such voting power among
the holders thereof is in
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substantially the same proportion as the voting power of such Company Voting
Securities among the holders thereof immediately prior to the Reorganization or
Sale, (B) no person (other than any employee benefit plan (or related trust)
sponsored or maintained by the Surviving Corporation or the Parent Corporation)
is or becomes the beneficial owner, directly or indirectly, of 20% or more of
the total voting power of the outstanding voting securities eligible to elect
directors of the Parent Corporation (or, if there is no Parent Corporation, the
Surviving Corporation) and (C) at least a majority of the members of the board
of directors of the Parent Corporation (or, if there is no Parent Corporation,
the Surviving Corporation) following the consummation of the Reorganization or
Sale were Incumbent Directors at the time of the Board's approval of the
execution of the initial agreement providing for such Reorganization or Sale
(any Reorganization or Sale which satisfies all of the criteria specified in
(A), (B) and (C) above shall be deemed to be a "Non-Qualifying Transaction"); or
(iv) the stockholders of the Company approve a plan of
complete liquidation or dissolution of the Company.
Notwithstanding the foregoing, a Change in Control of the Company shall not be
deemed to occur solely because any person acquires beneficial ownership of more
than 20% of the Company Voting Securities as a result of the acquisition of
Company Voting Securities by the Company which reduces the number of Company
Voting Securities outstanding; provided, that if after such acquisition by the
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Company such person becomes the beneficial owner of additional Company Voting
Securities that increases the percentage of outstanding Company Voting
Securities beneficially owned by such person, a Change in Control of the Company
shall then occur.
(e) Notice of Termination. Any termination by the Company or by
the Executive shall be communicated by Notice of Termination to the other party
hereto given in accordance with Section 11(b) of this Agreement. For purposes of
this Agreement, a "Notice of Termination" means a written notice which (i)
indicates the specific termination provision in this Agreement relied upon, (ii)
to the extent applicable, sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated and (iii) specifies the Date of
Termination (as defined below). The failure by the Executive or the Company to
set forth in the Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason or Cause shall not waive any right of
the Executive or the Company, respectively, hereunder or preclude the Executive
or the Company, respectively, from asserting such fact or circumstance in
enforcing the Executive's or the Company's rights hereunder.
(f) Date of Termination. "Date of Termination" means (i) if the
Executive's employment is terminated by the Company other than for Disability,
the date of receipt of the Notice of Termination or any later date specified
therein within 30 days of such notice, (ii) if the Executive's employment is
terminated by reason of death or Disability, the Date of Termination shall be
the date of death of the Executive or the Disability Effective Date, as the case
may be, and (iii) if the Executive's employment is terminated by the Executive
the Date of
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Termination shall be thirty days after the giving of such notice by the
Executive provided that the Company may elect to place the Executive on paid
leave for all or any part of such 30-day period.
5. Obligations of the Company upon Termination.
(a) Good Reason; Other Than for Cause, Death or Disability. If,
the Company shall terminate the Executive's employment other than for Cause or
Disability, or the Executive shall terminate employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in
cash within 30 days after the Date of Termination:
A. the product of three (3), if such termination occurs
during the Initial Term or the three (3) year period after a Change in Control
(such Initial Term and three year period being hereafter referred to as the "CIC
Period"), otherwise, two (2) times the sum of (1) the highest annual bonus paid
to the Executive for any of the three years prior to the Date of Termination
(the "Recent Annual Bonus") and (2) the Executive's Annual Base Salary;
B. the sum of (x) the Executive's Annual Base Salary
through the Date of Termination to the extent not theretofore paid, and (y) the
product of (1) the Recent Annual Bonus and (2) a fraction, the numerator of
which is the number of days in the fiscal year in which the Date of Termination
occurs through the Date of Termination and the denominator of which is 365, to
the extent not theretofore paid (the sum of the amounts described in clauses (x)
and (y) shall be hereinafter referred to as the "Accrued Obligations"); and
C. if such termination occurs during the CIC Period, a
lump sum cash payment equal to the difference between (x) the actuarial present
value of the Retirement Benefit determined using the actuarial assumptions
prescribed under the tax-qualified defined benefit plan under which the
Executive was eligible for participation at the time of termination of
employment, assuming the Executive had accumulated three additional years of
employment, and (y) the actuarial present value of the Retirement Benefit
determined using the actuarial assumptions prescribed under the tax-qualified
defined benefit plan under which the Executive was eligible for participation at
the time of termination of employment.
(ii) the Company shall continue to provide, for a period of
three (3), if such termination occurs during the CIC Period, otherwise two (2),
years following the Executive's Date of Termination, the Executive (and the
Executive's dependents, if applicable) with the same level of medical, dental,
accident, disability and life insurance benefits upon substantially the same
terms and conditions (including contributions required by the Executive for such
benefits) as existed immediately prior to the Executive's Date of Termination
(or, if more favorable to the Executive, as such benefits and terms and
conditions existed immediately prior to the Change in Control); provided that,
if the Executive cannot continue to participate in the
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Company plans providing such benefits, the Company shall otherwise provide such
benefits on the same after-tax basis as if continued participation had been
permitted. Notwithstanding the foregoing, in the event the Executive becomes
reemployed with another employer and becomes eligible to receive welfare
benefits from such employer, the welfare benefits described herein shall be
secondary to such benefits during the period of the Executive's eligibility, but
only to the extent that the Company reimburses the Executive for any increased
cost and provides any additional benefits necessary to give the Executive the
benefits provided hereunder.
(iii) the Stock Options shall vest and shall remain
exercisable for a period of two years or the earlier expiration of their initial
term, and if such termination occurs during the CIC Period, all other stock
options, restricted stock awards and other equity based awards granted after the
date of this Agreement (the "Equity Awards") shall vest (and such options shall
remain exercisable for a period of two years or the earlier expiration of their
initial term), otherwise, the Equity Awards will expire as provided under the
terms of their applicable agreements; and
(iv) to the extent not theretofore paid or provided, the
Company shall timely pay or provide to the Executive any other amounts or
benefits required to be paid or provided or which the Executive is eligible to
receive under any plan, program, policy or practice or contract or agreement of
the Company and its affiliated companies through the Date of Termination (such
other amounts and benefits shall be hereinafter referred to as the "Other
Benefits").
(b) Death or Disability. If the Executive's employment is
terminated by reason of the Executive's death, this Agreement shall terminate
without further obligations to the Executive's legal representatives or to the
Executive, as the case may be, under this Agreement, other than for payment of
Accrued Obligations, the timely payment or provision of Other Benefits, and the
Retirement Benefit. In addition, the Stock Options shall vest immediately and
remain exercisable for a period of at least three years or the earlier
expiration of their initial term. Accrued Obligations shall be paid to the
Executive, the Executive's estate or beneficiary, as applicable, in a lump sum
in cash within 30 days of the Date of Termination.
