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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995 COMMISSION FILE NUMBER 1-9254
UNUM CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 01-0405657
(STATE OR OTHER JURISDICTION OF I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
2211 CONGRESS STREET, PORTLAND, MAINE 04122
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (207) 770-2211
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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Common stock, $0.10 par value New York Stock Exchange
Pacific Stock Exchange
Preferred stock purchase rights New York Stock Exchange
Pacific Stock Exchange
8.8% Junior Subordinated New York Stock Exchange
Deferrable Interest
Debentures, Series A, Due 2025
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SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 8, 1996, was approximately $4,250,500,000.
As of March 8, 1996, 73,240,347 shares of the registrant's common stock were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Information from the Registrant's proxy statement dated March 25, 1996, is
incorporated by reference into Part III.
Exhibit Index appears on page 70.
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TABLE OF CONTENTS
PART I
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ITEM PAGE
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1. Business...................................................................................................... 3
A. Description of Business................................................................................... 3
B. Disability Insurance Segment.............................................................................. 4
C. Special Risk Insurance Segment............................................................................ 5
D. Colonial Products Segment................................................................................. 6
E. Retirement Products Segment............................................................................... 7
F. Investments............................................................................................... 8
G. Risk Management and Reinsurance........................................................................... 9
H. Reserves.................................................................................................. 10
I. Employees................................................................................................. 10
J. Competition............................................................................................... 10
K. Regulation................................................................................................ 11
L. Participation Fund Account................................................................................ 12
2. Properties.................................................................................................... 12
3. Legal Proceedings............................................................................................. 12
4. Submission of Matters to a Vote of Security Holders........................................................... 12
PART II
5. Market for the Registrant's Common Equity and Related Stockholder Matters..................................... 12
6. Selected Financial Data....................................................................................... 13
7. Management's Discussion and Analysis of Financial Condition and Results of Operations......................... 15
8. Financial Statements and Supplementary Data................................................................... 31
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.......................... 61
PART III
10. Directors and Executive Officers of the Registrant............................................................ 61
A. Directors of the Registrant............................................................................... 61
B. Executive Officers of the Registrant...................................................................... 61
11. Executive Compensation........................................................................................ 62
12. Security Ownership of Certain Beneficial Owners and Management................................................ 62
13. Certain Relationships and Related Transactions................................................................ 62
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.............................................. 62
Signatures.................................................................................................... 63
Index to Exhibits............................................................................................. 70
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2
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PART I
ITEM 1. BUSINESS
A. DESCRIPTION OF BUSINESS
UNUM Corporation is a Delaware corporation organized in 1985 as an insurance
holding company. UNUM Corporation and subsidiaries ("UNUM") are the leading
providers of group long term disability insurance ("group LTD") in the United
States and the United Kingdom. UNUM is also a major provider of employee
benefits, individual disability insurance and special risk reinsurance. UNUM
also markets long term care and retirement income products. The operations of
the following subsidiaries account for substantially all of UNUM's consolidated
assets and revenues. UNUM Corporation is based in Portland, Maine, and through
its affiliates has operations in North America, the United Kingdom and the
Pacific Rim.
UNUM conducts its operations in the United States through a number of
wholly-owned subsidiaries including: UNUM Life Insurance Company of America
("UNUM America"), a Maine life insurance company licensed in 49 states and
Canada, the leading provider of group disability insurance in the nation and
provider of employee benefits, long term care and retirement products; First
UNUM Life Insurance Company ("First UNUM"), a New York life insurance company;
Commercial Life Insurance Company, a Wisconsin life insurance company and a
leader in special risk insurance and professional association insurance
marketing; Duncanson & Holt, Inc., a New York corporation and a leading accident
and health reinsurance underwriting manager; Colonial Companies, Inc., a
Delaware holding company whose wholly-owned subsidiary, Colonial Life & Accident
Insurance Company, is a leader in payroll-deducted voluntary employee benefits
offered to employees at their worksites; and UNUM Holding Company, a Delaware
corporation. Through UNUM Holding Company, UNUM Corporation also owns UNUM Sales
Corporation, a licensed broker-dealer incorporated in Delaware, and Claims
Service International, Inc., a Delaware corporation, which provides claims
administration services.
UNUM Corporation also holds all of the outstanding capital stock of UNUM
European Holding Company, which is incorporated in the United Kingdom. UNUM's
United Kingdom operations are conducted by UNUM Limited, which is the United
Kingdom's leader in group disability insurance and a wholly-owned subsidiary of
UNUM European Holding Company, and Duncanson & Holt Europe Ltd., a wholly-owned
subsidiary of Duncanson & Holt, Inc.
UNUM's Japanese operations are conducted through a wholly-owned subsidiary,
UNUM Japan Accident Insurance Company Limited ("UNUM Japan"), a Japanese
non-life insurance company, which was established in 1994.
On December 3, 1992, UNUM and Colonial Companies, Inc. ("Colonial
Companies"), signed a definitive merger agreement. On March 26, 1993, Colonial
Companies Class A common stock shareholders voted to approve the merger. Under
the agreement, UNUM exchanged 0.731 shares of its common stock for each share of
Colonial Companies Class A and Class B common stock outstanding on March 26,
1993. UNUM issued approximately 11.4 million shares of common stock from
treasury in connection with the merger. In addition, outstanding options to
acquire shares of Colonial Companies Class B common stock were converted into
options to acquire shares of UNUM common stock. The merger was accounted for as
a pooling of interests.
On January 24, 1996, UNUM America entered into an agreement for the sale of
its group tax-sheltered annuity ("TSA") business to The Lincoln National Life
Insurance Company ("Lincoln Life"), a part of Lincoln National Corporation, and
to a new New York insurance subsidiary of Lincoln Life. The agreement also
contemplates that First UNUM will enter into a similar agreement with Lincoln
Life's New York insurance subsidiary. The sale, which is subject to regulatory
approvals, involves approximately 1,700 group contractholders and assets under
management of approximately $3 billion. The agreement initially contemplates the
reinsurance of these contracts under an indemnity reinsurance arrangement. These
contracts will then be reinsured pursuant to an assumption reinsurance
arrangement upon consent of the TSA contractholders and/or participants. The
purchase price (ceding commission) at closing is expected to be approximately
$70 million. It is anticipated that it will take several months (perhaps six to
nine months) to obtain the necessary approvals and otherwise close the sale.
There is no guarantee that the sale will close.
On February 7, 1996, UNUM announced plans to merge Commercial Life Insurance
Company into UNUM America to accelerate growth of its special risk business,
increase its commitment to the association group business and to improve
operating and capital efficiencies. The merger will be effective December 31,
1996, subject to regulatory approvals.
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To more clearly reflect UNUM's management of its businesses and to more
appropriately group its product portfolios, UNUM began reporting its operations,
effective January 1, 1995, principally in four business segments: Disability
Insurance, Special Risk Insurance, Colonial Products and Retirement Products.
Corporate includes transactions that are generally non-insurance related and
interest expense on corporate borrowings. For comparative purposes, prior period
information has been restated to reflect reporting in these segments.
Refer to Item 7 and Item 8 (Note 16) for more information.
B. DISABILITY INSURANCE SEGMENT
The Disability Insurance segment, which in 1995 accounted for 60.0% of
UNUM's revenues and 56.8% of its income before income taxes, includes disability
products offered in North America, the United Kingdom and Japan including: group
LTD, individual disability, group short term disability, association group
disability, disability reinsurance and long term care insurance.
UNUM AMERICA AND FIRST UNUM:
UNUM America and First UNUM market their group and individual insurance
products, as well as long term care products, which are included in the
Disability Insurance and Special Risk Insurance segments, through a network of
33 offices in the United States and Canada that distribute these products
through brokers. As of December 31, 1995, these branch offices were organized
into four regions and were staffed with approximately 720 management, sales,
service and administrative personnel.
GROUP LONG TERM DISABILITY
UNUM America and First UNUM's group LTD product is the Disability Insurance
segment's principal product. UNUM America and First UNUM target sales of group
LTD to executive, administrative and management personnel, and other
professionals. Since 1976, UNUM America and First UNUM combined have been the
United States' leading provider of group LTD according to EMPLOYEE BENEFIT PLAN
REVIEW, a recognized industry publication.
Group LTD provides employees with insurance coverage for loss of income in
the event of inability to work due to sickness or injury. Most of these policies
begin providing benefits following 90- or 180-day waiting periods and continue
providing benefits until the employee reaches age 65-70. Group LTD benefits are
paid monthly and generally are limited to two-thirds of the employee's earned
income up to a specified maximum benefit. Premiums for group LTD insurance are
based upon the expected mortality, morbidity and persistency of the insured
group, as well as assumptions concerning operating expenses and future interest
rates.
INDIVIDUAL DISABILITY
Individual disability products provide coverage for loss of income for
professionals, corporate executives, business owners and administrative support
personnel in the event of disability. As reported in the Life Insurance
Marketing Research Association's 1994 INDIVIDUAL HEALTH ISSUES AND INFORCE
SURVEY for the United States and Canada, the most recent available data, UNUM
America and First UNUM combined were the fourth largest provider of individual
disability income policies measured by premium inforce.
UNUM announced in November 1994 that it would discontinue sales of the
traditional, fixed price, non-cancellable individual disability product
("non-cancellable product") in the United States upon introduction of the new
disability product in each state. During the second quarter of 1995, UNUM
introduced the guaranteed renewable Lifelong Disability Protection product,
which is replacing the non-cancellable product. The Lifelong Disability
Protection product provides benefits and transitional support for moderate
disabilities, while providing richer benefits for severe disabilities. Various
options are available that permit tailoring of an insurance policy to the
specific client's needs. The most common options include up to 60% base income
replacement coverage, an option to purchase up to 40% further coverage in the
event of catastrophic injury or illness involving the loss of two or more
Activities of Daily Living, and an automatic option to convert to a long term
care policy at retirement age. At the end of 1995, the Lifelong Disability
Protection product had been approved in 42 states and the District of Columbia.
Sales of the non-cancellable product are being discontinued in each state
following the regulatory approval of the Lifelong Disability Protection product.
Until the new products are approved, UNUM will continue to sell individual
disability products on a non-cancellable basis, with a fixed premium for the
duration of the policy. The basic individual disability policy provides the
insured with a portion of the earned income which is lost as a result of
sickness or injury. Monthly benefits available range from 30% to 70% of the
insured's earned income up to a specified maximum benefit. UNUM also markets
buy/sell and key person coverage and policies that provide reimbursement for
business overhead expenses incurred during a period of disability.
4
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Individual disability insurance premium rates are based on expected
mortality, morbidity and persistency, as well as assumptions concerning policy
related expenses, inflation and investment income.
GROUP SHORT TERM DISABILITY
Group short term disability insurance ("group STD") provides employees with
insurance coverage for loss of income in the event of inability to work due to
sickness or injury. Most of these policies begin providing benefits immediately
for accidents, or following a one-week waiting period for sickness, and continue
providing benefits for up to 26 weeks. Group STD benefits are paid weekly and
generally are limited to 60% of the employee's earned income up to a specified
maximum benefit. As reported by EMPLOYEE BENEFIT PLAN REVIEW, UNUM America and
First UNUM combined were one of the top three providers of group STD for 1994,
based on premium and number of lives inforce.
LONG TERM CARE
UNUM America and First UNUM market long term care ("LTC") insurance to
employer groups, continuing care retirement communities and individuals. The
group LTC product is offered on an employer or employee-paid basis, and employer
groups may offer coverage to retirees, spouses, parents and grandparents, in
addition to the employee.
UNUM LIMITED:
UNUM Limited was the leading provider for 1994 of group LTD insurance in the
United Kingdom, as reported by Employers Re. International. UNUM Limited targets
group LTD sales to management personnel, other professionals, and technical and
skilled artisans. These products are marketed through a network of independent
brokers. UNUM Limited's group LTD products provide employees with insurance
coverage for loss of income in the event of inability to work due to sickness or
injury. UNUM Limited also markets individual disability insurance through
brokers and agents to self-employed individuals and those not covered under
group policies. Premiums for group LTD and individual disability insurance are
based upon the expected mortality, morbidity and persistency of the insured
group, as well as assumptions concerning operating expenses and future interest
rates.
In May 1994, UNUM Limited assumed the management of the group risk portfolio
of Windsor Life Assurance Company Limited ("Windsor Life"), which included group
LTD and group life products. Windsor Life was the third largest group LTD
provider in the United Kingdom in 1993, as reported by Employers Re.
International.
UNUM JAPAN:
On June 20, 1994, the Japanese Ministry of Finance granted UNUM a
provisional license that allowed UNUM to establish a non-life insurance company,
UNUM Japan Accident Insurance Company Limited ("UNUM Japan"), to market
disability and other accident products in Japan. UNUM Japan has subsequently
received an official license.
UNUM Japan targets sales of group LTD to executive, administrative and
management personnel, and other professionals. These products are marketed
through contracted independents and brokers. Group LTD provides employees with
insurance coverage for loss of income in the event of inability to work due to
sickness or injury. Most of these policies begin providing benefits following
90- or 365-day waiting periods and continue providing benefits until the
employee reaches age 65-70. Group LTD benefits are paid monthly and generally
are limited to 60% of the employee's earned income up to a specified maximum
benefit. Premiums for group LTD insurance are based upon the expected mortality,
morbidity and persistency of the insured group, as well as assumptions
concerning operating expenses and future interest rates.
OTHER:
Through Commercial Life Insurance Company ("Commercial Life"), UNUM is a
leader in the association group marketplace, offering disability income to
members of professional associations. Duncanson & Holt Services manages long
term disability reinsurance through UNUM America and a disability reinsurance
syndicate. Duncanson & Holt Services is a leading manager of group LTD
reinsurance in the United States.
Refer to Item 7 and Item 8 (Note 16) under the caption "Disability Insurance
Segment" for more information.
C. SPECIAL RISK INSURANCE SEGMENT
The Special Risk Insurance segment in 1995 accounted for 18.2% of UNUM's
revenues and 15.8% of its income before income taxes. The Special Risk Insurance
segment includes group life, special risk accident insurance, non-disability
reinsurance operations, reinsurance underwriting management operations and other
special risk insurance products.
5
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The Special Risk Insurance segment's group insurance products are sold
primarily on a basis that permits annual repricing. This enables UNUM to adjust
the pricing of its products to more closely match the underlying claim
experience and interest rate environment.
UNUM America and First UNUM's group life insurance products provide term
insurance to a broad range of employees. As reported by EMPLOYEE BENEFIT PLAN
REVIEW for 1994, the most recent available data, UNUM America and First UNUM
combined were the fifth largest writer of group life insurance in the United
States, based on number of contracts inforce. UNUM America and First UNUM also
market other special risk insurance products, including group accidental death &
dismemberment insurance.
UNUM America and First UNUM market their group and individual insurance
products, as well as long term care products, which are included in the
Disability Insurance and Special Risk Insurance segments, through a network of
33 offices in the United States and Canada that distribute these products
through brokers. As of December 31, 1995, these branch offices were organized
into four regions and were staffed with approximately 720 management, sales,
service and administrative personnel.
Through Commercial Life, UNUM is a leading provider of group special risk
accident products, including group travel and voluntary accident insurance.
Commercial Life also provides group universal life, group term life and payroll
deduction programs for employees through a network of independent brokers and
specialty agents. Commercial Life is a leader in the association group
marketplace, offering business overhead expense, accidental death and
dismemberment, hospital indemnity and term life insurance to members of
professional associations.
On July 30, 1992, UNUM purchased Duncanson & Holt, Inc. ("D&H"), a leading
accident and health reinsurance underwriting manager. As a reinsurance
underwriting manager, D&H is authorized to conduct reinsurance business on
behalf of the member companies participating in its reinsurance facilities. D&H
provides pool management services that may include marketing, underwriting,
administration, claims payment and actuarial services for client companies, but
does not bear any insurance risk. D&H has offices throughout the United States
and in London, Toronto and Singapore.
The non-disability reinsurance operations include UNUM America's
participation in reinsurance facilities managed by Duncanson & Holt, facilities
managed by non-related companies and direct reinsurance arrangements primarily
for accident and health, long term care and special risks. As a member company
in reinsurance facilities, UNUM America assumes a share of the insurance risk of
the facility.
During 1995, Duncanson & Holt Europe Ltd., an affiliate of D&H based in the
United Kingdom, was authorized by Lloyd's of London to establish two new Lloyd's
Managing Agents and to acquire a third existing Lloyd's Managing Agent. Each
manages a syndicate that underwrites primarily personal accident and other
"non-marine" classes of business at Lloyd's of London.
Refer to Item 7 and Item 8 (Note 16) under the caption "Special Risk
Insurance Segment" for more information.
D. COLONIAL PRODUCTS SEGMENT
The Colonial Products segment in 1995 accounted for 12.8% of UNUM's revenues
and 23.0% of its income before income taxes. The Colonial Products segment
includes Colonial Life & Accident Insurance Company ("Colonial") and affiliates.
Colonial, the principal subsidiary, markets a broad line of payroll-deducted,
voluntary benefits to employees at their worksites, while focusing on accident
and sickness, cancer and life products.
Colonial's accident policies generally provide benefit payments for
disability income, death, dismemberment or major injury. Accident policies are
designed to supplement other benefits available through Social Security,
workers' compensation, and other insurance plans. Colonial offers a wide range
of life insurance products, with universal life and whole life accounting for
most of the life insurance sold. Colonial's cancer policies are designed to
provide payments for hospitalization and scheduled medical benefits, with the
amounts of such payments established by the policies. All of Colonial's
insurance policies are issued on a nonparticipating basis.
More than 97% of Colonial's premiums for 1995 were derived from policies
marketed to employees at their worksites, with premiums in most cases to be
collected through payroll deduction. Such policies are issued on a "guaranteed
renewable" basis, which means that Colonial cannot refuse to renew any policy,
but it does reserve the right on a product-by-product basis to increase premiums
for inforce policies. This right to change premiums is or may be subject to
various state insurance department rules, regulations, and approvals.
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Since 1985, Colonial has marketed its accident and health products as
qualified fringe benefits that can be purchased with pretax dollars as part of a
flexible benefits program pursuant to Section 125 of the Internal Revenue Code.
In 1995, premiums from sales to employees participating in such programs
accounted for approximately 50% of total premiums. A flexible benefits program
assists employers in managing their benefits and compensation packages and
provides policyholders with the ability to choose the benefits that best meet
their needs. Although Congress might change the tax laws to limit or eliminate
fringe benefits available on a pretax basis and such a change could limit or
eliminate Colonial's ability to continue marketing its products in this way,
Colonial believes its products provide policyholders value, which will remain
even if the tax advantages offered by flexible benefit programs are eliminated.
Colonial markets its products nationwide primarily through a 5,400-member
independent contractor sales force. Approximately 1,300 home office employees
provide corporate administration, sales support, internal services and systems,
claims processing, policyholder services and employer services.
Colonial Companies' subsidiary, BenefitAmerica, Inc. ("BenefitAmerica"),
offers employers administrative services for their employee benefit programs.
The services offered by BenefitAmerica include administration of flexible
spending accounts, which are offered under an employer's flexible benefits plan
pursuant to Section 125 of the Internal Revenue Code, as well as other
administrative services to those plans. The services offered by BenefitAmerica
complement the services and products offered to employers by Colonial.
Refer to Item 7 and Item 8 (Note 16) under the caption "Colonial Products
Segment" for more information.
E. RETIREMENT PRODUCTS SEGMENT
The Retirement Products segment accounted for 8.7% of UNUM's revenues and
11.9% of its income before income taxes in 1995. This segment markets and
services tax-sheltered annuities ("TSA") in UNUM America and First UNUM. This
segment also includes guaranteed investment contracts ("GICs"), deposit
administration accounts ("DAs"), 401(k) plans, individual life and group medical
insurance, all of which are no longer actively marketed by UNUM.
On September 11, 1995, UNUM announced plans to withdraw from the tax
sheltered annuity business to focus greater attention on core disability and
special risk businesses. On January 24, 1996, UNUM America entered into an
agreement for the sale of its group TSA business to The Lincoln National Life
Insurance Company ("Lincoln Life"), a part of Lincoln National Corporation, and
to a new New York insurance subsidiary of Lincoln Life. The agreement also
contemplates that First UNUM will enter into a similar agreement with Lincoln
Life's New York insurance subsidiary. The sale, which is subject to regulatory
approvals, involves approximately 1,700 group contractholders and assets under
management of approximately $3 billion. The agreement initially contemplates the
reinsurance of these contracts under an indemnity reinsurance arrangement. These
contracts will then be reinsured pursuant to an assumption reinsurance
arrangement upon consent of the TSA contractholders and/or participants. The
purchase price (ceding commission) at closing is expected to be approximately
$70 million. It is anticipated that it will take several months (perhaps six to
nine months) to obtain the necessary approvals and otherwise close the sale.
There is no guarantee that the sale will close.
TSA products (Section 403(b) plans under the Internal Revenue Code) are
marketed to non-profit hospitals and organizations. These contracts offer a
fixed fund that provides for annual renewable guarantees of principal and
interest. In addition, some TSA contracts offer variable annuity investment
alternatives. These investment alternatives are mutual funds offered as
subaccounts in a UNUM separate account. The mutual funds, managed by nationally
recognized investment managers, include a variety of choices such as growth,
balanced and stock index funds. UNUM also offers recordkeeping and reporting
services to TSA contractholders. UNUM America and First UNUM market their TSA
products through a network of 13 offices in the United States, which distribute
these products as well as the group and individual insurance products offered by
the Disability Insurance and Special Risk Insurance segments, primarily through
brokers.
In the fourth quarter of 1991, UNUM announced plans to withdraw from the
401(k) market by the end of 1992. UNUM has transferred 401(k) service
responsibilities to its formerly wholly-owned subsidiary, Preferred Benefits
Corporation, which was sold in the second quarter of 1992. UNUM discontinued
active marketing of GICs and DAs primarily due to the lack of demand and the
level of investment risk. UNUM discontinued new sales of universal life and
other individual life policies as of January 1, 1988. UNUM began exiting the
group medical product line in 1987 with the discontinuance of new sales on the
traditional group medical product. In 1990, management announced its intention
to exit the group medical product entirely. Beginning with the February 1991
renewals, policyholders had the option of transferring their group medical
product to another insurer. UNUM services commitments to inforce policyholders,
which include conversions of group life and group medical insurance.
Refer to Item 7 and Item 8 (Note 16) under the caption "Retirement Products
Segment" for more information.
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F. INVESTMENTS
Refer to Item 7 under the caption "Investments" for more information.
Additional information about UNUM's mortgage loan portfolio is provided below:
UNUM management believes that its mortgage loan portfolio is well
diversified geographically and among property types. The mortgage loan portfolio
percentages by geographic region and property type at December 31, 1995, and
1994, were as follows:
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GEOGRAPHIC REGION
1995 1994
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New England....................................... 12.3% 10.6%
Mid-Atlantic...................................... 20.0 17.4
Southeast......................................... 12.8 15.0
Southwest......................................... 7.8 8.4
Pacific........................................... 14.2 15.1
North Central..................................... 15.0 16.0
Farm Belt......................................... 10.2 9.5
Oil Patch......................................... 7.7 8.0
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Total......................................... 100.0% 100.0%
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PROPERTY TYPE
1995 1994
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Office Building................................... 24.6% 26.2%
Retail............................................ 33.9 30.9
Industrial........................................ 22.6 19.5
Residential....................................... 6.5 7.2
Medical........................................... 3.7 6.5
Nursing Home...................................... 1.2 2.7
Hotel/Motel....................................... 5.5 5.8
Other............................................. 2.0 1.2
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Total......................................... 100.0% 100.0%
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</TABLE>
Mortgage loans delinquent 60 days or more on a contract delinquency basis by
geographic region and property type were as follows at December 31, 1995, and
1994 (dollars in millions):
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GEOGRAPHIC REGION
1995 1994
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New England....................................... $ -- $15.7
Mid-Atlantic...................................... -- 3.5
Pacific........................................... -- 0.9
North Central..................................... 2.8 2.2
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Total......................................... $2.8 $22.3
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</TABLE>
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PROPERTY TYPE
1995 1994
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Office Building................................... $2.2 $22.3
Medical........................................... 0.6 --
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Total......................................... $2.8 $22.3
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</TABLE>
Mortgage loans that were restructured prior to the adoption of Financial
Accounting Standard ("FAS") No. 114, "Accounting by Creditors for Impairment of
a Loan," by geographic region and property type were as follows at December 31,
1995, and 1994 (dollars in millions):
<TABLE>
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GEOGRAPHIC REGION
1995 1994
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New England....................................... $ 3.2 $ 3.3
Mid-Atlantic...................................... 4.3 4.4
Southeast......................................... 9.3 9.5
Southwest......................................... 7.8 7.9
Pacific........................................... 9.6 10.8
North Central..................................... 14.4 14.5
Farm Belt......................................... 8.7 8.8
Oil Patch......................................... 2.6 14.4
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Total......................................... $59.9 $73.6
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</TABLE>
<TABLE>
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PROPERTY TYPE
1995 1994
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Office Building................................... $25.0 $32.2
Retail............................................ 12.7 12.8
Industrial........................................ 5.8 8.6
Residential....................................... 6.9 7.1
Hotel/Motel....................................... 7.9 2.4
Other............................................. 1.6 10.5
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Total......................................... $59.9 $73.6
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Effective January 1, 1995, UNUM adopted FAS 114, which defined the
principles to measure and record a loan when it is probable that a creditor will
be unable to collect all amounts due according to the contractual terms of the
loan agreement. In general, impaired loans as defined by FAS 114 compare with
loans previously defined and disclosed as problem and potential problem loans.
8
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Impaired loans by geographic region and property type were as follows at
December 31, 1995 (dollars in millions):
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GEOGRAPHIC REGION
1995
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New England.......................................... $ 14.9
Mid-Atlantic......................................... 15.2
Southwest............................................ 12.4
North Central........................................ 2.8
Oil Patch............................................ 4.8
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Total............................................ $ 50.1
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</TABLE>
<TABLE>
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PROPERTY TYPE
1995
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<S> <C>
Office Building...................................... $ 23.3
Retail............................................... 16.0
Industrial........................................... 5.4
Medical.............................................. 5.4
---------
Total............................................ $ 50.1
---------
---------
</TABLE>
Potential problem mortgage loans were defined by UNUM as current and
performing loans with which management had some concerns about the ability of
the borrower to comply with present loan terms and whose book value exceeded the
market value of the underlying collateral. Potential problem loans by geographic
region and property type were as follows at December 31, 1994 (dollars in
millions):
<TABLE>
<CAPTION>
GEOGRAPHIC REGION
1994
---------
<S> <C>
New England.......................................... $ 3.4
Mid-Atlantic......................................... 9.3
Southeast............................................ 6.3
Southwest............................................ 1.5
Pacific.............................................. 4.1
North Central........................................ 0.8
Farm Belt............................................ 5.9
Oil Patch............................................ 4.9
---------
Total............................................ $ 36.2
---------
---------
</TABLE>
<TABLE>
<CAPTION>
PROPERTY TYPE
1994
---------
<S> <C>
Office Building...................................... $ 17.2
Retail............................................... 0.7
Residential.......................................... 2.2
Medical.............................................. 4.6
Hotel/Motel.......................................... 11.5
---------
Total............................................ $ 36.2
---------
---------
</TABLE>
G. RISK MANAGEMENT AND REINSURANCE
Risk management, which includes product design, pricing, underwriting,
reserving and benefits management, involves a determination of the type and
amount of risk that an insurer is willing to accept, administration and
evaluation of business inforce, and control of claims. UNUM has underwriters
organized within business segments who evaluate policy applications on the basis
of information provided by the applicant and other sources.
UNUM reinsures with other companies portions of the insurance policies it
has underwritten. Reinsurance allows UNUM to sell policies with higher benefits
than the entire risk that UNUM is willing to assume. UNUM remains liable to the
insured for the payment of policy benefits if the reinsurers cannot meet their
obligations under the reinsurance agreements.
Within the Disability Insurance and Special Risk Insurance segments, UNUM
America and First UNUM have underwriters for group disability, individual
disability, group life and long term care products. These underwriting functions
are aligned geographically with UNUM America and First UNUM's four sales
regions. Quotes for prospective customers are based upon UNUM America and First
UNUM's experience with profitability and persistency of the respective
employer's risk category. The maximum group LTD, group STD, and LTC monthly
benefit varies, but the usual maximum monthly amount available is $35,000,
$10,000, and $6,000 respectively. For group life insurance products, UNUM
retains up to $750,000 per individual life and reinsures the balance with other
insurance carriers.
In 1994, UNUM America and First UNUM announced the discontinuance of sales
of its traditional fixed price, non-cancellable individual disability insurance
product in the United States and, during 1995, introduced the new guaranteed
renewable individual disability product. As of the end of 1995, this new product
has received regulatory approval in most states. UNUM requires medical
examinations, financial data, and other information to make a decision on the
acceptability of the individual risk and to appropriately classify an applicant
for individual disability insurance products. On new sales of the new guaranteed
renewable product, UNUM retains up to $8,000 plus 25% of amounts in excess of
$8,000 basic monthly indemnity per life for personal disability coverages,
$20,000 plus 25% of amounts in excess of $20,000 per life for business overhead
expense coverages and $500,000 per life for buy/sell coverages.
The financial and medical underwriting areas of UNUM Limited handle the
underwriting of group and individual disability policies and group life
policies. The maximum yearly benefit for group LTD is 326,000 pounds sterling.
UNUM
9
<PAGE>
Limited retains 75,000 pounds sterling of this risk and reinsures the balance.
The maximum yearly initial benefit for individual disability insurance is
125,000 pounds sterling and amounts over 40,000 pounds sterling per annum are
reinsured. On group life business, UNUM Limited retains 60% of the risk up to a
maximum of 150,000 pounds sterling per individual life.
UNUM (except for Colonial and Commercial Life) reinsures the risk of
individual life insurance contracts that exceed $425,000 on any one life.
Colonial limits its risk for death and dismemberment benefits to $100,000 per
life. Colonial also has reinsurance on its cancer insurance products that
provides coverage for claim payments in excess of $50,000 in any one year, per
claimant, up to a lifetime maximum of $1 million per claimant. Commercial Life
reinsures the risk on its accidental death and dismemberment contracts that
exceed $400,000 on any one life. Commercial Life also reinsures the risk on
individual, group and franchise life contracts that exceed $250,000 on any one
life.
In addition to the reinsurance arrangements above, UNUM (except for
Colonial, UNUM Limited and Commercial Life) is covered by catastrophe
reinsurance, which provides additional protection against aggregate losses in
excess of $1 million up to a maximum of $100 million. This protection is
activated whenever one event causes the disability and/or death of five or more
people covered under UNUM's disability or life contracts. Colonial is covered by
catastrophe reinsurance for accidental deaths totaling more than $300,000 from a
single disaster, up to a limit of $5 million. UNUM Limited's group disability
business is partially covered by catastrophe reinsurance of 3 million pounds
sterling for losses from one event involving more than twenty-five lives.
Commercial Life is covered by catastrophe reinsurance, which provides additional
protection against aggregate losses in excess of $1 million up to a maximum of
$54 million for losses involving three or more covered lives. Also, UNUM
purchased excess-of-loss reinsurance totaling $60 million over three years
through a Lloyd's of London syndicate for the non-cancellable individual
disability business of UNUM America and First UNUM.
Reinsurance premiums assumed and ceded for the year ended December 31, 1995,
were $241.5 million and $66.2 million, respectively. No current or planned
reinsurance activity is expected to have a significant impact on the ability of
UNUM to underwrite additional insurance.
H. RESERVES
The reserves reported in the consolidated financial statements of UNUM
Corporation and subsidiaries have been computed in accordance with generally
accepted accounting principles ("GAAP"). These reserve balances generally differ
from those specified by the laws of the various states and those carried in the
statutory financial statements. The differences between GAAP and statutory
reserves arise from the use of different mortality, morbidity, interest, expense
and lapse assumptions.
Pursuant to insurance laws of the states of Maine, New York, South Carolina
and Wisconsin, the United Kingdom and Japan, UNUM's insurance subsidiaries (UNUM
America, First UNUM, Colonial Life, Commercial Life, UNUM Limited and UNUM
Japan, respectively) set up statutory reserves, carried as liabilities, to meet
obligations on their various policies. These statutory reserves are amounts
which, together with premiums to be received and interest on such reserves at
assumed rates, are calculated to be sufficient to meet the policy and contract
obligations of UNUM's insurance subsidiaries. Pursuant to federal insurance laws
of Canada, UNUM America has established regulatory reserves to meet the
obligations of policies written in its Canadian branch.
Statutory, GAAP and regulatory reserves are based upon UNUM's insurance
subsidiaries' experience as adjusted to provide for possible adverse deviations.
These estimates are periodically reviewed and compared to actual experience. The
assumptions are revised when it is determined that future expected experience
differs from the assumed estimates.
I. EMPLOYEES
At December 31, 1995, UNUM had approximately 6,900 full-time employees. UNUM
does not have collective bargaining agreements with employees.
J. COMPETITION
The principal competitive factors affecting UNUM's business are reputation,
financial strength, quality of service, risk management expertise, distribution,
product design and price. There is competition among insurance companies for the
types of individual and group insurance and retirement products sold by UNUM. At
the end of 1995, there were more than 1,800 legal reserve life insurance
companies in the United States and Canada and life assurance offices in the
United Kingdom, which may offer insurance products similar to those marketed by
UNUM. UNUM also competes with banks, investment advisors, mutual funds and other
financial entities to provide products and services. All areas of group
insurance are highly competitive because of the large number of insurance
companies and other entities offering these products.
10
<PAGE>
K. REGULATION
UNUM's insurance subsidiaries are subject to regulation and supervision in
the jurisdictions in which they do business. Although the extent of such
regulation varies, U.S. state, Canadian, United Kingdom and Japanese insurance
laws generally establish supervisory agencies, such as state insurance
departments, the Office of the Superintendent of Financial Institutions
("OSFI"), The Department of Trade and Industry ("DTI") and the Ministry of
Finance ("MOF"), respectively, with broad administrative powers. These powers
relate chiefly to the granting and revocation of the licenses to transact
business, and establishing reserve requirements and the form and content of
required financial statements. Such powers also include the licensing of agents
in the U.S. and the approval of policy forms in the U.S. and Japan. UNUM's
insurance operations and subsidiaries must meet the standards and tests for its
investments promulgated by insurance laws and regulations of Maine, New York,
South Carolina, Wisconsin, Canada, the United Kingdom and Japan, as applicable.
UNUM's United States domiciled insurance subsidiaries are required to file
quarterly and annual statements with the various insurance departments in state
jurisdictions in which they do business. These statements comply with the rules
of the National Association of Insurance Commissioners ("NAIC"). UNUM's
insurance subsidiaries are examined periodically by examiners of the states of
Maine, New York, South Carolina and Wisconsin and of other states (on an
"association" or "zone" basis) in which they are licensed to do business. UNUM's
insurance branch operation in Canada is periodically examined by Canadian
insurance regulatory authorities and is required to file annual reports that
comply with the insurance laws of Canada and with the rules of the OSFI of the
Canadian Federal government and each of the provinces. UNUM's United Kingdom
subsidiary is required to file financial statements annually with the DTI, in
accordance with United Kingdom law and regulation. UNUM Japan is required to
file financial statements annually with the MOF, in accordance with Japanese
laws and regulations.
UNUM's insurance subsidiaries operate under insurance laws, which require
that they establish and carry, as liabilities, actuarial reserves to meet their
obligations on their disability, life, accident and health policies, and
annuities. These reserves are verified periodically by various regulators.
UNUM's reinsurance underwriting manager, Duncanson & Holt, Inc., ("D&H") is
a licensed reinsurance intermediary in New York. It is subject to regulation in
New York and other states where it does business. Duncanson & Holt Underwriters,
Ltd., a subsidiary of D&H, is a corporate member of Lloyd's of London and is
subject to all rules applicable to such members.
UNUM Sales Corporation, a registered broker-dealer, is regulated by the
National Association of Securities Dealers, Inc. and the Securities and Exchange
Commission. It is the principal underwriter for variable annuity contracts
offered by UNUM America and First UNUM. Future operations of UNUM Sales
Corporation may be affected by the completion of the TSA sale, as previously
discussed in Item 1A and Item 1E, and implementation of the details of the
transaction.
The laws of the State of Maine require periodic registration and reporting
by insurance companies domiciled within its jurisdiction, which control or are
controlled by other corporations or persons. This constitutes, by definition, a
holding company system. UNUM America is domiciled in Maine and is subject to
these laws. New York, which is the domiciliary state of First UNUM; South
Carolina, which is the domiciliary state of Colonial Life; and Wisconsin, which
is the domiciliary state of Commercial Life, have similar laws. Accordingly, the
UNUM insurance subsidiaries are registered as members of the UNUM holding
company system in the states of Maine, New York, South Carolina and Wisconsin.
The statutes of these states require periodic disclosure concerning the ultimate
controlling person and intercorporate transactions within the holding company
system, some of which require prior approval.
Effective December 31, 1991, UNUM America merged with two of UNUM
Corporation's wholly-owned Maine life insurance subsidiaries, UNUM Life
Insurance Company ("UNUM Life") and UNUM Pension and Insurance Company ("UPIC"),
with UNUM America remaining as the surviving corporation. In connection with the
merger of UNUM Life and UPIC into UNUM America, UNUM Life ceased to maintain its
licensing status in the State of New York effective December 31, 1991, with all
future New York business being transacted by First UNUM. As a condition of New
York regulatory approval, UNUM America agreed to maintain a security deposit in
the State of New York equal to 102% of outstanding statutory liabilities to New
York policyholders, insureds and claimants of UNUM Life. The security deposit
consists of certain cash and invested assets. An initial deposit was made in
February 1992 and, at December 31, 1995, the required deposit was $845.3
million. UNUM America has the ability to withdraw assets from this account and
to substitute other assets at its discretion. The balance of the security
deposit will be reviewed and adjusted at least annually based upon the
outstanding liabilities described above. In the event of the consummation of the
TSA sale, as described in Item 1A and 1E, the balance of the security deposit
may be adjusted based on the outstanding liabilities of the TSA business.
11
<PAGE>
L. PARTICIPATION FUND ACCOUNT
Participating policies issued prior to November 14, 1986, by the former
Union Mutual Life Insurance Company ("Union Mutual") will remain participating
as long as they remain in force. A Participation Fund Account ("PFA") has been
established for the sole benefit of all of Union Mutual's individual
participating life and annuity policies and contracts. At December 31, 1995, the
PFA had $364.2 million in assets, which were held by UNUM America. UNUM agreed
to pay certain expenses associated with the PFA and at December 31, 1995, the
reserve for the present value of such expenses was $15.0 million.
PFA assets, investment earnings and income from operations are not available
to UNUM America or UNUM during the operation or upon the termination of the PFA.
In the unlikely event that the assets of the PFA are not adequate to provide for
policyholder benefits (exclusive of dividends, which are not guaranteed), UNUM
America would be required to provide for any shortfall, and such amounts, if
any, would reduce earnings of UNUM America and UNUM.
All operating data of the individual participating life and annuity
contracts has been excluded from the Consolidated Statements of Income and all
other operating data included in this report unless otherwise noted. The assets
and liabilities associated with the participating business are included in
UNUM's Consolidated Balance Sheets.
ITEM 2. PROPERTIES
UNUM owns home office property consisting of five office buildings and four
service buildings located throughout the Portland, Maine, area. UNUM also owns
an office building in the United Kingdom, which is the home office of UNUM
Limited. The home office of the Colonial Companies is located in Columbia, South
Carolina, and is also owned by UNUM. In addition, UNUM leases, on periods
principally from three to six years, office and warehouse space for use by its
home office, affiliates, and sales forces.
ITEM 3. LEGAL PROCEEDINGS
In the normal course of its business operations, UNUM is involved in
litigation from time to time with claimants, beneficiaries and others, and a
number of lawsuits were pending at December 31, 1995. In the opinion of
management, the ultimate liability, if any, arising from this litigation is not
expected to have a material adverse effect on the consolidated financial
position or the consolidated operating results of UNUM.
On December 29, 1993, UNUM filed a suit in the United States District Court
for the District of Maine, seeking a federal income tax refund. The suit is
based on a claim for a deduction in certain prior tax years, for $652 million in
cash and stock distributed to policyholders in connection with the 1986
conversion of Union Mutual Life Insurance Company to a stock company. Although
UNUM believes its claims are meritorious, the United States is aggressively
resisting the claims and the ultimate recovery, if any, cannot be determined at
this time.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of shareholders, through solicitation of
proxies or otherwise, during the fourth quarter of 1995.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The principal markets in which UNUM's common stock is traded are the New
York Stock Exchange and the Pacific Stock Exchange. UNUM's ticker symbol is
"UNM." As of December 31, 1995, there were 24,153 shareholders of record of
common stock. Information concerning restrictions on the ability of UNUM's
subsidiaries to transfer funds to UNUM in the form of cash dividends is
described in Item 8 (Note 12).
The market price (as quoted by the New York Stock Exchange) and cash
dividends paid, per share of UNUM's common stock, by calendar quarter for the
past two years were as follows:
<TABLE>
<CAPTION>
1995 1994
------------------------------------------ ------------------------------------------
4Q 3Q 2Q 1Q 4Q 3Q 2Q 1Q
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
High.................................... $ 56.500 $ 54.000 $ 48.000 $ 46.000 $ 46.875 $ 50.000 $ 56.750 $ 58.000
Low..................................... $ 50.625 $ 45.375 $ 39.875 $ 37.750 $ 35.125 $ 43.000 $ 44.500 $ 48.000
Close................................... $ 55.000 $ 52.750 $ 46.875 $ 45.250 $ 37.750 $ 46.000 $ 44.750 $ 52.750
Dividend Paid........................... $ 0.265 $ 0.265 $ 0.265 $ 0.24 $ 0.24 $ 0.24 $ 0.24 $ 0.20
</TABLE>
12
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following should be read in conjunction with UNUM's Consolidated
Financial Statements and related notes reported in Item 8.
UNUM CORPORATION AND SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL DATA
(DOLLARS IN MILLIONS, EXCEPT PER COMMON SHARE DATA)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
INCOME STATEMENT DATA
Revenues:
Premiums and other income
(expense):
Disability Insurance
Segment...................... $1,879.9 $1,716.2 $1,547.9 $1,339.8 $1,214.6 $1,004.7 $ 803.8 $ 681.7 $ 630.8
Special Risk Insurance
Segment...................... 702.3 607.1 559.4 432.8 368.5 347.0 306.2 176.3 165.7
Colonial Products Segment..... 475.1 441.3 407.4 371.9 325.4 281.1 241.0 216.7 192.1
Retirement Products Segment... 34.1 31.4 42.5 52.5 64.4 92.8 130.2 180.0 238.5
Corporate..................... 0.1 0.8 -- 0.8 -- (0.1) 0.2 -- 0.9
-------- -------- ----------- -------- -------- -------- -------- -------- --------
Total premiums and other
income..................... 3,091.5 2,796.8 2,557.2 2,197.8 1,972.9 1,725.5 1,481.4 1,254.7 1,228.0
-------- -------- ----------- -------- -------- -------- -------- -------- --------
Net investment income (expense):
(a)
Disability Insurance
Segment...................... 592.9 400.3 369.8 370.5 333.8 285.4 239.4 193.1 167.8
Special Risk Insurance
Segment...................... 48.4 40.7 34.8 32.2 26.5 23.4 24.5 12.5 12.1
Colonial Products Segment..... 52.2 32.6 41.4 35.4 38.5 25.2 26.7 22.3 19.0
Retirement Products Segment... 323.7 338.0 387.6 408.7 411.3 426.1 424.0 413.2 418.2
Corporate..................... 14.2 4.2 6.2 3.9 1.5 (9.0) 5.9 20.3 19.1
-------- -------- ----------- -------- -------- -------- -------- -------- --------
Total net investment
income..................... 1,031.4 815.8 839.8 850.7 811.6 751.1 720.5 661.4 636.2
-------- -------- ----------- -------- -------- -------- -------- -------- --------
Total revenues.............. 4,122.9 3,612.6 3,397.0 3,048.5 2,784.5 2,476.6 2,201.9 1,916.1 1,864.2
-------- -------- ----------- -------- -------- -------- -------- -------- --------
Benefits and expenses:
Disability Insurance
Segment...................... 2,255.8 2,060.3 1,603.6 1,446.6 1,306.4 1,093.7 878.8 756.0 701.4
Special Risk Insurance
Segment...................... 690.4 581.9 555.3 418.7 355.2 342.2 312.9 180.4 172.0
Colonial Products Segment..... 439.6 411.2 378.4 346.8 306.4 259.6 225.5 201.1 178.6
Retirement Products Segment... 312.3 327.4 375.8 427.5 484.4 491.6 535.9 580.1 685.0
Corporate..................... 42.9 33.2 23.6 10.4 12.5 10.8 12.3 9.5 15.7
-------- -------- ----------- -------- -------- -------- -------- -------- --------
Total benefits and
expenses................... 3,741.0 3,414.0 2,936.7 2,650.0 2,464.9 2,197.9 1,965.4 1,727.1 1,752.7
-------- -------- ----------- -------- -------- -------- -------- -------- --------
Income (loss) before income
taxes and cumulative effects of
accounting changes:
Disability Insurance
Segment...................... 217.0 56.2 314.1 263.7 242.0 196.4 164.4 118.8 97.2
Special Risk Insurance
Segment...................... 60.3 65.9 38.9 46.3 39.8 28.2 17.8 8.4 5.8
Colonial Products Segment..... 87.7 62.7 70.4 60.5 57.5 46.7 42.2 37.9 32.5
Retirement Products Segment... 45.5 42.0 54.3 33.7 (8.7) 27.3 18.3 13.1 (28.3)
Corporate..................... (28.6) (28.2) (17.4) (5.7) (11.0) (19.9) (6.2) 10.8 4.3
-------- -------- ----------- -------- -------- -------- -------- -------- --------
Total income before income
taxes and cumulative
effects of accounting
changes.................... 381.9 198.6 460.3 398.5 319.6 278.7 236.5 189.0 111.5
-------- -------- ----------- -------- -------- -------- -------- -------- --------
Income taxes (credit)........... 100.8 43.9 148.3 107.3 74.3 60.9 51.1 30.1 (4.7)
-------- -------- ----------- -------- -------- -------- -------- -------- --------
Cumulative effects of accounting
changes........................ -- -- (12.1)(b) -- -- -- -- -- --
-------- -------- ----------- -------- -------- -------- -------- -------- --------
Net income.................. $ 281.1 $ 154.7 $ 299.9 $ 291.2 $ 245.3 $ 217.8 $ 185.4 $ 158.9 $ 116.2
-------- -------- ----------- -------- -------- -------- -------- -------- --------
-------- -------- ----------- -------- -------- -------- -------- -------- --------
Per common share:
Net income.................... $ 3.87 $ 2.09 $ 3.81(b) $ 3.71 $ 3.15 $ 2.73 $ 2.03 $ 1.57 $ 1.06
Dividends paid................ $ 1.035 $ 0.92 $ 0.765 $ 0.625 $ 0.49 $ 0.375 $ 0.285 $ 0.23 $ 0.20
</TABLE>
- -------------
(a) Includes investment income and net realized investment gains.
(b) Effective January 1, 1993, UNUM adopted Financial Accounting Standard No.
106, "Employers' Accounting for Postretirement Benefits Other than
Pensions," which decreased net income by $32.1 million, or $0.40 per share,
and Financial Accounting Standard No. 109, "Accounting for Income Taxes,"
which increased net income by $20.0 million, or $0.25 per share.
13
<PAGE>
UNUM CORPORATION AND SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL DATA
(DOLLARS AND SHARES IN MILLIONS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31,
--------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA
Assets............ $14,787.8 $13,127.2 $12,437.3 $11,959.8 $11,310.9 $10,063.4 $9,045.7 $8,592.3 $7,783.0 $7,333.8
Long-term debt.... $ 457.3 $ 182.1 $ 128.6 $ 77.2 $ 51.5 $ 77.2 $ 1.5 $ 1.5 $ 1.7 $ 1.4
Stockholders'
equity........... $ 2,302.9 $ 1,915.4 $ 2,102.7 $ 2,010.9 $ 1,755.5 $ 1,490.1 $1,445.0 $1,512.3 $1,463.8 $1,471.1
Shares
outstanding...... 73.0 72.4 76.0 79.1 78.2 77.4 82.0 96.8 104.2 111.4
Weighted average
shares
outstanding
during the
year............. 72.7 74.2 78.8 78.5 77.8 79.9 91.4 101.3 109.1 NA(a)
</TABLE>
- ---------------
(a) In November 1986, UNUM converted to a stock company from a mutual company.
14
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This management's discussion and analysis reviews the consolidated financial
condition of UNUM at December 31, 1995, the consolidated results of operations
for the past three years and, where appropriate, factors that may affect future
financial performance are identified and discussed. Management's Discussion and
Analysis of Financial Condition and Results of Operations should be read in
conjunction with the Consolidated Financial Statements, Notes to Consolidated
Financial Statements and Selected Consolidated Financial Data.
CHANGE IN REPORTING SEGMENTS
To more clearly reflect UNUM's management of its businesses and to more
appropriately group its product portfolios, UNUM began reporting its operations,
effective January 1, 1995, principally in four business segments. The following
chart provides a summary of the changes in reporting segments.
SEGMENTS AFTER THE CHANGE
- --------------------------------------------------------------------------------
DISABILITY INSURANCE
- -Group Long Term
Disability ("LTD")
- -UNUM Limited
- -Individual Disability
- -Group Short Term Disability ("STD")
- -Long Term Care
- -LTD Reinsurance
- -Association Group Disability
- -UNUM Japan
SPECIAL RISK INSURANCE
- -Group Life
- -Group Accidental Death &
Dismemberment ("AD&D")
- -Reinsurance Pools
- -Special Risk Products
- -Duncanson & Holt ("D&H") Reinsurance Management
COLONIAL PRODUCTS
- -Accident & Sickness
- -Cancer
- -Life
RETIREMENT PRODUCTS
- -Tax Sheltered Annuities
- -401(k)
- -Other Retirement Products
- -Individual Life
- -Group Medical
- --------------------------------------------------------------------------------
SEGMENTS BEFORE THE CHANGE
- --------------------------------------------------------------------------------
EMPLOYEE BENEFITS
- -Group LTD
- -Group STD
- -Group Life
- -Group AD&D
RELATED BUSINESSES
- -UNUM Limited
- -LTD Reinsurance
- -Reinsurance Pools
- -Special Risk Products
- -D&H Reinsurance Management
- -Association Group Disability
COLONIAL COMPANIES
- -Accident & Sickness
- -Cancer
- -Life
INDIVIDUAL DISABILITY
- -Individual Disability
RETIREMENT SECURITY
- -Tax Sheltered
Annuities
- -Long Term Care
OTHER OPERATIONS
- -401(k)
- -Other
Retirement
Products
- -Individual Life
- -Group Medical
- --------------------------------------------------------------------------------
Corporate includes transactions that are generally non-insurance related.
For comparative purposes, prior period information has been restated to reflect
the new reporting segments.
15
<PAGE>
CONSOLIDATED OVERVIEW
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(DOLLARS AND SHARES IN MILLIONS, EXCEPT PER
COMMON SHARE AMOUNTS,
AND PERCENTAGE INCREASE (DECREASE) OVER
PRIOR YEAR) 1995 1994 1993
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------
INCOME DATA
Revenues
Premiums.................................. $ 3,018.2 10.9% $ 2,721.3 10.0% $ 2,474.1
Investment income......................... 806.3 4.7 770.2 (2.6) 790.4
Net realized investment gains............. 225.1 nm 45.6 (7.7) 49.4
Fees and other income..................... 73.3 (2.9) 75.5 (9.1) 83.1
--------- ---- --------- ----- ---------
Total revenues.......................... 4,122.9 14.1 3,612.6 6.3 3,397.0
Benefits and expenses....................... 3,741.0 9.6 3,414.0 16.3 2,936.7
--------- ---- --------- ----- ---------
Income before income taxes and cumulative
effects of accounting changes.............. 381.9 92.3 198.6 (56.9) 460.3
Income taxes................................ 100.8 nm 43.9 (70.4) 148.3
--------- ---- --------- ----- ---------
Income before cumulative effects of
accounting changes......................... 281.1 81.7 154.7 (50.4) 312.0
Cumulative effects of accounting changes
Income taxes.............................. -- -- nm 20.0
Postretirement benefits other than
pensions, net of tax..................... -- -- nm (32.1)
--------- ---- --------- ----- ---------
Net income.............................. $ 281.1 81.7% $ 154.7 (48.4)% $ 299.9
--------- ---- --------- ----- ---------
--------- ---- --------- ----- ---------
Per common share:
Income before cumulative effects of
accounting changes....................... $ 3.87 $ 2.09 $ 3.96
Cumulative effects of accounting changes
Income taxes.............................. -- -- 0.25
Postretirement benefits other than
pensions, net of tax..................... -- -- (0.40)
--------- --------- ---------
Net income.............................. $ 3.87 $ 2.09 $ 3.81
--------- --------- ---------
--------- --------- ---------
Summary of income (loss) before income taxes
Disability Insurance Segment.............. $ 217.0 nm% $ 56.2 (82.1)% $ 314.1
Special Risk Insurance Segment............ 60.3 (8.5) 65.9 69.4 38.9
Colonial Products Segment................. 87.7 39.9 62.7 (10.9) 70.4
Retirement Products Segment............... 45.5 8.3 42.0 (22.7) 54.3
Corporate................................. (28.6) 1.4 (28.2) 62.1 (17.4)
--------- ---- --------- ----- ---------
Total income before income taxes........ $ 381.9 92.3% $ 198.6 (56.9)% $ 460.3
--------- ---- --------- ----- ---------
--------- ---- --------- ----- ---------
BALANCE SHEET DATA
Assets.................................... $14,787.8 $13,127.2 $12,437.3
Long-term debt............................ $ 457.3 $ 182.1 $ 128.6
Stockholders' equity...................... $ 2,302.9 $ 1,915.4 $ 2,102.7
Shares outstanding........................ 73.0 72.4 76.0
Weighted average shares outstanding during
the year................................. 72.7 74.2 78.8
</TABLE>
- ------------
nm = not meaningful or in excess of 100%
16
<PAGE>
CONSOLIDATED OVERVIEW
In 1995, net income increased by $126.4 million to $281.1 million, or $3.87
per share, from $154.7 million, or $2.09 per share, in 1994. When the following
significant items, as described below, are excluded: the increased realized
investment gains resulting primarily from the sale of the common stock
portfolio, the increased reserves resulting from the lowering of certain
disability product reserve discount rates, and the increased group long term
disability ("group LTD") reserves for incurred but not reported ("IBNR") claims,
all of which took place in 1995; and the individual disability reserve
strengthening recorded in 1994, income before income taxes slightly decreased in
1995. The decrease was primarily attributable to higher benefit ratios at UNUM
Limited and in the group LTD and group life businesses, increased interest
expense and lower interest spread margins on the tax sheltered annuity business.
Partially offsetting these items were increased investment income, a lower
benefit ratio in the individual disability line of business and continued
expense management. The decrease in income before income taxes in 1994 was
primarily due to unfavorable claims experience in the individual disability and
group LTD businesses.
SUMMARY OF SIGNIFICANT EVENTS FOR 1995 AND 1994
During second quarter 1995, UNUM sold virtually all of the common stock
portfolio of its United States subsidiaries, primarily due to consideration of
statutory capital requirements associated with investment in common stocks and
to increase future investment income. The sale of the common stock portfolio
contributed to significantly higher realized investment gains than in 1994. UNUM
reinvested the proceeds from the sale of the common stock portfolio primarily in
investment grade fixed income assets, which has decreased the required amount of
statutory capital for regulatory purposes and increased investment income.
Dependent on capital considerations and market conditions, UNUM may invest in
equity securities in the future.
Reserves for certain disability products are discounted using an interest
rate which is a composite yield of assets matched with each product. As a result
of the sale of the common stock portfolio, which had partially supported these
disability reserves, and the subsequent reinvestment of the proceeds primarily
in investment grade fixed income assets at yields below the average portfolio
yield, certain reserve discount rates were lowered during second quarter 1995.
The effect of lowering these discount rates was an increase to the reserve
liabilities and benefits to policyholders reported in the Disability Insurance
segment of $128.6 million and a decrease in net income of $83.6 million, or
$1.15 per share, for the year ended December 31, 1995. The discount rate used to
determine the group LTD reserves was reduced to 8.00% at June 30, 1995, as
compared with 9.18% at December 31, 1994. At December 31, 1995, the group LTD
discount rate was 7.94%. Management expects the reserve discount rate for
certain disability products will further decline, since current cash flows are
invested in high quality assets at current yields, which are below the composite
yield of the existing assets purchased in prior years. UNUM periodically adjusts
prices on both existing and new business in an effort to mitigate the impact of
the current interest rate environment.
During 1995, UNUM increased the group LTD reserves for IBNR claims by $38.4
million, which decreased net income by $25.0 million, or $0.34 per share, for
the year ended December 31, 1995. IBNR reserves, which are established to fund
anticipated case reserves for claims that have been incurred but not reported to
UNUM, are actuarially established based on various factors, including incidence
levels and claims severity. The increased IBNR reserves were based on
management's judgment that claims currently incurred but not yet reported will
reflect increased levels of claims incidence and severity. It is not possible to
predict whether future incidence levels or claims severity will be consistent
with UNUM's assumptions, or will improve or deteriorate.
Throughout 1994, UNUM's individual disability business experienced a higher
incidence of new claims and a disproportionate number of large claims, which
management attributed to certain geographic and occupational segments of the
business, particularly physicians. During the third quarter of 1994, management
concluded that the deterioration of claims experience was not a temporary
fluctuation in certain segments of the business, but was indicative of expected
claim trends for the future. As a result, in third quarter 1994, UNUM increased
reserves for existing claims by $83.3 million and strengthened reserves for
estimated future losses by $109.1 million. These increased reserves reflected
management's expectations of morbidity trends for the existing non-cancellable
individual disability business. This reserve strengthening resulted in an
increase to benefits to policyholders in the Consolidated Statement of Income of
$192.4 million and a decrease to net income of $125.1 million, or $1.69 per
share, for the year ended December 31, 1994. It is not possible to predict
whether morbidity trends will be consistent with UNUM's assumptions; however, as
of December 31, 1995, management believes that the strengthened reserve levels
continue to be adequate.
17
<PAGE>
SUBSEQUENT EVENTS
On January 24, 1996, UNUM America entered into an agreement for the sale of
its group tax-sheltered annuity ("TSA") business to The Lincoln National Life
Insurance Company ("Lincoln Life"), a part of Lincoln National Corporation, and
to a new New York insurance subsidiary of Lincoln Life. The agreement also
contemplates that First UNUM will enter into a similar agreement with Lincoln
Life's New York insurance subsidiary. The sale, which is subject to regulatory
approvals, involves approximately 1,700 group contractholders and assets under
management of approximately $3 billion. The agreement initially contemplates the
reinsurance of these contracts under an indemnity reinsurance arrangement. These
contracts will then be reinsured pursuant to an assumption reinsurance
arrangement upon consent of the TSA contractholders and/or participants. The
purchase price (ceding commission) at closing is expected to be approximately
$70 million. It is anticipated that it will take several months (perhaps six to
nine months) to obtain the necessary approvals and otherwise close the sale.
There is no guarantee that the sale will close. Including the expected purchase
price of approximately $70 million, management expects to generate approximately
$160 million of statutory capital from this transaction. Plans for the use of
this capital may include repaying debt, investing in new and existing businesses
and stock repurchase.
On February 7, 1996, UNUM announced plans to merge its Commercial Life
Insurance Company affiliate into UNUM America to accelerate growth of its
special risk business, increase its commitment to the association group business
and to improve operating and capital efficiencies. The merger will be effective
December 31, 1996, subject to regulatory approvals. During 1996, UNUM expects to
incur costs of approximately $7 million related to the merger and anticipates
annual savings of a similar amount following the merger due to reductions in
operating costs.
ACCOUNTING CHANGES
Effective January 1, 1995, UNUM adopted FAS No. 114, "Accounting by
Creditors for Impairment of a Loan," and FAS No. 118, "Accounting by Creditors
for Impairment of a Loan - Income Recognition and Disclosures," which defined
the principles to measure and record a loan when it is probable that a creditor
will be unable to collect all amounts due according to the contractual terms of
the loan agreement. The adoption of FAS 114 and FAS 118 did not have a material
effect on UNUM's results of operations or financial position.
Effective January 1, 1994, UNUM adopted FAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," which specified the accounting and
reporting for certain investments in equity securities and for all investments
in debt securities. Upon the adoption of FAS 115, UNUM increased unrealized
gains on available for sale securities included in stockholders' equity on
January 1, 1994, by $41.8 million (net of deferred taxes of $22.5 million) to
reflect the unrealized holding gains on fixed maturities classified as available
for sale that were previously carried at amortized cost. In accordance with FAS
115, prior year consolidated financial statements have not been restated to
reflect the change in accounting principle. The adoption of FAS 115 did not
affect 1994 net income.
Effective January 1, 1993, UNUM adopted FAS 106, which changed the method
for recognition of the cost of postretirement benefits other than pensions from
a cash basis to an accrual basis over the years in which employees render the
related services. UNUM elected to recognize the FAS 106 liability at January 1,
1993, of $48.8 million as a cumulative effect of an accounting change, which
decreased net income by $32.1 million, or $0.40 per share, in 1993.
Also effective January 1, 1993, UNUM adopted FAS 109, which changed the
method for calculating and reporting deferred income taxes in the financial
statements from the deferred method to the liability method. The cumulative
effect of this accounting change amounted to a $20.0 million increase, or $0.25
per share, in 1993 net income.
INCOME TAXES
Effective tax rates, which reflect income tax expense as a percentage of
pretax income, were 26.4%, 22.1% and 32.2% for 1995, 1994 and 1993,
respectively. The increase in the effective tax rate for 1995 was primarily due
to increased pretax earnings, as compared with 1994. Reported income tax expense
was below the federal statutory tax rate of 35% for 1995, 1994 and 1993,
primarily due to tax savings from investments in tax-exempt securities.
Management anticipates the effective tax rate for 1996 will be higher than 1995,
primarily related to reduced levels of tax-exempt income. Although investments
in tax-exempt securities result in increased consolidated net income, these
investments reduce UNUM's business segments' income before income taxes.
On August 10, 1993, legislation was enacted to increase the federal
corporate income tax rate of 34% to 35%, retroactive to January 1, 1993. The
change in tax rates resulted in a $7.8 million, or $0.10 per share, charge
related to the adjustment of deferred tax liabilities. Excluding the adjustment
to deferred income tax expense of $7.8 million for the enacted tax rate change,
the 1993 effective tax rate would have been 30.5%.
18
<PAGE>
DISABILITY INSURANCE SEGMENT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS AND PERCENTAGE INCREASE
(DECREASE) OVER PRIOR YEAR) 1995 1994 1993
<S> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------------------------------------
Revenues
Premiums
Group LTD........................................ $1,088.6 14.0% $ 955.0 2.3% $ 933.4
UNUM Limited..................................... 125.2 (11.2) 141.0 79.4 78.6
Individual disability............................ 357.6 3.1 346.8 11.2 312.0
Group STD........................................ 132.9 23.5 107.6 19.8 89.8
Other disability insurance....................... 151.0 5.2 143.5 25.7 114.2
-------- ----- -------- ----- ----------
Total premiums................................. 1,855.3 9.5 1,693.9 10.9 1,528.0
Investment income.................................... 408.2 14.0 358.2 6.5 336.4
Net realized investment gains........................ 184.7 nm 42.1 26.0 33.4
Fees and other income................................ 24.6 10.3 22.3 12.1 19.9
-------- ----- -------- ----- ----------
Total revenues................................. 2,472.8 16.8 2,116.5 10.4 1,917.7
Benefits and expenses
Benefits to policyholders.......................... 1,711.2 8.8 1,572.1 37.3 1,144.9
Operating expenses................................. 421.3 1.5 415.0 7.7 385.4
Commissions........................................ 193.5 (0.9) 195.3 11.3 175.4
Increase in deferred policy acquisition costs...... (70.2) (42.5) (122.1) 19.6 (102.1)
-------- ----- -------- ----- ----------
Total benefits and expenses.................... 2,255.8 9.5 2,060.3 28.5 1,603.6
-------- ----- -------- ----- ----------
Income before income taxes........................... $ 217.0 nm% $ 56.2 (82.1)% $ 314.1
Sales (annualized new premiums)
Group LTD.......................................... $ 197.9 $ 215.4 $ 196.2
UNUM Limited....................................... $ 14.2 $ 15.5 $ 9.2
Individual disability.............................. $ 30.9 $ 65.5 $ 62.2
Group STD.......................................... $ 52.4 $ 47.8 $ 38.0
Persistency (premiums)
Group LTD.......................................... 82.8% 84.0% 88.7%
UNUM Limited....................................... 89.1% 89.9% 89.6%
Individual disability.............................. 91.8% 92.4% 92.1%
Group STD.......................................... 84.8% 83.8% 85.9%
Benefit ratio (% of premiums)........................ 92.2% 92.8% 74.9%
Operating expense ratio (% of premiums).............. 22.7% 24.5% 25.2%
</TABLE>
- ------------
nm = not meaningful or in excess of 100%
The Disability Insurance segment includes disability products offered
through: UNUM America, First UNUM Life Insurance Company ("First UNUM") and
Commercial Life Insurance Company ("Commercial Life") in North America; UNUM
Limited in the United Kingdom; and UNUM Japan Accident Insurance Company Limited
in Japan. The products included in this segment are group LTD, individual
disability, group short term disability ("group STD"), association group
disability, disability reinsurance and long term care insurance.
SUMMARY
The Disability Insurance segment reported slightly decreased income before
income taxes in 1995, as compared with 1994, when the following items, as
described below, are excluded: the increased realized investment gains resulting
primarily from the sale of the common stock portfolio, the increased reserves
resulting from the lowering of certain disability product reserve discount
rates, the increased group LTD reserves for IBNR claims, and the increased
reserves for unpaid claims related to the association group disability business,
all of which took place in 1995; and the individual disability reserve
strengthening and the related restructuring charge, recorded in 1994. This
decrease was primarily attributable to a higher benefit ratio at UNUM Limited
and in group LTD, and the inclusion of the results of UNUM
19
<PAGE>
Japan's operations in the Disability Insurance segment effective January 1,
1995. Partially offsetting these decreases were increased investment income, a
lower benefit ratio in the individual disability business, and continued expense
management.
During 1995, UNUM sold virtually all of the common stock portfolio of its
United States subsidiaries, primarily due to consideration of statutory capital
requirements associated with investment in common stocks and to increase future
investment income. The sale of the common stock portfolio contributed to
significantly higher realized investment gains in 1995 for the Disability
Insurance segment. UNUM reinvested the proceeds from the sale of the common
stock portfolio primarily in investment grade fixed income assets, which has
decreased the required amount of statutory capital for regulatory purposes and
increased investment income. Dependent on capital considerations and market
conditions, UNUM may invest in equity securities in the future.
Reserves for certain disability products are discounted using an interest
rate that is a composite yield of assets matched with each product. The sale of
the common stock portfolio, which partially supported these disability reserves,
and the subsequent reinvestment of the proceeds primarily in investment grade
fixed income assets with yields below the average portfolio yield, resulted in
lower reserve discount rates. The result of lowering these discount rates was an
increase to the reserve liabilities and benefits to policyholders of $128.6
million, reported in the second quarter of 1995. The discount rate used to
determine the group LTD reserves was reduced to 8.00% at June 30, 1995, as
compared with 9.18% at December 31, 1994. At December 31, 1995, the group LTD
discount rate was 7.94%.
Increased investment income in the Disability Insurance segment for 1995 was
primarily a result of the reinvestment of the proceeds from the sale of the
common stock portfolio into investment grade fixed income assets. This increase
in investment income was partially offset by the effects of lower discount rates
for certain disability products. Management expects the reserve discount rate
for certain disability products will further decline, since current cash flows
are invested in high quality assets at current yields, which are below the
composite yield of the existing assets purchased in prior years. UNUM
periodically adjusts prices on both existing and new business in an effort to
mitigate the impact of the current interest rate environment.
During 1995, UNUM increased the group LTD reserves for IBNR claims by $38.4
million. IBNR reserves, which are established to fund anticipated case reserves
for claims that have been incurred but not reported to UNUM, are actuarially
established based on various factors, including incidence levels and claims
severity. The increased IBNR reserves were based on management's judgment that
claims currently incurred but not yet reported will reflect increased levels of
claims incidence and severity. It is not possible to predict whether future
incidence levels or claims severity will be consistent with UNUM's assumptions,
or will improve or deteriorate.
During the fourth quarter of 1995, UNUM increased reserves for unpaid claims
related to the association group disability business by $15.0 million, which
decreased net income by $9.8 million, or $0.14 per share, for the year ended
December 31, 1995. These increased reserves reflect management's expectations of
slower than expected claim recoveries. In 1995, the association group line of
business has been negatively affected by unfavorable claims experience, which
management has attributed to certain geographical and occupational segments,
particularly dentists and physicians. Management is taking pricing actions and
strengthening underwriting standards to address this claims experience.
Throughout 1994, UNUM's individual disability business experienced a higher
incidence of new claims and a disproportionate number of large claims, which
management attributed to certain geographic and occupational segments of the
business, particularly physicians. During the third quarter of 1994, management
concluded that the deterioration of claims experience was not a temporary
fluctuation in certain segments of the business, but was indicative of expected
claim trends for the future. As a result, in third quarter 1994, UNUM increased
reserves for existing claims by $83.3 million and strengthened reserves for
estimated future losses by $109.1 million. These increased reserves reflected
management's expectations of morbidity trends for the existing non-cancellable
individual disability business. It is not possible to predict whether morbidity
trends will be consistent with UNUM's assumptions; however, as of December 31,
1995, management believes that the strengthened reserve levels continue to be
adequate.
In the fourth quarter of 1994, UNUM recorded a pretax charge of $14.4
million related to the decision to discontinue the individual disability
non-cancellable product and the acceleration of organizational changes within
UNUM America, which increased operating expenses and decreased net income by
$9.4 million, or $0.13 per share, for the year ended December 31, 1994. The
charge consisted of $9.2 million for severance costs for approximately 150 field
and 250 home office employees and $5.2 million for exit costs of certain leased
facilities and equipment.
20
<PAGE>
Reserves for unpaid claims are estimates based on UNUM's historical
experience and other actuarial assumptions that consider the effects of current
developments, anticipated trends, risk management programs and renewal actions.
