-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, J9eyI0J0bU7Uek/Q9y+Nv1JlHZQ+pwah4R7DNbA63BLjI+3If8QwT3pHwX/VmnoA pyWSf/i0rUYg+lBpAf3tBQ== 0000355429-97-000011.txt : 19970515 0000355429-97-000011.hdr.sgml : 19970515 ACCESSION NUMBER: 0000355429-97-000011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970514 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PROTECTIVE LIFE CORP CENTRAL INDEX KEY: 0000355429 STANDARD INDUSTRIAL CLASSIFICATION: LIFE INSURANCE [6311] IRS NUMBER: 952492236 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-12332 FILM NUMBER: 97605513 BUSINESS ADDRESS: STREET 1: 2801 HGWY 280 S CITY: BIRMINGHAM STATE: AL ZIP: 35223 BUSINESS PHONE: 2058799230 MAIL ADDRESS: STREET 1: PO BOX 2606 CITY: BIRMINGHAM STATE: AL ZIP: 35202 10-Q 1 - ------------------------------------------------------------------------------- FORM 10-Q ------------------------------------ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 1-12332 Protective Life Corporation (Exact name of registrant as specified in its charter) Delaware 95-2492236 (State or other jurisdiction of (IRS Employer Identification Number) incorporation or organization) 2801 Highway 280 South Birmingham, Alabama 35223 (Address of principal executive offices and zip code) (205) 879-9230 (Registrant's telephone number, including area code) ------------------------------------ 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 [ ] Number of shares of Common Stock, $.50 par value, outstanding as of May 9, 1997: 30,814,136 shares. PROTECTIVE LIFE CORPORATION INDEX Part I. Financial Information: Item 1. Financial Statements: Report of Independent Accountants Consolidated Condensed Statements of Income for the Three Months ended March 31, 1997 and 1996 (unaudited) Consolidated Condensed Balance Sheets as of March 31, 1997 (unaudited) and December 31, 1996 Consolidated Condensed Statements of Cash Flows for the Three Months ended March 31, 1997 and 1996 (unaudited) Notes to Consolidated Condensed Financial Statements (unaudited) Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Part II. Other Information: Item 4. Results of Votes of Security Holders Item 6. Exhibits and Reports on Form 8-K Signature REPORT OF INDEPENDENT ACCOUNTANTS To the Directors and Stockholders Protective Life Corporation Birmingham, Alabama We have reviewed the accompanying consolidated condensed balance sheet of Protective Life Corporation and subsidiaries as of March 31, 1997, and the related consolidated condensed statements of income and consolidated condensed statements of cash flows for the three-month periods ended March 31, 1997 and 1996. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the consolidated condensed financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet as of December 31, 1996, and the related consolidated statements of income, stockholders' equity, and cash flows for the year then ended (not presented herein); and in our report dated February 11, 1997, we expressed an unqualified opinion which contains an explanatory paragraph regarding the changes in accounting for stock-based employee compensation plans in 1995 on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated condensed balance sheet as of December 31, 1996, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived. COOPERS & LYBRAND L.L.P. Birmingham, Alabama April 23, 1997 2 PROTECTIVE LIFE CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF INCOME (Dollars in thousands except per share amounts) (Unaudited)
THREE MONTHS ENDED MARCH 31 1997 1996 ---- ---- REVENUES Premium and policy fees (net of reinsurance ceded: 1997 - $54,509; 1996 - $78,303) $129,578 $115,586 Net investment income 130,330 124,280 Realized investment gains (losses) (418) 4,421 Other income 4,762 5,458 --------- --------- 264,252 249,745 BENEFITS AND EXPENSES Benefits and settlement expenses (net of reinsurance ceded: 1997 - $33,536; 1996 - $56,751) 163,019 153,140 Amortization of deferred policy acquisition costs 20,835 21,818 Other operating expenses (net of reinsurance ceded: 1997 - $14,254 1996 - $17,802) 41,630 41,647 --------- ---------- 225,484 216,605 INCOME BEFORE INCOME TAX AND MINORITY INTEREST 38,768 33,140 Income tax expense 13,181 11,268 --------- ---------- INCOME BEFORE MINORITY INTEREST 25,587 21,872 Minority interest in net income of consolidated subsidiaries 804 804 ----------- ----------- NET INCOME $ 24,783 $ 21,068 ========== ========= NET INCOME PER SHARE $ .80 $ .73 ============ =========== DIVIDENDS PAID PER SHARE $ .18 $ .16 ============ =========== Average shares outstanding 31,161,907 29,020,360
See notes to consolidated condensed financial statements 3 PROTECTIVE LIFE CORPORATION CONSOLIDATED CONDENSED BALANCE SHEETS (Dollars in thousands)
MARCH 31 DECEMBER 31 1997 1996 ------------------------------------- ASSETS (Unaudited) Investments: Fixed maturities $4,697,855 $4,686,072 Equity securities 37,255 35,250 Mortgage loans on real estate 1,579,900 1,503,080 Investment real estate, net 11,775 14,305 Policy loans 166,527 166,704 Other long-term investments 34,132 32,506 Short-term investments 87,328 114,258 ----------- ----------- Total investments 6,614,772 6,552,175 Cash 41,996 121,051 Accrued investment income 73,951 70,544 Accounts and premiums receivable, net 38,731 47,371 Reinsurance receivables 335,838 332,614 Deferred policy acquisition costs 502,568 488,384 Property and equipment, net 36,476 36,091 Other assets 69,050 64,278 Assets held in separate accounts 603,630 550,697 ----------- ----------- TOTAL ASSETS $8,317,012 $8,263,205 ========== ========== LIABILITIES Policy liabilities and accruals $2,725,740 $2,709,386 Guaranteed investment contract deposits 2,474,605 2,474,728 Annuity deposits 1,344,933 1,331,067 Other policyholders' funds 146,076 142,221 Other liabilities 152,633 170,442 Accrued income taxes 6,885 (4,521) Deferred income taxes 16,534 37,869 Debt 195,000 181,000 Liabilities related to separate accounts 603,630 550,697 Minority interest in consolidated subsidiaries 55,000 55,000 ----------- ----------- TOTAL LIABILITIES 7,721,036 7,647,889 ---------- ---------- COMMITMENTS AND CONTINGENT LIABILITIES - NOTE B STOCKHOLDERS' EQUITY Preferred Stock, $1 par value Shares authorized: 3,600,000; Issued: none Junior Participating Cumulative Preferred Stock, $1 par value Shares authorized: 400,000; Issued: none Common Stock, $0.50 par value Shares authorized: 80,000,000 Issued: 1997 and 1996 - 33,336,462 16,668 16,668 Additional paid-in capital 166,828 166,713 Net unrealized gains (losses) on investments (net of income tax: 1997 - $(17,420); 1996 - $3,601) (32,352) 6,688 Retained earnings 461,280 442,046 Treasury stock (1997 - 2,528,936 shares; 1996 - 2,561,344 shares) (11,856) (11,874) Unallocated stock in Employee Stock Ownership Plan (1997 - 693,120 shares; 1996 - 743,462 shares) (4,592) (4,925) ----------- ----------- TOTAL STOCKHOLDERS' EQUITY 595,976 615,316 ----------- ----------- $8,317,012 $8,263,205 =========== ===========
See notes to consolidated condensed financial statements 4 PROTECTIVE LIFE CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Dollars in thousands) (Unaudited)
THREE MONTHS ENDED MARCH 31 -------------------- 1997 1996 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 24,783 $ 21,068 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of deferred policy acquisition costs 20,835 21,819 Capitalization of deferred policy acquisition costs (25,480) (20,328) Depreciation expense 1,496 1,570 Deferred income taxes (314) 459 Accrued income taxes 11,406 1,740 Interest credited to universal life and investment products 41,239 69,895 Policy fees assessed on universal life and investment products (31,163) (26,535) Change in accrued investment income and other receivables 2,381 (23,643) Change in policy liabilities and other policyholders' funds of traditional life and health products 93,441 86,786 Change in other liabilities (17,899) (5,699) Other (net) (4,914) (7,335) ----------- ----------- Net cash provided by operating activities 115,811 119,797 ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES Maturities and principal reductions of investments Investments available for sale 723,663 189,407 Other 28,655 20,728 Sale of investments Investments available for sale 537,926 354,545 Other 2,776 554,969 Cost of investments acquired Investments available for sale (1,332,927) (1,295,016) Other (89,573) (119,178) Acquisitions and bulk reinsurance assumptions (2,436) 116,220 Purchase of property and equipment (1,890) (1,856) Sale of property and equipment 54 331 ----------- ----------- Net cash used in investing activities (133,752) (179,850) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from borrowings under line of credit arrangements and debt 534,400 442,234 Principal payments on line of credit arrangements and debt (520,400) (429,034) Dividends to stockholders (5,549) (4,607) Investment product deposits and changes in universal life deposits 174,968 309,117 Investment product withdrawals (244,533) (254,493) ----------- ----------- Net cash provided by (used in) financing activities (61,114) 63,217 ------------- ------------ INCREASE (DECREASE) IN CASH (79,055) 3,164 CASH AT BEGINNING OF PERIOD 121,051 11,392 ------------ ------------ CASH AT END OF PERIOD $ 41,996 $ 14,556 ============ =========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period: Interest on debt $ (4,662) $ (4,594) Income taxes $ (1,858) $ (8,496) SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES Reissuance of treasury stock to ESOP $ 84 $ 669 Unallocated stock in ESOP $ 333 $ 334 Reissuance of treasury stock $ 49 Acquisitions Assets acquired $ 339 $ 138,564 Liabilities assumed (90) (169,287) --------------- ---------- Net $ 249 $(30,723) ============== ========
See notes to consolidated condensed financial statements 5 PROTECTIVE LIFE CORPORATION NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited) NOTE A - BASIS OF PRESENTATION The accompanying unaudited consolidated condensed financial statements of Protective Life Corporation (the "Company") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the disclosures required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) necessary for a fair presentation have been included. Operating results for the three month period ended March 31, 1997, are not necessarily indicative of the results that may be expected for the year ending December 31, 1997. The year-end consolidated condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. For further information, refer to the consolidated financial statements and notes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 1996. NOTE B - COMMITMENTS AND CONTINGENT LIABILITIES The Company is contingently liable to obtain a $20 million letter of credit under indemnity agreements with its directors. Such agreements provide insurance protection in excess of the directors' and officers' liability insurance in force at the time up to $20 million. Should certain events occur constituting a change in control of the Company, the Company must obtain the letter of credit upon which directors may draw for defense or settlement of any claim relating to performance of their duties as directors. The Company has similar agreements with certain of its officers providing up to $10 million in indemnification which are not secured by the obligation to obtain a letter of credit. Under insurance guaranty fund laws in most states, insurance companies doing business therein can be assessed up to prescribed limits for policyholder losses incurred by insolvent companies. The Company does not believe such assessments will be materially different from amounts already provided for in the financial statements. Most of these laws do provide, however, that an assessment may be excused or deferred if it would threaten an insurer's own financial strength. A number of civil jury verdicts have been returned against life and health insurers in the jurisdictions in which the Company does business involving the insurers' sales practices, alleged agent misconduct, failure to properly supervise agents, and other matters. Increasingly these lawsuits have resulted in the award of substantial judgments against the insurer that are disproportionate to the actual damages, including material amounts of punitive damages. In some states (including Alabama), juries have substantial discretion in awarding punitive damages which creates the potential for unpredictable material adverse judgments in any given punitive damages suit. The Company and its subsidiaries, like other life and health insurers, in the ordinary course of business, are involved in such litigation. 6 The outcome of any such litigation cannot be predicted with certainty. In addition, in some lawsuits involving insurers' sales practices, insurers have made material settlement payments to end litigation. Pending litigation includes a class action filed in Jefferson County (Birmingham), Alabama with respect to the refund of certain cancer insurance premiums. Although the outcome of any litigation cannot be predicted with certainty, the Company believes that at the present time there are no pending or threatened lawsuits that are reasonably likely to have a material adverse effect on the financial position, results of operations, or liquidity of the Company. NOTE C - BUSINESS SEGMENTS The Company operates predominantly in the life and accident and health insurance industry. The following table sets forth total revenues, income (loss) before income tax and minority interest, and identifiable assets of the Company's business segments.