(c) Cause; Other than for Good Reason. If the Executive's
employment shall be terminated for Cause or the Executive terminates his
employment without Good Reason, this Agreement shall terminate without further
obligations to the Executive other than the obligation to pay to the Executive
(i) his Annual Base Salary through the Date of Termination to the extent
theretofore unpaid and, (ii) the Other Benefits.
6. Non-exclusivity of Rights. Except as specifically provided,
nothing in this Agreement shall prevent or limit the Executive's continuing or
future participation in any plan, program, policy or practice provided by the
Company or any of its affiliated companies and for which the Executive may
qualify, nor, subject to Sections 1 and 11(f), shall anything herein limit or
otherwise affect such rights as the Executive may have under any contract or
agreement with the Company or any of its affiliated companies. Amounts which
are vested benefits or which the Executive is otherwise entitled to receive
under any plan, policy, practice or program of or any contract or agreement with
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the Company or any of its affiliated companies at or subsequent to the Date of
Termination shall be payable in accordance with such plan, policy, practice or
program or contract or agreement except as explicitly modified by this
Agreement; provided that the Executive shall not be eligible for severance
benefits under any other program or policy of the Company.
7. Full Settlement. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement, and such amounts
shall not be reduced whether or not the Executive obtains other employment. The
Company agrees to pay as incurred, to the full extent permitted by law, all
legal fees and expenses which the Executive may reasonably incur as a result of
any contest (regardless of the outcome thereof) pursued or defended against in
good faith by the Executive regarding the validity or enforceability of, or
liability under, any provision of this Agreement or any guarantee of performance
thereof (including as a result of any contest by the Executive about the amount
of any payment pursuant to this Agreement), plus in each case interest on any
delayed payment at the applicable Federal rate provided for in Section
7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code").
8. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding
and except as set forth below, in the event it shall be determined that any
payment or distribution by the Company to or for the benefit of the Executive
(whether paid or payable or distributed or distributable pursuant to the terms
of this Agreement or otherwise, but determined without regard to any additional
payments required under this Section 8) (a "Payment") would be subject to the
excise tax imposed by Section 4999 of the Code or any interest or penalties are
incurred by the Executive with respect to such excise tax (such excise tax,
together with any such interest and penalties, are hereinafter collectively
referred to as the "Excise Tax"), then the Executive shall be entitled to
receive an additional payment (a "Gross-Up Payment") in an amount such that
after payment by the Executive of all taxes (including any interest or penalties
imposed with respect to such taxes), including, without limitation, any income
taxes (and any interest and penalties imposed with respect thereto) and Excise
Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
Notwithstanding the foregoing provisions of this Section 8(a), if it shall be
determined that the Executive is entitled to a Gross-Up Payment, but that the
Payments do not exceed 110% of the greatest amount (the "Reduced Amount") that
could be paid to the Executive such that the receipt of Payments would not give
rise to any Excise Tax, then no Gross-Up Payment shall be
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made to the Executive and the Payments, in the aggregate, shall be reduced to
the Reduced Amount.
(b) Subject to the provisions of Section 8(c), all determinations
required to be made under this Section 8, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be made by the Company's
independent auditors or such other certified public accounting firm reasonably
acceptable to the Executive as may be designated by the Company (the "Accounting
Firm") which shall provide detailed supporting calculations both to the Company
and the Executive within 15 business days of the receipt of notice from the
Executive that there has been a Payment, or such earlier time as is requested by
the Company. All fees and expenses of the Accounting Firm shall be borne solely
by the Company. Any Gross-Up Payment, as determined pursuant to this Section 8,
shall be paid by the Company to the Executive within five days of the later of
(i) the due date for the payment of any Excise Tax, and (ii) the receipt of the
Accounting Firm's determination. Any determination by the Accounting Firm shall
be binding upon the Company and the Executive. As a result of the uncertainty in
the application of Section 4999 of the Code at the time of the initial
determination by the Accounting Firm hereunder, it is possible that Gross-Up
Payments which will not have been made by the Company should have been made
("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies pursuant to
Section 8(c) and the Executive thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification shall be given
as soon as practicable but no later than ten business days after the Executive
is informed in writing of such claim and shall apprise the Company of the nature
of such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day period
following the date on which it gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes with respect to such claim
is due). If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:
(i) give the Company any information reasonably requested by
the Company relating to such claim,
(ii) take such action in connection with contesting such
claim as the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with respect to
such claim by an attorney reasonably selected by the Company,
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(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
(iv) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 8(c), the Company shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either direct
the Executive to pay the tax claimed and sue for a refund or contest the claim
in any permissible manner, and the Executive agrees to prosecute such contest to
a determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that, if the Company directs the Executive to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and shall indemnify and hold
the Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such advance;
and further provided that any extension of the statute of limitations relating
to payment of taxes for the taxable year of the Executive with respect to which
such contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder and
the Executive shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority.
(d) If, after the receipt by the Executive of an amount advanced
by the Company pursuant to Section 8(c), the Executive becomes entitled to
receive any refund with respect to such claim, the Executive shall promptly pay
to the Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by the
Executive of an amount advanced by the Company pursuant to Section 8(c), a
determination is made that the Executive shall not be entitled to any refund
with respect to such claim and the Company does not notify the Executive in
writing of its intent to contest such denial of refund prior to the expiration
of 30 days after such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such advance shall offset,
to the extent thereof, the amount of Gross-Up Payment required to be paid.
9. Covenant Not to Compete; Confidential Information.
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(a) During the term of this Agreement, and for a six month period
after the Date of Termination, the Executive shall not directly or indirectly,
own, manage, operate, join, control, or participate in the ownership,
management, operation or control of, or be employed by or connected in any
manner with, any competing business, whether for compensation or otherwise,
without the prior written consent of the Company. Notwithstanding the preceding
sentence, the Executive shall not be prohibited from owning less than one (1%)
percent of any publicly traded corporation, whether or not such corporation is
deemed to be a competing business. For the purposes of this Agreement, a
"competing business" shall be any business which is a significant competitor of
the Company, or which the Company reasonably determines may become a significant
competitor, unless the Executive's primary duties and responsibilities with
respect to such business are not related to the management or operation of
disability insurance or complementary special risk products and services in any
country where the Company is conducting business. Should the Executive, directly
or indirectly, own, manage, operate, join, control or participate in the
ownership, management, operation or control of, or be employed by or connected
in any manner with, any competing business, all payments under this Agreement
shall cease.
(b) The Executive hereby acknowledges that, as an employee of the
Company, he will be making use of, acquiring and adding to confidential
information of a special and unique nature and value relating to the Company and
its strategic plan and financial operations. The Executive further recognizes
and acknowledges that all confidential information is the exclusive property of
the Company, is material and confidential, and is critical to the successful
conduct of the business of the Company. Accordingly, the Executive hereby
covenants and agrees that he will use confidential information for the benefit
of the Company only and shall not at any time, directly or indirectly, during
the term of this Agreement, and thereafter for all periods during which
severance or other amount is paid, divulge, reveal or communicate any
confidential information to any person, firm, corporation or entity whatsoever,
or use any confidential information for his own benefit or for the benefit of
others. In no event shall an asserted violation of the provisions of this
Section 9(b) constitute a basis for deferring or withholding any amounts
otherwise payable to the Executive under this Agreement.