Many factors affect actuarial calculations of claim reserves, including but not
limited to interest rates and current and anticipated incidence rates, recovery
rates, and economic and societal conditions. Reserve estimates and assumptions
are periodically reviewed and updated with any resulting adjustments to reserves
reflected in current operating results. Given the complexity of the reserving
process, the ultimate liability may be more or less than such estimates
indicate.
In 1995, 1994 and 1993, claim block acquisitions generated one-time premium
in the Disability Insurance segment of $63.8 million, $8.6 million and $58.3
million, respectively, for group LTD; $4.3 million and $15.0 million in 1995 and
1994, respectively, for long term care; and $25.8 million in 1994 for UNUM
Limited. Management intends to pursue additional claim block acquisitions in the
future.
The ratio of operating expenses to premiums was 22.7%, 24.5% and 25.2% in
1995, 1994 and 1993, respectively. The decreases in 1995 and 1994 were primarily
attributable to continued efforts to manage expenses and increased premium from
1995 claim block acquisitions, which do not have proportionally higher expenses.
Deferrals of policy acquisition costs decreased in 1995 primarily due to lower
levels of individual disability sales. The increase in deferred policy
acquisition costs in 1994 was primarily attributable to deferrals of higher
marketing costs associated with increased sales and renewal activity.
Excluding the individual disability reserve strengthening and the related
restructuring charge, income before income taxes decreased in 1994, as compared
with 1993. This decrease was primarily attributable to a higher benefit ratio in
individual disability and in group LTD, partially offset by continued expense
management.
GROUP LONG TERM DISABILITY
The group LTD premium growth in 1995 and 1994 reflected annualized premium
from new sales, selected price increases and acquisitions of closed blocks of
claims. Group LTD sales decreased in 1995, which management attributed to
significant price increases in certain segments of the business. Rate increases
to address unfavorable experience on selected segments of the inforce business
also contributed to the decline in persistency rates for 1995 and 1994. In
general, case terminations from rate increases have occurred in less profitable
segments of the business. Management expects to continue to seek inforce case
rate increases, as appropriate, given claims experience, to improve
profitability. However, such rate actions may increase case terminations and
decrease the persistency rate of the group LTD business.
During 1995 and 1994, management implemented and strengthened various risk
management programs to address the unfavorable claims experience in group LTD.
In addition to the selected price increases on new and inforce business, more
stringent underwriting practices, and the reduction of benefit options for
certain segments of the business, management established special claims units
for both its group LTD and individual disability businesses to address specific
aspects of disability claims, including complex and fraudulent claims.
Additionally, management implemented new group LTD contract provisions that
provide risk management features and claimant rehabilitation incentives.
Management continually reviews the benefits management process to identify and
strengthen risk management policies and procedures.
During 1995, group LTD's benefit ratio increased slightly after excluding
the effects of lowering the group LTD discount rate as a result of the sale of
the common stock portfolio in the second quarter of 1995 and of increasing the
group LTD reserves for IBNR claims. This increase was primarily attributable to
increased claims severity. However, the effect of the increase in claims
severity was partially offset by continued improvements in claim incidence rates
and claim recoveries, which management attributes to risk management programs.
Management continues to address the unfavorable claim trends in group LTD by
periodically adjusting prices on selected new and inforce business, implementing
more stringent underwriting guidelines and strengthening risk management
programs. Management believes these actions have strengthened UNUM's ability to
deal with these claim trends and the current interest rate environment. The
level of earnings of the group LTD product will be a function of various
factors, including but not limited to, the effectiveness of these continuing
actions over time.
UNUM LIMITED
During 1995, UNUM Limited's group long term disability business continued to
be adversely affected by unfavorable claims experience, which began to emerge in
late 1994. UNUM Limited has experienced a higher incidence of new claims and a
disproportionate number of large claims in 1995, as compared with 1994, which
management has attributed to certain segments of the business, particularly
lawyers and accountants. To address the current claims environment, management
has increased prices on those segments of the business that have experienced a
higher incidence of new
21
<PAGE>
claims, implemented more stringent underwriting standards and strengthened risk
management programs. The level of earnings for UNUM Limited will be a function
of various factors, including but not limited to, the effectiveness of these
actions over time. Due to the relative size of the U.K. block of business, UNUM
Limited's operating results can exhibit claims variability.
During 1995, the U.S. dollar weakened slightly against the British pound
sterling, increasing UNUM Limited's earnings as reported in U.S. dollars. The
weighted average exchange rate was approximately $1.58, $1.53 and $1.51 for the
years ended December 31, 1995, 1994 and 1993. At December 31, 1995, the spot
rate had decreased to $1.55.
INDIVIDUAL DISABILITY
During 1995, the growth in individual disability's premium slowed as a
result of management's decision in late 1994 to discontinue selling the
non-cancellable individual disability insurance product in the United States and
to transition to the new guaranteed renewable Lifelong Disability Protection
product, which was introduced during the second quarter of 1995. Sales of the
traditional, fixed price, non-cancellable individual disability product are
being discontinued in each state following regulatory approval of the new
product. As of the end of 1995, the new product has been approved for sale in
most states.
Throughout 1994, UNUM's individual disability business experienced a higher
incidence of new claims and a disproportionate number of large claims, which
management attributed to certain geographic and occupational segments of the
business, particularly physicians. Management believes that changes in and
consolidation of the health care delivery system in the United States and the
increased prevalence of emerging and often subjective types of disabilities
contributed to increased benefit costs. Unlike the group long term disability
product, management has limited ability to manage the claims risk associated
with non-cancellable individual disability business, since UNUM is contractually
unable to reprice or cancel inforce policies that became unprofitable because of
changes in claims experience that were unforeseen when the policy was sold.
During the third quarter of 1994, management concluded that the deterioration of
claims experience was not a temporary fluctuation in certain segments of the
business, but was indicative of expected claim trends for the future. As a
result, in third quarter 1994, UNUM increased reserves for existing claims by
$83.3 million and strengthened reserves for estimated future losses by $109.1
million. These increased reserves reflected management's expectations of
morbidity trends for the existing non-cancellable individual disability
business. It is not possible to predict whether morbidity trends will be
consistent with UNUM's assumptions; however, as of December 31, 1995, management
believes that the strengthened reserve levels continue to be adequate.
The individual disability business experienced a lower benefit ratio in
1995, as compared with 1994, after excluding the effects of increased reserves
resulting from lowering the individual disability reserve discount rate in
second quarter 1995 and the reserve strengthening recorded in 1994. The lower
benefit ratio was primarily due to lower new claims incidence rates for
physicians in 1995; however, such claims incidence rates can exhibit
variability. During 1995, lower expenses, partially offset by reduced deferrals
of policy acquisition costs resulting from lower individual disability sales in
1995, also contributed to the improved results of the individual disability
business.
During the fourth quarter of 1994, excess-of-loss reinsurance totaling $60
million over three years was purchased through a Lloyd's of London syndicate to
cover UNUM's exposure to claims exceeding levels assumed in the strengthened
reserves. Management continues to evaluate its financial options for this
business, including reinsurance opportunities.
GROUP SHORT TERM DISABILITY
Group STD's contribution to the Disability Insurance segment's income before
income taxes increased significantly in 1995 and 1994. These increases were
primarily attributable to group STD's strong premium growth and continued risk
and expense management. The record sales reported in 1995 reflected management's
continuing efforts to cross-sell the group STD products with the group LTD
business.
22
<PAGE>
SPECIAL RISK INSURANCE SEGMENT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS AND PERCENTAGE INCREASE
(DECREASE) OVER PRIOR YEAR) 1995 1994 1993
<S> <C> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------
Revenues
Premiums
Group life insurance............................. $355.1 13.7% $312.3 14.8% $272.0
Other special risk products...................... 307.5 22.6 250.8 5.4 237.9
------ ------ ------ ----- ------
Total premiums................................. 662.6 17.7 563.1 10.4 509.9
Investment income.................................... 44.0 8.6 40.5 18.4 34.2
Net realized investment gains........................ 4.4 nm 0.2 (66.7) 0.6
Fees and other income................................ 39.7 (9.8) 44.0 (11.1) 49.5
------ ------ ------ ----- ------
Total revenues................................. 750.7 15.9 647.8 9.0 594.2
Benefits and expenses
Benefits to policyholders.......................... 492.3 24.8 394.4 7.8 366.0
Operating expenses................................. 153.1 4.8 146.1 (6.2) 155.7
Commissions........................................ 60.9 11.7 54.5 9.2 49.9
Increase in deferred policy acquisition costs...... (15.9) 20.5 (13.2) (20.0) (16.5)
Interest expense................................... -- (100.0) 0.1 (50.0) 0.2
------ ------ ------ ----- ------
Total benefits and expenses.................... 690.4 18.6 581.9 4.8 555.3
------ ------ ------ ----- ------
Income before income taxes........................... $ 60.3 (8.5)% $ 65.9 69.4% $ 38.9
------ ------ ------ ----- ------
------ ------ ------ ----- ------
Sales (annualized new premiums)
Group life insurance............................... $106.1 $ 90.8 $ 89.2
Persistency (premiums)
Group life insurance................................ 83.0% 84.8% 89.2%
Benefit ratio (% of premiums)........................ 74.3% 70.0% 71.8%
Operating expense ratio (% of premiums).............. 23.1% 25.9% 30.5%
</TABLE>
- ------------
nm = not meaningful or in excess of 100%
The Special Risk Insurance segment includes group life products sold by UNUM
America and First UNUM, special risk accident insurance sold by Commercial Life
and other special risk insurance products. The segment also includes non-
disability reinsurance operations, which represent UNUM's participation in
various reinsurance pools, and the reinsurance underwriting management
operations of Duncanson & Holt, Inc.
Increased sales and selected price increases on new and inforce cases
contributed to the group life premium growth of 13.7%. Rate increases to address
unfavorable experience on certain segments of the inforce business contributed
to the decline in group life persistency rates for 1995 and 1994. Management
expects to continue to seek inforce case rate increases, as appropriate, to
improve profitability. Premium growth in 1995 for other special risk products
was primarily attributable to reinsurance operations, which had claim block
acquisitions totaling $39.1 million and increased pool participation.
The decrease in income before income taxes for 1995, as compared with 1994,
was primarily attributable to increased claims in the group life and special
risk accident insurance businesses, combined with reduced fee income from the
reinsurance underwriting management operations. Partially offsetting these
decreases were continued premium growth, increased realized investment gains
from the sale of the common stock portfolio and favorable claims experience in
certain reinsurance pools. Due to the nature of the risks underwritten and the
relative size of the blocks of businesses, several of the Special Risk Insurance
segment's products can exhibit claims variability.
The Special Risk Insurance segment's income before income taxes increased in
1994, primarily due to favorable claims experience in the group life business
and in special risk accident insurance, combined with premium growth and expense
management. Partially offsetting these increases were reduced fee income from
the reinsurance underwriting management operations and unfavorable claims
experience in certain reinsurance pools.
23
<PAGE>
COLONIAL PRODUCTS SEGMENT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS AND PERCENTAGE INCREASE
(DECREASE) OVER PRIOR YEAR) 1995 1994 1993
<S> <C> <C> <C> <C> <C>
----------------------------------------------------------------------------------------------
Revenues
Premiums........................................... $472.7 7.7% $439.1 8.7% $403.9
Investment income.................................. 41.3 33.7 30.9 3.7 29.8
Net realized investment gains...................... 10.9 nm 1.7 (85.3) 11.6
Fees and other income.............................. 2.4 9.1 2.2 (37.1) 3.5
------ ------ ------ ------ ------
Total revenues................................... 527.3 11.3 473.9 5.6 448.8
Benefits and expenses
Benefits to policyholders.......................... 235.1 6.3 221.1 6.6 207.5
Interest credited.................................. 6.5 30.0 5.0 19.0 4.2
Operating expenses................................. 114.7 7.1 107.1 13.7 94.2
Commissions........................................ 108.9 12.6 96.7 4.3 92.7
Increase in deferred policy acquisition costs...... (25.6) 36.9 (18.7) (7.9) (20.3)
Interest expense................................... -- -- -- (100.0) 0.1
------ ------ ------ ------ ------
Total benefits and expenses...................... 439.6 6.9 411.2 8.7 378.4
------ ------ ------ ------ ------
Income before income taxes........................... $ 87.7 39.9% $ 62.7 (10.9)% $ 70.4
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Sales (annualized first month's premiums)............ $200.4 $183.1 $171.4
Benefit ratio (% of premiums)........................ 49.7% 50.4% 51.4%
Operating expense ratio (% of premiums).............. 24.3% 24.4% 23.3%
</TABLE>
- ------------
nm = not meaningful or in excess of 100%
The Colonial Products segment includes Colonial Life & Accident Insurance
Company ("Colonial") and affiliates. Colonial, the principal subsidiary, offers
payroll-deducted, voluntary employee benefits to employees at their worksites.
Accident and sickness, cancer and life insurance products are marketed by
Colonial primarily through independent sales representatives.
During 1995, Colonial experienced improved sales growth as compared with
1994. These improved sales levels were attributed to increased productivity and
the offering of a number of new products. During 1995, Colonial made further
investments to automate policy enrollment for new sales and to realign the sales
organization. These investments reflect management's continued focus on
strategies to improve sales through increasing productivity, enhancing
effectiveness, and differentiating Colonial in the marketplace. Premium growth
slowed slightly again in 1995, reflecting the effects of weaker sales growth
during 1994 and 1993; however, management believes that the record sales levels
experienced during 1995, combined with the continuation of customer conservation
programs and investments being made in the sales organization, will have a
positive effect on future premium growth.
Investment income increased during 1995, primarily because of increased cash
flows and additional income realized from the reinvestment of the proceeds from
the second quarter 1995 sale of Colonial's equity portfolio into investment
grade fixed income assets. The sale of the equity portfolio also contributed to
the higher level of realized investment gains during the year. Realized
investment gains for 1993 include gains associated with Colonial's sales of
higher yielding but callable investments to realign its investment portfolio
with UNUM's investment philosophy.
Colonial's benefit ratio improved again in 1995 to 49.7%, as compared with
50.4% in 1994 and 51.4% in 1993. The lower benefit ratio was driven by continued
favorable claims experience and improved incidence rates across most product
lines. The expense ratio remained virtually unchanged for 1995 reflecting
management's continued investment in the sales organization, offset by continued
efforts to control expenditures and improved operating effectiveness. During
1994, the expense ratio increased because of higher than expected costs
associated with sales organization realignment and litigation expenses, which
were partially offset by continued expense control efforts.
Colonial's income before income taxes increased in 1995, primarily because
of increased investment income, higher realized investment gains and an improved
benefit ratio. For 1994, income before income taxes decreased primarily because
of reduced realized investment gains and increased expenses, partially offset by
favorable claims experience.
24
<PAGE>
RETIREMENT PRODUCTS SEGMENT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS AND PERCENTAGE INCREASE
(DECREASE) OVER PRIOR YEAR) 1995 1994 1993
<S> <C> <C> <C> <C> <C>
--------------------------------------------------------------------------------------------------
Revenues
Premiums........................................... $ 27.6 9.5% $ 25.2 (22.0)% $ 32.3
Investment income.................................. 298.9 (11.0) 335.8 (12.6) 384.3
Net realized investment gains...................... 24.8 nm 2.2 (33.3) 3.3
Fees and other income.............................. 6.5 4.8 6.2 (39.2) 10.2
-------- ----- -------- ----- --------
Total revenues................................... 357.8 (3.1) 369.4 (14.1) 430.1
Benefits and expenses
Benefits to policyholders.......................... 54.4 5.8 51.4 (10.3) 57.3
Interest credited.................................. 220.9 (7.1) 237.7 (14.1) 276.8
Operating expenses................................. 33.4 10.6 30.2 3.8 29.1
Commissions........................................ 6.6 (29.8) 9.4 6.8 8.8
(Increase) decrease in deferred policy acquisition
costs............................................. (3.0) nm (1.3) nm 3.8
-------- ----- -------- ----- --------
Total benefits and expenses...................... 312.3 (4.6) 327.4 (12.9) 375.8
-------- ----- -------- ----- --------
Income before income taxes........................... $ 45.5 8.3% $ 42.0 (22.7)% $ 54.3
-------- ----- -------- ----- --------
-------- ----- -------- ----- --------
Invested assets under management for tax sheltered
annuities, at end of period......................... $3,074.3 $3,065.0 $3,033.0
</TABLE>
- ------------
nm = not meaningful or in excess of 100%
The Retirement Products segment includes tax sheltered annuities ("TSAs"),
which are marketed by UNUM America and First UNUM, and products which are no
longer actively marketed by UNUM, including guaranteed investment contracts
("GICs"), deposit administration accounts ("DAs") and 401(k) plans.
As previously discussed in the Consolidated Overview, UNUM America entered
into an agreement for the sale of its group TSA business to Lincoln Life, a part
of Lincoln National Corporation, and to a new New York insurance subsidiary of
Lincoln Life. The agreement also contemplates that First UNUM will enter into a
similar agreement with Lincoln Life's New York insurance subsidiary. The group
TSA business of UNUM America and First UNUM accounted for approximately $34
million of the Retirement Products segment's income before income taxes in 1995,
1994 and 1993.
During 1995 and 1994, investment income declined primarily due to
investments in lower yielding tax-exempt securities, a reduced average
investment yield caused by the low interest rate environment, and a reduced
invested asset base under management for GICs, DAs and 401(k) plans. To
facilitate the expected sale of the TSA business later in 1996, management
expects to primarily liquidate fixed maturities and accumulate cash and
short-term investments, which will further reduce investment yields earned on
TSA assets during 1996.
During 1994, UNUM implemented an investment strategy to increase investments
in tax-exempt securities. Although investments in tax-exempt securities resulted
in increased consolidated net income, these investments reduced the Retirement
Products segment's income before income taxes by $7.6 million and $6.7 million
in 1995 and 1994, respectively. During 1995, primarily due to market conditions,
UNUM ceased the purchase of tax-exempt securities and sold the majority of
tax-exempt securities held by the TSA business.
Since 1993, UNUM has offered the holders of certain types of TSA contracts
the opportunity to modify their contracts. The proposed contract amendments
provide for UNUM to increase the minimum guaranteed credited interest rates in
return for contractholders relinquishing the right to make lump-sum withdrawals
without an associated fee. As expected, certain contract holders elected to
withdraw their funds rather than convert to the modified contract provisions,
which has affected the overall growth of invested assets under management.
During 1995, interest spread margins declined, as compared with the
unusually favorable levels experienced during 1994 and 1993. As interest rates
declined in 1993, the rate and level of interest credited to TSA contractholders
declined as well. Despite a rising interest rate environment in 1994, the level
of interest credited to TSA contractholders continued to
25
<PAGE>
decline. As a result, the TSA business experienced unusually favorable interest
spread margins during those years. Management expects the lower interest spread
margins in 1995 on TSAs to continue, which may reduce future earnings of the
Retirement Products segment.
The reduced asset base under management for GICs, DAs and 401(k) plans has
also resulted in lower revenues from investment income and reduced amounts of
interest credited. Management expects continued decreases in the amounts of
investment income and interest credited as the related GICs, DAs and 401(k)
contracts mature or terminate. Management expects future earnings for these
closed blocks of businesses to decline, reflecting their run-off nature.
Income before income taxes increased in 1995, as compared with 1994,
primarily due to increased realized investment gains from the sale of UNUM's
equity portfolio during the second quarter of 1995, partially offset by lower
interest spread margins on TSAs. For 1994, the decrease in income before income
taxes was primarily attributable to the declining income levels of the closed
blocks of businesses.
CORPORATE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS) 1995 1994 1993
<S> <C> <C> <C>
---------------------------------------------------------
Loss before income taxes......... $(28.6) $(28.2) $(17.4)
</TABLE>
Corporate includes transactions that are generally non-insurance related.
The increased loss before income taxes in 1995 was primarily attributable to
increased interest expense on corporate borrowings, partially offset by reduced
operating expenses. The increased loss before income taxes in 1994 was primarily
due to increased interest expense and increased operating expenses related to
UNUM's investment in Japan. Effective January 1, 1995, the operations of UNUM
Japan are reported in the Disability Insurance segment. Costs related to UNUM's
investment in Japan prior to January 1, 1995, are reported as operating expenses
in Corporate.
BUSINESS RESTRUCTURING AND OTHER CHARGES
Charges of $8.4 million and $14.4 million were recorded in 1995 and 1994,
respectively, related to the acceleration of organizational changes within UNUM
America and the decision to discontinue the individual disability
non-cancellable product. Partially offsetting the charge recorded in 1995 was a
$3.4 million curtailment gain, related to workforce reductions in UNUM
Corporation's noncontributory defined benefit pension plan. Of the total $22.8
million charge, UNUM paid $15.9 million during 1995, which represented severance
costs of $13.3 million for 373 of the 379 individuals included in the charges
and $2.6 million of lease costs. The remaining $6.9 million includes $0.4
million of severance costs and $6.5 million of lease costs, the total of which
is expected to be paid as follows: $3.4 million in 1996, $3.2 million in 1997,
and $0.3 million in 1998.
INVESTMENTS
UNUM's investment portfolio is concentrated in investment grade bonds. UNUM
evaluates total expected return after consideration of all associated expenses
and losses, within criteria established for each product line. Product line
investment strategies are developed to complement business risks by meeting the
liquidity and solvency requirements of each product. UNUM purchases assets with
maturities, expected cash flows and prepayment conditions that are consistent
with these strategies. The nature and quality of the types of investments comply
with policies established by management, which are more stringent overall than
the statutes and regulations imposed by the jurisdictions in which UNUM's
insurance subsidiaries are licensed.
UNUM's investments are reported in the consolidated financial statements at
net realizable value or net of any applicable allowances for probable losses.
Allowances for mortgages and real estate held for sale are established based on
a review of specific assets as well as the overall portfolio, considering the
carrying value of the underlying assets. If a decline in market value is
considered to be other than temporary, the investment is reduced to estimated
net realizable value and the reduction is recorded as a realized investment
loss. UNUM discontinues the accrual of investment income on invested assets when
it is determined that collectability is doubtful. Management monitors the risk
associated with the invested asset portfolio and regularly reviews and adjusts
the allowance for probable losses.
During the second quarter of 1995, UNUM sold virtually all of the common
stock portfolio of its United States subsidiaries, primarily due to
consideration of statutory capital requirements associated with investment in
common stocks and to increase future investment income. UNUM has reinvested the
proceeds from the sale of the common stock portfolio primarily in investment
grade fixed income assets. Dependent on capital considerations and market
conditions, UNUM may invest in equity securities in the future.
26
<PAGE>
At December 31, 1995, the composition of UNUM's $11.7 billion of invested
assets was 78.1% fixed maturities, 10.0% mortgage loans, 1.9% real estate, 0.2%
equity securities, and 9.8% other invested assets. To facilitate the expected
sale of the TSA business later in 1996, management expects to primarily
liquidate fixed maturities and accumulate cash and short-term investments.
Gross realized investment gains were $287.0 million, $117.0 million, and
$85.2 million, and gross realized investment losses were $61.9 million, $71.4
million, and $35.8 million for the years ended December 31, 1995, 1994, and
1993, respectively.
FIXED MATURITIES
Effective January 1, 1994, UNUM adopted Financial Accounting Standard
("FAS") No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," which specified the accounting and reporting for certain
investments in equity securities and for all investments in debt securities.
UNUM adopted the provisions for FAS 115 for these investments held or acquired
after January 1, 1994. Upon the adoption of FAS 115, UNUM increased unrealized
gains on available for sale securities included in stockholders' equity on
January 1, 1994, by $41.8 million (net of deferred taxes of $22.5 million) to
reflect the unrealized holding gains on fixed maturities classified as available
for sale which were previously carried at amortized cost. In addition, UNUM
reclassified certain fixed maturities from held to maturity to available for
sale on January 1, 1994, in connection with the adoption of FAS 115.
In November 1995, the FASB issued "A Guide to Implementation of Statement
115 on Accounting for Certain Investments in Debt and Equity Securities," which
provided a one-time opportunity to reassess the appropriateness of the
classifications of securities described in FAS 115, and to reclassify fixed
maturities from the held to maturity category without calling into question the
intent to hold other debt securities to maturity in the future. On December 31,
1995, UNUM reassessed its fixed maturity portfolio and as allowed under the
implementation guidance, reclassified fixed maturities with an amortized cost of
$6,082.8 million and a related net unrealized gain of $393.0 million from the
held to maturity category to available for sale. In connection with the
reclassification of the held to maturity fixed maturities to available for sale,
on December 31, 1995, UNUM adjusted its unpaid claims by $261.2 million to
reflect the changes that would have been necessary if the unrealized gains and
losses related to fixed maturities classified as available for sale had been
realized.
At December 31, 1995, the fixed maturity portfolio included $139.4 million
of below investment grade bonds (below "Baa") recorded at fair value, which
represented 1.5% of the fixed maturity portfolio, and had an associated
amortized cost of $133.8 million. At December 31, 1994, the carrying value of
below investment grade bonds included in the fixed maturity portfolio was $193.8
million, which represented 2.5% of the fixed maturity portfolio, and had an
associated market value of $193.4 million. Virtually all of the nonconvertible,
below investment grade bonds were purchased at investment grade, but were
subsequently downgraded. UNUM's investment policy is to invest primarily in
fixed maturities of investment grade quality. Selected purchases of convertible
subordinated debentures, which UNUM considered to be part of its investment
strategy for equity securities, have contributed to the amount of below
investment grade bonds. Fixed maturity ratings are obtained from external rating
agencies, and if not externally rated, are rated by UNUM internally using
similar methods. Management does not expect any risks or uncertainties
associated with below investment grade bonds to have a significant affect on
UNUM's consolidated financial position or results of operations. UNUM had no
fixed maturities delinquent 60 days or more at December 31, 1995. The percentage
of fixed maturities delinquent 60 days or more, compared to total fixed
maturities, was 0.25% at December 31, 1994.
During 1995, UNUM sold fixed maturities of two issuers classified as held to
maturity with an amortized cost of $4.0 million, and realized a net loss of $1.2
million on the sales. The bonds were sold due to significant deterioration of
the issuers' creditworthiness, as evidenced by bankruptcy filings. During 1994,
UNUM sold fixed maturities of five issuers classified as held to maturity with
an amortized cost of $49.8 million due to evidence of significant deterioration
of the issuers' creditworthiness. These sales resulted in a net realized loss of
$3.0 million.
MORTGAGES
At December 31, 1995, and 1994, UNUM's mortgage loans were $1,163.4 million
and $1,216.3 million, respectively. Management establishes allowances for
mortgage loans based upon a review of individual loans and the overall loan
portfolio, considering the value of the underlying collateral. UNUM uses a
comprehensive rating system to evaluate the investment and credit risk of each
mortgage loan and to target specific properties for inspection and reevaluation.
The percentage of mortgage loans delinquent 60 days or more on a contract
delinquency basis was 0.2% and 1.8% at December 31, 1995, and 1994,
respectively.
27
<PAGE>
Management believes that its mortgage loan portfolio is well diversified
geographically and among property types. UNUM's incidence of new problem
mortgage loans has continued to decline in 1995, as overall economic activity
improved modestly, and many of the real estate markets in which UNUM has
mortgage loans stabilized. Management expects a modest level of additional
delinquencies and problem loans in the future. Management believes the allowance
provided on mortgage loans as of December 31, 1995, is adequate to cover
probable losses.
Effective January 1, 1995, UNUM adopted Financial Accounting Standard
("FAS") No. 114, "Accounting by Creditors for Impairment of a Loan," and FAS No.
118, "Accounting by Creditors for Impairment of a Loan -- Income Recognition and
Disclosures," which defined the principles to measure and record a loan when it
is probable that a creditor will be unable to collect all amounts due according
to the contractual terms of the loan agreement. The adoption of FAS 114 and FAS
118 did not have a material affect on UNUM's results of operations or financial
position.
In general, impaired loans as defined by FAS 114 compare with loans
previously defined and disclosed as problem and potential problem loans. Problem
loans were defined as loans that were delinquent 60 days or more on a contract
delinquency basis. Potential problem loans were defined as current and
performing loans with which management had some concerns about the ability of
the borrower to comply with present loan terms and whose book value exceeded the
market value of the underlying collateral. At December 31, 1995, impaired loans
totaled $50.1 million, as compared with $58.5 million of problem and potential
problem loans at December 31, 1994. Included in the $50.1 million of impaired
loans was $38.4 million of loans which had a related allowance for probable
losses of $7.1 million, and $11.7 million of loans which had no related
allowance for probable losses. Interest lost on impaired loans in 1995, and
problem and potential problem loans in 1994 and 1993, was not material.
Mortgage loans that were restructured prior to the adoption of FAS 114, are
defined by UNUM as loans whose terms have been modified to interest rates less
than market at the time of restructure and are currently expected to perform
pursuant to such modified terms. UNUM modifies loans to protect its investment
and only when it is anticipated that the borrower will be able to meet the
modified terms. As of December 31, 1995, restructured mortgage loans totaled
$59.9 million, as compared with $73.6 million at December 31, 1994. Interest
lost on restructured loans was not material in 1995, 1994 or 1993.
Realized investment losses related to impaired mortgage loans in 1995
amounted to $9.2 million, compared with realized investment losses related to
restructured and problem mortgage loans of $8.5 million and $4.8 million for
1994 and 1993, respectively. Impaired mortgage loans as of December 31, 1995,
are not expected to have a significant impact on UNUM's results of operations,
liquidity, or capital resources.
REAL ESTATE
At December 31, 1995, investment real estate amounted to $222.2 million
compared with $190.8 million at December 31, 1994. UNUM purchases investment
real estate in selected markets when certain investment criteria are met.
Investment real estate is intended to be held long-term and is carried at cost
less accumulated depreciation. Occasionally, investment real estate is
reclassified and revalued as real estate held for sale when it no longer meets
UNUM's investment criteria.
At December 31, 1995, real estate held for sale amounted to $35.5 million
compared with $31.0 million at December 31, 1994. Real estate acquired through
foreclosure is valued at fair value at the date of foreclosure. Real estate held
for sale is included in other assets in the Consolidated Balance Sheets and is
valued net of an allowance which reduces the carrying value to the lower of fair
value less estimated costs to sell, or cost. Additions to the allowance for
probable losses related to real estate held for sale resulted in realized
investment losses of $6.3 million, $0.8 million and $18.8 million for the years
ended December 31, 1995, 1994 and 1993, respectively. Additions to the allowance
represent charges to net realized investment gains less recoveries.
Given the current real estate environment, additional foreclosures are
anticipated, but at a reduced level from the early 1990s. Current and
anticipated real estate acquired through foreclosure is not expected to have a
significant affect on UNUM's results of operations, liquidity, or capital
resources.
LIQUIDITY AND CAPITAL RESOURCES
UNUM's businesses produce positive cash flows, which are invested primarily
in intermediate, fixed maturity investments intended to reflect the nature of
anticipated cash obligations of insurance benefit payments and insurance
contract maturities and to optimize investment returns at appropriate risk
levels. Unexpected cash requirements and liquidity needs
28
<PAGE>
can be met through UNUM's investment portfolio of fixed maturities classified as
available for sale, equity securities, cash and short-term investments. To
facilitate the expected sale of the TSA business later in 1996, management
expects to primarily liquidate fixed maturities and accumulate cash and
short-term investments.
From time to time, dividend payments, which may be subject to approval by
insurance regulatory authorities, are made from UNUM's affiliates and insurance
subsidiaries to UNUM Corporation. These dividends, along with other funds, are
used to service the needs of UNUM Corporation including: debt service, common
stock dividends, stock repurchase, administrative costs and corporate
development. Income determined using statutory accounting is one of the major
determinants of an insurance company's dividend capacity to its parent in the
following fiscal year. Statutory accounting rules and practices, which differ in
certain respects from generally accepted accounting principles, are mandated by
regulators in an insurance company's state of domicile.
In 1995, UNUM America's statutory net income increased to $226.4 million, as
compared with $39.2 million in 1994, which was primarily due to significant
improvements in the income of certain disability products, and significantly
higher realized investment gains as a result of the sale of the common stock
portfolio. As described in the Disability Insurance segment, in 1994 UNUM
America strengthened reserves for existing claims related to the traditional
non-cancellable individual disability products, which resulted in a statutory
after-tax charge of $69.6 million in third quarter 1994. This charge combined
with unfavorable claims experience in certain disability businesses contributed
to the decline in UNUM America's statutory income in 1994.
As a result of the increase in UNUM America's statutory earnings in 1995,
the amount available under current law for payment of dividends during 1996 to
UNUM Corporation from all U.S. domiciled insurance subsidiaries without state
insurance regulatory approval, increased to approximately $135 million, as
compared with approximately $81 million for 1995. UNUM Corporation also has the
ability to draw a dividend of approximately $19 million from its United Kingdom-
based affiliate, UNUM Limited, subject to certain U.S. tax consequences.
Cash flow requirements are also supported by a committed revolving credit
facility totaling $500 million, which expires October 1, 1999. UNUM
Corporation's commercial paper program is supported by the revolving credit
facility, and is available for general liquidity needs, capital expansion,
acquisitions and stock repurchase. The committed revolving credit facility
contains certain covenants which, among other provisions, require maintenance of
certain levels of stockholders' equity and limits on level of debt.
In September 1993, UNUM filed an omnibus shelf registration statement with
the Securities and Exchange Commission which became effective on October 8,
1993, relating to $450 million of securities (including debt securities,
preferred stock, common stock and other securities). On October 8, 1993, UNUM
filed a prospectus supplement to establish a $250 million medium-term note
("MTN") program under the shelf registration. On May 11, 1995, UNUM Corporation
issued $172.5 million of 8.80% Monthly Income Debt Securities ("MIDS") (Junior
Subordinated Deferrable Interest Debentures, Series A) under the shelf
registration, which mature in 2025.
At December 31, 1995, UNUM had short-term and long-term debt totaling $126.5
million and $457.3 million, respectively. At December 31, 1995, approximately
$417 million was available for additional financing under the existing revolving
credit facility and approximately $96 million of investment grade debt
instruments were available for issuance under the shelf registration. Contingent
upon market conditions and corporate needs, management may refinance short-term
notes payable with longer term securities.
At December 31, 1995, approximately 2.7 million shares of common stock
remained authorized for stock repurchase. During 1995, UNUM did not acquire any
shares in the open market. During 1994 and 1993, UNUM repurchased 3.9 million
and 3.7 million shares, respectively, in the open market. The aggregate cost of
the 1994 and 1993 repurchases was $183.3 million and $192.5 million,
respectively, which was primarily funded through additional borrowings.
During 1995, 1994 and 1993, withdrawals of 401(k), GIC and DA contracts
reported in the Retirement Products segment, including contract terminations,
payments to participants and transfers to other carriers, were approximately $46
million, $130 million and $309 million, respectively. Withdrawals during 1995,
1994 and 1993, were at levels expected by management and reflect the run-off
nature of these closed blocks of businesses. UNUM manages liquidity objectives
by including certain conditions in pension contracts which prohibit or restrict
availability of funds.
UNUM was committed at December 31, 1995, to purchase fixed maturities and
other invested assets in the amount of $91.2 million. Independent of the cash
flows of UNUM Corporation, management anticipates that the operating cash flows
of the subsidiaries of UNUM Corporation will be sufficient to meet benefit
obligations, planned investment commitments and operational needs of those
companies.
29
<PAGE>
RATINGS
Standard & Poor's Corporation ("Standard & Poor's"), Moody's Investors
Service ("Moody's") and A.M. Best Company ("A.M. Best") are among the third
parties that provide UNUM independent assessments of its overall financial
position. Ratings from these agencies for financial strength and claims paying
ability are available for the individual United States domiciled insurance
company subsidiaries rather than on a consolidated basis, since the financial
information used to develop the ratings is based on statutory accounting
practices in the United States. Debt ratings for UNUM Corporation are based on
consolidated financial information under generally accepted accounting
principles.
The table below reflects the debt ratings for UNUM Corporation and the
claims paying ability and financial strength ratings for UNUM's United States
domiciled insurance company subsidiaries at March 8, 1996:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
STANDARD &
POOR'S MOODY'S A.M. BEST
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
UNUM CORPORATION RATINGS:
Senior Debt (MTN program) A+ A1
(Strong) (Upper Medium Grade)
Commercial Paper A-1 P-1
(Strong) (Superior Ability)
Subordinated Debt (MIDS) A A2
(Strong) (Upper Medium Grade)
UNITED STATES SUBSIDIARIES' RATINGS: CLAIMS PAYING
ABILITY RATING FINANCIAL STRENGTH RATING
UNUM America AA Aa2 A++
(Excellent) (Excellent) (Superior)
First UNUM AA Aa2 A+
(Excellent) (Excellent) (Superior)
Colonial Life & Accident AA- Aa3 A+
(Excellent) (Excellent) (Superior)
Commercial Life AA A
(Excellent) (Excellent)
</TABLE>
At March 8, 1996, the unsold portion of the shelf registration related to
preferred stock carried a rating of "(P)"a1"" (Upper-Medium Quality) from
Moody's Investors Service.
INSURANCE REGULATION
The Risk-Based Capital standards for life insurance companies, as prescribed
by the National Association of Insurance Commissioners, are based on a formula
that establishes capital requirements relating to existing asset default risk,
insurance risk, interest rate (asset/liability mismatch) risk and business risk.
A company's Total Adjusted Capital (statutory capital, surplus and Asset
Valuation Reserve plus certain other adjustments) is compared to the Authorized
Control Level ("ACL") of Risk-Based Capital produced by the formula. Subject to
certain trend tests to determine the change in the ACL ratio from year to year,
companies with Total Adjusted Capital above 200% of ACL are assumed to be
adequately capitalized. Companies below 200% of ACL are identified as requiring
various levels of regulatory action ranging from increased information
requirements for companies between 150% and 200% of ACL, to mandatory control by
the domiciliary insurance department for companies below 70% of ACL.
At December 31, 1995, the ACL ratios for UNUM America, First UNUM, Colonial
Life and Commercial Life were 382%, 382%, 436% and 329%, respectively. This
compares with ACL ratios at December 31, 1994, of 307%, 357%, 442% and 378%,
respectively.
DERIVATIVE FINANCIAL INSTRUMENTS
UNUM periodically uses common derivative financial instruments such as
options, futures and forward exchange contracts to hedge certain risks
associated with future investments and certain payments denominated in foreign
currencies, primarily British pound sterling, Canadian dollar and Japanese yen.
These derivative financial instruments are used to protect UNUM from the effect
of market fluctuations in interest and exchange rates between the contract date
and the
30
<PAGE>
date on which the hedged transaction occurs. In using these instruments, UNUM is
subject to the off-balance-sheet risk that the counterparties of the
transactions will fail to completely perform as contracted. UNUM manages this
risk by only entering into contracts with highly rated institutions and listed
exchanges. UNUM does not intend to hold derivative financial instruments for the
purpose of trading. At December 31, 1995 and 1994, UNUM had no open derivative
financial instruments.
LITIGATION
In the normal course of its business operations, UNUM is involved in
litigation from time to time with claimants, beneficiaries and others, and a
number of lawsuits were pending at December 31, 1995. In the opinion of
management, the ultimate liability, if any, arising from this litigation is not
expected to have a material effect on the consolidated financial position or the
consolidated operating results of UNUM.
On December 29, 1993, UNUM filed a suit in the United States District Court
for the District of Maine, seeking a federal income tax refund. The suit is
based on a claim for a deduction in certain prior tax years, for $652 million in
cash and stock distributed to policyholders in connection with the 1986
conversion of Union Mutual Life Insurance Company to a stock company. Although
UNUM believes its claims are meritorious, the United States is aggressively
resisting the claims and the ultimate recovery, if any, cannot be determined at
this time.
EFFECT OF INFLATION
Inflation is one of the factors that has increased the need for insurance.
Many policyholders who once had adequate insurance programs at lower coverage
levels have increased their disability insurance coverage to provide the same
relative financial benefits and protection.
Changing interest rates, which are traditionally linked to changes in
inflation, affect UNUM's level of discounted reserves. While rising interest
rates are beneficial when investing current cash flows, they can also reduce the
fair value of existing fixed rate long-term investments. In addition, lower
interest rates can lead to early payoffs and refinancing of some of UNUM's fixed
rate investments. Management generally invests in fixed rate instruments that
are structured to limit the exposure to such reinvestment risk.
NEW ACCOUNTING PRONOUNCEMENTS
In March 1995, the FASB issued FAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," which
establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles, and goodwill related to those assets to be
held and used and for long-lived assets and certain identifiable intangibles to
be disposed of. UNUM will adopt FAS 121 effective January 1, 1996. The adoption
of FAS 121 is not expected to have a material effect on UNUM's results of
operations or financial position.
In October 1995, the FASB issued FAS No. 123, "Accounting for Stock-Based
Compensation," which establishes financial accounting and reporting standards
for stock-based employee compensation plans. FAS 123 defines a new method of
accounting for employee stock compensation plans using a fair value based
method, under which compensation cost is measured and recognized in results of
operations. Alternatively, FAS 123 allows an entity to retain the accounting
method for employee stock compensation plans defined under APB Opinion No. 25,
"Accounting for Stock Issued to Employees." If an entity retains the accounting
defined under APB 25, certain pro forma disclosures of net income and earnings
per share must be made as if the fair value based method defined under FAS 123
had been applied. UNUM is required to adopt FAS 123 effective January 1, 1996.
UNUM has determined that it will retain the accounting methodology prescribed by
APB 25 and will disclose the pro forma effects of such stock-based compensation
as required in 1996.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
INDEX PAGE
- ---------------------------------------------------------------------------------------------------------------------------- ---
<S> <C>
Report of Independent Accountants........................................................................................... 32
Consolidated Financial Statements:
Consolidated Statements of Income for the Years Ended December 31, 1995, 1994 and 1993.................................... 33
Consolidated Balance Sheets as of December 31, 1995 and 1994.............................................................. 34
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1995, 1994 and 1993...................... 35
Consolidated Statements of Cash Flows for the Years Ended December 31, 1995, 1994 and 1993................................ 36
Notes to Consolidated Financial Statements.................................................................................. 37
</TABLE>
31
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Directors and Stockholders
UNUM Corporation
We have audited the consolidated financial statements of UNUM Corporation
and subsidiaries as listed in Item 8 and the financial statement schedules as
listed in Item 14(a) of this Form 10-K. These consolidated financial statements
and financial statement schedules are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these consolidated
financial statements and financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
UNUM Corporation and subsidiaries as of December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995 in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
statement schedules referred to above, when considered in relation to the basic
financial statements taken as a whole, present fairly, in all material respects,
the information required to be included therein.
As discussed in Notes 2, 7, and 9 to the consolidated financial statements,
the Corporation changed its method of accounting for certain investments in debt
securities in 1994 and its method of accounting for postretirement benefits
other than pensions, and accounting for income taxes in 1993.
/s/ COOPERS & LYBRAND L.L.P.
Portland, Maine
February 6, 1996
32
<PAGE>
UNUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN MILLIONS, EXCEPT PER COMMON SHARE DATA)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------
1995 1994 1993
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
Revenues
Premiums.......................................................................................... $3,018.2 $2,721.3 $2,474.1
Investment income................................................................................. 806.3 770.2 790.4
Net realized investment gains..................................................................... 225.1 45.6 49.4
Fees and other income............................................................................. 73.3 75.5 83.1
-------- -------- --------
Total revenues................................................................................ 4,122.9 3,612.6 3,397.0
Benefits and expenses
Benefits to policyholders......................................................................... 2,493.0 2,239.0 1,775.7
Interest credited................................................................................. 227.4 242.7 281.0
Operating expenses................................................................................ 728.2 713.0 675.6
Commissions....................................................................................... 369.9 355.9 326.8
Increase in deferred policy acquisition costs..................................................... (114.7) (155.3) (135.1)
Interest expense.................................................................................. 37.2 18.7 12.7
-------- -------- --------
Total benefits and expenses................................................................... 3,741.0 3,414.0 2,936.7
-------- -------- --------
Income before income taxes and cumulative effects of accounting changes............................. 381.9 198.6 460.3
Income taxes
Current........................................................................................... 98.6 30.4 73.4
Deferred.......................................................................................... 2.2 13.5 74.9
-------- -------- --------
Total income taxes............................................................................ 100.8 43.9 148.3
-------- -------- --------
Income before cumulative effects of accounting changes.............................................. 281.1 154.7 312.0
Cumulative effects of accounting changes
Income taxes...................................................................................... -- -- 20.0
Postretirement benefits other than pensions, net of tax........................................... -- -- (32.1)
-------- -------- --------
Net income.......................................................................................... $ 281.1 $ 154.7 $ 299.9
-------- -------- --------
-------- -------- --------
Per common share
Income before cumulative effects of accounting changes............................................ $ 3.87 $ 2.09 $ 3.96
Cumulative effects of accounting changes
Income taxes...................................................................................... -- -- 0.25
Postretirement benefits other than pensions, net of tax........................................... -- -- (0.40)
-------- -------- --------
Net income.......................................................................................... $ 3.87 $ 2.09 $ 3.81
-------- -------- --------
-------- -------- --------
</TABLE>
See notes to consolidated financial statements.
33
<PAGE>
UNUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN MILLIONS)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1994
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
Assets
Investments
Fixed maturities:
Available for sale-at fair value (amortized cost: 1995-$8,583.5; 1994-$1,701.4).................. $ 9,135.4 $ 1,640.6
Held to maturity-principally at amortized cost (fair value: 1994-$6,168.6)....................... -- 6,227.2
Equity securities available for sale-at fair value (cost: 1995-$21.1; 1994-$492.2)................. 25.2 627.9
Mortgage loans..................................................................................... 1,163.4 1,216.3
Real estate, net................................................................................... 222.2 190.8
Policy loans....................................................................................... 219.2 201.0
Other long-term investments........................................................................ 30.4 38.1
Short-term investments............................................................................. 896.7 291.9
---------- ----------
Total investments................................................................................ 11,692.5 10,433.8
Cash................................................................................................. 42.5 36.1
Accrued investment income............................................................................ 208.5 195.9
Premiums due......................................................................................... 224.3 189.7
Deferred policy acquisition costs.................................................................... 1,142.3 1,035.2
Property and equipment, net.......................................................................... 153.7 153.4
Other assets......................................................................................... 791.8 737.2
Separate account assets.............................................................................. 532.2 345.9
---------- ----------
Total assets..................................................................................... $ 14,787.8 $ 13,127.2
---------- ----------
---------- ----------
Liabilities and Stockholders' Equity
Liabilities
Future policy benefits............................................................................. $ 1,718.7 $ 1,591.6
Unpaid claims and claim expenses................................................................... 4,856.4 3,853.9
Other policyholder funds........................................................................... 3,840.3 4,058.8
Income taxes
Current.......................................................................................... 20.7 12.4
Deferred......................................................................................... 392.0 348.6
Notes payable...................................................................................... 583.8 428.7
Other liabilities.................................................................................. 540.8 571.9
Separate account liabilities....................................................................... 532.2 345.9
---------- ----------
Total liabilities................................................................................ 12,484.9 11,211.8
Stockholders' equity
Preferred stock, par value $0.10 per share, authorized 10,000,000 shares, none issued..............
Common stock, par value $0.10 per share, authorized 120,000,000 shares, issued 99,987,958 shares... 10.0 10.0
Additional paid-in capital......................................................................... 1,088.2 1,080.5
Unrealized gains on available for sale securities, net............................................. 213.1 49.6
Unrealized foreign currency translation adjustment................................................. (23.1) (23.7)
Retained earnings.................................................................................. 1,713.2 1,507.2
---------- ----------
3,001.4 2,623.6
Less:
Treasury stock, at cost (1995-26,980,331 shares; 1994-27,575,430 shares)......................... 691.6 706.6
Restricted stock deferred compensation........................................................... 6.9 1.6
---------- ----------
Total stockholders' equity....................................................................... 2,302.9 1,915.4
---------- ----------
Total liabilities and stockholders' equity....................................................... $ 14,787.8 $ 13,127.2
---------- ----------
---------- ----------
See notes to consolidated financial statements.
</TABLE>
34
<PAGE>
UNUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN MILLIONS, EXCEPT PER COMMON SHARE DATA)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON UNREALIZED GAINS UNREALIZED
STOCK (LOSSES) ON FOREIGN RESTRICTED
$0.10 ADDITIONAL AVAILABLE FOR CURRENCY STOCK
PAR PAID-IN SALE SECURITIES, TRANSLATION RETAINED TREASURY DEFERRED
VALUE CAPITAL NET ADJUSTMENT EARNINGS STOCK COMPENSATION TOTAL
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at January 1,
1993.................... $10.0 $1,066.6 $121.1 $ (20.9) $1,182.3 $ (345.5) $ (2.7) $2,010.9
1993 Transactions:
Net income............. 299.9 299.9
Unrealized gains on
equity securities,
net................... 28.0 28.0
Unrealized foreign
currency translation
adjustment............ (3.2) (3.2)
Dividends to
stockholders
($0.765 per common
share)................ (61.4) (61.4)
Treasury stock
acquired.............. (192.5) (192.5)
Employee stock option
and other
transactions.......... 11.8 8.2 1.0 21.0
------ ---------- ------ ------------- ---------- -------- ------ --------
Balance at December 31,
1993.................... 10.0 1,078.4 149.1 (24.1) 1,420.8 (529.8) (1.7) 2,102.7
1994 Transactions:
Net income............. 154.7 154.7
Unrealized losses on
available for sale
securities, net....... (99.5) (99.5)
Unrealized foreign
currency translation
adjustment............ 0.4 0.4
Dividends to
stockholders
($0.92 per common
share)................ (68.3) (68.3)
Treasury stock
acquired.............. (183.3) (183.3)
Employee stock option
and other
transactions.......... 2.1 6.5 0.1 8.7
------ ---------- ------ ------------- ---------- -------- ------ --------
Balance at December 31,
1994.................... 10.0 1,080.5 49.6 (23.7) 1,507.2 (706.6) (1.6) 1,915.4
1995 Transactions:
Net income............. 281.1 281.1
Unrealized gains on
available for sale
securities, net....... 163.5 163.5
Unrealized foreign
currency translation
adjustment............ 0.6 0.6
Dividends to
stockholders
($1.035 per common
share)................ (75.1) (75.1)
Employee stock option
and other
transactions.......... 7.7 15.0 (5.3) 17.4
------ ---------- ------ ------------- ---------- -------- ------ --------
Balance at December 31,
1995.................... $10.0 $1,088.2 $213.1 $ (23.1) $1,713.2 $ (691.6) $ (6.9) $2,302.9
------ ---------- ------ ------------- ---------- -------- ------ --------
------ ---------- ------ ------------- ---------- -------- ------ --------
</TABLE>
See notes to consolidated financial statements.
35
<PAGE>
UNUM CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1995 1994 1993
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
Operating activities:
Net income.......................................................... $ 281.1 $ 154.7 $ 299.9
Adjustments to reconcile net income to net cash provided by
operating activities:
Cumulative effects of accounting changes, net of tax.............. -- -- 12.1
Increase in future policy benefits and unpaid claims and claim
expenses......................................................... 905.3 720.1 412.9
Increase in amounts receivable under reinsurance agreements....... (61.0) (18.6) (129.1)
Increase (decrease) in income tax liability....................... (3.5) (3.3) 109.8
Increase in deferred policy acquisition costs..................... (114.9) (155.4) (125.5)
Realized investment gains......................................... (242.0) (59.0) (69.2)
Other............................................................. (8.9) 62.3 46.4
---------- --------- ----------
Net cash provided by operating activities....................... 756.1 700.8 557.3
---------- --------- ----------
Investing activities:
Maturities of fixed maturities...................................... -- -- 924.6
Maturities of fixed maturities held to maturity..................... 835.7 754.8 --
Maturities of fixed maturities available for sale................... 99.3 41.2 --
Sales of fixed maturities held to maturity.......................... 2.8 46.8 45.7
Sales of fixed maturities available for sale........................ 577.3 407.6 218.2
Sales of equity securities available for sale....................... 836.7 314.1 --
Sales and maturities of other investments........................... 312.0 414.9 550.2
Purchases of investments............................................ -- -- (1,832.2)
Purchases of fixed maturities held to maturity...................... (230.2) (795.2) --
Purchases of fixed maturities available for sale.................... (1,971.9) (943.9) --
Purchases of equity securities available for sale................... (131.3) (216.6) --
Purchases of other investments...................................... (322.4) (211.5) --
Net (increase) decrease in short-term investments................... (604.8) (221.7) 38.8
Net additions to property and equipment............................. (28.9) (29.9) (18.2)
Investments in subsidiaries, net.................................... -- -- 0.9
---------- --------- ----------
Net cash used in investing activities........................... (625.7) (439.4) (72.0)
---------- --------- ----------
Financing activities:
Deposits and interest credited to investment contracts.............. 669.6 608.6 735.2
Maturities and withdrawals from investment contracts................ (888.1) (800.5) (1,022.4)
Dividends to stockholders........................................... (75.1) (68.3) (61.4)
Treasury stock acquired............................................. -- (183.3) (192.5)
Proceeds from notes payable......................................... 291.5 54.7 51.5
Repayment of notes payable.......................................... (1.3) (1.2) (50.1)
Net increase (decrease) in short-term debt.......................... (135.1) 136.6 37.3
Other............................................................... 13.8 7.2 15.1
---------- --------- ----------
Net cash used in financing activities........................... (124.7) (246.2) (487.3)
---------- --------- ----------
Effect of exchange rate changes on cash............................... 0.7 0.1 2.4
---------- --------- ----------
Net increase in cash.................................................. 6.4 15.3 0.4
Cash at beginning of year............................................. 36.1 20.8 20.4
---------- --------- ----------
Cash at end of year................................................... $ 42.5 $ 36.1 $ 20.8
---------- --------- ----------
---------- --------- ----------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Income taxes...................................................... $ 82.6 $ 48.8 $ 67.3
Interest.......................................................... $ 44.7 $ 20.4 $ 13.3
</TABLE>
See notes to consolidated financial statements.
36
<PAGE>
UNUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements of UNUM Corporation and
subsidiaries ("UNUM") have been prepared on the basis of generally accepted
accounting principles. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of UNUM
Corporation and subsidiaries. Significant intercompany accounts and transactions
have been eliminated.
RECLASSIFICATION
Certain 1994 and 1993 amounts have been reclassified in 1995 for comparative
purposes.
INVESTMENTS
Investments are reported as follows:
- Fixed maturities available for sale (certain bonds and redeemable
preferred stocks) -- at fair value.
- Fixed maturities held to maturity (certain bonds and redeemable preferred
stocks) -- principally at amortized cost.
- Equity securities available for sale (common stocks and non-redeemable
preferred stocks) -- at fair value.
- Mortgage loans -- at amortized cost less an allowance for probable losses.
- Real estate -- at cost less accumulated depreciation.
- Policy loans -- at unpaid principal balance.
- Other long-term investments -- at cost plus UNUM's equity in undistributed
net earnings since acquisition.
- Short-term investments -- are considered available for sale and are
carried at cost which approximates fair value.
Fixed maturities and equity securities are classified as available for sale
as they may be sold in response to changes in interest rates, resultant
prepayment risk, liquidity and capital needs, or other similar economic factors.
Unrealized gains and losses related to securities classified as available for
sale are excluded from net income and reported in a separate component of
stockholders' equity, net of applicable deferred taxes and related adjustments
to unpaid claims. The unrealized gains and losses are determined based on
estimated market values at the balance sheet date and are not necessarily the
amounts which would be realized upon sale of the securities or representative of
future market values. Changing interest rates affect the level of unrealized
gains and losses related to securities classified as available for sale. While
rising interest rates are beneficial when investing current cash flows, they can
also reduce the fair value of existing fixed rate long-term investments. In
addition, lower interest rates can lead to early payoffs and refinancing of some
of UNUM's fixed rate investments. Management generally invests in fixed rate
instruments that are structured to limit the exposure to such reinvestment risk.
Fixed maturities that UNUM has the positive intent and ability to hold to
maturity are classified as held to maturity.
Realized investment gains and losses, which are determined on the basis of
specific identification and include adjustments for allowances for probable
losses, are reported separately in the Consolidated Statements of Income.
If a decline in fair value of an invested asset is considered to be other
than temporary, the investment is reduced to its net realizable value and the
reduction is accounted for as a realized investment loss.
UNUM discontinues the accrual of investment income on invested assets when
it is determined that collectability is doubtful. UNUM recognizes investment
income on impaired loans when the income is received.
37
<PAGE>
UNUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Real estate held for sale, which is included in other assets in the
Consolidated Balance Sheets, is valued at the lower of fair value less estimated
costs to sell, or cost. UNUM has provided an allowance for probable losses on
real estate held for sale that reduces the carrying value of the asset to fair
value.
Purchases and sales of short-term financial instruments are part of
investing activities and not necessarily a part of the cash management program.
Therefore, short-term financial instruments are classified as investments in the
Consolidated Balance Sheets and are included as investing activities in the
Consolidated Statements of Cash Flows.
DERIVATIVE FINANCIAL INSTRUMENTS
Gains or losses on hedges of existing assets or liabilities are deferred and
included in the carrying amounts of those assets or liabilities. Gains or losses
related to qualifying hedges of firm commitments or anticipated transactions are
also deferred and recognized in the carrying amount of the underlying asset or
liability when the hedged transaction occurs.
RECOGNITION OF PREMIUM REVENUES AND RELATED EXPENSES
Group insurance premiums are recognized as income over the period to which
the premiums relate. Individual disability premiums are recognized as income
when due. Benefits and expenses are associated with earned premiums to result in
recognition of profits over the life of the contracts. This association is
accomplished by recording a provision for future policy benefits and unpaid
claims and claim expenses, and by amortizing deferred policy acquisition costs.
For retirement and universal life products, premium and other policy fee
revenue consist of charges for the cost of insurance, policy administration and
surrenders assessed during the period. Charges related to services to be
performed in the future are deferred until earned. The amounts received in
excess of premium and fees are recorded as deposits and included in other
policyholder funds in the Consolidated Balance Sheets. Benefits and expenses
include benefit claims in excess of related account balances, interest credited
at various rates and amortization of deferred policy acquisition costs.
DEFERRED POLICY ACQUISITION COSTS
The costs of acquiring new business that vary with and that are related
primarily to the production of new business have been deferred to the extent
such costs are deemed recoverable from future profits. Such costs include
commissions, certain costs of policy issue and underwriting, and certain
variable field office expenses.
For individual disability, group disability, and group life and health
business, the costs are amortized in proportion to expected future premiums. For
universal life and certain retirement products, the costs are amortized in
proportion to estimated gross profits from interest margins, mortality and other
elements of performance under the contracts. Amortization is adjusted
periodically to reflect differences between actual experience and original
assumptions, with any resulting changes reflected in current operating results.
The amounts deferred and amortized were as follows:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
(DOLLARS IN MILLIONS) 1995 1994 1993
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
Deferred......................................................................................... $ 308.3 $ 308.1 $ 282.8
Less amortized................................................................................... (193.6) (152.8) (147.7)
--------- --------- ---------
Increase in deferred policy acquisition costs.................................................. $ 114.7 $ 155.3 $ 135.1
--------- --------- ---------
--------- --------- ---------
</TABLE>
RESERVES FOR FUTURE POLICY BENEFITS
Reserves for future policy benefits are calculated by the net-level premium
method, and are based on UNUM's expected morbidity, mortality and interest rate
assumptions at the time a policy is issued. These reserves represent the portion
of premiums received, accumulated with interest and held to provide for claims
that have not yet been incurred. The reserve assumptions are periodically
reviewed and compared to actual experience and are revised if it is determined
that future expected experience is different from the reserve assumptions.
Reserves for group insurance policies consist primarily of unearned premiums.
38
<PAGE>
UNUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The interest rates used in the calculation of reserves for future policy
benefits at December 31, 1995, and 1994, principally ranged from:
<TABLE>
<S> <C>
Individual disability.......................................................... 5.5% to 9.5%
Individual life................................................................ 5.0% to 9.0%
Individual accident and health................................................. 5.0% to 9.0%
Individual and group annuities................................................. 5.0% to 9.0%
</TABLE>
Certain reserve calculations are based on interest rates within these ranges
graded down over periods from 15 to 20 years.
RESERVES FOR UNPAID CLAIMS AND CLAIM EXPENSES
Unpaid claims and claim expense reserves represent the amount estimated to
fund claims that have been reported but not settled and claims incurred but not
reported. Reserves for unpaid claims are estimated based on UNUM's historical
experience and other actuarial assumptions that consider the effects of current
developments, anticipated trends, risk management programs and renewal actions.
Many factors affect actuarial calculations of claim reserves, including but not
limited to interest rates and current and anticipated incidence rates, recovery
rates, and economic and societal conditions. Reserve estimates and assumptions
are periodically reviewed and updated with any resulting adjustments to reserves
reflected in current operating results. Given the complexity of the reserving
process, the ultimate liability may be more or less than such estimates
indicate.
The interest rates used in the calculation of disability claims reserves at
December 31, 1995, and 1994, were principally as follows:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
Group long term disability (North America)............................................... 7.94% 9.18%
Group long term disability (United Kingdom).............................................. 9.67% 9.94%
Individual disability.................................................................... 6.75% to 9.67% 6.75% to 9.94%
</TABLE>
The interest rate used to discount the disability reserves is a composite of
the yields on assets specifically matched with each block of business.
Management expects the reserve discount rate for certain disability products
will further decline, since current cash flows are invested in high quality
assets at current yields, which are below the composite yield of the existing
assets purchased in prior years. UNUM periodically adjusts prices on both
existing and new business in an effort to mitigate the impact of the current
interest rate environment.
For other accident and health business, reserves are based on projections of
historical claims run-out patterns.
39
<PAGE>
UNUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Activity in the liability for unpaid claims and claim expenses is summarized
as follows:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS) 1995 1994 1993
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
Balance at January 1.......................................................................... $ 3,853.9 $ 3,341.5 $ 2,983.6
Less reinsurance recoverables............................................................... (82.7) (68.0) --
--------- --------- ---------
Net Balance at January 1...................................................................... 3,771.2 3,273.5 2,983.6
Incurred related to:
Current year................................................................................ 1,825.0 1,609.3 1,417.8
Prior years................................................................................. 507.0 436.0 238.0
--------- --------- ---------
Total incurred................................................................................ 2,332.0 2,045.3 1,655.8
Paid related to:
Current year................................................................................ 523.9 517.6 471.0
Prior years................................................................................. 1,099.5 1,030.0 894.9
--------- --------- ---------
Total paid.................................................................................... 1,623.4 1,547.6 1,365.9
Net Balance at December 31.................................................................... 4,479.8 3,771.2 3,273.5
Plus reinsurance recoverables............................................................... 115.4 82.7 68.0
Effect of unrealized gains on fixed maturities................................................ 261.2 -- --
--------- --------- ---------
Balance at December 31........................................................................ $ 4,856.4 $ 3,853.9 $ 3,341.5
--------- --------- ---------
--------- --------- ---------
</TABLE>
The increase in incurrals related to prior years was $507.0 million, $436.0
million, and $238.0 million (net of reinsurance), for 1995, 1994 and 1993,
respectively. These increases were primarily the result of interest accrued on
reserves, changes in reserve estimates and assumptions of interest rates,
morbidity, mortality and expense costs, and changes in foreign exchange rates,
primarily related to the disability reserves of UNUM's United Kingdom-based
affiliate, UNUM Limited. Due to the long-term claims payment pattern of some of
UNUM's businesses, certain reserves, particularly disability, are discounted for
interest. Changes in reserve estimates and assumptions were primarily a result
of increased reserves from lower discount rates for certain disability products
following the sale of the common stock portfolio in 1995, and adjustments to
strengthen certain disability reserves in 1995 and 1994.
The components of the increase in unpaid claims and claims expenses incurred
and related to prior years were as follows:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS) 1995 1994 1993
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
Interest accrued on reserves.............................................................................. $270.0 $267.0 $237.0
Changes in reserve estimates and assumptions.............................................................. 239.0 154.0 6.0
Changes in foreign exchange rates......................................................................... (2.0) 15.0 (5.0)
------ ------ ------
Increase in incurrals related to prior years............................................................ $507.0 $436.0 $238.0
------ ------ ------
------ ------ ------
</TABLE>
In connection with the transfer of all fixed maturities previously
classified as held to maturity to available for sale, explained in Note 2,
unpaid claims were adjusted by $261.2 million on December 31, 1995. Unpaid
claims are adjusted to reflect changes that would have been necessary if the
unrealized gains and losses related to fixed maturities classified as available
for sale had been realized. Where applicable, UNUM has reflected those
adjustments in the liability balances with corresponding credits or charges, net
of related deferred taxes, reported as a component of unrealized gains on
available for sale securities in stockholders' equity.
Effective January 1, 1993, UNUM adopted Financial Accounting Standard
("FAS") No. 113, "Accounting and Reporting for Reinsurance of Short-Duration and
Long-Duration Contracts," which eliminated the practice by insurance
40
<PAGE>
UNUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
enterprises of reporting assets and liabilities relating to reinsured contracts
net of the effects of reinsurance. Since UNUM did not restate its financial
statements upon adoption of FAS 113, reserve balances prior to December 31,
1993, are shown net of reinsurance recoverables.
CHANGES IN ACCOUNTING ESTIMATES
During 1995, UNUM sold virtually all of the common stock portfolio of its
United States subsidiaries. The sale of the common stock portfolio, which
partially supported certain disability reserves, and the reinvestment of the
proceeds primarily in investment grade fixed income assets at yields below the
average portfolio yield, resulted in lower reserve discount rates for certain
disability products reported in the Disability Insurance segment. This change in
accounting estimate to lower certain discount rates resulted in an increase of
$128.6 million to benefits to policyholders in the Consolidated Statement of
Income, and a decrease to net income of $83.6 million, or $1.15 per share.
During 1995, UNUM increased the group long term disability reserves for
incurred but not reported ("IBNR") claims, as reported in the Disability
Insurance segment. The increased IBNR reserves were based on management's
judgment that claims currently incurred but not yet reported will reflect
increased levels of claims incidence and severity. This change in accounting
estimate resulted in an increase to benefits to policyholders in the
Consolidated Statement of Income of $38.4 million, and a decrease to net income
of $25.0 million, or $0.34 per share.
During 1995, UNUM increased reserves for unpaid claims related to the
association group disability business by $15.0 million to reflect management's
expectations of slower than expected claim recoveries. This change in accounting
estimate, which was reflected in the Disability Insurance segment, decreased net
income by $9.8 million, or $0.14 per share.
During 1994, UNUM increased reserves for existing claims by $83.3 million
and strengthened reserves for estimated future losses by $109.1 million. These
increased reserves reflected management's expectations of morbidity trends for
the non-cancellable individual disability business, as reported in the
Disability Insurance Segment. This change in accounting estimate resulted in an
increase to benefits to policyholders in the Consolidated Statement of Income of
$192.4 million, and a decrease to net income of $125.1 million, or $1.69 per
share.
OTHER POLICYHOLDER FUNDS
Other policyholder funds are liabilities for investment-type contracts and
represent customer deposits plus interest credited to those deposits at various
rates.
LIABILITIES FOR RESTRUCTURING ACTIVITIES
Liabilities for restructuring activities are recorded when management, prior
to the balance sheet date, commits to execute an exit plan that will result in
the incurral of costs that have no future economic benefit, or approves a plan
of termination and communicates sufficient detail of the plan to employees.
SEPARATE ACCOUNTS
Certain assets of UNUM's defined benefit plans and tax sheltered annuity
contracts are in separate accounts that are pooled investment funds of
securities. Investment income and realized gains and losses on these accounts
accrue directly to the contractholders. Assets, carried at market value, and
liabilities of the separate accounts are shown separately in the Consolidated
Balance Sheets. The assets of the separate accounts are legally segregated and
are not subject to claims that arise out of any other business of UNUM.
ACCOUNTING FOR PARTICIPATING INDIVIDUAL LIFE INSURANCE
Participating policies issued by the former Union Mutual Life Insurance
Company ("Union Mutual") prior to UNUM's conversion to a stock life insurance
company on November 14, 1986, will remain participating as long as they remain
in force. A Participation Fund Account ("PFA") was established for the sole
benefit of all of Union Mutual's individual participating life and annuity
policies and contracts.
41
<PAGE>
UNUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The assets of the PFA are to provide for the benefit, dividend and certain
expense obligations of the participating individual life insurance policies and
annuity contracts. This line of business participates in the experience of the
PFA and its operations have been excluded from the Consolidated Statements of
Income. The PFA represented approximately 2.5% and 2.5% of total assets and 2.8%
and 3.0% of total liabilities at December 31, 1995, and 1994, respectively.
INCOME TAXES
The provision for income taxes includes amounts currently payable and
deferred income taxes, which result from differences between financial reporting
and tax bases of assets and liabilities, and are measured using enacted tax
rates and laws. Deferred U.S. income taxes have not been provided on accumulated
earnings of UNUM's foreign subsidiaries. These earnings could generate
additional U.S. tax if remitted to UNUM Corporation.
FOREIGN CURRENCY TRANSLATION
Foreign subsidiaries' balance sheet and income statement accounts expressed
in local functional currencies are translated into U.S. dollars using ending and
quarterly average exchange rates, respectively. The resulting translation
adjustments are reported in a separate component of stockholders' equity.
EARNINGS PER SHARE
The weighted average number of shares outstanding used to calculate earnings
per share was approximately 72,677,000, 74,158,000 and 78,779,000 in 1995, 1994
and 1993, respectively. The assumed exercise of outstanding stock options does
not result in a material dilution of earnings per share.
NEW ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Financial Accounting Standard ("FAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," which
establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles, and goodwill related to those assets to be
held and used and for long-lived assets and certain identifiable intangibles to
be disposed of. UNUM will adopt FAS 121 effective January 1, 1996. The adoption
of FAS 121 is not expected to have a material effect on UNUM's results of
operations or financial position.
In October 1995, the FASB issued FAS No. 123, "Accounting for Stock-Based
Compensation," which establishes financial accounting and reporting standards
for stock-based employee compensation plans. FAS 123 defines a new method of
accounting for employee stock compensation plans using a fair value based
method, under which compensation cost is measured and recognized in results of
operations. Alternatively, FAS 123 allows an entity to retain the accounting
method for employee stock compensation plans defined under Accounting Principles
Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees." If an
entity retains the accounting defined under APB 25, certain pro forma
disclosures of net income and earnings per share must be made as if the fair
value based method defined under FAS 123 had been applied. UNUM is required to
adopt FAS 123 effective January 1, 1996. UNUM has determined that it will retain
the accounting methodology prescribed in APB 25 and will disclose the pro forma
effects of such stock-based compensation as required in 1996.