THREE MONTHS ENDED MARCH 31 ----------------------------------------------------------------- 1997 1996 ---- ---- AMOUNT PERCENT AMOUNT PERCENT ---------- ---------- --------- --------- (dollars in thousands) TOTAL REVENUES: Acquisitions $ 54,110 20.5% $ 52,026 20.8% Financial Institutions 15,028 5.7 14,675 5.9 Group 60,836 23.0 51,018 20.4 Guaranteed Investment Contracts 50,885 19.3 50,834 20.4 Individual Life 48,927 18.5 46,204 18.5 Investment Products 29,590 11.2 29,774 11.9 Corporate and Other 4,715 1.7 4,524 1.8 Unallocated Realized Investment Gains (Losses) 161 0.1 690 0.3 ---------- ------ ---------- ------ $264,252 100.0% $249,745 100.0% ======== ===== ======== ===== INCOME (LOSS) BEFORE INCOME TAX AND MINORITY INTEREST: Acquisitions $ 14,835 38.3 % $ 12,959 39.1% Financial Institutions 2,917 7.5 1,335 4.0 Group 3,718 9.6 3,872 11.6 Guaranteed Investment Contracts 6,189 15.9 6,328 19.1 Individual Life 5,764 14.9 3,531 10.7 Investment Products 3,218 8.3 2,903 8.8 Corporate and Other 1,966 5.1 1,522 4.6 Unallocated Realized Investment Gains (Losses) 161 0.4 690 2.1 ---------- ------ ---------- ------ $ 38,768 100.0 % $ 33,140 100.0% ======== ===== ======== =====
MARCH 31, 1997 DECEMBER 31, 1996 ---------------- --------------------- AMOUNT PERCENT AMOUNT PERCENT ----------- ----------- --------- --------- (dollars in thousands) IDENTIFIABLE ASSETS: Acquisitions $1,532,813 18.4% $1,579,253 19.1% Financial Institutions 330,843 4.0 352,021 4.3 Group 280,766 3.4 278,926 3.4 Guaranteed Investment Contracts 2,587,899 31.1 2,608,149 31.5 Individual Life 1,069,345 12.9 1,037,386 12.5 Investment Products 1,945,698 23.4 1,873,119 22.7 Corporate and Other 569,648 6.8 534,351 6.5 ----------- ------ ----------- ------ $8,317,012 100.0% $8,263,205 100.0% ========== ===== ========== =====
7 NOTE D - STATUTORY REPORTING PRACTICES Financial statements prepared in conformity with generally accepted accounting principles ("GAAP") differ in some respects from the statutory accounting practices prescribed or permitted by insurance regulatory authorities. At March 31, 1997 and for the three months then ended, the Company's life insurance subsidiaries had stockholder's equity and net income prepared in conformity with statutory reporting practices of $493.1 million and $22.4 million, respectively. NOTE E - INVESTMENTS As prescribed by Statement of Financial Accounting Standards ("SFAS") No. 115, certain investments are recorded at their market values with the resulting unrealized gains and losses reduced by a related adjustment to deferred policy acquisition costs, net of income tax, reported as a component of stockholders' equity. The market values of fixed maturities increase or decrease as interest rates fall or rise. Therefore, although the adoption of SFAS No. 115 does not affect the Company's operations, its reported stockholders' equity will fluctuate significantly as interest rates change. The Company's balance sheets at March 31, 1997 and December 31, 1996, prepared on the basis of reporting investments at amortized cost rather than at market values, are as follows: MARCH 31, 1997 DECEMBER 31, 1996 -------------- ----------------- (IN THOUSANDS) Total investments $6,666,568 $6,534,122 Deferred policy acquisition costs 500,544 496,148 All other assets 1,199,672 1,222,646 ---------- ---------- $8,366,784 $8,252,916 ========== ========== Deferred income taxes $ 33,754 $ 34,268 All other liabilities 7,704,702 7,610,020 --------- ---------- 7,738,456 7,644,288 Stockholders' equity 628,328 608,628 ---------- ----------- $8,366,784 $8,252,916 ========== ========== NOTE F - RECENTLY ISSUED ACCOUNTING STANDARDS In June 1996 the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." This statement is effective for transactions entered into after January 1, 1997. In February 1997 the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128 "Earnings per Share" effective for financial statements issued for periods ending after December 15, 1997. The Company anticipates that the impact of adopting this accounting standard will not be significant. 8 NOTE G - RECLASSIFICATIONS Certain reclassifications have been made in the previously reported financial statements and accompanying notes to make the prior year amounts comparable to those of the current year. Such reclassifications had no effect on previously reported net income, total assets or stockholders' equity. NOTE H - SUBSEQUENT EVENTS On April 8, 1997, the Company announced it had reached an agreement to acquire all of the outstanding capital stock of West Coast Life Insurance Company ("West Coast Life") and the purchase is expected to be financed from internal sources. The agreement is subject to regulatory approval and certain customary closing conditions. At December 31, 1996, West Coast Life had $9.5 billion of life insurance in force, total statutory assets of $752 million and $106 million of annual premium. The purchase price is approximately $257 million. The Company expects to operate West Coast Life as a subsidiary, with its headquarters in California, and retain West Coast Life's sales force. On April 29, 1997, a special purpose finance subsidiary of the Company, PLC Capital Trust I ("PLC Capital Trust") issued $75 million of 8.25% Trust Originated Preferred Securities ("TOPrS"), guaranteed on a subordinated basis by the Company. PLC Capital Trust was formed solely to issue TOPrS and other securities and use the proceeds thereof to purchase subordinated debentures of the Company. The Company has the right under the subordinated debentures to extend interest payment periods up to 20 consecutive quarters, and, as a consequence, quarterly dividends on the TOPrS may be deferred (but will continue to accumulate, together with additional dividends on any accumulated but unpaid dividends at the dividend rate) by PLC Capital Trust during any such extended interest payment period. The TOPrS are redeemable by PLC Capital Trust at any time on or after April 29, 2002. Net proceeds of approximately $72.6 million were used to repay bank borrowings. The TOPrS and dividends thereon will be reported in the Company's financial statement as "minority interest in consolidated subsidiaries." In related transactions, the Company entered into interest rate swap agreements which effectively converted the TOPrS from a fixed dividend rate to the floating 90 day London Interbank Offered Rate ("LIBOR") plus 74 basis points. The initial effective interest rate was 6.52%. 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Protective Life Corporation through its subsidiaries provides financial services through the production, distribution, and administration of insurance and investment products. Founded in 1907, Protective Life Insurance Company ("Protective Life") is the Company's principal operating subsidiary. Unless the context otherwise requires, the "Company" refers to the consolidated group of Protective Life Corporation and its subsidiaries. The Company has six operating divisions: Acquisitions, Financial Institutions, Group, Guaranteed Investment Contracts, Individual Life, and Investment Products. The Company also has an additional business segment which is described herein as Corporate and Other. RESULTS OF OPERATIONS Premiums and Policy Fees The following table sets forth for the periods shown the amount of premiums and policy fees and the percentage change from the prior period: PREMIUMS AND POLICY FEES ----------------------------------- THREE MONTHS PERCENTAGE ENDED AMOUNT INCREASE/ MARCH 31 (IN THOUSANDS) (DECREASE) ------------ --------------- ----------- 1996 $115,586 11.1% 1997 129,578 12.1 Premiums and policy fees increased $14.0 million or 12.1% in the first three months of 1997 over the first three months of 1996. The coinsurance by the Acquisitions Division of two blocks of policies in the fourth quarter of 1996 resulted in a $2.3 million increase in premiums and policy fees. Decreases in older acquired blocks resulted in a $2.3 million decrease in premiums and policy fees. Premium and policy fees from the Financial Institutions Division increased slightly in the first three months of 1997 as compared to the first three months of 1996. The reinsurance of a block of policies in the second quarter of 1996 represented a $5.0 million increase in premiums and policy fees. This increase was largely offset by decreases resulting from a reinsurance arrangement begun in 1995, whereby most of the Division's new credit insurance sales are ceded to a reinsurer. Premium and policy fees from the Group Division increased $10.1 million in the first three months of 1997 as compared to the same period in 1996. Premium and policy fees related to the Group Division's dental business increased $6.8 million in the first three months of 1997 as compared to the same period in 1996. Increases in premiums and policy fees from the Individual Life and Investment Product Divisions were $3.2 million and $0.6 million, respectively. 10 Net Investment Income The following table sets forth for the periods shown the amount of net investment income and the percentage change from the prior period: NET INVESTMENT INCOME THREE MONTHS ---------------------------- ENDED AMOUNT PERCENTAGE MARCH 31 (IN THOUSANDS) INCREASE -------------- -------------- ---------- 1996 $124,280 10.3% 1997 130,330 4.9 Net investment income in the first three months of 1997 was $6.1 million or 4.9% higher than the corresponding period of the preceding year primarily due to increases in the average amount of invested assets. Invested assets have increased primarily due to receiving annuity deposits and to acquisitions. The assumption of a block of policies in the second quarter of 1996 and two blocks of policies in the fourth quarter of 1996 resulted in an increase in net investment income of $2.7 million in the first three months of 1997 as compared to the same period in 1996. Realized Investment Gains (Losses) The Company generally purchases its investments with the intent to hold to maturity by purchasing investments that match future cash-flow needs. However, the Company may sell any of its investments to maintain approximate matching of assets and liabilities. Accordingly, the Company has classified its fixed maturities and certain other securities as "available for sale." The sales of investments that have occurred have resulted principally from portfolio management decisions to maintain approximate matching of assets and liabilities. The following table sets forth realized investment gains (losses) for the periods shown: THREE MONTHS REALIZED ENDED INVESTMENT GAINS (LOSSES) MARCH 31 (IN THOUSANDS) -------------- --------------------------- 1996 $4,421 1997 (418) Realized investment losses were $0.4 million for the first three months of 1997 compared to realized investment gains of $4.4 million for the corresponding period of 1996. In the 1996 first quarter, the Company sold $554 million of its commercial mortgage loans in a securitization transaction, resulting in a $6.1 million realized investment gain. 11 Other Income The following table sets forth other income for the periods shown: THREE MONTHS ENDED OTHER INCOME MARCH 31 (IN THOUSANDS) ------------ -------------- 1996 $5,458 1997 4,762 Other income consists primarily of revenues of the Company's broker-dealer subsidiary, fees from variable insurance products and administrative-services-only types of group accident and health insurance contracts, revenues of the Company's wholly-owned insurance marketing organizations and small noninsurance subsidiaries, and the results of the Company's 50%-owned joint venture in Hong Kong. Other income in the first three months of 1997 was $0.7 million lower than the corresponding period of 1996. Revenues from the Company's broker-dealer subsidiary increased $0.9 million in the first three months of 1997 as compared to the same period in 1996. Other income from all other sources decreased $1.6 million in the first three months of 1997 as compared with the first three months of 1996. Income Before Income Tax and Minority Interest The following table sets forth income or loss before income tax and minority interest by business segment for the periods shown: INCOME (LOSS) BEFORE INCOME TAX AND MINORITY INTEREST THREE MONTHS ENDED MARCH 31 ------------------------------- (IN THOUSANDS) BUSINESS SEGMENT 1997 1996 ---------------- ---- ---- Acquisitions $14,835 $12,959 Financial Institutions 2,917 1,335 Group 3,718 3,872 Guaranteed Investment Contracts 6,189 6,328 Individual Life 5,764 3,531 Investment Products 3,218 2,903 Corporate and Other 1,966 1,522 Unallocated Realized Investment Gains(Losses) 161 690 ----- --------- $38,768 $33,140 ======= ======= Percentage Increase 17.0% 12.1% 12 Pretax earnings from the Acquisitions Division increased $1.9 million in the first three months of 1997 as compared to the same period of 1996. Earnings from the Acquisitions Division are normally expected to decline over time (due to the lapsing of policies resulting from deaths of insureds or terminations of coverage) unless new acquisitions are made. The Division's three most recent acquisitions resulted in a $0.9 million increase in pretax earnings. Older acquired blocks experienced a $1.0 million increase in pretax earnings in the first three months of 1997 as compared to the same period in 1996 primarily due to improved mortality experience. Pretax earnings of the Financial Institutions Division were $1.6 million higher in the first three months of 1997 as compared to the same period in 1996. Included in the Division's results are earnings from the coinsurance of a block of policies in the second quarter of 1996. Group Division pretax earnings were $0.2 million lower in the first three months of 1997 as compared to the first three months of 1996. Lower cancer earnings offset improved traditional group life and health results. Dental earnings were $2.2 million in the first quarter of 1997 as compared to $2.4 million in the first quarter of 1996. The Division recently announced its intention to exit the traditional group major medical business implementing its strategy to focus primarily on dental products. This decision is not expected to have a significant effect on the Division's results. The Guaranteed Investment Contract ("GIC") Division had pretax operating earnings of $6.9 million in the first three months of 1997 and $8.7 million in the corresponding period of 1996. In December, 1996, the Company sold a major portion of its bank loan participations in a securitization transaction which reduced the Division's earnings. In addition, the Division has shortened the duration of its invested assets which also reduced earnings. Realized investment losses associated with this Division in the first three months of 1997 were $0.7 million as compared to $2.4 million in the same period last year. As a result, total pretax earnings were $6.2 million in the first three months of 1997 compared to $6.3 million for the same period last year. The Individual Life Division had pretax operating earnings of $5.8 million in the first three months of 1997 as compared to $2.4 million in the same period of 1996. Earnings from Empire General (an insurance subsidiary which distributes products through brokerage general agencies) improved $1.6 million in the first quarter of 1997 as compared to the same period in 1996. The Division's earnings also increased due to improved mortality experience and lower expenses related to new marketing ventures. Realized investment gains, net of related amortization of deferred policy acquisition costs, associated with this Division were $1.1 million in 1996. As a result, total pretax earnings were $5.8 million in the first three months of 1997 as compared to $3.5 million in the first three months of 1996. Investment Products Division pretax operating earnings of $3.2 million were $1.0 million higher in the first three months of 1997 compared to the same period of 1996. Variable annuity earnings improved $1.4 million. Realized investment gains associated with the Division, net of related amortization of deferred policy acquisition costs, were $0.7 million in 1996, resulting in total pretax earnings of $3.2 million in the first three months of 1997 as compared to $2.9 million in the same period of 1996. The Corporate and Other segment consists primarily of net investment income on capital, interest expense on substantially all debt, the Company's 50%-owned joint venture in Hong Kong, several small insurance lines of business, and the operations of several small noninsurance subsidiaries. Pretax earnings for this segment increased $0.4 million in the first three months of 1997 as compared to the first three months of 1996. 13 Income Taxes The following table sets forth the effective income tax rates for the periods shown: THREE MONTHS ENDED ESTIMATED EFFECTIVE MARCH 31 INCOME TAX RATES ------------ -------------------- 1996 34% 1997 34 The effective income tax rate for the full year of 1996 was 34%. Management's estimate of the effective income tax rate for 1997 is also 34%. Net Income The following table sets forth net income and the net income per share for the periods shown, and the percentage change from the prior period: THREE MONTHS NET INCOME ENDED TOTAL PERCENTAGE MARCH 31 (IN THOUSANDS) PER SHARE INCREASE ------------------- ------------- --------- ---------- 1996 $21,068 $.73 15.9% 1997 24,783 .80 9.6 Compared to the same period in 1996, net income per share in the first three months of 1997 increased 9.6%, reflecting improved operating earnings in the Acquisitions, Financial Institutions, Individual Life and Investment Products Divisions and the Corporate and Other segment, which were partially offset by lower operating earnings in the Group and Guaranteed Investment Contracts Divisions and lower realized investment gains (net of related amortization of deferred policy acquisition costs.) 