(c) Any termination of the Executive's employment or of this
Agreement shall have no effect on the continuing operation of this Section 9.
(d) In addition to the cessation of payments set forth in Section
9(a), the Executive acknowledges and agrees that the Company will have no
adequate remedy at law, and could be irreparably harmed, if the Executive
breaches or threatens to breach any of the provisions of this Section 9. The
Executive agrees that the Company shall be entitled to equitable and/or
injunctive relief to prevent any breach or threatened breach of this Section 9,
and to specific performance of each of the terms hereof in addition to any other
legal or equitable remedies that the Company may have. The Executive further
agrees that he shall not, in any equity proceeding relating to the enforcement
of the terms of this Section 9, raise the defense that the Company has an
adequate remedy at law.
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(e) The terms and provisions of this Section 9 are intended to be
separate and divisible provisions and if, for any reason, any one or more of
them is held to be invalid or unenforceable, neither the validity nor the
enforceability of any other provision of this Agreement shall thereby be
affected. The parties hereto acknowledge that the potential restrictions on the
Executive's future employment imposed by this Section 9 are reasonable in both
duration and geographic scope and in all other respects. If for any reason any
court of competent jurisdiction shall find any provisions of this Section 9
unreasonable in duration or geographic scope or otherwise, the Executive and the
Company agree that the restrictions and prohibitions contained herein shall be
effective to the fullest extent allowed under applicable law in such
jurisdiction.
(f) The parties acknowledge that this Agreement would not have
been entered into and the benefits described in Sections 3 or 5 would not have
been promised in the absence of the Executive's promises under this Section 9.
10. Successors.
(a) This Agreement is personal to the Executive and without the
prior written consent of the Company shall not be assignable by the Executive
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by the Executive's legal
representatives.
(b) This Agreement shall inure to the benefit of and be binding
upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
11. Miscellaneous.
(a) This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without reference to
principles of conflict of laws. The captions of this Agreement are not part of
the provisions hereof and shall have no force or effect. This Agreement may not
be amended or modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal representatives.
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(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive:
One Hoylake Circle
Scarborough, Maine 04105
If to the Company:
2211 Congress Street
Portland, Maine 04122
Telecopy Number: (207) 770-4377
Attention: Chief Executive Officer
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon
strict compliance with any provision of this Agreement or the failure to assert
any right the Executive or the Company may have hereunder, including, without
limitation, the right of the Executive to terminate employment for Good Reason
pursuant to Section 4(c)(i)-(iv) of this Agreement, shall not be deemed to be a
waiver of such provision or right or any other provision or right of this
Agreement.
(f) From and after the Effective Date this Agreement shall
supersede any other employment, severance or change of control agreement between
the parties with respect to the subject matter hereof.
12. General Release. All payments under this Agreement to be made in
connection with the Executive's termination of employment will be conditioned on
the Executive signing a general form of release.
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IN WITNESS WHEREOF, the Executive has hereunto set the Executive's
hand and, pursuant to the authorization from its Board of Directors, the Company
has caused these presents to be executed in its name on its behalf, all as of
the day and year first above written.
EXECUTIVE
/s/ Elaine D. Rosen
-------------------------------------------------
UNUM CORPORATION
By: /s/ Kevin J. Tierney
---------------------------------------------
Provident agrees that as of the Effective Date it will honor this
Agreement and treat the Agreement as its own.
PROVIDENT COMPANIES, INC.
By: /s/ Dean Copeland
---------------------------------------------
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EXHIBIT 10.6
EMPLOYMENT AGREEMENT
AGREEMENT by and between Provident Companies, Inc., a Delaware
corporation having its principal executive offices in Chattanooga, Tennessee
(the "Company"), and Thomas R. Watjen (the "Executive") dated as of the 30th day
of June, 1999.
The Company and Unum Corporation, a Delaware corporation ("Unum"),
have determined that it is in the best interests of their respective
shareholders to assure that the Company will have the continued dedication of
the Executive pending the merger of the Company and Unum (the "Merger") pursuant
to the Agreement and Plan of Merger dated as of November 22, 1998 as amended as
of May 25, 1999 (the "Merger Agreement") and to provide the Company after the
Merger with continuity of management. Therefore, in order to accomplish these
objectives, the Executive and the Company desire to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Effective Date. The "Effective Date" shall mean the effective
date of the Merger, provided the Executive is employed by the Company on that
date. As of the Effective Date, the prior Severance Agreement effective
December 20, 1994 ("Former Severance Agreement") between the Executive and the
Company shall terminate and become null and void, provided that, upon any
termination of the transactions contemplated by the Merger Agreement, this
sentence will be inapplicable.
2. Term of Agreement. The Company hereby agrees to continue to
employ the Executive, and the Executive hereby agrees to continue in the employ
of the Company subject to the terms and conditions of this Agreement, for the
period commencing on the Effective Date and ending on the third anniversary of
the Effective Date (the "Initial Term"). Beginning on the third anniversary of
the Effective Date, the Initial Term shall be automatically extended for one
year terms unless either the Company or the Executive shall give the other party
not less than ninety (90) days prior written notice of the intention to
terminate this Agreement.
3. Terms of Employment.
(a) Position and Duties.
(i) The Executive shall serve as Executive Vice President,
Finance of the Company with the appropriate authority, duties and
responsibilities attendant to such position, it being understood that from time
to time the scope of such authority, duties and responsibilities will vary
depending upon acquisitions, dispositions and organizational structures of the
Company.
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(ii) Excluding any periods of vacation and sick leave to
which the Executive is entitled, the Executive agrees to devote substantially
all of his attention and time during normal business hours to the business and
affairs of the Company and, to the extent necessary to discharge the
responsibilities assigned to the Executive hereunder, to use the Executive's
reasonable best efforts to perform faithfully and efficiently such
responsibilities. It shall not be a violation of this Agreement for the
Executive to (A) serve, with prior approval of the Board, on corporate, civic or
charitable boards or committees, (B) deliver lectures, fulfill speaking
engagements or teach at educational institutions and (C) manage personal
investments, so long as such activities do not significantly interfere with the
performance of the Executive's responsibilities as an employee of the Company in
accordance with this Agreement. It is expressly understood and agreed that to
the extent that any such activities have been conducted by the Executive prior
to the Effective Date, the continued conduct of such activities (or the conduct
of activities similar in nature and scope thereto) subsequent to the Effective
Date shall not thereafter be deemed to interfere with the performance of the
Executive's responsibilities to the Company.
(b) Compensation.