NOTE 2. INVESTMENTS
Effective January 1, 1994, UNUM adopted FAS 115, "Accounting for Certain
Investments in Debt and Equity Securities," which specified the accounting and
reporting for certain investments in equity securities and for all investments
in debt securities. UNUM adopted the provisions of FAS 115 for these investments
held or acquired after January 1, 1994. Upon the adoption of FAS 115, UNUM
increased unrealized gains on available for sale securities included in
stockholders' equity on January 1, 1994, by $41.8 million (net of deferred taxes
of $22.5 million) to reflect the unrealized holding gains on fixed maturities
classified as available for sale that were previously carried at amortized cost.
In addition, UNUM reclassified certain fixed maturities from held to maturity to
available for sale on January 1, 1994, in connection with the adoption of FAS
115.
In November 1995, the FASB issued "A Guide to Implementation of Statement
115 on Accounting for Certain Investments in Debt and Equity Securities," which
provided a one-time opportunity to reassess the appropriateness of the
42
<PAGE>
UNUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. INVESTMENTS (CONTINUED)
classifications of securities described in FAS 115, and to reclassify fixed
maturities from the held to maturity category without calling into question the
intent to hold other debt securities to maturity in the future. On December 31,
1995, UNUM reassessed its fixed maturity portfolio and as allowed under the
implementation guidance, reclassified fixed maturities with an amortized cost of
$6,082.8 million and a related net unrealized gain of $393.0 million from the
held to maturity category to available for sale. In connection with the
reclassification of the held to maturity fixed maturities to available for sale,
on December 31, 1995, UNUM adjusted its unpaid claims by $261.2 million to
reflect the changes that would have been necessary if the unrealized gains and
losses related to fixed maturities classified as available for sale had been
realized.
The following tables summarize the components of investment income, net
realized investment gains and changes in unrealized investment gains (losses):
INVESTMENT INCOME
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
----------------------
(DOLLARS IN MILLIONS) 1995 1994 1993
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
Fixed maturities:
Held to maturity........................................................................................ $488.0 $548.1 $570.1
Available for sale...................................................................................... 182.2 87.9 59.5
Equity securities available for sale...................................................................... 5.3 10.4 12.6
Mortgage loans............................................................................................ 119.9 137.4 165.2
Real estate............................................................................................... 15.2 15.8 12.8
Policy loans.............................................................................................. 8.6 10.2 10.4
Other long-term investments............................................................................... 1.6 0.9 4.5
Short-term investments.................................................................................... 27.1 8.5 7.1
------ ------ ------
Gross investment income............................................................................... 847.9 819.2 842.2
Less investment expenses.................................................................................. (17.0) (23.9) (26.6)
Less investment income on participating individual life insurance policies and annuity contracts.......... (24.6) (25.1) (25.2)
------ ------ ------
Investment income..................................................................................... $806.3 $770.2 $790.4
------ ------ ------
------ ------ ------
</TABLE>
NET REALIZED INVESTMENT GAINS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
----------------------
(DOLLARS IN MILLIONS) 1995 1994 1993
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
Gross realized investment gains:
Fixed maturities:
Held to maturity...................................................................................... $ 0.1 $ 0.2 $ 6.1
Available for sale.................................................................................... 14.2 10.2 8.8
Equity securities available for sale...................................................................... 253.3 93.1 57.8
Mortgage loans, real estate and other..................................................................... 19.4 13.5 12.5
------ ------ ------
Gross realized investment gains....................................................................... 287.0 117.0 85.2
------ ------ ------
Gross realized investment losses:
Fixed maturities:
Held to maturity...................................................................................... (0.7) (6.8) 3.4
Available for sale.................................................................................... (12.8) (28.8) (1.0)
Equity securities available for sale...................................................................... (18.7) (12.2) (9.5)
Mortgage loans, real estate and other..................................................................... (29.7) (23.6) (28.7)
------ ------ ------
Gross realized investment losses...................................................................... (61.9) (71.4) (35.8)
------ ------ ------
Net realized investment gains....................................................................... $225.1 $ 45.6 $ 49.4
------ ------ ------
------ ------ ------
</TABLE>
43
<PAGE>
UNUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. INVESTMENTS (CONTINUED)
CHANGE IN UNREALIZED GAINS ON AVAILABLE FOR SALE SECURITIES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
----------------------
(DOLLARS IN MILLIONS) 1995 1994 1993
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
Fixed maturities available for sale....................................................................... $612.7 $(60.8) $ --
Equity securities available for sale...................................................................... (131.6) (86.0) 43.2
Unpaid claims adjustment.................................................................................. (261.2) -- --
Deferred taxes............................................................................................ (56.4) 47.3 (15.2)
------ ------ ------
Total change in unrealized gains on available for sale securities, as included in stockholders'
equity................................................................................................. $163.5 $(99.5) $ 28.0
------ ------ ------
------ ------ ------
</TABLE>
FIXED MATURITIES
The amortized cost and fair values of fixed maturities at December 31, 1995,
were as follows:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
(DOLLARS IN MILLIONS) COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
Available for sale:
U.S. Government................................................................ $ 402.6 $ 10.3 $ -- $ 412.9
States and municipalities...................................................... 670.5 23.7 (0.7) 693.5
Foreign governments............................................................ 229.4 26.1 (0.5) 255.0
Public utilities............................................................... 1,617.8 117.6 (0.6) 1,734.8
Corporate bonds................................................................ 5,617.9 377.3 (2.7) 5,992.5
Redeemable preferred stocks.................................................... 27.8 1.5 (1.2) 28.1
Mortgage-backed securities..................................................... 17.5 1.1 -- 18.6
----------- ----------- ----------- ---------
Total available for sale..................................................... $ 8,583.5 $ 557.6 $ (5.7) $ 9,135.4
----------- ----------- ----------- ---------
----------- ----------- ----------- ---------
</TABLE>
44
<PAGE>
UNUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. INVESTMENTS (CONTINUED)
The amortized cost and fair values of fixed maturities at December 31, 1994,
were as follows:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
(DOLLARS IN MILLIONS) COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
Held to maturity:
U.S. Government................................................................ $ 10.9 $ -- $ -- $ 10.9
States and municipalities...................................................... 631.8 9.1 (31.3) 609.6
Foreign governments............................................................ 176.1 12.4 (1.4) 187.1
Public utilities............................................................... 1,375.5 12.8 (46.8) 1,341.5
Corporate bonds................................................................ 4,014.3 92.7 (106.8) 4,000.2
Mortgage-backed securities..................................................... 10.8 0.5 -- 11.3
Other debt securities.......................................................... 7.8 0.2 -- 8.0
----------- ----------- ----------- ---------
Total held to maturity....................................................... $ 6,227.2 $ 127.7 $ (186.3) $ 6,168.6
----------- ----------- ----------- ---------
----------- ----------- ----------- ---------
Available for sale:
U.S. Government................................................................ $ 353.2 $ 0.8 $ (7.5) $ 346.5
States and municipalities...................................................... 433.2 2.3 (13.9) 421.6
Foreign governments............................................................ 58.9 0.2 (1.5) 57.6
Public utilities............................................................... 229.4 3.8 (9.6) 223.6
Corporate bonds................................................................ 552.1 0.8 (31.8) 521.1
Redeemable preferred stocks.................................................... 63.2 2.9 (7.0) 59.1
Mortgage-backed securities..................................................... 11.4 0.1 (0.4) 11.1
----------- ----------- ----------- ---------
Total available for sale..................................................... $ 1,701.4 $ 10.9 $ (71.7) $ 1,640.6
----------- ----------- ----------- ---------
----------- ----------- ----------- ---------
</TABLE>
The amortized cost and fair value of fixed maturities at December 31, 1995,
by contractual maturity date, are shown below. Expected maturities will differ
from contractual maturities since certain borrowers have the right to call or
prepay obligations with or without call or prepayment penalties.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMORTIZED FAIR
(DOLLARS IN MILLIONS) COST VALUE
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
Available for sale:
Due in one year or less................................................................................. $ 742.9 $ 753.1
Due after one year through five years................................................................... 3,325.4 3,481.5
Due after five years through ten years.................................................................. 3,672.5 3,958.0
Due after ten years..................................................................................... 825.2 924.2
----------- ---------
8,566.0 9,116.8
Mortgage-backed securities (primarily due after 10 years)............................................... 17.5 18.6
----------- ---------
Total available for sale.............................................................................. $ 8,583.5 $ 9,135.4
----------- ---------
----------- ---------
</TABLE>
During 1995, UNUM sold fixed maturities of two issuers classified as held to
maturity with an amortized cost of $4.0 million due to evidence of significant
deterioration of the issuers' creditworthiness, as evidenced by bankruptcy
filings. These sales resulted in a net realized loss of $1.2 million.
During 1994, UNUM sold fixed maturities of five issuers classified as held
to maturity with an amortized cost of $49.8 million due to evidence of
significant deterioration of the issuers' creditworthiness. These sales resulted
in a net realized loss of $3.0 million.
45
<PAGE>
UNUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2. INVESTMENTS (CONTINUED)
EQUITY SECURITIES
The fair values, which also represent carrying amounts, and the cost of
equity securities available for sale were as follows at December 31, 1995:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FAIR
(DOLLARS IN MILLIONS) COST VALUE
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Common stocks:
Industrial, miscellaneous and all other............................................................................. $21.1 $25.2
----- -----
----- -----
</TABLE>
Gross unrealized investment gains on equity securities available for sale
totaled $5.5 million and $158.7 million and losses totaled $1.4 million and
$23.0 million, at December 31, 1995, and 1994, respectively.
MORTGAGE LOANS
Effective January 1, 1995, UNUM adopted Financial Accounting Standard
("FAS") No. 114, "Accounting by Creditors for Impairment of a Loan," and FAS No.
118, "Accounting by Creditors for Impairment of a Loan -- Income Recognition and
Disclosures," which defined the principles to measure and record an impaired
loan. When it is probable that UNUM will be unable to collect all amounts of
principal and interest due according to the contractual terms of a loan
agreement, the loan is deemed impaired. Once a loan is determined to be
impaired, an allowance for probable losses is established for the difference
between the carrying amount of the loan and its estimated value. The estimated
value is based on either the present value of expected future cash flows
discounted using the loan's effective interest rate, the loan's observable
market price or the fair value of the collateral. The adoption of FAS 114 and
FAS 118 did not have a material effect on UNUM's results of operations or
financial position.
At December 31, 1995, the recorded investment in impaired loans amounted to
$50.1 million. Included in the $50.1 million was $38.4 million of loans which
had a related allowance for probable losses of $7.1 million, and $11.7 million
of loans which had no related allowance for probable losses. Mortgage loans that
were restructured prior to the adoption of FAS 114 amounted to $59.9 million and
$73.6 million at December 31, 1995, and 1994, respectively. Troubled debt
restructurings represent loans that are refinanced with terms more favorable to
the borrower. Interest foregone on these loans was not material for the years
ended December 31, 1995, 1994 or 1993.
OTHER
Real estate acquired in satisfaction of debt cumulatively amounts to $107.6
million at December 31, 1995. Real estate held for sale amounted to $35.5
million at December 31, 1995, and $31.0 million at December 31, 1994.
Mortgages with an amortized cost of $1.9 million, real estate with a
depreciated cost of $4.7 million and no bonds were non-income producing for the
twelve months ended December 31, 1995. Interest lost on these investments was
not material in 1995, 1994 or 1993.
UNUM was committed at December 31, 1995, to purchase fixed maturities and
other invested assets in the amount of $91.2 million.
46
<PAGE>
UNUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3. ALLOWANCE FOR PROBABLE LOSSES ON INVESTED ASSETS AND REAL ESTATE HELD
FOR SALE
Changes in the allowance for probable losses on invested assets and real
estate held for sale were as follows:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BALANCE AT BALANCE
BEGINNING AT END
(DOLLARS IN MILLIONS) OF YEAR ADDITIONS DEDUCTIONS OF YEAR
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1995
Mortgage loans.................................................................... $43.2 $ 9.2 $(13.2) $39.2
Real estate held for sale......................................................... 13.2 6.3 (0.4) 19.1
----- --------- ---------- -------
Total........................................................................... $56.4 $15.5 $(13.6) $58.3
----- --------- ---------- -------
Year Ended December 31, 1994
Fixed maturities held to maturity and available for sale.......................... $ 0.3 $ -- $ (0.3) $ --
Mortgage loans.................................................................... 48.6 8.5 (13.9) 43.2
Real estate held for sale......................................................... 20.9 0.8 (8.5) 13.2
----- --------- ---------- -------
Total........................................................................... $69.8 $ 9.3 $(22.7) $56.4
----- --------- ---------- -------
Year Ended December 31, 1993
Fixed maturities held to maturity and available for sale.......................... $ 4.1 $(3.8) $ -- $ 0.3
Mortgage loans.................................................................... 51.5 4.8 (7.7) 48.6
Real estate held for sale......................................................... 13.6 18.8 (11.5) 20.9
----- --------- ---------- -------
Total........................................................................... $69.2 $19.8 $(19.2) $69.8
----- --------- ---------- -------
----- --------- ---------- -------
</TABLE>
Additions represent charges to net realized investment gains less
recoveries, and deductions represent reserves released upon disposal or
restructuring of the related asset.
Subsequent to January 1, 1994, adjustments for other than temporary declines
in value of all fixed maturities are recorded as a direct adjustment to the
securities' carrying value.
NOTE 4. DERIVATIVE FINANCIAL INSTRUMENTS
UNUM periodically uses common derivative financial instruments such as
options, futures and forward exchange contracts to hedge certain risks
associated with future investments and certain payments denominated in foreign
currencies, primarily British pound sterling, Canadian dollar and Japanese yen.
These derivative financial instruments are used to protect UNUM from the effect
of market fluctuations in interest and exchange rates between the contract date
and the date on which the hedged transaction occurs. In using these instruments,
UNUM is subject to the off-balance-sheet risk that the counterparties to the
transactions will fail to completely perform as contracted. UNUM manages this
risk by only entering into contracts with highly rated institutions and listed
exchanges. UNUM does not intend to hold derivative financial instruments for the
purpose of trading. At December 31, 1995, and 1994, UNUM had no open derivative
financial instruments.
47
<PAGE>
UNUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5. REINSURANCE
UNUM, through its life insurance subsidiaries, is involved in both the
cession and assumption of reinsurance with other companies. Risks are reinsured
with other companies to reduce UNUM's exposure to large losses and permit
recovery of a portion of direct losses. UNUM remains liable to the insured for
the payment of policy benefits if the reinsurers cannot meet their obligations
under the reinsurance agreements. Deferred policy acquisition costs, premiums
and expenses are stated net of reinsurance ceded to other companies.
The effect of reinsurance on premiums earned and written for the years ended
December 31, 1995, 1994 and 1993 was as follows:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS) 1995 1994 1993
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
Premiums earned:
Direct...................................................................................... $ 2,842.9 $ 2,663.1 $ 2,331.5
Assumed..................................................................................... 241.5 170.7 192.6
Ceded....................................................................................... (66.2) (112.5) (50.0)
--------- --------- ---------
Premiums earned........................................................................... $ 3,018.2 $ 2,721.3 $ 2,474.1
--------- --------- ---------
Premiums written:
Direct...................................................................................... $ 2,877.2 $ 2,702.7 $ 2,335.6
Assumed..................................................................................... 250.4 170.9 196.2
Ceded....................................................................................... (64.4) (112.6) (50.5)
--------- --------- ---------
Premiums written.......................................................................... $ 3,063.2 $ 2,761.0 $ 2,481.3
--------- --------- ---------
--------- --------- ---------
</TABLE>
For the years ended December 31, 1995, 1994 and 1993, recoveries recognized
under reinsurance agreements reduced benefits to policyholders by $58.9 million,
$53.3 million, and $28.9 million, respectively.
NOTE 6. BUSINESS RESTRUCTURING AND OTHER CHARGES
Charges of $8.4 million and $14.4 million were recorded in 1995 and 1994,
respectively, related to the acceleration of organizational changes within UNUM
Life Insurance Company of America and the decision to discontinue the individual
disability non-cancellable product. Partially offsetting the charge recorded in
1995 was a $3.4 million curtailment gain, related to workforce reductions in
UNUM Corporation's noncontributory defined benefit pension plan.
The following is a summary of restructuring and other charges:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
NUMBER OF SEVERANCE EXIT
(DOLLARS IN MILLIONS) EMPLOYEES COST COST TOTAL
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1994............................................................... 379 $ 9.2 $ 5.2 $ 14.4
1995 Charge............................................................................. -- 4.5 3.9 8.4
Amounts paid in 1995.................................................................... (373) (13.3) (2.6) (15.9)
--- --------- ----- ------
Balance December 31, 1995............................................................... 6 $ 0.4 $ 6.5 $ 6.9
--- --------- ----- ------
--- --------- ----- ------
</TABLE>
Exit costs, which relate to certain leased facilities and equipment, are
expected to be paid as follows: $3.0 million in 1996; $3.2 million in 1997; and
$0.3 million in 1998.
48
<PAGE>
UNUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7. EMPLOYEE BENEFIT PLANS
PENSION PLANS
UNUM has a noncontributory defined benefit pension plan covering
substantially all domestic employees, excluding employees of Colonial Companies,
Inc., and Duncanson & Holt, Inc., who are covered under separate plans. The plan
provides benefits based on the employee's years of service and compensation
during the highest five consecutive years out of the last ten years of
employment. UNUM funds the plan in accordance with the requirements of the
Employee Retirement Income Security Act of 1974, as amended. Plan assets consist
primarily of group annuity contracts and include 224,392 shares of UNUM
Corporation common stock.
Net pension cost included the following components:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER
31,
----------------------
(DOLLARS IN MILLIONS) 1995 1994 1993
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
Service cost -- benefits earned during the year................................................... $ 7.7 $ 9.2 $ 8.6
Interest cost on projected benefit obligation..................................................... 12.3 11.6 10.9
Actual return on plan assets...................................................................... (42.5) 3.3 (16.5)
Net amortization and deferral..................................................................... 28.2 (16.5) 5.2
Curtailment gain.................................................................................. (3.4) -- --
------ ------ ------
Net pension cost.............................................................................. $ 2.3 $ 7.6 $ 8.2
------ ------ ------
------ ------ ------
</TABLE>
The funded status of the plan and amounts recognized in UNUM's Consolidated
Balance Sheets, as determined by the plan's actuaries, were as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31,
--------------------
(DOLLARS IN MILLIONS) 1995 1994
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
Actuarial present value of benefit obligation:
Vested benefit obligation................................................................................. $ 174.4 $ 96.2
--------- ---------
--------- ---------
Accumulated benefit obligation............................................................................ $ 178.7 $ 99.1
--------- ---------
--------- ---------
Projected benefit obligation for service rendered to date................................................... $ (183.9) $ (141.9)
Plan assets at fair value................................................................................... 192.7 153.5
--------- ---------
Projected benefit obligation less than plan assets.......................................................... 8.8 11.6
Unrecognized net gain....................................................................................... (0.7) (26.2)
Unrecognized prior service cost............................................................................. (17.0) (3.3)
Unamortized net obligation.................................................................................. 2.1 2.7
--------- ---------
Accrued pension cost.................................................................................... $ (6.8) $ (15.2)
--------- ---------
--------- ---------
</TABLE>
The weighted average discount rate and rate of increase in future
compensation levels used in determining the actuarial present value of the
projected benefit obligation were 7.25% and 4.70%, respectively, at December 31,
1995, and 8.25% and 5.20%, respectively, at December 31, 1994. The expected
long-term rate of return on plan assets was 9.0% in 1995 and 1994, and 8.25% in
1993. Prior year service costs are being amortized on a straight-line basis over
expected employment periods for active employees.
In December 1995, the Board of Directors of UNUM Corporation approved an
amendment to the pension plan that included a new benefit formula.
UNUM also administers certain supplemental retirement plans for eligible
employees and officers and certain other pension plans. The cost of these plans
was not significant for the years ended December 31, 1995, 1994 and 1993.
49
<PAGE>
UNUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7. EMPLOYEE BENEFIT PLANS (CONTINUED)
RETIREMENT SAVINGS PLANS
UNUM has several retirement savings and profit sharing plans for
substantially all full-time and part-time employees who work 1,000 hours a year
and have been employed for at least one year. Dependent upon which plan the
employee participates in, eligible employees may contribute primarily up to 10%
of their annual base salary, and UNUM matches a portion of each employee's
contribution up to 6% of the employee's bi-weekly compensation. Participants may
become 100% vested immediately upon becoming eligible to participate, or
incrementally over a five year period. In 1995, 1994 and 1993, expense for these
plans amounted to $8.4 million, $8.4 million and $8.3 million, respectively.
UNUM intends to introduce single pension and retirement savings plans for
all domestic employees effective January 1, 1997.
POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS
UNUM provides certain health care and life insurance benefits for retired
employees and covered dependents. Substantially all domestic employees of UNUM
may become eligible for these benefits if they meet minimum age and service
requirements, if they are eligible for retirement benefits and if they agree to
contribute a portion of the cost. UNUM has the right to modify or terminate
these benefits. The underlying plans are not currently funded.
Effective January 1, 1993, UNUM adopted Financial Accounting Standard
("FAS") No. 106, "Employers' Accounting for Postretirement Benefits Other than
Pensions," which changed the method for recognition of the cost of these
benefits from a cash basis to an accrual basis over the years in which the
employees render the related services. UNUM elected to immediately recognize the
FAS 106 liability at January 1, 1993, of $48.8 million as a cumulative effect of
an accounting change, which decreased net income by $32.1 million, or $0.40 per
share, during 1993.
Postretirement benefits expense included the following components:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
YEAR ENDED
DECEMBER
31,
-----------
(DOLLARS IN MILLIONS) 1995 1994
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
Service cost...................................................................................... $ 4.2 $3.8
Interest cost..................................................................................... 5.8 4.4
----- ----
Postretirement benefits expense............................................................... $10.0 $8.2
----- ----
----- ----
</TABLE>
The following represents the unfunded accumulated postretirement benefits
obligation as determined by the plans' actuaries:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
DECEMBER
31,
-----------
(DOLLARS IN MILLIONS) 1995 1994
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
Retirees.......................................................................................... $21.5 $21.3
Active employees fully eligible................................................................... 9.3 4.5
Other active participants......................................................................... 41.5 38.9
----- ----
Accumulated postretirement benefits obligation.................................................... 72.3 64.7
Unrecognized other amounts........................................................................ 0.1 (1.0)
----- ----
Accrued postretirement benefits cost.......................................................... $72.4 $63.7
----- ----
----- ----
</TABLE>
Under UNUM's plans, the cost of covered health care benefits is assumed to
increase 8.75% for retirees less than 65 years old, and 6.67% for retirees 65
years and older for 1996. These rates are assumed to decrease incrementally to
5.00% by 2001, and remain at that level thereafter. The weighted average
discount rates used in determining the accumulated
50
<PAGE>
UNUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7. EMPLOYEE BENEFIT PLANS (CONTINUED)
postretirement benefits obligation were 7.25% at December 31, 1995, and 8.00%
and 8.25%, at December 31, 1994. The rates of increase in future compensation
levels used in determining the accumulated postretirement benefits obligation
were 4.7% and 5.2%, at December 31, 1995 and 1994, respectively.
At December 31, 1995, a 1% increase in the trend rate for health care costs
would increase the accumulated postretirement benefits obligation by $17.3
million and postretirement benefits expense by $2.7 million.
NOTE 8. STOCK BASED COMPENSATION AND INCENTIVE PLANS
LONG-TERM STOCK INCENTIVE PLAN AND EXECUTIVE STOCK OPTION PLAN
The 1990 Long-Term Stock Incentive Plan ("Incentive Plan") provides for
granting of restricted shares of UNUM Corporation common stock to key officers.
The Incentive Plan also provides for granting of options to officers, non-
employee directors of UNUM Corporation and key employees, to purchase UNUM
Corporation common stock over ten years at a price not less than 100% of the
fair market value on the date of grant. The maximum number of shares reserved
for issuance under the Incentive Plan was 6,800,000 in 1995, 1994 and 1993. At
December 31, 1995, 1994 and 1993, 1,680,235 shares, 2,511,145 shares, and
3,316,734 shares, respectively, were available for grant under the Incentive
Plan.
The restriction period for each restricted stock award under the Incentive
Plan is in excess of three years, with the restrictions lapsing as a result of
the achievement of prescribed financial performance objectives during each three
year period, with the exception of 20,200 shares granted in 1995 and 10,000
shares granted in 1994, on which restrictions will lapse upon the grantee
remaining in the employ of UNUM for a prescribed period of time. Plan
participants are entitled to cash dividends and voting rights on their
respective shares. All other restricted stock shares issued remained subject to
restrictions.
The market value of the restricted shares issued under the Incentive Plan
has been recorded as deferred compensation and is included as a reduction of
stockholders' equity in the Consolidated Balance Sheets.
The 1987 Executive Stock Option Plan ("Option Plan") provided for granting
to officers and key employees options to purchase UNUM Corporation common stock
over ten years at a price not less than 100% of the fair market value on the
date of grant. Options outstanding under the Option Plan are included in the
summary of stock options.
Between 1991 and 1994, certain officers were granted limited stock
appreciation rights ("LSARs") in tandem with their outstanding options. LSARs
afford the optionee the right to receive payment upon a change in control as
defined in the plans equal to the higher of the excess of the highest price per
share paid in connection with such change in control or the fair market value
per share, over the option price per share. As an underlying stock option is
exercised, the LSARs are automatically canceled. At December 31, 1995, 1994 and
1993, there were 480,825 LSARs, 590,275 LSARs, and 556,500 LSARs outstanding,
respectively.
THE 1998 GOALS STOCK OPTION PLAN
The 1998 Goals Stock Option Plan ("1998 Option Plan") was introduced in
January 1995. The 1998 Option Plan provides for granting to all eligible
employees up to 150 options to purchase UNUM Corporation common stock at a price
not less than 100% of the fair market value on the date of the grant. The
options will vest to the employee in nine years from the date of the grant;
however, if UNUM achieves its 1998 goals, vesting will be accelerated to early
1999. During 1995, 1,105,350 shares were granted under the 1998 Option Plan.
Options outstanding under the 1998 Option Plan are included in the summary of
stock options.
51
<PAGE>
UNUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8. STOCK BASED COMPENSATION AND INCENTIVE PLANS (CONTINUED)
The following is a summary of stock options and restricted stock
information:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
OPTIONS RESTRICTED
STOCK
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
Outstanding at January 1, 1993........................................................................ 3,126,882 115,400
1993 Activity:
Granted at $52.88 to $57.75 per share............................................................... 1,031,650 --
Granted for restricted stock........................................................................ -- 32,525
Exercised at $9.03 to $36.75 per share.............................................................. (655,300) --
Canceled/reissued................................................................................... (100,278) (1,500)
---------- -----------
Outstanding at December 31, 1993...................................................................... 3,402,954 146,425
---------- -----------
1994 Activity:
Granted at $38.00 to $51.31 per share............................................................... 884,375 --
Granted for restricted stock........................................................................ -- 46,850
Lapse of restrictions on restricted stock........................................................... -- (80,800)
Exercised at $9.03 to $47.88 per share.............................................................. (282,729) --
Canceled/reissued................................................................................... (151,578) (2,525)
---------- -----------
Outstanding at December 31, 1994...................................................................... 3,853,022 109,950
---------- -----------
1995 Activity:
Granted at $38.00 to $54.75 per share............................................................... 2,200,000 --
Granted for restricted stock........................................................................ -- 70,950
Lapse of restrictions on restricted stock........................................................... -- (33,100)
Exercised at $10.81 to $56.38 per share............................................................. (541,188) --
Canceled/reissued................................................................................... (314,200) (5,600)
---------- -----------
Outstanding at December 31, 1995...................................................................... 5,197,634 142,200
---------- -----------
---------- -----------
</TABLE>
The number of exercisable shares as of December 31, 1995, 1994 and 1993, was
2,108,060 shares, 1,975,219 shares, and 1,396,182 shares, respectively.
ANNUAL INCENTIVE PLANS
UNUM has several annual incentive plans for certain employees and executive
officers, that provide additional compensation based on achievement of
predetermined annual corporate and affiliate financial and non-financial goals.
In 1995, 1994 and 1993, expense for these plans was $19.9 million, $7.5 million
and $27.9 million, respectively.
NOTE 9. INCOME TAXES
Effective January 1, 1993, UNUM adopted Financial Accounting Standard No.
109, "Accounting for Income Taxes," which changed the method for calculating and
reporting deferred income taxes in the financial statements from the deferred
method to the liability method. The liability method requires that deferred tax
liabilities or assets at the end of each period be determined using the tax rate
expected to be in effect when taxes are actually paid or recovered. Under this
method, income tax will increase or decrease in the same period in which a
change in tax rate is enacted. The cumulative effect of this accounting change
amounted to a $20.0 million increase in net income, or $0.25 per share, for the
year ended December 31, 1993.
52
<PAGE>
UNUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9. INCOME TAXES (CONTINUED)
A reconciliation of income taxes computed by applying the federal income tax
rate to income before income taxes and the consolidated income tax expense
charged to operations follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER
31,
----------------------
(DOLLARS IN MILLIONS) 1995 1994 1993
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
Tax at federal statutory rate of 35%............................................................ $133.7 $ 69.5 $161.1
Tax-exempt income............................................................................... (30.0) (32.0) (29.4)
Prior years' taxes.............................................................................. (6.6) -- (2.0)
State income tax................................................................................ 3.8 2.2 3.9
Adjustment to deferred tax liability due to tax rate increase................................... -- -- 7.8
Realized investment gains....................................................................... (5.0) (1.3) --
Other........................................................................................... 4.9 5.5 6.9
------ ------ ------
Income taxes................................................................................ $100.8 $ 43.9 $148.3
------ ------ ------
------ ------ ------
</TABLE>
On August 10, 1993, legislation was enacted to increase the federal
corporate income tax rate of 34% to 35%, retroactive to January 1, 1993. The tax
rate increase resulted in a charge to net income totaling $11.4 million, or
$0.15 per share, which included $3.6 million, or $0.05 per share, related to
1993 pretax income, and a $7.8 million, or $0.10 per share, adjustment to the
deferred income tax liability.
Deferred income tax liabilities and assets consist of the following:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31,
--------------------
(DOLLARS IN MILLIONS) 1995 1994
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Deferred policy acquisition costs........................................................................ $ 321.6 $ 298.9
Policy reserve adjustments............................................................................... -- 59.3
Net unrealized gains..................................................................................... 174.0 27.1
Value of business acquired............................................................................... 17.7 17.9
Invested assets.......................................................................................... 10.9 28.9
Other.................................................................................................... 16.0 10.6
--------- ---------
Gross deferred tax liabilities......................................................................... 540.2 442.7
--------- ---------
Deferred tax assets:
Alternative minimum tax credit carryforwards............................................................. 29.0 45.3
Policy reserve adjustments............................................................................... 65.9 --
Net realized losses...................................................................................... 25.1 15.0
Postretirement benefits.................................................................................. 22.1 20.3
Loss carryforward........................................................................................ 1.0 5.9
Other.................................................................................................... 11.1 7.6
--------- ---------
Gross deferred tax assets.............................................................................. 154.2 94.1
Less valuation allowance................................................................................... 6.0 --
--------- ---------
Net deferred tax assets................................................................................ 148.2 94.1
--------- ---------
Net deferred tax liability................................................................................. $ 392.0 $ 348.6
--------- ---------
--------- ---------
</TABLE>
Deferred income taxes relating to cumulative net unrealized gains on
available for sale fixed maturity and equity securities were $174.0 million,
$27.1 million and $79.4 million at December 31, 1995, 1994 and 1993,
respectively.
53
<PAGE>
UNUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9. INCOME TAXES (CONTINUED)
A valuation allowance is established when it is more likely than not that
deferred tax assets will not be realized. UNUM established a valuation allowance
of $6.0 million in 1995 to reflect the estimated amount of deferred tax assets
which may not be realized related to certain reported foreign subsidiaries'
losses.
As of December 31, 1995, deferred U.S. income taxes have not been provided
on the accumulated earnings of UNUM's foreign subsidiaries. These earnings could
generate additional U.S. tax if remitted to UNUM Corporation.
Prior to the Tax Reform Act of 1984 ("1984 Act"), half the excess of the tax
basis gain from operations of a life insurance company over its taxable
investment income was currently taxable. The other half was set aside in a
Policyholders Surplus Account, together with certain special life insurance
company deductions. The cumulative amount in the Policyholders Surplus Account
as of December 31, 1983, was frozen by the 1984 Act and amounted to $31.8
million at December 31, 1995. Any direct or indirect distributions from this
account would be taxed at current tax rates; however, no provision has been made
for related taxes. If the amount set aside in this account were taxed at the
current rate at December 31, 1995, for all life insurance subsidiaries, the tax
would have amounted to $11.1 million.
UNUM's Consolidated Statements of Income for 1995, 1994 and 1993, included
the following amounts of foreign income and related income tax expense:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER
31,
--------------------
(DOLLARS IN MILLIONS) 1995 1994 1993
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
Foreign income............................................................................ $(1.2) $24.2 $ 20.9
----- ----- ------
----- ----- ------
Income tax expense (credit):
Current................................................................................. $ 1.4 $ 0.7 $(12.5)
Deferred................................................................................ (0.2) 9.7 20.2
----- ----- ------
Total................................................................................. $ 1.2 $10.4 $ 7.7
----- ----- ------
----- ----- ------
</TABLE>
UNUM subsidiaries had operating loss carryforwards totaling $2.5 million and
alternative minimum tax ("AMT") credit carryforwards totaling $29.0 million as
of December 31, 1995. The operating loss carryforwards will expire, if not
utilized, in 1999 through 2002. The AMT credits can be carried forward
indefinitely.
NOTE 10. NOTES PAYABLE
Notes payable consisted of the following at December 31, 1995, and 1994:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31,
--------------------
(DOLLARS IN MILLIONS) 1995 1994
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
Short-term debt:
Commercial paper......................................................................................... $ 82.4 $ 216.5
Other notes payable, with weighted average interest rate of 1.0% in 1995 and 2.7% in 1994................ 29.1 30.1
Medium-term notes payable, due 1996, with interest rate of 6.2%.......................................... 15.0 --
--------- ---------
Total short-term debt.................................................................................. 126.5 246.6
--------- ---------
Long-term debt:
Medium-term notes payable due 1997 to 2024 with interest rates ranging from 5.1% to 7.5%................. 290.4 180.8
Monthly income debt securities, due 2025, with interest rate of 8.8%
$172.5 million issued net of unamortized offering costs of $5.6 million................................. 166.9 --
Other notes payable...................................................................................... -- 1.3
--------- ---------
Total long-term debt................................................................................... 457.3 182.1
--------- ---------
Total notes payable.................................................................................... $ 583.8 $ 428.7
--------- ---------
--------- ---------
</TABLE>
54
<PAGE>
UNUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10. NOTES PAYABLE (CONTINUED)
At December 31, 1995, UNUM Corporation had a $500 million committed
revolving credit facility that expires on October 1, 1999. UNUM's commercial
paper program is supported by the revolving credit facility and is available for
general liquidity needs, capital expansion, acquisitions or stock repurchase.
The committed revolving credit facility contains certain covenants which, among
other provisions, require maintenance of certain levels of stockholders' equity
and limits on debt levels. The commercial paper outstanding at December 31,
1995, and 1994, had a weighted average interest rate of 5.88% and 6.34%,
respectively.
Aggregate maturities of notes payable are as follows: 1996-$126.5 million;
1997-$48.5 million; 1998-$68.0 million; 1999-$21.5 million; 2000-$60.0;
thereafter-$259.3 million.
NOTE 11. CAPITAL STOCK AND PREFERRED STOCK PURCHASE RIGHTS
At December 31, 1995, approximately 2.7 million shares of common stock
remained authorized for stock repurchase. During 1995, UNUM did not acquire any
shares in the open market. During 1994 and 1993, UNUM repurchased 3.9 million
and 3.7 million shares, respectively, in the open market. The aggregate cost of
the 1994 and 1993 repurchases was $183.3 million and $192.5 million,
respectively, which was primarily funded through additional borrowings.
Under the Long-Term Stock Incentive Plan and Executive Stock Option Plan and
the plans of Colonial Companies, Inc. (see Note 8 "Stock Based Compensation and
Incentive Plans"), 612,138 shares, 329,579 shares, and 687,825 shares were
issued in 1995, 1994 and 1993, respectively.
UNUM adopted a Shareholder Rights Plan on March 13, 1992. Under the Plan,
each Right, under certain specific circumstances, entitles the holder to
purchase one one-hundredth of a share of Series A Junior Participating Preferred
Stock at a purchase price of $150. The Rights become exercisable at a specified
time after (1) a person or group acquires 10% or more of UNUM Corporation common
stock or (2) a tender or exchange offer for 10% or more of UNUM Corporation
common stock. The Rights expire at the close of business on March 13, 2002,
unless earlier redeemed by the Company under certain circumstances at a price of
$0.01 per Right.
NOTE 12. DIVIDEND RESTRICTIONS
UNUM is subject to various state insurance regulatory restrictions that
limit the maximum amount of dividends available from its United States domiciled
insurance subsidiaries without prior approval. Under current law, during 1996
approximately $135 million will be available for payment of dividends to UNUM
Corporation without state insurance regulatory approval. Dividends in excess of
this amount may only be paid with state insurance regulatory approval. The
aggregate statutory capital and surplus of the United States domiciled insurance
subsidiaries of UNUM Corporation was approximately $1,149 million and $840
million, at December 31, 1995, and 1994, respectively. The aggregate statutory
net income of UNUM Corporation's United States domiciled insurance subsidiaries
was approximately $290 million, $70 million and $216 million for 1995, 1994 and
1993, respectively. State insurance regulatory authorities prescribe statutory
accounting practices that differ in certain respects from generally accepted
accounting principles. The significant differences relate to deferred
acquisition costs, deferred income taxes, non-admitted asset balances, required
investment risk reserves and reserve calculation assumptions.
UNUM Corporation also has the ability to draw a dividend of approximately
$19 million from its United Kingdom based affiliate, UNUM Limited, subject to
certain U.S. tax consequences.
NOTE 13. LITIGATION
In the normal course of its business operations, UNUM is involved in
litigation from time to time with claimants, beneficiaries and others, and a
number of lawsuits were pending at December 31, 1995. In the opinion of
management, the ultimate liability, if any, arising from this litigation is not
expected to have a material adverse effect on the consolidated financial
position or the consolidated operating results of UNUM.
On December 29, 1993, UNUM filed a suit in the United States District Court
for the District of Maine, seeking a federal income tax refund. The suit is
based on a claim for a deduction in certain prior tax years, for $652 million in
cash
55
<PAGE>
UNUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13. LITIGATION (CONTINUED)
and stock distributed to policyholders in connection with the 1986 conversion of
Union Mutual Life Insurance Company to a stock company. Although UNUM believes
its claims are meritorious, the United States is aggressively resisting the
claims and the ultimate recovery, if any, cannot be determined at this time.
NOTE 14. SUBSEQUENT EVENT
On January 24, 1996, UNUM America entered into an agreement for the sale of
its group tax-sheltered annuity ("TSA") business to The Lincoln National Life
Insurance Company ("Lincoln Life"), a part of Lincoln National Corporation, and
to a new New York insurance subsidiary of Lincoln Life. The agreement also
contemplates that First UNUM will enter into a similar agreement with Lincoln
Life's New York insurance subsidiary. The sale, which is subject to regulatory
approvals, involves approximately 1,700 group contractholders and assets under
management of approximately $3 billion. The agreement initially contemplates the
reinsurance of these contracts under an indemnity reinsurance arrangement. These
contracts will then be reinsured pursuant to an assumption reinsurance
arrangement upon consent of the TSA contractholders and/or participants. The
purchase price (ceding commission) at closing is expected to be approximately
$70 million. It is anticipated that it will take several months (perhaps six to
nine months) to obtain the necessary approvals and otherwise close the sale.
There is no guarantee that the sale will close.
Historical results of the TSA business included in UNUM's Consolidated
Statements of Income were as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER
31,
(DOLLARS IN MILLIONS, EXCEPT ----------------------
PER COMMON SHARE DATA) 1995 1994 1993
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
Revenues........................................................................................ $247.6 $238.1 $250.2
Net income...................................................................................... $ 31.1 $ 29.9 $ 24.7
Net income per common share..................................................................... $ 0.43 $ 0.40 $ 0.31
</TABLE>
NOTE 15. FAIR VALUES OF FINANCIAL INSTRUMENTS
Fair values are based on quoted market prices, when available. In cases
where quoted market prices are not available, fair values are based on estimates
using present value or other valuation techniques. These valuation techniques
require management to develop a significant number of assumptions, including
discount rates and estimates of future cash flow. Derived fair value estimates
cannot be substantiated by comparison to independent markets or to disclosures
by other companies with similar financial instruments. These fair value
disclosures do not purport to be the amount that could be realized in immediate
settlement of the financial instrument.
56
<PAGE>
UNUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 15. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
The following table summarizes the carrying amounts and fair values of
UNUM's financial instruments at December 31, 1995, and 1994:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
1995 1994
-------------------- --------------------
CARRYING FAIR CARRYING FAIR
(DOLLARS IN MILLIONS) AMOUNT VALUE AMOUNT VALUE
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Financial assets:
Fixed maturities:
Available for sale............................................................ $ 9,135.4 $ 9,135.4 $ 1,640.6 $ 1,640.6
Held to maturity.............................................................. -- -- 6,227.2 6,168.6
Equity securities available for sale............................................ 25.2 25.2 627.9 627.9
Mortgage loans.................................................................. 1,163.4 1,274.9 1,216.3 1,265.4
Policy loans.................................................................... 219.2 219.2 201.0 201.0
Short-term investments.......................................................... 896.7 896.7 291.9 291.9
Cash............................................................................ 42.5 42.5 36.1 36.1
Accrued investment income....................................................... 208.5 208.5 195.9 195.9
Financial liabilities:
Other policyholder funds:
Investment-type insurance contracts:
With defined maturities..................................................... $ 400.0 $ 440.0 $ 667.0 $ 685.0
With no defined maturities.................................................. 3,031.0 2,967.0 3,013.0 2,948.0
Individual annuities and supplementary contracts not involving life
contingencies................................................................ 81.4 81.4 84.6 84.6
Notes payable................................................................... 583.8 610.8 428.7 414.5
</TABLE>
The following methods and assumptions were used in estimating fair value
disclosures for financial instruments:
FIXED MATURITIES: Fair values for fixed maturities are based on quoted
market prices, where available. If quoted market prices are not available, fair
values are estimated using values obtained from independent pricing services or,
in the case of private placements, are estimated by discounting expected future
cash flows using a current market rate applicable to the yield, credit quality
and maturity of the investments.
EQUITY SECURITIES AVAILABLE FOR SALE: Fair values for equity securities
available for sale are based on quoted market prices and are reported in the
Consolidated Balance Sheets at these values.
MORTGAGE LOANS: Fair values for mortgage loans are estimated based on
discounted cash flow analyses using interest rates currently being offered for
similar mortgage loans to borrowers with similar credit ratings and maturities.
Mortgage loans with similar characteristics are aggregated for purposes of the
calculations.
POLICY LOANS, SHORT-TERM INVESTMENTS, CASH AND ACCRUED INVESTMENT
INCOME: Fair values for these instruments approximate the carrying amounts
reported in the Consolidated Balance Sheets.
INVESTMENT-TYPE INSURANCE CONTRACTS: Fair values for liabilities under
investment-type insurance contracts with defined maturities are estimated using
discounted cash flow calculations based on interest rates that would be offered
currently for similar contracts with maturities consistent with those remaining
for the contracts being valued. Fair values for liabilities under
investment-type insurance contracts with no defined maturities are the amounts
payable on demand after surrender charges at the balance sheet date.
The estimated fair values of liabilities under all insurance contracts
(investment-type and other than investment-type) are taken into consideration in
UNUM's overall management of interest rate risk, which minimizes exposure to
changing interest rates through the matching of investment maturities with
amounts due under insurance contracts.
57
<PAGE>
UNUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 15. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
INDIVIDUAL ANNUITIES AND SUPPLEMENTARY CONTRACTS NOT INVOLVING LIFE
CONTINGENCIES: Fair values approximate the carrying amounts reported in other
policyholder funds in the Consolidated Balance Sheets.
NOTES PAYABLE: Fair values of short-term borrowings approximate the
carrying amount. Fair values of long-term notes are estimated using discounted
cash flow analyses based on UNUM's current incremental borrowing rates for
similar types of borrowing arrangements.
NOTE 16. SEGMENT INFORMATION
UNUM's markets for its insurance, special risk and retirement income
products are the United States, its principal market, Canada, the United Kingdom
and the Pacific Rim. Through its affiliates, UNUM is the leading provider of
group long term disability insurance, its principal product, in the United
States and the United Kingdom. Products are marketed through sales personnel,
independent contractors and brokers, and specialty agents. UNUM targets sales of
its disability products to executive, administrative and management personnel,
and other professionals such as doctors, attorneys, accountants and engineers.
To more clearly reflect UNUM's management of its businesses and to more
appropriately group its product portfolios, UNUM began reporting its operations,
effective January 1, 1995, principally in four business segments: Disability
Insurance, Special Risk Insurance, Colonial Products and Retirement Products.
For comparative purposes, prior period information has been restated to reflect
reporting in these segments.
The Disability Insurance segment includes disability products offered in
North America, the United Kingdom and Japan including: group long term
disability, individual disability, group short term disability, association
group disability, disability reinsurance and long term care insurance. The
Special Risk Insurance segment includes group life, special risk accident
insurance, non-disability reinsurance operations, reinsurance underwriting
management operations and other special risk insurance products. The Colonial
Products segment includes Colonial Companies, Inc. and subsidiaries, which offer
payroll-deducted, voluntary employee benefits including personal accident and
sickness, cancer and life insurance products to employees at their worksites.
The Retirements Products segment includes tax sheltered annuities and products
which are no longer actively marketed by UNUM including guaranteed investment
contracts, deposit administration accounts and 401(k) plans. Corporate includes
transactions that are generally non-insurance related.
Investment income and net realized investment gains are allocated to the
segments based on designation of ownership of assets identified to the segments.
Operating expenses are allocated to the segments based on direct association
with a product whenever possible. If, however, the expense cannot be readily
associated with a particular product, the costs are allocated based on ratios of
the relative time spent, extent of usage or varying volume of work performed for
each segment.
58
<PAGE>
UNUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 16. SEGMENT INFORMATION (CONTINUED)
Summarized financial information for the four business segments and
Corporate is as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------
(DOLLARS IN MILLIONS) 1995 1994 1993
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Revenues:
Disability Insurance.................................................................... $ 2,472.8 $ 2,116.5 $ 1,917.7
Special Risk Insurance.................................................................. 750.7 647.8 594.2
Colonial Products....................................................................... 527.3 473.9 448.8
Retirement Products..................................................................... 357.8 369.4 430.1
Corporate............................................................................... 14.3 5.0 6.2
---------- ---------- ----------
Total revenues........................................................................ $ 4,122.9 $ 3,612.6 $ 3,397.0
---------- ---------- ----------
---------- ---------- ----------
Income (loss) before income taxes and cumulative effects of accounting changes:
Disability Insurance.................................................................... $ 217.0 $ 56.2 $ 314.1
Special Risk Insurance.................................................................. 60.3 65.9 38.9
Colonial Products....................................................................... 87.7 62.7 70.4
Retirement Products..................................................................... 45.5 42.0 54.3
Corporate............................................................................... (28.6) (28.2) (17.4)
---------- ---------- ----------
Income before income taxes and cumulative effects of accounting changes............... 381.9 198.6 460.3
Income taxes.............................................................................. 100.8 43.9 148.3
---------- ---------- ----------
Income before cumulative effects of accounting changes.................................... 281.1 154.7 312.0
Cumulative effects of accounting changes.................................................. -- -- (12.1)
---------- ---------- ----------
Net income............................................................................ $ 281.1 $ 154.7 $ 299.9
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31,
----------------------------------
(DOLLARS IN MILLIONS) 1995 1994 1993
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Identifiable Assets:
Disability Insurance.................................................................... $ 7,280.3 $ 6,131.9 $ 5,403.0
Special Risk Insurance.................................................................. 1,056.5 846.8 735.4
Colonial Products....................................................................... 996.5 846.2 819.2
Retirement Products..................................................................... 4,717.4 4,504.0 4,684.6
Corporate............................................................................... 372.9 451.3 452.3
Individual Participating
Life and Annuity...................................................................... 364.2 347.0 342.8
---------- ---------- ----------
Total assets.......................................................................... $ 14,787.8 $ 13,127.2 $ 12,437.3
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
59
<PAGE>
UNUM CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 17. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of unaudited quarterly results of operations for
1995 and 1994:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------------
1995
------------------------------
(DOLLARS IN MILLIONS, EXCEPT PER COMMON SHARE DATA) 4TH 3RD 2ND 1ST
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Premiums............................................................................................ $817.0 $738.0 $729.2 $734.0
Investment income................................................................................... 207.3 207.8 199.3 191.9
Net realized investment gains....................................................................... 3.2 2.9 208.1 10.9
Benefits to policyholders........................................................................... 634.8 568.7 717.7 571.8
Net income.......................................................................................... $ 62.1 $ 66.7 $ 88.9 $ 63.4
------ ------ ------ ------
------ ------ ------ ------
Net income per common share......................................................................... $ 0.85 $ 0.92 $ 1.22 $ 0.87
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
<TABLE>
<CAPTION>
1994
------------------------------
4TH 3RD 2ND 1ST
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Premiums............................................................................................ $702.6 $667.4 $698.6 $652.7
Investment income................................................................................... 194.4 192.3 192.4 191.1
Net realized investment gains....................................................................... 9.6 11.6 12.5 11.9
Benefits to policyholders........................................................................... 537.5 705.7 516.5 479.3
Net income (loss)................................................................................... $ 54.0 $(61.7) $ 85.3 $ 77.1
------ ------ ------ ------
------ ------ ------ ------
Net income (loss) per common share.................................................................. $ 0.75 $(0.84) $ 1.14 $ 1.02
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
60
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
No disagreements with accountants on any matter of accounting principles or
practices or financial statement disclosure have been reported on a Form 8-K
during the past two years prior to the date of the most recent financial
statements.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
A. DIRECTORS OF THE REGISTRANT
The information under the caption "Election of Directors" included in UNUM's
proxy statement dated March 25, 1996, is incorporated by reference.
B. EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of UNUM are as follows:
<TABLE>
<CAPTION>
AGE (AS OF AN OFFICER
NAME MARCH 22, 1996) POSITION HELD WITH UNUM SINCE
- ----------------------- ------------------- ------------------------------------------------------------------ ----------
<S> <C> <C> <C>
James F. Orr III 53 Chairman, President and Chief Executive Officer 1986
Thomas G. Brown 51 Executive Vice President 1992
Stephen B. Center 58 Executive Vice President 1972
Robert W. Crispin 49 Executive Vice President and Chief Financial Officer 1995
Peter J. Moynihan 52 Senior Vice President 1979
Kevin P. O'Connell 50 Executive Vice President 1987
Elaine D. Rosen* 43 Executive Vice President, UNUM America 1983
Robert E. Staton* 49 Chairman and Chief Executive Officer, Colonial Life 1993
</TABLE>
- ------------
*Denotes an officer of a subsidiary who is not an officer of the Corporation but
who is considered an "executive officer" under regulations of the Securities
and Exchange Commission.
The officers are elected annually and hold office until their respective
successors have been chosen and qualified, or until death, resignation or
removal. The UNUM Board may also appoint or delegate the appointment of
officers, assistant officers and agents as it may deem necessary for such
periods as the By-Laws, the UNUM Board, or the delegatee may prescribe.
Mr. Orr was elected Chairman of the Board of UNUM in February 1988. In
addition, he has served as President and Chief Executive Officer since September
1987. He joined UNUM in 1986.
Mr. Brown was elected Executive Vice President of UNUM in January 1995. In
addition, he continues to serve as Chairman of the Board, President and Chief
Executive Officer of Duncanson & Holt, Inc. ("D&H"), a post he has held since
1987. D&H became a wholly-owned subsidiary of UNUM in July 1992.
Mr. Center was elected President of UNUM America and Executive Vice
President of UNUM in September 1992. Previously, he served as Group Executive
Vice President of UNUM America from May 1990 to August 1992. He joined UNUM
America in 1963.
Mr. Crispin was elected Executive Vice President of UNUM in January 1995 and
additionally as Chief Financial Officer in August 1995. Prior to joining UNUM,
Mr. Crispin served as Vice Chairman and Chief Investment Officer of The
Travelers Insurance Companies, from July 1991 to January 1995 and as Executive
Vice President of Lincoln National Corporation from 1986 to 1991.
Mr. Moynihan was elected Senior Vice President of UNUM in September 1993 and
Senior Vice President of UNUM America in October 1987. He joined UNUM America in
1973.
61
<PAGE>
Mr. O'Connell was elected Executive Vice President of UNUM America in May
1995 and Executive Vice President of UNUM in February 1996. Previously, he
served as Senior Vice President of UNUM America from November 1988 to May 1995.
He joined UNUM America in 1968.
Ms. Rosen was elected Executive Vice President of UNUM America in May 1995.
Previously, she served as Senior Vice President of UNUM America from November
1988 to May 1995. She joined UNUM America in 1975.
Mr. Staton was elected Chairman of Colonial Companies in December 1993 and
additionally as Chief Executive Officer in July 1995. Previously, he served as
Senior Vice President from February 1990 to December 1993 and Vice President
from August 1985 to February 1990; and additionally as General Counsel from
August 1985 to November 1993, and Corporate Secretary from February 1992 to
August 1993. Colonial Companies merged with UNUM in March 1993.
ITEM 11. EXECUTIVE COMPENSATION
The information under the captions "Compensation of Directors", "Board
Compensation Report on Executive Compensation", and "Executive Compensation"
included in UNUM's proxy statement dated March 25, 1996, is incorporated by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information under the caption "Security Ownership" included in UNUM's
proxy statement dated March 25, 1996, is incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information under the captions "Executive Compensation" and "Other
Agreements and Transactions" included in UNUM's proxy statement dated March 25,
1996, is incorporated by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Index of documents filed as part of this report:
1. The following Consolidated Financial Statements of UNUM Corporation and
subsidiaries are included in Item 8.
<TABLE>
<CAPTION>
PAGE OF
THIS REPORT
-----------
<S> <C>
Report of Independent Accountants................................................................... 32
Consolidated Statements of Income for the Years Ended December 31, 1995, 1994 and 1993.............. 33
Consolidated Balance Sheets as of December 31, 1995 and 1994........................................ 34
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1995, 1994 and
1993............................................................................................... 35
Consolidated Statements of Cash Flows for the Years Ended December 31, 1995, 1994 and 1993.......... 36
Notes to Consolidated Financial Statements.......................................................... 37
</TABLE>
2. Financial Statement Schedules
<TABLE>
<S> <C> <C>
II Condensed Financial Information of UNUM Corporation (Registrant)............................... 64
III Supplementary Insurance Information............................................................ 68
IV Reinsurance.................................................................................... 69
</TABLE>
3. Exhibits. See Index to Exhibits on page 70 of this report.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed by the Registrant during the fourth
quarter of 1995.
Schedules and exhibits required by Article 7 of Regulation S-X other than
those listed are omitted because they are not required, are not applicable, or
equivalent information has been included in the financial statements, and notes
thereto, or elsewhere herein.
62
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
PORTLAND, STATE OF MAINE, ON MARCH 27, 1996.
UNUM Corporation
By /s/ JAMES F. ORR III
------------------------------------
James F. Orr III (Chairman, President
and Chief Executive Officer)
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
NAME TITLE DATE
- --------------------------------------------------------- --------------------------------------------------------- --------------
<C> <S> <C>
/s/ JAMES F. ORR III Chairman, President and Chief Executive Officer March 27, 1996
-------------------------------------------
(James F. Orr III)
/s/ ROBERT W. CRISPIN Executive Vice President and Chief Financial Officer March 27, 1996
-------------------------------------------
(Robert W. Crispin)
/s/ STEPHEN D. ROBERTS Vice President and Corporate Controller March 27, 1996
-------------------------------------------
(Stephen D. Roberts)
* Director March 27, 1996
-------------------------------------------
(Gayle O. Averyt)
* Director March 27, 1996
-------------------------------------------
(Robert E. Dillon, Jr.)
* Director March 27, 1996
-------------------------------------------
(Gwain H. Gillespie)
* Director March 27, 1996
-------------------------------------------
(Ronald E. Goldsberry)
* Director March 27, 1996
-------------------------------------------
(Donald W. Harward)
* Director March 27, 1996
-------------------------------------------
(George J. Mitchell)
* Director March 27, 1996
-------------------------------------------
(Cynthia A. Montgomery)
* Director March 27, 1996
-------------------------------------------
(James L. Moody, Jr.)
* Director March 27, 1996
-------------------------------------------
(Lawrence R. Pugh)
* Director March 27, 1996
-------------------------------------------
(Lois Dickson Rice)
Director March 27, 1996
-------------------------------------------
(John W. Rowe)
*/s/ JOHN-PAUL DEROSA
-------------------------------------------
(John-Paul DeRosa, as Attorney-in-fact
for each of the persons indicated)
(Assistant Secretary)
</TABLE>
63
<PAGE>
UNUM CORPORATION (PARENT COMPANY)
SCHEDULE II -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF INCOME
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER
31,
----------------------
1995 1994 1993
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
Revenues
Dividends from subsidiaries*........................................ $ 23.6 $102.0 $131.8
Investment income................................................... 0.4 0.1 0.2
Interest income on loans to subsidiaries*........................... 5.5 -- --
Fees and other income............................................... 0.3 0.8 --
------ ------ ------
Total revenues.................................................. 29.8 102.9 132.0
Expenses
Operating expenses.................................................. 2.3 8.7 11.6
Interest expense.................................................... 37.2 18.6 12.4
Interest expense on loans from subsidiaries*........................ 3.9 2.3 0.1
------ ------ ------
Total expenses.................................................. 43.4 29.6 24.1
------ ------ ------
Income (loss) before income taxes..................................... (13.6) 73.3 107.9
Income tax benefit.................................................... 13.1 6.2 5.7
------ ------ ------
Income (loss) before equity in undistributed net income of
subsidiaries......................................................... (0.5) 79.5 113.6
Equity in undistributed net income of subsidiaries*................... 281.6 75.2 186.3
------ ------ ------
Net income............................................................ $281.1 $154.7 $299.9
------ ------ ------
------ ------ ------
</TABLE>
- ------------
*Eliminated in consolidation
See note to condensed financial statements.
64
<PAGE>
UNUM CORPORATION (PARENT COMPANY)
SCHEDULE II -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
DECEMBER 31,
------------------
1995 1994
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------
Assets
Investments
Investment in subsidiaries*................................................. $2,836.1 $2,386.0
Short-term investments...................................................... 0.6 0.5
-------- --------
Total investments......................................................... 2,836.7 2,386.5
Cash.......................................................................... -- 2.0
Amounts receivable from subsidiaries, net*.................................... 6.6 18.4
Notes receivable from subsidiary*............................................. 50.0 --
Property and equipment, net................................................... 18.1 16.7
-------- --------
Total assets.............................................................. $2,911.4 $2,423.6
-------- --------
-------- --------
Liabilities and Stockholders' Equity
Liabilities
Notes payable............................................................... $ 583.8 $ 427.4
Notes payable to subsidiary*................................................ 10.0 60.0
Income taxes................................................................ 4.8 2.7
Other liabilities........................................................... 9.9 18.1
-------- --------
Total liabilities......................................................... 608.5 508.2
Stockholders' Equity
Preferred stock, par value $0.10 per share, authorized 10,000,000 shares,
none issued
Common stock, par value $0.10 per share, authorized 120,000,000 shares,
issued 99,987,958 shares................................................... 10.0 10.0
Additional paid-in capital.................................................. 1,065.7 1,062.4
Unrealized gains on available for sale securities of subsidiaries, net...... 235.6 67.7
Unrealized foreign currency translation adjustment.......................... (23.1) (23.7)
Retained earnings (including undistributed earnings of subsidiaries of
$1,395.9 million and $1,114.3 million in 1995 and 1994, respectively)...... 1,713.2 1,507.2
-------- --------
3,001.4 2,623.6
Less:
Treasury stock, at cost (1995-26,980,331 shares; 1994-27,575,430
shares)................................................................... 691.6 706.6
Restricted stock deferred compensation.................................... 6.9 1.6
-------- --------
Total stockholders' equity................................................ 2,302.9 1,915.4
-------- --------
Total liabilities and stockholders' equity................................ $2,911.4 $2,423.6
-------- --------
-------- --------
<FN>
- ------------
*Eliminated in consolidation
</TABLE>
See note to condensed financial statements.
65
<PAGE>
UNUM CORPORATION (PARENT COMPANY)
SCHEDULE II -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------
1995 1994 1993
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
Operating activities:
Net income.................................................................... $ 281.1 $ 154.7 $ 299.9
Adjustments to reconcile net income to net cash provided by operating
activities:
Increase in income tax liability............................................ 2.1 0.4 2.3
(Increase) decrease in amounts due to/from subsidiaries*.................... 11.8 (6.0) 7.5
Other....................................................................... (3.1) 11.1 4.6
Equity in undistributed net income of subsidiaries*......................... (281.6) (75.2) (186.3)
------- ------- -------
Net cash provided by operating activities................................. 10.3 85.0 128.0
------- ------- -------
Investing activities:
Purchases of investments...................................................... -- -- 0.3
Investment in subsidiaries, net*.............................................. (1.1) (30.6) 0.9
Issuance of notes receivable from subsidiaries*............................... (100.0) -- --
Repayment of notes receivable from subsidiaries*.............................. 50.0 -- --
Net (increase) decrease in short-term investments............................. (0.1) 3.9 (2.3)
Net additions to property and equipment....................................... (5.4) (3.3) (2.4)
------- ------- -------
Net cash used in investing activities..................................... (56.6) (30.0) (3.5)
------- ------- -------
Financing activities:
Dividends to stockholders..................................................... (75.1) (68.3) (61.4)
Treasury stock acquired....................................................... -- (183.3) (192.5)
Proceeds from notes payable................................................... 291.5 54.7 51.5
Repayment of notes payable.................................................... -- -- (50.0)
Net increase (decrease) in short-term debt.................................... (135.1) 136.7 58.1
Proceeds from notes payable to subsidiaries*.................................. -- -- 60.0
Repayment of notes payable to subsidiaries*................................... (50.0) -- --
Other......................................................................... 13.0 5.9 10.4
------- ------- -------
Net cash provided by (used in) financing activities....................... 44.3 (54.3) (123.9)
------- ------- -------
Net increase (decrease) in cash................................................. (2.0) 0.7 0.6
Cash at beginning of year....................................................... 2.0 1.3 0.7
------- ------- -------
Cash at end of year............................................................. $ -- $ 2.0 $ 1.3
------- ------- -------
------- ------- -------
Supplemental disclosures of cash flow information:
Cash paid (received) during the year for:
Income taxes................................................................ $ (15.1) $ (6.6) $ (8.1)
Interest.................................................................... $ 36.2 $ 18.1 $ 12.1
Interest to subsidiaries*................................................... $ 4.0 $ 2.2 $ --
</TABLE>
- ------------
*Eliminated in consolidation
See note to condensed financial statements.
66
<PAGE>
UNUM CORPORATION (PARENT COMPANY)
SCHEDULE II -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTE TO CONDENSED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The accompanying condensed financial statements should be read in
conjunction with the consolidated financial statements and notes of UNUM
Corporation and subsidiaries, which are included in Item 8.
67
<PAGE>
UNUM CORPORATION AND SUBSIDIARIES
SCHEDULE III -- SUPPLEMENTARY INSURANCE INFORMATION
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------------
(1)(2)
FUTURE
POLICY AMORTIZATION
BENEFITS, BENEFITS TO OF
DEFERRED AND UNPAID (4)(5) POLICYHOLDERS DEFERRED (5)
POLICY CLAIMS AND (3) NET AND POLICY OTHER (6)
ACQUISITION CLAIM PREMIUM INVESTMENT INTEREST ACQUISITION OPERATING PREMIUMS
SEGMENT COSTS EXPENSES REVENUE INCOME CREDITED COSTS EXPENSES WRITTEN
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1995
Disability Insurance... $ 758.3 $5,130.6 $1,879.9 $ 592.9 $1,711.2 $ 90.6 $454.0 $1,853.2
Special Risk
Insurance............. 99.8 476.5 702.3 48.4 492.3 35.5 162.6 223.6
Colonial Products...... 250.5 372.0 475.1 52.2 241.6 66.7 131.3 417.5
Retirement Products.... 33.7 596.0 34.1 323.7 275.3 0.8 36.2 23.3
Corporate.............. -- -- 0.1 14.2 -- -- 42.9 --
----------- ------------ ---------- ----------- ----------- ---------- --------- ----------
Total................ $1,142.3 $6,575.1 $3,091.5 $1,031.4 $2,720.4 $193.6 $827.0 $2,517.6
----------- ------------ ---------- ----------- ----------- ---------- --------- ----------
----------- ------------ ---------- ----------- ----------- ---------- --------- ----------
Year Ended December 31, 1994
Disability Insurance... $ 695.6 $4,175.9 $1,716.2 $ 400.3 $1,572.1 $ 70.7 $417.5 $1,705.5
Special Risk
Insurance............. 84.1 357.7 607.1 40.7 394.4 19.2 168.3 156.8
Colonial Products...... 224.8 330.5 441.3 32.6 226.1 60.6 124.5 388.1
Retirement Products.... 30.7 581.9 31.4 338.0 289.1 2.3 36.0 21.6
Corporate.............. -- (0.5) 0.8 4.2 -- -- 33.2 --
----------- ------------ ---------- ----------- ----------- ---------- --------- ----------
Total................ $1,035.2 $5,445.5 $2,796.8 $ 815.8 $2,481.7 $152.8 $779.5 $2,272.0
----------- ------------ ---------- ----------- ----------- ---------- --------- ----------
----------- ------------ ---------- ----------- ----------- ---------- --------- ----------
Year Ended December 31, 1993
Disability Insurance... $ 572.8 $3,526.0 $1,547.9 $ 369.8 $1,144.9 $ 68.1 $390.6 $1,528.7
Special Risk
Insurance............. 70.9 324.9 559.4 34.8 366.0 11.4 177.9 149.5
Colonial Products...... 206.0 282.2 407.4 41.4 211.7 56.1 110.6 365.4
Retirement Products.... 29.4 571.4 42.5 387.6 334.1 12.1 29.6 26.1
Corporate.............. -- (0.5) -- 6.2 -- -- 23.6 --
----------- ------------ ---------- ----------- ----------- ---------- --------- ----------
Total................ $ 879.1 $4,704.0 $2,557.2 $ 839.8 $2,056.7 $147.7 $732.3 $2,069.7
----------- ------------ ---------- ----------- ----------- ---------- --------- ----------
----------- ------------ ---------- ----------- ----------- ---------- --------- ----------
<FN>
- -------------
(1) Excludes other policyholder funds, as follows:
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------
-------------------------------------------------------------
DECEMBER 31,
------------------------------------
SEGMENT 1995 1994 1993
<S> <C> <C> <C>
- --------------------------------------------------------------------
Disability Insurance.......... $ 3.1 $ 2.1 $ 2.0
Special Risk Insurance........ 14.6 8.4 8.9
Colonial Products............. 128.0 100.1 76.0
Retirement Products........... 3,694.6 3,948.2 4,163.8
---------- ---------- ----------
Total..................... $ 3,840.3 $ 4,058.8 $ 4,250.7
---------- ---------- ----------
---------- ---------- ----------
<FN>
(2) Includes unearned premiums, other policy claims and benefits payable.
(3) Includes fees and other income (expense).
(4) Includes investment income (expense) and net realized investment gains.
(5) Investment income and net realized investment gains are allocated to the
segments based on designation of ownership of assets identified to the
segments. Operating expenses are allocated to the segments based on direct
association with a product whenever possible. If, however, the expense
cannot be readily associated with a particular product, the costs are
allocated based on ratios of the relative time spent, extent of usage or
varying volume of work performed for each segment.
(6) Premiums written for health and disability income policies.
</TABLE>
Certain 1994 and 1993 amounts have been reclassified in 1995 for comparative
purposes.
68
<PAGE>
UNUM CORPORATION AND SUBSIDIARIES
SCHEDULE IV -- REINSURANCE
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
ASSUMED PERCENTAGE
CEDED TO FROM OF AMOUNT
GROSS OTHER OTHER NET ASSUMED
AMOUNT COMPANIES COMPANIES AMOUNT TO NET
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1995
Life insurance in force..................... $164,478.4 $4,119.5 $ -- $160,358.9 --
---------- --------- ------ ----------
---------- --------- ------ ----------
Premiums
Life insurance and individual annuities... $ 571.4 $ 19.3 $ 2.0 $ 554.1 0.4%
Accident and health insurance............. 2,248.4 46.9 239.5 2,441.0 9.8%
Group annuities........................... 23.1 -- -- 23.1 --
---------- --------- ------ ----------
Total premiums........................ $ 2,842.9 $ 66.2 $ 241.5 $ 3,018.2
---------- --------- ------ ----------
---------- --------- ------ ----------
Year Ended December 31, 1994
Life insurance in force................... $145,425.9 $4,425.3 $ -- $141,000.6 --
---------- --------- ------ ----------
---------- --------- ------ ----------
Premiums
Life insurance and individual annuities... $ 517.9 $ 15.7 $ 1.6 $ 503.8 0.3%
Accident and health insurance............. 2,123.9 96.8 169.1 2,196.2 7.7%
Group annuities........................... 21.3 -- -- 21.3 --
---------- --------- ------ ----------
Total premiums........................ $ 2,663.1 $ 112.5 $ 170.7 $ 2,721.3
---------- --------- ------ ----------
---------- --------- ------ ----------
Year Ended December 31, 1993
Life insurance in force..................... $130,323.4 $2,247.9 $ -- $128,075.5 --
---------- --------- ------ ----------
---------- --------- ------ ----------
Premiums
Life insurance and individual annuities... $ 487.2 $ 11.9 $ 1.6 $ 476.9 0.3%
Accident and health insurance............. 1,818.6 38.1 191.0 1,971.5 9.7%
Group annuities........................... 25.7 -- -- 25.7 --
---------- --------- ------ ----------
Total premiums........................ $ 2,331.5 $ 50.0 $ 192.6 $ 2,474.1
---------- --------- ------ ----------
---------- --------- ------ ----------
Certain 1994 amounts have been reclassified in 1995 for comparative
purposes.