14 LIQUIDITY AND CAPITAL RESOURCES The Company's operations usually produce a positive cash flow. This cash flow is used to fund an investment portfolio to finance future benefit payments. Since future benefit payments largely represent medium- and long-term obligations reserved using certain assumed interest rates, the Company's investments are predominantly in medium- and long-term, fixed-rate investments such as bonds and mortgage loans. Many of the Company's products contain surrender charges and other features that reward persistency and penalize the early withdrawal of funds. Surrender charges for these products generally are sufficient to cover the Company's unamortized deferred policy acquisition costs with respect to the policy being surrendered. GICs and certain annuity contracts have market-value adjustments that protect the Company against investment losses if interest rates are higher at the time of surrender than at the time of issue. The Company's investments in debt and equity securities are reported at market value, and investments in mortgage loans are reported at amortized cost. At March 31, 1997, the fixed maturity investments (bonds, bank loan participations, and redeemable preferred stocks) had a market value of $4,697.9 million, which is 1.2% below amortized cost (less allowances for uncollectible amounts on investments) of $4,757.3 million. The Company had $1,579.9 million in mortgage loans at March 31, 1997. While the Company's mortgage loans do not have quoted market values, at March 31, 1997, the Company estimates the market value of its mortgage loans to be $1,617.5 million (using discounted cash flows from the next call date) which is 2.4% in excess of amortized book value. Most of the Company's mortgage loans have significant prepayment penalties. These assets are invested for terms approximately corresponding to anticipated future benefit payments. Thus, market value fluctuations should not adversely affect liquidity. For several years the Company has offered a type of commercial loan under which the Company will permit a slightly higher loan-to-value ratio in exchange for a participating interest in the cash flows from the underlying real estate. Approximately $547.9 million of the Company's mortgage loans have this participation feature. At March 31, 1997, delinquent mortgage loans and foreclosed real estate were 0.4% of assets. Bonds rated less than investment grade were 1.4% of assets. Additionally, the Company had bank loan participations that were less than investment grade representing 0.7% of assets. The Company does not expect these investments to adversely affect its liquidity or ability to maintain proper matching of assets and liabilities. The Company's allowance for uncollectible amounts on investments was $31.6 million at March 31, 1997. Policy loans at March 31, 1997, were $166.5 million, a decrease of $0.2 million from December 31, 1996. Policy loan rates are generally in the 4.5% to 8.0% range and at least equal the assumed interest rates used for future policy benefits. 15 The Company believes its asset/liability management programs and procedures and certain product features provide significant protection for the Company against the effects of changes in interest rates. However, approximately one-fourth of the Company's liabilities relate to products (primarily whole life insurance) the profitability of which may be affected by changes in interest rates. The effect of such changes in any one year is not expected to be material. Additionally, the Company believes its asset/liability management programs and procedures provide sufficient liquidity to enable it to fulfill its obligation to pay benefits under its various insurance and deposit contracts. The Company's asset/liability management programs and procedures involve the monitoring of asset and liability durations for various product lines; cash flow testing under various interest rate scenarios; and the continuous rebalancing of assets and liabilities with respect to yield, risk, and cash flow characteristics. It is the Company's policy to generally maintain asset and liability durations within 10% of one another, although from time to time broader duration matching is allowed. The Company does not use derivative financial instruments for trading purposes. Combinations of futures contracts, interest rate options, and interest rate swaps are sometimes used as hedges for asset/liability management of certain investments, primarily mortgage loans on real estate, mortgage-backed securities, and liabilities arising from interest-sensitive products such as GICs and annuities. Realized investment gains and losses of such contracts are deferred and amortized over the life of the hedged asset. At March 31, 1997, open futures contracts with a notional amount of $975 million were in a $0.5 million unrealized loss position. The Company may also sometimes use interest rate swap contracts and options to enter into interest rate swap contracts (swaptions) to convert certain investments from a variable to a fixed rate of interest and from a fixed to a variable rate of interest, and to convert its Senior Notes, Medium-Term Notes, and Monthly Income Preferred Securities from a fixed rate to a variable rate of interest. The proceeds from the sale of swaptions are deferred and amortized over the life of the related debt. At March 31, 1997, related open interest rate swap contracts with a notional amount of $372.8 million were in a $4.5 million net unrealized loss position. Withdrawals related to GICs were approximately $786 million during 1996. Withdrawals related to GICs are estimated to be approximately $600 million in 1997. The Company's asset/liability management programs and procedures take into account maturing contracts. Accordingly, the Company does not expect maturing contracts to have an unusual effect on the future operations and liquidity of the Company. In anticipation of receiving GIC and annuity deposits, the life insurance subsidiaries were committed at March 31, 1997 to fund mortgage loans and to purchase fixed maturity and other long-term investments in the amount of $335.8 million. The Company's subsidiaries held $129.2 million in cash and short-term investments at March 31, 1997. Protective Life Corporation had an additional $0.1 million in cash and short-term investments available for general corporate purposes. While the Company generally anticipates that the cash flows of its subsidiaries will be sufficient to meet their investment commitments and operating cash needs, the Company recognizes that investment commitments scheduled to be funded may from time to time exceed the funds then available. Therefore, the Company has arranged sources of credit for its insurance subsidiaries to use when needed. The Company expects that the rate received on its investments will equal or 16 exceed its borrowing rate. Additionally, the Company may from time to time sell short-duration GICs to complement its cash management practices. At March 31, 1997, Protective Life Corporation had borrowed $59.7 million of a $70 million revolving line of credit bearing interest rates averaging 5.8% and an additional $15.3 million at a rate of 6.0%. At March 31, 1997, the Company's bank borrowings had increased $14.0 million, net of repayments, since December 31, 1996. Proceeds were used for general corporate purposes, including the acquisition of a small dental managed care organization and an additional investment in the Hong Kong joint venture. Protective Life Corporation's cash flow is dependent on cash dividends and payments on surplus notes from its subsidiaries, revenues from investment, data processing, legal, and management services rendered to the subsidiaries, and investment income. At December 31, 1996, approximately $173 million of consolidated stockholders' equity, excluding net unrealized losses on investments, represented net assets of the Company's insurance subsidiaries that cannot be transferred in the form of dividends, loans or advances to the parent company. In addition, the states in which the Company's insurance subsidiaries are domiciled impose certain restrictions on the insurance subsidiaries' ability to pay dividends to Protective Life Corporation. Also, distributions, including cash dividends to Protective Life Corporation from its life insurance subsidiaries, in excess of approximately $439 million, would be subject to federal income tax at rates then effective. The Company does not anticipate involuntarily making distributions that would be subject to income tax. Due to the expected growth of the Company's insurance sales, the Company plans to retain substantial portions of the earnings of its life insurance subsidiaries in those companies primarily to support their future growth. Protective Life Corporation's cash disbursements have from time to time exceeded its cash receipts, and these shortfalls have been funded through various external financings. Therefore, Protective Life Corporation may from time to time require additional external financing. A life insurance company's statutory capital is computed according to rules prescribed by the National Association of Insurance Commissioners ("NAIC"), as modified by the insurance company's state of domicile. Statutory accounting rules are different from generally accepted accounting principles and are intended to reflect a more conservative view by, for example, requiring immediate expensing of policy acquisition costs. The NAIC's risk-based capital requirements require insurance companies to calculate and report information under a risk-based capital formula. The achievement of long-term growth will require growth in the statutory capital of the Company's insurance subsidiaries. The subsidiaries may secure additional statutory capital through various sources, such as retained statutory earnings or equity contributions by the Company. Under insurance guaranty fund laws in most states, insurance companies doing business in a participating state can be assessed up to prescribed limits for policyholder losses incurred by insolvent companies. The Company does not believe that any such assessments will be materially different from amounts already reflected in the financial statements. The Company and its subsidiaries, like other life and health insurers, in the course of business are involved in litigation. Pending litigation includes a class action filed in Jefferson County (Birmingham), Alabama with respect to the refund of certain cancer insurance premiums. Although the outcome of any litigation cannot be predicted with certainty, the Company believes that at the 17 present time there are no pending or threatened lawsuits that are reasonably likely to have a material adverse effect on the financial position, results of operations, or liquidity of the Company. Rating downgrades have exceeded upgrades for the past several years, and public pronouncements by the rating agencies indicate that this trend is expected to continue for the near future. The Company is not aware of any material pending or threatened regulatory action with respect to the Company or any of its subsidiaries. 18 PART II Item 4. Results of Votes of Security Holders The Annual Meeting of Stockholders was held on May 5, 1997. Shares entitled to vote at the Annual Meeting totaled 30,807,526 of which 25,591,758 shares were represented. At the Annual Meeting the following directors were elected. The number of shares cast for and authorization withheld for each nominee is shown below. AUTHORIZATION FOR WITHHELD ---------- ------------- William J. Rushton III 21,193,741 4,398,017 John W. Woods 25,497,674 94,084 William J. Cabaniss, Jr. 25,501,950 89,808 Drayton Nabers, Jr. 25,502,150 89,608 John J. McMahon, Jr. 25,501,490 90,268 A. W. Dahlberg 25,486,460 105,298 John W. Rouse, Jr. 25,495,926 95,832 Robert T. David 25,495,532 96,226 Ronald L. Kuehn, Jr. 25,486,490 105,268 Herbert A. Sklenar 25,501,490 90,268 James S. M. French 25,501,490 90,268 Robert A. Yellowlees 21,193,085 4,398,673 John D. Johns 25,502,150 89,608 Additionally, at the Annual Meeting stockholders approved three resolutions. The first resolution was to approve the Company's 1997 Performance Share Plan. Shares voting for the first resolution were 21,950,265, shares voting against were 1,160,339, shares abstaining were 236,722, and there were 2,244,432 broker non-votes. The second resolution was to approve the Company's Annual Incentive Plan. Shares voting for the second resolution were 24,516,771, shares voting against were 894,342, and shares abstaining were 180,645. The third resolution was to approve the Company's 1997 Stock Incentive Plan. Shares voting for the third resolution were 20,653,713, shares voting against were 2,456,156, shares abstaining were 237,457, and there were 2,244,432 broker non-votes. After giving effect to additional and revised proxies which were received by the Company's proxy solicitor prior to the Annual Meeting, but which, due to technical difficulties, were not received by the Company prior to the close of voting on the proposals, the information presented above would be revised in several respects, all of which would increase the total shares voting "for" the various proposals. The Company notes that after giving effect to such proxies, all directors would have received at least 25,280,768 "for" votes. 19 With regards to the transaction of such other business as might properly come before the Annual Meeting or any adjournment thereof, 175,089 shares were cast as authorization withheld. No other matters came before the Annual Meeting or any adjournment thereof. Item 6. Exhibits and Reports on Form 8-K (a). Exhibit 10(a) - The Company's 1997 Performance Share Plan Exhibit 10(b) - The Company's Annual Incentive Plan (effective as of January 1, 1997) Exhibit 10(c) - The Company's 1996 Stock Incentive Plan as amended through March 3, 1997 Exhibit 10(d) - The Company's Deferred Compensation Plan for Officers as amended through March 3, 1997 Exhibit 10(e) - The Company's Deferred Compensation Plan for Directors Who Are Not Employees of the Company as amended through March 3, 1997 Exhibit 15 - Letter re: unaudited interim financial statements Exhibit 27 - Financial Data Schedule Exhibit 99 - Safe Harbor for Forward Looking Statements (b). A report on Form 8-K was filed February 11, 1997, reporting under Item 5 and Item 7, the Company's 1996 fourth quarter earnings press release. 20 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PROTECTIVE LIFE CORPORATION Date: May 14, 1997 /s/ Jerry W. DeFoor -------------------- Jerry W. DeFoor Vice President and Controller, and Chief Accounting Officer (Duly authorized officer) 21 EX-10 2 Exhibit 10(a) PROTECTIVE LIFE CORPORATION 1997 PERFORMANCE SHARE PLAN 1. Purpose. The purpose of the Protective Life Corporation 1997 Performance Share Plan is to further the long-term growth in profitability of Protective Life Corporation by offering long-term incentives in addition to current compensation to those key executives who will be largely responsible for such growth. 2. Certain Definitions. (a) "Award" means the award of Performance Shares to a Participant pursuant to the terms of the Plan. (b) "Award Period" means the period of calendar years fixed by the Committee with respect to all Awards with the same Date of Grant (but no more than five years) commencing with each Date of Grant, except that the Award Period for a recently hired Employee may be for such lesser period as determined by the Committee. (c) "Change in Control" is (i) a transaction or acquisition as identified in the Company's Rights Agreement, as in effect from time to time, (ii) the consummation of (A) any consolidation, merger or similar transaction or purchase of securities of the Company pursuant to which (x) the members of the Board of Directors of the Company immediately prior to such transaction, do not, immediately after the transaction, constitute a majority of the Board of Directors of the surviving entity or (y) the stockholders of the Company immediately preceding the transaction, do not, immediately after the transaction, own at least 50% of the combined voting power of the outstanding securities of the surviving entity, or (iii) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of the Company, including, without limitation, any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of Protective Life Insurance Company. (d) "Change in Control Price" means the greater of (i) the price per share of Common Stock immediately preceding any transaction resulting in a Change in Control or (ii) the highest price per share of Common Stock offered in conjunction with any transaction resulting in a Change in Control (as determined in good faith by the Committee if any part of the offered price is payable other than in cash). (e) "Committee" means the Compensation and Management Succession Committee of the Board (or such other committee of the Board that the Board shall designate from time to time) or any subcommittee thereof comprised of two or more directors each of whom is an "outside director" within the meaning of Section 162(m) and a "non-employee director" within the meaning of Rule 16b-3, as promulgated under Section 16 of the Exchange Act. (f) "Common Stock" means the common stock, par value $0.50 per share, of the Company. (g) "Company" means Protective Life Corporation, a Delaware corporation. (h) "Date of Grant" means as of January 1 of any year in which an Award is made. (i) "Employee" means any person (including any officer) employed by the Company or any subsidiary on a full-time salaried basis. (j) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. (k) "Executive Officer" shall mean those persons who are officers of the Company within the meaning of Rule 16a-1(f) of the Exchange Act. (l) "Fair Market Value" of the Common Stock means the average of the daily closing prices for a share of the Common Stock for the twenty trading days prior to the date of payment of Performance Shares for an Award Period or an Interim Period, as the case may be, on the Composite Tape for New York Stock Exchange - Listed Stocks, or, if the Common Stock is not listed on such Exchange, on the principal United States securities exchange registered under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), on which the Common Stock is listed, or, if the Common Stock is not listed on any such Exchange, the average of the daily closing bid quotations with respect to a share of the Common Stock for such twenty trading days on the National Association of Securities Dealers, Inc., Automated Quotations System or any system then in use. (m) "Interim Period" means a period of calendar years chosen by the Committee commencing with any Date of Grant, which period is less than the Award Period commencing on the Date of Grant. (n) "Participant" means an Employee who is selected by the Committee to receive an Award under the Plan. (o) "Performance Share" means the equivalent of one share of Common Stock. (p) "Plan" means the Protective Life Corporation 1997 Performance Share Plan as set forth herein and as may be amended from time to time. (q) "Section 162(m)" means Section 162(m) of the Internal Revenue Code of 1986, as amended, and any regulations promulgated thereunder. 