(i) Annual Base Salary. The Executive shall receive an
annual base salary ("Annual Base Salary") of $500,000. Any increase in Annual
Base Salary shall not serve to limit or reduce any other obligation to the
Executive under this Agreement. Annual Base Salary shall not be reduced after
any such increase and the term Annual Base Salary as utilized in this Agreement
shall refer to Annual Base Salary as so increased.
(ii) Annual Bonus. The Executive shall be eligible to
receive an annual bonus ("Annual Bonus") with a target level of 75% of Annual
Base Salary (the "Target Bonus Amount").
(iii) Incentive Awards. Immediately after the Effective
Date, the Company shall grant the Executive options to purchase 170,000 shares
of the Company's common stock (the "Stock Options") pursuant to the terms of the
Company's Stock Plan of 1999. Except as otherwise provided herein, the Stock
Options shall vest in four equal installments, on the first, second, third, and
fourth anniversaries of the date of grant. Subsequent annual equity grants will
be made by the Compensation Committee of the Company's Board of Directors (the
"Compensation Committee") based upon competitive market analyses and such other
factors it may deem appropriate.
(iv) Other Employee Benefit Plans. Except as otherwise
expressly provided herein, the Executive shall be entitled to participate in all
employee benefit, welfare and other plans, practices, policies and programs
(including relocation programs) (collectively, "Employee Benefit Plans")
applicable to senior executive officers of the Company.
(v) Retirement Benefit. The Executive shall be entitled to
an annual retirement benefit payable monthly (the "Retirement Benefit") pursuant
to the terms of and under the current formula contained in the UNUM Corporation
Supplemental Executive
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Retirement Plan (the "Plan"); provided, however, in no event shall the
Executive's accrued Retirement Benefit be retroactively reduced. In calculating
this Retirement Benefit, the Executive shall receive full credit for all of his
years of service with the Company for all purposes.
4. Termination of Employment.
(a) Death or Disability. The Executive's employment shall
terminate automatically upon the Executive's death. If the Company determines in
good faith that the Disability of the Executive has occurred (pursuant to the
definition of Disability set forth below), it may give to the Executive written
notice in accordance with Section 11(b) of this Agreement of its intention to
terminate the Executive's employment. In such event, the Executive's employment
with the Company shall terminate effective on the 30th day after receipt of such
notice by the Executive (the "Disability Effective Date"), provided that, within
the 30 days after such receipt, the Executive shall not have returned to full-
time performance of the Executive's duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Executive from the Executive's duties
with the Company on a full-time basis for any twelve month period as a result of
incapacity due to mental or physical illness which is determined to be total and
permanent by a physician selected by the Company or its insurers and acceptable
to the Executive or the Executive's legal representative.
(b) Cause. The Company may terminate the Executive's employment
for Cause. For purposes of this Agreement, "Cause" shall mean:
(i) the continued failure of the Executive to perform
substantially the Executive's duties with the Company or one of its affiliates
(other than any such failure resulting from incapacity due to physical or mental
illness), after a written demand for substantial performance is delivered to the
Executive by the Chief Executive Officer of the Company ("CEO") or the Chief
Operating Officer of the Company ("COO") which specifically identifies the
manner in which the CEO or COO believes that the Executive has not substantially
performed the Executive's duties, or
(ii) the willful engaging by the Executive in illegal
conduct or gross misconduct which is materially and demonstrably injurious to
the Company, or
(iii) conviction of a felony or guilty or nolo contendere
plea by the Executive with respect thereto.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or upon the instructions of the CEO or COO or based upon
the advice of counsel for the Company shall be conclusively presumed to be done,
or omitted to be done, by the
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Executive in good faith and in the best interests of the Company. The cessation
of employment of the Executive shall not be deemed to be for Cause unless and
until there shall have been delivered to the Executive a copy of a resolution
duly adopted by the affirmative vote of not less than two thirds of the entire
membership of the Board at a meeting of the Board called and held for such
purpose (after reasonable notice is provided to the Executive and the Executive
is given an opportunity, together with counsel, to be heard before the Board)
finding that, in the good faith opinion of the Board, the Executive is guilty of
the conduct described in subparagraph (i) or (ii) above, and specifying the
particulars thereof in detail.
(c) Good Reason. The Executive's employment may be terminated by
the Executive for Good Reason. For purposes of this Agreement, "Good Reason"
shall mean the following events, provided, however, that clauses (i) through (v)
-------- -------
shall constitute Good Reason only in the absence of the written consent of the
Executive:
(i) the assignment to the Executive of any duties
inconsistent with the Executive's position (including status, offices, titles
and reporting requirements), authority, duties or responsibilities as
contemplated by Section 3(a)(i) of this Agreement and its accompanying schedule,
or any other action by the Company which results in a diminution in such
position, authority, duties or responsibilities, excluding for this purpose an
isolated, insubstantial and inadvertent action not taken in bad faith and which
is remedied by the Company promptly after receipt of notice thereof given by the
Executive;
(ii) any failure by the Company to comply with any of the
provisions of Section 3(b) of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by the
Executive;
(iii) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by this Agreement,
or any failure to renew this Agreement;
(iv) any failure by the Company to comply with and satisfy
Section 10(c) of this Agreement; or
(v) any required relocation of the Executive, provided that
no required relocation shall be considered to constitute Good Reason unless it
occurs during the CIC Period (as defined in Section 5(a)(i)(A)).