</TABLE>
69
<PAGE>
UNUM CORPORATION AND SUBSIDIARIES
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
NUMBER DESCRIPTION METHOD OF FILING PAGE NO.
- --------- -------------------------------------------------- -------------------------------------------------- --------
<C> <S> <C> <C>
3.1 Certificate of Incorporation of UNUM Corporation, Filed as Exhibit 3.1 to the Registrant's Annual
as amended Report on Form 10-K dated March 25, 1992, and
incorporated herein by reference.
3.2 By-Laws of UNUM Corporation Filed as Exhibit 3.2 to the Registrant's Annual
Report on Form 10-K dated March 25, 1992, and
incorporated herein by reference.
4 Rights Agreement Filed as Exhibit 1 to the Registrant's Current
Report on Form 8-K dated March 18, 1992, and
incorporated herein by reference.
10.1 Deferred Compensation Plan Filed herewith.
10.2 Annual Incentive Plan Filed as Exhibit 10.2 to the Registrant's Annual
Report on Form 10-K dated March 29, 1993, and
incorporated herein by reference.
10.2.1 Annual Incentive Plan-Summary of Significant Filed herewith.
Changes
10.3 1987 Executive Stock Option Plan Filed herewith.
10.4 1990 Long-Term Stock Incentive Plan Filed herewith.
10.5 1996 Long-Term Stock Incentive Plan Filed herewith.
10.6 Supplementary Retirement Plan Filed as Exhibit 10.4 to the Registrant's
Registration Statement on Form S-1 (Registration
No. 33-6571) dated June 18, 1986, and incorporated
herein by reference.
10.7 Supplemental Executive Retirement Plan Filed as Exhibit 10.6 to the Registrant's Annual
Report on Form 10-K dated March 26, 1991, and
incorporated herein by reference.
10.8 Form of Executive Severance Agreement Filed as Exhibit 10.7 to the Registrant's Annual
Report on Form 10-K dated March 25, 1992, and
incorporated herein by reference.
10.9 Employment Agreement Filed herewith.
10.10 Employment Letter Filed herewith.
10.11 $500 Million Revolving Credit Agreement Filed as Exhibit 10.9 to the Registrant's Annual
Report on Form 10-K dated March 24, 1995, and
incorporated herein by reference.
10.12 Asset Transfer and Acquisition Agreement Filed herewith.
12 Computation of Ratio of Earnings to Fixed Charges Filed herewith.
21 Subsidiaries of UNUM Corporation Filed herewith.
23 Consent of Independent Accountants Filed herewith.
24 Power of Attorney Filed herewith.
27 Financial Data Schedule Filed herewith.
</TABLE>
70
<PAGE>
EXHIBIT 10.1
UNUM LIFE INSURANCE COMPANY OF AMERICA
1996 DEFERRED COMPENSATION PLAN
I. OBJECTIVE
To provide a method whereby a select group of highly compensated employees may
receive compensation in a manner most meaningful to them.
II. PROGRAM DESCRIPTION
Under a non qualified deferred compensation plan, the Employee and the Company
may agree to allow the deferral of receipt of current compensation. Under
current regulations, the amounts deferred are not subject to income tax until
received. Total salary including amounts being deferred are, however, subject to
applicable social Security taxes in the year of the deferral.
Amounts deferred become part of the general assets of the Company and are
credited with interest monthly at a rate equal to the UNUM Life Insurance
Company of America Fixed Income Portfolio Rate. The accounts kept for each
participant are for record keeping purposes only and are not backed by any funds
or guarantees. Should the company experience financial difficulties, a
participant's status is that of an unsecured creditor.
III. EMPLOYEE ELIGIBILITY
- - All officers with a minimum annual base salary of $100,000*
- - Sales employees whose annual salary (excluding bonus) or draw is equivalent
each year to a minimum annual salary of $100,000*
*Base annual salary will be indexed annually to the Super Highly compensated
employee definition used in the Internal Revenue Code.
IV. AGREEMENT
A written agreement between the Employee and the Company shall be executed at
the time of the initial election to defer compensation. The agreement specifies
in detail:
- - the amount and type of the deferral
- - the method of interest calculation
- - the time and manner of payment
For subsequent years in which the Employee qualifies for participation in the
Plan, elections for deferrals may be made in writing by the Employee and agreed
to by the Company.
<PAGE>
V. ADMINISTRATION
ELECTIONS:
In December of each year, eligible employees may elect to defer amounts from the
next calendar year's salary. This deferral amount will be based on the base
annual salary as of 1/1 of the year in which the compensation would otherwise be
paid. Eligible field employees may elect to defer production compensation to be
earned in the next calendar year and paid in that year or the following year.
On January 1 of the appropriate calendar year, the elections will be put into
effect.
- -Biweekly pay is adjusted to reflect amounts from salary or draw that are being
deferred
- -Results Sharing Plan and production bonus amounts are adjusted according to
elections
Deferral elections are effective for one calendar year only. If no subsequent
deferral is elected, the participant's biweekly pay will be adjusted after 12/31
of the deferral year to reflect full annual salary.
Deferral elections will be suspended for 12 months immediately following any
hardship withdrawal the Employee receives from the Company's 401(k) plan (the
Retirement Savings Plan). This restriction applies only to deferrals and not to
payments from the non qualified deferred compensation plan that are scheduled to
occur during those same 12 months.
SALARY RELATED BENEFITS:
TOTAL SALARY
- - Flex Comp., Long Term Disability and Results Sharing Plan are based on
total salary (i.e. includes deferred amounts).
REDUCED SALARY
- - Pension benefits and 401(k) Plan contributions are based on reduced salary
(i.e. total salary minus deferred amounts). The calculation of Final
Average Earnings in the Pension Plan uses the highest consecutive five
years of earnings out of the last ten. Pensionable earnings that are
deferred during that five year period are not included in the calculation
and thus may reduce the participant's pension benefit. Amounts of
previously deferred compensation which the participant receives during this
five year period will be included in final average earnings only to the
extent that such payments do not exceed amounts deferred from compensation
during this same period.
RECORDS:
Personnel Accounting maintains all records concerning the plan. They will
furnish each participant with a summary of "account" activity annually.
<PAGE>
EXHIBIT 10.2.1
ANNUAL INCENTIVE PLAN - SUMMARY OF SIGNIFICANT CHANGES
The following provides a summary of the significant changes to the Annual
Incentive Plan for 1996, which have been approved by the UNUM Life Insurance
Company of America Board of Directors.
- - A change in the incentive target payout percentages for our senior
management group;
- - For Enterprise Staff employees, a change in the weightings of the
performance components from 60% based on Enterprise results and 40% based
on Division results to 70% based on Enterprise results and 30% based on
Division results.
- - For Enterprise Line employees, a change in the weightings of the
performance components from 40% based on Enterprise results and 60% based
on Division results to 30% based on Enterprise results and 70% based on
Division results
- - For Enterprise Staff and Enterprise Line employees, the ability for the
Business Unit/Divisional performance component to pay out independent of
Enterprise results.
- - For UNUM America employees, the weighting on the Business Unit/Division
performance component has been eliminated, so now the payout is based only
on Enterprise and UNUM America results.
A listing of the incentive target payout percentage targets and performance
component weightings for all eligible employees follows. The revised incentive
targets for the senior management group appear in bands A through G.
ORGANIZATION: UNUM AMERICA ENTERPRISE ENTERPRISE
STAFF UNITS LINE UNITS
Band Payout % Weightings
---------------- ----------------------------------------
Ent U/A Ent BU/ Ent BU/
Min Trgt Max Div Div
1-12 5% 10% 20% 20% 80% 70% 30% 30% 70%
13-16 10% 20% 40% 20% 80% 70% 30% 30% 70%
17-19 15% 30% 60% 20% 80% 70% 30% 30% 70%
20 17.5% 35% 70% 30% 70% 70% 30% 30% 70%
G 20% 40% 80% 30% 70% 70% 30% 30% 70%
E-F 22.5% 45% 90% 30% 70% 70% 30% 30% 70%
D* 25% 50% 100% 30% 70% 70% 30% 30% 70%
C 27.5% 55% 110% 30% 70% 70% 30% 30% 70%
B 30% 60% 120% 100% 100% 100%
A 40% 80% 160% 100% 100% 100%
*Note:The weightings of the performance components for the Chief Investment
Officer are 40% Enterprise & 60% Investment results.
<PAGE>
UNUM CORPORATION
1987 EXECUTIVE STOCK OPTION PLAN
1. PURPOSE.
This plan shall be known as the UNUM 1987 Stock Option Plan (the "Plan").
The purpose of the Plan shall be to promote the profitability of UNUM
CORPORATION and its subsidiaries (the "Company") by providing certain key
employees with incentives to contribute to the success of the Company and
by enabling the Company to attract, retain, and reward the best available
personnel for positions of substantial responsibility. The terms
"subsidiary" and "subsidiaries" as used herein shall mean corporations, a
majority of the outstanding shares of voting stock of which is owned by the
Company directly or indirectly. For purposes of the Plan, an Incentive
Stock Option shall have the meaning set forth in Section 422A of the
Internal Revenue Code of 1954, as amended (the "Code"); a Nonqualified
Stock Option shall mean any stock option for shares other than an Incentive
Stock Option.
2. ADMINISTRATION.
The Plan shall be administered by the Compensation Committee (the
"Committee") of the Board of Directors of the Company (the "Board").
Each member of the Committee shall be a person who is not eligible, and has
not at any time within one year prior to his or her appointment to the
Committee been eligible, for selection as a person to whom stock may be
allocated or to whom stock options or stock appreciation rights may be
granted pursuant to the Plan or any other plan of the Company or any of its
subsidiaries. Subject to the provisions of the Plan, the Committee shall
be authorized to interpret the Plan and may from time to time adopt, amend,
or rescind such rules and regulations for carrying out the Plan as it may
deem appropriate. Decisions of the Committee on all matters relating to
the Plan shall be in the Committee's sole discretion and shall be
conclusive and binding on all parties, including the Company, the
shareholders, and the Participants. The validity, construction, and effect
of the Plan and any rules and regulations relating to the Plan shall be
determined in accordance with the laws of Delaware and applicable Federal
law.
3. SHARES AVAILABLE FOR THE PLAN.
Subject to adjustments as provided in Section 6, an aggregate of 2,500,000
shares of common stock of $.10 par value of UNUM Corporation ("Shares") may
be issued pursuant to the Plan. Such Shares may represent either
previously unissued shares or treasury shares. If any option granted under
the Plan shall expire or terminate unexercised or for any reason become
unexercisable as to any shares, such unpurchased shares shall thereafter be
available for further grants under the Plan unless the related Stock
Appreciation Rights are exercised.
<PAGE>
4. PARTICIPATION.
(a) Participation in this Plan shall be limited to those key employees of
the Company selected at the sole discretion of the Committee. Nothing
in the Plan or in any option or right granted thereunder shall confer
any right on an employee to continue in the employ of the Company or
shall interfere in any way with the right of the Company to terminate
employment at any time.
(b) Directors who are also employees and officers of the Company shall be
eligible to receive options and rights under the Plan. Members of the
Board of Directors who are not also employees of the Company and all
members of the Committee shall be ineligible to receive either options
or rights under the Plan.
(c) Options and rights may be granted to such persons and for such
respective number of shares as the Committee, in its absolute
discretion, shall determine (such individuals to whom options and
rights are granted are being herein called "Optionees"). A grant of
an option or right in any one year to an eligible employee shall
neither guarantee nor preclude a grant to such employee in subsequent
years.
5. TERMS AND CONDITIONS OF OPTIONS.
The Committee may from time to time select key employees to whom stock
options shall be granted as Incentive Stock Options within the meaning of
Section 422A of the Code or as Nonqualified Stock Options or any
combination thereof as the Committee shall decide. The options granted
shall take such form as the Committee shall determine, subject to the
following terms and conditions.
(a) PRICE. The purchase price per share deliverable upon the exercise of
each option shall not be less than 100% of the Fair Market Value of
the shares on the date the option is granted. Fair Market Value shall
be the average price of the high and low sale prices of the shares on
the New York Stock Exchange composite tape or such other recognized
market source as determined by the Committee from time to time on the
date the option is granted, or, if there is no sale on such date, then
such average price on the last previous day on which a sale is
reported. In the case of the grant of any Incentive Stock Option to
an employee who, at the time of the grant, owns more than 10% of the
total combined voting power of all classes of stock of UNUM
Corporation or any of its subsidiaries, such price per share shall not
be less than 110% of the Fair Market Value of the shares on the date
the option is granted.
(b) PAYMENT. Options may be exercised only upon payment of the purchase
price thereof in full. With respect to a Nonqualified Stock Option,
such payment shall be made in cash or, at the discretion of the
Committee, in shares, which shall have a value at least equal to the
aggregate exercise price of the shares being purchased, or a
combination of cash and shares.
2
<PAGE>
The value of shares so tendered shall be established in accordance
with methods determined by the Committee. With respect to an
Incentive Stock Option, payment of the exercise price shall be made in
cash. The Optionee shall be entitled to elect to pay all or a portion
of the exercise price for options granted under this Plan and any
withholding taxes in connection with such exercise by having the
shares of Common Stock to be issued by UNUM Corporation pursuant to
such exercise sold by a broker-dealer under circumstances meeting the
requirements of 12 C.F.R. Section 220.
(c) TERMS OF OPTIONS. The term during which options may be exercised
shall be determined by the Committee. Except as otherwise provided in
this Section 5(c), in no event shall an option be exercisable in whole
or in part less than one year, or more than ten years from the date it
is granted, provided further that, in the case of the grant of an
Incentive Stock Option to an employee who at the time of the grant,
owns more than 10% of the total combined voting power of all classes
of stock of UNUM Corporation or any of its subsidiaries, in no event
shall such option be exercisable more than five years from the date of
the grant. All rights to purchase shares pursuant to an option shall,
unless sooner terminated, expire at the date designated by the
Committee.
The Committee shall determine the date on which each option shall
become exercisable and may provide that an option shall become
exercisable in installments. The shares comprising each installment
may be purchased in whole or in part at any time after such
installment becomes exercisable, except that the exercise of an
Incentive Stock Option shall be further restricted as set forth
herein. The Committee may, in its sole discretion, accelerate the
time at which any option may be exercised in whole or in part. In the
case of the death, disability or retirement of an optionee, the
Committee may exercise such discretion to accelerate the time at which
any option may be exercised to a date less than one year from the date
of grant, provided however, that in no event may a Stock Appreciation
Right become exercisable less than six months from the date of grant.
The option agreement evidencing an option granted under the Plan may
contain such provisions limiting the acceleration of the exercise of
options as the Committee deems appropriate to ensure that the penalty
provisions of Section 4999 of the Code, or any successor thereto in
effect at the time of such acceleration, will not apply to any stock
or cash received by the holder from the Company.
Unless otherwise provided herein, an Optionee may exercise an option
only if he or she is, and has continuously been since the date the
option was granted, an employee of the Company.
Prior to the exercise of the option and delivery of the stock
represented thereby, the Optionee shall have no rights to any
dividends nor be entitled to any voting rights on any stock
represented by outstanding options.
3
<PAGE>
Notwithstanding anything to the contrary contained herein, and
notwithstanding any contrary waiting period or installment period in
any option agreement or in the Plan, each outstanding option granted
under the Plan shall become exercisable in full for the aggregate
number of shares covered thereby in the event of a Change in Control
(as hereinafter defined).
For purposes of this Plan, a Change in Control shall be deemed to have
occurred upon the first to occur of the following events:
(i) any "person," as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") (other than the Company or any
corporation owned, directly or indirectly, by the
stockholders of the Company in substantially the same
proportions as their ownership of stock of the Company), is
or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of
securities of the Company representing more than 40% of the
number of the Company's then outstanding securities;
(ii) during any period of two consecutive years, individuals who
at the beginning of such period constitute the Board, and
any new director (other than a director designated by a
person who has entered into an agreement with the Company to
effect a transaction described in Subsection 5(c)(i), (iii)
or (iv) of this Section 5(c)) whose election by the Board or
nomination for election by the Company's stockholders was
approved by a vote of at least two-thirds (2/3) of the
directors then still in office who either were directors at
the beginning of the period or whose election or nomination
for election was previously so approved, cease for any
reason to constitute at least a majority thereof;
(iii) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation,
other than a merger or consolidation which would result in
the voting securities of the Company outstanding immediately
prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of
the surviving entity) more than 60% of the number of
outstanding securities of the Company or such surviving
entity outstanding immediately after such merger or
consolidation; or
(iv) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of
the Company's assets.
4
<PAGE>
(d) LIMITATIONS ON GRANTS. The aggregate Fair Market Value (determined as
of the date the Incentive Stock Option is granted) of the shares of
stock with respect to which Incentive Stock Options are exercisable
for the first time by an optionee during any calendar year may not
exceed $100,000.
(e) TERMINATION OF EMPLOYMENT. Except as provided below, if an Optionee
ceases to be an employee other than by reason of death, retirement or
disability, any then outstanding options may be exercised any time
before their expiration date or within three months after the date of
termination, whichever is earlier, but only to the extent that such
options were exercisable when employment ceased, absent a
determination by the Committee to the contrary; provided, however,
that if a Participant is terminated for cause the Committee may
determine that no option may be exercised at any time after the
termination date.
If an Optionee's employment terminates because of death or disability,
all then outstanding options previously granted to the Optionee will
become exercisable. In the case of death of the Optionee, such
options may be exercised at any time before their expiration date or
within three years after the date of termination, whichever is
earlier. In the case of permanent disability, such options may be
exercised at any time before their expiration date.
If an Optionee's employment terminates because of retirement prior to
January 1, 1995, any then outstanding options may be exercised any
time before their expiration or within three years after the date of
termination, whichever is earlier, but only to the extent that such
options were exercisable when employment ceased, absent a
determination by the Committee to the contrary. If an Optionee's
employment terminates because of retirement on or after January 1,
1995, any then outstanding options may be exercised any time before
their expiration or within five years after the date of termination,
whichever is earlier, but only to the extent that such options were
exercisable when employment ceased, absent a determination by the
Committee to the contrary.
(f) TRANSFERABILITY. No option or right shall be transferable by an
employee otherwise than by will or the laws of descent and
distribution, and during the lifetime of the employee to whom an
option or right is granted it may be exercised only by him or his
guardian or legal representative, but Incentive Stock Options may be
exercised by such guardian or legal representative only if permitted
by Section 422A and related sections of the Code and any regulations
promulgated thereunder.
(g) LISTING AND REGISTRATION. Each option shall be subject to the
requirement that if at any time the Committee shall determine, in its
discretion, the listing, registration, or qualification of the shares
subject to such option
5
<PAGE>
upon any securities exchange or under any state or federal law, or the
consent or approval of any governmental regulatory body, is necessary
or desirable as a condition of, or in connection with, the granting of
such option or the issue or purchase or Shares thereunder, no such
option may be exercised in whole or in part unless such listing,
registration, qualification, consent, or approval shall have been
effected or obtained free of any conditions not acceptable to the
Committee.
(h) OPTION AGREEMENT. Each employee to whom an option may be granted
shall enter into an agreement with the Company, which shall contain
such provisions, consistent with the provisions of the Plan, as may be
established by the Committee.
(i) WITHHOLDING. The Company shall have the right to require a payment
from an optionee to cover any applicable withholding or other
employment taxes due upon the exercise of an option.
(j) STOCK OPTIONS. In no event shall any stock option granted after
May 15, 1989 be exercisable through payment of the exercise price in
cash during the period of one year following a hardship distribution
under the UNUM Employees Retirement Savings Plan and Trust, as defined
therein.
6. ADJUSTMENTS.
In the event of a reorganization, recapitalization, stock split, stock
dividend, combination of shares, merger, consolidation, distribution of
assets, or any other change in the corporate structure or shares of the
Company, the Committee shall make such adjustments as it deems appropriate
in the number and kind of shares authorized by the Plan, in the number and
kind of shares covered by the options granted, and in the purchase price of
outstanding options. In the event of any merger, consolidation or other
reorganization in which the Company is not the surviving or continuing
corporation, all options and Stock Appreciation Rights granted hereunder
and outstanding on the date of such event shall be assumed by the surviving
or continuing corporation with appropriate adjustment as to the number and
kind of shares and purchase price of the shares.
7. TERMS AND CONDITIONS OF STOCK APPRECIATION RIGHTS.
The Committee shall have the authority to grant Stock Appreciation Rights
in connection with the grant of options under this Plan to any Optionee.
The exercise of an option shall result in an immediate forfeiture of its
corresponding right, and the exercise of a right shall cause an immediate
forfeiture of its corresponding option. Stock Appreciation Rights shall be
subject to such other terms and conditions as the Committee may specify. A
Stock Appreciation Right granted in relation to an Incentive Stock Option
shall expire at the same time as the related option expires and shall be
transferable only when the related option is transferable, and under the
same conditions.
6
<PAGE>
8. EXERCISE OF STOCK APPRECIATION RIGHTS.
(a) Stock Appreciation Rights granted in connection with Incentive Stock
Options and, unless otherwise provided by the Committee, all other
Stock Appreciation Rights granted under this Plan shall be exercisable
only to the extent the related option is exercisable and only in
accordance with the instrument evidencing such right. No Stock
Appreciation Right may be exercised unless the Fair Market Value of a
share on the date of exercise exceeds the purchase price per share
under the option to which the Stock Appreciation Right corresponds.
(b) Upon the exercise of a Stock Appreciation Right, the Optionee shall be
entitled to a distribution in an amount equal to the difference
between the Fair Market Value of a Share on the date of exercise as
determined by the Committee, less the purchase price per Share under
the option to which the Stock Appreciation Right corresponds. The
Committee, in its sole discretion, shall decide whether such
distribution shall be in cash or in Shares. In the event distribution
is made in Shares, any fractional shares due shall be disregarded.
(c) The Company shall have the right to require a payment from an employee
to cover any applicable withholding or other employment taxes due upon
the exercise of a Stock Appreciation Right.
(d) The provisions of this subsection shall apply to Optionees who are or
who hereafter may be subject to Section 16(b) of the Securities
Exchange Act of 1934. No Stock Appreciation Right shall be exercised
for cash in complete or partial settlement of such right unless such
exercise shall occur during the period beginning on the third business
day following the date of release for publication by the Company of
quarterly and annual summary statements of sales and earnings and
ending on the twelfth business day following such date. No Stock
Appreciation Right or related option may be exercised for cash in
complete or partial settlement of such right during the first six
months of its term, except in the event the death or disability of the
holder occurs prior to the expiration of such six month period.
8A. An Optionee who is required under Section 5(i) or 8(c) of this Plan to make
any payment to the Company to cover withholding or other employment taxes
may elect to satisfy such obligation by tendering to the Company the number
of Shares to the Company's common stock whose Fair Market Value equals the
amount required to be withheld.
9. TERMS AND CONDITIONS OF LIMITED RIGHTS.
(a) The Committee shall have the authority to grant Limited Rights in
connection with the grant of options under this Plan to any Optionee,
and such rights may be granted either at or after the time of the
grant of such option.
7
<PAGE>
Limited Rights or any applicable portion thereof granted with respect
to a given option shall terminate and no longer be exercisable upon
the termination of the related option. Upon the exercise of an
option, the related Limited Right shall cease to be exercisable to the
extent of the Shares with respect to which such option is exercised.
A Limited Right related to an option may be exercised by an Optionee,
in accordance with this Section 9, by surrendering the applicable
portion of the related option. Upon such exercise and surrender, the
Optionee shall be entitled to receive an amount determined in the
manner prescribed in this Section 9.
(b) Limited Rights shall only be exercisable during the 30 day period
following a Change in Control and only to the extent that the options
to which they relate shall be exercisable in accordance with the
provisions of the Plan; provided, however, that no Limited Right shall
be exercisable during the first six months of the term of the Limited
Right (except that this additional limitation shall not apply in the
event of death or disability of the Optionee prior to the expiration
of the six-month period).
(c) Upon the exercise of a Limited Right related to an option, an Optionee
shall be entitled to receive an amount in cash equal in value to the
excess of the higher of (i) the highest price per share paid in
connection with the Change in Control or (ii) the highest fair market
value per share as reported in the Wall Street Journal at any time
during the 60 day period preceding the Change in Control of one share
over the option price per share specified in the related option, such
excess to be multiplied by the number of shares in respect of which
the Limited Right shall have been exercised.
(d) Limited Rights shall be subject to such other terms and conditions,
not inconsistent with the provisions of the Plan, as shall be
determined from time to time by the Committee. This Section 9 shall
be interpreted in accordance and consistent with the principles set
forth in Rule 16b-3 of the Securities Exchange Act of 1934.
10. TERMINATION AND MODIFICATION OF THE PLAN.
The Board of Directors, without further approval of the shareholders, may
modify or terminate this Plan and from time to time may suspend, and if
suspended, may reinstate any or all of the provisions of this Plan except
that no modification or termination of this Plan may, without the consent
of the Optionee, alter or impair any option previously granted under this
Plan and that no modification shall become effective without prior approval
of the shareholders which would (a) increase (except as provided in Section
6) the maximum number of shares for which options may be granted under the
Plan; (b) reduce the option price which may be established under the Plan;
(c) extend the maximum option term under the Plan beyond ten years, or (d)
change the Plan's eligibility requirements. The Chief Executive Officer
shall be authorized to make minor or
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administrative modifications to the Plan as well as modification to the
Plan which may be dictated by requirements of federal or state statutes
applicable to the Company or authorized or made desirable by such statutes.
No modification or termination of the Plan shall, without the Optionee's
consent, alter or impair any of their rights or obligations under any
option or right theretofore granted to him or her under the Plan. Unless
previously terminated, the Plan shall terminate on December 31, 1996.
11. EFFECTIVE DATE.
The effective date of the Plan shall be January 1, 1987.
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UNUM CORPORATION
1990 LONG-TERM STOCK INCENTIVE PLAN
SECTION 1. PURPOSE.
The purpose of the UNUM Corporation 1990 Long-Term Stock Incentive Plan (the
"Plan") is to promote the interests of UNUM Corporation and its stockholders by
(i) attracting and retaining executive officers, other key employees and
corporation directors of outstanding ability; (ii) motivating such individuals,
by means of performance-related incentives, to achieve longer-range performance
goals; and (iii) enabling such individuals to participate in the long-term
growth and financial success of UNUM Corporation.
SECTION 2. DEFINITIONS.
"Affiliate" shall mean any corporation or other entity which is not a Subsidiary
but as to which the Corporation possesses a direct or indirect ownership
interest and has representation on the board of directors or any similar
governing body.
"Award" shall mean a grant or award under Sections 6 through 10, inclusive, of
the Plan, as evidenced in a written document delivered to a Participant.
"Board" shall mean the Board of Directors of the Corporation.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time to
time.
"Committee" shall mean the Compensation Committee of the Board.
"Common Stock" or "Stock" shall mean the common stock, $.10 par value, of the
Corporation.
"Corporation" shall mean UNUM Corporation.
"Employee" shall mean any employee of the Employer.
"Employer" shall mean the Corporation and any Subsidiary or Affiliate.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from
time to time.
"Fair Market Value" shall mean the average of the highest and lowest sales
prices reported for consolidated trading of the Stock on the New York Stock
Exchange on the date in question,
<PAGE>
or, if the Stock shall not have been traded on such date, the average of such
highest and lowest sales prices on the first day prior thereto on which the
Stock was so traded.
"Fiscal Year" shall mean the fiscal year of the Corporation.
"Incentive Stock Option" shall mean a stock option granted under Section 6 which
is intended to meet the requirements of Section 422A of the Code.
"Limited Right" shall mean a limited stock appreciation right granted under
Section 8.
"Non-Qualified Stock Option" shall mean a stock option granted under Section 6
which is not intended to be an Incentive Stock Option.
"Option" shall mean an Incentive Stock Option or a Non-Qualified Stock Option.
"Participant" shall mean an Employee who is selected by the Committee to receive
an Award under the Plan.
"Restricted Period" shall mean the period of years selected by the Committee
during which a grant of Restricted Stock may be forfeited to the Corporation.
"Restricted Stock" shall mean shares of Common Stock contingently granted to a
Participant under Section 9 of the Plan.
"Subsidiary" shall mean any business entity in which the Corporation possesses
directly or indirectly fifty percent (50%) or more of the total combined voting
power.
SECTION 3. ADMINISTRATION.
Except as provided in Section 10, the Committee shall have full power to
interpret and administer the Plan and full authority to select the individuals
to whom Awards will be granted and to determine the type and amount of Award(s)
to be granted to each Participant, the terms and conditions of Awards granted
under the Plan and the terms and conditions of the agreements which will be
entered into with Participants. As to the selection and grant of Awards to
Participants who are not subject to Sections 16(a) and 16(b) of the Exchange
Act, or any successor sections, the Committee may delegate its responsibilities
to members of the Company's management consistent with applicable law.
The Committee shall have the authority to adopt, alter and repeal such rules,
guidelines and practices governing the Plan as it shall, from time to time, deem
advisable; to interpret the terms and provisions of the Plan and any Award
issued under the Plan (and any agreements relating thereto); to direct employees
of the Corporation and its subsidiaries or other advisors to prepare such
materials or perform such analysis as the Committee deems necessary or
appropriate; and otherwise to supervise the administration of the Plan.
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Any interpretation and administration of the Plan by the Committee, and all
actions of the Committee, shall be final, binding and conclusive on the
Corporation, its stockholders, Subsidiaries, Affiliates, all Participants, their
respective legal representatives, successors and assigns and upon all persons
claiming under or through any of them. No member of the Board or of the
Committee shall incur any liability for any action taken or omitted, or any
determination made, in good faith in connection with the Plan.
SECTION 4. ELIGIBILITY.
Participation in the Plan shall be limited to those key employees of the
Corporation and any Subsidiary and Affiliate selected at the sole discretion of
the Committee.
SECTION 5. MAXIMUM AMOUNT AVAILABLE FOR AWARDS.
Subject to adjustment as provided in Section 12(j), the maximum number of shares
of Stock in respect of which Awards may be made under the Plan shall be a total
of 6,800,000 shares of Common Stock. Shares of Common Stock may be made
available from the authorized but unissued shares of the Corporation or from
shares reacquired by the Corporation, including shares purchased in the open
market. In the event that (i) an Option, or Stock Appreciation Right, or
Limited Right expires or is cancelled unexercised as to any shares of Common
Stock covered thereby, or (ii) any Award in respect of shares is forfeited for
any reason under the Plan, such shares shall thereafter be again available for
award pursuant to the Plan.
SECTION 6. STOCK OPTIONS.
(a) GRANT. Subject to the provisions of the Plan, the Committee shall have
sole and complete authority to determine the Employees to whom Options
shall be granted, the number of shares to be covered by each Option, the
Option Price, as defined below, therefor and the conditions and limitations
applicable to the exercise of the Option. The Committee shall have the
authority to grant Incentive Stock Options, or to grant Non-Qualified Stock
Options, or to grant both types of Options. In the case of Incentive Stock
Options, the terms and conditions of such grants shall be subject to and
comply with such rules as may be prescribed by Section 422A of the Code and
any regulations implementing Section 422A.
(b) OPTION PRICE. The Committee shall establish the exercise price of the
Option (the "Option Price") at the time each Option is granted, which
Option Price shall not be less than 100% of the Fair Market Value of the
Common Stock on the date of grant.
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<PAGE>
(c) EXERCISE.
(1) Each Option shall be exercisable at such times and subject to such
terms and conditions as the Committee may, in its sole discretion,
specify in the applicable Award or thereafter; provided, however, that
in no event may any Option granted hereunder be exercisable after the
expiration of ten years from the date of grant. The Committee may
impose such conditions with respect to the exercise of Options,
including without limitation, any relating to the application of
federal or state securities laws, as it may deem necessary or
advisable.
(2) No shares shall be delivered pursuant to any exercise of an Option
until payment in full of the Option Price therefor is received by the
Corporation. Such payment may be made in cash, or its equivalent, or,
subject to such rules and guidelines as the Committee may establish,
by exchanging shares of Common Stock owned by the optionee (which are
not the subject of any pledge or other security interest), or by a
combination of the foregoing, provided that the combined value of all
cash and cash equivalents and the Fair Market Value of any such Common
Stock so tendered to the Corporation, valued as of the date of such
tender, is at least equal to such Option Price.
(d) TERMINATION OF EMPLOYMENT.
(1) Except as provided below, if a Participant ceases to be an Employee
other than by reason of death, retirement or disability, any then
outstanding Options may be exercised any time before their expiration
date or within three months after the date of termination, whichever
is earlier, but only to the extent that such Options were exercisable
when employment ceased, absent a determination by the Committee to the
contrary; provided, however, that a Participant is terminated for
cause the Committee may determine that no Option may be exercised at
any time after the termination date.
(2) If a Participant's employment terminates because of death or
disability, all then outstanding Options previously granted to the
Participant will become exercisable. In the case of death of the
Participant, such Options may be exercised at any time before their
expiration date or within three years after the date of termination,
whichever is earlier. In the case of permanent disability, such
Options may be exercised at any time before their expiration date.
(3) If a Participant's employment terminates because of retirement prior
to January 1, 1995, any then outstanding Options may be exercised any
time before their expiration date or within three years after the date
of termination, whichever is earlier, but only to the extent that such
Options were exercisable when employment ceased absent a determination
by the Committee to the contrary. If a Participant's employment
terminates because of retirement on or after January 1,
4
<PAGE>
1995, any then outstanding Options may be exercised any time before
their expiration date or within five years after the date of
termination, whichever is earlier, but only to the extent that such
Options were exercisable when employment ceased absent a determination
by the Committee to the contrary.
SECTION 7. STOCK APPRECIATION RIGHTS.
(a) The Committee shall have the authority to grant Stock Appreciation Rights
in tandem with the grant of an Option or freestanding and unrelated to an
Option. Stock Appreciation Rights granted in tandem with an Option may be
granted either at or after the time of the grant of such Option.
Stock Appreciation Rights or any applicable portion thereof granted in
tandem with a given Option shall only be exercisable to the extent that the
related Option is exercisable and shall terminate and no longer be
exercisable upon the expiration or cancellation of the related Option.
The exercise of an Option shall result in an immediate forfeiture of any
Stock Appreciation Right granted in tandem with that Option, and the
exercise of such Stock Appreciation Right shall cause an immediate
forfeiture of its related Option. Stock Appreciation Rights shall not be
exercisable after the expiration of ten years from date of grant. A Stock
Appreciation Right granted in tandem with an Option may be exercised by an
optionee, in accordance with this Section 7, by surrendering the applicable
portion of the related Option. Upon such exercise and surrender, the
optionee shall be entitled to receive an amount determined in the manner
prescribed in this Section 7.
(b) A Stock Appreciation Right shall entitle the Participant to receive from
the Corporation an amount equal to the excess of the Fair Market Value of a
share of Common Stock on the date of the exercise of the Stock Appreciation
Right over the grant price thereof, provided that the Committee may for
administrative convenience determine that, for any Stock Appreciation Right
which is not related to an Incentive Stock Option and can only be exercised
during limited periods of time in order to satisfy the conditions of
certain rules of the Securities and Exchange Commission, the exercise of
any such Stock Appreciation Right for cash during such limited period shall
be deemed to occur for all purposes hereunder on the day during such
limited period on which the Fair Market Value of the Stock is the highest.
Any such determination by the Committee may be changed by the Committee
from time to time and may govern the exercise of Stock Appreciation Rights
granted prior to such determination as well as Stock Appreciation Rights
thereafter granted. The Committee shall determine whether Stock
Appreciation Rights shall be settled in cash, shares of Common Stock or a
combination of cash and shares of Common Stock.
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<PAGE>
SECTION 8. LIMITED RIGHTS.
(a) The Committee shall have the authority to grant Limited Rights in tandem
with the grant of an Option or freestanding and unrelated to an Option.
Limited Rights granted in tandem with an Option may be granted either at or
after the time of the grant of such Option.
Limited Rights or any applicable portion thereof granted in tandem with a
given Option shall terminate and no longer be exercisable upon the
expiration or cancellation of the related Option. The exercise of an
Option shall result in an immediate forfeiture of any Limited Right granted
in tandem with that Option, and the exercise of such Limited Right shall
cause an immediate forfeiture of its related Option.
A Limited Right granted in tandem with an Option may be exercised by an
optionee, in accordance with this Section 8, by surrendering the applicable
portion of the related Option. Upon such exercise and surrender, the
optionee shall be entitled to receive an amount determined in the manner
prescribed in this Section 8.
(b) Limited Rights shall only be exercisable during the 30 day period following
a Change in Control as defined in Section 11 and shall not be exercisable
after the expiration of ten years from the date of grant.
(c) Upon the exercise of a Limited Right, an optionee shall be entitled to
receive from the Corporation an amount in cash equal in value to the excess
of (i) the higher of (A) the highest price per share paid in connection
with the Change in Control or (B) the highest Fair Market Value per share
as reported in the Wall Street Journal at any time during the 60 day period
preceding the Change in Control over (ii) in the case of a Limited Right
granted in tandem with an Option, the Option Price per share specified in
the related Option and in the case of all other Limited Rights, the price
per share established in the grant of the Limited Right, such excess to be
multiplied by the number of shares in respect of which the Limited Right
shall have been exercised; provided, however, that upon the exercise of a
Limited Right granted in tandem with an Incentive Stock Option, the amount
set forth in clause (i) shall not exceed the Fair Market Value of a share
on the date of exercise of the Limited Right.
(d) Limited Rights shall be subject to such other terms and conditions, not
inconsistent with the provisions of the Plan, as shall be determined from
time to time by the Committee. This Section 8 shall be interpreted in
accordance and consistent with the principles set forth in Rule 16b-3 of
the Exchange Act.
6
<PAGE>
SECTION 9. RESTRICTED STOCK.
(a) Subject to the provisions of the Plan, the Committee shall have sole and
complete authority to determine the Employees to whom shares of Restricted
Stock shall be granted, the number of shares of Restricted Stock to be
granted to each Participant, the duration of the Restricted Period during
which, and the conditions under which, the Restricted Stock may be
forfeited to the Corporation, and the other terms and conditions of such
Awards. The Committee may determine that the Restricted Period applicable
to a particular grant may vary depending upon the attainment of particular
conditions, such as corporate earnings, share price or other targets set by
the Committee.
(b) Shares of Restricted Stock may not be sold, assigned, transferred, pledged
or otherwise encumbered, except as herein provided, during the Restricted
Period. Certificates issued in respect of shares of Restricted Stock shall
be registered in the name of the Participant and deposited by such
Participant, together with a stock power endorsed in blank, with the
Corporation. At the expiration of the Restricted Period, the Corporation
shall deliver such certificates to the Participant or the Participant's
legal representative.
(c) If a Participant's employment terminates by reasons of disability or death,
any Restricted Stock held by such Participant shall thereafter vest and any
restriction lapse, to the extent such Restricted Stock would have become
vested and no longer subject to such restrictions within one year from the
time of termination had the Participant continued to fulfill all of the
conditions of the Restricted Stock during such period (or on such
accelerated basis as the Committee may determine at or after grant).
Unless otherwise determined by the Committee, if a Participant's employment
terminates for any reasons other than permanent disability or death, any
Restricted Stock which is unvested or subject to restriction shall
thereupon be forfeited.
SECTION 10. NON-EMPLOYEE DIRECTOR OPTIONS.
Notwithstanding any of the other provisions of the Plan to the contrary, the
provisions of this Section 10 shall only apply to a non-employee member of the
Board. The other provisions of the Plan shall apply to grants of Options under
this Section 10 to the extent not inconsistent with the provisions of this
Section.
(a) This Section 10 shall be administered by the Board.
(b) Each non-employee member of the Board shall receive Non-Qualified Stock
Options in accordance with the provisions of this Section 10.
7
<PAGE>
(c) (i) Recipients of Options under this Section 10 shall enter into a stock
option agreement with the Corporation, which agreement shall set
forth, among other things, the exercise price of the Option, the
term of the Option and provisions regarding exercisability of the
Option granted thereunder.
(ii) On the Effective Date (as defined below) each non-employee member of
the Board of the Corporation shall receive Options to purchase 2,000
shares of Common Stock. Beginning in 1991, on the date after each
annual stockholders meeting of the Corporation each continuing non-
employee member of the Board shall be granted an Option to purchase
1,000 shares of Common Stock and, beginning in 1990, each newly
elected non-employee director shall be granted an Option to purchase
2,000 shares of Common Stock. The Option Price per share of Common
Stock purchasable under such Options shall be equal to the Fair
Market Value of the Common Stock on the date of grant. Such Option
shall remain exercisable until the earlier of ten years from the
date of grant or the termination of any post-directorship
consultancy agreement with the Corporation; PROVIDED, HOWEVER, that
if such consultancy agreement terminates by reason of death or
disability any then outstanding Options may be exercised (x) at any
time before their expiration date or (y), if such termination is by
reason of death, within three years of the date of death, whichever
is earlier. Such Options shall be exercisable one year from the
date of grant by payment in full in cash or in shares of Common
Stock having a Fair Market Value equal to the Option Price or in a
combination of cash and such shares.
(d) The Board may not amend, alter, or discontinue this Section 10 without the
approval of the stockholders of the Corporation.
SECTION 11. CHANGE OF CONTROL.
Notwithstanding anything to the contrary contained herein, and notwithstanding
any contrary waiting period or installment period in any agreement relating to
an Award or in the Plan, each outstanding Option, Stock Appreciation Right and
Limited Right granted under the Plan shall become exercisable in full for the
aggregate number of shares covered thereby, and any restriction or deferral
limitation applicable to any Restricted Stock shall lapse and such shares and
Awards shall be deemed fully vested, in the event of a Change in Control (as
hereinafter defined).
For purposes of this Plan, a Change in Control shall be deemed to have occurred
upon the first to occur of the following events:
(i) any "person," as such term is used in Sections 13(d) and 14(d) of
the Exchange Act (other than the Corporation or any corporation
owned, directly or indirectly, by the stockholders of the
Corporation in substantially the same proportions as their ownership
of stock of the Corporation), is or becomes the "beneficial
8
<PAGE>
owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Corporation representing more
than 40% of the number of the Corporation's then outstanding
securities;
(ii) during any period of two consecutive years, individuals who at the
beginning of such period constitute the Board, and any new director
(other than a director designated by a person who has entered into
an agreement with the Corporation to effect a transaction described
in Subsection 11(i), (iii) or (iv) of this Section 11) whose
election by the Board or nomination for election by the
Corporation's stockholders was approved by a vote of at least two-
thirds (2/3) of the directors then still in office who either were
directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any
reason to constitute at least a majority thereof;
(iii) the stockholders of the Corporation approve a merger or
consolidation of the Corporation with any other corporation, other
than a merger or consolidation which would result in the voting
securities of the Corporation outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or being
converted into voting securities of the surviving entity) more than
60% of the number of outstanding securities of the Corporation or
such surviving entity outstanding immediately after such merger or
consolidation; or
(iv) the stockholders of the Corporation approve a plan of complete
liquidation of the Corporation or an agreement for the sale or
disposition by the Corporation of all or substantially all of the
Corporation's assets.
SECTION 12. GENERAL PROVISIONS.
(a) WITHHOLDING. The Employer shall have the right to deduct from all amounts
paid to a Participant in cash (whether under this Plan or otherwise) any
taxes required by law to be withheld in respect of Awards under this Plan.
In the case of payments of Awards in the form of Common Stock, at the
Committee's discretion the Participant may be required to pay to the
Employer the amount of any taxes required to be withheld with respect to
such Common Stock, or, in lieu thereof, to the extent permitted by
applicable federal and state securities laws, the Employer shall have the
right to retain (or the Participant may be offered the opportunity to elect
to tender) the number of shares of Common Stock whose Fair Market Value
equals the amount required to be withheld. The Optionee shall be entitled
to elect to pay all or a portion of the exercise price for options granted
under this Plan and any withholding taxes in connection with such exercise
by having the shares of Common Stock to be issued by UNUM Corporation
pursuant to such exercise sold by a broker-dealer under circumstances
meeting the requirements of 12 C.F.R. Section 220.
9
<PAGE>
(b) NONTRANSFERABILITY. No Award shall be assignable or transferable, and no
right or interest of any Participant shall be subject to any lien,
obligation or liability of the Participant, except by will or the laws of
descent and distribution.
(c) NO RIGHT TO EMPLOYMENT. No person shall have any claim or right to be
granted an Award, and the grant of an Award shall not be construed as
giving a Participant the right to be retained in the employ of the
Employer. Further, the Employer expressly reserves the right at any time
to dismiss a Participant free from any liability, or any claim under the
Plan, except as provided herein or in any agreement entered into with
respect to an Award.
(d) NO RIGHTS AS STOCKHOLDER. Subject to the provisions of the applicable
Award, no Participant or transferee of an Option shall have any rights as a
stockholder with respect to any shares of Common Stock to be distributed
under the Plan until he or she has become the holder thereof.
Notwithstanding the foregoing, in connection with each grant of Restricted
Stock hereunder, the applicable Award shall specify if and to what extent
the Participant shall not be entitled to the rights of a stockholder in
respect of such Restricted Stock.
(e) CONSTRUCTION OF THE PLAN. The validity, construction, interpretation,
administration and effect of the Plan and of its rules and regulations, and
rights relating to the Plan, shall be determined solely in accordance with
the laws of the State of Delaware.
(f) EFFECTIVE DATE. Subject to the approval of the stockholders of the
Corporation, the Plan shall be effective on February 9, 1990 (the
"Effective Date"). No Options or Awards may be granted under the Plan
after February 9, 2000.
(g) AMENDMENT OF PLAN. The Board may amend, suspend or terminate the Plan or
any portion thereof at any time, provided that no amendment shall be made
without stockholder approval if such approval is necessary to comply with
any tax or regulatory requirement, including for these purposes any
approval requirement which is a prerequisite for exemptive relief under
Section 16(b) of the Exchange Act. Notwithstanding anything to the
contrary contained herein, the Committee may amend the Plan in such manner
as may be necessary so as to have the Plan conform with local rules and
regulations. The Chief Executive Officer shall be authorized to make minor
or administrative modifications to the Plan as well as modification to the
Plan which may be dictated by requirements of federal or state statutes
applicable to the Corporation or authorized or made desirable by such
statutes. No modification or termination of the Plan shall, without the
optionee's consent, alter or impair any of his or her rights or obligations
under any Option, Stock Appreciation Right or Limited Right theretofore
granted to him or her under the Plan.
(h) AMENDMENT OF AWARD. The Committee may amend, modify or terminate any
outstanding Award with the Participant's consent at any time prior to
payment or exercise in any manner not inconsistent with the terms of the
Plan, including without
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limitation, (i) to change the date or dates as of which (A) an Option,
Stock Appreciation Right or Limited Right becomes exercisable; (B)
Restricted Stock becomes nonforfeitable; or (ii) to cancel and reissue an
Award under such different terms and conditions as it determines
appropriate.
(i) HARDSHIP DISTRIBUTIONS. In no event shall any Option granted under this
Plan be exercisable through payment of the Option Price in cash during the
period of one year following a hardship distribution under the UNUM
Employees Retirement Savings Plan and Trust, as defined therein.
(j) ADJUSTMENTS AND ASSUMPTION. In the event of a reorganization,
recapitalization, stock split, stock dividend, combination of shares,
merger, consolidation, distribution of assets, or any other change in the
corporate structure or shares of the Corporation, the Committee shall make
such adjustments as it deems appropriate in the number and kind of shares
authorized by the Plan, in the number and kind of shares covered by the
Awards granted, and in the purchase price of outstanding Options. In the
event of any merger, consolidation or other reorganization in which the
Corporation is not the surviving or continuing corporation, all Awards
granted hereunder and outstanding on the date of such event shall be
assumed by the surviving or continuing corporation with appropriate
adjustment as to the number and kind of shares and purchase price of the
shares.
(k) In addition to the purposes set forth in Section 1, the Committee may grant
Awards to eligible Participants in order to compensate such Participants to
surrender existing rights to receive benefits from the Employer under this
or any other benefit plan or arrangement.
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UNUM CORPORATION
1996 LONG-TERM STOCK INCENTIVE PLAN
SECTION 1. PURPOSE.
The purpose of the UNUM Corporation 1996 Long-Term Stock Incentive Plan (the
"Plan") is to promote the interests of UNUM Corporation and its stockholders by
(i) attracting and retaining executive officers and other key employees of
outstanding ability; (ii) motivating such individuals, by means of performance-
related incentives, to achieve longer-range performance goals; and (iii)
enabling such individuals to participate in the long-term growth and financial
success of UNUM Corporation.
SECTION 2. DEFINITIONS.
"Affiliate" shall mean any corporation or other entity which is not a Subsidiary
but as to which the Corporation possesses a direct or indirect ownership
interest and has representation on the board of directors or any similar
governing body.
"Award" shall mean a grant or award under Sections 6 through 10, inclusive, of
the Plan, as evidenced in a written document delivered to a Participant.
"Board" shall mean the Board of Directors of the Corporation.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time to
time.
"Committee" shall mean the Compensation Committee of the Board, or, to the
extent necessary to satisfy the requirements of Section 162(m) of the Code, a
subcommittee thereof.
"Common Stock" or "Stock" shall mean the common stock, $.10 par value, of the
Corporation.
"Corporation" shall mean UNUM Corporation.
"Employee" shall mean any employee of the Employer.
"Employer" shall mean the Corporation and any Subsidiary or Affiliate.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from
time to time.
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-2-
"Fair Market Value" shall mean the average of the highest and lowest sales
prices reported for consolidated trading of the Stock on the New York Stock
Exchange on the date in question, or, if the Stock shall not have been traded on
such date, the average of such highest and lowest sales prices on the first day
prior thereto on which the Stock was so traded.
"Fiscal Year" shall mean the fiscal year of the Corporation.
"Incentive Stock Option" shall mean a stock option granted under Section 6 which
is intended to meet the requirements of Section 422 of the Code.
"Limited Right" shall mean a limited stock appreciation right granted under
Section 8.
"Non-Qualified Stock Option" shall mean a stock option granted under Section 6
which is not intended to be an Incentive Stock Option.
"Option" shall mean an Incentive Stock Option or a Non-Qualified Stock Option.
"Participant" shall mean an Employee who is selected by the Committee to receive
an Award under the Plan.
"Performance Measures" shall mean the criteria and objectives, established by
the Committee, which shall be satisfied as a condition to the receipt of shares
by a Participant under a Restricted Stock Award, or to the payment or receipt of
shares or cash under a Performance Share Award. With respect to any Restricted
Stock or Performance Share Award which the Committee designates as being
intended to satisfy the requirements of Section 162(m) of the Code and the
regulations thereunder, such criteria and objectives shall be based on one or
more of the following: the market price of a share of the Common Stock;
earnings per share, return to stockholders (including dividends), return on
equity, earnings of the Corporation on a GAAP or statutory accounting basis,
revenues, market share, cash flow or cost reduction goals, underwriting margin,
or any combination of the foregoing. Such criteria and objectives may be
expressed on either an absolute basis or relative to the performance of a peer
group selected by the Committee. In the case of any Restricted Stock or
Performance Share Award which the Committee does not designate as being intended
to satisfy the requirements of Section 162(m) of the Code and the regulations
thereunder, such criteria and objectives, if any, may include one or more of the
criteria and objectives referred to above or such other criteria and objectives
as the Committee may determine.
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"Performance Period" shall mean a period designated by the Committee during
which the Performance Measures applicable to a Performance Share Award shall be
measured.
"Performance Share" shall mean a right, granted to a Participant under Section
10 of this Plan, contingent upon the attainment of specified Performance
Measures within a specified Performance Period, to receive one share of Common
Stock, which may be Restricted Stock, or in lieu thereof, the Fair Market Value
of such Performance Share in cash.
"Restricted Stock" shall mean shares of Common Stock contingently granted to a
Participant under Section 9 of this Plan.
"Restriction Period" shall mean a period designated by the Committee during
which the Performance Measures and other conditions applicable to a Restricted
Stock Award or Performance Share Award shall be measured.
"Stock Appreciation Right" shall mean an Award granted under Section 7 of the
Plan.
"Subsidiary" shall mean any business entity in which the Corporation possesses
directly or indirectly fifty percent (50%) or more of the total combined voting
power.
"Voting Securities" shall mean securities which are entitled to cast votes as to
general corporate matters, including the election of directors.
SECTION 3. ADMINISTRATION.
The Committee shall have full power to interpret and administer the Plan and
full authority to select the individuals to whom Awards will be granted and to
determine the type and amount of Award(s) to be granted to each Participant, the
terms and conditions of Awards granted under the Plan and the terms and
conditions of the agreements which will be entered into with Participants.
The Committee shall have the authority to adopt, alter and repeal such rules,
guidelines and practices governing the Plan as it shall, from time to time, deem
advisable; to interpret the terms and provisions of the Plan and any Award
issued under the Plan (and any agreements relating thereto); to direct employees
of the Corporation and its subsidiaries or other advisors to prepare such
materials or perform such analysis as the Committee deems necessary or
appropriate; and otherwise to supervise the administration of the Plan. The
Committee may delegate such of its responsibilities set forth above to members
of the Corporation's management as the Committee may determine, with regard to
the grant, amendment, interpretation and administration of Awards to
Participants who are not subject to Sections 16(a) and 16(b) of the Exchange
Act, and except with respect
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to Awards which are designed to satisfy the requirements of Section 162(m) of
the Code and the regulations thereunder.
Any interpretation and action under this Plan by the Committee, or members of
the Corporation's management acting under authority delegated by the Committee,
shall be final, binding and conclusive on the Corporation, its stockholders,
Subsidiaries, Affiliates, all Participants, their respective legal
representatives, successors and assigns and upon all persons claiming under or
through any of them. Neither any member of the Board of Directors or of the
Committee nor any member of the Corporation's management acting under authority
delegated by the Committee shall incur any liability for any action taken or
omitted, or any determination made, in good faith in connection with the Plan.
SECTION 4. ELIGIBILITY.
Participation in the Plan shall be limited to those key employees of the
Corporation and any Subsidiary and Affiliate selected at the sole discretion of
the Committee.
SECTION 5. MAXIMUM AMOUNT AVAILABLE FOR AWARDS.
Subject to adjustment as provided in Section 12(j), the maximum number of shares
of Stock in respect of which Awards may be made under the Plan shall be a total
of 3,500,000 shares of Common Stock, provided that during any single calendar
year (i) Options shall not be granted to any individual Participant to purchase
more than 200,000 shares of the Common Stock, and (ii) the sum of all shares of
Restricted Stock plus all Performance Shares granted to any individual
Participant shall not exceed 100,000. Common Stock may be made available from
the authorized but unissued shares of the Corporation or from shares reacquired
by the Corporation, including shares purchased in the open market. In the event
that (i) an Option, or Stock Appreciation Right, or Limited Right expires,
terminates, or is canceled, surrendered or exchanged unexercised as to any
shares of Common Stock covered thereby, or (ii) any other Award in respect of
shares is forfeited for any reason under the Plan, such shares shall thereafter
be again available for award pursuant to the Plan.
SECTION 6. STOCK OPTIONS.
(a) GRANT. The Committee may, in its discretion, grant Options to such
eligible Participants as it may select. The Committee shall determine
the number of shares to be covered by each Option, the Option Price, as
defined below, therefor
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and the conditions and limitations applicable to the exercise of the
Option. The Committee shall have the authority to grant Incentive Stock
Options, or to grant Non-Qualified Stock Options, or to grant both types of
Options. In the case of Incentive Stock Options, the terms and conditions
of such grants shall be subject to and comply with such rules as may be
prescribed by Section 422 of the Code and any regulations implementing
Section 422.
(b) OPTION PRICE. The Committee shall establish the exercise price of the
Option (the "Option Price") at the time each Option is granted, which
Option Price shall not be less than 100% of the Fair Market Value of the
Common Stock on the date of grant.
(c) EXERCISE.
(1) Each Option shall be exercisable at such times and subject to such
terms and conditions as the Committee may, in its sole discretion,
specify in the applicable Award or thereafter; provided, however, that
in no event may any Option granted hereunder be exercisable after the
expiration of ten years from the date of grant. The Committee may
impose such conditions with respect to the exercise of Options,
including without limitation, any relating to the application of
federal or state securities laws, as it may deem necessary or
advisable.
(2) No shares shall be delivered pursuant to any exercise of an Option
until payment in full of the Option Price therefor is received by the
Corporation. Such payment may be made in cash, or its equivalent, or,
subject to such rules and guidelines as the Committee may establish,
by exchanging shares of Common Stock owned by the optionee (which are
not the subject of any pledge or other security interest), or by a
combination of the foregoing, provided that the combined value of all
cash and cash equivalents and the Fair Market Value of any such Common
Stock so tendered to the Corporation, valued as of the date of such
tender, is at least equal to such Option Price.
(d) TERMINATION OF EMPLOYMENT.
(1) If a Participant ceases to be an Employee other than by reason of
death, retirement or permanent disability, any then outstanding
Options may be exercised at any time before their expiration date or
within three months after the date of termination, whichever is
earlier, but only (unless otherwise determined by the Committee) to
the extent that such Options were exercisable when employment ceased,
and to the extent not so exercisable, the Option shall terminate on
the date employment ceases; provided,
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however, that if a Participant is terminated for cause the Committee
may determine that no Option may be exercised at any time after the
termination date.
(2) If a Participant's employment terminates because of death or permanent
disability, all then outstanding Options previously granted to the
Participant will become exercisable. In the case of death of the
Participant, such Options may be exercised at any time before their
expiration date or within three years after the date of termination,
whichever is earlier. In the case of permanent disability, such
Options may be exercised at any time before their expiration date.
(3) If a Participant's employment terminates because of retirement, any
then outstanding Options may be exercised at any time before their
expiration date or within five years after the date of termination,
whichever is earlier, but only (unless otherwise determined by the
Committee) to the extent that such Options were exercisable when
employment ceased, and to the extent not so exercisable, the Option
shall terminate on the date employment ceases.
SECTION 7. STOCK APPRECIATION RIGHTS.
(a) The Committee shall have the authority to grant Stock Appreciation Rights
in tandem with the grant of an Option or freestanding and unrelated to an
Option. Stock Appreciation Rights granted in tandem with an Option may be
granted either at or after the time of the grant of such Option.
Stock Appreciation Rights or any applicable portion thereof granted in
tandem with a given Option shall only be exercisable to the extent that the
related Option is exercisable and shall terminate and no longer be
exercisable upon the expiration, termination, or cancellation of the
related Option.
The exercise of an Option shall result in an immediate forfeiture of any
Stock Appreciation Right granted in tandem with that Option, and the
exercise of such Stock Appreciation Right shall cause an immediate
forfeiture of its related Option. Stock Appreciation Rights shall not be
exercisable after the expiration of ten years from date of grant. A Stock
Appreciation Right granted in tandem with an Option may be exercised by an
optionee, in accordance with this Section 7, by surrendering the applicable
portion of the related Option. Upon such exercise and surrender, the
optionee shall be entitled to receive an amount determined in the manner
prescribed in this Section 7.
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(b) A Stock Appreciation Right shall entitle the Participant to receive from
the Corporation an amount equal to the excess of the Fair Market Value of a
share of Common Stock on the date of the exercise of the Stock Appreciation
Right over the grant price thereof, provided that the Committee may for
administrative convenience determine that, for any Stock Appreciation Right
which is not related to an Incentive Stock Option and can only be exercised
during limited periods of time in order to satisfy the conditions of
certain rules of the Securities and Exchange Commission, the exercise of
any such Stock Appreciation Right for cash during such limited period shall
be deemed to occur for all purposes hereunder on the day during such
limited period on which the Fair Market Value of the Stock is the highest.
Any such determination by the Committee may be changed by the Committee
from time to time and may govern the exercise of Stock Appreciation Rights
granted prior to such determination as well as Stock Appreciation Rights
thereafter granted. The Committee shall determine whether Stock
Appreciation Rights shall be settled in cash, shares of Common Stock or a
combination of cash and shares of Common Stock.
SECTION 8. LIMITED RIGHTS.
(a) The Committee shall have the authority to grant Limited Rights in tandem
with the grant of an Option or freestanding and unrelated to an Option.
Limited Rights granted in tandem with an Option may be granted either at or
after the time of the grant of such Option.
Limited Rights or any applicable portion thereof granted in tandem with a
given Option shall terminate and no longer be exercisable upon the
expiration, termination or cancellation of the related Option. The
exercise of an Option shall result in an immediate forfeiture of any
Limited Right granted in tandem with that Option, and the exercise of such
Limited Right shall cause an immediate forfeiture of its related Option.
A Limited Right granted in tandem with an Option may be exercised by an
optionee, in accordance with this Section 8, by surrendering the applicable
portion of the related Option. Upon such exercise and surrender, the
optionee shall be entitled to receive an amount determined in the manner
prescribed in this Section 8.
(b) Limited Rights shall only be exercisable during the 30 day period following
a Change in Control as defined in Section 11 and shall not be exercisable
after the expiration of ten years from the date of grant.
(c) Upon the exercise of a Limited Right, an optionee shall be entitled to
receive from the Corporation an amount in cash equal in value to the excess
of (i) the higher of
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(A) the highest price per share paid in connection with the Change in
Control or (B) the highest Fair Market Value per share as reported in the
Wall Street Journal at any time during the 60 day period preceding the
Change in Control over (ii) in the case of a Limited Right granted in
tandem with an Option, the Option Price per share specified in the related
Option and in the case of all other Limited Rights, the price per share
established in the grant of the Limited Right (which shall not be less than
the Fair Market Value of a share of Common Stock on the date of grant),
such excess to be multiplied by the number of shares in respect of which
the Limited Right shall have been exercised; provided, however, that upon
the exercise of a Limited Right granted in tandem with an Incentive Stock
Option, the amount set forth in clause (i) shall not exceed the Fair Market
Value of a share on the date of exercise of the Limited Right.
(d) Limited Rights shall be subject to such other terms and conditions, not
inconsistent with the provisions of the Plan, as shall be determined from
time to time by the Committee. This Section 8 shall be interpreted in
accordance and consistent with the principles set forth in Rule 16b-3 of
the Exchange Act.
SECTION 9. RESTRICTED STOCK.
(a) GRANT. The Committee may, in its discretion, grant shares of Restricted
Stock to such eligible Participants as it may select. The Committee shall
determine the number of shares of Restricted Stock to be granted to each
Participant, whether or not the Restricted Stock Award is designed to
satisfy the requirements of Section 162(m) of the Code and the regulations
thereunder, the duration of the Restriction Period ( if any) during which,
and the conditions under which, the Restricted Stock may be forfeited to
the Corporation, and the other terms and conditions of such Awards. The
Committee may condition the vesting of shares of Restricted Stock on
Performance Measures to be attained by the Corporation and/or the
Participant over a stated Performance Period.
(b) ASSIGNABILITY. Shares of Restricted Stock may not be sold, assigned,
transferred, pledged or otherwise encumbered, except as herein provided,
during the Restriction Period.
(c) DIVIDENDS. The Committee shall determine whether dividends payable on
shares of Restricted Stock shall be paid to the Participant during the
Restriction Period or held in a suspense account for payment (with or
without interest) to the Participant only in the event of the vesting of
the underlying shares of Restricted Stock.
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(d) TERMINATION OF EMPLOYMENT. Subject to Section 11 of this Plan, all of the
provisions governing the satisfaction of Performance Measures and the
termination of the Restriction Period relating to a Restricted Stock Award,
or any cancellation or forfeiture of shares of Restricted Stock upon
termination of employment of the Participant, whether by reason of death,
permanent disability, retirement, or otherwise, shall be set forth in the
Agreement relating to such Restricted Stock Award, or in guidelines
established by the Committee and made applicable to such Restricted Stock
Award.
SECTION 10. PERFORMANCE SHARE AWARDS
(a) GRANT. The Committee may, in its discretion, grant Performance Share
Awards to such eligible Participants as it may select. The Committee shall
determine the number of Performance Shares to be granted to each
Participant, whether or not the Performance Share Award is designed to
satisfy the requirements of Section 162(m) of the Code and the regulations
thereunder, the Performance Measures and Performance Period applicable to
each grant, and any other terms and conditions relating to each grant, not
inconsistent with the terms of this Plan, as the Committee shall deem
advisable.
(b) SETTLEMENT. The Agreement relating to a Performance Share Award (i) shall
specify whether such award may be settled in shares of Common Stock
(including shares of Restricted Stock) or cash or a combination thereof;
and (ii) may specify whether the holder thereof shall be entitled to
receive, on a current or deferred basis, dividend equivalents, and if
determined by the Committee, interest on any deferred dividend equivalents
with respect to the number of shares of Common Stock subject to such Award.
Prior to the settlement of a Performance Share Award in shares of Common
Stock, including Restricted Stock, the holders of such award shall have no
rights as a stockholder of the Corporation with respect to the shares of
Common Stock subject to such Award.
(c) TERMINATION OF EMPLOYMENT. Subject to Section 11 of this Plan, all of the
terms relating the satisfaction of Performance Measures and the termination
of the Performance Period relating to a Performance Share Award, or any
cancellation or forfeiture of such Performance Share Award upon a
termination of employment, whether by reason of death, disability,
retirement, or otherwise, shall be set forth in the Agreement relating to
such Performance Share Award, or in guidelines established by the Committee
and made applicable to such Performance Share Award.
SECTION 11. CHANGE OF CONTROL.
<PAGE>
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Notwithstanding anything to the contrary contained herein, and notwithstanding
any contrary waiting period or installment period in any agreement relating to
an Award or in the Plan, in the event of a Change in Control (as hereinafter
defined), (i) each outstanding Option, Stock Appreciation Right and Limited
Right granted under the Plan shall become exercisable in full for the aggregate
number of shares covered thereby; (ii) any Performance Measure relating to any
Restricted Stock or Performance Share Award (including any Restricted Stock
already granted or to be granted in satisfaction of a Performance Share Award)
shall be deemed to be satisfied at the maximum level; and (iii) any Restriction
Period and/or Performance Period relating to any Restricted Stock or Performance
Share Award (including any Restricted Stock already granted or to be granted in
satisfaction of a Performance Share Award) shall lapse (and any other conditions
pertaining to the vesting of any such Award shall be waived) and such shares and
Awards shall be deemed fully vested.
For purposes of this Plan, a Change in Control shall be deemed to have occurred
upon the first to occur of the following events:
(i) any "person," as such term is used in Sections 13(d) and 14(d) of
the Exchange Act (other than the Corporation, a trustee or other
fiduciary holding Voting Securities under an employee benefit plan
of the Corporation, or any corporation owned, directly or
indirectly, by the stockholders of the Corporation in substantially
the same proportions as their ownership of stock of the
Corporation), is or becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Corporation representing more than 40% of the
number of the Corporation's then outstanding Voting Securities,
excluding any "person" who becomes such a beneficial owner in
connection with an Excluded Transaction described in clause (iii)
below;
(ii) the following individuals cease for any reason to constitute a
majority of the directors then serving: individuals who on January
1, 1996, constitute the Board, and any new director (other than a
director whose initial assumption of office is in connection with an
actual or threatened election contest, including but not limited to
a consent solicitation, relating to the election of directors of the
Corporation) whose appointment or election by the Board or
nomination for election by the Corporation's stockholders was
approved by a vote of at least two-thirds (2/3) of the directors
then still in office who either were directors on January 1, 1996 or
whose appointment or election or nomination for election was
previously so approved;
(iii) there is consummated a merger or consolidation of the Corporation
(or any direct or indirect wholly-owned Subsidiary of the
Corporation) with any other
<PAGE>
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corporation, other than a merger or consolidation which would result
in the Voting Securities of the Corporation outstanding immediately
prior thereto continuing to represent (either by remaining
outstanding or being converted into voting securities of the
surviving entity or any parent thereof) more than 60% of the
combined voting power of the Voting Securities of the Corporation
(or the voting securities of such surviving entity or any parent
thereof) outstanding immediately after such merger or consolidation
(an Excluded Transaction"); or
(iv) the stockholders of the Corporation approve a plan of complete
liquidation of the Corporation or there is consummated an agreement
for the sale or disposition by the Corporation of all or
substantially all of the Corporation's assets.
SECTION 12. GENERAL PROVISIONS.
(a) WITHHOLDING. The Employer shall have the right to deduct from all amounts
paid to a Participant in cash (whether under this Plan or otherwise) any
taxes required by law to be withheld in respect of Awards under this Plan.
In the case of payments of Awards in the form of Common Stock, at the
Committee's discretion the Participant may be required to pay to the
Employer the amount of any taxes required to be withheld with respect to
such Common Stock, or, in lieu thereof, to the extent permitted by
applicable federal and state securities laws, the Employer shall have the
right to retain (or the Participant may be offered the opportunity to elect
to tender) the number of shares of Common Stock whose Fair Market Value
equals the amount required to be withheld. The Optionee shall be entitled
to elect to pay all or a portion of the exercise price for options granted
under this Plan and any withholding taxes in connection with such exercise
by having the shares of Common Stock to be issued by the Corporation
pursuant to such exercise sold by a broker-dealer under circumstances
meeting the requirements of 12 C.F.R. Section 220.
(b) NONTRANSFERABILITY. Unless so provided in the Agreement with respect to
such Award, no Award shall be assignable or transferable, and no right or
interest of any Participant shall be subject to any lien, obligation or
liability of the Participant, except by will or the laws of descent and
distribution.
(c) NO RIGHT TO EMPLOYMENT. No person shall have any claim or right to be
granted an Award, and the grant of an Award shall not be construed as
giving a Participant the right to be retained in the employ of the
Employer. Further, the Employer expressly reserves the right at any time
to dismiss a Participant free from any
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liability, or any claim under the Plan, except as provided herein or in any
agreement entered into with respect to an Award.
(d) NO RIGHTS AS STOCKHOLDER. Subject to the provisions of the applicable
Award, no Participant or transferee of an Option shall have any rights as a
stockholder with respect to any shares of Common Stock to be distributed
under the Plan until he or she has become the holder thereof.
Notwithstanding the foregoing, in connection with each grant of Restricted
Stock hereunder, the applicable Award shall specify if and to what extent
the Participant shall not be entitled to the rights of a stockholder in
respect of such Restricted Stock.
(e) CONSTRUCTION OF THE PLAN. The validity, construction, interpretation,
administration and effect of the Plan and of its rules and regulations, and
rights relating to the Plan, shall be determined solely in accordance with
the laws of the State of Delaware.
(f) EFFECTIVE DATE. Subject to the approval of the stockholders of the
Corporation, the Plan shall be effective on March 8, 1996 (the "Effective
Date"). No Options or Awards may be granted under the Plan after March 7,
2006.