3. Administration of the Plan. The Plan shall be administered by the Committee which, subject to the provisions of the Plan, shall have the authority to select the Employees who are to participate in the Plan, to determine the Award to be made to each Employee selected to participate in the Plan, and to determine the conditions subject to which Awards will become payable under the Plan. The Committee shall have full power to administer and interpret the Plan and to adopt such rules and regulations consistent with the terms of the Plan as the Committee deems necessary or advisable in order to carry out the provisions of the Plan. Except as otherwise provided in the Plan, the Committee's interpretation and construction of the Plan and its determination of any conditions applicable to Performance Share Awards or the reasons for any terminations of Participants shall be conclusive and binding on all Participants. In connection with its determination as to the payment of Performance Shares, the Committee has full discretion to adjust performance criteria to recognize special or nonrecurring situations or circumstances for the Company, or any other corporation, for any year. The Committee may employ such legal counsel, consultants and agents (including counsel or agents who are employees of the Company or a Subsidiary) as it may deem desirable for the administration of the Plan and may rely upon any opinion received from any such counsel or consultant or agent and any computation received from such consultant or agent. All expenses incurred in the administration of the Plan, including, without limitation, for the engagement of any counsel, consultant or agent, shall be paid by the Company. No member or former member of the Board or the Committee shall be liable for any act, omission, interpretation, construction or determination made in connection with the Plan other than as a result of such individual's willful misconduct. The Plan shall be unfunded. Benefits under the Plan shall be paid from the general assets of the Company. 4. Participation. Participants in the Plan shall be selected by the Committee from those Employees who,in the estimation of the Committee, have a substantial opportunity to influence the long-term profitability of the Company. 5. Performance Share Awards. (a) After appropriate approval of the Plan, and thereafter from time to time, the Committee shall select Employees to receive Awards in any year as of the Date of Grant. Any Employee may be granted more than one Award under the Plan, but no Employee may earn, in the aggregate, more than 50% of the Performance Shares which are the subject of this Plan. Awards of Performance Shares hereunder shall not be made unless any such Award is in compliance with all applicable law. (b) No Participant shall be entitled to receive any dividends or dividend equivalents on Performance Shares; with respect to any Performance Shares, no Participant shall have any voting or any other rights of a Company stockholder; and no Participant shall have any interest in or right to receive any shares of Common Stock prior to the time when the Committee determines the form of payment of Performance Shares pursuant to Section 6. (c) Payment of the Award to any Participant shall be made in accordance with Section 6 and shall be subject to such conditions for payment as the Committee may prescribe. The Committee may prescribe different conditions for different Participants. Such conditions may be expressed in terms of income per share, return on equity, economic value added, total return, sales or revenues, or on other reasonable bases. Unless the Committee otherwise determines at the time of grant of Performance Shares to an Executive Officer, the performance objectives with respect to such Award shall be related to at least one of the following criteria, which may be determined solely by reference to the performance of the Company or a division or subsidiary or based on comparative performance relative to other companies: (i) income per share, (ii) return on equity, (iii) economic value added, (iv) total return, (v) sales or revenues, or (vi) other reasonable bases; provided that to the extent the Committee determines that it is necessary to qualify compensation under Section 162(m), the performance criteria shall be based on one or more of the criteria listed in (i) through (v) above. The Committee may prescribe conditions such that payment of an Award may be made with respect to a number of shares of Common Stock that is greater than the number of Performance Shares awarded. Except to the extent otherwise expressly provided herein, the Committee may, at any time and from time to time, change the performance objectives applicable with respect to any Performance Shares to reflect such factors, including, without limitation, changes in a Participant's duties or responsibilities or changes in business objectives (e.g., from corporate to subsidiary or division performance or vice versa), as the Committee shall deem necessary or appropriate. In making any such adjustment, the Committee shall adjust the number of Performance Shares or take other appropriate actions to prevent any enlargement or diminution of the Participant's rights related to service rendered and performance attained prior to the effective date of such adjustment. (d) Each Award shall be made in writing and shall set forth the terms and conditions set by the Committee for payment of such Award including, without limitation, the length of the Award Period and whether there will be an Interim Period with respect to the Award and if so, the length of the Interim Period. 6. Payment of Performance Share Awards. Each Participant granted an Award shall be entitled to payment of the Award as of the close of the Award Period applicable to such Award, but only if and after the Committee has determined that the conditions for payment of the Award set by the Committee have been satisfied. At the time of grant of each Award, the Committee shall decide whether there will be an Interim Period. If the Committee determines that there shall be an Interim Period for the Award to any Participant, each such Participant granted an Award with an Interim Period shall be entitled to partial payment on account thereof as of the close of the Interim Period, but only if and after the Committee has determined that the conditions for partial payment of the Award set by the Committee have been satisfied. Performance Shares paid to a Participant for an Interim Period may be retained by the Participant and shall not be repaid to the Company, notwithstanding that based on the conditions set for payment at the end of the Award Period such Participant would not have been entitled to payment of some or any of his Award. Any Performance Shares paid to a Participant for the Interim Period during an Award Period shall be deducted from the Performance Shares to which such Participant is entitled at the end of the Award Period. Unless otherwise directed by the Committee, payment of Awards shall be made, as promptly as possible, by the Company after the determination by the Committee that payment has been earned. Unless otherwise directed by the Committee, all payments of Awards to Participants shall be made partly in shares of Common Stock and partly in cash, with the cash portion being approximately equal to the amount of federal, state, and local taxes which the Participant's employer is required to withhold on account of said payment. The Committee, in its discretion, may provide for payment of cash and distribution of shares of Common Stock in such other proportions as the Committee deems appropriate, except and provided that the Committee must pay in cash an amount equal to the federal, state, and local taxes which the Participant's employer is required to withhold on account of said payment. There shall be deducted from the cash portion of all Awards all taxes to be withheld with respect to such Awards. For payment of each Award, the number of shares of Common Stock to be distributed to Participants shall equal the Fair Market Value of the total Performance Shares determined by the Committee to have been earned by the Participant less the portion of the Award that was paid in cash divided by the Fair Market Value of a Performance Share. To the extent that shares of Common Stock are available in the treasury of the Company on the date payment is to be made, such shares may be issued in payment of Awards. 7. Death or Disability. If, prior to the close of an Award Period, a Participant's employment terminates by reason of his death, or his total and permanent disability (as determined under the Company's Pension Plan), payment of his outstanding Award or Awards shall be made as promptly as possible after death or the date of the determination of total and permanent disability, and the number of Performance Shares to be paid shall be computed as follows: First, determine (based on the conditions set by the Committee for payment of Awards for the subject Award Period) the number of Performance Shares that would have been paid if each subject Award Period had ended on the December 31st immediately preceding the date of death or the date of determination of total and permanent disability. Then, multiply each above-determined number by a fraction, the numerator of which is the number of months during the subject Award Period that the Participant was an active Employee, and the denominator of which is the number of months in the Award Period. This product shall be reduced by any Performance Shares for which payment has been made with respect to any Interim Period during each Award Period. In this instance, the Fair Market Value of the Common Stock shall be based on the twenty days immediately preceding the date of death or the date of the determination of total and permanent disability. Except as provided in Section 23, payments for Awards awarded in the year employment terminates shall be paid at the same percentage as the Award awarded in the year immediately preceding the year of death or disability. 8. Retirement Prior to Close of Award Period. Unless otherwise determined by the Committee, if, prior to the close of an Award Period, a Participant's employment terminates by reason of his retirement on or after his normal retirement date (as determined under the Company's Pension Plan) or prior to his normal retirement date if such retirement was at the request of his employer, payment of the Participant's outstanding Award or Awards will be made as promptly as possible after such retirement and such payment shall be computed in the same manner as in Section 7, using the effective date of retirement in place of the date of death or determination of total and permanent disability. 9. Termination Under Certain Circumstances. If, prior to the close of an Award Period, a Participant's employment terminates by reason of (i) his retirement prior to his normal retirement date (as determined under the Company's Pension Plan) and such retirement was at the request of the Participant and approved by his employer, (ii) the divestiture by the Company of one or more of its business segments or a significant portion of the assets of a business segment, or (iii) a significant reduction by the Company in its salaried work force, the determination of whether such Participant shall receive payment of his outstanding Award or Awards shall be within the exclusive discretion of the Committee. Payment, if any, of his Award or Awards to such Participant shall be made as promptly as possible after one of the events described in subsections (i), (ii), and (iii) of this Section 9 occurs and the amount of such payment shall be computed in the same manner as in Section 7, using the effective date that such event occurs in place of the date or determination of total and permanent disability. 10. Voluntary Termination or Discharge. If, prior to the close of an Award Period, a Participant's status as an Employee terminates and there is no payment due under the terms of Sections 7, 8, 9, 20, or 21, all of such Participant's outstanding Performance Shares shall forthwith and automatically be cancelled and all rights of the former holder of such cancelled Performance Shares in respect to such cancelled Performance Shares shall forthwith terminate. 11. Limitation on Awards and Payments. The maximum number of Performance Shares which may be earned under the Plan shall not exceed an aggregate of 2,000,000 (except as adjusted in accordance with Section 18). If any Performance Shares awarded under the Plan are not paid because of death, total and permanent disability, retirement, voluntary termination, discharge, or cancellation or because they lapse when conditions to their payment are not met, they shall thereupon become available again for award under the Plan. 12. Term of Plan. This Plan shall be effective January 1, 1997, subject to the approval of this Plan by stockholders of the Company at the Annual Meeting of Stockholders to be held May 5, 1997 or any adjournment thereof. The Board of Directors of the Company may terminate the Plan at any time. If not sooner terminated, the Plan will expire on the date on which all of the Performance Shares subject to award under the Plan have been paid, but no grant of Awards may be made after December 31, 2006. Termination or expiration shall not adversely affect any right or obligation with respect to an Award theretofore made. 13. Cancellation of Performance Shares. With the written consent of a Participant holding Performance Shares granted to him under the Plan, the Committee may cancel such Performance Shares. In the event of any such cancellation, all rights of the former holder of such cancelled Performance Shares in respect to such cancelled Performance Shares shall forthwith terminate. 14. No Assignment of Interest. The interest of any Participant in the Plan shall not be assignable, either by voluntary assignment or by operation of law, and any assignment of such interest, whether voluntary or by operation of law, shall render the Award void, except that cash or shares of Common Stock payable under the Plan shall be transferable by testamentary will or by the laws of descent and distribution. All shares of Common Stock paid pursuant to this Plan are to be taken subject to an investment representation by the Participant or other recipient that any such shares are acquired for investment and not with a view to distribution and that such shares shall not be transferred or sold until registered in compliance with the Securities Act of 1933 or unless an exemption therefrom is available in the opinion of the General Counsel for the Company. 15. Designation of Beneficiary. Each Participant may designate a beneficiary or beneficiaries (which beneficiary may be an entity other than a natural person) to receive any payments which may be made following the Participant's death. Such designation may be changed or canceled at any time without the consent of any such beneficiary. Any such designation, change or cancellation must be made in a form approved by the Committee and shall not be effective until received by the Committee. If no beneficiary has been named, or the designated beneficiary or beneficiaries shall have predeceased the Participant, the beneficiary shall be the Participant's spouse or, if no spouse survives the Participant, the Participant's estate. If a Participant designates more than one beneficiary, the rights of such beneficiaries shall be payable in equal shares, unless the Participant has designated otherwise. 16. Employment Rights. An Award made under the Plan shall not confer any right on the Participant to continue in the employ of the Company or any subsidiary or limit in any way the right of his employer to terminate his employment at any time. 17. Expenses. The expenses of administrating the Plan shall be borne by the Company. 18. Dilution, Recapitalization, and Other Adjustments. In case the Company shall at any time issue any shares of Common Stock (i) in a stock split or other increase of outstanding shares of Common Stock, by reclassification or otherwise, whereby the par value of shares is reduced, or (ii) in payment of a stock dividend, the number of Performance Shares which have been awarded but not paid and the maximum number of Performance Shares which may be earned under the Plan (see Section 11) shall be increased proportionately; and in like manner, in case of any combination of shares of Common Stock, by a reverse stock split, reclassification or otherwise, the number of Performance Shares which have been awarded but not paid, and the maximum number of Performance Shares which may be earned under the Plan, shall be reduced proportionately. 19. Amendment and Termination of the Plan. The Board of Directors of the Company may amend, suspend or terminate the Plan at any time; provided, however, that no amendment may, without stockholder approval, change the definition of Performance Share. 20. Plan Termination. The Board of Directors may terminate the Plan at any time in their discretion and in such event no Awards shall be made after the date of such Plan Termination. Payment of all Awards outstanding at the date of Plan Termination shall be made as promptly as possible after such date and payment of each such Award shall be computed in the same manner as in Section 7 using the effective date of Plan Termination in place of the date of death or the date of the determination of total and permanent disability, except that the Common Stock will be priced at Fair Market Value based on the twenty trading days immediately preceding the date of Plan Termination. 21. Change in Control. In the event of a Change of Control, the Plan will automatically terminate and each participant shall be deemed to have earned Performance Shares with respect to each of his Awards outstanding at the date of such Change in Control. The number of Performance Shares so earned shall be computed by determining (based on the conditions set by the Committee for payment of Awards for the subject Award Period) the number of Performance Shares that would have been paid if each subject Award Period had ended on the December 31st immediately preceding the Change of Control provided that in no event shall the number of Performance Shares earned be less than the aggregate number of Performance Shares at the target performance level (as identified in the applicable award letter) with respect to all such Awards. Awards granted in the year of the Change of Control shall be earned at the same percentage as Awards granted in the year preceding the year of the Change of Control. Each Performance Share so earned shall be canceled in exchange for an immediate payment in cash of an amount equal to the Change in Control Price. 22. Construction. The use of the masculine gender herein shall be deemed to refer to the feminine as well. All headings are included for convenience of reference and shall not be deemed a part of this Plan. 23. Interpretation. Notwithstanding anything else contained in this Plan to the contrary, if any award of Performance Shares is intended, at the time of grant, to be other performance-based compensation within the meaning of Section 162(m)(4)(C) of the Code, to the extent required to so qualify any Award hereunder, (i) the Committee shall not be entitled to exercise any discretion otherwise authorized under this Plan with respect to such award if the ability to exercise such discretion (as opposed to the exercise of such discretion) would cause such award to fail to qualify as other performance-based compensation and (ii) in the event that an Executive Officer's employment terminates by reason of his retirement on or after his normal retirement date or prior to his normal retirement date if such retirement was at the request of his employer, the payment, if any, with respect to any Performance Shares awarded since the December 31st immediately preceding the date of termination shall be made as promptly as possible after the end of the year in which such termination occurs and the number of Performance Shares to be paid shall be equal to that percentage, if any, of such Award that would have been earned if, based on the conditions set by the Committee for payment of Awards for the subject Award Period, the subject Award Period had ended as of December 31 of the year in which the termination occurred, times a fraction, the numerator of which is the number of months during the subject Award Period that the Participant was an active Employee, and the denominator of which is the number of months in the Award Period. EX-10 3 Exhibit 10(b) PROTECTIVE LIFE CORPORATION ANNUAL INCENTIVE PLAN (Effective as of January 1, 1997) 1. Purpose. The purposes of the Plan are to enable the Company and its Subsidiaries to attract, retain, motivate and reward qualified executive officers and key employees by providing them with the opportunity to earn competitive compensation directly linked to the Company's performance. The Plan is designed to assure that amounts paid to certain executive officers of the Company will not fail to be deductible by the Company for Federal income tax purposes because of the limitations imposed by Section 162(m). 