(d) Change in Control. For purposes of this Agreement, "Change of
Control" shall mean the occurrence of any one of the following events:
(i) during any period of two consecutive years, individuals
who, at the beginning or such period, constitute the Board (the "Incumbent
Directors") cease for
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any reason to constitute at least a majority of the Board, provided that any
person becoming a director and whose election or nomination for election was
approved by a vote of at least two-thirds of the Incumbent Directors then on the
Board (either by a specific vote or by approval of the proxy statement of the
Company in which such person is named as a nominee for director, without written
objection to such nomination) shall be an Incumbent Director; provided, however,
-------- -------
that no individual initially elected or nominated as a director of the Company
as a result of an actual or threatened election contest (as described in Rule
14a-11 under the Act) ("Election Contest") or other actual or threatened
solicitation of proxies or consents by or on behalf of any "person" (as such
term is defined in Section 3(a)(9) of the Act and as used in Sections 13(d)(3)
and 14(d)(2) of the Act) other than the Board ("Proxy Contest"), including by
reason of any agreement intended to avoid or settle any Election or Contest or
Proxy Contest, shall be deemed an Incumbent Director;
(ii) any person is or becomes a "beneficial owner" (as
defined in Rule 13d-3 under the Act), directly or indirectly, of securities of
the Company representing 20% or more of the combined voting power of the
Company's then outstanding securities eligible to vote for the election of the
Board (the "Company Voting Securities"); provided, however, that the event
-------- -------
described in this paragraph (ii) shall not be deemed to be a Change in Control
of the Company by virtue of any of the following acquisitions: (A) by the
Company of any subsidiary, (B) by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any subsidiary, (C) by an underwriter
temporarily holding securities pursuant to an offering of such securities, (D)
pursuant to a Non-Qualifying Transaction (as defined in paragraph (iii), or (E)
a transaction (other than one described in (iii) below) in which Company Voting
Securities are acquired from the Company, if a majority of the Incumbent
Directors approve a resolution providing expressly that the acquisition pursuant
to this clause (E) does not constitute a Change in Control of the Company under
this paragraph (ii);
(iii) the consummation of a merger, consolidation, statutory
share exchange or similar form of corporate transaction involving the Company or
any of its subsidiaries that requires the approval of the Company's
stockholders, whether for such transaction or the issuance of securities in the
transaction (a "Reorganization"), or sale or other disposition of all or
substantially all of the Company's assets to an entity that is not an affiliate
of the Company (a "Sale"), unless immediately following such Reorganization or
Sale: (A) more than 50% of the total voting power of (x) the corporation
resulting from such Reorganization or the corporation which has acquired all or
substantially all of the assets of the Company (in either case, the "Surviving
Corporation"), or (y) if applicable, the ultimate parent corporation that
directly or indirectly has beneficial ownership of 100% of the voting securities
eligible to elect directors of the Surviving Corporation (the "Parent
Corporation"), is represented by the Company Voting Securities that were
outstanding immediately prior to such Reorganization or Sale (or, if applicable,
is represented by shares into which such Company Voting Securities were
converted pursuant to such Reorganization or Sale), and such voting power among
the holders thereof is in substantially the same proportion as the voting power
of such Company Voting Securities among the holders thereof immediately prior to
the Reorganization or Sale, (B) no person (other than any
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employee benefit plan (or related trust) sponsored or maintained by the
Surviving Corporation or the Parent Corporation) is or becomes the beneficial
owner, directly or indirectly, of 20% or more of the total voting power of the
outstanding voting securities eligible to elect directors of the Parent
Corporation (or, if there is no Parent Corporation, the Surviving Corporation)
and (C) at least a majority of the members of the board of directors of the
Parent Corporation (or, if there is no Parent Corporation, the Surviving
Corporation) following the consummation of the Reorganization or Sale were
Incumbent Directors at the time of the Board's approval of the execution of the
initial agreement providing for such Reorganization or Sale (any Reorganization
or Sale which satisfies all of the criteria specified in (A), (B) and (C) above
shall be deemed to be a "Non-Qualifying Transaction"); or
(iv) the stockholders of the Company approve a plan of
complete liquidation or dissolution of the Company.
Notwithstanding the foregoing, a Change in Control of the Company shall not be
deemed to occur solely because any person acquires beneficial ownership of more
than 20% of the Company Voting Securities as a result of the acquisition of
Company Voting Securities by the Company which reduces the number of Company
Voting Securities outstanding; provided, that if after such acquisition by the
-------- ----
Company such person becomes the beneficial owner of additional Company Voting
Securities that increases the percentage of outstanding Company Voting
Securities beneficially owned by such person, a Change in Control of the Company
shall then occur.
(e) Notice of Termination. Any termination by the Company or by
the Executive shall be communicated by Notice of Termination to the other party
hereto given in accordance with Section 11(b) of this Agreement. For purposes of
this Agreement, a "Notice of Termination" means a written notice which (i)
indicates the specific termination provision in this Agreement relied upon, (ii)
to the extent applicable, sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated and (iii) specifies the Date of
Termination (as defined below). The failure by the Executive or the Company to
set forth in the Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason or Cause shall not waive any right of
the Executive or the Company, respectively, hereunder or preclude the Executive
or the Company, respectively, from asserting such fact or circumstance in
enforcing the Executive's or the Company's rights hereunder.
(f) Date of Termination. "Date of Termination" means (i) if the
Executive's employment is terminated by the Company other than for Disability,
the date of receipt of the Notice of Termination or any later date specified
therein within 30 days of such notice, (ii) if the Executive's employment is
terminated by reason of death or Disability, the Date of Termination shall be
the date of death of the Executive or the Disability Effective Date, as the case
may be, and (iii) if the Executive's employment is terminated by the Executive
the Date of Termination shall be thirty days after the giving of such notice by
the Executive provided that the Company may elect to place the Executive on paid
leave for all or any part of such 30-day period.
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5. Obligations of the Company upon Termination.
(a) Good Reason; Other Than for Cause, Death or Disability. If,
the Company shall terminate the Executive's employment other than for Cause or
Disability, or the Executive shall terminate employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in
cash within 30 days after the Date of Termination:
A. the product of three (3), if such termination occurs
during the Initial Term or the three (3) year period after a Change in Control
(such Initial Term and three year period being hereafter referred to as the "CIC
Period"), otherwise, two (2) times the sum of (1) the highest annual bonus paid
to the Executive for any of the three years prior to the Date of Termination
(the "Recent Annual Bonus") and (2) the Executive's Annual Base Salary;
B. the sum of (x) the Executive's Annual Base Salary
through the Date of Termination to the extent not theretofore paid, and (y) the
product of (1) the Recent Annual Bonus and (2) a fraction, the numerator of
which is the number of days in the fiscal year in which the Date of Termination
occurs through the Date of Termination and the denominator of which is 365, to
the extent not theretofore paid (the sum of the amounts described in clauses (x)
and (y) shall be hereinafter referred to as the "Accrued Obligations"); and
C. if such termination occurs during the CIC Period, a
lump sum cash payment equal to the difference between (x) the actuarial present
value of the Retirement Benefit determined using the actuarial assumptions
prescribed under the tax-qualified defined benefit plan under which the
Executive was eligible for participation at the time of termination of
employment, assuming the Executive had accumulated three additional years of
employment, and (y) the actuarial present value of the Retirement Benefit
determined using the actuarial assumptions prescribed under the tax-qualified
defined benefit plan under which the Executive was eligible for participation at
the time of termination of employment.
(ii) the Company shall continue to provide, for a period of
three (3), if such termination occurs during the CIC Period, otherwise two (2),
years following the Executive's Date of Termination, the Executive (and the
Executive's dependents, if applicable) with the same level of medical, dental,
accident, disability and life insurance benefits upon substantially the same
terms and conditions (including contributions required by the Executive for such
benefits) as existed immediately prior to the Executive's Date of Termination
(or, if more favorable to the Executive, as such benefits and terms and
conditions existed immediately prior to the Change in Control); provided that,
if the Executive cannot continue to participate in the Company plans providing
such benefits, the Company shall otherwise provide such benefits on the same
after-tax basis as if continued participation had been permitted.
Notwithstanding the
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foregoing, in the event the Executive becomes reemployed with another employer
and becomes eligible to receive welfare benefits from such employer, the welfare
benefits described herein shall be secondary to such benefits during the period
of the Executive's eligibility, but only to the extent that the Company
reimburses the Executive for any increased cost and provides any additional
benefits necessary to give the Executive the benefits provided hereunder.