(g) AMENDMENT OF PLAN. The Board may amend, suspend or terminate the Plan or
any portion thereof at any time. The Chief Executive Officer shall be
authorized to make minor or administrative modifications to the Plan as
well as modifications to the Plan which may be dictated by requirements of
federal or state statutes applicable to the Corporation or authorized or
made desirable by such statutes. No modification or termination of the
Plan shall, without the optionee's consent, alter or impair any of his or
her rights or obligations under any Award theretofore granted to him or her
under the Plan.
(h) AMENDMENT OF AWARD. The Committee may amend, modify or terminate any
outstanding Award with the Participant's consent at any time prior to
payment or exercise in any manner not inconsistent with the terms of the
Plan, including without limitation, (i) to change the date or dates as of
which (A) an Option, Stock Appreciation Right or Limited Right becomes
exercisable, or (B) shares of Restricted Stock or Performance Share Awards
become nonforfeitable; or (ii) to cancel and reissue an Award under such
different terms and conditions as it determines appropriate.
(i) HARDSHIP DISTRIBUTIONS. In no event shall any Option granted under this
Plan be exercisable through payment of the Option Price in cash during the
period of one year following a hardship distribution under the UNUM
Employees Retirement Savings Plan and Trust, as defined therein.
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(j) ADJUSTMENTS AND ASSUMPTION. In the event of a reorganization,
recapitalization, stock split, stock dividend, combination of shares,
merger, consolidation, distribution of assets, or any other change in the
corporate structure or shares of the Corporation, the Committee shall make
such adjustments as it deems appropriate in the number and kind of shares
authorized by the Plan, in the number and kind of shares or Performance
Shares covered by the Awards granted, in the maximum number of Options,
Restricted Stock and Performance Shares which may be granted to any
individual Participant in a single calendar year, and in the purchase price
of outstanding Options. In the event of any merger, consolidation or other
reorganization in which the Corporation is not the surviving or continuing
corporation, unless otherwise provided for in the documents governing such
merger, consolidation or other reorganization, all Awards granted hereunder
and outstanding on the date of such event shall be assumed by the surviving
or continuing corporation with appropriate adjustment as to the number and
kind of shares and purchase price of the shares.
<PAGE>
EXHIBIT 10.9
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, made and entered into as of the 30th day of
July, 1992, by and among UNUM CORPORATION, a corporation incorporated and
existing under the laws of the State of Delaware ("UNUM"), DUNCANSON & HOLT,
INC., a corporation incorporated and existing under the laws of the State of New
York ("Employer"), and Thomas G. Brown, an individual residing in the State of
New York ("Employee");
WITNESSETH:
WHEREAS, Employee has heretofore been a stockholder, director, officer
and employee of Employer; and
WHEREAS, pursuant to a Stock Purchase Agreement dated May 8, 1992 to
which UNUM and Employee, among others, are parties (the "Purchase Agreement"),
UNUM has purchased all of the issued and outstanding shares of all classes of
capital stock of Employer; and
WHEREAS, pursuant to the Purchase Agreement and as a condition to the
Closing thereunder, Employee is to be employed by Employer upon the terms and
conditions hereinafter set forth and, by virtue of such employment, Employee
will render services and make other contributions of a valuable and unique
nature to Employer; and
WHEREAS, Employee's prior position of responsibility with Employer has
given him, and his position with Employer hereafter will give him, access to and
familiarity with the confidential information, trade secrets and proprietary
business methods of Employer and UNUM including but not limited to one or more
of the following: operating techniques, marketing programs, administrative
organization, specific computer software technology, customer relationships and
relationships with Pool Participants of Employer, the Pools and UNUM (as those
terms are hereinafter defined); and
WHEREAS, Employer and UNUM would be irreparably injured, and the
goodwill of Employer and UNUM would be irreparably damaged, if Employee were to
disclose (otherwise than as permitted by this Employment Agreement) any of the
trade secrets, confidential information and proprietary business methods of
Employer and UNUM which Employee has acquired and will acquire in his position
of responsibility with Employer, or if Employee were to solicit Pool
Participants or customers of Employer or UNUM Pool Participants in competition
with the business of Employer or UNUM or if Employee were otherwise to impair
the goodwill of Employer or UNUM; and
WHEREAS, Employer desires to employ Employee and Employee desires to
accept employment with Employer under the terms and conditions hereinafter set
forth;
1
<PAGE>
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the mutual receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. DUTIES OF EMPLOYEE. Employer hereby employs Employee as the
Chairman, President and Chief Executive Officer of Employer. Employee will
perform the duties of such offices and such other duties for Employer as
directed from time to time by the Board of Directors of Employer (the "Board"),
including, without limitation, participation in the evaluation of Employer's
services and in the planning and evaluation of future products and services and
market opportunities. The precise duties of Employee may be extended or
curtailed by the Board; provided, that: (a) such duties as changed shall be
commensurate with the position recited above in which Employee serves under this
Agreement and for senior vice presidents of UNUM Life Insurance Company of
America and (b) Employee shall have no obligation or duty to relocate his
place of employment outside the greater New York metropolitan area. UNUM agrees
to vote to elect Employee to serve on the Board during the term of this
Agreement.
2. PERFORMANCE OF DUTIES. Employee hereby accepts such employment
and agrees with Employer that: (a) he will undertake and perform the stated
duties in accordance with the supervision and direction of the Board and subject
to the performance standards mutually agreed upon by Employee and the Board at
the beginning of each year; (b) he will diligently and faithfully devote all
of his business time, attention, knowledge, experience and skills and his best
efforts to the performance of all such duties and to the business activities of
Employer and, if requested, UNUM, and (c) he will not engage in any other
occupation, employment or business activity, whether or not for gain, profit or
other pecuniary advantage, without the express written consent of the Board;
provided, however, that this provision shall not be construed to prevent
Employee from investing his assets in any enterprise in such form or manner as
does not violate any other provision of this Agreement and will not require the
rendering of any substantial services by Employee.
Employee agrees that this Employment Agreement supersedes all prior
employment agreements, arrangements or understandings with Employer, all of
which are hereby terminated, and Employee hereby releases any and all claims,
causes of actions, rights or privileges of any kind or nature whatsoever under
or arising out of all such agreements, arrangements or understandings. Employee
represents and warrants to Employer that he is free to accept employment with
Employer as contemplated herein and that he has no prior or other obligations or
commitments of any kind to anyone which would in any way conflict, hinder or
interfere with his acceptance of, or the full performance of, his obligations
hereunder.
Employee agrees to serve as a Director of Employer when elected.
3. COMPENSATION.
(a) BASE SALARY. In consideration of the covenants of
Employee hereunder, during the term of this Agreement, Employee shall be paid
Three Hundred Thousand Dollars ($300,000.00) per year, payable in equal
installments over
2
<PAGE>
twenty-six (26) regular pay periods ("Base Salary"). After March 31, 1994,
Employee's Base Salary may be increased (but not decreased) by the Board based
upon Employee's annual salary review in accordance with UNUM's general policies.
(b) EMPLOYEE BENEFITS. As additional compensation during the
term of this Agreement, Employee will receive the employee benefits which
Employer provides for its officers generally. In addition, Employee shall have
the use of a company car and driver reasonably satisfactory to Employee, and the
choice of travel and accommodation arrangements for business travel.
(c) BONUS COMPENSATION. In addition to the foregoing, Employee
shall be entitled to participate in the following in accordance with the
respective terms thereof: (i) Employer's Underwriting Management Incentive
Plan, (ii) Employer's Pool/Retrocession Participation Incentive Plan, and
(iii) a specially designed annual incentive plan (AIP) having the principal
features outlined on Schedule 1 attached hereto. Employee shall also receive
for the term hereof 2% of annual profit commissions earned by Employer in each
fiscal year (based on the audited annual financial statements for such year used
for purposes of awards made under the Underwriting Management Incentive Plan),
and shall be eligible for UNUM's senior management long-term incentive plans,
including the stock option and restricted stock plans at the next grant date.
(d) COMPENSATION FOR EMPLOYEE COVENANTS. As additional
consideration for Employee's covenants contained in Section 5 below, and in
addition to the compensation payable under Sections 3 (a), (b) and (c) above,
Employee shall be paid Two Hundred Thousand Dollars ($200,000.00) at the end of
each calendar quarter over the term of this Agreement.
(e) INCOME TAX WITHHOLDING AND REPORTING. All compensation
payable hereunder shall be subject to withholding for appropriate items,
including Federal, State and local income taxes, FICA, FUTA, voluntary
contribution and other payroll deductions. All salary, bonuses and other
compensation payable hereunder and deductible by Employer and all non-
competition payments made to Employee by Employer shall be reported as ordinary
income for Federal income tax purposes.
(f) JOINT AND SEVERAL LIABILITY. UNUM and Employer shall be
jointly and severally liable for amounts to be paid Employee under this
Agreement.
4. TERM OF AGREEMENT; TERMINATION. This Agreement shall continue in
full force and effect until the fifth anniversary of the date hereof unless
terminated earlier as follows:
(a) BREACH BY EMPLOYER; TERMINATION WITHOUT CAUSE. Employee
may, upon sixty (60) days prior written notice to Employer, terminate this
Agreement in the event Employer materially breaches or defaults under any of the
terms or conditions of this Agreement (and such breach or default, if reasonable
conducive to being cured, is not
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cured within thirty (30) days after receipt of notice of breach from Employee).
Employer may at any time terminate Employee without cause.
(b) EMPLOYEE'S REMEDIES. Upon termination of this Agreement by
Employee or Employer pursuant to Subsection 4(a): (i) Employee's obligations
under Section 1 and 2 shall cease; (ii) Employer's obligation to provide to
Employee the compensation set forth in Section 3(a) shall continue through the
fifth anniversary of the date hereof as if Employee continued as an employee
hereunder and no such termination occurred; (iii) Employer's obligation to
provide to Employee the compensation set forth in Section 3(c) shall cease;
(iv) Employer shall pay Employee $750,000 at the end of each year for the
remaining term of this Agreement, except that, in the year in which any such
termination occurs, such payment shall be reduced by any bonus compensation
already paid under Section 3(c) for that year; (v) Employee shall continue to
receive the employee benefits referred to in Section 3(b) to the extent
permitted under the terms and conditions of the applicable plans; and (iv)
Employer shall continue to pay Employee the payments set forth in Section 3(d),
and Employee shall continue to be bound by the covenants set forth in Section
5(c), through the fifth anniversary of the date hereof plus two years.
(c) BREACH BY EMPLOYEE; VOLUNTARY TERMINATION BY EMPLOYEE.
Employer or UNUM may, upon sixty (60) days prior written notice to Employee,
terminate this Agreement in whole or in part in the event Employee: (i)
knowingly and materially breaches or defaults under any of the material
representations, warranties, terms and conditions of the Purchase Agreement or
any Ancillary Agreement (as defined in the Purchase Agreement) to which Employee
is a party (and such breach or default, if reasonably conducive to being cured,
is not cured within thirty (30) days after receipt of notice of breach from
Employer); (ii) knowingly and materially breaches or defaults under any of the
representations, warranties, terms or conditions of this Agreement (and such
breach or default, if reasonably conductive to being cured, is not cured within
thirty (30) days after receipt of notice of breach from Employer) including,
without limitation, the material failure of Employee to perform the duties and
obligations under Section 1 of this Agreement in accordance with the performance
standards described in Section 2 hereof (determined after giving due
consideration to historical performance of Employee); (iii) violates the
reasonable directions of the Board (and such violation, if reasonably conducive
to being cured, is not cured within thirty (30) days after receipt of notice of
the violation from Employer); (iv) is convicted of a felony under Federal,
State or local laws; or (v) conducts himself in a manner which materially
harms or causes material injury to the reputation or goodwill of Employer or
UNUM or both. Employee may voluntarily terminate his employment under this
Agreement at any time.
(d) EMPLOYER'S REMEDIES. Upon termination of this Agreement by
Employer for Employee's breach pursuant to clauses (i) through (v) of Subsection
4(c), Employer's obligations to provide to Employee the compensation and other
benefits set forth in Section 3(a), (b), (c) and (d) shall cease immediately
upon such termination; provided, that: (i) Employer may continue to make the
payments set forth in Section 3(d)
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above at Employer's option for any period of time, and, in such event, Employee
shall remain obligated to perform the covenants under Section 5(c) for the
length of such period plus two years; and (ii) in the event Employer elects
not to continue such payments, Employee shall remain bound to perform the
covenants under Section 5(c) for a period of two years following termination.
In the event Employee voluntarily terminates his employment, the same conditions
as stated above shall apply; except that, in the event Employee voluntarily
terminates his employment prior to the second anniversary of this Agreement,
Employer's obligation to make payments under Section 3(d) shall immediately
cease and Employer may stop making such payments (in which event Employee shall
continue to remain obligated under Section 5(c) for two years) or Employer may
continue to make payments set forth in Section 3(d) above at Employer's option
for any period of time and, in such event Employee shall remain obligated under
Section 5(c) for the length of such period plus two years; and, in the event
Employee voluntarily terminates his employment on a date after the second
anniversary of this Agreement, Employee shall continue to receive payments under
Section 3(d) for the balance of the term of this Agreement, and shall continue
to be bound by his obligations under Section 5(c) through the fifth anniversary
of this Agreement plus two years.
(e) DEATH OF EMPLOYEE. This Agreement shall terminate
immediately upon the death of Employee. If this Agreement is terminated because
Employee dies, Employee's estate will continue to receive the compensation set
forth in Section 3(a) of this Agreement until the final day of the month in
which his death occurs, and Section 3(c) and 3(b) of this Agreement, to the
extent provided under the terms and conditions of the applicable plans.
(f) SURVIVAL OF OBLIGATIONS. It is expressly understood and
agreed that termination of this Agreement in whole or in part shall not deprive
the parties hereto of any rights nor release them of any obligations which under
the terms and provisions of this Agreement are to survive such termination,
including, by way of example and not limitation, the rights and obligations of
Employee set forth in Section 5 of this Agreement.
5. COVENANTS OF EMPLOYEE. In consideration of the covenants of
Employer set forth herein, particularly, the compensation terms as set forth in
Section 3, Employee hereby covenants, represents and warrants that:
(a) ACKNOWLEDGEMENT. He has read carefully all of the terms and
provisions of this Section 5, given careful consideration to the restrictions
imposed upon him hereby and agrees that the same are reasonable with respect to
the subject matter thereof and are necessary for the reasonable and proper
protection of the confidential information, legitimate business interests and
goodwill of Employer and UNUM. He acknowledges that Employer and UNUM have
agreed to enter into this Agreement, in part, in reliance on the
representations, agreements, and covenants of Employee to abide by and be bound
by such terms and provisions of Section 5 of this Agreement. All references to
UNUM or Employer, as the case may be, in this Agreement shall mean and
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<PAGE>
include each direct and indirect subsidiary thereof (other than Employer and its
direct or indirect subsidiaries in the case of a reference to UNUM).
(b) DISCLOSURE OF CONFIDENTIAL INFORMATION.
(i) Employee acknowledges that the nature of the business
of Employer and UNUM is such that information, data, "know-how," plans, studies,
procedures and processes of the kinds described in this Section 5(b)
("Confidential Information") are sufficiently secret to derive economic value,
actual or potential, from not being generally known to other persons who can
obtain economic value from disclosure or use thereof, and are therefore of a
confidential and proprietary nature, and that each of the categories set forth
in Section 5(b) (ii) and 5(b) (iii), separately as well as collectively, contain
in whole or in part information considered by UNUM and Employer to be trade
secrets. Accordingly, Employee agrees that, subject to the exceptions set forth
below, he shall not for the period specified, directly or indirectly, reveal,
divulge, publish or otherwise make known to any other person, firm, association,
corporation, partnership or other legal entity (a "Third Party") and shall not
use or permit any Third Party within his control, authority or under his
supervision to use any Confidential Information, whether of a technical or
commercial nature: (A) unless specifically authorized to do so in writing by
the Board with respect to Employer or by duly authorized action of an executive
officer of UNUM with respect to UNUM, (B) unless the specific item of
Confidential Information becomes generally available to the public without
violation of this Agreement or any other confidentiality agreement among
Employee, Employer or UNUM or any other confidentiality agreement to which
Employee is a party, (C) unless such disclosure is compelled by law, in which
event Employee agrees to give UNUM immediate written notice of any disclosure to
be made pursuant to this Subsection (C), and Employee shall, at Employer's
expense, cooperate fully with Employer to obtain protective orders, confidential
treatment or other such protective action as may be available to preserve the
confidentiality of the information required to be disclosed, or (D) unless and
to the extent that disclosure of any such Confidential Information is (I)
necessary and appropriate in connection with the submission of bids by Employer
in the ordinary course of business or (II) required pursuant to Employer's
marketing efforts directed at specific clients or prospective clients, offers to
allow inspection of its systems or services to potential clients or licensees of
Employer or the provisions of services to existing clients in the ordinary
course of business.
(ii) Employee agrees that he shall be obligated under
Section 5(b) (i) for the term of this Agreement with Company plus three (3)
years with respect to any of the following types of information: pricing,
underwriting, actuarial analyses, claims criteria, operating procedures,
techniques, systems and methods employed by Employer or any Pool, general
information relating to past, present and prospective participants in the
reinsurance pools and reinsurers of such pools of the Employer and its
subsidiaries ("Pool Participants"), ceding insurance company clients of Employer
and its subsidiaries or, customers or treaty holders of Employer or UNUM,
general information concerning employees of Employer and UNUM, other commercial
"know-how" relating to the
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business of Employer and UNUM, record keeping techniques, current expansion
plans, general overviews of contemplated products or services and generally,
without limiting the foregoing, any information not available to the public
generally and pertaining to the business or financial operations of Employer and
UNUM, as now or hereafter conducted.
(iii) Employee agrees that the Board, with respect to
Employer, or duly authorized executive officer of UNUM, with respect to UNUM,
shall have the right, in the reasonable exercise of its or his discretion, to
designate information or data as Confidential Information.
(iv) Employee further agrees not to copy, reproduce,
record, make facsimiles, duplicate in any fashion, abstract, summarize, remove,
use, keep or otherwise improperly deal in or with any papers, records, reports,
books, manuals, electronic media or written or recorded information of any kind,
or any other property of any kind owned or used in Employer's or UNUM's
business, transferred to Employer or UNUM or hereafter owned or used by Employer
or UNUM, except as required in furtherance of the business of Employer or UNUM
or as may be expressly permitted in writing by the Board with respect to
Employer or by duly authorized action of an executive officer of UNUM with
respect to UNUM. Employee shall surrender all such materials to Employer or
UNUM immediately upon the request of Employer or UNUM.
(c) COVENANT NOT TO COMPETE. Employee agrees that, unless
otherwise authorized in writing by the Board with respect to Employer, or by
duly authorized action of an executive officer of UNUM with respect to UNUM, he
will not, during the term of this Agreement plus two (2) years from the date of
the termination thereof (regardless of the reason for such termination):
(i) engage, either directly or indirectly, as an officer,
director, employee, agent, consultant, shareholder, owner, partner or principal,
or in any other capacity, in a business venture (the "Venture") which competes
directly or indirectly with UNUM or Employer in the business described below in
Subsection 5(e) within the United States, Canada, the United Kingdom, Malaysia,
Japan, and any other country in which Employer or UNUM then conducts such
business or has made material preparations to conduct such business;
(ii) in any manner solicit, induce or attempt to induce, or
assist others to solicit, induce or attempt to induce, any Pool Participant,
customer, client, purchaser, supplier, employee, agent, representative or other
person associated with the Company at such time or, in the case of any Pool
Participant or customer, in the prior year, to terminate its, his or her
association with UNUM or Employer, or in any other manner, directly or
indirectly, interfere with any relationship between UNUM or Employer and any
such person; or
(iii) hire or attempt to hire, either directly or
indirectly, any individual employed by UNUM or Employer during their employment
or for a period of
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six (6) months (or, in the case of members of the Executive Committee of
Employer at the date hereof, one year) following said employee's cessation of
such employment.
(d) Nothing in this Section 5 shall prohibit Employee from being
a passive owner in the aggregate of not more than five per cent (5%) of the
outstanding stock of any class of a corporation which is publicly traded,
provided that Employee does not actively participate in any capacity or in any
manner in the business or affairs of such corporation.
(e) The business subject to this Section 5 shall be the business
of Employer as conducted by Employer during the term of this Agreement and any
business of UNUM of a substantially similar nature or related to the business of
the Employer and shall include, but not be limited to the following activities.
(i) The underwriting, offering, marketing and/or selling of
reinsurance products and services; and the management of reinsurance and
retrocession pools, including without limitation pools operating in the accident
and health, kidnap and ransom, contingency, London Market excess and other
accident and health reinsurance and retrocession business. For purpose of this
subsection, "accident and health reinsurance" includes but is not limited to the
following types of reinsurance: special risk, disability, medical and long term
care;
(ii) any activities for which Employer provides or has
provided services to UNUM; and
(iii) any activities with respect to which Employee
possesses Confidential Information obtained from UNUM.
This Section 5 shall apply with respect to the business as conducted
by Employer with any Pool Participant, any customer of UNUM, Employer, or any
Pool or any other entity or persons with which Employee has done business on
behalf of Employer or UNUM.
(f) INVENTIONS, DISCOVERIES, IDEAS.
Employee agrees to promptly disclose in writing to Employer
(and to no one else) all improvements, discoveries, ideas, developments,
designs, techniques, methods and inventions (hereinafter referred to as
"Inventions") made or conceived alone or in conjunction with others while in the
employment of Employer, if resulting from or related to such employment (whether
or not copyrightable or patentable, whether or not made or conceived at the
request of Employer during or out of usual hours of work or in or about the
premises of Employer or elsewhere, and whether made or conceived prior or
subsequent to the execution of this Agreement). Any and all such Inventions
shall be the sole and exclusive property of Employer and are hereby assigned to
Employer, its successors and assigns, including any and all copyright or patent
rights
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inherent therein. At the request of Employer and at Employer's cost, Employee
will assist Employer, or any person or persons from time to time designated by
Employer, in preparing and prosecuting applications for letters patent of the
United States and such foreign countries as Employer may select or for copyright
protection in Employer's name or to take such other action as is deemed
necessary to vest, perfect, or maintain in Employer all right, title and
interest in and to such Inventions, or to defend the same, in the United States
or in such other country or countries as may be designated by Employer. In
connection therewith, Employee agrees to execute such applications, statements
or other documents, furnish such information and data and take all such other
action (including, but not limited to, the giving of testimony) as Employer may
from time to time reasonably request at Employer's sole expense.
(g) REMEDIES FOR BREACH.
(i) Employee agrees and acknowledges that money damages may
not be an adequate remedy for his breach of any of the provisions of Subsection
(b), (c), or (f) of this Section 5; therefore, in the event of the breach by
Employee of any of the provisions of Subsection (b), (c) or (f) of this Section,
Employer or UNUM, or either of them, in addition and supplementary to other
rights and remedies existing in their favor, may apply to any court of competent
jurisdiction at law or equity, for specific performance or injunctive relief or
both or other equitable relief in order to enforce or prevent any violations of
the provisions hereof.
(ii) If, at the time of enforcement of this Agreement, a
court shall hold that the duration, scope or area restrictions stated herein are
unreasonable under circumstances then existing, the parties agree that the
maximum duration, scope or area reasonable under such circumstances shall be
substituted for the stated duration, scope or area. Whenever possible, each
provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law.
6. NO LIMITATION OR WAIVER OF RIGHTS. Each right, power or
privilege of any party hereto specified or referred to in this Agreement is in
addition to, and not a limitation of, any other rights, powers and privileges
that such party may otherwise have or acquire by operation of law, by contract
or otherwise. No course of dealing on the part of, nor any omission or delay
by, such party with respect to the exercise of any right, power or privilege
shall operate as a waiver of any other right, power or privilege, and such party
may exercise each such right, power or privilege either independently or
concurrently with the others, as often and in such order as such party desires.
7. OTHER AGREEMENTS. The parties hereto understand and agree
that this Agreement is conditioned upon the Closing under the Purchase
Agreement, and that if the closing under the Purchase Agreement shall not occur,
none of the parties hereunder shall have any obligation to any other party
hereto and this Agreement shall have no force or effect.
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8. MODIFICATION. No term or provision hereof may be changed,
modified, terminated or discharged, in whole or in part, except by a writing
which is dated and signed by all parties hereto. No waiver of any of the
provisions or conditions of this Agreement or of any of the rights, powers or
privileges of a party hereto shall be effective or binding unless in writing and
signed by the party claimed to have given or consented to such waiver.
9. INVALIDITY OF TERMS. it is mutually understood and agreed
that, except for Sections 1 and 2 of this Agreement, all agreements and
covenants contained herein are severable and that, in the event or to the extent
any of them, with the exception of said Sections 1 and 2, shall be held to be
invalid in whole or in part by any competent court, this Agreement shall be
interpreted as if such invalid agreements or covenants, or portions thereof,
were not contained herein.
10. BINDING EFFECT OF PROVISIONS; ASSIGNMENT. The terms and
provisions of this Agreement shall be binding on and inure to the benefit of
Employee, his heirs at law, legatees, executors, administrators and other legal
representatives, transferees, successors and permitted assigns and shall be
binding on and inure to the benefit of Employer and UNUM, their respective
subsidiaries and affiliates, and their respective successors and assigns.
Employee may not assign, pledge or encumber in any way all or any part of his
interest under this Agreement without the prior written consent of Employer.
This Agreement shall not be assignable by Employer other than to UNUM or a UNUM
affiliate without Employee's prior written consent. If Employee gives such
consent, the assignee shall assume all Employer's obligations hereunder, but
such assignment shall not relieve UNUM of any of its obligations under Section
3(f).
11. APPLICABLE LAW. This Agreement shall be construed in all
respect in accordance with and shall be governed by the laws of the State of New
York (without giving effect to the principles of conflict of laws thereof).
12. COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
13. CAPTIONS. The captions in this Agreement are for
convenience only and shall not be considered a part of, or effect the
construction or interpretation of any provision of, this Agreement.
14. SERVICE OF NOTICES. Any notice, instrument or communication
required or permitted under this Agreement shall be deemed to have been
effectively given and made if in writing and if served either by personal
delivery to the party for whom it is intended, or by being deposited, postage
prepaid, registered or certified mail, return receipt requested, in the United
States mail, addressed to the party for whom it is intended at the address shown
on this Agreement, or at such other address as may be hereafter from
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time to time submitted in writing by any party to the other party or parties in
accordance with Section 8 hereof.
If to Employee:
Thomas G. Brown
One Hillview Court
Peekskill, New York 10566
With a copy to:
Richards Spears Kibbe & Orbe
140 Broadway, 21st Floor
New York, New York 10005
Attn: William Q. Orbe, Esquire
If to Employer or to UNUM:
UNUM Corporation - Legal Division
2211 Congress Street
Portland, Maine 04122
Attn: Dale J. Denno, Esquire
With a copy to:
Bryan Cave
700 Thirteenth Street, N.W.
Suite 700
Washington, D.C. 20005
Attn: Thomas F. Dowd, Esquire
15. Notwithstanding any provision of this Agreement to the
contrary, Employee is authorized and permitted (and such shall not constitute a
violation of any provision of this Agreement) to be a director of the Preferred
Life Insurance Company of New York and of Trafalgar Underwriting of London, and
to be a director and officer of, and hold an ownership interest in, Rochdale
Insurance Company and its parent, and Legend Insurance Company and its parent,
and to conduct all business as heretofore conducted by such entities and such
business as contemplated by the Ancillary Agreements (including the
Participation Agreements); provided, that Employee shall not devote any business
time to the business and affairs of those entities.
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IN WITNESS WHEREOF, Employee has executed this Agreement and Employer
and UNUM have caused this Agreement to be executed by their respective duly
authorized representative as of the date and year first above written.
In the presence of: EMPLOYEE:
/s/ Kevin P. Walker /s/ Thomas G. Brown
- ----------------------------- -----------------------------------
Thomas G. Brown
Duncanson & Holt, Inc.
/s/ Thomas G. Brown By: /s/ Kevin P. Walker
- ----------------------------- -----------------------------------
Kevin P. Walker
Chief Financial Officer,
Treasurer and Secretary
UNUM CORPORATION
/s/ Joan Sarles Lee By: /s/ W. Francis Brennan
- ----------------------------- -----------------------------------
W. Francis Brennan
Executive Vice President
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SCHEDULE 1
TO
EMPLOYMENT AGREEMENT
Employee shall be eligible to participate in UNUM's Annual Incentive
Plan (AIP) program according to the terms thereof, subject to the following
specific terms and modifications:
1. Awards to Employee under the AIP will depend on the achievement
by UNUM Corporation of specified, targeted financial results as
measured by Net Earnings Per Share, and on the criteria set forth
in Paragraph 4 below. The term "Net Earnings Per Share" is
defined, for any fiscal year of UNUM, as the income of UNUM
Corporation for such fiscal year (as shown on UNUM's audited
financial statements at the end of such fiscal year), after
taking into account realized capital gains and losses, divided by
the average number of issued and outstanding shares of UNUM
Corporation as of the end of such fiscal year.
2. The financial targets, for purposes of determining awards to
Employee under AIP, will be set annually by the UNUM Board, and
will include:
(a) a "Minimum Threshold" for Net Earnings Per Share, below
which no award will be made to Employee under the AIP;
(b) a "Target threshold" for Net Earnings Per Share, the
achievement of which will permit the Board to award Employee
20% of Employee's actual base salary earnings for the plan
year under the AIP;
(c) a "Maximum Threshold" for Net Earnings Per Share, the
achievement of which will permit the Board to award Employee
up to 40% of Employee's actual base salary earnings for the
plan year under the AIP.
For 1992, these financial targets are as follows:
Threshold Net Earnings Per Share
--------- ----------------------
Minimum $3.00
Target $3.32
Maximum $3.70
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3. The amount awarded in any year may range from 0 to 40% of
Employee's actual base salary earnings, depending on the above
criteria and those set forth in Paragraph 4 below. Employee's
maximum award under the AIP in any year shall be 40% of actual
base salary earnings.
4. The amount of any award to Employee under the AIP shall be
determined by, in addition to the achievement of the financial
targets set forth above, a qualitative assessment of the
performance of both UNUM and Employee over the relevant fiscal
year. For 1992, this assessment will include consideration of
Employee's support of vision and values, affirmative action
efforts, corporate marketing strategy, teamwork and
collaboration.
5. All awards under the AIP are subject to UNUM Board approval.
6. Employee must be actively working for Employer at the time any
award is made under the AIP.
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EXHIBIT 10.10
EMPLOYMENT LETTER TO ROBERT W. CRISPIN
EXECUTIVE VICE PRESIDENT, UNUM CORPORATION
TOTAL COMPENSATION PLAN
A. BASE ANNUAL SALARY COMPENSATION RATE: $500,000
To be effective first day of active employment in 1995 through annual
review cycle of March 1996. Any recommendation for increase would be based
on demonstrated performance in position and be part of our regular salary
review process.
B. ANNUAL INCENTIVE:
1. OFFICER ANNUAL INCENTIVE COMPENSATION PLAN:
1995 Participation...(Payout March 1996). Currently, the targeted
award is 50% of base salary. The plan is designed to provide a range
of opportunity based on performance generally from 50% to 200% of
target (25% to 100% of base salary). The plan payout would be based
upon the attainment of Corporate Goals. AS PART OF YOUR HIRING
AGREEMENT WE WILL GUARANTEE A PAYMENT OF $250,000, payable in February
of 1996. If Company performance would warrant a higher payment you
will receive the payment called for under the terms of the plan.
Starting in 1996 you will participate in the Annual Incentive Plan
that may apply to executives at your level.
2. ANNUAL RESTRICTED STOCK GRANT: 1990 LONG TERM STOCK INCENTIVE PLAN
During each annual cycle (typically March of each year) you will
participate in this program. For the March 1995 cycle only, AS PART
OF YOUR HIRING AGREEMENT, YOU WILL BE AWARDED A RESTRICTED STOCK GRANT
VALUED AT $250,000 which will result in a minimum grant of 7,000
shares of restricted stock. This grant will be vested on a time lapse
(rather than performance) basis with restrictions lapsing in March of
1998. Starting in 1996 you will participate in the restricted stock
program (or any successor plan) that may apply to executives at your
level.
Currently the restricted stock program is a (3) year performance plan,
with restrictions lapsing contingent upon attainment of established
ROE targets for the three year period. For example: the grant which
will occur in 1995 for other executives will vest in 1998, contingent
upon the attainment of an average annual ROE target for the three year
period of 1995-1997. The target is approved by the Board of Directors
immediately prior to the grant. You should also be aware that the
shares are issued in your name and you will receive all dividends
during the vesting period.
<PAGE>
C. LONG TERM INCENTIVE: UNUM CORPORATION EXECUTIVE STOCK OPTION PLAN
During each annual cycle,(March of each year) you will be awarded stock
options (actual number is contingent upon stock price at the time and a
Black Scholes evaluation). YOUR FIRST GRANT UNDER THIS PLAN WILL AT LEAST
15,000 SHARES These options currently have a life of ten years, and vest
after one year, subject to the terms of the plan. In future years you will
participate in this plan as other executives at your level.
D. SEVERANCE:
Absent a change of control of UNUM Corporation, if you terminate from UNUM
for any reason other than resignation or cause during your first five years
of employment, you will receive a severance payment equivalent to two years
base salary, and UNUM's standard executive out placement support. After
five years, if you terminate for any reason other than resignation or
cause, you will receive the standard severance package in effect at the
time. Restricted stock in your name and stock options, as well as other
employee benefits, will be governed by the terms of the applicable plan or
program.
E. CHANGE IN CONTROL:
In the event of a change of control of UNUM Corporation, if within two
years thereafter your employment is terminated without cause or if you
leave for "good reason", you would receive a severance payment equal to
three years salary plus incentive, plus a lump sum payment equal to the
present value of three years extra credit under your retirement plan. In
addition you would continue to be provided for three years with life,
disability, and accident & health benefits, except to the extent that
equivalent benefits are provided by a subsequent employer. In addition,
all unvested stock options and restricted stock in your name will
immediately vest.
F. PENSION:
For the first ten years of employment with UNUM, you will receive two years
credit for each year of employment. A portion of this benefit will be
covered under a non-qualified plan. Please be aware, however, that in
order to have any vested benefit, you must be employed at UNUM for five
years.
G. FINANCIAL PLANNING:
You will be provided the services of a Financial Counselor (currently the
Colony Group) or reimbursement to procure the services of a Counselor of
your choosing ($5,300 for 1995, and $3,500/year thereafter, plus
$2,500/year reimbursement for related items (will preparation, tax returns,
etc.).
<PAGE>
SPECIAL HIRING CONSIDERATIONS
A. HIRING BONUS: $660,000
This amount is payable as follows:
- $220,000 to be paid on first day of active employment;
- $220,000 to be paid on anniversary date of active employment during
1996 and 1997.
B. STOCK OPTIONS:
On your first day of active employment, you will receive a grant of 40,000
stock options. These options will vest over a (4) year period as follows:
- 25% on your first anniversary date;
- 25% at each of your next three anniversaries,
if you are employed by UNUM on these dates.
C. TIME LAPSE RESTRICTED STOCK GRANT:
On the first day of employment you will be granted a grant of 8,000 shares
of time lapse restricted stock. These shares carry a four year cliff
vesting provision making them fully vested on the fourth anniversary from
the date of grant. Dividends are paid currently.
D. FORFEITURE PROVISIONS:
If you are separated by the Company for any reason other than resignation,
cause (defined as willful refusal to perform duties, unlawful acts to
enrich yourself at the Company's expense, material violation of your duties
to the Company, or gross misconduct), or performance (defined as a
substantial and documented failure to perform or to make a good faith
effort to correct any performance issues), during the first five years of
employment, any unvested portion of this package will vest or be paid.
E. RELOCATION:
UNUM will purchase your Connecticut home at market appraised value and will
provide you with up to $200,000 protection on loss on sale of your home.
Please be aware that purchase by UNUM must occur within the first twelve
months of employment.
In addition to our regular relocation policy, as requested, UNUM will
transport your Corvette and will pay for extra insurance needed to cover
the value of your antiques and other valuables. Louise Delafield, manager
of our relocation package will work with you to ensure proper coverage.
F. OTHER
UNUM will provide appropriate temporary housing until your new residence is
closed in the Portland area (up to nine months).
UNUM will provide for weekly trips home utilizing commercial carrier or
company plane (based upon availability).
<PAGE>
STANDARD UNUM BENEFIT PROGRAMS
You have already received information on UNUM's benefits package, however if you
have any further questions please feel free to contact Eileen or me.
I have enclosed UNUM's Conflict of Interest Policy. Your acceptance of
employment with UNUM Corporation will constitute your agreement to abide by the
terms of this policy. Also included are copies of UNUM's Officer agreement and
a personal statement regarding Conflict of Interest.
Please sign and return these along with a signed copy of this agreement.
Please sign below to indicate your acceptance of these terms.
/s/ James F. Orr III December 8, 1994
- ---------------------------------------------------------------------
James F. Orr, III Date
/s/ Robert W. Crispin December 19, 1994
- ---------------------------------------------------------------------
Robert Crispin Date
<PAGE>
- --------------------------------------------------------------------------------
EXHIBIT 10.12
AMENDED AND RESTATED
ASSET TRANSFER AND ACQUISITION AGREEMENT
By and Between
UNUM LIFE INSURANCE COMPANY OF AMERICA
and
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
Dated as of January 24, 1996
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
PAGE
----
ARTICLE I
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.01. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Accrued Liabilities . . . . . . . . . . . . . . . . . . . . . 4
Administrative Services Agreement . . . . . . . . . . . . . . 4
Affected Employees. . . . . . . . . . . . . . . . . . . . . . 4
Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Ancillary Agreements. . . . . . . . . . . . . . . . . . . . . 4
Annual Rate . . . . . . . . . . . . . . . . . . . . . . . . . 4
Antitrust Division. . . . . . . . . . . . . . . . . . . . . . 4
Asserted Liability. . . . . . . . . . . . . . . . . . . . . . 4
Assignable Licensed Principally Used Software . . . . . . . . 5
Assigned and Assumed Contracts. . . . . . . . . . . . . . . . 5
Assumption Reinsurance Agreements . . . . . . . . . . . . . . 5
Band 1 Employees. . . . . . . . . . . . . . . . . . . . . . . 5
Band 2 Employees. . . . . . . . . . . . . . . . . . . . . . . 5
Baseline Balance Sheet. . . . . . . . . . . . . . . . . . . . 5
Baseline Customer Asset Value . . . . . . . . . . . . . . . . 5
Baseline Purchase Price . . . . . . . . . . . . . . . . . . . 5
Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . 5
Benefits Affected Employee. . . . . . . . . . . . . . . . . . 5
Benefits Information Schedule . . . . . . . . . . . . . . . . 5
Bill of Sale. . . . . . . . . . . . . . . . . . . . . . . . . 5
Books and Records . . . . . . . . . . . . . . . . . . . . . . 5
Business. . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Business Day. . . . . . . . . . . . . . . . . . . . . . . . . 6
Cash Equivalents. . . . . . . . . . . . . . . . . . . . . . . 6
Claims Notice . . . . . . . . . . . . . . . . . . . . . . . . 6
Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Closing Balance Sheet . . . . . . . . . . . . . . . . . . . . 7
Closing Date. . . . . . . . . . . . . . . . . . . . . . . . . 7
COBRA . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Code. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Coinsurance and Assumption Agreement. . . . . . . . . . . . . 7
Combined Business . . . . . . . . . . . . . . . . . . . . . . 7
Commission. . . . . . . . . . . . . . . . . . . . . . . . . . 7
Contract Employees. . . . . . . . . . . . . . . . . . . . . . 7
Contractholder. . . . . . . . . . . . . . . . . . . . . . . . 7
Contractholder Affiliate. . . . . . . . . . . . . . . . . . . 7
-i-
<PAGE>
TABLE OF CONTENTS (CONT'D)
PAGE
----
Core Insurance Contracts. . . . . . . . . . . . . . . . . . . 7
Custodian . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Custodian Agreement . . . . . . . . . . . . . . . . . . . . . 8
Customer Asset Value. . . . . . . . . . . . . . . . . . . . . 8
Effective Date. . . . . . . . . . . . . . . . . . . . . . . . 9
Employer Claim. . . . . . . . . . . . . . . . . . . . . . . . 9
ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Executive Officer . . . . . . . . . . . . . . . . . . . . . . 9
Extra Contractual Obligations . . . . . . . . . . . . . . . . 9
FAS 87. . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
FAS 106 . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Final Balance Sheet . . . . . . . . . . . . . . . . . . . . . 10
Final Customer Asset Value. . . . . . . . . . . . . . . . . . 10
Final Purchase Price. . . . . . . . . . . . . . . . . . . . . 10
First UNUM. . . . . . . . . . . . . . . . . . . . . . . . . . 10
401(a) Contract . . . . . . . . . . . . . . . . . . . . . . . 10
403(b) Contract . . . . . . . . . . . . . . . . . . . . . . . 10
403(b) Contractholder . . . . . . . . . . . . . . . . . . . . 10
FTC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
GAAP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
General Account Reserves. . . . . . . . . . . . . . . . . . . 11
General Assignment Agreements . . . . . . . . . . . . . . . . 11
HSR Act . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Indemnified Party . . . . . . . . . . . . . . . . . . . . . . 11
Indemnifying Party. . . . . . . . . . . . . . . . . . . . . . 11
Indemnity Reinsurance Agreements. . . . . . . . . . . . . . . 11
Insurance Contracts . . . . . . . . . . . . . . . . . . . . . 11
Insurance Liabilities . . . . . . . . . . . . . . . . . . . . 12
Interim Purchaser Financial Statements. . . . . . . . . . . . 12
IRS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
knowledge . . . . . . . . . . . . . . . . . . . . . . . . . . 12
License Agreements. . . . . . . . . . . . . . . . . . . . . . 12
Licensed Generally Used Software. . . . . . . . . . . . . . . 13
Licensed Principally Used Software. . . . . . . . . . . . . . 13
Losses. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Maine SAP . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Maine Severance Pay Law . . . . . . . . . . . . . . . . . . . 13
Material Adverse Effect . . . . . . . . . . . . . . . . . . . 14
1940 Act. . . . . . . . . . . . . . . . . . . . . . . . . . . 14
NAIC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
-ii-
<PAGE>
TABLE OF CONTENTS (CONT'D)
PAGE
----
90-Day Treasury Rate. . . . . . . . . . . . . . . . . . . . . 14
Newco . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Newco Assumption Reinsurance Agreement. . . . . . . . . . . . 14
Newco Indemnity Reinsurance Agreement . . . . . . . . . . . . 14
Newco Separate Accounts . . . . . . . . . . . . . . . . . . . 15
Newco Trust Agreement . . . . . . . . . . . . . . . . . . . . 15
Non-Compete Period. . . . . . . . . . . . . . . . . . . . . . 15
Owned Generally Used Software . . . . . . . . . . . . . . . . 15
Owned Principally Used Software . . . . . . . . . . . . . . . 15
Participant . . . . . . . . . . . . . . . . . . . . . . . . . 15
Pension Plans . . . . . . . . . . . . . . . . . . . . . . . . 15
Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Person. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Preliminary Purchase Price. . . . . . . . . . . . . . . . . . 16
Pre-Paid Items and Receivables. . . . . . . . . . . . . . . . 16
premiums. . . . . . . . . . . . . . . . . . . . . . . . . . . 16
previously disclosed. . . . . . . . . . . . . . . . . . . . . 16
Proposed Balance Sheet. . . . . . . . . . . . . . . . . . . . 16
Purchase Price Percentage . . . . . . . . . . . . . . . . . . 16
Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Purchaser Assumption Reinsurance Agreement. . . . . . . . . . 16
Purchaser Financial Statements. . . . . . . . . . . . . . . . 16
Purchaser Indemnity Reinsurance Agreement . . . . . . . . . . 17
Purchaser Separate Accounts . . . . . . . . . . . . . . . . . 17
Purchaser Trust Agreement . . . . . . . . . . . . . . . . . . 17
Purchaser's Defined Benefit Plan. . . . . . . . . . . . . . . 17
Purchaser's 401(k) Plan . . . . . . . . . . . . . . . . . . . 17
Purchaser's Plan. . . . . . . . . . . . . . . . . . . . . . . 17
Purchaser's Retiree Welfare Plans . . . . . . . . . . . . . . 17
Purchaser's SERPs . . . . . . . . . . . . . . . . . . . . . . 17
related to" or "arising in connection with. . . . . . . . . . 17
Retention Bonus . . . . . . . . . . . . . . . . . . . . . . . 17
Securities Act. . . . . . . . . . . . . . . . . . . . . . . . 17
Seller. . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Seller Custodian Account. . . . . . . . . . . . . . . . . . . 18
Seller Custodian Agreement. . . . . . . . . . . . . . . . . . 18
Seller Custodian. . . . . . . . . . . . . . . . . . . . . . . 18
Seller Separate Account . . . . . . . . . . . . . . . . . . . 18
Seller's Defined Benefit Plan . . . . . . . . . . . . . . . . 18
Seller's 401(k) Plan. . . . . . . . . . . . . . . . . . . . . 18
-iii-
<PAGE>
TABLE OF CONTENTS (CONT'D)
PAGE
----
Seller's SERP . . . . . . . . . . . . . . . . . . . . . . . . 18
Seller's Employee Welfare Plan. . . . . . . . . . . . . . . . 18
Separate Account Liabilities. . . . . . . . . . . . . . . . . 18
Settlement Notice . . . . . . . . . . . . . . . . . . . . . . 18
Shared Cost Period. . . . . . . . . . . . . . . . . . . . . . 18
Significant Brokers . . . . . . . . . . . . . . . . . . . . . 19
Subsidiary. . . . . . . . . . . . . . . . . . . . . . . . . . 19
Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Third Party Accountant. . . . . . . . . . . . . . . . . . . . 19
Third Party Claimant. . . . . . . . . . . . . . . . . . . . . 19
Transferred Assets. . . . . . . . . . . . . . . . . . . . . . 19
Transferred Contract. . . . . . . . . . . . . . . . . . . . . 20
Transition Services Agreement . . . . . . . . . . . . . . . . 20
Trust Accounts. . . . . . . . . . . . . . . . . . . . . . . . 20
Trust Agreements. . . . . . . . . . . . . . . . . . . . . . . 20
Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
WARN Act. . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Welfare Plans . . . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE II
TRANSFER AND ACQUISITION OF ASSETS. . . . . . . . . . . . . . 20
2.01. Cash Consideration . . . . . . . . . . . . . . . . . . . . . 20
2.02. Acquisition of Transferred Assets and
Assumption of Assumed Liabilities . . . . . . . . . . . . . . 20
2.03. Place and Date of Closing; Balance Sheets. . . . . . . . . . 22
2.04. Post-Closing Adjustments . . . . . . . . . . . . . . . . . . 26
2.05. Closing Items. . . . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER. . . . . . . . . . . 30
3.01. Organization, Standing and Authority of Seller . . . . . . . 30
3.02. Authorization. . . . . . . . . . . . . . . . . . . . . . . . 30
3.03. Actions and Proceedings. . . . . . . . . . . . . . . . . . . 31
3.04. No Conflict or Violation . . . . . . . . . . . . . . . . . . 31
3.05. Consents and Approvals . . . . . . . . . . . . . . . . . . . 32
3.06. Computer Software. . . . . . . . . . . . . . . . . . . . . . 32
3.07. Brokerage and Financial Advisers . . . . . . . . . . . . . . 35
3.08. Compliance with Laws . . . . . . . . . . . . . . . . . . . . 35
3.09. Permits, Licenses and Franchises . . . . . . . . . . . . . . 35
3.10. Annuity Business . . . . . . . . . . . . . . . . . . . . . . 36
-iv-
<PAGE>
TABLE OF CONTENTS (CONT'D)
PAGE
----
3.11. Regulatory Filings . . . . . . . . . . . . . . . . . . . . . 41
3.12. Brokers. . . . . . . . . . . . . . . . . . . . . . . . . . . 42
3.13. Reinsurance. . . . . . . . . . . . . . . . . . . . . . . . . 43
3.14. Banking Arrangements . . . . . . . . . . . . . . . . . . . . 43
3.15. Absence of Certain Changes or Events . . . . . . . . . . . . 43
3.16. Other Sale Arrangement . . . . . . . . . . . . . . . . . . . 44
3.17. Seller Separate Account. . . . . . . . . . . . . . . . . . . 44
3.18. Assigned and Assumed Contracts . . . . . . . . . . . . . . . 45
3.19. Employees. . . . . . . . . . . . . . . . . . . . . . . . . . 45
3.20. Employee Benefit Plans; ERISA. . . . . . . . . . . . . . . . 46
3.21. Labor Relations and Employment . . . . . . . . . . . . . . . 48
3.22. Transferred Assets . . . . . . . . . . . . . . . . . . . . . 49
3.23. Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . 49
3.24. Statutory Statements . . . . . . . . . . . . . . . . . . . . 50
3.25. Tax Matters. . . . . . . . . . . . . . . . . . . . . . . . . 51
3.26. Financial Statement Data . . . . . . . . . . . . . . . . . . 51
3.27. Transition Services Agreement. . . . . . . . . . . . . . . . 52
3.28. Crediting Rate . . . . . . . . . . . . . . . . . . . . . . . 52
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER . . . . . . . . . 52
4.01. Organization and Standing. . . . . . . . . . . . . . . . . . 52
4.02. Authorization. . . . . . . . . . . . . . . . . . . . . . . . 53
4.03. Actions and Proceedings. . . . . . . . . . . . . . . . . . . 53
4.04. No Conflict or Violation . . . . . . . . . . . . . . . . . . 54
4.05. Consents and Approvals . . . . . . . . . . . . . . . . . . . 55
4.06. Brokerage and Financial Advisers . . . . . . . . . . . . . . 55
4.07. Compliance with Laws . . . . . . . . . . . . . . . . . . . . 55
4.08. Permits, Licenses and Franchises . . . . . . . . . . . . . . 56
4.09. GAAP Financial Statements. . . . . . . . . . . . . . . . . . 56
4.10. Statutory Statements . . . . . . . . . . . . . . . . . . . . 57
4.11. Absence of Certain Changes or Events . . . . . . . . . . . . 58
4.12. Relations with Investment Companies. . . . . . . . . . . . . 58
-v-
<PAGE>
TABLE OF CONTENTS (CONT'D)
PAGE
----
ARTICLE V
COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . 59
5.01. Conduct of Business. . . . . . . . . . . . . . . . . . . . . 59
5.02. Certain Transactions . . . . . . . . . . . . . . . . . . . . 59
5.03. Investigations . . . . . . . . . . . . . . . . . . . . . . . 60
5.04. Continued Access . . . . . . . . . . . . . . . . . . . . . . 60
5.05. HSR Act Filings. . . . . . . . . . . . . . . . . . . . . . . 61
5.06. Consents and Reasonable Efforts. . . . . . . . . . . . . . . 62
5.07. Representations and Warranties . . . . . . . . . . . . . . . 63
5.08. Further Assurances . . . . . . . . . . . . . . . . . . . . . 64
5.09. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 64
5.10. Assumption Reinsurance Agreements. . . . . . . . . . . . . . 65
5.11. Indemnity Reinsurance Agreements . . . . . . . . . . . . . . 65
5.12. Administrative Services Agreement. . . . . . . . . . . . . . 65
5.13. Transition Services Agreement. . . . . . . . . . . . . . . . 66
5.14. Bill of Sale . . . . . . . . . . . . . . . . . . . . . . . . 66
5.15. Trust Agreements . . . . . . . . . . . . . . . . . . . . . . 66
5.16(a). General Assignment Agreement. . . . . . . . . . . . . . . 66
5.16(b). Custodian Agreement . . . . . . . . . . . . . . . . . . . 66
5.17. Coinsurance and Assumption Agreement . . . . . . . . . . . . 66
5.18. Products . . . . . . . . . . . . . . . . . . . . . . . . . . 67
5.19. Employees; Severance Payments. . . . . . . . . . . . . . . . 68
5.20. Employee Benefits. . . . . . . . . . . . . . . . . . . . . . 76
5.21. Allocation of Final Purchase Price . . . . . . . . . . . . . 97
5.22. Newco. . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
5.23. Broker/Dealer Transition . . . . . . . . . . . . . . . . . . 98
5.24. Other Agreements . . . . . . . . . . . . . . . . . . . . . . 99
5.25. Bank Accounts and Lockboxes. . . . . . . . . . . . . . . . . 99
5.26. Computer Systems . . . . . . . . . . . . . . . . . . . . . . 100
5.27. Computer Software. . . . . . . . . . . . . . . . . . . . . . 100
5.28. Contract Administration. . . . . . . . . . . . . . . . . . . 101
5.29. Credit for Reinsurance . . . . . . . . . . . . . . . . . . . 102
5.30. Custodian Account. . . . . . . . . . . . . . . . . . . . . . 103
ARTICLE VI
CONDITIONS PRECEDENT TO THE OBLIGATION
OF PURCHASER TO CLOSE . . . . . . . . . . . . . . . . . . . . . . 104
6.01. Representations and Covenants. . . . . . . . . . . . . . . . 104
6.02. Other Agreements . . . . . . . . . . . . . . . . . . . . . . 105
6.03. Governmental and Regulatory Consents and Approvals . . . . . 106
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<PAGE>
TABLE OF CONTENTS (CONT'D)
PAGE
----
6.04. Third Party Consents . . . . . . . . . . . . . . . . . . . . 106
6.05. Participation Agreements . . . . . . . . . . . . . . . . . . 106
6.06. Possession of Assets; Instruments of Conveyance. . . . . . . 106
6.07. Opinion of Counsel to Seller . . . . . . . . . . . . . . . . 107
6.08. Injunction . . . . . . . . . . . . . . . . . . . . . . . . . 107
6.09. Customer Asset Value . . . . . . . . . . . . . . . . . . . . 107
6.10. Crediting Rates. . . . . . . . . . . . . . . . . . . . . . . 107
6.11. New York Subsidiary. . . . . . . . . . . . . . . . . . . . . 108
6.12. Employment Contracts . . . . . . . . . . . . . . . . . . . . 108
6.13. First UNUM Closing . . . . . . . . . . . . . . . . . . . . . 108
ARTICLE VII
CONDITIONS PRECEDENT TO THE OBLIGATION
OF SELLER TO CLOSE. . . . . . . . . . . . . . . . . . . . . . . . 108
7.01. Representations and Covenants. . . . . . . . . . . . . . . . 108
7.02. Other Agreements . . . . . . . . . . . . . . . . . . . . . . 110
7.03. Governmental and Regulatory Consents and Approvals . . . . . 110
7.04. Third Party Consents . . . . . . . . . . . . . . . . . . . . 111
7.05. Purchase Price . . . . . . . . . . . . . . . . . . . . . . . 111
7.06. Opinion of Counsel to Purchaser. . . . . . . . . . . . . . . 111
7.07. Injunction . . . . . . . . . . . . . . . . . . . . . . . . . 112
7.08. Ratings. . . . . . . . . . . . . . . . . . . . . . . . . . . 112
7.09. New York Subsidiary. . . . . . . . . . . . . . . . . . . . . 112
7.10. Principal Underwriter. . . . . . . . . . . . . . . . . . . . 112
7.11. First UNUM Agreement Closing . . . . . . . . . . . . . . . . 113
ARTICLE VIII
FURTHER AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . 113
8.01. Seller's Non-Compete . . . . . . . . . . . . . . . . . . . . 113
ARTICLE IX
SURVIVAL OF REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . 115
9.01. Survival of Representations and Warranties . . . . . . . . . 115
ARTICLE X
INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . . 116
10.01. Obligation to Indemnify . . . . . . . . . . . . . . . . . . 116
10.02. Claims Notice . . . . . . . . . . . . . . . . . . . . . . . 119
10.03. Right to Contest Claims of Third Parties. . . . . . . . . . 120
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TABLE OF CONTENTS (CONT'D)
PAGE
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10.04. Section 10.01(a)(ii) Indemnification. . . . . . . . . . . . 122
10.05. Indemnification Payments. . . . . . . . . . . . . . . . . . 133
ARTICLE XI
TERMINATION PRIOR TO CLOSING . . . . . . . . . . . . . . . . . . . 133
11.01. Termination of Agreement. . . . . . . . . . . . . . . . . . 133
11.02. Break-up Fee. . . . . . . . . . . . . . . . . . . . . . . . 135
11.03. Survival. . . . . . . . . . . . . . . . . . . . . . . . . . 136
ARTICLE XII
MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . 136
12.01. Publicity . . . . . . . . . . . . . . . . . . . . . . . . . 136
12.02. Confidentiality . . . . . . . . . . . . . . . . . . . . . . 136
12.03. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . 137
12.04. Entire Agreement. . . . . . . . . . . . . . . . . . . . . . 138
12.05. Waivers and Amendments; Non-Contractual
Remedies; Preservation of Remedies. . . . . . . . . . . . . 138
12.06. Governing Law . . . . . . . . . . . . . . . . . . . . . . . 139
12.07. Binding Effect; Assignment. . . . . . . . . . . . . . . . . 139
12.08. Interpretation. . . . . . . . . . . . . . . . . . . . . . . 139
12.09. No Third Party Beneficiaries. . . . . . . . . . . . . . . . 140
12.10. Counterparts. . . . . . . . . . . . . . . . . . . . . . . . 140
12.11. Other Agreements, Exhibits and Schedules. . . . . . . . . . 140
12.12. Headings. . . . . . . . . . . . . . . . . . . . . . . . . . 141
12.13. Dollar References . . . . . . . . . . . . . . . . . . . . . 141
12.14. Newco Signature Page. . . . . . . . . . . . . . . . . . . . 141
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EXHIBITS
Exhibit A-1 - Form of Purchaser Assumption Reinsurance Agreement
Exhibit A-2 - Form of Newco Assumption Reinsurance Agreement
Exhibit B-1 - Form of Purchaser Indemnity Reinsurance Agreement
Exhibit B-2 - Form of Newco Indemnity Reinsurance Agreement
Exhibit C - Form of Administrative Services Agreement
Exhibit D - Form of Transition Services Agreement
Exhibit E - Form of Bill of Sale
Exhibit F-1 - Form of Purchaser Trust Agreement
Exhibit F-2 - Form of Newco Trust Agreement
Exhibit G - Form of General Assignment Agreement
Exhibit H - Form of Coinsurance and Assumption Agreement
Exhibit I - Form of Opinion of Seller's Counsel
Exhibit J - Form of Opinion of Purchaser's Counsel
Exhibit K - Form of Custodian Agreement
Exhibit L - Form of Newco Signature Page
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SCHEDULES
Schedule 1.01(A) - Assigned and Assumed Contracts
Schedule 1.01(B) - Baseline Balance Sheet
Schedule 1.01(C) - Group Annuity Contracts Included in the Insurance
Contracts
Schedule 1.01(D) - Purchaser Separate Accounts
Schedule 1.01(E) - Seller Separate Account
Schedule 1.01(F) - Additional Transferred Assets
Schedule 3.03 - Actions and Proceedings against Seller
Schedule 3.04 - No Conflict or Violation by Seller
Schedule 3.05 - Consents and Approvals of Seller
Schedule 3.06(A) - Computer Software Used Principally in
Conduct of Business
Schedule 3.06(B) - Computer Software Used Generally in Conduct of Business
Schedule 3.09 - Permits, Licenses and Franchises of Seller
Schedule 3.10(A) - Intentions of Termination or Cancellation of Insurance
Contracts and Association Servicing
Schedule 3.10(B) - Audits in Connection with Section 403(b) Compliance
Schedule 3.10(D) - Insurance Contracts with Respect to ERISA
Schedule 3.11 - Regulatory Filings
Schedule 3.12(A) - Brokers
Schedule 3.12(B) - Significant Brokers
Schedule 3.14 - Banking Arrangements
Schedule 3.15 - Surrenders and Withdrawals
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Schedule 3.19(A) - Employees
Schedule 3.19(B) - "Pay-to-Stay" Arrangements
Schedule 3.20(A) - Employee Benefit Plans
Schedule 3.20(C) - Welfare Benefit Plans
Schedule 3.21 - Labor Relations and Employment
Schedule 3.23(A) - Contracts
Schedule 3.23(C) - Indemnification Arrangements
Schedule 3.23(D) - Crediting Rates
Schedule 3.25 - Insurance Contracts Not Pension Plan Contracts
Schedule 3.26 - Financial Statement Data
Schedule 4.03 - Actions and Proceedings against Purchaser
Schedule 4.04 - No Conflict or Violation by Purchaser
Schedule 4.05 - Consents and Approvals of Purchaser
Schedule 4.07 - Compliance with Laws by Purchaser
Schedule 4.08 - Permits, Licenses and Franchises of Purchaser
Schedule 4.11 - Absence of Certain Changes or Events with Respect to
Purchaser
Schedule 5.19(B) - Contract Employees
Schedule 5.20 - Purchaser's Plans
Schedule 5.23 - Registered Representatives and Selling Agreement
Partners
Schedule 6.03 - Governmental and Regulatory Consents and Approvals
Schedule 6.05 - Investment Companies
Schedule 6.12 - Employment Contracts
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AMENDED AND RESTATED
ASSET TRANSFER AND ACQUISITION AGREEMENT
This AMENDED AND RESTATED ASSET TRANSFER AND ACQUISITION AGREEMENT
(this "Agreement"), dated as of January 24, 1996, is entered into by and between
UNUM Life Insurance Company of America, a stock life insurance company
incorporated in Maine ("Seller"), and The Lincoln National Life Insurance
Company, a stock life insurance company incorporated in Indiana ("Purchaser")
and amends and restates in its entirety the Asset Transfer and Acquisition
Agreement entered into by and between Seller and Purchaser on January 24, 1996.
RECITALS:
A. THE ACQUISITION. Upon the terms and subject to the conditions of this
Agreement, Seller wishes to sell, and Purchaser wishes to acquire, certain of
the group annuity business of Seller as described below (the "Business"). Such
group annuity contracts issued in states other than New York will be assumed by
Purchaser. Such group annuity contracts issued in New York will be assumed by a
wholly-owned New York domestic life insurance subsidiary of Purchaser ("Newco")
to be acquired or organized by Purchaser prior to the Closing Date (as defined
below). Following the execution of this Agreement, Purchaser shall enter into
an agreement (the "First UNUM Agreement") substantially similar to this
Agreement (including substantially similar schedules and exhibits, where
appropriate) with First UNUM Life Insurance Company ("First UNUM") whereby
Purchaser will agree to cause Newco to acquire certain group annuity contracts
issued by First UNUM in New York.
<PAGE>
B. THE DOCUMENTS. Upon the terms and subject to the conditions of this
Agreement, at the Closing (as defined below), the parties hereto and Newco will
execute and deliver the following agreements and instruments dated as of the
Closing Date or a date prior thereto: (i) Seller and Purchaser and Seller and
Newco will enter into the Purchaser Assumption Reinsurance Agreement and the
Newco Assumption Reinsurance Agreement (each as defined below), respectively,
providing, among other things, for the assumption by Purchaser and Newco of the
Insurance Contracts (as defined below); (ii) Seller and Purchaser and Seller and
Newco will enter into the Purchaser Indemnity Reinsurance Agreement and the
Newco Indemnity Reinsurance Agreement (each as defined below), respectively,
providing, among other things, for the indemnity reinsurance as of the Effective
Date (as defined below) by Purchaser and Newco of the general account
liabilities of Seller under the Insurance Contracts, pending assumption of such
contracts by Purchaser and Newco on a novation basis; (iii) Seller and Purchaser
will enter into the Administrative Services Agreement (as defined below),
providing for the provision by Purchaser of certain administrative services on
behalf of Seller with respect to the Insurance Contracts and the Seller Separate
Account (as defined below) following the Closing Date; (iv) Seller and Purchaser
will enter into the Transition Services Agreement (as defined below), providing
for the provision by Seller of certain administrative services to Purchaser
during a transition period following the Closing Date; (v) Seller will execute
and deliver to Purchaser and Newco the Bill of Sale (as defined below); (vi)
Seller, Purchaser and the Trustee (as defined below) and Seller, Newco and the
Trustee, will enter into the Purchaser Trust Agreement and the Newco Trust
Agreement (each as defined below), respectively, providing for trust accounts
into which cash and Cash Equivalents (as defined below) will be
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transferred on the Closing Date by or at the direction of Seller; (vii) Seller
and Purchaser and Seller and Newco, respectively, will enter into the General
Assignment Agreements (as defined below) pursuant to which Seller will assign
and Purchaser and Newco will assume the Assigned and Assumed Contracts (as
defined below) and the Assignable Licensed Principally Used Software (as defined
below); (viii) Seller and Purchaser will enter into the Coinsurance and
Assumption Agreement (as defined below), providing, among other things, for
Purchaser to coinsure contracts of insurance relating to the Business that
Seller will issue for up to 18 months from the Closing Date; (ix) Seller and
Purchaser and Seller and Newco, respectively, will enter into the License
Agreements (as defined below) and (x) Newco and Custodian (as defined below)
will enter into the Custodian Agreement (as defined below) pursuant to which the
Custodian will hold certain assets of Newco as security for benefit of the New
York policyholders of Seller who are beneficiaries of the Seller Custodian
Account.
NOW, THEREFORE, in consideration of the mutual promises and covenants
set forth herein, and in reliance upon the representations, warranties,
conditions and covenants contained herein, and intending to be legally bound
hereby, Seller and Purchaser do hereby agree as follows:
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ARTICLE I
DEFINITIONS
Section 1.01. DEFINITIONS. The following terms shall have the
respective meanings set forth below throughout this Agreement:
"ACCRUED LIABILITIES" shall have the meaning set forth in Section
2.03(c) hereof.
"ADMINISTRATIVE SERVICES AGREEMENT" means the Administrative Services
Agreement which is substantially in the form of Exhibit C hereto.
"AFFECTED EMPLOYEES" means, collectively, Band 2 Employees and
Contract Employees.
"AFFILIATE" means, with respect to any Person, at the time in
question, any other Person controlling, controlled by or under common control
with such Person.
"ANCILLARY AGREEMENTS" means the Assumption Reinsurance Agreements,
the Indemnity Reinsurance Agreements, the Administrative Services Agreement, the
Transition Services Agreement, the Bill of Sale, the General Assignment
Agreements, the Trust Agreements, the Coinsurance and Assumption Agreement, the
License Agreements and the Custodian Agreement.
"ANNUAL RATE" means the value of r in the expression (1 + r) to the
power of n/365 - 1, where "n" is equal to the number of days for which interest
is to be computed and the result of the expression is the interest factor for
computing the applicable interest amounts.
"ANTITRUST DIVISION" shall have the meaning set forth in Section 5.05
hereof.
"ASSERTED LIABILITY" shall have the meaning set forth in Section
10.03(a) hereof.
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"ASSIGNABLE LICENSED PRINCIPALLY USED SOFTWARE" means the Licensed
Principally Used Software as to which (i) no consent to the assignment thereof
is required or (ii) consent to the assignment thereof has been obtained on or
prior to the Closing Date.
"ASSIGNED AND ASSUMED CONTRACTS" means those contracts and other
agreements to which Seller is a party and which are listed on Schedule 1.01(A).
"ASSUMPTION REINSURANCE AGREEMENTS" means the Purchaser Assumption
Reinsurance Agreement and the Newco Assumption Reinsurance Agreement.
"BAND 1 EMPLOYEES" shall have the meaning set forth in Section
5.19(a).
"BAND 2 EMPLOYEES" shall have the meaning set forth in Section
5.19(c).
"BASELINE BALANCE SHEET" means the pro forma balance sheet of the
Business as at June 30, 1995 attached as Schedule 1.01(B).
"BASELINE CUSTOMER ASSET VALUE" means $3,152,400,000, which is the
Customer Asset Value reflected on the Baseline Balance Sheet.
"BASELINE PURCHASE PRICE" means $68,797,506.
"BENEFIT PLANS" shall have the meaning set forth in Section 3.20(a)
hereof.
"BENEFITS AFFECTED EMPLOYEE" shall have the meaning set forth in
Section 5.20 hereof.
"BENEFITS INFORMATION SCHEDULE" shall have the meaning set forth in
Section 5.20(d).
"BILL OF SALE" means the Bill of Sale which is substantially in the
form of Exhibit E hereto.
"BOOKS AND RECORDS" means the originals or copies of all customer
lists, policy information, Insurance Contract forms and rating plans, disclosure
and other documents and
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filings required under applicable securities laws, claim records, sales records,
underwriting records, financial records, tax records and compliance records in
the possession or control of Seller and relating exclusively to the operation of
the Business, including, without limitation, any database, magnetic or optical
media (to the extent not subject to licensing restrictions) and any other form
of recorded, computer generated or stored information or process, but excluding
any such records that are subject to the attorney-client privilege.
"BUSINESS" means the issuance and administration of the group annuity
contracts set forth on Schedule 1.01(C) hereto and any similar group annuity
contracts issued by Seller from the date hereof to the Closing Date, and the
other business activities of Seller related thereto.
"BUSINESS DAY" means any day other than a Saturday, Sunday, a day on
which banking institutions in any of the States of Maine, Indiana or New York
are permitted or obligated by law to be closed or a day on which the New York
Stock Exchange is closed for trading.
"CASH EQUIVALENTS" means, as of any particular date, money market
funds, marketable obligations issued or guaranteed by the United States
Government, certificates of deposit, bankers' acceptances and other similar
liquid investments, in each case with a maturity date of not more than 90 days
from the date on which any such instrument is transferred pursuant to the terms
of this Agreement, the market value of which as of such date will be counted as
equivalent to cash for purposes of satisfying the aggregate amount of cash and
Cash Equivalents required to be transferred hereunder on such date.
"CLAIMS NOTICE" shall have the meaning set forth in Section 10.02
hereof.
"CLOSING" means the closing of the transactions contemplated by this
Agreement.
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"CLOSING BALANCE SHEET" shall have the meaning set forth in Section
2.03(b) hereof.
"CLOSING DATE" means the first day of the month following the month in
which the last of the conditions set forth in this Agreement has been satisfied
or waived in writing, or such other date as the parties may agree to in writing;
PROVIDED, HOWEVER, if such date is not a Business Day, the Closing Date shall be
the immediately succeeding Business Day.
"COBRA" shall have the meaning set forth in Section 3.20(c) hereof.
"CODE" means the Internal Revenue Code of 1986, as amended, all final
and temporary Treasury Regulations promulgated thereunder and published rulings
thereunder.
"COINSURANCE AND ASSUMPTION AGREEMENT" means the Coinsurance and
Assumption Agreement which is substantially in the form of Exhibit H hereto.
"COMBINED BUSINESS" means the Business (as defined herein) and the
Business as defined in the First UNUM Agreement.
"COMMISSION" means the Securities and Exchange Commission.
"CONTRACT EMPLOYEES" shall have the meaning set forth in Section
5.19(b) hereof.