2. Definitions. Unless the context requires otherwise, the following words as used in the Plan shall have the meanings ascribed to each below, it being understood that masculine, feminine and neuter pronouns are used interchangeably and that each comprehends the others. (a) "Board" shall mean the Board of Directors of the Company. (b) "Committee" shall mean the Compensation and Management Succession Committee of the Board (or such other committee of the Board that the Board shall designate from time to time) or any subcommittee thereof comprised of two or more directors each of whom is an "outside director" within the meaning of Section 162(m). (c) "Company" shall mean Protective Life Corporation. (d) "Covered Employee" shall have the meaning set forth in Section 162(m). (f) "Participant" shall mean (i) each executive officer of the Company and (ii) each other key employee of the Company or a Subsidiary who the Committee designates as a participant under the Plan. (g) "Plan" shall mean the Protective Life Corporation Annual Incentive Plan, as set forth herein and as may be amended from time to time. (h) "Section 162(m)" shall mean Section 162(m) of the Internal Revenue Code of 1986, as amended, and any regulations promulgated thereunder. 3. Administration. The Committee shall administer and interpret the Plan, provided that, in no event, shall the Plan be interpreted in a manner which would cause any amount payable under the Plan to any Covered Employee to fail to qualify as performance-based compensation under Section 162(m). The Committee shall establish the performance objectives for any calendar year in accordance with Section 4 and certify whether such performance objectives have been obtained. Any determination made by the Committee under the Plan shall be final and conclusive. The Committee may employ such legal counsel, consultants and agents (including counsel or agents who are employees of the Company or a Subsidiary) as it may deem desirable for the administration of the Plan and may rely upon any opinion received from any such counsel or consultant or agent and any computation received from such consultant or agent. All expenses incurred in the administration of the Plan, including, without limitation, for the engagement of any counsel, consultant or agent, shall be paid by the Company. No member or former member of the Board or the Committee shall be liable for any act, omission, interpretation, construction or determination made in connection with the Plan other than as a result of such individual's willful misconduct. 4. Bonuses. (a) Performance Criteria. On or before April 1 of each year (or such other date as may be required or permitted under Section 162(m)), the Committee shall establish the performance objective or objectives that must be satisfied in order for a Participant to receive a bonus for such year. Any such performance objectives will be based upon the relative or comparative achievement of one or more of the following criteria, as determined by the Committee: (i) net income; (ii) operating income; (iii) income per share; (iv) economic value added; (v) return on equity; (vi) total return; (vii) division or subsidiary income; (viii) division or subsidiary sales or revenues; (ix) division or subsidiary economic value added; or (x) other reasonable bases provided that to the extent required to qualify compensation paid to certain executive officers under the Plan the performance criteria shall be based on one or more of the criteria listed in (i) through (ix) above. (b) Maximum Amount Payable. If the Committee certifies that any of the performance objectives established for the relevant year under Section 4(a) has been satisfied, each Participant who is employed by the Company or one of its Subsidiaries on the last day of the calendar year for which the bonus is payable shall be entitled (subject to the provisions of Section 4(c) hereof) to receive an annual bonus equal to 150% of such Participant's base salary up to a maximum of $1,000,000. Unless the Committee shall otherwise determine, if a Participant's employment terminates for any reason (including, without limitation, his death, disability or retirement under the terms of any retirement plan maintained by the Company or a Subsidiary) prior to the last day of the calendar year for which the bonus is payable, such Participant shall receive an annual bonus equal to the amount the Participant would have received as an annual bonus award if such Participant had remained an employee through the end of the year multiplied by a fraction, the numerator of which is the number of days that elapsed during the calendar year in which the termination occurs prior to and including the date of the Participant's termination of employment and the denominator of which is 365. (c) Negative Discretion. Notwithstanding anything else contained in Section 4(b) to the contrary, the Committee shall have the right, in its absolute discretion, (i) to reduce or eliminate the amount otherwise payable to any Participant under Section 4(b) based on individual performance or any other factors that the Committee, in its discretion, shall deem appropriate and (ii) to establish rules or procedures that have the effect of limiting the amount payable to each Participant to an amount that is less than the maximum amount otherwise authorized under Section 4(b). (d) Affirmative Discretion. Notwithstanding any other provision in the Plan to the contrary, (i) the Committee shall have the right, in its discretion, to pay to any Participant who is not a Covered Employee an annual bonus for such year in an amount up to the maximum bonus payable under Section 4(b), based on individual performance or any other criteria that the Committee deems appropriate and (ii) in connection with the hiring of any person who is or becomes a Covered Employee, the Committee may provide for a minimum bonus amount in any calendar year, regardless of whether performance objectives are attained. 5. Payment. Except as may be determined pursuant to the terms of Section 4(e) or as otherwise provided hereunder, payment of any bonus amount determined under Section 4 shall be made to each Participant as soon as practicable after the Committee certifies that one or more of the applicable performance objectives have been attained (or, in the case of any bonus payable under the provisions of Section 4(d), after the Committee determines the amount of any such bonus). 6. General Provisions. (a) Effectiveness of the Plan. Subject to the approval by the holders of the Common Stock at the 1997 Annual Meeting of Stockholders, the Plan shall be effective with respect to calendar years beginning on or after January 1, 1997, and ending on or before December 31, 2006, unless the term hereof is extended by action of the Board. (b) Amendment and Termination. Notwithstanding Section 6(a), the Board or the Committee may at any time amend, suspend, discontinue or terminate the Plan; provided, however, that no such amendment, suspension, discontinuance or termination shall adversely affect the rights of any Participant in respect of any calendar year which has already commenced and no such action shall be effective without approval by the stockholders of the Company to the extent necessary to continue to qualify the amounts payable hereunder to Covered Employees as performance-based compensation under Section 162(m). (c) Designation of Beneficiary. Each Participant may designate a beneficiary or beneficiaries (which beneficiary may be an entity other than a natural person) to receive any payments which may be made following the Participant's death. Such designation may be changed or canceled at any time without the consent of any such beneficiary. Any such designation, change or cancellation must be made in a form approved by the Committee and shall not be effective until received by the Committee. If no beneficiary has been named, or the designated beneficiary or beneficiaries shall have predeceased the Participant, the beneficiary shall be the Participant's spouse or, if no spouse survives the Participant, the Participant's estate. If a Participant designates more than one beneficiary, the rights of such beneficiaries shall be payable in equal shares, unless the Participant has designated otherwise. (d) No Right of Continued Employment. Nothing in this Plan shall be construed as conferring upon any Participant any right to continue in the employment of the Company or any of its Subsidiaries. (e) Interpretation. Notwithstanding anything else contained in this Plan to the contrary, to the extent required to so qualify any award as other performance based compensation within the meaning of Section 162(m) (4) (C) of the Code, the Committee shall not be entitled to exercise any discretion otherwise authorized under this Plan (such as the right to accelerate vesting without regard to the achievement of the relevant performance objectives) with respect to such award if the ability to exercise such discretion (as opposed to the exercise of such discretion) would cause such award to fail to qualify as other performance based compensation. (f) No Limitation to Corporation Action. Nothing in this Plan shall preclude the Committee or the Board, as each or either shall deem necessary or appropriate, from authorizing the payment to the eligible employees of compensation outside the parameters of the Plan, including, without limitation, base salaries, awards under any other plan of the Company and/or its Subsidiaries (whether or not approved by stockholders), any other bonuses (whether or not based on the attainment of performance objectives) and retention or other special payments, provided that, if the stockholders of the Company do not approve the Plan at the first annual meeting of stockholders following the adoption of the Plan, the Plan set forth herein shall not be implemented. (g) Nonalienation of Benefits. Except as expressly provided herein, no Participant or beneficiary shall have the power or right to transfer, anticipate, or otherwise encumber the Participant's interest under the Plan. The Company's obligations under this Plan are not assignable or transferable except to (i) a corporation which acquires all or substantially all of the Company's assets or (ii) any corporation into which the Company may be merged or consolidated. The provisions of the Plan shall inure to the benefit of each Participant and the Participant's beneficiaries, heirs, executors, administrators or successors in interest. (h) Withholding. Any amount payable to a Participant or a beneficiary under this Plan shall be subject to any applicable Federal, state and local income and employment taxes and any other amounts that the Company or a Subsidiary is required at law to deduct and withhold from such payment. (i) Severability. If any provision of this Plan is held unenforceable, the remainder of the Plan shall continue in full force and effect without regard to such unenforceable provision and shall be applied as though the unenforceable provision were not contained in the Plan. (j) Governing Law. The Plan shall be construed in accordance with and governed by the laws of the State of Delaware, without reference to the principles of conflict of laws. (k) Headings. Headings are inserted in this Plan for convenience of reference only and are to be ignored in a construction of the provisions of the Plan. EX-10 4 Exhibit 10(c) PROTECTIVE LIFE CORPORATION 1996 STOCK INCENTIVE PLAN SECTION 1 PURPOSE The purpose of the Plan is to foster and promote the long-term financial success of the Company and materially increase stockholder value by (a) motivating superior performance by means of performance-related incentives, (b) encouraging and providing for the acquisition of an ownership interest in the Company by Employees, and (c) enabling the Company to attract and retain the ser vices of an outstanding management team upon whose judgment, interest, and special effort the successful conduct of its operations is largely dependent. SECTION 2 DEFINITIONS 2.1 Definitions. Whenever used herein, the following terms shall have the respective meanings set forth below: (a) "Act" means the Securities Exchange Act of 1934, as amended. (b) "Board" means the Board of Directors of the Company. (c) "Cause" means (i) the willful failure by the Participant to perform substantially his duties as an Employee of the Company (other than due to physical or mental illness) after reasonable notice to the Participant of such failure, (ii) the Participant's engaging in serious misconduct that is injurious to the Company or any Subsidiary, (iii) the Participant's having been convicted of, or entered a plea of nolo contendere to, a crime that constitutes a felony or (iv) the breach by the Participant of any written covenant or agreement with the Company or any Subsidiary not to disclose any information pertaining to the Company or any Subsidiary or not to compete or interfere with the Company or any Subsidiary. (d) "Change in Control" is (i) transaction or acquisition as identified in the Company's Rights Agreement, as in effect from time to time, (ii) the consummation of (A) any consolidation, merger or similar transaction or purchase of securities of the Company pursuant to which (x) the members of the Board of Directors of the Company immediately prior to such transaction, do not, immediately after the transaction, constitute a majority of the Board of Directors of the surviving entity or (y) the stockholders of the Company immediately preceding the transaction, do not, immediately after the transaction, own at least 50% of the combined voting power of the outstanding securities of the surviving entity, or (iii) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of the Company, including, without limitation, any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of Protective Life Insurance Company. (e) "Change in Control Price" means the highest price per share of Stock offered in conjunction with any transaction resulting in a Change in Control (as determined in good faith by the Committee if any part of the offered price is payable other than in cash). (f) "Code" means the Internal Revenue Code of 1986, as amended. (g) "Committee" means the Compensation and Management Succession Committee of the Board (or such other committee of the Board that the Board shall designate from time to time), which shall consist of two or more members, each of whom shall be a "non-employee director" within the meaning of Rule 16b-3, as promulgated under Section 16 of the Act and an "outside director" within the meaning of Section 162(m). (h) "Company" means Protective Life Corporation, a Delaware corporation, and any successor thereto. (i) "Disability" means total disability as determined in accordance with the terms of the long-term disability plan of the Company or any of its Subsidiaries in which the Participant is eligible to participate. (j) "Employee" means any officer or other key executive and management employee of the Company or any of its Subsidiaries. (k) "Fair Market Value" means, on any date, the average of the average of the highest and lowest sales price for a share of Stock reported for such day on a national exchange or the average of the highest and lowest bid and asked prices for a share of Stock on such date on a nationally recognized system of price quotation. In the event that there are no Stock transactions reported on such exchange or system on such date, Fair Market Value shall mean the closing price on the immediately preceding date on which Stock transactions were so reported. (l) "Participant" means any Employee designated by the Committee to participate in the Plan. (m)"Plan" means the Protective Life Corporation 1996 Stock Incentive Plan, as in effect from time to time. (n)"Retirement" means retirement at the age at which the Participant may retire and immediately thereafter commence receipt of any benefits due under the Company's defined benefit pension plan. (o) "Section 162(m)" means Section 162(m) of the Internal Revenue Code of 1986, as amended, and any regulations promulgated thereunder. (p) "Stock" means the common stock of the Company, par value $0.50 per share. (q) "Stock Appreciation Right" shall mean a contractual right granted under Section 6 to receive Stock. (r) "Subsidiary" means any corporation or partnership in which the Company owns, directly or indirectly, 50% or more of the total combined voting power of all classes of stock of such corporation or of the capital interest or profits interest of such partnership. 2.2 Gender and Number. Except when otherwise indicated by the context, words in the masculine gender used in the Plan shall include the feminine gender, the singular shall include the plural, and the plural shall include the singular. SECTION 3 ELIGIBILITY AND PARTICIPATION Participants in the Plan shall be those Employees selected by the Committee to participate in the Plan. SECTION 4 POWERS OF THE COMMITTEE 4.1 Power to Grant. The Committee shall determine the Participants to whom Stock Appreciation Rights shall be granted and the terms and conditions of any and all such Stock Appreciation Rights. The Chairman of the Board may suggest to the Committee the Participants who should receive Stock Appreciation Rights under the Plan, provided that the number of shares of the Company's Common Stock with respect to which awards may be made to any participant shall not exceed 200,000. The terms and conditions of each Stock Appreciation Right shall be determined by the Committee at the time of grant, and such terms and conditions shall not be subsequently changed in a manner which would be adverse to participants without the consent of the Participant to whom such Stock Appreciation Right has been granted. The Committee may establish different terms and conditions for different Participants receiving Stock Appreciation Rights and for the same Participant for each Stock Appreciation Right such Participant may receive, whether or not granted at different times. 