(iii) the Stock Options shall vest and shall remain
exercisable for a period of two years or the earlier expiration of their initial
term, and if such termination occurs during the CIC Period, all other stock
options, restricted stock awards and other equity based awards granted after the
date of this Agreement (the "Equity Awards") shall vest (and such options shall
remain exercisable for a period of two years or the earlier expiration of their
initial term), otherwise, the Equity Awards will expire as provided under the
terms of their applicable agreements; and
(iv) to the extent not theretofore paid or provided, the
Company shall timely pay or provide to the Executive any other amounts or
benefits required to be paid or provided or which the Executive is eligible to
receive under any plan, program, policy or practice or contract or agreement of
the Company and its affiliated companies through the Date of Termination (such
other amounts and benefits shall be hereinafter referred to as the "Other
Benefits").
(b) Death or Disability. If the Executive's employment is
terminated by reason of the Executive's death, this Agreement shall terminate
without further obligations to the Executive's legal representatives or to the
Executive, as the case may be, under this Agreement, other than for payment of
Accrued Obligations, the timely payment or provision of Other Benefits, and the
Retirement Benefit. In addition, the Stock Options shall vest immediately and
remain exercisable for a period of at least three years or the earlier
expiration of their initial term. Accrued Obligations shall be paid to the
Executive, the Executive's estate or beneficiary, as applicable, in a lump sum
in cash within 30 days of the Date of Termination.
(c) Cause; Other than for Good Reason. If the Executive's
employment shall be terminated for Cause or the Executive terminates his
employment without Good Reason, this Agreement shall terminate without further
obligations to the Executive other than the obligation to pay to the Executive
(i) his Annual Base Salary through the Date of Termination to the extent
theretofore unpaid and, (ii) the Other Benefits.
6. Non-exclusivity of Rights. Except as specifically provided,
nothing in this Agreement shall prevent or limit the Executive's continuing or
future participation in any plan, program, policy or practice provided by the
Company or any of its affiliated companies and for which the Executive may
qualify, nor, subject to Sections 1 and 11(f), shall anything herein limit or
otherwise affect such rights as the Executive may have under any contract or
agreement with the Company or any of its affiliated companies. Amounts which
are vested benefits or which the Executive is otherwise entitled to receive
under any plan, policy, practice or program of or any
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contract or agreement with the Company or any of its affiliated companies at or
subsequent to the Date of Termination shall be payable in accordance with such
plan, policy, practice or program or contract or agreement except as explicitly
modified by this Agreement; provided that the Executive shall not be eligible
for severance benefits under any other program or policy of the Company.
7. Full Settlement. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement, and such amounts
shall not be reduced whether or not the Executive obtains other employment. The
Company agrees to pay as incurred, to the full extent permitted by law, all
legal fees and expenses which the Executive may reasonably incur as a result of
any contest (regardless of the outcome thereof) pursued or defended against in
good faith by the Executive regarding the validity or enforceability of, or
liability under, any provision of this Agreement or any guarantee of performance
thereof (including as a result of any contest by the Executive about the amount
of any payment pursuant to this Agreement), plus in each case interest on any
delayed payment at the applicable Federal rate provided for in Section
7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code").
8. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding
and except as set forth below, in the event it shall be determined that any
payment or distribution by the Company to or for the benefit of the Executive
(whether paid or payable or distributed or distributable pursuant to the terms
of this Agreement or otherwise, but determined without regard to any additional
payments required under this Section 8) (a "Payment") would be subject to the
excise tax imposed by Section 4999 of the Code or any interest or penalties are
incurred by the Executive with respect to such excise tax (such excise tax,
together with any such interest and penalties, are hereinafter collectively
referred to as the "Excise Tax"), then the Executive shall be entitled to
receive an additional payment (a "Gross-Up Payment") in an amount such that
after payment by the Executive of all taxes (including any interest or penalties
imposed with respect to such taxes), including, without limitation, any income
taxes (and any interest and penalties imposed with respect thereto) and Excise
Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
Notwithstanding the foregoing provisions of this Section 8(a), if it shall be
determined that the Executive is entitled to a Gross-Up Payment, but that the
Payments do not exceed 110% of the greatest amount (the "Reduced Amount") that
could be paid to the Executive such that the receipt of Payments would not give
rise to any Excise Tax, then no Gross-Up Payment shall be made to the Executive
and the Payments, in the aggregate, shall be reduced to the Reduced Amount.
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(b) Subject to the provisions of Section 8(c), all determinations
required to be made under this Section 8, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be made by the Company's
independent auditors or such other certified public accounting firm reasonably
acceptable to the Executive as may be designated by the Company (the "Accounting
Firm") which shall provide detailed supporting calculations both to the Company
and the Executive within 15 business days of the receipt of notice from the
Executive that there has been a Payment, or such earlier time as is requested by
the Company. All fees and expenses of the Accounting Firm shall be borne solely
by the Company. Any Gross-Up Payment, as determined pursuant to this Section 8,
shall be paid by the Company to the Executive within five days of the later of
(i) the due date for the payment of any Excise Tax, and (ii) the receipt of the
Accounting Firm's determination. Any determination by the Accounting Firm shall
be binding upon the Company and the Executive. As a result of the uncertainty in
the application of Section 4999 of the Code at the time of the initial
determination by the Accounting Firm hereunder, it is possible that Gross-Up
Payments which will not have been made by the Company should have been made
("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies pursuant to
Section 8(c) and the Executive thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification shall be given
as soon as practicable but no later than ten business days after the Executive
is informed in writing of such claim and shall apprise the Company of the nature
of such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day period
following the date on which it gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes with respect to such claim
is due). If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:
(i) give the Company any information reasonably requested by
the Company relating to such claim,
(ii) take such action in connection with contesting such
claim as the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with respect to
such claim by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
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(iv) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions
of this Section 8(c), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forgo any
and all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option, either
direct the Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and the Executive agrees to prosecute such
contest to a determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that, if the Company directs the Executive to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and shall indemnify and hold
the Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such advance;
and further provided that any extension of the statute of limitations relating
to payment of taxes for the taxable year of the Executive with respect to which
such contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder and
the Executive shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority.
(d) If, after the receipt by the Executive of an amount advanced
by the Company pursuant to Section 8(c), the Executive becomes entitled to
receive any refund with respect to such claim, the Executive shall promptly pay
to the Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by the
Executive of an amount advanced by the Company pursuant to Section 8(c), a
determination is made that the Executive shall not be entitled to any refund
with respect to such claim and the Company does not notify the Executive in
writing of its intent to contest such denial of refund prior to the expiration
of 30 days after such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such advance shall offset,
to the extent thereof, the amount of Gross-Up Payment required to be paid.
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9. Covenant Not to Compete; Confidential Information.