"CONTRACTHOLDER" means the holder of a Transferred Contract (as
defined below).
"CONTRACTHOLDER AFFILIATE" means an entity that is affiliated with a
Contractholder by reason of controlling, being controlled by or being under
common control with the Contractholder as contemplated under section 414(b),
(c), (m) or (o) of the Code or IRS Notice 89-23.
"CORE INSURANCE CONTRACTS" means, collectively, those Insurance
Contracts issued by Seller and those Insurance Contracts (as defined in the
First UNUM Agreement) issued by First UNUM of the Contract Types that are listed
on Exhibits 4 and 5 of the UNUM Tax-
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<PAGE>
Sheltered Annuity Business Executive Summary dated October 1995 as prepared by
Morgan Stanley & Co. Incorporated.
"CUSTODIAN" means the custodian named in the Custodian Agreement and
any successor appointed as such pursuant to the terms of the Custodian
Agreement.
"CUSTODIAN AGREEMENT" means the Custodian Agreement between Newco and
the Custodian, which is substantially in the form of Exhibit K hereto.
"CUSTOMER ASSET VALUE" means, at any time, an amount equal to the
aggregate reserves with respect to the Insurance Contracts in effect at such
time that would be shown on a balance sheet of Seller as at such time prepared
in accordance with GAAP applied in the same manner as applied in the preparation
of the Baseline Balance Sheet; PROVIDED, HOWEVER, that the portion of Customer
Asset Value attributable to assets held by Seller in the Seller Separate Account
pursuant to variable options under the Insurance Contracts shall be equal to the
result of (a) $241,900,000 plus (b) the amount of all participant contributions
(including transfers from fixed options) added to the Seller Separate Account,
from but not including June 30, 1995 to and including the date as of which
Customer Asset Value is calculated minus (c) the amount of all deductions from
the Seller Separate Account, from but not including June 30, 1995 to and
including the date as of which Customer Asset Value is calculated, for
withdrawals (including transfers to fixed options) and for mortality and expense
risk charges and annual administration charges, plus (d) imputed investment
return at the monthly rate of one percent (1%) applied monthly to the mean
balance of such portion of Customer Asset Value as it would have resulted from
time to time after June 30, 1995 according to the above calculation of (a) plus
(b) minus (c) plus (d) until and including the date as of which Customer Asset
Value is calculated; and
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PROVIDED, FURTHER, that, in determining Customer Asset Value, there shall be
excluded from the calculation an amount equal to the aggregate reserves relating
to each Insurance Contract as to which Seller has received and processed in the
normal conduct of its business, consistent with practices in effect on June 30,
1995, a request from the holder of the Insurance Contract to pay to such holder
the amounts on deposit with Seller under such Insurance Contract.
"EFFECTIVE DATE" means the Closing Date if such date is the first day
of a month and, if not, then the first day of the month in which the Closing
Date falls.
"EMPLOYER CLAIM" shall have the meaning set forth in Section 10.04
hereof.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and all final and temporary regulations and interpretive Bulletins and
other rulings of general applicability thereunder.
"EXECUTIVE OFFICER" means the chairman of the board, chief executive
officer, president, any senior or executive vice president, secretary, treasurer
or chief financial officer or any other officer or employee having supervisory
responsibility for a principal business function.
"EXTRA CONTRACTUAL OBLIGATIONS" means all liabilities for
consequential, exemplary, punitive or similar damages which relate to or arise
in connection with any alleged or actual act, error or omission by Seller or any
of its Affiliates prior to the Closing Date, whether intentional or otherwise,
or from any reckless conduct or bad faith by Seller or any of its Affiliates, in
connection with the handling of any claim under any of the Insurance Contracts
or in connection with the issuance, delivery, cancellation or administration of
any of the Insurance Contracts (provided that no liability with respect to which
Purchaser or Newco shall be entitled to
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indemnification under Section 10.01(a)(ii) hereof shall be deemed to be an Extra
Contractual Obligation).
"FAS 87" shall have the meaning set forth in Section 5.20(f) hereof.
"FAS 106" shall have the meaning set forth in Section 5.20(f) hereof.
"FINAL BALANCE SHEET" shall have the meaning set forth in Section
2.03(c) hereof.
"FINAL CUSTOMER ASSET VALUE" shall have the meaning set forth in
Section 2.03(c) hereof.
"FINAL PURCHASE PRICE" shall mean the product of the Final Customer
Asset Value multiplied by the Purchase Price Percentage.
"FIRST UNUM" shall have the meaning set forth in the Recitals to this
Agreement.
"FIRST UNUM AGREEMENT" shall have the meaning set forth in the
Recitals to this Agreement.
"401(a) CONTRACT" means an Insurance Contract which is a group annuity
contract intended by Seller to fund an employee benefit plan qualified under
section 401(a) of the Code which is sponsored by a 403(b) Contractholder or a
Contractholder Affiliate and which is being transferred to Purchaser or Newco in
connection with the transfer of the 403(b) Contracts.
"403(b) CONTRACT" means an Insurance Contract which is a group annuity
contract intended by Seller to satisfy the requirements of section 403(b) of the
Code and which is being transferred to Purchaser or Newco.
"403(b) CONTRACTHOLDER" means a holder of a 403(b) Contract.
"FTC" shall have the meaning set forth in Section 5.05 hereof.
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"GAAP" means United States generally accepted accounting principles as
in effect from time to time.
"GENERAL ACCOUNT RESERVES" means the general account statutory
reserves of Seller with respect to the Insurance Contracts determined pursuant
to Maine SAP, as such reserves would have been included in line 10.2 or line
10.3 of the Liabilities, Surplus and Other Funds page of the NAIC Annual
Statement Blank (1994 format), including (for the avoidance of doubt) any
general account statutory reserve adjustments in relation to Separate Account
Liabilities.
"GENERAL ASSIGNMENT AGREEMENTS" means the General Assignment
Agreements between Seller and Purchaser and between Seller and Newco,
respectively, each of which is substantially in the form of Exhibit G hereto.
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the rules and regulations thereunder.
"INDEMNIFIED PARTY" shall have the meaning set forth in Section 10.02
hereof.
"INDEMNIFYING PARTY" shall have the meaning set forth in Section 10.02
hereof.
"INDEMNITY REINSURANCE AGREEMENTS" means the Purchaser Indemnity
Reinsurance Agreement and the Newco Indemnity Reinsurance Agreement.
"INSURANCE CONTRACTS" means the group annuity contracts that are
listed on Schedule 1.01(C) hereto and any additional group annuity contracts
issued by Seller in connection with the Business after the date hereof and prior
to the Closing Date, to the extent that such group annuity contracts are in
effect as of the Effective Date, and all certificates and participation
agreements in effect as of the Effective Date issued in accordance with the
terms
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of such group annuity contracts (including all supplements, endorsements, riders
and ancillary agreements in connection therewith).
"INSURANCE LIABILITIES" means all liabilities and obligations arising
under the Insurance Contracts (excluding any Extra Contractual Obligations),
including, without limitation: (i) all liability for premium Taxes arising on
account of premiums paid or annuities purchased on or after the Effective Date,
(ii) all amounts payable on or after the Effective Date for returns or refunds
of premiums under the Insurance Contracts, (iii) all liability for commission
payments and other fees or compensation payable with respect to the Insurance
Contracts to or for the benefit of brokers and service providers, to the extent
that such amounts are or become payable on or after the Effective Date and (iv)
all guaranty fund assessments and similar charges imposed with respect to the
Insurance Contracts based on premiums paid on or after the Effective Date.
"INTERIM PURCHASER FINANCIAL STATEMENTS" shall have the meaning set
forth in Section 4.09 hereof.
"IRS" means the United States Internal Revenue Service.
"IRS CLAIM" shall have the meaning set forth in Section 10.04(b)
hereof.
"KNOWLEDGE" means to the best knowledge and belief after reasonable
inquiry of (i) any of the Executive Officers of Seller or Purchaser, as the case
may be, (ii) in the case of Seller, Sarah Wilkinson, Lawrence Kolkhorst, Susan
Peck, Vicki Gordan, Rosemary Moore, Lawrence Miller, Diane Garofalo, Peter
Adams, Michael Carter, Donna Wieland and George Young and (iii) in the case of
Purchaser, Ian Rolland and Chris Goeglein.
"LICENSE AGREEMENTS" means the license agreements to be entered into
on or prior to the Closing Date between Seller and Purchaser and Seller and
Newco, respectively, pursuant
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to which (i) Seller will grant, from and after the Closing Date, to Purchaser
and Newco a non-exclusive perpetual license to use, solely in connection with
the Combined Business, the Owned Generally Used Software, which license will be
assignable in connection with any sale of the Business (as defined herein or as
defined in the First UNUM Agreement) by Purchaser or Newco, as applicable, (ii)
Seller will grant to Purchaser or Newco, as applicable, the right to use
Seller's logos, trademarks, copyrights and other intellectual property solely in
connection with the administration of the Business pursuant to the
Administrative Services Agreement and (iii) Purchaser and Newco, as applicable,
will grant, from and after the Closing Date, to Seller and First UNUM a non-
exclusive perpetual license to use the Owned Principally Used Software, which
license will be assignable in connection with any sale of any business of Seller
or First UNUM that utilizes such software. Under each of the License Agreements
the licensee shall have the right to make modifications to the licensed
software, provided such modification does not adversely affect the use of such
software by the licensor.
"LICENSED GENERALLY USED SOFTWARE" shall have the meaning set forth in
Section 3.06 hereof.
"LICENSED PRINCIPALLY USED SOFTWARE" shall have the meaning set forth
in Section 3.06 hereof.
"LOSSES" shall have the meaning set forth in Section 10.01(a) hereof.
"MAINE SAP" means the statutory accounting principles and practices
prescribed or permitted by the Bureau of Insurance of the State of Maine.
"MAINE SEVERANCE PAY LAW" means 26 M.R.S.A. Section 625-B.
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"MATERIAL ADVERSE EFFECT" means, as to any Person, any change, effect,
event or occurrence that has, or is reasonably likely to have, individually or
in the aggregate, a material adverse impact on (i) the business, financial
position or results of operations of such Person or (ii) the ability of such
Person (or, in the case of the Business, the ability of Seller) to consummate
the transactions contemplated by this Agreement; provided that "Material Adverse
Effect" shall be deemed to exclude the impact of (i) changes in any statutes,
laws, rules and regulations of any governmental entity, or interpretations
thereof by any governmental entity, relating to or affecting the businesses
which such Person operates and (ii) changes in GAAP or regulatory accounting
principles generally applicable to insurance companies and their Affiliates.
"1940 ACT" means the Investment Company Act of 1940, as amended, and
all rules and regulations thereunder.
"NAIC" means the National Association of Insurance Commissioners.
"90-DAY TREASURY RATE" means the annual yield rate, on the date to
which such 90-Day Treasury Rate relates, of actively traded U.S. Treasury
securities having a remaining duration to maturity of three months, as such rate
is published under "Treasury Constant Maturities" in Federal Reserve Statistical
Release H.15(519).
"NEWCO" shall have the meaning set forth in the Recitals to this
Agreement.
"NEWCO ASSUMPTION REINSURANCE AGREEMENT" means the Assumption
Reinsurance Agreement between Seller and Newco, which is substantially in the
form of Exhibit A-2 hereto.
"NEWCO INDEMNITY REINSURANCE AGREEMENT" means the Indemnity
Reinsurance Agreement between Seller and Newco which is substantially in the
form of Exhibit B-2 hereto.
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"NEWCO SEPARATE ACCOUNTS" means one or more separate accounts to be
established by Newco prior to the Closing.
"NEWCO TRUST AGREEMENT" means the Trust Agreement among Seller, Newco
and the Trustee, which is substantially in the form of Exhibit F-2 hereto.
"NON-COMPETE PERIOD" shall have the meaning set forth in Section
8.01(a) hereof.
"OWNED GENERALLY USED SOFTWARE" shall have the meaning set forth in
Section 3.06 hereof.
"OWNED PRINCIPALLY USED SOFTWARE" shall have the meaning set forth in
Section 3.06 hereof.
"PARTICIPANT" means an individual, trust or estate that is an employee
or former employee (or beneficiary or alternate payee under a qualified domestic
relations order within the meaning of section 401(a)(13) of the Code or section
206(d)(3)(B) of ERISA) of a Contractholder and who (or which) has an interest in
a Transferred Contract.
"PENSION PLANS" shall have the meaning set forth in Section 3.20(a)
hereof.
"PERMITS" means all licenses, permits, orders, approvals,
registrations, authorizations, qualifications and filings with and under all
federal, state, local or foreign laws or governmental or regulatory bodies.
"PERSON" means any individual, corporation, partnership, firm, joint
venture, association, joint-stock company, trust, unincorporated organization,
governmental, judicial or regulatory body, business unit (including, but not
limited to, the Business), division or other entity.
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"PRELIMINARY PURCHASE PRICE" shall mean the product of the Customer
Asset Value as of the date of the Closing Balance Sheet multiplied by the
Purchase Price Percentage.
"PRE-PAID ITEMS AND RECEIVABLES" shall have the meaning set forth in
Section 2.03(c) hereof.
"PREMIUMS" means premiums and annuity considerations, deposits and
similar receipts with respect to the Insurance Contracts.
"PREVIOUSLY DISCLOSED" means disclosed prior to the date hereof in a
writing or writings specifically identified as constituting previously disclosed
information for the purposes of this Agreement.
"PROPOSED BALANCE SHEET" shall have the meaning set forth in Section
2.03(c) hereof.
"PURCHASE PRICE PERCENTAGE" means 2.1824%, which is the quotient,
expressed as a percentage, equal to the Baseline Purchase Price divided by the
Baseline Customer Asset Value.
"PURCHASER" shall have the meaning set forth in the first paragraph of
this Agreement.
"PURCHASER ASSUMPTION REINSURANCE AGREEMENT" means the Assumption
Reinsurance Agreement between Seller and Purchaser, which is substantially in
the form of Exhibit A-1 hereto.
"PURCHASER FINANCIAL STATEMENTS" shall have the meaning set forth in
Section 4.09 hereof.
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"PURCHASER INDEMNITY REINSURANCE AGREEMENT" means the Indemnity
Reinsurance Agreement between Seller and Purchaser which is substantially in the
form of Exhibit B-1 hereto.
"PURCHASER SEPARATE ACCOUNTS" means those separate accounts of
Purchaser listed on Schedule 1.01(D) hereto.
"PURCHASER TRUST AGREEMENT" means the Trust Agreement among Seller,
Purchaser and the Trustee, which is substantially in the form of Exhibit F-1
hereto.
"PURCHASER'S DEFINED BENEFIT PLAN" shall have the meaning set forth in
Section 5.20(d) hereof.
"PURCHASER'S 401(k) PLAN" shall have the meaning set forth in
Section 5.20(d) hereof.
"PURCHASER'S PLAN" shall have the meaning set forth in Section 5.20(a)
hereof.
"PURCHASER'S RETIREE WELFARE PLANS" shall have the meaning set forth
in Section 5.20(c) hereof.
"PURCHASER'S SERPs" shall have the meaning set forth in
Section 5.20(d) hereof.
"RELATED TO" or "ARISING IN CONNECTION WITH" or similar words, as they
are used herein, shall be construed to have the broadest most inclusive meaning
that can be reasonably ascribed to them.
"RETENTION BONUS" means the amount of $2,500.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and all
rules and regulations thereunder.
"SELLER" shall have the meaning set forth in the first paragraph of
this Agreement.
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"SELLER CUSTODIAN ACCOUNT" means the custodian account established
under the Seller Custodian Agreement.
"SELLER CUSTODIAN AGREEMENT" means the custodian agreement entered
into between Seller (as the successor to UNUM Life Insurance Company) and The
Bank of New York, approved by Superintendent of Insurance of the State of New
York on the 24th day of December, 1991.
"SELLER CUSTODIAN" means the custodian named in the Seller Custodian
Agreement and any successor custodian appointed as such pursuant to the terms of
the Seller Custodian Agreement.
"SELLER SEPARATE ACCOUNT" means the separate account of Seller listed
on Schedule 1.01(E) hereto.
"SELLER'S DEFINED BENEFIT PLAN" shall have the meaning set forth in
Section 5.20 hereof.
"SELLER'S 401(k) PLAN" shall have the meaning set forth in Section
5.20(d) hereof.
"SELLER'S SERP" shall have the meaning set forth in Section 5.20(d)
hereof.
"SELLER'S EMPLOYEE WELFARE PLAN" shall have the meaning set forth in
Section 5.20(c) hereof.
"SEPARATE ACCOUNT LIABILITIES" means those Insurance Liabilities that
are reflected in the Seller Separate Account.
"SETTLEMENT NOTICE" shall have the meaning set forth in Section
10.04(a) hereof.
"SHARED COST PERIOD" means the 12-month period commencing on the
Closing Date and ending on the day immediately preceding the first anniversary
of the Closing Date.
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"SIGNIFICANT BROKERS" shall have the meaning set forth in Section 3.12
hereof.
"SUBSIDIARY" means, with respect to any Person on a given date, (i)
any other Person of which a majority of the voting power of the equity
securities or equity interests is owned directly or indirectly by such Person
and (ii) any other Person the accounts of which, by virtue of an ownership
interest in it by such Person would be consolidated, in accordance with GAAP,
with those of such Person in its financial statements as of the applicable date.
"TAXES" (or "TAX" as the context may require) means all federal,
state, county, local, foreign and other taxes, however denominated, of any kind
whatsoever (including, without limitation, income taxes, payroll and employee
withholding taxes, unemployment insurance, social security taxes (or other
similar taxes), estimated taxes, premium taxes, excise taxes, sales taxes, use
taxes, transfer taxes, gross receipts taxes, franchise taxes, ad valorem taxes,
severance taxes, capital property taxes, import duties and other governmental
charges and assessments), and includes interest, additions to tax and penalties
with respect thereto, whether disputed or not.
"THIRD PARTY ACCOUNTANT" shall have the meaning set forth in Section
2.03(c) hereof.
"THIRD PARTY CLAIMANT" shall have the meaning set forth in Section
10.03(a) hereof.
"TRANSFERRED ASSETS" means (i) the cash and Cash Equivalents referred
to in Section 2.02(b) hereof, (ii) assets held in the Seller Separate Account
that relate to the Insurance Contracts and are equal to the Separate Account
Liabilities as to which assumption reinsurance is effected, (iii) except as
otherwise provided in the Indemnity Reinsurance Agreements, all of Seller's
rights and interests under the Insurance Contracts to receive principal and
interest paid on contract loans on or after the Closing Date, (iv) the Books and
Records, (v) the Assignable Licensed Principally Used Software, (vi) the Owned
Principally Used Software, (vii) the
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Assigned and Assumed Contracts and (viii) those additional assets listed on
Schedule 1.01(F) hereto.
"TRANSFERRED CONTRACT" means any of the 403(b) Contracts or 401(a)
Contracts.
"TRANSITION SERVICES AGREEMENT" means the Transition Services
Agreement which is substantially in the form of Exhibit D hereto.
"TRUST ACCOUNTS" means the trust accounts established pursuant to the
Trust Agreements.
"TRUST AGREEMENTS" means the Purchaser Trust Agreement and the Newco
Trust Agreement.
"TRUSTEE" means the trustee named in each Trust Agreement and any
successor trustee appointed as such pursuant to the terms of either Trust
Agreement.
"WARN ACT" means the Worker Adjustment and Retraining and Notification
Act.
"WELFARE PLANS" shall have the meaning set forth in Section 3.20(a)
hereof.
ARTICLE II
TRANSFER AND ACQUISITION OF ASSETS
Section 2.01. CASH CONSIDERATION. Upon the terms and subject to the
conditions of this Agreement, Purchaser and Newco shall pay to Seller on the
Closing Date an aggregate amount equal to the Preliminary Purchase Price by wire
transfer of immediately available funds in U.S. Dollars to the bank account
designated to Purchaser in writing by Seller at least two Business Days prior to
the Closing Date.
Section 2.02. ACQUISITION OF TRANSFERRED ASSETS AND ASSUMPTION OF
ASSUMED LIABILITIES. (a) Upon the terms and subject to the conditions of this
Agreement and the payment
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of the Preliminary Purchase Price, on the Closing Date, Seller shall sell,
assign and transfer to Purchaser and Newco, as applicable, all of Seller's
right, title and interest in the Transferred Assets; PROVIDED, HOWEVER, that, as
to the assets held in the Seller Separate Account, such transfers shall be made
to the Purchaser Separate Accounts and the Newco Separate Accounts,
respectively, and such assets shall be transferred, if at all, at the times
specified in the respective Assumption Reinsurance Agreements; and, PROVIDED
FURTHER, that the cash and Cash Equivalents shall be determined and transferred
in accordance with the provisions of Sections 2.02(b), 2.03 and 2.04 hereof;
and, PROVIDED FURTHER, that Seller shall assign and transfer to Purchaser and
Newco, as applicable, all of Seller's ownership rights, title and interest in
the contract loans under the Insurance Contracts, if at all, at the times
specified in the respective Assumption Reinsurance Agreements. All sales,
assignments and transfers of the Transferred Assets shall be effected by the
Indemnity Reinsurance Agreements, the Assumption Reinsurance Agreements, the
Bill of Sale and the General Assignment Agreements. Notwithstanding anything in
this Agreement to the contrary, but subject to the provisions of Section 5.04
hereof, Seller shall be entitled to keep and maintain copies of all Books and
Records from and after the Closing, and to have access to the originals of the
Books and Records in accordance with the terms hereof.
(b) Upon the terms and subject to the conditions of this Agreement
and the Trust Agreements and the payment of the Preliminary Purchase Price, on
the Closing Date, Seller shall transfer (and cause the Seller Custodian to
transfer) to the Trust Accounts cash and Cash Equivalents in an aggregate amount
equal to (i) the General Account Reserves relating to the Insurance Contracts to
be assumed by Purchaser and Newco, respectively, less, in each case, (ii) the
amount of any related contract loans, each as reflected on the Closing Balance
Sheet.
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Cash shall be transferred by Seller (and the Seller Custodian) to the Trust
Accounts by wire transfer of immediately available funds in U.S. Dollars. Cash
Equivalents shall be transferred by such instruments of transfer as are
acceptable to the Trustee and reasonably acceptable to Purchaser. All amounts
held in trust under the Trust Agreements shall be distributed as provided
therein, in the Indemnity Reinsurance Agreements and in the Assumption
Reinsurance Agreements.
(c) Upon the terms and subject to the conditions of this Agreement,
on the Closing Date, Purchaser and Newco shall assume their respective Insurance
Liabilities pursuant to the Indemnity Reinsurance Agreements and the Assumption
Reinsurance Agreements and Purchaser and Newco shall each assume, pursuant to
the General Assignment Agreements, the Assigned and Assumed Contracts listed on
Schedules 1.01(A) and the Assignable Licensed Principally Used Software to be
assumed by it.
(d) Any transfer or sales Tax or other governmentally imposed fees or
charges imposed upon the transfer, sale or recording of the Transferred Assets
shall be paid one-half by Seller and one-half by Purchaser.
Section 2.03. PLACE AND DATE OF CLOSING; BALANCE SHEETS. (a) The
Closing shall take place at the offices of LeBoeuf, Lamb, Greene & MacRae,
L.L.P., 125 West 55th Street, New York, New York, at 10:00 a.m. New York time on
the Closing Date or such other time or place as the parties may mutually agree
upon.
(b) On the Closing Date, Seller will deliver to Purchaser a balance
sheet of the Business as of the end of the second month preceding the month in
which the Closing Date falls (the "Closing Balance Sheet"), together with a
calculation in reasonable detail of Customer Asset
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Value as of the date thereof with respect to the Insurance Contracts to be
assumed by Purchaser and Newco, respectively, and a certification of the chief
financial officer of Seller that (i) the Closing Balance Sheet was prepared from
and in accordance with the books and records of Seller and in accordance with
Maine SAP applied consistently with the application thereof in the preparation
of the statutory data included in Schedule 3.26 to the extent such data relates
to the Business, and (ii) the General Account Reserves and Separate Account
Liabilities set forth therein (A) were determined in accordance with generally
accepted actuarial standards consistently applied, (B) were fairly stated in
accordance with sound actuarial principles, (C) were based on actuarial
assumptions that were appropriate for Seller's obligations under the related
Insurance Contracts, and (D) met the requirements of Maine SAP. Such
certification shall also set forth Seller's calculation of Customer Asset Value
as of the date of the Closing Balance Sheet and shall certify that such
calculation was made in accordance with the definition of Customer Asset Value
set forth in Section 1.01 hereof. The Closing Balance Sheet shall reflect (i)
the Separate Account Liabilities, (ii) the General Account Reserves, (iii)
assets held in the Seller Separate Account equal to the Separate Account
Liabilities, (iv) contract loans, and (v) cash and Cash Equivalents in an
aggregate amount equal to (A) the General Account Reserves less (B) contract
loans.
(c) Seller shall, on or before the date that is 30 days after the
Closing Date, prepare a proposed balance sheet of the Business as of the close
of business on the last day of the month preceding the month in which the
Closing Date falls (the "Proposed Balance Sheet"), in the same format as the
Closing Balance Sheet, together with a calculation in reasonable detail of
Customer Asset Value as of the date of the Proposed Balance Sheet and a
certification of the
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chief financial officer of Seller to the same effect with respect to the
Proposed Balance Sheet and the Customer Asset Value as of the date thereof as
the certification provided by such officer with respect to the Closing Balance
Sheet and Customer Asset Value as of the date thereof pursuant to Section
2.03(b). In addition to the information set forth on the Closing Balance Sheet,
the Proposed Balance Sheet shall set forth as to the Business (i) (A) all
accrued amounts payable as of the date of the Proposed Balance Sheet under the
Assigned and Assumed Contracts and any other similar liability of Seller arising
prior to such date that will be paid by Purchaser or Newco after such date,
including all amounts referred to under clause (iii) of the definition of
"Insurance Liabilities" herein but excluding any other liability under the
Insurance Contracts, net of any such amount payable to Seller as of such date,
and (B) all liabilities of Seller as reflected in Seller's suspense account with
respect to the Insurance Contracts as of the date of the Proposed Balance Sheet
that will be paid by Purchaser or Newco after such date, and (ii) (A) all pre-
paid expenses determined in accordance with Maine SAP covering periods after the
date of the Proposed Balance Sheet and any other similar item paid by Seller
which relates to periods after such date, (B) all accrued fees payable to Seller
under the Assigned and Assumed Contracts as of the date of the Proposed Balance
Sheet that will be paid to Purchaser after such date and (C) the amounts, if
any, due Seller that are reflected as debits in Seller's suspense account, if
any, with respect to the Insurance Contracts as of the date of the Proposed
Balance Sheet that will be received by Purchaser or Newco after such date.
Items described in clause (i) of the preceding sentence are referred to herein
as "Accrued Liabilities," and items referred to in clause (ii) thereof are
referred to herein as "Pre-Paid Items and Receivables." Promptly after its
preparation, Seller shall deliver copies of the Proposed Balance Sheet and
calculation of
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Customer Asset Value to Purchaser. Purchaser shall have the right to review
such balance sheet and calculation of Customer Asset Value and comment thereon
for a period of 45 days after receipt thereof. Seller agrees that Purchaser and
its accountants may have access to the accounting records of Seller relating to
its preparation of the Proposed Balance Sheet and calculation of Customer Asset
Value for the purpose of conducting its review. Any changes in the Proposed
Balance Sheet or calculation of Customer Asset Value that are agreed to by
Purchaser and Seller within 45 days of the aforementioned delivery of such
balance sheet by Seller shall be incorporated into a final balance sheet of the
Business as of the close of business on the last day of the month preceding the
month in which the Closing Date falls (the "Final Balance Sheet") and a final
calculation of Customer Asset Value as of such date (the "Final Customer Asset
Value"). In the event that Purchaser and Seller are unable to agree on the
manner in which any item or items should be treated in the preparation of the
Final Balance Sheet or calculation of Customer Asset Value within such 45-day
period, separate written reports of such item or items shall be made in concise
form and shall be referred to KPMG Peat Marwick (the "Third Party Accountant").
The Third Party Accountant shall determine within 14 days the manner in which
such item or items shall be treated on the Final Balance Sheet or calculation of
Customer Asset Value, as the case may be; PROVIDED, HOWEVER, that the dollar
amount of each item in dispute shall be determined between the range of dollar
amounts proposed by Seller and Purchaser, respectively. The determinations by
the Third Party Accountant as to the items in dispute shall be in writing and
shall be binding and conclusive on the parties and shall be so reflected in the
Final Balance Sheet and the calculation of Final Customer Asset Value. The
fees, costs and expenses of retaining the Third Party Accountant
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shall be allocated by the Third Party Accountant between the parties, in
accordance with the Third Party Accountant's judgment as to the relative merits
of the parties' proposals in respect of the disputed items. Such determination
shall be binding and conclusive on the parties. Following the resolution of all
disputed items, Seller shall prepare the Final Balance Sheet and calculation of
Final Customer Asset Value and shall deliver copies of such balance sheet and
such calculation to Purchaser.
Section 2.04. POST-CLOSING ADJUSTMENTS. In the event the aggregate
amount of cash and Cash Equivalents reflected on the Closing Balance Sheet and
transferred to the Trust Accounts on the Closing Date is less than the amount of
General Account Reserves, less the amount of any contract loans, as reflected on
the Final Balance Sheet, Seller shall transfer (and/or cause the Seller
Custodian to transfer) to one or both of the Trust Accounts, as applicable,
additional cash or Cash Equivalents equal to the amount of such difference,
together with interest thereon from and including the Closing Date to but not
including the date of such transfer computed at an Annual Rate equal to the
90-Day Treasury Rate in effect on the Closing Date. In the event the aggregate
amount of cash and Cash Equivalents reflected on the Closing Balance Sheet and
transferred to the Trust Accounts on the Closing Date is more than the amount of
General Account Reserves, less the amount of any contract loans, as reflected on
the Final Balance Sheet, Seller, Purchaser and/or Newco, as applicable, shall
direct the Trustee to transfer to Seller (and/or the Seller Custodian Account,
as applicable) cash or Cash Equivalents in the amount of such difference,
together with interest thereon computed at an Annual Rate as specified above
from and including the Closing Date to but not including the date of such
transfer. In the event the aggregate amount of Accrued Liabilities reflected on
the Final Balance
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Sheet exceeds the amount of Pre-Paid Items and Receivables reflected thereon,
Seller shall transfer to Purchaser and/or Newco, as applicable, cash in the
amount of such difference, together with interest thereon computed at an Annual
Rate as specified above from and including the Closing Date to but not including
the date of such transfer. In the event the aggregate amount of Pre-Paid Items
and Receivables reflected on the Final Balance Sheet exceeds the amount of
Accrued Liabilities reflected thereon, Purchaser and/or Newco, as applicable,
shall transfer to Seller cash in the amount of such difference, together with
interest thereon computed at an Annual Rate as specified above from and
including the Closing Date to but not including the date of such transfer. In
the event the Preliminary Purchase Price exceeds the Final Purchase Price,
Seller shall transfer to Purchaser and/or Newco, as applicable, cash in the
amount of such difference, together with interest thereon computed at an Annual
Rate as specified above from and including the Closing Date to but not including
the date of such transfer. In the event the Final Purchase Price exceeds the
Preliminary Purchase Price, Purchaser and/or Newco, as applicable, shall
transfer to Seller cash in the amount of such difference, together with interest
thereon computed at an Annual Rate as specified above from and including the
Closing Date to but not including the date of such transfer. Amounts required
to be transferred from Purchaser and Newco to Seller or from Seller to Purchaser
and Newco pursuant to this Section shall be netted against one another so that
only a single net transfer shall be required. Any transfer of cash or Cash
Equivalents required under this Section 2.04 shall be made within ten Business
Days of the date of the delivery of the Final Balance Sheet and calculation of
Final Customer Asset Value to Purchaser. The Final Purchase Price may be
further adjusted subsequent to the Closing Date in accordance with Section 5.20
hereof.
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Section 2.05. CLOSING ITEMS. (a) At the Closing, Seller shall
execute (where appropriate) and deliver to Purchaser and Newco, as applicable,
the following:
(i) the Indemnity Reinsurance Agreements;
(ii) the Assumption Reinsurance Agreements;
(iii) the Administrative Services Agreement;
(iv) the Transition Services Agreement;
(v) the Bill of Sale;
(vi) the Trust Agreements;
(vii) the General Assignment Agreements;
(viii) the Coinsurance and Assumption Agreement;
(ix) the License Agreements;
(x) the opinion of counsel referred to in Section 6.07
hereof;
(xi) the certificate of Seller referred to in Section 6.01
hereof;
(xii) evidence of compliance with the requirements of the HSR
Act;
(xiii) evidence of receipt of the Permits described on
Schedule 6.03 hereto from the Insurance Departments of
the States of Maine and New York;
(xiv) evidence of receipt of additional approvals set forth
in Schedule 3.05 hereto, to the extent such approvals
are required for Closing;
(xv) an updated Schedule 3.15, as provided for in
Section 3.15 hereof;
(xvi) an addendum to Schedule 3.19(A), as provided for in
Section 3.19 hereof; and
(xvii) the schedule provided for in subsection (c)(ii)(A) of
Section 5.19 hereof.
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Seller shall also (i) transfer (and cause the Seller Custodian to
transfer) cash and Cash Equivalents to the Trustee, (ii) transfer certain
additional Transferred Assets to Purchaser or Newco, as applicable, in
accordance with Section 2.02 hereof and (iii) deliver to Purchaser a true and
correct list of all group annuity contracts included in the Insurance Contracts
that are in effect as of the Closing Date.
(b) At the Closing, Purchaser and Newco, as applicable, shall execute
(where appropriate) and deliver to Seller the following:
(i) the Indemnity Reinsurance Agreements;
(ii) the Assumption Reinsurance Agreements;
(iii) the Administrative Services Agreement;
(iv) the Transition Services Agreement;
(v) the Trust Agreements;
(vi) the General Assignment Agreements;
(vii) the Coinsurance and Assumption Agreement;
(viii) the License Agreements;
(ix) the Custodian Agreement;
(x) the opinion of counsel referred to in Section 7.06
hereof;
(xi) the certificate of Purchaser referred to in Section
7.01 hereof;
(xii) evidence of compliance with the requirements of the HSR
Act;
(xiii) evidence of receipt of the Permits described on
Schedule 6.03 hereto from the Commission and from the
Insurance Departments of the States of Indiana and New
York;
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(xiv) evidence of receipt of additional approvals set forth
on Schedule 4.05 hereto, to the extent such approvals
are required for Closing;
(xv) evidence of the ratings of Purchaser and Newco set
forth in Section 7.08 hereof;
(xvi) evidence of the licensing of Newco as set forth in
Section 7.09 hereof; and
(xvii) the principal underwriter agreements referred to in
Section 7.10 hereof, if required pursuant to Section
7.10 hereof.
Purchaser and Newco shall also transfer an aggregate amount equal to
the Preliminary Purchase Price to Seller.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Purchaser as follows:
Section 3.01. ORGANIZATION, STANDING AND AUTHORITY OF SELLER. Seller
is duly organized, validly existing and in good standing under the laws of Maine
and has all requisite power and authority to carry on the operations of the
Business as they are now being conducted.
Section 3.02. AUTHORIZATION. Seller has all requisite power and
authority to execute, deliver and perform its obligations under this Agreement
and under each of the Ancillary Agreements to be executed by it. The execution
and delivery by Seller of this Agreement and the Ancillary Agreements to be
executed by it, and the performance by Seller of its obligations under such
agreements, have been duly authorized. This Agreement has been, and on the
Closing Date the Ancillary Agreements executed by Seller will be, duly executed
and delivered
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by Seller; and, subject to the due execution and delivery by the other parties
to such agreements, this Agreement is, and the Ancillary Agreements executed by
Seller will, upon due execution and delivery, be valid and binding obligations
of Seller, enforceable against Seller in accordance with their respective terms.
Notwithstanding the foregoing, the obligation of Seller to execute any Ancillary
Agreement shall be subject to the terms and conditions of this Agreement.
Section 3.03. ACTIONS AND PROCEEDINGS. Except as disclosed on
Schedule 3.03 hereto, there are no outstanding orders, decrees or judgments by
or with any court, governmental agency, regulatory body or arbitration tribunal
before which Seller was a party that, individually or in the aggregate, have a
Material Adverse Effect on Seller and/or any of its material Affiliates or have
a Material Adverse Effect on the Business. Except as disclosed on Schedule 3.03
hereto, there are no actions, suits, arbitrations or legal, administrative or
other proceedings pending or, to Seller's knowledge, threatened against Seller,
at law or in equity, or before or by any governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, or before any
arbitrator of any kind which, if adversely determined, would, individually or in
the aggregate, have a Material Adverse Effect on the Business.
Section 3.04. NO CONFLICT OR VIOLATION. Except as disclosed on
Schedule 3.04 hereto, the execution, delivery and performance by Seller of this
Agreement and the Ancillary Agreements to which it is a party and the
consummation of the transactions contemplated hereby and thereby in accordance
with the respective terms and conditions hereof and thereof will not (a) violate
any provision of the charter, bylaws or other organizational document of Seller,
(b) violate, conflict with or result in the breach of any of the terms of,
result in any modification
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of the effect of, otherwise give any other contracting party the right to
terminate, or constitute (or with notice or lapse of time or both, constitute) a
default under, any contract or other agreement relating to or arising in
connection with the Business to which Seller is a party or by or to which it or
any of its assets or properties may be bound or subject, (c) violate any order,
judgment, injunction, award or decree of any court, arbitrator or governmental
or regulatory body against, or binding upon, or any agreement with, or condition
imposed by, any governmental or regulatory body, foreign or domestic, binding
upon Seller in connection with the Business, (d) violate any statute, law or
regulation of any jurisdiction or (e) result in the breach or violation of any
of the terms or conditions of, constitute a default under, or otherwise cause an
impairment or revocation of, any Permit related to the Business.
Section 3.05. CONSENTS AND APPROVALS. Except as required under the
HSR Act or as set forth on Schedule 3.05 hereto and except for required Permits
of applicable insurance and securities regulatory authorities, the execution,
delivery and performance by Seller of this Agreement and the Ancillary
Agreements to which it is a party and the consummation of the transactions
contemplated hereby and thereby in accordance with the respective terms hereof
and thereof do not require Seller to obtain any consent, approval or action of,
make any filing with, or give any notice to, any Person.
Section 3.06. COMPUTER SOFTWARE. Seller has set forth on Schedule
3.06(A) hereto a true and complete listing of all computer software programs
used principally in the conduct of the Business. Schedule 3.06(A) hereto also
sets forth whether each such computer software program is (i) owned by Seller
(the "Owned Principally Used Software") or (ii) licensed by Seller from a third
party (the "Licensed Principally Used Software"). Seller has set forth on
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Schedule 3.06(B) hereto a true and complete listing of all computer software
programs used generally in the conduct of the Seller's businesses as well as in
the conduct of the Business. Schedule 3.06(B) hereto also sets forth whether
each such computer software program is (i) owned by Seller (the "Owned Generally
Used Software") or (ii) licensed by Seller from a third party (the "Licensed
Generally Used Software"). Seller has, and on the Closing Date Purchaser or
Newco, as applicable, will have (w) the right to use, free and clear of any
royalty or other similar payment obligations, claims of infringement or alleged
infringement or other lien, charge, claim or other encumbrance of any kind, all
Owned Principally Used Software, (x) pursuant to the applicable License
Agreement, the right to use, solely in connection with the conduct of the
Business, free and clear of any royalty or other similar payment obligations,
claims of infringement or alleged infringement or other lien, charge, claim or
other encumbrance of any kind, all Owned Generally Used Software, (y) pursuant
to an assignment of Seller's rights to the Licensed Principally Used Software
or, if an assignment of Seller's rights to such software is not possible,
pursuant to one or more new license agreements to be entered into between
Purchaser or Newco, as applicable, and the licensors of such software, subject
to the terms and conditions of the assigned licenses or the new licenses to the
Licensed Principally Used Software, the right to use, free and clear of any
royalty or other similar payment obligations payable with respect to the Shared
Cost Period, claims of infringement or alleged infringement or other lien,
charge, claim or other encumbrance of any kind, other than maintenance fees, the
Licensed Principally Used Software, and (z) pursuant to one or more new license
agreements to be entered into between Purchaser or Newco, as applicable, and the
licensors of such software or pursuant to a sub-license granted by Seller to
Purchaser or Newco, as applicable, the right
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to use during the Shared Cost Period, solely in connection with the conduct of
the Business, free and clear of any royalty or other similar payment
obligations, other than maintenance fees or Purchaser's or Newco's pro rata
share of maintenance fees, as applicable, claims of infringement or alleged
infringement or other lien, charge, claim or other encumbrance of any kind, all
Licensed Generally Used Software; and Seller is not in conflict with or
violation or infringement of, nor has Seller received any notice of any such
conflict with, or violation or infringement of, any asserted rights of any other
Person with respect to any Owned Principally Used Software, Owned Generally Used
Software, Licensed Principally Used Software or Licensed Generally Used
Software. Notwithstanding the foregoing, Seller will be deemed not to have made
the representation contained in (i) clause (y) of the preceding sentence with
respect to any Licensed Principally Used Software which Seller is unable to
assign to Purchaser or Newco, as the case may be, due to the refusal of the
licensor thereof to consent to the assignment thereof or as to which Purchaser
or Newco, as the case may be, fails to enter into a license agreement with the
licensor thereof, in either case as a result of (A) Purchaser's or Newco's, as
the case may be, failure to cooperate with Seller in obtaining from any such
licensor the right for Purchaser or Newco, as the case may be, to operate such
software or (B) Purchaser's or Newco's, as the case may be, default under any
agreement or other dispute with any such licensor, and (ii) clause (z) of the
preceding sentence with respect to any Licensed Generally Used Software as to
which Purchaser or Newco, as the case may be, fails to enter into a license
agreement with the licensor thereof as a result of (A) Purchaser's or Newco's,
as the case may be, failure to cooperate with Seller in obtaining from any such
licensor the right for Purchaser or Newco, as the case may
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be, to operate such software or (B) Purchaser's or Newco's, as the case may be,
default under any agreement or other dispute with any such licensor.
Section 3.07. BROKERAGE AND FINANCIAL ADVISERS. No broker, finder or
financial adviser has acted directly or indirectly as such for, or is entitled
to any compensation from, Seller in connection with this Agreement or the
transactions contemplated hereby, except Morgan Stanley & Co., whose fees for
services rendered in connection with such transactions will be paid by Seller.
Section 3.08. COMPLIANCE WITH LAWS. Except as previously disclosed
to Purchaser and except with respect to those violations, if any, that will be
cured by Seller prior to, or by the act of, Closing or which individually or in
the aggregate would not have a Material Adverse Effect on the Business (i)
neither Seller nor the Seller Separate Account is in violation of any federal,
state, local or foreign law, ordinance or regulation or any other requirement of
any governmental or regulatory body, court or arbitrator applicable to the
Business nor has Seller received any written notice that any such violation is
being alleged and (ii) without limiting the generality of the foregoing, in
connection with Seller's pending triennial examination, Seller has not received
any notice, nor is aware of the intention to send any notice, from any state
regulatory authority alleging any violation of any such law, ordinance or
regulation or directing Seller to take any remedial action with respect to such
law, ordinance or regulation, in either case relating to the Business.
Section 3.09. PERMITS, LICENSES AND FRANCHISES. Schedule 3.09 hereto
lists (i) all jurisdictions in which Seller is licensed to issue the Insurance
Contracts and (ii) the lines of business in connection with the Business which
Seller is authorized to transact in each such
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jurisdiction. Seller has been duly authorized by the relevant state insurance
regulatory authorities to issue the Insurance Contracts that it is currently
writing, and was duly authorized to issue the Insurance Contracts that it is not
currently writing at the time such Insurance Contracts were issued, in the
respective states in which it conducts the Business. Except as set forth on
Schedule 3.09, Seller has all other Permits necessary to conduct the Business in
the manner and in the areas in which the Business is presently being conducted
and all such Permits are valid and in full force and effect, except where the
failure to have such a Permit would not individually or in the aggregate have a
Material Adverse Effect on the Business.
Section 3.10. ANNUITY BUSINESS. (a) The group annuity contracts
included in the Insurance Contracts in effect on the date hereof are listed on
Schedule 1.01(C) hereto. All Insurance Contracts as now in force are in all
respects, to the extent required under applicable law, on forms approved by
applicable insurance regulatory authorities or which have been filed and not
objected to by such authorities within the period provided for objection, and
such forms comply in all material respects with the insurance statutes,
regulations and rules applicable thereto, except where the failure to have such
approval or non-objection or the failure to so comply would not individually or
in the aggregate have a Material Adverse Effect on the Business. To Seller's
knowledge, at the time Seller paid commissions to any broker within the past 36
months in connection with the sale of Insurance Contracts, each such broker was
duly licensed as an insurance broker (for the type of business sold by such
broker) in the particular jurisdiction in which such broker sold such business
for Seller, and no such broker violated (or with or without notice or lapse of
time or both would have violated) any federal, state, local or foreign law,
ordinance or regulation or any other requirement of any governmental or
regulatory
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body, court or arbitrator applicable to the Business, except where the failure
to be so licensed or any such violation would not individually or in the
aggregate have a Material Adverse Effect on the Business. Except as previously
disclosed to Purchaser, (i) neither the manner in which Seller compensates any
association or broker involved in the sale or servicing of Insurance Contracts
that is not registered as a broker-dealer or insurance agent nor, to Seller's
knowledge, the conduct of any such association or broker, renders such
association or broker a broker-dealer or insurance agent under any applicable
federal or state law and (ii) the manner in which Seller compensates each
association or broker involved in the sale or servicing of Insurance Contracts
is in compliance with all applicable federal or state laws. Except as set forth
on Schedule 3.10(A) hereto, (i) as of the date hereof, no holder of a group
annuity contract which constitutes an Insurance Contract has indicated in
writing to Seller an intention to cancel or terminate such Insurance Contract
and (ii) no association or similar Person involved in the servicing of an
Insurance Contract has indicated in writing to Seller an intention to cease such
services or to cancel or terminate its agreement or other arrangement with
Seller.
(b) Except as set forth on Schedule 3.10(B) hereto, to Seller's
knowledge, no entity that is a party to an Insurance Contract is undergoing, or
has undergone in the past 12 months, an audit by the Internal Revenue Service
with respect to its compliance with section 403(b) of the Code, and Seller is
not aware of any such proposed audit.
(c) Except as previously disclosed by Seller to Purchaser (which
disclosure shall not affect or limit in any way Purchaser's or Newco's rights to
indemnification under Article X hereof):
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(i) each 403(b) Contractholder was, at the time the 403(b)
Contract was issued, and, to Seller's knowledge and at all relevant times
thereafter has been, an entity described in section 403(b)(1)(A) of the Code;
(ii) to the extent that by operation of law or written
agreement or otherwise Seller is legally responsible therefor, the terms of each
Transferred Contract and the administration and operation thereof and of any
plan funded in whole or in part through such Transferred Contract comply, and at
all relevant times have complied, in all material respects with the applicable
provisions of the Code and ERISA;
(iii) to the extent that by operation of law or written
agreement or otherwise Seller is legally responsible therefor, the terms of each
Transferred Contract and the administration and operation thereof and of any
plan funded in whole or in part through such Transferred Contract ensure that
contributions or payments to such Transferred Contract which are intended to be
nontaxable are not taxable;
(iv) to the extent that by operation of law or written
agreement or otherwise Seller is legally responsible therefor, the terms of all
contract loans made under a Transferred Contract, whether outstanding or
previously made, and the administration thereof by Seller, at all relevant times
have complied in all material respects with all applicable requirements of the
Code and ERISA, including but not limited to prohibited transaction rules and
the provisions of section 72(p) of the Code, such that such contract loans were
not taxable when made or at any time thereafter, except with respect to taxable
defaults in repayment of such contract loans;
(v) to the extent that by operation of law or written
agreement or otherwise Seller is legally responsible therefor, the terms of each
Transferred Contract and the
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administration and operation thereof and of any plan funded in whole or in part
through any such contract, to the extent such plan is intended by the
Contractholder to limit fiduciary responsibility in accordance with section
404(c) of ERISA, comply in all material respects with all applicable
requirements for limiting fiduciary responsibility under section 404(c) of
ERISA;
(vi) Seller has previously disclosed to Purchaser a complete
list of 403(b) Contractholders (A) to whom Seller has provided reductions in
fees or increases in contract rates of return based on the volume of
contributions made to 403(b) Contracts and (B) whose Transferred Contracts
include (through riders or otherwise) provisions for individual retirement
accounts or annuities within the meaning of section 408 of the Code;
(vii) by the Closing Date Seller will have delivered to
Purchaser or Newco, as applicable, with respect to those files delivered to
Purchaser in computer imaged or electronic form, paper copies thereof including
but not limited to copies of all quarterly Participant statements (as provided
to the Participant);
(viii) to the extent that by operation of law or written
agreement or otherwise Seller is legally responsible therefor, Seller has in
place and is operating a system for properly calculating, deducting, accounting
for, recording, and reporting to the IRS Participant contract loans under the
Transferred Contracts, and, if requested by Purchaser, Seller will cooperate in
a commercially reasonable time and manner with Purchaser to establish an
automated system to process the foregoing;
(ix) to the extent that by operation of law or written
agreement or otherwise Seller is legally responsible therefor, Seller has in
place and is operating a system for prohibiting transactions involving any
Participant account under a Transferred Contract pending a
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determination (A) in the case of a Transferred Contract subject to the
provisions of section 401(a)(13) of the Code or section 206(d)(3)(B) of ERISA,
of whether a domestic relations order is a qualified domestic relations order
within the meaning of section 414(p) of the Code or section 206(d)(3)(B) of
ERISA, and (B) in the case of a Transferred Contract the transfer and attachment
of which is subject to state law and not to section 401(a)(13) of the Code or
section 206(d)(3)(B) of ERISA, of whether under applicable state law any portion
of such Transferred Contract has been transferred or attached under applicable
state law;
(x) to the extent that by operation of law or written agreement
or otherwise Seller is legally responsible to provide any form of testing for
compliance with any of the requirements of section 403(b) of the Code, such
testing has been provided in a manner (including, but not limited to the
solicitation of adequate data with which to perform such testing) that assures,
to the extent that data requested by Seller has been provided accurately, that a
reliable determination of whether such requirements have been met is obtained;
(xi) to the extent that by operation of law or written
agreement or otherwise Seller is legally responsible therefor, all minimum
required distribution amounts calculated by Seller with respect to each
Transferred Contract fully comply with applicable requirements of sections
401(a)(9) and 403(b)(10) of the Code, and, to the extent that by operation of
law or written agreement or otherwise Seller is legally responsible therefor,
Seller has in place and is operating a system for properly calculating,
deducting, accounting for, recording, and reporting to the IRS such minimum
required distribution amounts; and
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(xii) Seller maintains, on an electronic basis, accurate
historical records of contributions to the Transferred Contracts relevant for
calculating each Participant's exclusion allowance under Code section 403(b)(2).
For purposes of this Section 3.10(c), any noncompliance that results
in an indemnifiable Loss (as defined in Article X) shall be a failure to comply
in all material respects.
(d) Schedule 3.10(D) hereto lists all Insurance Contracts that, to
Seller's knowledge, are part of or held pursuant to an employee benefit plan
within the meaning of section 3(3) of ERISA.
Section 3.11. REGULATORY FILINGS. Seller has made available for
inspection by Purchaser all material registrations, filings, and submissions
made by Seller or by the Seller Separate Account with any governmental or
regulatory body and final reports of examinations with respect to Seller or the
Seller Separate Account issued by any such governmental or regulatory body to
the extent that such registrations, filings, submissions and reports relate to
the Business and (i) were made or issued on or subsequent to January 1, 1993, or
(ii) represent the most recent of such registrations, filings, submissions and
reports with respect to Insurance Contracts currently in effect but in a
category of Insurance Contracts not written by Seller after January 1, 1993.
Except as listed on Schedule 3.11 hereto, Seller has filed all reports,
statements, documents, registrations, filings or submissions (including without
limitation any sales material) required to be filed by Seller or the Seller
Separate Account with any governmental or regulatory body to the extent they
relate to the Business, and UNUM Sales Corporation has filed all sales material
required to be filed by it with any governmental or regulatory body to the
extent that they relate to the Business except, in each case, where the
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failure to make such filings would not individually or in the aggregate have a
Material Adverse Effect on the Business. Except as listed on Schedule 3.11
hereto, all such registrations, filings and submissions were in compliance in
all material respects with applicable law when filed or as amended or
supplemented, and no material deficiencies have been asserted by any such
governmental or regulatory body with respect to such registrations, filings or
submissions that have not been satisfied.
Section 3.12. BROKERS. Schedule 3.12(A) hereto lists all Persons who
have acted as brokers (including broker-dealers) with respect to Insurance
Contracts which are in force and who were paid commissions by Seller within the
past 12 months. Schedule 3.12(B) hereto lists all of the brokers who were paid
at least $100,000 in commissions by Seller with respect to the Business during
1994 or at least $75,000 in commissions by Seller with respect to the Business
during the first three calendar quarters of 1995 ("Significant Brokers") and
identifies any Significant Broker who has indicated in writing to Seller that
such broker will not sell or market on behalf of Purchaser group annuity
contracts of the type which constitute the Business after the consummation of
the transactions contemplated by this Agreement. Schedule 3.12(B) hereto sets
forth (i) the standard forms of agreements between Seller and brokers which
relate to the Business, (ii) a list of those Significant Brokers as to which
such agreements are in effect and (iii) a list of those Significant Brokers who
have received commission payments from Seller which do not relate to the
Business and, except as set forth on Schedule 3.12(B) hereto, (iv) there are no
other written agreements between Seller and any Significant Brokers providing
for the compensation or indemnification of such brokers in connection with the
Business or the provision of financing (whether in the form of contract loans or
otherwise) to such brokers.
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Each of such contracts and other agreements relating to the Business between
Seller and the Significant Brokers is valid, binding and in full force and
effect in accordance with its terms. Neither Seller nor, to Seller's knowledge,
any Significant Broker is in default in any material respect with respect to any
such contract or such other agreement.
Section 3.13. REINSURANCE. There are no agreements, written or oral,
pursuant to which Seller cedes or retrocedes risks assumed under the Insurance
Contracts. There are no Insurance Contracts which are agreements of assumed
reinsurance.
Section 3.14. BANKING ARRANGEMENTS. Schedule 3.14 hereto contains a
complete and accurate list and description of (a) all bank accounts used in
whole or part in connection with the Business and (b) all lock box arrangements
used in whole or in part in connection with the Business.
Section 3.15. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as
previously disclosed to Purchaser or except as expressly contemplated or
required by this Agreement, since December 31, 1994, Seller has generally
conducted the Business only in the ordinary course and there has not been (a)
any material change in the underwriting, pricing, actuarial, reserving or
investment practices or policies of the Business or any material adverse change
in mortality or lapse experience, or (b) any transaction, commitment, dispute,
damage, destruction, loss or other event or condition of any character (whether
or not in the ordinary course of business), individually or in the aggregate
having, or which, insofar as reasonably can be foreseen, is likely to have, a
Material Adverse Effect on the Business, other than events or conditions
relating to the life insurance industry generally. Schedule 3.15 sets forth the
aggregate dollar amount of all surrenders and withdrawals under Insurance
Contracts (or contracts that would constitute
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Insurance Contracts if they were in effect on the Effective Date) from and after
June 30, 1995 to December 31, 1995. On or prior to the Closing Date, Seller
shall deliver to Purchaser an updated Schedule 3.15, which shall set forth the
aggregate dollar amount of all surrenders and withdrawals under Insurance
Contracts (or contracts that would constitute Insurance Contracts if they were
in effect of the Effective Date) from and after December 31, 1995 to the date
which is the last day of the second month preceding the month in which the
Closing Date falls.
Section 3.16. OTHER SALE ARRANGEMENT. Seller is not obligated or
liable, contingently or otherwise, for or with respect to negotiations, letters
of intent or commitments for the sale of all or any part of the Business to any
Persons other than Purchaser and Newco.
Section 3.17. SELLER SEPARATE ACCOUNT. The Seller Separate Account
is duly and validly established and maintained under the laws of the State of
Maine and the assets of the Seller Separate Account are not chargeable with
liabilities arising out of any other business that Seller may conduct; the
Seller Separate Account is duly registered as an investment company under the
1940 Act; the Seller Separate Account is and has been operated in compliance
with the 1940 Act in all material respects, and Seller has filed all material
reports and amendments of its registration statement required to be filed, and
has been granted all exemptive relief necessary for the operations of the Seller
Separate Account. The Insurance Contracts under which the Seller Separate
Account assets are held are duly and validly issued and were sold pursuant to an
effective registration statement under the Securities Act and any applicable
state securities laws and each such registration statement is currently in
effect to the extent necessary to allow Seller to receive contributions under
such contracts. Seller has filed each prospectus and statement of additional
information, as amended or supplemented, under which the Seller
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Separate Account assets are held that are required to be filed, and each such
prospectus and statement of additional information, as of its respective mailing
date or date of use, contained no untrue statement of a material fact and did
not omit to state any material fact required to be stated therein or necessary
in order to make the statements therein not misleading.
Section 3.18. ASSIGNED AND ASSUMED CONTRACTS. Each of the Assigned
and Assumed Contracts is valid, binding and in full force and effect according
to its terms and is freely assignable to Purchaser or Newco, as applicable,
pursuant to this Agreement and the General Assignment Agreements without notice
to or consent of any Person, other than as specified on Schedule 3.05 hereto.
Neither Seller nor, to Seller's knowledge, any other party to any such contract
is in default in any material respect with respect to any such contract or such
other agreement.
Section 3.19. EMPLOYEES. (a) Schedule 3.19(A) hereto lists each
Person employed by Seller immediately prior to the execution of this Agreement
who customarily devotes more than 20 hours per week to the Business, and further
identifies any such Person who has notified Seller in writing as of the date of
this Agreement that such Person will not continue working in the Business after
the consummation of the transactions contemplated by this Agreement. On the
Closing Date, Seller shall deliver to Purchaser an addendum to Schedule 3.19(A),
which will identify any Person listed on Schedule 3.19(A) who, as of the Closing
Date, is (i) receiving benefits under Seller's long-term disability plan, (ii)
receiving benefits under Seller's short-term disability plan or (iii) on an
approved leave of absence. The employees listed on Schedule 3.19(A) currently
meet the standards set by Seller for continuing the employment of its employees
in their respective current positions.
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(b) Schedule 3.19(B) hereto lists and describes any "pay to stay" or
similar arrangement applicable to any employee listed on Schedule 3.19(A) hereto
as of the date of this Agreement.
Section 3.20. EMPLOYEE BENEFIT PLANS; ERISA. (a) Schedule 3.20(A)
hereto contains a list and brief description of (i) all "employee pension
benefit plans," as defined in section 3(2) of ERISA, established, maintained, or
contributed to by Seller or any of its Affiliates for the benefit of any
employees listed on Schedule 3.19(A) (sometimes referred to herein as the
"Pension Plans"); (ii) all "employee welfare benefit plans," as defined in
section 3(1) of ERISA, established, maintained, or contributed to by Seller or
any of its Affiliates for the benefit of any employees listed on Schedule
3.19(A) (sometimes referred to herein as the "Welfare Plans"); and (iii) all
other benefit plans, programs, and arrangements established, maintained, or
contributed to by Seller or any of its Affiliates for the benefit of any
employees listed on Schedule 3.19(A), without regard to the coverage of any such
plan, program, or arrangement by ERISA or any provision of the Code. The plans
listed on Schedule 3.20(A) are collectively referred to herein as the "Benefit
Plans."
(b) (i) No Pension Plan established or maintained by Seller or any
of its Affiliates, and no Pension Plan to which Seller or any of its Affiliates
is obligated to make contributions, had, as of January 1, 1995, an "unfunded
benefit liability," as defined in section 4001(a)(18) of ERISA;
(ii) No Pension Plan established or maintained by Seller or any
of its Affiliates, and no Pension Plan to which Seller or any of its Affiliates
is obligated to make
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contributions, has an "accumulated funding deficiency," as defined in section
302 of ERISA and section 412 of the Code, whether or not waived;
(iii) To the best of Seller's knowledge, none of Seller, any of
its Affiliates, any officer of Seller or of any of its Affiliates, any Benefit
Plan (including the Pension Plans) that is subject to ERISA, any trust created
under any such Benefit Plan, or any trustee or administrator of any such Benefit
Plan has engaged in a "prohibited transaction," as defined in section 406 of
ERISA or section 4975 of the Code, or in any other breach of fiduciary
responsibility with respect to a Benefit Plan that could subject Seller, any of
its Affiliates, or any officer of Seller or of any of its Affiliates to any tax
or penalty pursuant to section 4975 of the Code or to any liability under
section 502(i) or 502(l) of ERISA;
(iv) No Pension Plan established or maintained by Seller or any
of its Affiliates or to which Seller or any of its Affiliates is obligated to
make contributions, and no trust created under any such Pension Plan, has been
terminated or experienced a "reportable event," as defined in section 4043 of
ERISA, during the five-year period ending on the date of execution of this
Agreement; and
(v) No Pension Plan to which Seller or any of its Affiliates is
obligated to make contributions is a "multiemployer plan," as defined in section
4001(a)(3) of ERISA, or a single-employer plan under multiple controlled groups,
within the meaning of sections 4063-64 of ERISA.
(c) To the best of Seller's knowledge and except to the extent set
forth in Schedule 3.20(C) hereto, each Welfare Plan that is a "group health
plan," as defined in section 5000(b)(1)
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of the Code, complies in all material respects with the applicable requirements
of section 4980B of the Code ("COBRA").
(d) To the best of Seller's knowledge, and with the exception of
claims for benefits, including associated appeals and disputes of denied claims,
arising in the ordinary course of administration of the Benefit Plans, no
material claims, assessments, investigations, or proceedings in arbitration or
litigation relating to or arising under any Benefit Plan are pending or
threatened against Seller, any of its Affiliates, any Benefit Plan, or any trust
or other funding arrangement created under or established as part of any Benefit
Plan, or against any trustee, fiduciary, custodian, administrator, or any other
Person holding or controlling assets of any Benefit Plan, and Seller has no
basis to anticipate that any such claim or claims exist.
Section 3.21. LABOR RELATIONS AND EMPLOYMENT. Except to the extent
set forth in Schedule 3.21 hereto, (i) there is no labor strike, dispute,
slowdown, stoppage or lockout actually pending or, to Seller's knowledge,
threatened against or affecting Seller in connection with the Business, and,
since January 1, 1990, there has not been any such action; (ii) to Seller's
knowledge, no union claims to represent the employees of Seller in connection
with the Business and there are no current union organizing activities among
such employees; (iii) Seller is not a party to or bound by any collective
bargaining or similar agreement with any labor organization applicable to
Seller's employees in connection with the Business; and (iv) there are no
material written personnel policies, rules or procedures applicable to Seller's
employees in connection with the Business, other than those set forth in
Schedule 3.21, true and correct copies of which have heretofore been delivered
to Purchaser.
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Section 3.22. TRANSFERRED ASSETS. Seller has good and marketable
title to all assets included within the Transferred Assets (other than cash, the
Assignable Licensed Principally Used Software and the Assigned and Assumed
Contracts), free of any lien, encumbrance, restriction, claim, charge, or defect
of title, and each of the Cash Equivalents that constitute Transferred Assets is
realizable in accordance with its terms.
Section 3.23. CONTRACTS. (a) Schedule 3.23(A) lists and briefly
describes (including the parties to and the date and subject matter of) each and
every written contract, agreement, lease, license, commitment or arrangement
and, to the knowledge of Seller, each and every oral contract, agreement,
commitment or arrangement, to which Seller is a party or which is binding upon
Seller that relate to the Business, except only for (i) those specifically
disclosed in any other Schedule to this Agreement, including but not limited to
the Insurance Contracts, (ii) those which do not relate in any significant
manner to the Business or (iii) having a value to or imposing an obligation upon
Seller not in excess of $10,000 in respect of any individual item or not in
excess of $200,000 in the aggregate for all items not listed and not otherwise
properly excluded.
(b) Each of the contracts listed on Schedule 3.23(A) is in full force
and effect and constitutes a legal, valid and binding obligation of Seller, and
to Seller's knowledge, of each other Person that is a party thereto. Except as
set forth on Schedule 3.23(A), neither Seller nor, to Seller's knowledge, any
other party to such contract is in material violation, breach or default of any
such contract or, with or without notice or lapse of time or both, would be in
material violation, breach or default of any such contract. Except as set forth
on Schedule 3.23(A), no such contract contains any provision providing that any
party thereto other than Seller may
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terminate such contract by reason of the execution of this Agreement or the
Ancillary Agreements or the transactions contemplated thereby.
(c) Schedule 3.23(C) hereto lists and briefly describes each and
every written contract, agreement, commitment or arrangement, and each and every
oral contract, agreement, commitment or arrangement, to which Seller is a party
or which is binding upon Seller that relate to the Business, pursuant to which
Seller is or may become obligated to indemnify any Person in connection with the
Business. Except as set forth on Schedule 3.23(C), no indemnification
obligations are currently payable by Seller under any such agreement or have
become payable by Seller under any such agreement since December 31, 1992.
(d) Notwithstanding the generality of the foregoing, Schedule 3.23(D)
hereto lists and briefly describes each and every written contract, agreement,
commitment or arrangement, and each and every oral contract, agreement,
commitment or arrangement, to which Seller is a party or which is binding upon
Seller that restrict the right of Seller to change the crediting rates under the
Insurance Contracts, other than pursuant to the terms of the Insurance
Contracts.
Section 3.24. STATUTORY STATEMENTS. Seller has previously disclosed
to Purchaser true, complete and correct copies of the Annual Statements of
Seller as filed with the Maine Insurance Department for the years ended December
31, 1994, 1993 and 1992, together with all exhibits and schedules thereto
applicable to the Business and the actuarial opinions applicable to the Business
for such years and supporting actuarial memoranda for the year ended December
31, 1994 only. Seller has previously disclosed to Purchaser a true, complete
and correct copy of the Quarterly Statements of Seller as filed with the Maine
Insurance Department for the
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quarters ended September 30, 1995, June 30, 1995 and March 31, 1995, together
with all exhibits and schedules thereto.
Section 3.25. TAX MATTERS. (a) Each Insurance Contract, other than
those identified on Schedule 3.25 (which contracts were not intended at any time
to meet the requirements of Section 8.18(a) of the Code), is a "pension plan
contract" as defined in section 818(a) of the Code.
(b) The transfer of the Insurance Contracts from Seller to Purchaser
or Newco, as applicable, under this Agreement and the Ancillary Agreements will
not result in the imposition of any Taxes on the holders of the Insurance
Contracts or in the loss of any Tax benefits to which the holders are entitled
under the Insurance Contracts.
(c) To the extent required by law, the assets of the Seller Separate
Account are adequately diversified within the meaning of section 817(h) of the
Code.
(d) Except as previously disclosed to Purchaser, to the extent
required, each Insurance Contract complies with section 72 of the Code.
(e) The amount of the reserves maintained by Seller for federal
income tax purposes and properly computed as specified by the Code with respect
to the Insurance Liabilities is equal to the sum of the General Account Reserves
and the Separate Account Liabilities.
Section 3.26. FINANCIAL STATEMENT DATA. Schedule 3.26 contains
certain GAAP and statutory financial statement data for the Business for the
years 1993 and 1994 and for the interim periods ended March 31, 1995, June 30,
1995, and September 30, 1995. Such data was obtained from the books and records
of Seller and is the same data that was included with
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respect to the Business in the internal and external GAAP and statutory
financial statements of Seller. Such data was computed in accordance with, as
applicable, GAAP and Maine SAP. From time to time prior to the Closing Date,
Seller shall deliver to Purchaser similar financial statement data for the one-
year period ending December 31, 1995 and for the three-month period most
recently ended, as such data is compiled in the normal course of Seller's
business. Such additional financial data shall be based on the books and
records of Seller and will be computed in accordance with GAAP and Maine SAP, as
applicable.
Section 3.27. TRANSITION SERVICES AGREEMENT. Except as set forth in
Schedule 1 to the Transition Services Agreement, the amounts to be paid by
Purchaser to Seller pursuant to the terms of the Transition Services Agreement
are, or have been computed at, rates that are substantially consistent with
Seller's internal charge-back rates as of the date hereof.
Section 3.28. CREDITING RATE. The weighted aggregate general account
crediting rate in effect as of the date hereof with respect to the Core
Insurance Contracts does not exceed 6.06%.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to Seller as follows:
Section 4.01. ORGANIZATION AND STANDING. Purchaser is a corporation
duly organized and validly existing under the laws of the State of Indiana and
has all requisite power and authority to own, lease and operate its assets,
properties and business and to carry on the operations of its business as they
are now being conducted. On the Closing Date, Newco will be a corporation duly
organized, validly existing and in good standing under the laws of the
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State of New York and will have all requisite power and authority to own, lease
and operate its assets, properties and business and to carry on the operations
of its business as it is then being conducted.
Section 4.02. AUTHORIZATION. Purchaser has and, on the Closing Date
Newco will have, all requisite power and authority to execute, deliver and
perform its obligations under this Agreement and under each of the Ancillary
Agreements to be executed by it. The execution and delivery by Purchaser of
this Agreement and the execution and delivery of the Ancillary Agreements to be
executed by Purchaser and Newco, and the performance by each of them of their
obligations under such agreements, have been or will be duly authorized. This
Agreement has been, and on the Closing Date the Ancillary Agreements executed by
Purchaser and Newco, respectively, will be duly executed and delivered by
Purchaser and Newco; and, subject to the due execution and delivery by the other
parties to such agreements, this Agreement is, and the Ancillary Agreements
executed by Purchaser and Newco will, upon due execution and delivery, be valid
and binding obligations of Purchaser and Newco, respectively, enforceable
against Purchaser and Newco in accordance with their respective terms.
Notwithstanding the foregoing, the obligation of Purchaser and Newco to execute
any Ancillary Agreement shall be subject to the terms and conditions of this
Agreement.
Section 4.03. ACTIONS AND PROCEEDINGS. Except as disclosed on
Schedule 4.03 hereto, there are no outstanding orders, decrees or judgments by
or with any court, governmental agency, regulatory body or arbitration tribunal
before which Purchaser or any of its material Affiliates was a party and, on the
Closing Date, there will be no such orders, decrees or judgments as to Newco,
that, individually or in the aggregate, have a Material
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Adverse Effect on Purchaser, Newco and/or any of their material Affiliates or
(after giving effect to the Closing) have a Material Adverse Effect on the
Business. Except as disclosed on Schedule 4.03 hereto, there are no actions,
suits, arbitrations or legal, administrative or other proceedings pending or, to
Purchaser's knowledge, threatened against Purchaser or any of its material
Affiliates, at law or in equity, or before or by any governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign, or
before any arbitrator of any kind which, if adversely determined, would,
individually or in the aggregate, have a Material Adverse Effect on Purchaser
and/or any of its material Affiliates or (after giving effect to the Closing)
have a Material Adverse Effect on the Business and, on the Closing Date, there
will be no such actions, suits, arbitrations or other proceedings as to Newco.