4.2 Substitute Stock Appreciation Rights. The Committee shall have the right to grant Stock Appreciation Rights in substitution for or upon the cancellation of Stock Appreciation Rights previously granted and such new Stock Appreciation Rights may contain terms more favorable to the recipient than the Stock Appreciation Rights they replace, including, without limitation, a lower exercise price. 4.3 Administration. The Committee shall be responsible for the administration of the Plan. The Committee, by majority action thereof, is authorized to prescribe, amend, and rescind rules and regulations relating to the Plan, to provide for conditions deemed necessary or advisable to protect the interests of the Company, and to make all other determinations necessary or advisable for the administration and interpretation of the Plan in order to carry out its provisions and purposes. Determinations, interpretations, or other actions made or taken by the Committee pursuant to the provisions of the Plan shall be final, binding, and conclusive for all purposes and upon all persons. SECTION 5 STOCK SUBJECT TO PLAN 5.1 Number. Subject to the provisions of Section 5.3, the number of shares of Stock subject to Stock Appreciation Rights under the Plan may not exceed 500,000 shares of Stock. The shares to be delivered under the Plan will consist of either newly issued shares of Stock or treasury Stock. 5.2 Canceled, Terminated, or Forfeited Stock Appreciation Rights. Any shares of Stock subject to a Stock Appreciation Right which for any reason is canceled, terminated or otherwise settled without the issuance of any Stock shall again be available under the Plan. 5.3 Adjustment in Capitalization. In the event of any Stock dividend or Stock split, recapitalization (including, without limitation, the payment of an extraordinary dividend), merger, consolidation, combination, spin-off, distribution of assets to stockholders, exchange of shares, or other similar corporate change, the aggregate number of shares of Stock available for Stock Appreciation Rights under Section 5.1 or subject to outstanding Stock Appreciation Rights and the respective base prices and/or performance criteria applicable to outstanding Stock Appreciation Rights may be appropriately adjusted by the Committee, whose determination shall be conclusive. SECTION 6 STOCK APPRECIATION RIGHTS 6.1 Grant of Stock Appreciation Rights. Stock Appreciation Rights may be granted to Participants at such time or times as shall be determined by the Committee. The Committee shall have complete discretion in determining the number of Stock Appreciation Rights, if any, to be granted to a Participant. Each Stock Appreciation Right shall be evidenced by a letter to each Participant that shall specify the base price, the duration of the Stock Appreciation Rights, the number of shares of Stock to which the Stock Appreciation Rights pertain, and such other terms and conditions not inconsistent with the Plan as the Committee shall determine. 6.2 Base Price. Unless otherwise determined by the Committee, a Stock Appreciation Right granted pursuant to the Plan shall have a base price which is not less than the Fair Market Value of the Stock on the date the Stock Appreciation Right is granted. 6.3 Exercise of Stock Appreciation Rights. A Stock Appreciation Right awarded under the Plan shall entitle a Participant to receive from the Company an amount in Stock equal to the excess of the Fair Market Value of a share of Stock on the date of exercise of the Stock Appreciation Right over the base price thereof. Except as otherwise provided in the Plan and subject to the Committee's right to accelerate the exercisability of such Stock Appreciation Rights in its discretion, the Stock Appreciation Rights shall become exercisable, subject to the restrictions and conditions hereof, on the fifth anniversary of the Grant Date (the "Grant Date"), provided that such Stock Appreciation Rights shall also become exercisable under the circumstances described in Section 7 and/or Section 9.1. Notwithstanding the foregoing, no Stock Appreciation Right shall be exercisable for more than 10 years after the date on which it is granted. 6.4 Payment. The Committee shall establish procedures governing the exercise of Stock Appreciation Rights, which shall require that written notice of exercise be given. The number of shares of Stock payable pursuant to the exercise of Stock Appreciation Rights shall be equal to the (x) the excess of (i) the Fair Market Value of a share of Stock on the date of exercise multiplied by the number of Stock Appreciation Rights exercised over (ii) the sum of the base price for all Stock Appreciation Rights exercised divided by (y) the Fair Market Value of a share of Stock on the date of exercise. As soon as practicable after receipt of a written exercise notice, the Company shall deliver to the Participant a certificate or certificates representing the acquired shares of Stock. In the event that the Committee shall determine that any certificates issued hereunder must bear a legend restricting the transfer of such Stock, such certificates shall have the appropriate legend. 6.5 Limitations on and Deferral of Payment. (a) Deferrals. Notwithstanding anything in the Plan to the contrary, the Committee may defer all or any portion of any distribution of Common Stock to be made hereunder to the extent such distribution, when added to all other payments to be made to a Participant in a calendar year, would not be deductible compensation paid by the Company for federal income tax purposes within the meaning of Section 162. In the event that a distribution or distributions of Stock to a Participant is deferred, the Company will establish for each such Participant a book-entry account (the "Account") representing all such deferred awards. (b) Dividends on Deferred Awards. In the event that dividends are paid by the Company during the deferral period, each Participant's Account shall be credited with the amount of any dividends which would otherwise have been payable to such Participant if the number of shares represented by such Account had been owned directly, and such amount shall be deemed to be reinvested in additional shares of Stock. (c) Payment. The Stock represented by each Participant's Account shall be paid to such Participant (or, in the event of his or her death, to his or her designated beneficiary or, if none, to his or her estate) in a lump sum, or in installments, if necessary to preserve the deductibility of such payment, as of the earliest date that the payment of the Account balance, or portion thereof, when added to all other payments to be made to a Participant in a calendar year, would be deductible by the Company for federal income tax purposes within the meaning of Section 162 (including Section 162(m)) of the Code. SECTION 7 TERMINATION OF EMPLOYMENT 7.1 Termination of Employment Due to Death. Disability or Retirement. Unless otherwise determined by the Committee at the time of grant, in the event a Participant's employment terminates by reason of death, Disability or Retirement, any Stock Appreciation Rights granted to such Participant which are then outstanding (whether or not exercisable prior to the date of such termination) may be exercised by the Participant or the Participant's designated beneficiary, and if none is named, in accordance with Section 11.2, at any time prior to the expiration date of the term of the Stock Appreciation Rights or within three (3) years (or such other period as the Committee shall determine at the time of grant) following the Participant's termination of employment, whichever period is shorter. 7.2 Termination of Employment for Any Other Reason. Unless otherwise determined by the Committee at or after the time of grant, in the event the employment of the Participant shall terminate for any reason other than one described in Section 7.1, any unexercised Stock Appreciation Rights (whether or not exercisable prior to the date of termination) shall terminate and be canceled immediately upon such termination of employment. SECTION 8 FORFEITURE OF STOCK APPRECIATION RIGHTS 8.1 Forfeiture and Pay-Back of SAR Amount. If within one year after the exercise of all or a portion of the Stock Appreciation Rights awarded under this Agreement, the Participant voluntarily terminates his or her employment with the Company and the Participant becomes employed by a competitor of the Company in the financial services industry (which includes, but is not limited to, working in the insurance, mutual fund, broker-dealer, financial institution, or investment company industries), the Participant agrees to pay the Company within 30 days of commencing such employment an amount, in cash or the equivalent value in shares of Stock, equal to the aggregate of all SAR Amounts attributable to Stock Appreciation Rights exercised within the one year period prior to the date of such termination. 8.2 Forfeiture of Stock Appreciation Rights. If, after the Participant's termination of employment, the Committee determines that, either during or after the Participant's employment by the Company or one of its Subsidiaries, the Participant engaged in conduct that (i) would have permitted the Company or any of its Subsidiaries to terminate the Participant's employment for Cause had he or she still been employed or (ii) otherwise results in damage to the business or reputation of the Company or any of its Subsidiaries, all of the Stock Appreciation Rights that are still outstanding at the time of such determination shall immediately terminate and be canceled immediately upon such determination by the Committee. Upon such a determination by the Committee, the Company may disregard any attempted exercise of the Stock Appreciation Rights by notice delivered prior to such determination, if, at such time, the Company had not completed the steps necessary to effect such exercise. SECTION 9 CHANGE IN CONTROL 9.1 Accelerated Vesting and Payment. Subject to the provisions of Section 9.2 below, in the event of a Change in Control, each Stock Appreciation Right (regardless of whether such SARs are at such time otherwise exercisable) shall be canceled in exchange for a payment in cash of an amount equal to the excess, if any, of the Change in Control Price over the base price for such Stock Appreciation Right. 9.2 Alternative Awards. Notwithstanding Section 9.1, no cancellation, acceleration of exercis ability or vesting or cash settlement or other payment shall occur with respect to any Stock Appreciation Rights if the Committee reasonably determines in good faith prior to the occurrence of a Change in Control that such Stock Appreciation Rights shall be honored or assumed, or new rights substituted therefor (such honored, assumed or substituted award hereinafter called an "Alternative Award"), by a Participant's employer (or the parent or a subsidiary of such employer) immediately following the Change in Control, provided that any such Alternative Award must: (i) be based on stock which is traded on an established securities market, or which will be so traded within 60 days of the Change in Control; (ii) provide such Participant (or each Participant in a class of Participants) with rights and entitlements substantially equivalent to or better than the rights, terms and conditions applicable under such Award, including, but not limited to, an identical or better exercise or vesting schedule and identical or better timing and methods of payment; (iii) have substantially equivalent economic value to such Award (determined at the time of the Change in Control); (iv) have terms and conditions which provide that in the event that the Participant's employment is involuntarily terminated or constructively terminated, any conditions on a Participant's rights under, or any restrictions on transfer or exercisability applicable to, each such Alternative Award shall be waived or shall lapse, as the case may be. For this purpose, a constructive termination shall mean a termination by a Participant following a material reduction in the Participant's compensation or a material reduction in the Participant's responsibilities, in each case without the Participant's written consent. 9.3 Stock Appreciation Rights Granted Within Six Months of the Change of Control. If any Stock Appreciation Rights granted within six months of the date on which a Change in Control occurs (i) is held by a person subject to the reporting requirements of Section 16(a) of the Act and (ii) is to be cashed out pursuant to Section 9.1, such cash out shall not occur until the later of (i) the date which is six months and one day after the date the Stock Appreciation Right was granted or (ii) the first date on which, in the opinion of the Company's counsel, such cash out could occur without such reporting person being potentially subject to liability under Section 16(b) of the Act by reason of such cash out. SECTION 10 AMENDMENT, MODIFICATION, AND TERMINATION OF PLAN The Board may at any time terminate or suspend the Plan, and from time to time either the Board or the Committee may amend or modify the Plan. No amendment, modification, or termination of the Plan shall in any manner adversely affect any Stock Appreciation Right theretofore granted under the Plan, without the consent of the Participant. SECTION 11 MISCELLANEOUS PROVISIONS 11.1 Nontransferability of Stock Appreciation Rights. No Stock Appreciation Right granted under the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. All rights with respect to Stock Appreciation Rights granted to a Participant under the Plan shall be exercisable during his lifetime only by such Participant. 11.2 Beneficiary Designation. Benefits remaining unpaid at the Participant's death shall be paid to or exercised by the Participant's surviving spouse, if any, or otherwise to or by the Participant's estate. If the Participant desires to name another beneficiary or beneficiaries (who may be named contingently or successively) to whom any benefit under the Plan is to be paid or by whom any right under the Plan is to be exercised in case of the Participant's death, the Participant may do so by filing a form prescribed by the Committee. Such designation will be effective only when filed by the Participant, in writing with the Chief Accounting Officer of the Company, during the Participant's lifetime. Such designation will revoke all prior designations made by the Participant. 11.3 No Guarantee of Employment or Participation. Nothing in the Plan shall interfere with or limit in any way the right of the Company or any Subsidiary to terminate any Participant's employment at any time, nor confer upon any Participant any right to continue in the employ of the Company or any Subsidiary or affiliate. No Employee shall have a right to be selected as a Participant, or, having been so selected, to receive any future Stock Appreciation Rights. 11.4 Tax Withholding. The Company shall have the power to withhold, or require a Participant to remit to the Company, an amount sufficient to satisfy Federal, state, and local withholding tax requirements on any Stock Appreciation Rights under the Plan, and the Company may defer issuance of Stock until such requirements are satisfied. 11.5 No Limitation on Compensation. Nothing in the Plan shall be construed to limit the right of the Company to establish other plans or to pay compensation to its employees in cash or property, in a manner which is not expressly authorized under the Plan. 11.6 Requirements of Law. The granting of Stock Appreciation Rights and the issuance of shares of Stock shall be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required. 11.7 Term of Plan. The Plan shall be effective on August 15, 1996. The Plan shall continue in effect, unless sooner terminated pursuant to Section 9, until the tenth anniversary of the Grant Date. 11.8 Governing Law. The Plan, and all agreements hereunder, shall be construed in accordance with and governed by the laws of the State of Delaware. 11.9 No Impact on Benefits. Stock Appreciation Rights granted under the Plan are not compensation for purposes of calculating an Employee's rights under any employee benefit plan. 11.10 No Voting Rights. The Participant shall have no right, in respect of Stock Appreciation Rights granted, to vote on any matter submitted to the Company's stockholders until such time as shares of Stock issuable upon exercise of such Stock Appreciation Rights have been so issued. EX-10 5 Exhibit 10(d) PROTECTIVE LIFE CORPORATION DEFERRED COMPENSATION PLAN FOR OFFICERS 1. Eligibility and Purpose Officers of Protective Life Corporation and its affiliates (the "Company") who participate in either the Annual Incentive Plan (or other eligible bonus plan) or Performance Share Plan, or both shall be eligible to participate in the Protective Life Corporation Deferred Compensation Plan for Officers (the "Plan"). Any Officer who elects to participate in the Plan ("Officer") shall thereby defer the receipt of all or any portion of such bonuses payable by the Company to such Officer (the "Deferrable Compensation"). 2. Deferral of Compensation An Officer may elect to defer all or any portion of the Deferrable Compensation by executing a form prescribed by the Company and delivering such election form to the Company prior to the first day of the calendar year for which the election is to be effective or at such other time and subject to such other conditions as the Company shall determine, provided, that, any such election shall be applicable only to Deferrable Compensation with respect to which the Officer, at the time of election, has no current right to receive. The amount of Deferrable Compensation deferred shall be paid or distributed to the Officer in accordance with the provisions of Section 5 or Section 6, below. 3. Deferred Compensation Account The Company shall establish a deferred compensation account (the "Account") for the Officer. As of the date payments of Deferrable Compensation otherwise would be made to the Officer, the Company shall credit to the Account, in cash or stock equivalents, or a combination thereof, as hereinafter provided, that amount of the Deferrable Compensation which the Officer has elected to defer. 