(a) During the term of this Agreement, and for a six month period
after the Date of Termination, the Executive shall not directly or indirectly,
own, manage, operate, join, control, or participate in the ownership,
management, operation or control of, or be employed by or connected in any
manner with, any competing business, whether for compensation or otherwise,
without the prior written consent of the Company. Notwithstanding the preceding
sentence, the Executive shall not be prohibited from owning less than one (1%)
percent of any publicly traded corporation, whether or not such corporation is
deemed to be a competing business. For the purposes of this Agreement, a
"competing business" shall be any business which is a significant competitor of
the Company, or which the Company reasonably determines may become a significant
competitor, unless the Executive's primary duties and responsibilities with
respect to such business are not related to the management or operation of
disability insurance or complementary special risk products and services in any
country where the Company is conducting business. Should the Executive, directly
or indirectly, own, manage, operate, join, control or participate in the
ownership, management, operation or control of, or be employed by or connected
in any manner with, any competing business, all payments under this Agreement
shall cease.
(b) The Executive hereby acknowledges that, as an employee of the
Company, he will be making use of, acquiring and adding to confidential
information of a special and unique nature and value relating to the Company and
its strategic plan and financial operations. The Executive further recognizes
and acknowledges that all confidential information is the exclusive property of
the Company, is material and confidential, and is critical to the successful
conduct of the business of the Company. Accordingly, the Executive hereby
covenants and agrees that he will use confidential information for the benefit
of the Company only and shall not at any time, directly or indirectly, during
the term of this Agreement, and thereafter for all periods during which
severance or other amount is paid, divulge, reveal or communicate any
confidential information to any person, firm, corporation or entity whatsoever,
or use any confidential information for his own benefit or for the benefit of
others. In no event shall an asserted violation of the provisions of this
Section 9(b) constitute a basis for deferring or withholding any amounts
otherwise payable to the Executive under this Agreement.
(c) Any termination of the Executive's employment or of this
Agreement shall have no effect on the continuing operation of this Section 9.
(d) In addition to the cessation of payments set forth in Section
9(a), the Executive acknowledges and agrees that the Company will have no
adequate remedy at law, and could be irreparably harmed, if the Executive
breaches or threatens to breach any of the provisions of this Section 9. The
Executive agrees that the Company shall be entitled to equitable and/or
injunctive relief to prevent any breach or threatened breach of this Section 9,
and to specific performance of each of the terms hereof in addition to any other
legal or equitable
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remedies that the Company may have. The Executive further agrees that he shall
not, in any equity proceeding relating to the enforcement of the terms of this
Section 9, raise the defense that the Company has an adequate remedy at law.
(e) The terms and provisions of this Section 9 are intended to be
separate and divisible provisions and if, for any reason, any one or more of
them is held to be invalid or unenforceable, neither the validity nor the
enforceability of any other provision of this Agreement shall thereby be
affected. The parties hereto acknowledge that the potential restrictions on the
Executive's future employment imposed by this Section 9 are reasonable in both
duration and geographic scope and in all other respects. If for any reason any
court of competent jurisdiction shall find any provisions of this Section 9
unreasonable in duration or geographic scope or otherwise, the Executive and the
Company agree that the restrictions and prohibitions contained herein shall be
effective to the fullest extent allowed under applicable law in such
jurisdiction.
(f) The parties acknowledge that this Agreement would not have
been entered into and the benefits described in Sections 3 or 5 would not have
been promised in the absence of the Executive's promises under this Section 9.
10. Successors.
(a) This Agreement is personal to the Executive and without the
prior written consent of the Company shall not be assignable by the Executive
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by the Executive's legal
representatives.
(b) This Agreement shall inure to the benefit of and be binding
upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
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11. Miscellaneous.
(a) This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without reference to
principles of conflict of laws. The captions of this Agreement are not part of
the provisions hereof and shall have no force or effect. This Agreement may not
be amended or modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive:
P. O. Box 281
Lookout Mountain, Tennessee 37350
If to the Company:
1 Fountain Square
Chattanooga, Tennessee 37402
Telecopy Number: (423) 755-8503
Attention: Chief Executive Officer
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon
strict compliance with any provision of this Agreement or the failure to assert
any right the Executive or the Company may have hereunder, including, without
limitation, the right of the Executive to terminate employment for Good Reason
pursuant to Section 4(c)(i)-(iv) of this Agreement, shall not be deemed to be a
waiver of such provision or right or any other provision or right of this
Agreement.
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(f) From and after the Effective Date this Agreement shall
supersede any other employment, severance or change of control agreement between
the parties with respect to the subject matter hereof.
12. General Release. All payments under this Agreement to be made in
connection with the Executive's termination of employment will be conditioned on
the Executive signing a general form of release.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's
hand and, pursuant to the authorization from its Board of Directors, the Company
has caused these presents to be executed in its name on its behalf, all as of
the day and year first above written.
EXECUTIVE
/s/ Thomas R. Watjen
------------------------------------------------
PROVIDENT COMPANIES, INC.
By: /s/ J. Harold Chandler
--------------------------------------------
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EXHIBIT 15
Board of Directors and Shareholders
UNUMProvident Corporation
We are aware of the incorporation by reference in the Registration Statements
(Form S-8 No. 33-47551, Form S-8 No. 33-88108, Form S-8 No.33-62231, Form S-8
No. 333-81669 and Form S-8 No. 333-81969) of Provident Companies, Inc.
pertaining to the Provident Life and Accident Insurance Company MoneyMaker. A
Long-Term 401(k) Retirement Savings Plan, the Provident Life and Accident
Insurance Company Stock Purchase Plan of 1994, the Provident Life and Accident
Insurance Company Employee Stock Purchase Plan of 1995, the Provident Life and
Accident Insurance Company Management Incentive Compensation Plan of 1994, The
Paul Revere Savings Plan. Provident Companies, Inc. Stock Plan of 1999,
Provident Companies, Inc, Non-Employee Director Compensation Plan of 1998,
Employee Stock Option Plan of 1998, and Amended and Restated Annual Management
Incentive Compensation Plan of 1994, and the UNUMProvident Corporation 1987
Executive Stock Option Plan, UNUMProvident Corporation 1990 Long-Term Stock
Incentive Plan, UNUMProvident Corporation Plan 1996 Long-Term Stock Incentive
Plan and UNUMProvident Corporation 1998 Goals Stock Option Plan, and in the
Registration Statement (From S-3 No. 333-17849) of Provident Companies, Inc. for
the registration of 9,523,810 shares of its common stock of our report dated
August 2, 1999 relating to the unaudited condensed consolidated interim
financial statements of UNUMProvident Corporation which is included in its Form
10-Q for the quarter ended June 30,1999.
Pursuant to Rule 436(c) of the Securities Act of 1933, our report is not a part
of the registration statements prepared or certified by accountants within the
meaning of Section 7 or 11 of the Securities Act of 1993.
ERNST & YOUNG LLP
Chattanooga, Tennessee
August 2, 1999
<PAGE>
EXHIBIT 18
August 2, 1999
Board Of Directors
UNUMProvident Corporation
Dear Directors:
We are providing this letter to you for inclusion as an exhibit to the Form 10-Q
filing pursuant to Item 601 of Regulation S-K.