Section 4.04. NO CONFLICT OR VIOLATION. Except as disclosed on
Schedule 4.04 hereto, the execution, delivery and performance by Purchaser of
this Agreement and the execution, delivery and performance by each of Purchaser
and Newco of the Ancillary Agreements to which it is a party and the
consummation of the transactions contemplated hereby and thereby in accordance
with the respective terms and conditions hereof and thereof will not (a) violate
any provision of the charter, bylaws or other organizational document of
Purchaser or Newco, (b) violate, conflict with or result in the breach of any of
the terms of, result in any modification of the effect of, otherwise give any
other contracting party the right to terminate, or constitute (or with notice or
lapse of time or both, constitute) a default under, any contract or other
agreement to which Purchaser or Newco is a party or by or to which either of
them or any of their respective assets or properties may be bound or subject,
(c) violate any order, judgment, injunction, award or decree of any court,
arbitrator or governmental or regulatory
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body against, or binding upon, or any agreement with, or condition imposed by,
any governmental or regulatory body, foreign or domestic, binding upon Purchaser
or Newco, (d) violate any statute, law or regulation of any jurisdiction which
violation would have a Material Adverse Effect on Purchaser, Newco and/or any of
their material Affiliates or (after giving effect to the Closing) have a
Material Adverse Effect on the Business, or (e) result in the breach of any of
the terms or conditions of, constitute a default under, or otherwise cause an
impairment of, any Permit related to Purchaser's or Newco's business or
necessary to conduct the Business.
Section 4.05. CONSENTS AND APPROVALS. Except as required under the
HSR Act or as set forth on Schedule 4.05 hereto and except for required Permits
of applicable insurance and securities regulatory authorities, the execution,
delivery and performance by Purchaser of this Agreement, and the execution,
delivery and performance by each of Purchaser and Newco of the Ancillary
Agreements to which it is a party, and the consummation of the transactions
contemplated hereby and thereby in accordance with the respective terms hereof
and thereof, do not require Purchaser or Newco to obtain any consent, approval
or action of, make any filing with or give any notice to, any Person.
Section 4.06. BROKERAGE AND FINANCIAL ADVISERS. No broker, finder or
financial adviser has acted directly or indirectly as such for, or is entitled
to any compensation from, Purchaser or Newco in connection with this Agreement
or the transactions contemplated hereby.
Section 4.07. COMPLIANCE WITH LAWS. Except as listed on Schedule
4.07 hereto, Purchaser is not in violation of any federal, state, local or
foreign law, ordinance or regulation or any other requirement of any
governmental or regulatory body, court or arbitrator nor has
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Purchaser received any written notice that any such violation is being alleged,
in each case except those that will be cured by Purchaser prior to, or by the
act of, Closing or (after giving effect to the Closing) which individually or in
the aggregate would not have a Material Adverse Effect on the Business. On the
Closing Date, Newco will not be in violation of any federal, state, local or
foreign law, ordinance or regulation or any other requirement of any
governmental or regulatory body, court or arbitrator or have received any
written notice that any such violation is being alleged, in each case except
those that will be cured by the act of Closing or (after giving effect to the
Closing) which individually or in the aggregate would not have a Material
Adverse Effect on the Business.
Section 4.08. PERMITS, LICENSES AND FRANCHISES. Purchaser has been
duly authorized by the relevant state insurance regulatory authorities to
transact each of the lines of insurance business in each of the jurisdictions as
set forth on Schedule 4.08 hereto. Except as listed on Schedule 4.08 hereto,
Purchaser has all Permits necessary to conduct the Business in the manner and in
the areas in which the Business is presently being conducted, and all such
Permits are valid and in full force and effect. Except as listed on Schedule
4.08 hereto, Purchaser has not engaged in any activity which would cause
revocation or suspension of any such Permit and no action or proceeding looking
to or contemplating the revocation or suspension of any such Permit is pending
or threatened. On the Closing Date, Newco will be so authorized in New York,
will have all such Permits and will not be engaged in any such activities.
Section 4.09. GAAP FINANCIAL STATEMENTS. On or prior to the date
hereof, Purchaser has delivered to Seller true, correct and complete copies of
(a) the audited
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consolidated balance sheet of Purchaser and its Subsidiaries as of December 31,
1994, prepared in accordance with GAAP, together with the notes thereon and the
related report of Ernst & Young, LLP, the independent certified public
accountant of Purchaser, and (b) the audited consolidated statements of income,
stockholders' equity and cash flows of Purchaser and its Subsidiaries for the
year ended December 31, 1994, prepared in accordance with GAAP, together with
the notes thereon and the related report of Ernst & Young, LLP (collectively,
the "Purchaser Financial Statements"). Purchaser has delivered to Seller a
true, correct and complete copy of the consolidated balance sheet, and the
related consolidated statements of income, stockholders' equity and cash flows
of Purchaser and its Subsidiaries for the quarters ended September 30, 1995,
June 30, 1995 and March 31, 1995, prepared in accordance with GAAP (the "Interim
Purchaser Financial Statements"). The Purchaser Financial Statements and the
Interim Purchaser Financial Statements are based on the books and records of
Purchaser and its Subsidiaries, and the Purchaser Financial Statements have been
prepared in accordance with GAAP consistently applied, audited by Ernst & Young,
LLP and fairly present in all material respects the consolidated financial
position and results of operations of Purchaser and its Subsidiaries as of the
date and for the period indicated therein.
Section 4.10. STATUTORY STATEMENTS. Purchaser has furnished to
Seller true, complete and correct copies of the Annual Statements of Purchaser
as filed with the Indiana Insurance Department for the years ended December 31,
1994, 1993 and 1992, together with all exhibits and schedules thereto and
applicable actuarial opinions. Purchaser has furnished to Seller a true,
complete and correct copy of the Quarterly Statements of Purchaser as filed with
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the Indiana Insurance Department for the quarters ended September 30, 1995, June
30, 1995 and March 31, 1995, together with all exhibits and schedules thereto.
Section 4.11. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as listed
on Schedule 4.11 hereto or except as expressly contemplated or required by this
Agreement, since December 31, 1994, there has not been (i) any change in the
business, operations, condition (financial or otherwise), results of operations,
properties, prospects or assets of Purchaser or (ii) in the ability of Purchaser
to consummate the transactions contemplated hereby or in any Ancillary
Agreement, in either case that has had or is likely to have a Material Adverse
Effect on Purchaser and/or any of its material Affiliates or (after giving
effect to the Closing) have a Material Adverse Effect on the Business, in either
case other than events or conditions relating to the life insurance industry
generally.
Section 4.12. RELATIONS WITH INVESTMENT COMPANIES. Purchaser does
not have, and has not previously had, any adverse relationship with any
investment company in which any Seller Separate Account assets are invested, or
with any investment adviser thereof, or any Affiliate of either of the
foregoing, which would reduce in any significant respect the likelihood of
Purchaser entering into a new participation agreement with such Person on
substantially the same terms as the currently existing agreement between such
Person and Seller. Without limiting the generality of the foregoing, Purchaser
has a good relationship with FMR Corp. and its Subsidiaries.
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ARTICLE V
COVENANTS
Section 5.01. CONDUCT OF BUSINESS. (a) Prior to the Closing, Seller
shall, unless it shall receive the prior written consent of Purchaser:
(i) operate the Business as presently operated and only in
the ordinary course and consistent with past practice (including but
not limited to past underwriting standards) and use commercially
reasonable efforts to preserve its relationship with and the goodwill
of its brokers, customers, suppliers, employees and other Persons
having business dealings with Seller in connection with the Business;
and
(ii) give notice to Purchaser as promptly as practicable of
any Material Adverse Effect with respect to the Business.
(b) Prior to Closing, Seller shall notify Purchaser upon entering
into any group contract which, if in effect on the Effective Date, would
constitute an Insurance Contract.
(c) Prior to the Closing, Purchaser and Seller shall cooperate to
preserve the goodwill of the brokers, customers, employees and suppliers and
other Persons having business dealings with Seller in connection with the
Business.
(d) Prior to the Closing, Seller shall operate the Business in
accordance with industry standards in effect during such time.
Section 5.02. CERTAIN TRANSACTIONS. From the date of this Agreement
through the Closing, neither Seller nor any of its officers, employees,
representatives or agents will, directly or indirectly, solicit, encourage or
initiate any negotiations or discussions with, or provide any information to, or
otherwise cooperate in any other manner with, any Person or group (other
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than Purchaser, Newco and their respective Affiliates) concerning any direct or
indirect sale or other disposition of the Business.
Section 5.03. INVESTIGATIONS. (a) Prior to the Closing Date,
Purchaser shall be entitled, through its employees and representatives, to make
such investigation of the assets, liabilities, business and operations of the
Business, and such examination of the Books and Records, as Purchaser may
reasonably request, including, without limitation, for the purpose of
investigating the financial condition, service quality and operations of Seller.
Any investigation, examination or interview by Purchaser of Seller's employees
shall be conducted at reasonable times upon reasonable prior notice; and each of
the parties hereto and its employees and representatives, including, without
limitation, counsel, investment bankers, and independent public accountants,
shall cooperate with the other's employees and representatives, as the case may
be, in connection with such review and examination.
(b) Prior to the Closing Date, Seller shall be entitled, through its
employees and representatives, to make such investigation of the assets,
liabilities, business and operations of Purchaser and Newco as Seller may
reasonably request. Any such investigation or examination shall be conducted at
reasonable times upon reasonable prior notice; and each of the parties hereto
and its employees and representatives, including, without limitation, counsel,
investment bankers, and independent public accountants, shall cooperate with the
other's employees and representatives, as the case may be, in connection with
such review and examination.
Section 5.04. CONTINUED ACCESS. (a) Following the Closing Date,
Seller shall (i) allow Purchaser and/or Newco, upon reasonable prior notice and
during regular business hours, through their employees and representatives, the
right, at Purchaser's or Newco's
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expense, to examine and make copies of any books and records retained by Seller,
to the extent they relate to the Business, for any reasonable business purpose,
including, without limitation, the preparation or examination of Tax returns,
regulatory filings and financial statements and the conduct of any litigation or
regulatory dispute resolution, whether pending or threatened, concerning the
conduct of the Business prior to the Closing Date and (ii) maintain such books
and records for Purchaser's and/or Newco's examination and copying. Access to
such books and records shall be at Purchaser's or Newco's expense and may not
unreasonably interfere with Seller's or any successor company's business
operations.
(b) Following the Closing Date, Purchaser shall, and shall cause
Newco to, (i) allow Seller, upon reasonable prior notice and during regular
business hours, through its employees and representatives, the right, at
Seller's expense, to examine and make copies of the Books and Records
transferred to Purchaser and Newco, respectively, at the Closing for any
reasonable business purpose, including, without limitation, the preparation or
examination of Tax returns, regulatory filings and financial statements and the
conduct of any litigation or the conduct of any regulatory, contractholder,
participant or other dispute resolution whether pending or threatened, and (ii)
maintain such Books and Records for Seller's examination and copying. Access to
such Books and Records shall be at Seller's expense and may not unreasonably
interfere with Purchaser's or Newco's or any successor company's business
operations.
Section 5.05. HSR ACT FILINGS. Seller and Purchaser shall, as
promptly as practicable, file, or cause to be filed, Notification and Report
Forms to be filed under the HSR Act with the Federal Trade Commission (the
"FTC") and the Antitrust Division of the United
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States Department of Justice (the "Antitrust Division") in connection with
the transactions contemplated by this Agreement, the Ancillary Agreements and
the other agreements contemplated hereby and thereby, and will use their
respective reasonable efforts to respond as promptly as practicable to all
inquiries received from the FTC or the Antitrust Division for additional
information or documentation and to cause the waiting periods under the HSR
Act to terminate or expire at the earliest possible date. Seller and
Purchaser will each furnish to the other such necessary information and
reasonable assistance as the other may request in connection with its
preparation of necessary filings or submissions to any governmental or
regulatory agency, including, without limitation, any filings necessary under
the provisions of the HSR Act.
Section 5.06. CONSENTS AND REASONABLE EFFORTS. Seller and Purchaser
shall, and Purchaser shall cause Newco to, cooperate and use their best efforts
to obtain all consents, approvals and agreements of, and to give and make all
notices and filings with, any governmental authorities and regulatory agencies,
necessary to authorize, approve or permit the consummation of the transactions
contemplated by this Agreement, the Ancillary Agreements and the other
agreements contemplated hereby and thereby, including, without limitation, the
Permits described in Section 6.03(a); PROVIDED, HOWEVER, that with respect to
the covenants of Purchaser contained in Section 5.22 hereof, Purchaser shall be
required to use only commercially reasonable efforts. Seller shall use its best
efforts to obtain all approvals and consents to the transactions contemplated by
this Agreement and the Ancillary Agreements as set forth on Schedule 3.05
hereto. Purchaser will use its best efforts to obtain all approvals and
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consents to the transactions contemplated by this Agreement and the Ancillary
Agreements as set forth on Schedule 4.05 hereto.
Section 5.07. REPRESENTATIONS AND WARRANTIES. From the date hereof
through the Closing Date, (a) Seller shall use its best efforts to conduct its
affairs in such a manner so that, except as otherwise contemplated or permitted
by this Agreement, the representations and warranties contained in Article III
shall continue to be true, complete and correct in all material respects on and
as of the Closing Date as if made on and as of the Closing Date, (b) Purchaser
shall use its best efforts to conduct its affairs in such a manner so that,
except as otherwise contemplated or permitted by this Agreement, the
representations and warranties as to Purchaser contained in Article IV shall
continue to be true and correct in all material respects on and as of the
Closing Date as if made on and as of the Closing Date, (c) Seller shall use
commercially reasonable efforts to cause the representations and warranties
contained in Section 3.10(c) to be true and correct in all material respects on
and as of the Closing Date without regard to matters previously disclosed to
Purchaser; PROVIDED, HOWEVER, that Seller shall not be required to take any
action to cause the representations and warranties contained in Section 3.10(c)
to be true and correct (without regard to matters previously disclosed to
Purchaser) as of any particular date or period prior to the Closing Date, (d)
Seller shall notify Purchaser promptly of any event, condition or circumstance
known to Seller occurring from the date hereof through the Closing Date that
would constitute a violation or breach of this Agreement by Seller and
(e) Purchaser shall notify Seller promptly of any event, condition or
circumstance known to Purchaser occurring from the date hereof through the
Closing Date that would constitute a violation or breach of this Agreement by
Purchaser.
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Section 5.08. FURTHER ASSURANCES. (a) Upon the terms and subject to
the conditions herein provided, each of Seller and Purchaser shall, and
Purchaser shall cause Newco to, use all commercially reasonable efforts to take,
or cause to be taken, all action or do, or cause to be done, all things or
execute any documents necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement, the Ancillary Agreements and the other agreements contemplated
hereby and thereby.
(b) On and after the Closing Date, Seller and Purchaser shall take,
and Purchaser shall cause Newco to take, all reasonably appropriate action and
execute any additional documents, instruments or conveyances of any kind (not
containing additional representations and warranties) which may be reasonably
necessary to carry out any of the provisions hereof, including, without
limitation, putting each of Purchaser and Newco in full possession and operating
control of the Transferred Assets and the Business which each is assuming
pursuant to this Agreement and the Ancillary Agreements.
Section 5.09. EXPENSES. Except as otherwise specifically provided in
this Agreement, the parties to this Agreement shall bear their respective
expenses incurred in connection with the preparation, execution and performance
of this Agreement and the transactions contemplated hereby, including, without
limitation, all fees and expenses of agents, representatives, counsel,
investment bankers, actuaries and accountants; PROVIDED, HOWEVER, that
(a) Seller and Purchaser shall share equally the cost of the filing fees in
connection with the filings with the FTC and the Antitrust Division under the
HSR Act with respect to the transactions contemplated hereby and (b) Purchaser
shall bear the cost of obtaining required
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insurance regulatory approvals and Commission approvals (other than any
approvals that relate solely to Seller), consents and orders for the
implementation of the Indemnity Reinsurance Agreements and the Assumption
Reinsurance Agreements from regulatory authorities (other than approvals from
the Insurance Departments of the States of Maine, New York and California, as to
which each party shall bear its own expenses) and the actual out-of-pocket costs
of providing policyholder notices and otherwise implementing the Assumption
Reinsurance Agreements in accordance with their respective terms.
Section 5.10. ASSUMPTION REINSURANCE AGREEMENTS. At the Closing,
Seller and Purchaser shall execute and deliver to each other the Purchaser
Assumption Reinsurance Agreement in substantially the form of Exhibit A-1
hereto, and Seller and Newco shall execute and deliver to each other the Newco
Assumption Reinsurance Agreement in substantially the form of Exhibit A-2
hereto, each of which shall be effective as of the Effective Date.
Section 5.11. INDEMNITY REINSURANCE AGREEMENTS. At the Closing,
Seller and Purchaser shall execute and deliver to each other the Purchaser
Indemnity Reinsurance Agreement in substantially the form of Exhibit B-1 hereto,
and Seller and Newco shall execute and deliver to each other the Newco Indemnity
Reinsurance Agreement in substantially the form of Exhibit B-2 hereto, each of
which shall be effective as of the Effective Date.
Section 5.12. ADMINISTRATIVE SERVICES AGREEMENT. At the Closing,
Seller and Purchaser shall execute and deliver to each other the Administrative
Services Agreement, which shall be effective as of the Closing Date, in
substantially the form of Exhibit C hereto.
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Section 5.13. TRANSITION SERVICES AGREEMENT. At the Closing, Seller
and Purchaser shall execute and deliver to each other the Transition Services
Agreement, which shall be effective as of the Closing Date, in substantially the
form of Exhibit D hereto.
Section 5.14. BILL OF SALE. At the Closing, Seller shall execute and
deliver to Purchaser and Newco the Bill of Sale, which shall be effective as of
the Closing Date, in substantially the form of Exhibit E hereto.
Section 5.15. TRUST AGREEMENTS. At the Closing, Seller, Purchaser
and the Trustee shall execute and deliver to each other the Purchaser Trust
Agreement in substantially the form of Exhibit F-1 hereto, and Seller, Newco and
the Trustee shall execute and deliver to each other the Newco Trust Agreement in
substantially the form of Exhibit F-2 hereto, each of which shall be effective
as of the Closing Date.
Section 5.16(a). GENERAL ASSIGNMENT AGREEMENTS. At the Closing,
Seller and Purchaser shall execute and deliver to each other a General
Assignment Agreement and Seller and Newco shall execute and deliver to each
other a General Assignment Agreement, each of which shall be effective as of the
Closing Date, each in substantially the form of Exhibit G hereto.
Section 5.16(b). CUSTODIAN AGREEMENT. At the Closing, Purchaser
shall cause Newco to execute and deliver and Seller and the Custodian shall
execute and deliver to each other a Custodian Agreement substantially in the
form of Exhibit K hereto.
Section 5.17. COINSURANCE AND ASSUMPTION AGREEMENT. Seller agrees
that for a period of 18 months commencing with the Closing Date it will issue,
at the written request of Purchaser, group annuity contracts of the type that
would be included in the Business if in effect
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on the Closing Date; PROVIDED, HOWEVER, that Seller shall be obligated to issue
such contracts in a particular state only until such time as Purchaser has
received form approval for a similar group annuity contract from the insurance
regulatory authorities of such state and, if required, has a registration
statement with respect to such contract that has been declared effective by the
Commission. Upon the receipt of such approval and the receipt of any other
required regulatory approvals and such declaration of effectiveness, Purchaser
shall assume all contracts issued by Seller hereunder in such state. Pending
such assumption, Purchaser shall 100% coinsure the general account liabilities
under such contracts and shall administer such contracts pursuant to the
Administrative Services Agreement. At the Closing, Seller and Purchaser shall
execute and deliver to each other the Coinsurance and Assumption Agreement,
which shall be effective as of the Closing Date, in substantially the form of
Exhibit H hereto, to implement the reinsurance arrangements described in this
Section 5.17. Promptly following the Closing, Purchaser will make all required
filings with governmental and regulatory bodies in order to apply for the
approvals and declarations referred to above and will diligently pursue the
issuance of such approvals and such declarations.
Section 5.18. PRODUCTS. Purchaser agrees that, for a period of 18
months from the Closing Date, it will and will cause Newco to make available to
the brokers listed on Schedule 3.12(A) hereto group annuity products that are
the same as the products available to such brokers as of the date hereof from
Seller, either (i) with respect to Purchaser, through the Coinsurance and
Assumption Agreement or (ii) with respect to Purchaser or Newco, through group
annuity contracts to be issued by Purchaser or Newco, respectively, except as
such products may be modified (a) as required by applicable law or in accordance
with industry
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standards, (b) to provide enhanced benefits to prospective holders of the
Insurance Contracts or (c) pursuant to a request from a prospective holder of an
Insurance Contract.
Section 5.19. EMPLOYEES; SEVERANCE PAYMENTS. (a) Purchaser shall
provide to Seller, within 60 days of the date hereof, a list of those
individuals listed on Schedule 3.19(A) hereto who will not be offered employment
by Purchaser (such individuals, along with any replacement employees for any
such individuals whose employment terminates prior to the Closing Date and any
other individuals listed on Schedule 3.19(A) hereto who are identified prior to
the Closing Date in writing to Seller by Purchaser as lacking the work
authorization and identification required by the Immigration Reform and Control
Act of 1986, being referred to herein as the "Band 1 Employees"). The identity
of the Band 1 Employees shall be determined by Purchaser in its sole discretion
consistent with any applicable law; PROVIDED, HOWEVER, that no retirement
consultant or account representative employees of Seller shall be selected by
Purchaser to be a Band 1 Employee. Purchaser shall indicate in writing, at the
time it delivers such list to Seller, which of the Band 1 Employees Purchaser
believes should be retained by Seller until the Closing Date, and Seller shall
use all commercially reasonable efforts to retain such individuals, through the
Closing Date, in the positions which such individuals hold as of the date
hereof. Seller shall bear full responsibility for either continuing the
employment of or providing severance payments to all Band 1 Employees in
accordance with its standard practices, and Purchaser shall have no obligations
with respect thereto.
(b) Schedule 5.19(B) hereto sets forth the names of those individuals
with respect to whom Purchaser has offered employment contracts, such contracts
to be effective as of the Closing Date. Each such individual who accepts such
offer and enters into such an employment
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contract shall hereinafter be referred to as a "Contract Employee." From and
after the commencement of the employment of a Contract Employee by Purchaser,
Purchaser shall bear full responsibility for any severance payments payable in
connection with the termination of the employment of any Contract Employee in
accordance with the terms of such Contract Employee's contract, and Seller shall
have no obligations with respect thereto. Purchaser agrees to not, prior to the
Closing, offer employment contracts to any additional persons listed on Schedule
3.19(A), other than stay bonuses or similar arrangements.
(c) (i) Purchaser shall offer employment as of the Closing Date to
all individuals listed on Schedule 3.19(A) hereto who are neither Band 1
Employees nor Contract Employees (such individuals, along with individuals hired
by Seller in accordance with Section 5.19(h) as replacement employees for any
such individuals whose employment terminates prior to the Closing Date, being
referred to herein as the "Band 2 Employees") at their respective geographic
locations of employment as of the date hereof in positions substantially similar
to the respective positions held by such Band 2 Employees as of the date hereof
(or, as to replacement employees, the positions held by the respective Band 2
Employees whom they have replaced), with salaries at least at the level set
forth on Schedule 3.19(A) (which shall be modified as soon as possible to
provide data related to compensation payable for 1996, which compensation shall
be determined consistent with Seller's salary policies with respect to its
businesses other than the Business); PROVIDED, HOWEVER, that with respect to
individuals listed on Schedule 3.19(A) hereto who are neither Band 1 Employees
nor Contract Employees but who are, as of the Closing Date, either (x) receiving
benefits under Seller's short-term disability plan or (y) absent from work in
connection with an approved leave of absence, Purchaser's offer of employment to
such
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individuals shall be for employment commencing on the first Business Day
following the last day for which such short-term disability benefits are payable
or such approved leave of absence, as the case may be. Notwithstanding the
foregoing or any other provision of this Section 5.19, and except as provided in
subsection (c)(ii)(A) and in the following sentence, nothing in this Agreement
shall be deemed to require Purchaser to retain any particular Band 2 Employee
for any period of time following the Closing Date or to entitle any such Band 2
Employee to any status other than that of an at will employee of Purchaser.
Purchaser shall employ the majority of such Band 2 Employees who are located in
the greater Portland home office for at least 12 months after the Closing Date
and all the employees who are located in field offices for at least six months
after the Closing Date.
(ii) (A) TERMINATION UPON JOB ELIMINATION. In the event the
employment of any Band 2 Employee is terminated by Purchaser because of the
elimination of the employee's employment position prior to the date which is 20
months after the Closing Date, the provisions of this subsection (c)(ii)(A)
shall apply:
Purchaser shall promptly notify Seller of such termination and
Seller shall provide such Band 2 Employee with the opportunity to have Seller
place such Band 2 Employee in Seller's then-current re-employment program for a
maximum period of eight weeks with the same priority consideration for available
openings such Band 2 Employee would enjoy were he or she still an employee of
Seller. As used in this subsection (c)(ii)(A), job elimination shall include a
termination of employment due to an employee's refusal to accept a reassignment
to a new job site in excess of fifty (50) miles from the employee's job site
immediately preceding the termination. In the event that the job of a Band 2
Employee who is absent from work on
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account of extended temporary disability (greater than two weeks but less than
12 months) is eliminated and such Band 2 Employee thereafter returns to work
within 12 months of the commencement of such period of extended temporary
disability and within 18 months of the Closing Date, such Band 2 Employee will
be provided with a similar employment position to the one that was eliminated
or, in the absence of such position, treated as having been subjected to a job
elimination in accordance with the provisions of this subsection (c)(ii)(A);
provided that the employee's performance met job expectations immediately
preceding such absence. To the extent that such Band 2 Employee who is
terminated in the circumstances described in this subsection (c)(ii)(A) is not
re-employed by Seller and such Band 2 Employee's employment is terminated under
circumstances in which such Band 2 Employee becomes eligible for severance
payments under the severance payment plan of Purchaser, Purchaser shall pay
severance and provide for continuation of benefit plan coverage to such Band 2
Employee determined as follows: Purchaser shall pay severance to such Band 2
Employee in an amount equal to the salary-based severance payments to which such
Band 2 Employee would have been entitled were he or she an employee of Seller on
the date of termination of employment (taking into account all of such Band 2
Employee's service with both Seller and Purchaser through such date of
termination of employment with Purchaser) under Seller's severance payment plans
as in effect on the Closing Date had his or her employment terminated for job
elimination (applying Seller's plan's standard) as of such date of termination
of employment with Purchaser; PROVIDED, HOWEVER, that such payments shall be
payable only in the form of bi-weekly payments for up to 12 or 24 weeks,
whichever is applicable to such Band 2 Employee, and any payments due thereafter
paid in the form of a single lump sum. On the Closing Date, Seller shall
provide
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Purchaser with a schedule which sets forth each Band 2 Employee's service with
Seller, as the same is calculated by Seller for the purposes of determining
severance payments. Purchaser shall provide for continuation of benefit plan
coverage to such Band 2 Employees following their termination of employment for
the period during which they receive bi-weekly severance payments for up to a
maximum period of, except as otherwise specified, 12 or 24 weeks, as applicable,
with respect to the following benefit plans: (1) Purchaser's Defined Benefit
Plan (for recognition of up to 501 hours of service) and Purchaser's SERPs; (2)
the Lincoln National Corporation Employees' Group Life Insurance, Accidental
Death, Disability, Loss of Sight Insurance and Family Life Insurance Plan; (3)
the Lincoln National Corporation Group health, dental, vision and/or hearing
Plan for Employees in which such employees would have been entitled to
participate had they not been terminated; (4) the Lincoln National Corporation
Employees' Health Care Expense Account Plan (pursuant to the Lincoln National
Corporation Customized Security Plan) (except that if a re-enrollment occurs
during the period that severance is being paid, such terminated Band 2 Employee
may not re-enroll for coverage under Purchaser's Health Care Expense Account
Plan); and (5) the Lincoln National Corporation Employees' Dependent Care
Expense Account Plan (pursuant to the Lincoln National Corporation Customized
Security Plan). In the case of a termination of employment of a Band 2 Employee
because of the elimination of the employment position of such Band 2 Employee,
Purchaser shall not effect such termination of employment prior to providing
eight weeks' advance notice to such Band 2 Employee and Seller of such
termination of employment.
(B) TERMINATION OTHER THAN FOR CAUSE AND OTHER THAN
FOR JOB ELIMINATION. In the event the employment of any Band 2 Employee is
terminated by Purchaser,
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other than for cause and other than because of the elimination of such Band 2
Employee's employment position, for example, because of unsatisfactory
performance of employment duties, prior to the date which is 18 months after the
Closing Date, Purchaser shall have no obligation to provide advance notice to
Seller of such termination and Seller shall have no obligation to place such
Band 2 Employee in any re-employment program of Seller. In the event that the
job of a Band 2 Employee who is absent from work on account of extended
temporary disability (greater than two weeks but less than 12 months) is
eliminated and such Band 2 Employee's job performance immediately preceding such
absence was unsatisfactory and such Band 2 Employee thereafter returns to work
within 12 months of the commencement of such period of extended temporary
disability and within 18 months of the Closing Date, such Band 2 Employee will
be provided with a similar employment position to the one that was eliminated
or, in the discretion of Purchaser, treated as having been terminated in
accordance with the provisions of this subsection (c)(ii)(B). To the extent
such Band 2 Employee is not otherwise employed by Seller and such Band 2
Employee's employment was terminated under circumstances in which such Band 2
Employee becomes eligible for severance payments under the severance payment
plan of Purchaser, Purchaser shall pay severance to such Band 2 Employee
determined as follows: Purchaser shall pay severance to such Band 2 Employee
who is terminated under the circumstances described in this subsection
(c)(ii)(B) a lump sum payment in an amount equal to the severance payments to
which such Band 2 Employee would have been entitled were he or she an employee
of Seller on the date of termination of employment (taking into account all of
such Band 2 Employee's service with both Seller and Purchaser through such date
of termination of employment with Purchaser) under Seller's salary-based
severance payment plan as in effect
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on the Closing Date had his or her employment terminated for performance reasons
(applying Seller's plan's standard) as of such date.
(C) TERMINATION FOR CAUSE. In the event the
employment of any Band 2 Employee is terminated by Purchaser for cause at any
time, Purchaser shall not be obligated to provide any severance or benefit plan
coverage continuation to such Band 2 Employee and Purchaser shall have no
obligation to notify Seller of such termination and Seller shall have no
obligation to place such Band 2 Employee in any re-employment program of Seller.
(D) REIMBURSEMENT OF PURCHASER. Not later than 24
months after the Closing Date, Seller shall reimburse Purchaser in an amount
equal to one-half of the total severance payments paid or payable by Purchaser
in accordance with subsections (c)(ii)(A) and (B) above with respect to Band 2
Employees who were given notice of termination prior to the date which is 18
months after the Closing Date and whose termination date occurs (x) within 20
months of the Closing if in accordance with subsection (c)(ii)(A) and (y) within
18 months of Closing if in accordance with subsection (c)(ii)(B), in each case
only to the extent that such severance payments are attributable to years of
service with Seller and/or one of its Affiliates; PROVIDED, HOWEVER, that, to
the extent the sum of (1) the aggregate amount of the severance payment
obligations made by Purchaser to Band 2 Employees pursuant to this subsection
(c)(ii) that are attributable to years of service with Seller and/or one of its
Affiliates and (2) the aggregate amount of the severance payment obligations
made by Purchaser or Newco to Band 2 Employees (as defined in the First UNUM
Agreement) pursuant to the corresponding provision of the First UNUM Agreement
that are attributable to years of service with Seller and/or one of its
Affiliates exceeds $1 million, Seller shall reimburse Purchaser or Newco, as
appropriate,
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in an amount equal to 100% of the amount of all severance payments due in excess
thereof to the Band 2 Employees.
(iii) Prior to the date which is 18 months from the Closing
Date, Seller shall not rehire any Band 2 Employees, except for Band 2 Employees
whose employment is first terminated, or who have been given notice of such
termination, by Purchaser.
(iv) Purchaser shall pay a Retention Bonus on the date which is
12 months from the Closing Date to each Band 2 Employee who is an employee of
Purchaser on such date and, with respect to each Band 2 Employee whose
employment is terminated as a result of job elimination prior to such date,
Purchaser shall pay a Retention Bonus on the date of termination of employment
of each such employee. No Retention Bonus shall be paid to any Band 2 Employee
whose employment with Purchaser terminates as a result of a resignation or
performance failure or for cause. Seller shall reimburse Purchaser for any
Retention Bonus payments and any additional Tax liabilities of Purchaser
relating to such payments.
(d) Purchaser acknowledges that, up to and including the Closing
Date, all employees of Seller have an exclusive duty of loyalty to Seller and,
both prior to and subsequent to the Closing Date, a continuing non-disclosure
obligation as to information regarding Seller that does not relate specifically
to the Business.
(e) As of the Closing Date, Purchaser shall provide to the retirement
consultant and retirement account representative employees of Seller who become
Band 2 Employees employment at offices provided by Purchaser other than the
facilities of Seller, and shall pay all costs associated with the relocation of
such Band 2 Employees.
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(f) Not later than the date which is 70 days after the date hereof,
Purchaser shall notify Seller as to the amount of space to be included in the
lease referred to in Section 1 of Schedule 1 to the Transition Services
Agreement, which amount of space shall not exceed 40,000 square feet of office
space, and the nature and extent of the related services to be provided under
the Transition Services Agreement.
(g) Not later than 30 days prior to the Closing Date, Seller shall
have moved, at Seller's expense, the operations of the Business to a physical
plant in a location and having a design consistent with Section 3 of the
Transition Services Agreement.
(h) In the event that any Band 2 Employee's employment terminates
prior to the Closing Date, Seller shall use commercially reasonable efforts,
acting in consultation with Purchaser, to replace such Band 2 Employee in order
to maintain current staffing levels with respect to the Business. Unless
otherwise agreed to by Seller and Purchaser, any individual hired by Seller in
accordance with this Section 5.19(h) shall be deemed a Band 2 Employee for the
purpose of this Agreement.
(i) Prior to the Closing, Seller will continue to monitor and
evaluate the work performance of the Band 2 Employees in the ordinary course of
its business operations.
(j) As soon as reasonably practicable after the date of this
Agreement, Seller and Purchaser shall finalize the design of a joint incentive
program related to the 1996 performance of the Business, and shall communicate
such program to employees of the Business. The cost of such program shall be
borne equally by Seller and Purchaser.
Section 5.20. EMPLOYEE BENEFITS. (a) Subject to the further
provisions of this Section 5.20, and except as provided in Section 5.19,
Purchaser agrees to provide benefits under
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the employee benefit plans, programs, and arrangements of Purchaser and its
Affiliates, without regard to the coverage of any such plan, program, or
arrangement by ERISA or any provision of the Code, to each Band 2 Employee who
accepts employment with Purchaser ("Benefits Affected Employee") on the same
terms and conditions as such benefits are provided to similarly situated
employees of Purchaser. Purchaser shall credit the service of each Benefits
Affected Employee with Seller and its Affiliates for purposes of eligibility,
participation, vesting, and accrual of or entitlement to benefits under all
plans, programs, and arrangements listed on Schedule 5.20 ("Purchaser's Plans")
to the same extent as if such service had been performed for Purchaser, in the
amount of such service stated in a schedule to be delivered by Seller to
Purchaser as soon as practicable after the Closing Date pursuant to subsection
(d)(ii)(B) (the "Benefits Information Schedule"), except to the extent that the
crediting of any such service might, in the opinion of counsel to Purchaser,
jeopardize the tax qualification of Purchaser's Plans or the tax-favored status
of Purchaser's Plans; and PROVIDED FURTHER that Purchaser and its Affiliates
shall waive or cause to be waived, except to the extent that such waiver is
precluded by applicable law, any waiting period, probationary period, pre-
existing condition exclusion, evidence of insurability requirement, or similar
condition with respect to initial participation under any plan, program, or
arrangement established, maintained, or contributed to by Purchaser or any of
its Affiliates to provide health, life insurance, or disability benefits with
respect to each Benefits Affected Employee.
(b) Subject to the other provisions of this Section 5.20, and except
as provided in Section 5.19, Seller, and not Purchaser, shall be responsible and
shall assume any and all liability for (i) all compensation, benefits, and
perquisites of any kind due any Benefits Affected
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Employee on account of employment by Seller before the Closing Date, or the
termination of employment by Seller, including, but not limited to, continuation
of health care coverage pursuant to COBRA; and (ii) all notices, payments,
fines, taxes or assessments due to any governmental authority pursuant to any
applicable foreign, federal, state or local law, common law, statute, rule or
regulation with respect to the employment, discharge or layoff of employees of
the Business by Seller, including, but not limited to, the WARN Act and the
Maine Severance Pay Law and any rules or regulations that have been issued in
connection with any of the foregoing.
Subject to the other provisions of this Section 5.20, and except as
provided in Section 5.19, Purchaser, and not Seller, shall be responsible and
shall assume any and all liability for (i) all compensation, benefits, and
perquisites of any kind due any Benefits Affected Employee on account of
employment by Purchaser on and after the Closing Date, or the termination of
employment by Purchaser, including, but not limited to, continuation of health
care coverage pursuant to COBRA; (ii) any decision by Purchaser or its
Affiliates to employ or not to employ any employee listed on Schedule 3.19(A);
and (iii) all notices, payments, fines, taxes or assessments due to any
governmental authority pursuant to any applicable foreign, federal, state or
local law, common law, statute, rule or regulation with respect to the
employment, discharge or layoff of Benefits Affected Employees by Purchaser,
including, but not limited to, the WARN Act and the Maine Severance Pay Law and
any rules or regulations that have been issued in connection with any of the
foregoing.
(c) Notwithstanding subsection (a) to the contrary:
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(i) Each Benefits Affected Employee shall be eligible to
participate in and receive coverage under medical and dental plans established
by Purchaser from and after the Closing Date until December 31, 1996, which
shall provide continuation of substantially the same medical and dental
coverages and level of benefits (including dependent and domestic partner
coverages and benefits) as such Benefits Affected Employee received under the
UNUM Employees Life, Dental and Medical Plan ("Seller's Employee Welfare Plan")
immediately prior to the Closing Date (including continuation of copayments,
deductibles, lifetime maximums and pre-existing condition exclusions as then in
effect); PROVIDED that a Benefits Affected Employee's participation and coverage
under such plans shall terminate in accordance with the terms thereof if such
Benefits Affected Employee terminates employment with Purchaser and all of its
Affiliates before December 31, 1996. The rate of pre-tax salary reduction
contributions for such coverage during 1996 with respect to each Benefits
Affected Employee shall not exceed the rate of pre-tax salary reduction
contributions for coverage with respect to the Benefits Affected Employee under
Seller's Employee Welfare Plan immediately prior to the Closing Date, and the
balance of the costs of such coverage shall be paid entirely by Purchaser. Each
Benefits Affected Employee who immediately prior to the Closing Date was
receiving a credit from Seller for having elected not to participate in the
medical or dental portion of Seller's Employee Welfare Plan shall continue to
receive such credit from Purchaser on and after the Closing Date through the end
of 1996, or the date of such Benefits Affected Employee's termination of
employment with Purchaser and all of its Affiliates, if earlier. As of January
1, 1997, each Benefits Affected Employee who is employed by Purchaser or any of
its Affiliates on such date shall be eligible to commence participation in and
receive coverage under the Lincoln National
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Corporation Group Health, Dental, Vision and Hearing Plan for Employees, in
accordance with Section 5.20(a), except that on and after the Closing Date
Purchaser and its Affiliates shall not be required to waive or cause to be
waived the exclusion of any pre-existing condition that may be excluded from
coverage under Seller's Employee Welfare Plan on such date, for so long as such
condition would be excluded from coverage under Seller's Employee Welfare Plan
if the Benefits Affected Employee continued to participate in and receive
coverage thereunder.
(ii) Each Benefits Affected Employee shall be eligible to
commence participation in and receive coverage under the Lincoln National
Corporation Employees' Group Life Insurance, Accidental Death, Disability, Loss
of Sight Insurance and Family Life Insurance Plan as of the Closing Date;
PROVIDED that no such Benefits Affected Employee shall be eligible to receive
coverage under such plans with respect to any dependent prior to January 1,
1997.
(iii) Each Benefits Affected Employee shall be permitted to
elect to receive benefits under the Lincoln National Corporation Employees'
Health Care Expense Account Plan (pursuant to the Lincoln National Corporation
Customized Security Plan) as of the Closing Date; PROVIDED, HOWEVER, that each
such Benefits Affected Employee may only make an election with respect to
benefits under such plan that has the effect of continuing the election in
effect for such Benefits Affected Employee under the medical reimbursement
account portion of Seller's Employee Welfare Plan immediately prior to the
Closing Date. Seller shall permit each Benefits Affected Employee who is a
"qualified beneficiary," as defined in section 4980B of the Code, to elect
continuation of coverage under the medical reimbursement account portion of
Seller's Employee Welfare Plan, without regard to any election made by such
Benefits Affected
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Employee to receive benefits under Lincoln National Corporation Employees'
Health Care Expense Account Plan.
(iv) Each Benefits Affected Employee shall be permitted to elect
to receive benefits under the Lincoln National Corporation Employees' Dependent
Care Expense Account Plan (pursuant to the Lincoln National Corporation
Customized Security Plan) as of the Closing Date; PROVIDED, HOWEVER, that each
such Benefits Affected Employee may only make an election with respect to
benefits under such plan that has the effect of continuing the election in
effect for such Benefits Affected Employee under the dependent care account
portion of Seller's Employee Welfare Plan immediately prior to the Closing Date.
Seller shall provide dependent care assistance benefits to each Benefits
Affected Employee who is participating in the dependent care account portion of
Seller's Employee Welfare Plan immediately before the Closing Date with respect
to qualifying expenses incurred on or before December 31, 1996.
(v) (A) Each Benefits Affected Employee shall be eligible to
participate in the Lincoln National Corporation Group Health and Dental Plan for
Retirees (Retiree Employee Coverage) and Group Life Plans ("Purchaser's Retiree
Welfare Plans") on the same terms and conditions as such benefits are provided
to similarly situated employees of Purchaser; PROVIDED, HOWEVER, that any such
Benefits Affected Employee who either (i) is customarily employed on a part-time
basis immediately before the Closing Date or (ii) has attained age 45 before the
Closing Date shall be required to have completed only 5 years of service in
addition to the otherwise applicable requirement that the employee shall have
attained the age of 55; and PROVIDED, FURTHER, that any such Benefits Affected
Employee who has both attained age 55 and completed 5 years of service as of the
Closing Date and who elects, as of the Closing Date, to
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participate in the retiree medical, dental and life insurance benefits portion
of Seller's Employee Welfare Plan shall not be eligible to participate in
Purchaser's Retiree Welfare Plans. Seller shall bear the cost of the
adjustments required under this subsection (c)(v)(A), as such cost is determined
under Section 5.20(f).
(B) Seller shall take into account service with Purchaser
and its Affiliates for the purposes of determining eligibility for retiree
medical, dental, and life insurance benefits and the rate of retiree
contributions under Seller's Employee Welfare Plan of any Benefits Affected
Employee who is re-employed by Seller within 20 months after the Closing Date.
Purchaser shall bear the cost of the adjustments required under this subsection
(c)(v)(B), as such cost is determined under Section 5.20(f).
(d) (i) Each Benefits Affected Employee who is eligible to
participate in the UNUM Employees Retirement Savings Plan and Trust ("Seller's
401(k) Plan") immediately before the Closing Date shall be eligible to
participate in the Lincoln National Corporation Employees' Savings and Profit
Sharing Plan ("Purchaser's 401(k) Plan") as of the Closing Date. As set forth
in Section 5.20(a), the service of each such Benefits Affected Employee with
Seller and its Affiliates prior to the Closing Date shall be credited for all
purposes under Purchaser's 401(k) Plan to the same extent as if such service had
been performed for Purchaser or any of its Affiliates, in the amount of such
service stated in the Benefits Information Schedule; PROVIDED that all such
service performed at and after age 18 shall be so credited, and no such Benefits
Affected Employee shall be required to attain any age greater than 18 for
purposes of eligibility. Any Benefits Affected Employee shall be permitted to
roll over outstanding plan loans that are not in default under Seller's 401(k)
Plan, and to maintain an account balance of $3,500 or less
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under Seller's 401(k) Plan until the earlier of (1) the date on which such
Benefits Affected Employee terminates employment with Purchaser and all of its
Affiliates and is not thereupon re-employed by Seller or any of its affiliates
and (2) the date that is 20 months after the Closing Date, except to the extent
that the maintenance of such account balances might, in the opinion of counsel
to Seller, jeopardize the tax qualification of Seller's 401(k) Plan.
(ii) (A) Each Benefits Affected Employee who remains employed
by Purchaser or its Affiliates on January 1, 1997 (or whose employment with
Purchaser and all its Affiliates was involuntarily terminated by Purchaser or
any of its Affiliates before such date), and is a participant in the UNUM
Employees Pension Plan and Trust ("Seller's Defined Benefit Plan") and, where
applicable, the UNUM Supplemental Retirement Benefit Plan ("Seller's SERP")
immediately before the Closing Date shall continue to accrue benefits under
such plans (as the same may be amended from time to time) until the earlier
of (1) the date on which such Benefits Affected Employee terminates
employment with the Purchaser and all of its Affiliates and (2) the date that
is 20 months after the Closing Date. The service of each Benefits Affected
Employee by the Purchaser and its Affiliates during such period shall be
credited under Seller's Defined Benefit Plan and Seller's SERP to the same
extent as if such service had been performed for Seller or any of its
Affiliates, and the compensation paid to each such Benefits Affected Employee
by Purchaser and its Affiliates during such period shall be taken into
account to the same extent as if such compensation had been paid by Seller or
any of its Affiliates; PROVIDED, HOWEVER, that such service and compensation
shall not be required to be taken into account to the extent that such action
might, in the opinion of counsel to Seller, jeopardize the tax qualification
of Seller's Defined Benefit Plan. As soon as practicable after the earlier
of (1) the
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date on which a Benefits Affected Employee terminates employment with the
Purchaser and all of its Affiliates and (2) the date that is 20 months after
the Closing Date, Purchaser shall provide to Seller a record of such
employee's actual service and compensation with respect to the 20-month
period. Purchaser shall bear the cost of the adjustments required under this
subsection (d)(ii)(A), as such cost is determined under Section 5.20(f).
(B) Each Benefits Affected Employee shall be eligible to
participate in the Lincoln National Corporation Employees' Retirement Plan
("Purchaser's Defined Benefit Plan") and, if applicable, the Lincoln National
Corporation Employees' Supplemental Pension Benefit Plan and the Lincoln
National Corporation Employees' Excess Compensation Pension Benefit Plan
("Purchaser's SERPs") in accordance with the applicable provisions of such plans
as amended from time to time. Each Benefits Affected Employee described in the
preceding subsection (d)(ii)(A) whose employment with Purchaser and all of its
Affiliates has not been terminated on the date that is 20 months after the
Closing Date shall be credited for all purposes under Purchaser's Defined
Benefit Plan and, if eligible, Purchaser's SERPs, with the service of such
Benefits Affected Employee (1) with Seller and its Affiliates up to the Closing
Date to the same extent as if such service had been performed for Purchaser and
(2) with Purchaser during such 20-month period to the extent that such service
was not credited to such Benefits Affected Employee for periods prior to
commencement of participation in Purchaser's plans; PROVIDED that all such
service performed at and after age 18 shall be so credited, and no such Benefits
Affected Employee shall be required to attain any age greater than 18 for
purposes of eligibility to participate in Purchaser's Defined Benefit Plan and
Purchaser's SERPs.
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As soon as practicable after the Closing Date, Seller shall provide to
Purchaser the Benefits Information Schedule which shall set forth, with respect
to each Benefits Affected Employee, the employee's name; date of birth; date of
hire; vesting service as of the Closing Date; credited service as of the Closing
Date; sex; basic compensation for calendar years 1986 through 1995, determined
as the sum of base pay and field compensation; basic plus incentive compensation
for calendar years 1986 through 1995; estimated basic compensation for 1996,
determined as the sum of the annualized rate of base pay as of the Closing Date
and 1996 field incentives (determined as the average of actual 1994 and 1995
field incentives); estimated basic plus incentive compensation for 1996
(determined as the sum of estimated basic compensation for 1996 plus the actual
year to date incentive payments as of said date); projected 1997 basic
compensation (the projection for 1997 shall be based on the Benefits Affected
Employee's estimated basic compensation for 1996, increased by one year on the
basis of the Seller's graded rates); projected 1997 basic plus incentive
compensation (the projection for 1997 shall be based on the Benefits Affected
Employee's projected 1997 basic compensation plus the Benefits Affected
Employee's target incentive compensation for 1996); number of hours worked by
the Benefits Affected Employee for Seller during 1996; and shall specify the
amount of each such employee's normal retirement benefit (age 65 accrued
benefit) under Seller's Defined Benefit Plan and Seller's SERP commencing at age
65 and payable in the form of a single life annuity, and such employee's
credited service under Seller's plans, all determined as of the date that is 20
months after the Closing Date. For purposes of determining such normal
retirement benefit under Seller's Defined Benefit Plan and Seller's SERP, Seller
shall assume that the Social
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Security Taxable Wage Base shall increase by 4.25% for 1997 and by 3.5% per
annum from 1998 until the calendar year in which an employee attains age 65.
Purchaser shall be permitted to reduce (but not below zero) the aggregate
of the accrued benefits under Purchaser's Defined Benefit Plan and Purchaser's
SERPs of each Benefits Affected Employee who commences participation thereunder
by the amount of such Benefits Affected Employee's benefits specified on the
schedule described below in this subsection (d)(ii)(B). Seller shall bear the
cost (net of the offset described in the preceding sentence whether or not
imposed by Purchaser's Defined Benefit Plan and Purchaser's SERPs) of the
adjustments required under this subsection (d)(ii)(B), as such cost is
determined under Section 5.20(f).
No later than the date that is 24 months after the Closing Date, and for
purposes only of calculating pension benefits under Purchaser's Defined Benefit
Plan and Purchaser's SERPs, Seller shall provide to Purchaser a schedule
containing the actual data in place of the estimated data set forth on the
Benefits Information Schedule.
(e) On and after the Closing Date, each of Seller and Purchaser shall
timely amend their respective employee benefit plans, programs, and
arrangements, and shall undertake all actions necessary or desirable to
implement such amendments, to the extent that such amendments and other actions
are reasonably necessary to carry out any of the terms and provisions of this
Section 5.20.
(f) (i) Seller and Purchaser agree to adjust the Final Purchase
Price as of the date that is 20 months after the Closing Date, for the purpose
of settling the obligations of Purchaser to Seller and of Seller to Purchaser
under subsections (c)(v) and (d)(ii) above. These
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obligations shall be determined as set forth in the following Tables 5.20(F)(1)
and 5.20(F)(2) and the notes thereto; PROVIDED, HOWEVER, that, to the extent any
service of a Benefits Affected Employee with Seller is not credited under one or
more of Purchaser's Plans because (pursuant to Section 5.20(a)), in the opinion
of counsel to Purchaser, such service credit might jeopardize the tax-qualified
or tax-favored status of such plan, such service shall not be taken into account
for purposes of the Final Purchase Price adjustment hereunder; and PROVIDED,
FURTHER, that, to the extent any service of a Benefits Affected Employee with
Purchaser is not credited under Seller's Defined Benefit Plan or Seller's
Employee Welfare Plan because (pursuant to Section 5.20(d)(ii)), in the opinion
of counsel to Seller, such service credit might jeopardize the tax-qualified
status of such plan, such service shall not be taken into account for purposes
of the Final Purchase Price adjustment hereunder.
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<TABLE>
<CAPTION>
TABLE 5.20(F)(1)
PENSION BENEFIT OBLIGATIONS
BENEFITS AFFECTED EMPLOYEE WHO
TERMINATES EMPLOYMENT WITH
PURCHASER PRIOR TO THE DATE
THAT IS 20 MONTHS AFTER THE
CLOSING DATE AND: SELLER PAYS TO PURCHASER: PURCHASER PAYS TO SELLER:
- ------------------------------ -------------------------- -------------------------
<S> <C> <C>
Re-employed by Seller Nothing Amount determined under Note 1
Vested but not re-employed by Seller Nothing Amount determined under Note 1
Not vested and not re-employed by Nothing Nothing
Seller
<CAPTION>
BENEFITS AFFECTED EMPLOYEE WHO
REMAINS EMPLOYED BY
PURCHASER ON THE DATE THAT IS
20 MONTHS AFTER THE CLOSING
DATE AND: SELLER PAYS TO PURCHASER: PURCHASER PAYS TO SELLER:
- ------------------------------ ------------------------- -------------------------
<S> <C> <C>
For costs for 20 months' service Nothing Amount determined under Note 2
with Purchaser
For past service credit costs Amount determined under Note 3 Nothing
through the date that is 20 months
after the Closing Date
</TABLE>
NOTE 1: Purchaser shall be obligated to make a payment to Seller in
an amount to be determined as follows: Purchaser shall calculate for each
Benefits Affected Employee the pro rata service cost, as described herein, for
accrued pension benefits under Seller's Defined Benefit Plan and Seller's SERP
for each Benefits Affected Employee (A) who was employed by Purchaser or any of
its Affiliates as of January 1, 1997, and whose employment with Purchaser and
all its Affiliates was terminated before the date that is 20 months after the
Closing Date or (B) whose employment with Purchaser and all its Affiliates was
involuntarily terminated by Purchaser or any of its Affiliates on or before
December 31, 1996, for the period from the
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Closing Date to the date of the termination of the employee's employment with
the Purchaser and all its Affiliates. In making this calculation, Purchaser
shall use the following assumptions: (1) Demographic assumptions used by
Purchaser (as published in the January 1, 1995, actuarial valuation report for
Purchaser's Defined Benefit Plan); (2) Interest rate (discount rate): 7.5%;
(3) Salary Scale: 5%; (4) Social Security Wage Base Increase: 4.5%; (5) Census
data as set forth on the Benefits Information Schedule; (6) Provisions of
Purchaser's Defined Benefit Plan and Purchaser's SERPs as in effect on the
Closing Date; (7) Benefit starting date for vested terminated employees: Age 64
1/2.
Purchaser shall calculate the difference between the projected benefit
obligations (using the methodology established by Financial Accounting Standard
No. 87 issued by the Financial Accounting Standards Board ("FAS 87")) as of
January 1, 1998, and January 1, 1997 (adjusted for interest to January 1, 1998),
respectively, for each such employee, to determine the 12-month service costs.
Purchaser shall then determine the final service costs for each such employee by
prorating the 12-month service costs to reflect the number of years and months
(determined on the basis that 15 or more days equals one month) of employment
for each such employee from the Closing Date to the date of termination of the
employee's employment with the Purchaser and all its Affiliates. (Example: In
the case of an employee employed by Purchaser from a closing date of July 1,
1996, through September 30, 1997, the 12-month service cost would be multiplied
by 1.25 to reflect one year and three months of employment.)
NOTE 2: Purchaser shall be obligated to make a payment to Seller in
an amount to be determined as follows: Seller shall calculate for each Benefits
Affected Employee the pro rata service cost, as described herein, for accrued
pension benefits under Seller's Defined Benefit
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Plan and Seller's SERP as in effect on January 1, 1997, for each Benefits
Affected Employee who is employed by Purchaser on the date that is 20 months
after the Closing Date. In making this calculation, Seller shall use the
following assumptions: (1) Demographic assumptions used by Seller (as published
in the January 1, 1995, actuarial valuation report for Seller's Defined Benefit
Plan); (2) Interest rate (discount rate): 7.5%; (3) Average Salary Scale
(Seller's graded rates): 4.7%; (4) Social Security Wage Base Increase: 4.25%;
(5) Census data as set forth on the Benefits Information Schedule;
(6) Provisions of Seller's Defined Benefit Plan and Seller's SERP as in effect
on January 1, 1997; (7) Benefit starting date for vested terminated employees:
Age 55.
Seller shall calculate the difference between the projected benefit
obligations (using the methodology established by FAS 87) as of January 1, 1998,
and January 1, 1997 (adjusted for interest to January 1, 1998), respectively,
for each such employee, to determine the 12-month service cost. Purchaser shall
then determine the final service costs by multiplying the 12-month service cost
by 1.67.
NOTE 3: Seller shall be obligated to make a payment to Purchaser in
an amount to be determined as follows: Purchaser shall calculate for each
Benefits Affected Employee "projected benefit obligations" (using methodology
established by FAS 87) for Purchaser's Defined Benefit Plan and Purchaser's
SERPs less the scheduled pension benefits under Seller's Defined Benefit Plan
and Seller's SERP, as set forth in the Benefits Information Schedule, as of the
date that is 20 months after the Closing Date, for each Benefits Affected
Employee who remains employed by Purchaser on the date that is 20 months after
the Closing Date. In making this calculation, Purchaser shall use the following
assumptions: (1) Demographic assumptions
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used by Purchaser (as published in the January 1, 1995, actuarial valuation
report for Purchaser's Defined Benefit Plan); (2) Interest rate (discount rate):
7.5%; (3) Salary Scale: 5%; (4) Social Security Wage Base Increase: 4.5%;
(5) Census data as set forth on the Benefits Information Schedule;
(6) Provisions of Purchaser's Defined Benefit Plan and Purchaser's SERPs as in
effect on the date that is 20 months after the Closing Date; (7) Benefit
starting date for vested terminated employees: Age 64 1/2.
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<TABLE>
<CAPTION>
TABLE 5.20(F)(2)
RETIREE WELFARE BENEFIT OBLIGATIONS
BENEFITS AFFECTED EMPLOYEE WHO TERMINATES
EMPLOYMENT WITH PURCHASER PRIOR TO THE
DATE THAT IS 20 MONTHS AFTER THE CLOSING
DATE AND: SELLER PAYS TO PURCHASER: PURCHASER PAYS TO SELLER:
- ----------------------------------------- ------------------------- -------------------------
<S> <C> <C>
Re-employed by Seller Nothing Amount determined under Note 4
Terminated prior to attaining age Nothing Nothing
55 and completing 5 years of
service, and not re-employed by
Seller
Terminated after attaining age 55 Amount determined under Note 5 Nothing
and completing 5 years of service,
and not re-employed by Seller
Terminated after (1) attaining age 55 and Nothing Nothing
completing 5 years of service prior to
Closing Date and (2) having elected to be
covered under Seller's plan, not re-
employed by Seller
<CAPTION>
BENEFITS AFFECTED EMPLOYEE WHO REMAINS
EMPLOYED BY PURCHASER ON THE DATE THAT IS
20 MONTHS AFTER THE CLOSING DATE AND: SELLER PAYS TO PURCHASER: PURCHASER PAYS TO SELLER:
- ----------------------------------------- ------------------------- -------------------------
<S> <C> <C>
For past service costs prior to Amount determined under Note 6 Nothing
Closing Date
For costs of coverage Nothing Nothing
for employees who had attained age
55 and completed 5 years of
service prior to Closing Date and
who elected to be covered under
Seller's plan
</TABLE>
NOTE 4: Purchaser shall be obligated to make a payment to Seller in
an amount to be determined as follows: Seller shall calculate for each Benefits
Affected Employee the pro rata service cost, as described herein, for accrued
retiree welfare benefits under Seller's
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Employee Welfare Plan, for each Benefits Affected Employee who accepts
employment with Purchaser or any of its Affiliates as of the Closing Date and
who terminates employment with Purchaser and all its Affiliates before the date
that is 20 months after the Closing Date, for the period from the Closing Date
to the date of termination of the employee's employment with Purchaser and all
its Affiliates. In making this calculation, Seller shall use the following
assumptions: (1) Demographic and health care trend assumptions used by Seller
(as published in the January 1, 1995, actuarial valuation report of retiree
welfare benefits under Seller's Employee Welfare Plan), except that the
retirement rate assumption established by the January 1, 1995, actuarial
valuation report of Purchaser's Retiree Welfare Plans shall be used;
(2) Interest rate (discount rate): 7.5%; (3) Average Salary Scale (Seller's
graded rates): 4.7%; (4) Retiree welfare benefit provisions under Seller's
Employee Welfare Plan as in effect on the Closing Date; (5) Census data as set
forth on the Benefits Information Schedule; (6) Attribution of the expected
post-retirement benefit obligation will be between the date of hire and the
expected retirement age as determined using the applicable assumptions under
Purchaser's Defined Benefit Plan.
Seller shall calculate the difference between the accumulated post-
retirement benefit obligations (using the methodology established by Financial
Accounting Standard No. 106 ("FAS 106"), except as provided in item (6) of the
preceding paragraph concerning use of attribution of the expected post-
retirement benefit obligation) as of January 1, 1998, and January 1, 1997
(adjusted for interest to January 1, 1998), respectively, for each such
employee, to determine the 12-month service costs. Seller shall then determine
the final service costs for each such employee by prorating the 12-month service
costs to reflect the number of years and months
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(determined on the basis that 15 or more days equals one month) of employment
for each such employee from the Closing Date to the date of termination of the
employee's employment with the Purchaser and all its Affiliates. (Example: In
the case of an employee employed by Purchaser from a closing date of July 1,
1996, through September 30, 1997, the 12-month service cost would be multiplied
by 1.25 to reflect one year and three months of employment.)
NOTE 5: Seller shall be obligated to make a payment to Purchaser in
an amount to be determined as follows: Purchaser shall calculate for each
Benefits Affected Employee the accumulated post-retirement benefit obligation
(using the methodology established by FAS 106) for Purchaser's Retiree Welfare
Plan, as of the Closing Date, for each Benefits Affected Employee who (A) either
(1) after becoming employed by Purchaser, attains age 55 and completes 5 or more
years of service during the 20-month period following the Closing Date or
(2) had attained age 55 and completed 5 years of service before the Closing
Date, (B) terminates employment with Purchaser and all its Affiliates before the
date that is 20 months after the Closing Date, and (C) does not irrevocably
decline coverage under Purchaser's Retiree Welfare Plans, for the period from
the Closing Date to the date of the termination of the employee's employment
with Purchaser and all its Affiliates. If an individual irrevocably declines
one coverage, then the foregoing calculation shall apply to any other coverage
not irrevocably declined (E.G., an irrevocable declination of medical coverage
would nevertheless require a calculation for life and dental coverage). Such
amount shall be projected for interest to the date that is 20 months after the
Closing Date. In making this calculation, Purchaser shall make the following
assumptions: (1) Demographic and health care trend assumptions used by
Purchaser (as published in the January 1, 1995, actuarial valuation report for
Purchaser's Retiree Welfare
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<PAGE>
Plans); (2) Interest rate (discount rate): 7.5%; (3) Salary Scale: 5%; (4)
Provisions of Purchaser's Retiree Welfare Plans as in effect on the Closing
Date; (5) Census data as set forth on the Benefits Information Schedule;
(6) Attribution of the expected benefit obligation will be between the date of
hire and the eligibility date for full benefits under Purchaser's Retiree
Welfare Plans.
NOTE 6: Seller shall be obligated to make a payment to Purchaser in
an amount to be determined as follows: Purchaser shall calculate for each
Benefits Affected Employee the accumulated post-retirement benefit obligation
(using the methodology described herein) for retiree welfare benefits accrued
under Purchaser's Retiree Welfare Plans as in effect as of the Closing Date, for
each Benefits Affected Employee who remains employed by Purchaser or its
Affiliates on the date that is 20 months after the Closing Date. Such amount
shall be projected for interest to the date that is 20 months after the Closing
Date. In making this calculation, Purchaser shall use the following
assumptions: (1) Demographic and health care trend assumptions used by
Purchaser (as published in the January 1, 1995, actuarial valuation report of
Purchaser's Retiree Welfare Plans); (2) Interest rate (discount rate): 7.5%;
(3) Salary Scale: 5%; (4) Provisions of Purchaser's Retiree Welfare Plans as in
effect on the Closing Date; (5) Census data as set forth on the Benefits
Information Schedule; (6) Use of the methodology established by FAS 106 for
employees who either (A) after being employed by the Purchaser attain the age of
55 and complete 5 or more years of service during the period beginning on the
Closing Date and ending on the date that is 20 months after the Closing Date or
(B) had attained the age of 55 and completed 5 years of service before the
Closing Date and for all other employees attribution of the expected post-
retirement benefit obligation between the date of hire
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<PAGE>
and the expected retirement age as determined using the applicable assumptions
under Purchaser's Defined Benefit Plan.
(ii) Seller and Purchaser shall jointly prepare, as soon as
practicable after the Closing Date, a schedule which shall set forth, with
respect to each Benefits Affected Employee, the employee's name; Social Security
Number; 12-month service cost in accordance with Note 1 to Table 5.20(F)(1) and
Note 4 to Table 5.20(F)(2); 167% of the 12-month service cost in accordance with
Note 2 to Table 5.20(F)(1); projected benefit obligation in accordance with Note
3 to Table 5.20(F)(1); and accumulated post-retirement benefit obligation in
accordance with Notes 5 and 6 to Table 5.20(F)(2). Such schedule shall be used
to determine the net adjustment to the Final Purchase Price with respect to the
items set forth therein. The net adjustment to the Final Purchase Price
calculated under such schedule is assumed to be paid 20 months after the Closing
Date. This net adjustment to the Final Purchase Price shall be projected for
interest at 7.5% per year from 20 months after the Closing Date to the actual
settlement date.
(g) Seller shall retain responsibility for and shall indemnify and
hold harmless Purchaser from and against any and all claims, losses, damages and
expenses (including, without limitation, reasonable attorneys' fees) and other
liabilities and obligations relating to or arising out of all workers'
compensation claims of Affected Employees for injuries, as defined under the
applicable Workers' Compensation Act, sustained on or before the Closing Date,
regardless of when the claim is actually made. Purchaser shall have
responsibility for and shall indemnify and hold harmless Seller from and against
any and all claims, losses, damages and expenses (including, without limitation,
reasonable attorneys' fees) and other liabilities and obligations relating to or
arising out of all workers' compensation claims of Affected Employees (or
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replacement employees of Seller who become employed by Purchaser) for injuries,
as defined under the applicable Workers' Compensation Act, sustained after the
Closing Date.
Section 5.21. ALLOCATION OF FINAL PURCHASE PRICE. Seller and
Purchaser agree for all Tax purposes to report the purchase of the Business as
an assumption reinsurance transaction.
Within 120 days after Closing, Purchaser and Seller shall agree upon
the valuation of the assets purchased and shall complete a Form 8594 for
submission to the IRS with their 1996 federal income tax returns.
The methodology for the allocation of the final purchase price to the
intangibles for federal tax purposes is the following:
Tax reserves assumed in the transaction $
Other non-insurance liabilities assumed
Cash paid by reinsurer
------------
Total consideration incurred by reinsurer (a)
------------
------------
Cash received by the reinsurer
Fair market value of investment assets
Accounts receivable and other assets
------------
Total value of non-intangible assets (b)
------------
------------
Amount allocable to the ceding commission (a-b)
------------
------------
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Section 5.22. NEWCO. Purchaser shall use commercially reasonable
efforts to acquire or organize Newco (commercially reasonable for these purposes
to be interpreted in light of the regulatory requirements customarily imposed by
the New York Insurance Department) and to cause each warranty and representation
contained in this Agreement with respect to Newco to be true and correct no
later than September 30, 1996. Purchaser shall also use commercially reasonable
efforts to cause Newco, no later than September 30, 1996, to become an
accredited reinsurer in the State of Maine and in other states where becoming an
accredited reinsurer is required in order for Seller to receive statutory
statement credit for the reinsurance under the Newco Indemnity Reinsurance
Agreement. Purchaser shall similarly use commercially reasonable efforts to
obtain for Newco ratings from Standard & Poor's, Moody's Investor Services, Inc.
and A.M. Best & Co., which shall be no lower than those assigned to Purchaser.
Seller shall use commercially reasonable efforts to assist Purchaser in
obtaining accredited reinsurer status as provided in this Section 5.22.
Section 5.23. BROKER/DEALER TRANSITION. Purchaser agrees to use
commercially reasonable efforts prior to the Closing Date to: (a) enter into
new agreements with the registered representatives (including dually registered
representatives) and selling agreement partners listed on Schedule 5.23 hereto
that provide for payment of commissions on substantially the same terms as their
current arrangements with UNUM Sales Corporation with respect to the Insurance
Contracts and any contracts sold pursuant to the Coinsurance and Assumption
Agreement; and (b) obtain the necessary approvals and make the necessary filings
and appointments so that the registered representatives and selling agreement
partners listed on Schedule 5.23 hereto can lawfully receive from Purchaser
commissions on the Insurance
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Contracts and any contracts sold pursuant to the Coinsurance and Assumption
Agreement. Purchaser agrees to assume the costs incurred as a result of the
negotiation of the agreements and regulatory filings, registrations and
appointments referred to above. Seller agrees to provide reasonable assistance
to Purchaser in effectuating an orderly transition from UNUM Sales Corporation
to Purchaser, and each of the parties will use commercially reasonable efforts
to effectuate such transition by the Closing Date.
Section 5.24. OTHER AGREEMENTS. Seller and Purchaser shall,
following the date hereof, work in good faith to complete the First UNUM
Agreement and the schedules and exhibits thereto as soon as practicable.
Following such completion, Seller shall cause First UNUM to execute the First
UNUM Agreement, which will include as a condition of closing a guaranty by UNUM
Corporation, a Delaware corporation, of the obligations of First UNUM
thereunder. In addition, prior to the Closing, Seller and Purchaser shall work
in good faith, and in accordance with the financial terms set forth herein and
in the Transition Services Agreement, to complete the exhibits provided for in
the Transition Services Agreement. In addition, prior to the Closing, Seller
and Purchaser shall work in good faith to prepare the License Agreements in
accordance with the terms and conditions specified in the definition of the
License Agreements.
Section 5.25. BANK ACCOUNTS AND LOCKBOXES. Prior to the Closing,
Seller and Purchaser shall agree upon the treatment after Closing of Seller's
bank accounts and lock-box arrangements which are used primarily in the
Business. Such agreements shall be in accordance with applicable laws,
regulations and industry standards for financial controls and banking
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arrangements. Such agreements shall be reflected in the Administrative Services
Agreement and the Transition Services Agreement.