4. Cash or Stock Election (a) As of the date payments of Deferrable Compensation otherwise would be made to the Officer, the amount due the Officer shall be credited to the Account either as a cash allotment or as a stock allotment, or a portion to each, as the Officer shall elect, except that any Performance Share Plan bonuses will be credited as a stock allotment. (b) If a cash allotment is elected in whole or in part, the Account shall be credited with the dollar amount of the allotment. Interest (at the rate described below) on the Average Daily Balance (computed as described below) shall be credited to the Account as of the last day of each calendar month before and after the termination of the Officer's service and after the Officer's death or disability until the total balance in the Account has been paid out in accordance with the provisions of Section 5 or Section 6, below. The interest rate for each calendar month shall be the 30-Day London Interbank Offered Rate (LIBOR) plus 75 basis points for the last business day of the immediately preceding calendar month as reported on the Bloomberg financial news system. The "Average Daily Balance" shall be the quotient obtained by dividing the sum of the closing balance in the Account at the end of each calendar day in a calendar month by the number of days in such calendar month. (c)(1) If a stock allotment is elected in whole or in part, the Account shall be credited with a stock equivalent that shall be equal to the number of full and fractional shares of the Company's Common Stock, par value $0.50 per share (the "Common Stock"), that could be purchased with the dollar amount of the allotment using the Average Closing Price (as defined below) of the Common Stock for the twenty (20) trading days ending on the day preceding the date the Account is so credited. The "Average Closing Price" of the Common Stock means the average of the daily closing prices for a share of the Common Stock for the applicable twenty (20) trading days on the Composite Tape for the New York Stock Exchange D Listed Stocks, or, if the Common Stock is not listed on such Exchange, on the principal United States securities exchange registered under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), on which the Common Stock is listed, or, if the Common Stock is not listed on any such Exchange, the average of the daily closing bid quotations with respect to a share of the Common Stock for such twenty (20) trading days on the National Association of Securities Dealers, Inc., Automated Quotations Systems or any system then in use, or, if no such quotations are available, the fair market value of a share of the Common Stock as determined by a majority of the Board; provided, however, that if a Change in Control (as defined below) shall have occurred, then such determination shall be made by a majority of the Continuing Directors (as defined in the Protective Life Corporation Rights Agreement, as in effect from time to time). (2) The Account also shall be credited as of the payment date for each dividend on the Common Stock with additional stock equivalents computed as follows: The dividend paid, either in cash or property (other than Common Stock), upon a share of Common Stock to a shareholder of record shall be multiplied by the number of stock equivalents in the Account and the product thereof shall be divided by the Average Closing Price of the Common Stock for the twenty (20) trading days ending on the day preceding the dividend payment date. In the case of dividends payable in property, the amount paid shall be based on the fair market value of the property at the time of distribution of the dividend, as determined by a majority of the Board; provided, however, that if a Change in Control shall have occurred, then such determination shall be made by a majority of the Continuing Directors. (3) In the event of any change in the Common Stock, upon which the stock equivalency hereunder is based, by reason of a merger, consolidation, reorganization, recapitalization, stock dividend, stock split, combination or exchange of shares, or any other change in corporate structure, the number of shares credited to the Account shall be adjusted in such manner as a majority of the Board shall determine to be fair under the circumstances; provided, however, that if a Change in Control shall have occurred, then such determination shall be made by a majority of the Continuing Directors (as defined in the Protective Life Corporation Rights Agreement, as in effect from time to time). 5. Distribution (a) Except as otherwise provided in the Plan, at the Officer's election, the balance in the Account shall be paid out to the Officer commencing on the date which the Officer has specified on his or her election form. Except as otherwise provided in the Plan, the balance in the Account shall be paid either in a lump sum or, at the Officer's election, in monthly, quarterly, semiannual or annual installments, but such installments shall be payable over a period of years not to exceed ten (10) years (the "Payout Period"). In order to be effective, an election to change the method and/or timing of distribution with respect to the Account must be in a form prescribed by the Company and received by the Company at least six months prior to such Officer's retirement from the Company and prior to the first day of the calendar year in which payments (i) are to begin pursuant to such election and (ii) would have begun absent such election. The amount of each installment shall be determined as of the first day of the period in which payment is to be made by dividing the then balance in the Account by the then remaining number of payment dates in the Payout Period. The lump sum or first periodic installment shall be paid by the Company as promptly as is convenient, but not more than sixty (60) days following the date specified by the Officer. (b) Notwithstanding the provisions of Section 5(a), in the event the Officer ceases to be employed by the Company, other than after a Change in Control as defined in Section 6(a) below or due to such Officer's retirement pursuant to terms of the Company's qualified pension plan, prior to distribution of the entire balance in the Officer's Account, the balance in the Account shall be payable in a lump sum. (c) In the event of the death of the Officer prior to distribution of the entire balance in the Officer's Account, the balance in the Account shall be payable in a lump sum to: (i) the surviving beneficiary (or surviving beneficiaries in such proportions as) the Officer may have designated by notice in writing to the Company unrevoked by a later notice in writing to the Company or, in the absence of an unrevoked notice, (ii) the beneficiary (or beneficiaries in such proportions as) the Officer may have designated by will or, if no beneficiary is designated, (iii) the legal representative of the Officer's estate. In the event an Officer becomes disabled or suffers a hardship, the payment commencement date and/or payment schedule with respect to a balance in an Officer's Account may be accelerated by the Compensation and Management Succession Committee of Protective Life Corporation (or its designee) in its sole discretion. (d) The provisions of the Plan shall apply to and be binding upon the beneficiaries, distributees and personal representatives and any other successors in interest of the Officer. (e) Distribution of the cash in the Account shall be made in cash. Distribution of stock equivalents in the Account shall be made in whole shares of the Company's Common Stock; fractional shares shall be paid in cash in an amount equal to the number of fractional shares multiplied by the Average Closing Price of the Common Stock for the twenty (20) trading days ending on the day preceding the date of distribution. (f) The Company shall deduct from all distributions hereunder any taxes required to be withheld by the federal or any state or local government. 6. Acceleration of Distribution (a) "Change in Control" is: (1) a transaction or acquisition as identified in Protective Life Corporation's Rights Agreement, as in effect from time to time; or (2) approval by the Board of (i) a merger, consolidation or reorganization of the Company in which, as a consequence of the transaction, either the Continuing Directors do not constitute a majority of the directors of the continuing or surviving corporation or any person, entity or "group," within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act, controls 15% or more of the combined voting power of the continuing or surviving corporation; (ii) any sale, lease or other transfer, in one transaction or a series of related transactions, of all or substantially all of the assets of Protective Life Corporation, including, without limitation, any sale, lease, exchange or other transfer (in one or a series of related transactions) of all or substantially all, of the assets of Protective Life Insurance Company; or (iii) any plan or proposal for the liquidation or dissolution of Protective Life Corporation; provided, however, that, if at the time of such approval, a majority of the Continuing Directors determines that such merger, consolidation, reorganization, sale, lease, other transfer, liquidation or dissolution shall not, for purposes of the Plan, be deemed a Change in Control, such transaction shall not constitute a Change in Control hereunder, and, provided further, that, if a majority of the Continuing Directors so determines, a Change in Control shall not be deemed to occur until the consummation of any such transaction. (b) Upon a Change in Control or any time thereafter, the Officer may convert any stock allotments in the Account (including Performance Share Plan bonuses credited as a stock allotment) into cash allotments. The Officer may not convert any cash allotments in the Account into stock allotments. (c) Notwithstanding any other provision of the Plan, if a Change in Control occurs and at any time after or in connection with the occurrence of such Change in Control either of the following events occurs: (1) the Officer ceases to have duties consistent with the Officer's position, responsibilities and status with the Company immediately prior to a Change in Control; (2) the Plan is terminated; or (3) the Company's capital structure is changed materially; then the balance in the Account shall be paid in a lump sum to the Officer as soon as practicable after January 1 of the calendar year immediately following such second event unless such Officer completes a new election form, prior to the end of the calendar year in which such second event occurs, electing an alternative method and/or timing of distribution. Notwithstanding the foregoing, no such election shall cause a distribution to be made earlier than the calendar year following the year in which such election is made. (d) Distribution shall be in accordance with Sections 5(b), 5(c), 5(d) and 5(e), above, except that distribution of stock equivalents in the Account shall be made in cash in an amount equal to the number of stock equivalents to be distributed multiplied by the greater of (i) the Average Closing Price of the Common Stock for the twenty (20) trading days ending on the day preceding the date on which the right to such distribution arose; (ii) the Average Closing Price of the Common Stock for the twenty (20) trading days ending on the day preceding the date of the Change in Control; or (iii) the highest price per share of Common Stock in the transaction or series of transactions constituting the Change in Control. (e) With respect to conversions of stock allotments in the Officer's Account into cash allotments in accordance with Section 6(b), the converted stock allotments shall be valued at the greater of (i) the Average Closing Price of the Common Stock for the twenty (20) trading days ending on the day preceding the effective date of such conversions; (ii) the Average Closing Price of the Common Stock for the twenty (20) trading days ending on the day preceding the date of the Change in Control; or (iii) the highest price per share of Common Stock in the transaction or series of transactions constituting the Change in Control. Additionally, with respect to conversions of stock allotments in the Officer's Account into cash allotments, the interest rate for each calendar month shall be the highest prime rate as reported on the Bloomberg financial news system for the last business day of the immediately preceding calendar month. (f) Any payments shall be made by the Company as promptly as practicable, but not more than thirty (30) days following the date on which the right to such payment arose. The Company shall promptly reimburse the Officer for all legal fees and expenses reasonably incurred in successfully seeking to obtain or enforce any right or benefit provided under this Section 6. (g) This Section 6 may not be amended or modified after the occurrence of a Change in Control. 7. Miscellaneous (a) Except as set forth in 6(c) above, the election to defer Deferrable Compensation, including, but not limited to, the allocation of the amount deferred between the cash allotment or the stock allotment portion of the Account, or a combination thereof, shall be irrevocable as to amounts payable following the time when the election is made and shall remain irrevocable until a new election form reflecting a change or revocation with respect to amounts payable in a subsequent time period is delivered to the Company not later than seven (7) days preceding the payment date of subsequent Deferrable Compensation to which such change or revocation is applicable. (b) Neither the Officer nor any other person shall have any interest in any fund or in any specific asset of the Company by reason of amounts credited to the Account of an Officer hereunder, nor the right to exercise any of the rights or privileges of a shareholder with respect to any stock equivalents credited to the Account, nor the right to receive any distribution under the Plan except as and to the extent expressly provided for in the Plan. Distributions hereunder shall be made from the general funds of the Company, and the rights of the Officer shall be those of an unsecured general creditor of the Company. (c) The interest of the Officer under the Plan shall not be assignable by the Officer or the Officer's beneficiary or legal representative, either by voluntary assignment or by operation of law, and any assignment of such interest, whether voluntary or by operation of law, shall be ineffective to transfer the Officer's interest; provided, however, that (i) the Officer may designate a beneficiary to receive any benefit payable under the Plan upon death, and (ii) the legal representative of the Officer's estate may assign the Officer's interest under the Plan to the persons entitled to any benefit payable under the Plan upon the Officer's death. (d) Except as provided in Section 6, above, the Company may amend, modify, terminate or discontinue the Plan at any time; provided, however, that no such action shall reduce the amounts credited to the Account of the Officer immediately prior to such action, nor change the time, method or manner of distribution of such amount, including, without limitation, distribution in accordance with Section 6, above. (e) Nothing contained herein shall impose any obligation on the Company to continue the tenure of the Officer beyond the term for which such Officer may have been elected or appointed or shall prevent the removal of such Officer. (f) This Plan shall be interpreted by and all questions arising in connection therewith shall be determined by the Compensation and Management Succession Committee of Protective Life Corporation (or its designee) whose interpretation or determination, when made in good faith, shall be conclusive and binding, unless a Change in Control shall have occurred, in which case such interpretation or determination shall be made by a majority of the Continuing Directors. (g) If any amounts deferred pursuant to the Plan are found in a "determination" (within the meaning of Section 1313(a) of the Internal Revenue Code of 1986, as amended) to have been includible in gross income by an Officer prior to payment of such amounts from the Officer's Account, such amounts shall be immediately paid to such Officer, notwithstanding the Officer's elections pursuant to Section 2. (h) The Deferrable Compensation is still subject to Federal Insurance Contributions Taxes at the rate required by Section 3101 of the Internal Revenue Code, as amended. The Company will withhold such taxes from other compensation which is not deferred. EX-10 6 Exhibit 10(e) PROTECTIVE LIFE CORPORATION DEFERRED COMPENSATION PLAN FOR DIRECTORS WHO ARE NOT EMPLOYEES OF THE COMPANY 1. Eligibility and Purpose Each member of the Board of Directors (the "Board") of Protective Life Corporation (the "Company") who is not an employee of the Company or its subsidiaries shall be eligible to participate in the Protective Life Corporation Deferred Compensation Plan for Directors Who Are Not Employees of the Company (the "Plan"). Any member of the Board who elects to participate in the Plan ("Director") shall thereby defer the receipt of all or any portion of the annual retainer (except any voluntary contributions to the Company's Political Action Committees paid out of such retainer), meeting and committee fees payable by the Company to such Director for serving as a member of the Board or one or more of its committees (the "Deferrable Compensation"). 2. Deferral of Compensation A Director may elect to defer all or any portion of the Deferrable Compensation by executing a form prescribed by the Company and delivering such election form to the Company prior to the first day of the calendar year for which the election is to be effective or at such other time and subject to such other conditions as the Company shall determine, provided, that, any such election shall be applicable only to Deferrable Compensation with respect to which the Director, at the time of election, has no current right to receive. In the calendar year that a Director first becomes eligible to participate in the Plan, such Director may elect to defer all or any portion of the Deferrable Compensation, provided that the election form is delivered to the Company within thirty (30) days after the Director first becomes eligible to participate in the Plan for such year. An election made in this manner will be applicable only to Deferrable Compensation earned after the effective date of the election. The amount of Deferrable Compensation deferred shall be paid or distributed to the Director in accordance with the provisions of Section 5 or Section 6, below. 3. Deferred Compensation Account The Company shall establish a deferred compensation account (the "Account") for the Director. As of the date payments of Deferrable Compensation otherwise would be made to the Director, the Company shall credit to the Account, in cash or stock equivalents, or a combination thereof, as hereinafter provided, that amount of the Deferrable Compensation which the Director has elected to defer. 