We have been provided a copy of the Company's Quarterly Report on Form 10-Q for
the period ended June 30, 1999. Note 2 therein describes a change in accounting
principle from calculating the discount rate for claim reserves previously
associated with the claims of the former UNUM Corporation using UNUM
Corporation's processes and assumptions to discounting claim reserves using the
new combined Company's processes and assumptions which are consistent with the
processes and assumptions previously associated with the claims of the former
Provident Companies, Inc. It should be understood that the preferability of one
acceptable method of accounting over another for discounting claim reserves has
not been addressed in any authoritative accounting literature, and in expressing
our concurrence below we have relied on management's determination that this
change in accounting principle is preferable. Based on our reading of
management's stated reasons and justification for this change in accounting
principle in the Form 10-Q, and our discussions with management as to their
judgment about the relevant business planning factors relating to the change, we
concur with management that such change represents, in the Company's
circumstances, the adoption of a preferable accounting principle in conformity
with Accounting Principles Board Opinion No. 20.
We have not audited any financial statements of the Company as of any date or
for any period subsequent to December 31, 1998. Accordingly, our comments are
subject to change upon completion of an audit of the financial statements
covering the period of the accounting change.
Very truly yours,
PricewaterhouseCoopers, LLP
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF PROVIDENT COMPANIES, INC. AND UNUM CORPORATION FOR THE
YEAR ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<DEBT-HELD-FOR-SALE> 22,732,200
<DEBT-CARRYING-VALUE> 307,000
<DEBT-MARKET-VALUE> 352,500
<EQUITIES> 33,100
<MORTGAGE> 1,321,200
<REAL-ESTATE> 309,800
<TOTAL-INVEST> 27,186,000
<CASH> 111,200
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 2,060,500
<TOTAL-ASSETS> 38,602,200
<POLICY-LOSSES> 22,271,700
<UNEARNED-PREMIUMS> 219,000
<POLICY-OTHER> 1,384,900
<POLICY-HOLDER-FUNDS> 4,102,700
<NOTES-PAYABLE> 1,548,900
0
0
<COMMON> 23,800
<OTHER-SE> 6,122,400
<TOTAL-LIABILITY-AND-EQUITY> 38,602,200
6,129,000
<INVESTMENT-INCOME> 2,035,400
<INVESTMENT-GAINS> 55,000
<OTHER-INCOME> 299,900
<BENEFITS> 5,449,700
<UNDERWRITING-AMORTIZATION> 377,500
<UNDERWRITING-OTHER> 1,771,900
<INCOME-PRETAX> 920,200
<INCOME-TAX> 302,800
<INCOME-CONTINUING> 617,400
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 617,400
<EPS-BASIC> 2.60
<EPS-DILUTED> 2.54
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1>ON JUNE 30, 1999, PROVIDENT COMPANIES, INC. AND UNUM CORPORATION WERE MERGED
TO CREATE UNUMPROVIDENT CORPORATION. THE MERGER WAS ACCOUNTED FOR AS A POOLING
OF INTERESTS. THE FINANCIAL RESULTS PRESENTED HEREIN GIVE EFFECT TO THE MERGER
AS IF IT HAD BEEN COMPLETED AT THE BEGINNING OF THE PERIOD.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF UNUMPROVIDENT CORPORATION FOR THE SIX MONTHS ENDED JUNE
30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<DEBT-HELD-FOR-SALE> 21,807,000
<DEBT-CARRYING-VALUE> 319,200
<DEBT-MARKET-VALUE> 330,900
<EQUITIES> 0
<MORTGAGE> 1,328,100
<REAL-ESTATE> 314,400
<TOTAL-INVEST> 26,247,200<F2>
<CASH> 186,800
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 2,256,600
<TOTAL-ASSETS> 37,917,300
<POLICY-LOSSES> 22,870,800<F3>
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 1,469,500
<POLICY-HOLDER-FUNDS> 3,634,100
<NOTES-PAYABLE> 1,716,500
0
0
<COMMON> 23,900
<OTHER-SE> 5,367,800
<TOTAL-LIABILITY-AND-EQUITY> 37,917,300
3,368,900
<INVESTMENT-INCOME> 1,017,600
<INVESTMENT-GAINS> 11,400
<OTHER-INCOME> 148,800
<BENEFITS> 3,192,800
<UNDERWRITING-AMORTIZATION> 224,600
<UNDERWRITING-OTHER> 1,240,700
<INCOME-PRETAX> (111,400)
<INCOME-TAX> (9,500)
<INCOME-CONTINUING> (101,900)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (101,900)
<EPS-BASIC> (0.43)
<EPS-DILUTED> (0.43)
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1>On June 30, 1999, Provident Companies, Inc. and UNUM Corporation were merged
to create UNUMProvident Corporation. The merger was accounted for as a pooling
of interests. The financial results presented herein give effect to the merger
as if it had been completed at the beginning of the period.
<F2>"Total-Invest" includes equity securities of $32,600.
<F3>"Policy-Losses" include reserves for future policy and contract benefits of
$22,650,300 and unearned premiums of $220,500.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF PROVIDENT COMPANIES, INC. AND UNUM CORPORATION FOR THE 6
MONTHS ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<DEBT-HELD-FOR-SALE> 22,632,700
<DEBT-CARRYING-VALUE> 298,900
<DEBT-MARKET-VALUE> 335,700
<EQUITIES> 0
<MORTGAGE> 1,146,400
<REAL-ESTATE> 308,600
<TOTAL-INVEST> 26,809,800<F2>
<CASH> 117,400
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 1,905,600
<TOTAL-ASSETS> 38,020,900
<POLICY-LOSSES> 21,738,000<F3>
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 1,274,800
<POLICY-HOLDER-FUNDS> 4,615,400
<NOTES-PAYABLE> 1,554,300
0
0
<COMMON> 23,700
<OTHER-SE> 5,907,500
<TOTAL-LIABILITY-AND-EQUITY> 38,020,900
2,998,700
<INVESTMENT-INCOME> 1,038,600
<INVESTMENT-GAINS> 14,400
<OTHER-INCOME> 157,500
<BENEFITS> 2,618,500
<UNDERWRITING-AMORTIZATION> 178,200
<UNDERWRITING-OTHER> 899,700
<INCOME-PRETAX> 512,800
<INCOME-TAX> 174,700
<INCOME-CONTINUING> 338,100
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 338,100
<EPS-BASIC> 1.42
<EPS-DILUTED> 1.39
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1>On June 30, 1999, Provident Companies, Inc. and UNUM Corporation were merged
to create UNUMProvident Corporation. The merger was accounted for as a pooling
of interests. The financial results presented herein give effect to the merger
as if it had been completed at the beginning of the period.
<F2>"Total-Invest" includes equity securities of $52,000.
<F3>"Policy-Losses" include reserves for future policy and contract benefits of
$21,520,800 and unearned premiums of $217,200.
</FN>
</TABLE>