Section 5.26. COMPUTER SYSTEMS. Seller shall, prior to the Closing,
take, at the expense of Seller, actions to ensure that Seller's computer systems
are capable of inputing, processing and outputing information relating to
(i) the Insurance Contracts to enable the Insurance Contracts to be administered
in the name of Seller, Newco or Purchaser (as applicable depending upon whether
such Insurance Contracts have been novated to Purchaser pursuant to the
Purchaser Assumption Reinsurance Agreement or Newco pursuant to the Newco
Assumption Reinsurance Agreement), as contemplated by the Administrative
Services Agreement, and to permit Purchaser to prepare the reports contemplated
to be prepared by Purchaser under Sections 4.04 and 4.05 of the Administrative
Services Agreement and (ii) the Insurance Contracts (as defined in the First
UNUM Agreement) to enable the Insurance Contracts (as defined in the First UNUM
Agreement) to be administered in the name of First UNUM or Newco (as applicable
depending upon whether such Insurance Contracts have been novated to Newco
pursuant to the Assumption Reinsurance Agreement (as defined in the First UNUM
Agreement)), as contemplated by the Administrative Services Agreement (as
defined in the First UNUM Agreement), and to permit Purchaser to prepare the
reports contemplated to be prepared by Purchaser under Sections 4.04 and 4.05 of
the Administrative Services Agreement (as defined in the First UNUM Agreement).
Section 5.27. COMPUTER SOFTWARE. With respect to Licensed Generally
Used Software and the Licensed Principally Used Software, Seller and Purchaser
shall work together cooperatively to determine the most economical method of
obtaining from the licensors of the
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Licensed Generally Used Software and the licensors of the Licensed Principally
Used Software the right for Purchaser to operate the Licensed Generally Used
Software and the Licensed Principally Used Software, which license, in the case
of the Licensed Generally Used Software, will grant Purchaser the right to use
such software solely in connection with the conduct of the Combined Business.
Seller shall be responsible for all costs and expenses associated with obtaining
such right from the licensors of the Licensed Generally Used Software and the
Licensed Principally Used Software. Purchaser shall be entitled to participate
fully in any negotiation with any such licensors, but shall bear its own costs
in connection with such participation. With respect to the Licensed Generally
Used Software and the Licensed Principally Used Software, Purchaser shall assume
responsibility for complying with the terms and conditions of the licenses
governing such software, including responsibility for the payment of the costs
and expenses, or its pro rata share of the costs and expenses, as applicable, of
all ongoing contractual responsibilities, including without limitation
licensing, upgrade and maintenance fees; PROVIDED, HOWEVER, that Purchaser shall
not be responsible for the payment of any annual licensing fees payable with
respect to the Shared Cost Period. Seller shall pay all licensing fees payable
with respect to the Shared Cost Period in connection with the Licensed Generally
Used Software and the Licensed Principally Used Software.
Section 5.28. CONTRACT ADMINISTRATION. As of the Closing Date,
Seller will have in place and be operating a process for:
(a) notifying Participants (and, where appropriate, their employers)
when contributions or payments to a Transferred Contract on behalf of any
individual under a salary
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deferral agreement exceed or appear to exceed the applicable maximum annual
dollar limit under section 402(g) of the Code in any calendar year;
(b) notifying each Participant (and, where appropriate, their
employers or former employers) of the minimum required distribution rules under
applicable provisions of sections 401(a)(9) and 403(b)(10) of the Code in the
year such Participant reaches age 70 and each year thereafter, and for
calculating such minimum required distributions;
(c) promptly and properly allocating forfeitures to Participant
accounts where forfeitures are not applied to reduce future employer
contributions;
(d) verifying (prior to any distribution or contract loan) signatures
authorizing distributions or contract loans from any Transferred Contract
exceeding $50,000; and
(e) verifying Participant changes of address by correspondence
directed to the old as well as the new address.
Section 5.29. CREDIT FOR REINSURANCE. In the event that Newco is not
successful, on or prior to December 1, 1997, in obtaining accredited reinsurance
status in all states where such status is required for Seller to obtain
statutory statement credit for the reinsurance under the Newco Indemnity
Reinsurance Agreement, as contemplated by Section 5.22 hereof, Seller and
Purchaser shall endeavor in good faith to revise the applicable Ancillary
Agreements and/or to enter into new agreements in order to provide Seller with
such statutory statement credit. Such arrangements may include, without
limitation, (a) the issuance of a letter of credit for the benefit of Seller
which complies with applicable law for credit for reinsurance or (b) a cession
to Purchaser instead of Newco of the reinsurance contemplated under the Newco
Indemnity Reinsurance Agreement, with a retrocession of such business by
Purchaser to Newco. The
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parties contemplate that Seller would bear the costs of establishing any letters
of credit as referenced above, provided that Purchaser would bear the
incremental costs of establishing a letter of credit to the extent that the
amount of such letter of credit should exceed $100 million.
Section 5.30. CUSTODIAN ACCOUNT. In the event that the New York
Insurance Department rejects a proposal submitted to the New York Insurance
Department by the parties calling for the establishment by Newco of a custodian
arrangement for the benefit of holders of Insurance Contracts issued in New York
and for the release of assets held pursuant to the Seller Custodian Agreement
with a fair market value equal to the portion of the General Account Reserves
that pertains to those Insurance Contracts that are subject to the provisions of
the Seller Custodian Agreement, the parties shall negotiate in good faith to
formulate a revised proposal for submission to the New York Insurance Department
with the objective of securing the release of such assets. Notwithstanding this
Section 5.30, in no event shall Purchaser or Newco be required to (i) fund any
custodian account in an amount exceeding 100% of the General Account Reserves
pertaining to the relevant Insurance Contracts minus the aggregate amount of
contract loans under such Insurance Contracts or (ii) bear any costs that are
significantly in excess of those that Purchaser or Newco would have borne had
the relevant assets been maintained under the Newco Trust Agreement.
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ARTICLE VI
CONDITIONS PRECEDENT TO THE OBLIGATION
OF PURCHASER TO CLOSE
The obligations of Purchaser under this Agreement are subject to the
satisfaction on or prior to the Closing of the following conditions, any one or
more of which may be waived by it to the extent permitted by law:
Section 6.01. REPRESENTATIONS AND COVENANTS. (a) The
representations and warranties of Seller contained in this Agreement and in the
Ancillary Agreements shall be true and correct in all respects on and as of the
Closing Date with the same force and effect as though made on and as of the
Closing Date, except to the extent that the failure of any such representations
and warranties to be true and correct (excluding, for these purposes, any
materiality limitations contained therein) would not, individually or in the
aggregate, have a Material Adverse Effect on the Business; PROVIDED, HOWEVER,
that any such representations and warranties that are given as of a particular
date and relate solely to a particular date or period shall be true and correct
in all respects as of such date or period, except to the extent that the failure
of any such representations and warranties to be true and correct (excluding,
for these purposes, any materiality limitations contained therein) would not,
individually or in the aggregate, have a Material Adverse Effect on the
Business.
(b) Seller shall have performed and complied in all material respects
with all covenants and agreements required by this Agreement to be performed or
complied with by Seller on or prior to the Closing.
(c) Seller shall periodically until the Closing update the
information contained in the Schedules hereto that have been prepared by or on
behalf of Seller and any matters
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previously disclosed by Seller to Purchaser with respect to the representation
and warranties of Seller set forth herein, so that such Schedules and other
disclosures shall be true and correct in all respects on and as of the Closing
Date, and such updated information shall not affect the obligations of the
parties to proceed with the Closing (provided all other conditions to the
Closing are satisfied or waived) to the extent that such information as updated,
individually or in the aggregate, and considered collectively with any breaches
of any representations and warranties contained herein or in the Ancillary
Agreements (excluding, for these purposes, any materiality limitations contained
therein), would not have a Material Adverse Effect on the Business.
(d) On the Closing Date, Seller shall have delivered to Purchaser a
certificate of Seller, dated as of the Closing Date and signed by an executive
officer of Seller, as to the matters set forth in this Section 6.01.
(e) In the event that (i) the representations and warranties of
Seller contained in this Agreement fail to be true and correct on and as of the
Closing Date (ignoring, for these purposes, any updated information provided by
Seller pursuant to Section 6.01(c)) and (ii) such failure would not,
individually or in the aggregate, have a Material Adverse Effect on the
Business, neither Purchaser nor Newco shall be precluded from seeking
indemnification pursuant to Article X of this Agreement with respect to any
breaches of the representations and warranties of Seller contained in this
Agreement that were breaches as of the date of this Agreement.
Section 6.02. OTHER AGREEMENTS. The Ancillary Agreements and each of
the other agreements and instruments contemplated hereby and thereby to which
Seller is a party shall have been duly executed and delivered by Seller on the
Closing Date and each of such
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agreements, documents and instruments shall be in full force and effect with
respect to Seller on the Closing Date.
Section 6.03. GOVERNMENTAL AND REGULATORY CONSENTS AND APPROVALS.
(a) All Permits and authorizations required by either party or Newco from
governmental and regulatory bodies listed on Schedule 6.03 hereto, and all
Permits and authorizations from any other governmental or regulatory bodies that
are legally required by either party or Newco to close this Agreement and to
implement the Indemnity Reinsurance Agreements shall have been obtained and
shall be in full force and effect and without conditions or limitations which
are unacceptable to Purchaser in the exercise of its reasonable business
judgment, and Purchaser shall have been furnished with appropriate evidence,
reasonably satisfactory to it and its counsel, of the granting of such Permits.
(b) The waiting period prescribed by the HSR Act shall have expired.
Section 6.04. THIRD PARTY CONSENTS. All consents from Persons set
forth on Schedule 4.05 hereto shall have been obtained without conditions or
limitations which are unacceptable to Purchaser in the exercise of its
reasonable business judgment, and shall be in full force and effect.
Section 6.05. PARTICIPATION AGREEMENTS. Purchaser and Newco shall
have entered into a new participation agreement with each of the investment
companies listed on Schedule 6.05 hereto and the investment adviser for and the
principal underwriter of such company, as applicable, on substantially the same
terms as such agreement with Seller.
Section 6.06. POSSESSION OF ASSETS; INSTRUMENTS OF CONVEYANCE. On
the Closing Date, Seller shall have delivered (and caused the Seller Custodian
to have delivered) to
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Purchaser, Newco or the Trustee, as applicable, possession of the Transferred
Assets to be transferred on the Closing Date and shall have transferred (and
caused the Seller Custodian to have transferred) to Purchaser, Newco or the
Trustee, as applicable, all of the right, title and interest of Seller in and to
such assets as provided in this Agreement and the Ancillary Agreements.
Section 6.07. OPINION OF COUNSEL TO SELLER. Purchaser shall have
received the opinion of the General Counsel of Seller dated as of the Closing
Date, addressed to Purchaser and substantially in the form of Exhibit I hereto.
Section 6.08. INJUNCTION. There shall be no effective injunction,
writ, preliminary restraining order or any order of any nature issued by a court
of competent jurisdiction, directing that the transactions provided for herein
not be consummated as herein provided.
Section 6.09. CUSTOMER ASSET VALUE. The sum of (a) the Customer
Asset Value, as adjusted as set forth below, as of the date of the Closing
Balance Sheet, and (b) the Customer Asset Value as defined in the First UNUM
Agreement, as adjusted as set forth below, as of the date of the Closing Balance
Sheet, shall not be less than $2,059,050,000; PROVIDED, HOWEVER, that, for the
purposes of this Section 6.09, in determining Customer Asset Value (as defined
herein and in the First UNUM Agreement), there shall be excluded from the
calculation an amount equal to the aggregate GAAP reserves relating to all
Insurance Contracts (as defined herein and in the First UNUM Agreement) that are
not Core Insurance Contracts.
Section 6.10. CREDITING RATES. The weighted aggregate general
account crediting rate in effect from the date hereof to the Closing Date with
respect to the Core Insurance Contracts, averaged over such period of time,
shall not be greater than 6.06%.
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Section 6.11. NEW YORK SUBSIDIARY. Newco shall be a New York life
insurance company subsidiary of Purchaser that is licensed by the New York
Insurance Department to conduct life and annuity businesses in the State of New
York and that is recognized as an accredited reinsurer in the State of Maine.
Section 6.12. EMPLOYMENT CONTRACTS. Purchaser shall have entered
into employment contracts with the employee(s) listed on Schedule 6.12 hereof
and such employee(s) shall not be in material breach thereof. In addition, such
employee(s) shall be employed by Seller as of the Closing Date, unless the
employment of such employee(s) shall have terminated prior to such date due to
death or permanent disability.
Section 6.13. FIRST UNUM CLOSING. Simultaneous with the Closing
under this Agreement, the closing under the First UNUM Agreement shall have
occurred.
ARTICLE VII
CONDITIONS PRECEDENT TO THE OBLIGATION
OF SELLER TO CLOSE
The obligations of Seller under this Agreement are subject to the
satisfaction on or prior to the Closing of the following conditions, any one or
more of which may be waived by it to the extent permitted by law:
Section 7.01. REPRESENTATIONS AND COVENANTS. (a) The representations
and warranties of Purchaser contained in this Agreement and in the Ancillary
Agreements shall be true and correct in all respects on and as of the Closing
Date with the same force and effect as though made on and as of the Closing
Date, except to the extent that the failure of any such representations and
warranties to be true and correct (excluding, for these purposes, any
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materiality limitations contained therein) would not, individually or in the
aggregate, materially and adversely affect the ability of Purchaser and Newco
(giving effect to the Closing) to conduct the Business; PROVIDED, HOWEVER, that
any such representations and warranties that are given as of a particular date
and relate solely to a particular date or period shall be true and correct in
all respects as of such date or period, except to the extent that the failure of
any such representations and warranties to be true and correct (excluding, for
these purposes, any materiality limitations contained therein) would not,
individually or in the aggregate, materially and adversely affect the ability of
Purchaser and Newco (giving effect to the Closing) to conduct the Business.
(b) Purchaser and Newco shall have performed and complied in all
material respects with all covenants and agreements required by this Agreement
to be performed or complied with by Purchaser and Newco, respectively, on or
prior to the Closing Date.
(c) Purchaser shall periodically until the Closing update the
information contained in the Schedules hereto that have been prepared by or on
behalf of Purchaser so that such Schedules shall be true and correct in all
respects on and as of the Closing Date, and such updated information contained
in the Schedules hereto shall not affect the obligations of the parties to
proceed with the Closing (provided all other conditions to the Closing are
satisfied or waived) to the extent that such information contained in the
Schedules hereto as updated, individually or in the aggregate, and considered
collectively with any breaches of any representations and warranties contained
herein or in the Ancillary Agreements (excluding, for these purposes, any
materiality limitations contained therein), would not have a Material Adverse
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Effect on Purchaser or Newco or (after giving effect to the Closing) have a
Material Adverse Effect on the Business.
(d) On the Closing Date, Purchaser shall have delivered to Seller a
certificate of Purchaser, dated as of the Closing Date and signed by an
executive officer of Purchaser, as to the matters set forth in this
Section 7.01.
(e) In the event that (i) the representations and warranties of
Purchaser contained in this Agreement fail to be true and correct on and as of
the Closing Date (ignoring, for these purposes, any updated information provided
by Purchaser pursuant to Section 7.01(c)) and (ii) such failure would not,
individually or in the aggregate, materially and adversely affect the ability of
Purchaser and Newco (giving effect to the Closing) to conduct the Business,
Seller shall not be precluded from seeking indemnification pursuant to Article X
of this Agreement with respect to any breach of the representations and
warranties of Purchaser contained in this Agreement that were breaches as of the
date of this Agreement.
Section 7.02. OTHER AGREEMENTS. The Ancillary Agreements and each of
the other agreements and instruments contemplated hereby and thereby to which
Purchaser or Newco is a party shall have been duly executed and delivered by
Purchaser or Newco, as applicable, on the Closing Date and each of such
agreements and instruments shall be in full force and effect with respect to
Purchaser or Newco on the Closing Date, as applicable.
Section 7.03. GOVERNMENTAL AND REGULATORY CONSENTS AND APPROVALS.
(a) All Permits required by either party or Newco from governmental and
regulatory bodies listed on Schedule 6.03 and all Permits and authorizations
from any other governmental or regulatory bodies that are legally required by
either party or Newco to close this Agreement and to
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implement the Indemnity Reinsurance Agreements shall have been obtained and
shall be in full force and effect and without conditions or limitations which
are unacceptable to Seller in the exercise of its reasonable business judgment,
and Seller shall have been furnished with appropriate evidence, reasonably
satisfactory to it and its counsel, of the granting of such Permits.
(b) The waiting period prescribed by the HSR Act shall have expired.
(c) The New York Insurance Department shall have approved a transfer
at Closing to the Trustee of cash and Cash Equivalents held in the Seller
Custodian Account, with a fair market value equal to the portion of the General
Account Reserves that pertain to those Insurance Contracts that are subject to
the provisions of the Custodial Agreement.
Section 7.04. THIRD PARTY CONSENTS. All consents from Persons set
forth on Schedule 3.05 hereto shall have been obtained without conditions or
limitations which are unacceptable to Seller in the exercise of its reasonable
business judgment, and shall be in full force and effect.
Section 7.05. PURCHASE PRICE. Purchaser and Newco shall have paid to
Seller an aggregate amount equal to the Preliminary Purchase Price as provided
in this Agreement.
Section 7.06. OPINION OF COUNSEL TO PURCHASER. Seller shall have
received the opinion of Michael J. Wilkins, an Associate General Counsel of
Lincoln National Corporation, dated as of the Closing Date, addressed to Seller
and substantially in the form of Exhibit J hereto.
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Section 7.07. INJUNCTION. There shall be no effective injunction,
writ, preliminary restraining order or any order of any nature issued by a court
of competent jurisdiction, directing that the transactions provided for herein
not be consummated as herein provided.
Section 7.08. RATINGS. Seller shall have received confirmation in
form and substance reasonably satisfactory to Seller that, as of the Closing
Date, the Standard & Poor's Corporation Claims-Paying Ability rating of
Purchaser is A+ or higher and the Moody's Investors Service, Inc. Financial
Strength rating of Purchaser is A1 or higher. Seller shall have received
confirmation in form and substance reasonably satisfactory to Seller that, as of
the Closing Date, (i) the Standard & Poor's Corporation Claims-Paying Ability
rating of Newco and the Moody's Investors Service, Inc. Financial Strength
rating of Newco shall be not lower than those assigned by such rating agencies
to Purchaser and (ii) either (A) a rating shall be assigned to Newco by A.M.
Best & Co. which shall be no lower than that assigned to Purchaser or (B)
Purchaser shall guaranty the obligations of Newco to the holders of the
Insurance Contracts.
Section 7.09. NEW YORK SUBSIDIARY. Seller shall have received from
Purchaser evidence reasonably satisfactory to Seller that Newco is a New York
life insurance company subsidiary of Purchaser that is licensed by the New York
Insurance Department to conduct life and annuity businesses in the State of New
York.
Section 7.10. PRINCIPAL UNDERWRITER. Purchaser or an affiliated
broker-dealer will have entered into any agreements with Seller that are
required for Purchaser or such affiliated broker-dealer to perform, commencing
on the Closing Date, the functions of a principal underwriter, as defined in the
1940 Act, of the Insurance Contracts and any contracts sold pursuant to the
Coinsurance and Assumption Agreement until such time as such contracts are
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novated. In addition, if an affiliate of Purchaser serves as principal
underwriter, Purchaser and its affiliate will have entered into any agreements
between those two entities necessary to allow the registered representatives and
selling agreement partners listed on Schedule 5.23 to lawfully receive
commissions on the Insurance Contracts and any contracts sold pursuant to the
Coinsurance and Assumption Agreement. Any such agreements shall contain
customary representations, warranties and indemnities and shall terminate in the
event of the termination of the Administrative Service Agreement.
Section 7.11. FIRST UNUM AGREEMENT CLOSING. Simultaneously with the
Closing under this Agreement, the closing under the First UNUM Agreement shall
have occurred.
ARTICLE VIII
FURTHER AGREEMENTS
Section 8.01. SELLER'S NON-COMPETE. (a) Seller agrees that, except
as set forth in Section 8.01(d) hereof, following the Closing Date until the
second anniversary of the Closing Date (the "Non-Compete Period") Seller shall
not, and Seller agrees that none of its Affiliates shall, in the United States,
without the consent of Purchaser:
(i) solicit any holder of an Insurance Contract for the
purpose of (A) obtaining applications for new group annuity contracts which
constitute the Business or (B) inducing or attempting to induce any such Person
to cancel, replace, surrender, withdraw assets or fail to make contributions to
an Insurance Contract, or provide any incentive for any insurance agent of
Seller or any broker to, directly or indirectly, do any of the foregoing;
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(ii) establish a sales force for the purpose of soliciting
applications for new contracts to be issued by Seller or by any such Affiliate
which would be included in the Business if issued by Purchaser or Newco or an
Affiliate of Purchaser or Newco; or
(iii) disclose or reveal to any Person other than Purchaser
or Newco any trade secret or other confidential information relating solely to
the Business, unless Seller is legally required (whether by binding court or
regulatory order, statute or otherwise) to disclose or reveal such information,
provided that Seller shall only disclose such information to the extent required
to satisfy such legal requirement.
(b) Purchaser and Seller acknowledge that any damage caused to
Purchaser and Newco by reason of the breach by Seller or by any of Seller's
Affiliates or any of their respective successors in interest of this Section
8.01 could not be adequately compensated for in monetary damages alone;
therefore, each party agrees that, in addition to any other remedies, at law or
otherwise, Purchaser and Newco shall be entitled to specific performance of this
Section 8.01 or an injunction to be issued by a court of competent jurisdiction
restraining and enjoining any violation of this Section 8.01.
(c) It is the intent and desire of the parties to this Agreement that
the provisions of this Section 8.01 shall be enforced to the fullest extent
permissible under applicable law. Accordingly, if any particular portion of
this Section 8.01 shall be adjudicated to be invalid or unenforceable, this
Section 8.01 shall be amended to delete therefrom the portion thus adjudicated
to be invalid and unenforceable under such law.
(d) The provisions of Sections 8.01(a)(i) and (ii) hereof shall apply
to Colonial Life & Accident Insurance Company only with respect to the
solicitation of group contractholders of
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the Insurance Contracts for issuance of new group annuity contracts. Purchaser
agrees that the provisions of this Section 8.01 shall not prevent Colonial Life
& Accident Insurance Company from soliciting any insurance contracts or policies
on its behalf or on behalf of any other insurer from Persons other than such
group contractholders.
ARTICLE IX
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
Section 9.01. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties of Seller and Purchaser contained in this
Agreement shall survive the execution and delivery hereof; PROVIDED, HOWEVER,
that the representations and warranties of Seller and Purchaser herein shall
terminate and expire on the second anniversary of the Closing Date, except for
(a) representations and warranties of Seller pursuant to Section 3.10(c), which
representations and warranties shall terminate and expire as follows: (i)
representations and warranties relating to a federal tax matter, including,
without limitation, matters relating to the qualification of any Insurance
Contract under the Code, shall continue until the earlier of (A) December 31 of
the fourth year following the calendar year in which the Closing Date falls or
(B) the lapse of the applicable statute of limitations under the Code for the
assessment of any relevant Tax and (ii) representations and warranties relating
to a claim for a breach of a fiduciary obligation under ERISA shall continue
until the earlier of (A) December 31 of the sixth year following the calendar
year in which the Closing Date falls or (B) the lapse of the statute of
limitations under ERISA for the assertion of such claim and (b) representations
and warranties as to which a written notice pursuant to Article X, action, suit,
proceeding or arbitration shall
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have been made or commenced prior to the applicable expiration date, which
representations shall continue until such matters have been finally decided,
settled or adjudicated.
ARTICLE X
INDEMNIFICATION
Section 10.01. OBLIGATION TO INDEMNIFY. (a) Subject to the
limitations set forth in this Article X, Seller agrees to indemnify, defend and
hold harmless Purchaser and Newco (and their respective directors, officers,
employees, Affiliates, successors and permitted assigns) from and against all
Losses (as hereinafter defined), based upon: (i)(A) any breach of or inaccuracy
in the representations and warranties of Seller contained in Article III hereof
(other than those contained in Sections 3.10(c) and 3.25(d) hereof) or in any
Ancillary Agreement; or (B) any breach, nonfulfillment or default in the
performance of any of the covenants and agreements of Seller contained in this
Agreement (other than those contained in Sections 5.28(a), (b) and (c)), any
Ancillary Agreement or in any certificate or document delivered by Seller
pursuant to any of the provisions of, or in connection with, this Agreement or
any Ancillary Agreement, to the extent that the sum of Losses in connection with
clauses (a)(i)(A) and (a)(i)(B) of this Section 10.01 and Losses (as defined in
the First UNUM Agreement) in connection with the corresponding provisions of the
First UNUM Agreement exceeds $1 million in the aggregate, and then only in the
amount of such excess; (ii) any Asserted Liability arising out of any breach of
or inaccuracy in the representations and warranties of Seller contained in
Section 3.10(c) hereof or any breach, nonfulfillment or default in the
performance of any of the covenants and agreements of Seller contained in
Section 5.28(a), (b) or (c) hereof, if the sum of Losses in connection therewith
and Losses (as defined in the First UNUM Agreement) in connection with
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any Asserted Liability arising out of any breach of or inaccuracy in the
representations and warranties of First UNUM, or any breach, nonfulfillment or
default by First UNUM contained in the corresponding provisions of the First
UNUM Agreement exceeds $500,000 in the aggregate, in which case all such Losses
shall be indemnified (there being no indemnification hereunder for Losses based
on any breach of or inaccuracy in the representations and warranties of Seller
contained in Section 3.10(c) hereof or any breach, nonfulfillment or default in
the performance of any of the covenants and agreements of Seller contained in
Section 5.28(a), (b) or (c) hereof except for Losses resulting from an Asserted
Liability); (iii) any Extra Contractual Obligations; (iv) all liabilities or
obligations arising out of or related to the Assigned and Assumed Contracts
based on acts of Seller occurring prior to the Closing Date other than those
liabilities or obligations reflected on the Final Balance Sheet and (v) any
breach of or inaccuracy in the representations and warranties contained in
Section 3.25(d) hereof. Solely for the purposes of this Section 10.01(a), the
question whether any representation or warranty contained in Section 3.10(c) or
3.25(d) hereof has been breached shall be made without regard to matters
previously disclosed to Purchaser, so that no such disclosure made prior to the
date hereof, and no update to any such disclosure made on or prior to the
Closing Date, shall be taken into account in determining whether any such breach
has occurred.
As used in this Article X, Loss and/or Losses shall mean claims,
losses, liabilities, damages, deficiencies, costs, expenses (including
attorneys' fees), interest, taxes and penalties.
(b) Subject to the limitations set forth in this Article X, Purchaser
agrees to indemnify, defend and hold harmless Seller (and its directors,
officers, employees, Affiliates, successors and permitted assigns) from and
against all Losses, based upon: (i)(A) any breach
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of or inaccuracy in the representations and warranties of Purchaser contained in
Article IV hereof or in any Ancillary Agreement; or (B) any breach,
nonfulfillment or default in the performance of any of the covenants and
agreements of Purchaser contained in this Agreement or any of the covenants or
agreements of Purchaser or Newco contained in any Ancillary Agreement or in any
certificate or document delivered by Purchaser or Newco pursuant to any of the
provisions of, or in connection with, this Agreement or any Ancillary Agreement,
to the extent that the sum of Losses in connection with clauses (b)(i)(A) and
(b)(i)(B) of this Section 10.01 and Losses (as defined in the First UNUM
Agreement) in connection with the corresponding provisions of the First UNUM
Agreement exceeds $1 million in the aggregate, and then only in the amount of
such excess; and (ii) the Insurance Liabilities and any claim (other than an
Extra Contractual Obligation) of any Person other than Seller or its Affiliates
with respect to or arising out of any Insurance Liability.
(c) The aggregate amount for which Purchaser shall be liable under
Section 10.01(b) shall be $35 million less any amounts paid under the
corresponding provision of the First UNUM Agreement. The aggregate amount for
which Seller shall be liable under Sections 10.01(a)(i), (iii) and (iv) shall be
$35 million less any amounts paid under the corresponding provisions of the
First UNUM Agreement. The aggregate amount for which Seller shall be liable
under Section 10.01(a)(ii) shall be (i) $210 million with respect to Claims
Notices received by Seller from Purchaser during the period commencing on the
Closing Date and ending on December 31, 1997, (ii) $140 million with respect to
Claims Notices received by Seller from Purchaser during the period commencing on
January 1, 1998 and ending on December 31, 1998, and (iii) $70 million with
respect to Claims Notices received by Seller from
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Purchaser during the period commencing on January 1, 1999 and ending on December
31 of the sixth year following the calendar year in which the Closing Date falls
less, in each case, any amount paid under the corresponding provision of the
First UNUM Agreement; PROVIDED, HOWEVER, that the aggregate amount for which
Seller shall be liable under Section 10.01(a)(ii) during any period described in
this Section 10.01(c) shall be reduced by any amounts paid or payable by Seller
with respect to Claims Notices received by Seller during any prior period
pursuant to Section 10.01(a)(ii) and amounts paid or payable under the
corresponding provision of the First UNUM Agreement; and, PROVIDED FURTHER, that
in no event shall the liability of Seller with respect to Section 10.01(a)(ii)
exceed $210 million less any amount paid under the corresponding provision of
the First UNUM Agreement.
Section 10.02. CLAIMS NOTICE. Any claim for indemnification that
Newco wishes to assert hereunder shall be asserted by Purchaser on behalf of
Newco. In the event that either Purchaser, Newco or Seller wishes to assert a
claim for indemnification hereunder, such party seeking indemnification (the
"Indemnified Party") shall deliver written notice (a "Claims Notice") to the
other party (the "Indemnifying Party") no later than ten (10) Business Days
after such claim becomes known to the Indemnified Party, specifying the facts
constituting the basis for, and the amount (if known) of, the claim asserted.
Failure to deliver a Claims Notice with respect to a claim in a timely manner as
specified in the preceding sentence shall not be deemed a waiver of the
Indemnified Party's right to indemnification hereunder for Losses in connection
with such claim, but the amount of reimbursement to which the Indemnified Party
is entitled shall be reduced by the amount, if any, by which the Indemnified
Party's Losses would have been less had such Claims Notice been timely
delivered; PROVIDED, HOWEVER, that,
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notwithstanding the foregoing, the failure to deliver a Claims Notice with
respect to a claim within twenty (20) Business Days of the Indemnified Party's
receipt of written notice of such claim shall be deemed a waiver of the
Indemnified Party's right to indemnification hereunder for Losses in connection
with such claim.
Section 10.03. RIGHT TO CONTEST CLAIMS OF THIRD PARTIES. (a)
Subject to Section 10.04 hereof, if an Indemnified Party asserts a claim for
indemnification hereunder because of a claim or demand made, or an action,
proceeding or investigation instituted, by any Person not a party to this
Agreement (a "Third Party Claimant") that may result in a Loss with respect to
which the Indemnified Party would be entitled to indemnification pursuant to
Section 10.01 hereof without regard to the dollar limitations set forth in
Section 10.01 (an "Asserted Liability"), the Indemnified Party shall deliver to
the Indemnifying Party a Claims Notice with respect thereto, which Claims Notice
shall, in accordance with the provisions of Section 10.02 hereof, be delivered
no later than ten (10) Business Days after such Asserted Liability is actually
known to the Indemnified Party. Failure to deliver a Claims Notice with respect
to an Asserted Liability in a timely manner as specified in the preceding
sentence shall not be deemed a waiver of the Indemnified Party's right to
indemnification for Losses in connection with such Asserted Liability, but the
amount of reimbursement to which the Indemnified Party is entitled shall be
reduced by the amount, if any, by which the Indemnified Party's Losses would
have been less had such Claims Notice been timely delivered; PROVIDED, HOWEVER,
that, notwithstanding the foregoing, the failure to deliver a Claims Notice with
respect to an Asserted Liability within twenty (20) Business Days of the
Indemnified Party's receipt of written notice of such Asserted
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Liability shall be deemed to be a waiver of the Indemnified Party's right to
indemnification hereunder for Losses in connection with such Asserted Liability.
(b) Subject to Section 10.04 hereof, the Indemnifying Party shall
have the right, upon written notice to the Indemnified Party, to investigate,
contest, defend or settle any Asserted Liability that may result in a Loss with
respect to which the Indemnified Party is entitled to indemnification pursuant
to Section 10.01 hereof; provided, that the Indemnified Party may, at its option
and at its own expense, participate in the investigation, contesting, defense or
settlement of any such Asserted Liability through representatives and counsel of
its own choosing; and, provided further, that the Indemnifying Party shall not
settle any Asserted Liability unless (i) such settlement is on exclusively
monetary terms or (ii) the Indemnified Party shall have consented to the terms
of such settlement, which consent shall not unreasonably be withheld. The
failure of the Indemnifying Party to provide the above-mentioned written notice
to the Indemnified Party within thirty (30) days after receipt of a Claims
Notice with respect to an Asserted Liability shall be deemed an election not to
defend the same. Unless and until the Indemnifying Party elects to defend the
Asserted Liability, the Indemnified Party shall have the right, at its option
and at the Indemnifying Party's expense, to do so in such manner as it deems
appropriate; PROVIDED, HOWEVER, that the Indemnified Party shall not settle or
compromise any Asserted Liability for which it seeks indemnification hereunder
without the prior written consent of the Indemnifying Party (which shall not be
unreasonably withheld) during the thirty (30) day period referred to above.
(c) The Indemnifying Party shall be entitled to participate in (but
not to control) the defense of any Asserted Liability which it has elected, or
is deemed to have elected, not to
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defend, or as to which it does not have the right to defend under
Section 10.03(b) or 10.04(a), with its own counsel and at its own expense. If
the Indemnifying Party seeks to question (i) the manner in which the Indemnified
Party defended an Asserted Liability with respect to which the Indemnifying
Party elected, or is deemed to have elected, not to defend or (ii) the amount or
nature of any settlement entered into by the Indemnified Party in connection
with such Asserted Liability, the Indemnifying Party shall have the burden to
prove by a preponderance of the evidence that the Indemnified Party did not
defend or settle such Asserted Liability in a reasonably prudent manner.
(d) Except as provided in the first sentence of Section 10.03(b), and
subject to the provisions of Section 10.04 hereof, the Indemnifying Party shall
bear all costs of defending any Asserted Liability and shall indemnify and hold
the Indemnified Party harmless against and from all costs, fees and expenses
incurred in connection with defending such Asserted Liability.
(e) Purchaser and Seller shall, and Purchaser shall cause Newco to,
make mutually available to each other all non-privileged relevant information in
their possession relating to any Asserted Liability and shall cooperate with
each other in the defense thereof.
Section 10.04. SECTION 10.01(a)(ii) INDEMNIFICATION. Notwithstanding
any contrary provision in Section 10.03 and except as provided in subsection
(a)(iii) of this Section 10.04, the provisions of this Section 10.04 shall
govern the procedures by which Purchaser and/or Newco shall seek indemnification
under Section 10.01(a)(ii) with respect to Employer Claims and IRS Claims.
(a) (i) In the event that any Contractholder asserts a claim against
Purchaser and/or Newco or indicates to Purchaser and/or Newco that it believes
that the IRS may assert a Tax
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liability against such Contractholder (or against one or more participants or
holders of certificates under the relevant Transferred Contract) (an "Employer
Claim"), Purchaser shall deliver to Seller a written notice with respect thereto
no later than ten (10) Business Days after such Employer Claim is actually known
to (A) Purchaser, in the case of an Employer Claim against Purchaser, (B) Newco,
in the case of an Employer Claim against Newco, or (C) the first of Purchaser
and Newco to have such actual knowledge, in the case of an Employer Claim
against both Purchaser and Newco, specifying the facts constituting the basis
for, and the amount, if known, of such Employer Claim. Failure to deliver such
written notice with respect to an Employer Claim in a timely manner as specified
in the preceding sentence shall not be deemed a waiver of Purchaser's and/or
Newco's right to indemnification hereunder for Losses in connection with such
Employer Claim, but the amount of reimbursement to which Purchaser and/or Newco
is entitled shall be reduced by the amount, if any, by which Purchaser's and/or
Newco's Losses would have been less had such written notice been timely
delivered; PROVIDED, HOWEVER, that, notwithstanding the foregoing, the failure
to deliver such written notice with respect to an Employer Claim within twenty
(20) Business Days of (x) Purchaser's receipt, in the case of an Employer Claim
against Purchaser, (y) Newco's receipt, in the case of an Employer Claim against
Newco, or (z) the first of Purchaser's receipt or Newco's receipt, in the case
of an Employer Claim against both Purchaser and Newco, of written notice of such
Employer Claim shall be deemed a waiver of Purchaser's or Newco's, as
applicable, right to indemnification hereunder for Losses in connection with
such Employer Claim. Seller shall be entitled to participate in (but not
control) the investigation of any Employer Claim, with its own counsel and at
its own expense. Purchaser or Newco, as applicable, shall have the right, but
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not the obligation, to investigate and to settle on, with respect to Seller,
exclusively monetary terms, any such Employer Claim without the consent of
Seller, either by making the settlement payment to the relevant Contractholder,
participant or holders of certificates or by making such payment directly to the
IRS. In the event that Losses incurred by Purchaser and/or Newco in connection
with the settlement of any such Employer Claim do not exceed $250,000, Purchaser
shall provide written notice (the "Settlement Notice") to Seller within ten (10)
Business Days of the making of such payment by Purchaser or Newco, which
Settlement Notice shall set forth in reasonable detail the amount of Losses
incurred by Purchaser and/or Newco in connection with the settlement of such
Employer Claim and the portion thereof for which Purchaser and/or Newco seeks
indemnification. Seller shall either pay in full the amount for which Purchaser
and/or Newco seeks indemnification or request arbitration in accordance with
Section 10.04(a)(ii). If Seller neither pays in full the amount for which
Purchaser and/or Newco seeks indemnification nor requests arbitration in
accordance with the provisions of Section 10.04(a)(ii) within thirty (30) days
of the date on which Seller received such Settlement Notice, Purchaser shall be
entitled to request arbitration in accordance with Section 10.04(a)(ii). In the
event that Losses in connection with any settlement of an Employer Claim exceed
$250,000, or in the event that any such Losses, when added to other Losses as to
which Purchaser or Newco has entered into settlements in accordance with this
Section 10.04(a)(i) or the corresponding provision of the First UNUM Agreement
during the same calendar year, would exceed $2,500,000 in the aggregate, neither
Purchaser nor Newco shall be entitled to seek indemnification under, and such
Losses shall not count towards the $500,000 threshold set forth in, Section
10.01(a)(ii).
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(ii) (A) In the event that an arbitration proceeding is
commenced in accordance with the provisions of subsection (a)(i) of this Section
10.04, the party requesting the arbitration shall have the right to arbitrate,
pursuant to the procedures specified below, with regard to (i) whether the
relevant Losses were based upon any breach of or inaccuracy in the
representations and warranties of Seller contained in Section 3.10(c) hereof or
the covenants and agreements of Seller contained in Section 5.28(a), (b) or (c)
hereof, (ii) the reasonableness of the amount of the settlement entered into by
Purchaser and/or Newco and (iii) the reasonableness of any proposed allocation
of settlement between Purchaser and/or Newco on the one hand and Seller on the
other hand. In any such arbitration proceeding, Purchaser shall have the burden
to prove by a preponderance of the evidence the matters set forth in clauses (i)
and (iii) of the preceding sentence. In the event that the arbitrators rule in
favor of Purchaser as to such matters, Seller shall have the burden to prove by
a preponderance of the evidence that Purchaser and/or Newco did not settle such
Employer Claim in a reasonable manner. In the event that the arbitrators rule
in favor of Seller on the issue of the reasonableness of the settlement, they
shall be entitled to determine a lesser amount to be indemnified by Seller.
(B) In the event that Seller wishes to exercise its right
to seek arbitration with respect to an Employer Claim that has been settled, it
shall deliver a written notice of exercise to Purchaser within thirty (30) days
of the date on which Seller received the Settlement Notice with respect to such
settlement. In the event that Seller neither requests arbitration in accordance
with the foregoing sentence nor pays in full the amount for which Purchaser
and/or Newco seeks indemnification within thirty (30) days of the date on which
Seller received the applicable Settlement Notice and Purchaser wishes to
exercise its right to seek arbitration,
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Purchaser shall deliver a written notice of exercise to Seller within ten (10)
Business Days of the expiration of such 30-day period. The arbitration panel
shall consist of three attorneys widely recognized as having expertise in
matters relating to ERISA and section 403(b) of the Code; PROVIDED, HOWEVER,
that there shall be excluded from the arbitration panel the following
individuals: (x) any attorney who worked on this Agreement, any Ancillary
Agreement or any of the transactions contemplated hereby or thereby; (y) any
attorney employed by or partner of the firm with which any attorney described in
clause (x) is affiliated as of the date hereof or as of the Closing Date; and
(z) any attorney employed by or partner of any firm advising either party with
respect to any matter at the time of such arbitration. Seller shall appoint one
such arbitrator and Purchaser shall appoint the second arbitrator. Such
arbitrators shall then select the third arbitrator before arbitration commences.
Should either Seller or Purchaser decline to appoint an arbitrator, or should
the two arbitrators be unable to agree upon the choice of a third, such
arbitrator shall be appointed in accordance with the rules of the American
Arbitration Association. The arbitration shall be held in New York, New York,
as soon as possible after the arbitrators are appointed. Each party will have
the opportunity to present evidence and to cross-examine witnesses. Discovery
shall be limited to the production of written documents and the taking of
depositions, in each case as found by the arbitrators to be directly relevant
to, and reasonably necessary to the resolution of, the issues in the
arbitration, and such other discovery as the arbitrators may order. Decisions
of the arbitrators shall be by majority vote. Each party shall bear its own
costs and those of its counsel in connection with any such arbitration, but the
costs of arbitration, including the fees of the arbitrators, shall be shared
equally by the parties. Judgment upon any award of the arbitrators may be
entered in a Federal court of competent
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jurisdiction located in the City, County and State of New York. Any out-of-
pocket expenses incurred by Purchaser or Newco in connection with the
enforcement of any such decision shall be reimbursed by Seller (but shall not be
included in determining the limitations on Seller's liability under Section
10.01(c)).
(iii) In the event that neither Purchaser nor Newco settles
an Employer Claim under Section 10.04(a)(i), Purchaser shall be entitled to
deliver a Claims Notice to Seller with respect to such Employer Claim at any
time provided that neither Purchaser nor Newco has made any pleading or other
filing in any court or other tribunal with respect to such Employer Claim and
that Seller receives such Claims Notice at least twenty (20) days prior to the
date upon which any such filing is due in response to a complaint or other
filing made by the IRS or the relevant Contractholder. In the event that
Purchaser delivers a Claims Notice to Seller with respect to such an Employer
Claim, the provisions of Section 10.03 shall apply to such Employer Claim;
provided, that the requirement that Claims Notices with respect to Asserted
Liabilities be delivered within ten (10) Business Days after the Asserted
Liability is actually known to the Indemnified Party shall not be applicable.
(b) (i) In the event that the IRS asserts a claim against Purchaser
and/or Newco or indicates to Purchaser and/or Newco that it may assert a Tax
liability against one or more Contractholders (an "IRS Claim"), Purchaser shall
deliver to Seller written notice with respect thereto no later than ten (10)
Business Days after such IRS Claim is actually known to (A) Purchaser, in the
case of an IRS Claim against Purchaser, (B) Newco, in the case of an IRS Claim
against Newco, or (C) the first of Purchaser and Newco to have such actual
knowledge, in the case of an IRS Claim against both Purchaser and Newco,
specifying the basis for and the
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amount, if known, of such IRS Claim, and Purchaser and/or Newco, on the one
hand, and Seller, on the other hand, shall jointly investigate, contest, defend
or settle such IRS Claim. In any such joint defense, Purchaser and/or Newco, on
the one hand, and Seller, on the other hand, shall cooperate in good faith. In
the event that Purchaser and/or Newco, on the one hand, and Seller, on the other
hand, agree to a settlement with the IRS and to an allocation of the settlement
between Purchaser and/or Newco, on the one hand, and Seller, on the other hand,
the amount of (A) Seller's allocable share (as determined by Purchaser and/or
Newco, on the one hand, and Seller, on the other hand) of the settlement and of
the legal fees and other expenses incurred by Purchaser and/or Newco in
connection with the IRS Claim and (B) the legal fees and other expenses incurred
by Seller in connection with the IRS Claim shall be paid by Seller. In the
event that a settlement offer is made by the IRS and either Purchaser and/or
Newco, on the one hand, or Seller, on the other hand, wishes to accept the
offer, the other party shall not unreasonably withhold its consent to the
settlement. If Seller rejects the offer but Purchaser or Newco, as applicable,
nonetheless agrees to the settlement, or if Seller wishes to accept the offer
but Purchaser or Newco, as applicable, does not agree to the settlement, the
procedures set forth in Section 10.04(b)(ii) shall apply.
(ii) (A) In the event that the amount of Losses sought by
Purchaser and/or Newco in connection with a settlement offer rejected by Seller
in connection with an IRS Claim is $1,000,000 or less, Purchaser shall have the
right to arbitrate the reasonableness of Seller's rejection of such offer. The
arbitrators shall be selected in accordance with the procedures set forth in
Section 10.04(a)(ii)(B) except as specifically provided in this
Section 10.04(b)(ii)(A). The arbitrators shall determine (i) whether and the
extent to which the IRS Claim was based
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upon any breach of or inaccuracy in the representations and warranties of Seller
contained in Section 3.10(c) hereof or the covenants and agreements of Seller
contained in Section 5.28(a), (b) or (c) hereof, (ii) the reasonableness of the
amount of the settlement offer in light of their determination as to the
question set forth in clause (i) of this sentence and (iii) the reasonableness
of any proposed allocation of settlement between Purchaser and/or Newco, on the
one hand, and Seller, on the other hand. In any such arbitration proceeding,
Purchaser shall have the burden to prove by a preponderance of the evidence the
matters set forth in clauses (i) and (iii) of the preceding sentence. In the
event that the arbitrators rule in favor of Purchaser as to such matters, Seller
shall have the burden to prove by a preponderance of the evidence that its
rejection of the settlement offer was reasonable. In the event that the
arbitrators rule that Seller's rejection of the settlement was unreasonable,
Seller shall indemnify Purchaser and/or Newco for Seller's allocable share of
Losses based upon the IRS Claim (allocated based on Seller's liability, on the
one hand, and Purchaser's and/or Newco's liability, on the other hand, with
respect to such IRS Claim), and for out-of-pocket expenses incurred by Purchaser
in connection with the arbitration. In the event that the arbitrators rule that
Seller's rejection of the settlement was reasonable, the arbitrators shall be
entitled to determine a lesser amount to be indemnified by Seller. Judgment
upon any award of the arbitrators may be entered in a Federal court of competent
jurisdiction located in the City, County and State of New York. Any out-of-
pocket expenses incurred by Purchaser in connection with the enforcement of any
such decision shall be reimbursed by Seller (but shall not be included in
determining the limitations on Seller's liability under Section 10.01(c)).
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(B) In the event that the amount of Losses sought by Purchaser
and/or Newco in connection with a settlement offer rejected by Seller in
connection with an IRS Claim is greater than $1,000,000, Purchaser or Newco, as
applicable, shall have the right to bring an action in any court of competent
jurisdiction to seek resolution of the matters set forth in clauses (i) and (ii)
of Section 10.04(b)(ii)(A). In the event that the court rules that Seller's
rejection of the settlement was unreasonable, Seller shall indemnify Purchaser
and/or Newco for Seller's allocable share of Losses based upon the IRS Claim
(allocated based on Seller's liability, on the one hand, and Purchaser's and/or
Newco's liability, on the other hand, with respect to such IRS Claim), and for
out-of-pocket expenses incurred by Purchaser or Newco, as applicable, in
connection with the litigation (which shall not be included in determining the
limitations on Seller's liability under Section 10.01(c)). In the event that
the court rules that Seller's rejection of the settlement was reasonable, the
court shall be entitled to determine a lesser amount to be indemnified by
Seller.
(C) In the event that the amount of Losses allocable to Seller in
connection with a settlement offer rejected by Purchaser and/or Newco in
connection with an IRS Claim is $1,000,000 or less, Seller shall have the right
to arbitrate the reasonableness of Purchaser's and/or Newco's rejection of such
offer. The arbitrators shall be selected in accordance with the procedures set
forth in Section 10.04(a)(ii)(B) except as specifically provided in this
Section 10.04(b)(ii)(C). The arbitrators shall determine the reasonableness of
the amount of the settlement offer. Purchaser shall have the burden to prove,
by a preponderance of the evidence, that its and/or Newco's rejection of the
settlement offer was reasonable. In the event that the arbitrators rule that
Purchaser's and/or Newco's rejection of the settlement was unreasonable,
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Purchaser shall indemnify Seller for out-of-pocket expenses incurred by Seller
in connection with the arbitration and Seller's aggregate indemnification
obligation under Section 10.01(a)(ii), if any, arising from such IRS Claim and
from any subsequent IRS Claim or Employer Claim relating to the issue or issues
that (x) were the subject of the IRS Claim in question and (y) would have been
resolved by the relevant settlement offer (regardless of whether such IRS Claim
or Employer Claim arises out of the identical Insurance Contract or Insurance
Contracts) shall be limited, in the aggregate, to the portion of such IRS Claim
in question that is allocable to Seller (as determined by the arbitrators and
specified in written findings of the arbitrators). Judgment upon any award of
the arbitrators may be entered in a Federal court of competent jurisdiction
located in the City, County and State of New York. Any out-of-pocket expenses
incurred by Seller in connection with the enforcement of any such decision shall
be reimbursed by Purchaser (but shall not be included in determining the
limitations on Purchaser's liability under Section 10.01(c)).
(D) In the event that the amount of Losses allocable to Seller
in connection with a settlement offer rejected by Purchaser and/or Newco in
connection with an IRS Claim is greater than $1,000,000, Seller shall have the
right to bring an action in any court of competent jurisdiction to seek
resolution of the reasonableness of the amount of the settlement offer. In the
event that the court rules that Purchaser's and/or Newco's rejection of the
settlement was unreasonable, Seller's aggregate indemnification obligation under
Section 10.01(a)(ii), if any, arising from such IRS Claim and from any
subsequent IRS Claim or Employer Claim relating to the issue or issues that (x)
were the subject of the IRS Claim in question and (y) would have been resolved
by the relevant settlement offer (regardless of
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whether such IRS Claim or Employer Claim arises out of the identical Insurance
Contract or Insurance Contracts) shall be limited, in the aggregate, to the
portion of such IRS Claim in question that is allocable to Seller (as determined
by the court). In addition, Purchaser shall indemnify Seller for out-of-pocket
expenses incurred by Seller in connection with the litigation (which shall not
be included in determining the limitations on Purchaser's liability under
Section 10.01(c)).
(c) The parties intend that in determining whether a settlement or a
settlement offer pursuant to this Section 10.04 was reasonable, arbitrators or a
court, as applicable, shall consider the factors typically considered by
insurers in settling claims of policyholders and contractholders including, but
not be limited to, (i) whether Purchaser and/or Newco acted in good faith in
settling an Employer Claim, or a portion of an IRS Claim allocable to Seller (in
the event of a settlement by Purchaser and/or Newco) and (ii) the likely results
of litigation had the Employer Claim, or a portion of an IRS Claim allocable to
Seller, been litigated to a final judgment before a court of competent
jurisdiction (in the event of a settlement by Purchaser and/or Newco or a
settlement offer rejected by Seller or Purchaser and/or Newco), (iii) the
potential costs of litigation, (iv) the potential for additional claims to
develop in the course of litigation or continued settlement negotiations, (v)
adverse publicity that would result from litigation and (vi) the potential for
the establishment of adverse legal precedent in a court proceeding, in each
case, as such may be applicable; PROVIDED, HOWEVER, that in determining any such
reasonableness, the arbitrators shall consider the future business interests of
Purchaser and/or Newco with respect to the Contractholders only to the extent
that such business interests are included within the factors specifically
referred to above in clauses (i) through (vi); and,
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PROVIDED FURTHER, that, with respect to an IRS Claim, the arbitrators shall
consider solely the factors specifically referred to above in clauses (i)
through (vi) and whether the settlement of Seller's allocable portion of the IRS
Claim would have been reasonable had such allocable portion been the sole
subject of the IRS Claim.
(d) Unless and until Purchaser or Seller shall have commenced an
arbitration or judicial proceeding against the other party pursuant to the
provisions hereof, Purchaser and Seller shall, and Purchaser shall cause Newco
to, make mutually available to each other all non-privileged relevant
information in their possession relating to any Employer Claim or IRS Claim and
shall cooperate with each other in the investigation or defense thereof.
Section 10.05. INDEMNIFICATION PAYMENTS. Subject to a party's right
to defend pursuant to Section 10.03 or Section 10.04 hereof, an Indemnifying
Party hereunder shall make a required indemnification payment with respect to a
Loss promptly after a Claims Notice is received. All such payments shall be
made by wire transfer of immediately available funds to such account or accounts
as the Indemnified Party shall designate to the Indemnifying Party in writing.
ARTICLE XI
TERMINATION PRIOR TO CLOSING
Section 11.01. TERMINATION OF AGREEMENT. This Agreement may be
terminated at any time prior to the Closing:
(a) by Seller in writing, if Purchaser shall (i) fail to perform in
any material respect its agreements contained herein or in the First UNUM
Agreement required to be performed on or prior to the Closing Date or (ii)
breach any of its representations, warranties,
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covenants or agreements contained herein, which breach would, individually or in
the aggregate, materially and adversely affect the ability of Purchaser to
consummate the transactions contemplated hereby or (after giving effect to the
Closing) the ability of Purchaser and Newco to conduct the Business, which
failure or breach is not cured within ten (10) days after Seller has notified
Purchaser of its intent to terminate this Agreement pursuant to this
Section 11.01(a);
(b) by Purchaser in writing, if Seller shall (i) fail to perform in
any material respect its agreements contained herein or in the First UNUM
Agreement required to be performed on or prior to the Closing Date or (ii)
breach any of its representations, warranties, covenants or agreements contained
herein, which breach would, individually or in the aggregate, have a Material
Adverse Effect on the Business or materially and adversely affect the ability of
Seller to consummate the transactions contemplated hereby, which failure or
breach is not cured within ten (10) days after Purchaser has notified Seller of
its intent to terminate this Agreement pursuant to this Section 11.01(b);
(c) by Seller or Purchaser in writing, if there shall be any order,
writ, injunction or decree of any court or governmental or regulatory agency
binding on Purchaser and/or Seller, which prohibits or restrains Purchaser
and/or Seller from consummating the transactions contemplated hereby; PROVIDED,
that Purchaser and/or Seller, as the case may be, shall have used its best
efforts to have any such order, writ, injunction or decree lifted and the same
shall not have been lifted by December 15, 1996;
(d) by either of Seller or Purchaser in writing, if the Closing has
not occurred on or prior to December 15, 1996 unless the absence of such
occurrence shall be due to the failure
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of the party seeking to terminate this Agreement to materially perform each of
its obligations under this Agreement required to be performed by it on or prior
to the Closing Date;
(e) at any time on or prior to the Closing Date, by mutual written
consent of Seller and Purchaser; and
(f) by Seller in writing if, at any time prior to the Closing Date,
(i) the ratings of Purchaser shall become lower than the ratings specified in
Section 7.08 hereof or (ii) Purchaser shall be placed on credit watch with an
indication of a reduction in rating to a rating lower than the ratings so
specified and Purchaser is not removed from credit watch within fourteen (14)
days after being so placed on credit watch.
Section 11.02. BREAK-UP FEE. (a) In the event that Seller or
Purchaser shall terminate this Agreement pursuant to Section 11.01(a) or (b)
hereof or otherwise fail to close this Agreement in accordance with the terms
hereof, other than a failure to close this Agreement in accordance with Section
11.01(c), (d) or (e), in addition to any other remedy available to the non-
breaching party at law or equity, the breaching party shall pay to the non-
breaching party, within ten (10) Business Days of such termination, the sum of
$2 million, as well as all out-of-pocket fees and expenses incurred by the non-
breaching party in connection with the negotiation and preparation of this
Agreement and the Ancillary Agreements.
(b) In the event that Seller shall terminate this Agreement pursuant
to Section 11.01(f) hereof, Purchaser shall pay to Seller, within ten (10)
Business Days of such termination, the sum of $2 million, as well as all out-of-
pocket fees and expenses incurred by Seller in connection with the negotiation
and preparation of this Agreement and the Ancillary Agreements.
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(c) The parties recognize that this Section 11.02 shall not apply if
this Agreement fails to close solely due to the failure of Purchaser to satisfy
by December 15, 1996 the condition to close set forth in Section 7.09 hereof,
provided that Purchaser shall not have failed to perform its covenants contained
in Section 5.22 hereof.
(d) The parties recognize that this Section 11.02 shall not apply if
this Agreement fails to close solely due to the failure of Seller to satisfy the
condition to close set forth in Section 6.12 hereof.
Section 11.03. SURVIVAL. If this Agreement is terminated and the
transactions contemplated hereby are not consummated as described above, this
Agreement shall become null and void and of no further force and effect, except
for (a) the provisions of this Agreement relating to the obligations of the
parties hereto to keep confidential and not to use certain information and data
obtained from the other parties hereto and (b) the provisions of Sections 5.09,
11.02, 12.01 and this Section 11.03.
ARTICLE XII
MISCELLANEOUS
Section 12.01. PUBLICITY. Except as may otherwise be required by
law, no release or announcement concerning this Agreement or the transactions
contemplated hereby shall be made without advance approval thereof by Seller and
Purchaser. The parties hereto shall cooperate with each other in making any
release or announcement.
Section 12.02. CONFIDENTIALITY. The parties agree that, other than
as agreed or as required to implement the transactions contemplated hereby, the
parties will keep confidential the terms and conditions of this Agreement and
the Ancillary Agreements, including, without
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limitation, the Schedules hereto and thereto, except as otherwise required by
law (including, without limitation, pursuant to any federal or state securities
laws or pursuant to any legal, regulatory or legislative proceedings).
Section 12.03. NOTICES. Any notice or other communication required
or permitted hereunder shall be in writing and shall be delivered personally (by
courier or otherwise), telegraphed, telexed, sent by facsimile transmission or
sent by certified, registered or express mail, postage prepaid and return
receipt requested. Any such notice shall be deemed given when so delivered
personally, telegraphed, telexed or sent by facsimile transmission or, if
mailed, three days after the date of deposit in the United States mails, as
follows:
(i) if to Purchaser:
The Lincoln National Life Insurance Company
1300 South Clinton Street
P.O. Box 1110
Fort Wayne, Indiana 48601-1110
Attention: Carl L. Baker
Telecopier No.: (219) 455-5135
With a concurrent copy to:
Sutherland, Asbill & Brennan
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
Attention: David A. Massey
Telecopier No.: (202) 637-3593
(ii) If to Seller:
UNUM Life Insurance Company of America
2211 Congress Street
Portland, Maine 04122
Attention: Kevin J. Tierney
Telecopier No.: (207) 770-4377
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With a concurrent copy to:
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
125 West 55th Street
New York, New York 10019-5389
Attention: Donald B. Henderson, Jr.
Telecopier No.: (212) 424-8500
Any party may, by notice given in accordance with this Section 12.02
to the other parties, designate another address or person for receipt of notices
hereunder provided that notice of such a change shall be effective upon receipt.
Section 12.04. ENTIRE AGREEMENT. This Agreement (including the
Ancillary Agreements, the other agreements contemplated hereby and thereby, the
Exhibits and the Schedules hereto) contains the entire agreement among the
parties with respect to the subject matter hereof and supersedes all prior
agreements, written or oral, with respect thereto; PROVIDED, HOWEVER, that the
Confidentiality Agreement entered into between Seller and Purchaser dated
September 19, 1995 shall remain in full force and effect in accordance with its
terms both prior to and subsequent to the Closing (except, following Closing, as
to the utilization of Books and Records and the hiring of Seller's employees as
provided for in this Agreement).
Section 12.05. WAIVERS AND AMENDMENTS; NON-CONTRACTUAL REMEDIES;
PRESERVATION OF REMEDIES. This Agreement may be amended, superseded, cancelled,
renewed or extended, and the terms hereof may be waived, only by a written
instrument signed by each of the parties or, in the case of a waiver, by the
party waiving compliance. No delay on the part of any party on exercising any
right, power or privilege hereunder shall operate as a waiver thereof. Nor
shall any waiver on the part of any party of any right, power or privilege, nor
any single or partial exercise of any such right, power or privilege, preclude
any further exercise thereof or
-138-
<PAGE>
the exercise of any other such right, power or privilege. The rights and
remedies herein provided are cumulative and are not exclusive of any rights or
remedies that any party may otherwise have at law or in equity.
Section 12.06. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT
GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF.
Section 12.07. BINDING EFFECT; ASSIGNMENT. This Agreement shall be
binding upon and inure to the benefit of the parties and their respective
successors, permitted assigns and legal representatives. Neither this
Agreement, nor any right hereunder, may be assigned by any party (in whole or in
part) without the prior written consent of the other party hereto; PROVIDED,
that Seller and Purchaser agree that Newco shall enter into the Newco Assumption
Reinsurance Agreement, the Newco Indemnity Reinsurance Agreement, the Newco
Trust Agreement and a Custodian Agreement, as contemplated herein, with respect
to Insurance Contracts issued to residents of the State of New York.
Section 12.08. INTERPRETATION. (a) Notwithstanding anything in this
Agreement to the contrary, no term or condition of this Agreement shall be
construed to supersede, restrict or otherwise limit any term or condition set
forth in the Indemnity Reinsurance Agreements or in the Assumption Reinsurance
Agreements.
(b) Except as otherwise provided in Section 10.04 hereto, the parties
acknowledge and agree that they may pursue judicial remedies at law or equity in
the event of a dispute with respect to the interpretation or construction of
this Agreement. In the event that an alternative
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<PAGE>
dispute resolution procedure is provided for in any of the Ancillary Agreements
or any other agreement contemplated hereby or thereby, and there is a dispute
with respect to the construction or interpretation of such Ancillary Agreement,
the dispute resolution procedure provided for in such Ancillary Agreement shall
be the procedure that shall apply with respect to the resolution of such
dispute.
(c) For purposes of this Agreement, the words "hereof," "herein,"
"hereby" and other words of similar import refer to this Agreement as a whole
unless otherwise indicated. Whenever the singular is used herein, the same
shall include the plural, and whenever the plural is used herein, the same shall
include the singular, where appropriate.
Section 12.09. NO THIRD PARTY BENEFICIARIES. Nothing in this
Agreement is intended or shall be construed to give any Person (including, but
not limited to, the employees of Seller), other than the parties hereto, their
successors and permitted assigns, any legal or equitable right, remedy or claim
under or in respect of this Agreement or any provision contained herein.
Section 12.10. COUNTERPARTS. This Agreement may be executed by the
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute one and the same instrument. Each counterpart may consist of a
number of copies hereof each signed by less than all, but together signed by
all, of the parties hereto.
Section 12.11. OTHER AGREEMENTS, EXHIBITS AND SCHEDULES. The
Exhibits and the Schedules are a part of this Agreement as if fully set forth
herein. All references herein to Articles, Sections, subsections, paragraphs,
subparagraphs, clauses, Exhibits and Schedules shall be deemed references to
such parts of this Agreement, unless the context shall otherwise require.
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<PAGE>
Section 12.12. HEADINGS. The headings in this Agreement are for
reference only, and shall not affect the interpretation of this Agreement.
Section 12.13. DOLLAR REFERENCES. All dollar references in this
Agreement are to the currency of the United States.
Section 12.14. NEWCO SIGNATURE PAGE. Prior to the Closing Date,
Purchaser shall cause Newco to execute a signature page to this Agreement in
substantially the form of Exhibit L hereto, and Newco shall thereafter be deemed
to be a party to this Agreement for all purposes as if it had executed this
Agreement concurrently with Seller and Purchaser.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
UNUM LIFE INSURANCE COMPANY OF AMERICA
By: /s/ Kevin J. Tierney
-------------------------------
Name: Kevin J. Tierney
Title: Senior Vice President
and General Counsel
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
By: /s/ Kelly D. Clevenger
-------------------------------
Name: Kelly D. Clevenger
Title: Vice President
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<PAGE>
EXHIBIT 12
UNUM CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN MILLIONS)
Year Ended December 31,
--------------------------
1995 1994 1993
- ---------------------------------------------------------------------------
EARNINGS:
Income from continuing operations before
income taxes $381.9 $198.6 $460.3
Add:
Fixed charges 48.0 29.6 24.2
------ ------ ------
Earnings as adjusted $429.9 $228.2 $484.5
------ ------ ------
------ ------ ------
FIXED CHARGES:
Interest expense $ 37.2 $ 18.7 $ 12.7
Interest portion of rent expense 10.8 10.9 11.5
------ ------ ------
Total fixed charges $ 48.0 $ 29.6 $ 24.2
------ ------ ------
------ ------ ------
RATIO OF EARNINGS TO FIXED CHARGES 9.0 7.7 20.0
------ ------ ------
------ ------ ------
For purposes of computing the ratio of earnings to fixed charges, earnings as
adjusted consist of income from continuing operations before income taxes plus
fixed charges. Fixed charges consist of interest expense and the estimated
interest portion of rent expense.
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF UNUM CORPORATION
Listed below are subsidiaries of UNUM Corporation, as of December 31, 1995,
with their respective jurisdiction of incorporation.
UNUM Holding Company (Delaware)
First UNUM Life Insurance Company (New York)
UNUM Sales Corporation (Delaware)
Claims Service International, Inc. (Delaware)
UNUM Life Insurance Company of America (Maine)
Colonial Companies, Inc. (Delaware)
Colonial Life & Accident Insurance Company (South Carolina)
BenefitAmerica, Inc. (South Carolina)
Commercial Life Insurance Company (Wisconsin)
UNUM European Holding Company Limited (United Kingdom)
UNUM Limited (United Kingdom)
Duncanson & Holt, Inc. (New York)
Duncanson & Holt Services, Inc. (Maine)
Group Management Services, Inc. (Washington)
Duncanson & Holt Canada Ltd. (Canada)
Duncanson & Holt Asia PTE Ltd. (Singapore)
Duncanson & Holt Europe Ltd. (United Kingdom)
Duncanson & Holt Underwriters Ltd. (United Kingdom)
UNUM Japan Accident Insurance Company Limited (Japan)
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the following Registration
Statements and related Prospectuses of our report dated February 6, 1996, on our
audits of the consolidated financial statements and the financial statement
schedules of UNUM Corporation and subsidiaries as of December 31, 1995 and 1994
and for the years ended December 31, 1995, 1994, and 1993, which report is
included in the Annual Report on Form 10-K:
Form S-8 No. 33-31270 pertaining to the UNUM Employees Retirement
Savings Plan and Trust
Form S-8 No. 33-19090 pertaining to the 1987 Executive Stock Option
Plan
Form S-8 No. 33-38225 pertaining to the 1990 Long-Term Stock Incentive
Plan
Form S-8 No. 33-52741 pertaining to the 1990 Long-Term Stock Incentive
Plan
Form S-3 No. 33-36873
Form S-3 No. 33-69132
Form S-8 No. 33-60124 pertaining to the Colonial Companies, Inc.
Security Saver Plan
Post-Effective Amendment No. 1 on Form S-8 to Registration Statement
on Form S-4 No. 33-55870
/s/ COOPERS & LYBRAND L.L.P.
Portland, Maine
March 27, 1996
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Kevin J. Tierney and John-Paul DeRosa his true and
lawful attorney-in-fact and agent, with full powers of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities to sign the Annual Report on Form 10-K for the year ending December
31, 1995 of UNUM Corporation pursuant to the Securities Exchange Act of 1934 and
any or all amendments thereto, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, and hereby ratifies and confirms all his said
attorneys-in-fact and agents, each acting alone, or his substitute or
substitutes, may lawfully do or cause to be done by virtue thereof.
Witness our signatures on the date set forth below:
Signature Title Date
--------- ----- ----
/s/ Gayle O. Averyt Director March 22, 1996
Gayle O. Averyt
/s/ Robert E. Dillon, Jr. Director March 22, 1996
Robert E. Dillon, Jr.
/s/ Gwain H. Gillespie Director March 22, 1996
Gwain H. Gillespie
/s/ Ronald E. Goldsberry Director March 22, 1996
Ronald E. Goldsberry
/s/ Donald W. Harward Director March 22, 1996
Donald W. Harward
<PAGE>
Signature Title Date
--------- ----- ----
/s/ George J. Mitchell Director March 22, 1996
George J. Mitchell
/s/ Cynthia A. Montgomery Director March 22, 1996
Cynthia A. Montgomery
/s/ James L. Moody, Jr. Director March 22, 1996
James L. Moody, Jr.
/s/ Lawrence R. Pugh Director March 22, 1996
Lawrence R. Pugh
/s/ Lois Dickson Rice Director March 22, 1996
Lois Dickson Rice
Director March 22, 1996
John W. Rowe
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
CONSOLIDATED FINANCIAL STATEMENTS OF UNUM CORPORATION AND SUBSIDIARIES AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONTAINED IN UNUM CORPORATION'S
SEC FORM 10-K DATED DECEMBER 31, 1995.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<DEBT-HELD-FOR-SALE> 9,135,400
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 25,200
<MORTGAGE> 1,163,400
<REAL-ESTATE> 222,200
<TOTAL-INVEST> 11,692,500
<CASH> 42,500
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 1,142,300
<TOTAL-ASSETS> 14,787,800
<POLICY-LOSSES> 6,575,100
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 3,840,300
<NOTES-PAYABLE> 583,800
0
0
<COMMON> 10,000
<OTHER-SE> 2,292,900
<TOTAL-LIABILITY-AND-EQUITY> 14,787,800
3,018,200
<INVESTMENT-INCOME> 806,300
<INVESTMENT-GAINS> 225,100
<OTHER-INCOME> 73,300
<BENEFITS> 2,493,000
<UNDERWRITING-AMORTIZATION> (114,700)<F1>
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> 381,900
<INCOME-TAX> 100,800
<INCOME-CONTINUING> 281,100
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 281,100
<EPS-PRIMARY> 3.87
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1>THIS ITEM CONTAINS THE AMOUNTS OF DEFERRED AND AMORTIZED POLICY ACQUISITION
COSTS FOR THE PERIOD PRESENTED.
</FN>
</TABLE>