4. Cash or Stock Election (a) As of the date payments of Deferrable Compensation otherwise would be made to the Director, the amount due the Director shall be credited to the Account either as a cash allotment or as a stock allotment, or a portion to each, as the Director shall elect. (b) If a cash allotment is elected in whole or in part, the Account shall be credited with the dollar amount of the allotment. Interest (at the rate described below) on the Average Daily Balance (computed as described below) shall be credited to the Account as of the last day of each calendar month before and after the termination of the Director's service and after the Director's death or disability until the total balance in the Account has been paid out in accordance with the provisions of Section 5 or Section 6, below. The interest rate for each calendar month shall be the 30-Day London Interbank Offered Rate (LIBOR) plus 75 basis points for the last business day of the immediately preceding calendar month as reported on the Bloomberg financial news system. The "Average Daily Balance" shall be the quotient obtained by dividing the sum of the closing balance in the Account at the end of each calendar day in a calendar month by the number of days in such calendar month. (c)(1) If a stock allotment is elected in whole or in part, the Account shall be credited with a stock equivalent that shall be equal to the number of full and fractional shares of the Company's Common Stock, par value $0.50 per share (the "Common Stock"), that could be purchased with the dollar amount of the allotment using the Average Closing Price (as defined below) of the Common Stock for the twenty (20) trading days ending on the day preceding the date the Account is so credited. The "Average Closing Price" of the Common Stock means the average of the daily closing prices for a share of the Common Stock for the applicable twenty (20) trading days on the Composite Tape for the New York Stock Exchange D Listed Stocks, or, if the Common Stock is not listed on such Exchange, on the principal United States securities exchange registered under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), on which the Common Stock is listed, or, if the Common Stock is not listed on any such Exchange, the average of the daily closing bid quotations with respect to a share of the Common Stock for such twenty (20) trading days on the National Association of Securities Dealers, Inc., Automated Quotations Systems or any system then in use, or, if no such quotations are available, the fair market value of a share of the Common Stock as determined by a majority of the Board; provided, however, that if a Change in Control (as defined below) shall have occurred, then such determination shall be made by a majority of the Continuing Directors (as defined in Protective Life Corporation's Rights Agreement, as in effect from time to time). (2) The Account also shall be credited as of the payment date for each dividend on the Common Stock with additional stock equivalents computed as follows: The dividend paid, either in cash or property (other than Common Stock), upon a share of Common Stock to a shareholder of record shall be multiplied by the number of stock equivalents in the Account and the product thereof shall be divided by the Average Closing Price of the Common Stock for the twenty (20) trading days ending on the day preceding the dividend payment date. In the case of dividends payable in property, the amount paid shall be based on the fair market value of the property at the time of distribution of the dividend, as determined by a majority of the Board; provided, however, that if a Change in Control shall have occurred, then such determination shall be made by a majority of the Continuing Directors. (3) In the event of any change in the Common Stock, upon which the stock equivalency hereunder is based, by reason of a merger, consolidation, reorganization, recapitalization, stock dividend, stock split, combination or exchange of shares, or any other change in corporate structure, the number of shares credited to the Account shall be adjusted in such manner as a majority of the Board shall determine to be fair under the circumstances; provided, however, that if a Change in Control (as defined below) shall have occurred, then such determination shall be made by a majority of the Continuing Directors (as defined in Protective Life Corporation's Rights Agreement, as in effect from time to time). 5. Distribution (a) Except as otherwise provided in the Plan, at the Director's election, the balance in the Account shall be paid out to the Director commencing on the date which the Director has specified on his or her election form. Except as otherwise provided in the Plan, the balance in the Account shall be paid either in a lump sum or, at the Director's election, in monthly, quarterly, semiannual or annual installments, but such installments shall be payable over a period of years not to exceed ten (10) years (the "Payout Period"). In order to be effective, an election to change the method and/or timing of distribution with respect to the Account must be in a form prescribed by the Company and received by the Company at least six months prior to such Director's retirement as Director of the Company and prior to the first day of the calendar year in which payments (i) are to begin pursuant to such election and (ii) would have begun absent such election. The amount of each installment shall be determined as of the first day of the period in which payment is to be made by dividing the then balance in the Account by the then remaining number of payment dates in the Payout Period. The lump sum or first periodic installment shall be paid by the Company as promptly as is convenient, but not more than sixty (60) days following the date specified by the Director. (b) Notwithstanding the provisions of Section 5(a), in the event the Director ceases to hold office as a member of the Board, other than after a Change in Control (as defined in Section 6(a) below) or due to such Director's retirement from the Board, prior to distribution of the entire balance in the Director's Account, the balance in the Account shall be payable in a lump sum. (c) In the event of the death of the Director prior to distribution of the entire balance in the Director's Account, the balance in the Account shall be payable in a lump sum to (i) the surviving beneficiary (or surviving beneficiaries in such proportions as) the Director may have designated by notice in writing to the Company unrevoked by a later notice in writing to the Company or, in the absence of an unrevoked notice, (ii) the beneficiary (or beneficiaries in such proportions as) the Director may have designated by will or,if no beneficiary is designated, (iii) the legal representative of the Director's estate. In the event a Director becomes disabled, the payment commencement date and/or payment schedule with respect to a balance in a Director's Account may be accelerated by the Board Structure and Nominating Committee (or its designee) in its sole discretion. (d) The provisions of the Plan shall apply to and be binding upon the beneficiaries, distributees and personal representatives and any other successors in interest of the Director. (e) Distribution of the cash in the Account shall be made in cash. Distribution of stock equivalents in the Account shall be made in whole shares of the Company's Common Stock; fractional shares shall be paid in cash in an amount equal to the number of fractional shares multiplied by the Average Closing Price of the Common Stock for the twenty (20) trading days ending on the day preceding the date of distribution. (f) The Company shall deduct from all distributions hereunder any taxes required to be withheld by the federal or any state or local government. 6. Acceleration of Distribution (a) "Change in Control" is: (1) a transaction or acquisition as identified in Protective Life Corporation's Rights Agreement, as in effect from time to time; or (2) approval by the Board of (i) a merger, consolidation or reorganization of the Company in which, as a consequence of the transaction, either the Continuing Directors do not constitute a majority of the directors of the continuing or surviving corporation or any person, entity or "group," within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act, controls 15% or more of the combined voting power of the continuing or surviving corporation; (ii) any sale, lease or other transfer, in one transaction or a series of transactions, of all or substantially all of the assets of the Company, including, without limitation, any sale, lease, exchange or other transfer (in one or a series of related transactions) of all or substantially all of the assets of Protective Life Insurance Company; or (iii) any plan or proposal for the liquidation or dissolution of the Company; provided, however, that, if at the time of such approval, a majority of the Continuing Directors determines that such merger, consolidation, reorganization, sale, lease, other transfer, liquidation or dissolution shall not, for purposes of the Plan, be deemed a Change in Control, such transaction shall not constitute a Change in Control hereunder, and, provided further, that, if a majority of the Continuing Directors so determines, a Change in Control shall not be deemed to occur until the consummation of any such transaction. (b) Notwithstanding any other provision of the Plan, if a Change in Control occurs and at any time after or in connection with the occurrence of such Change in Control either of the following events occurs: (1) the Director ceases to hold office as a member of the Board; (2) the Plan is terminated; or (3) the Company's capital structure is changed materially; then the balance in the Account shall be payable in a lump sum to the Director as soon as practicable after January 1 of the following calendar year unless such Director completes a new election form prior to the end of the current calendar year, determining the method and timing of election, provided, that, no such election shall cause a distribution to occur earlier than the calendar year following such election. If payment is payable in a lump sum, such payment shall be made by the Company as promptly as practicable, but not more than thirty (30) days following the date on which the right to such payment arose. (c) Distribution shall be in accordance with Sections 5(b), 5(c), 5(d) and 5(e), above, except that distribution of stock equivalents in the Account shall be made in cash in an amount equal to the number of stock equivalents to be distributed multiplied by the greater of (i) the Average Closing Price of the Common Stock for the twenty (20) trading days ending on the day preceding the date on which the right to such distribution arose; (ii) the Average Closing Price of the Common Stock for the twenty (20) trading days ending on the day preceding the date of the Change in Control; or (iii) the highest price per share of Common Stock in the transaction or series of transactions constituting the Change in Control. (d) The Company shall promptly reimburse the Director for all legal fees and expenses reasonably incurred in successfully seeking to obtain or enforce any right or benefit provided under this Section 6. (e) This Section 6 may not be amended or modified after the occurrence of a Change in Control. 7. Miscellaneous (a) Except as provided in 6(b) above, the election to defer Deferrable Compensation, including, but not limited to, the allocation of the amount deferred between the cash allotment or the stock allotment portion of the Account, or a combination thereof, shall be irrevocable as to amounts earned following the time when the election is made and shall remain irrevocable until a new election form reflecting a change or revocation with respect to amounts earned in a subsequent time period is delivered to the Company not later than ten (10) days preceding the first day of the calendar month to which such change or revocation is applicable. (b) Neither the Director nor any other person shall have any interest in any fund or in any specific asset of the Company by reason of amounts credited to the Account of a Director hereunder, nor the right to exercise any of the rights or privileges of a shareholder with respect to any stock equivalents credited to the Account, nor the right to receive any distribution under the Plan except as and to the extent expressly provided for in the Plan. Distributions hereunder shall be made from the general funds of the Company, and the rights of the Director shall be those of an unsecured general creditor of the Company. (c) The interest of the Director under the Plan shall not be assignable by the Director or the Director's beneficiary or legal representative, either by voluntary assignment or by operation of law, and any assignment of such interest, whether voluntary or by operation of law, shall be ineffective to transfer the Director's interest; provided, however, that (i) the Director may designate a beneficiary to receive any benefit payable under the Plan upon death, and (ii) the legal representative of the Director's estate may assign the Director's interest under the Plan to the persons entitled to any benefit payable under the Plan upon the Director's death. (d) Except as provided in Section 6, above, the Company may amend, modify, terminate or discontinue the Plan at any time; provided, however, that no such action shall reduce the amounts credited to the Account of the Director immediately prior to such action, nor change the time, method or manner of distribution of such amount, including, without limitation, distribution in accordance with Section 6, above. (e) Nothing contained herein shall impose any obligation on the Company to continue the tenure of the Director beyond the term for which such Director may have been elected or shall prevent the removal of such Director. (f) This Plan shall be interpreted by and all questions arising in connection therewith shall be determined by a majority of the Board, whose interpretation or determination, when made in good faith, shall be conclusive and binding, unless a Change in Control shall have occurred, in which case such interpretation or determination shall be made by a majority of the Continuing Directors. (g) If any amounts deferred pursuant to the Plan are found in a "determination" (within the meaning of Section 1313(a) of the Internal Revenue Code of 1986, as amended) to have been includible in gross income by a Director prior to payment of such amounts from his Director's Account, such amounts shall be immediately paid to such director, notwithstanding his elections pursuant to Section 2. EX-15 7 Exhibit 15 Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 Re: Protective Life Corporation We are aware that our report dated April 23, 1997, on our review of interim consolidated financial information of Protective Life Corporation and subsidiaries for the period ended March 31, 1997, and included in the Company's quarterly report on Form 10-Q for the quarter then ended, is incorporated by reference in the Company's registration statements on Form S-8 and Form S-3. Pursuant to Rule 436(c) under the Securities Act of 1933, this report should not be considered a part of the registration statements prepared or certified by us within the meaning of Sections 7 and 11 of that Act. COOPERS & LYBRAND L.L.P. Birmingham, Alabama May 14, 1997 EX-27 8
7 This schedule contains summary financial information extracted from the consolidated financial statements of Protective Life Corporation and is qualified in its entirety by reference to such financial statements. 1,000 3-MOS DEC-31-1997 JAN-01-1997 MAR-01-1997 4,697,855 0 0 37,255 1,579,900 11,775 6,614,772 41,996 335,838 502,568 8,317,012 2,472,301 253,439 0 146,076 195,000 0 0 16,668 579,308 8,317,012 129,578 130,330 (418) 4,762 163,019 20,835 41,630 225,484 13,181 24,783 0 0 0 24,783 0.80 0.80 0 0 0 0 0 0 0 Reflects two for one stock split effective June 1, 1995. Net of minority interest in income of consolidated subsidiaries of $804.
EX-99 9 Exhibit 99 to Form 10-Q of Protective Life Corporation for the three months Ended March 31, 1997 Safe Harbor for Forward-Looking Statements The Private Securities Litigation Reform Act of 1995 (the "Act") encourages companies to make "forward-looking statements" by creating a safe harbor to protect the companies from securities law liability in connection with forward-looking statements. Forward-looking statements can be identified by use of words such as "expect," "estimate," "project, " budget," "forecast," "anticipate," "plan," and similar expressions. Protective Life Corporation (the "Company") intends to qualify both its written and oral forward-looking statements for protection under the Act. To qualify oral forward-looking statements for protection under the Act, a readily available written document must identify important factors that could cause actual results to differ materially from those in the forward-looking statements. The Company provides the following information to qualify forward-looking statements for the safe harbor protection of the Act. The operating results of companies in the insurance industry have historically been subject to significant fluctuations due to competition, economic conditions, interest rates, investment performance, maintenance of insurance ratings, and other factors. Certain known trends and uncertainties which may affect future results of the Company are discussed more fully below. COMPETITION. Life and health insurance is a mature industry. In recent years, the industry has experienced virtually no growth in life insurance sales, though the aging population has increased the demand for retirement savings products. Life and health insurance is a highly competitive industry and the Company's Divisions encounter significant competition in all their respective lines of business from other insurance companies, many of which have greater financial resources than the Company, as well as competition from other providers of financial services. Management believes that the Company's ability to compete is dependent upon, among other things, its ability to attract and retain distribution channels to market its insurance and investment products, its ability to develop competitive and profitable products, its ability to maintain low unit costs, and its maintenance of strong claims-paying and financial strength ratings from rating agencies. The Company competes against other insurance companies and financial institutions in the origination of commercial mortgage loans. RATINGS. Ratings are an important factor in the competitive position of life insurance companies. Rating organizations periodically review the financial performance and condition of insurers, including the Company's insurance subsidiaries. A downgrade in the ratings of the Company's life insurance subsidiaries could adversely affect its ability to sell its products and its ability to compete for attractive acquisition opportunities. Rating organizations assign ratings based upon several factors. While most of the considered factors relate to the rated company, some of the factors relate to general economic conditions and circumstances outside the rated company's control. POLICY CLAIMS FLUCTUATIONS. The Company's results may fluctuate from year to year on account of fluctuations in policy claims received by the Company. LIQUIDITY AND INVESTMENT PORTFOLIO. Many of the products offered by the Company's life insurance subsidiaries allow policyholders and contractholders to withdraw their funds under defined circumstances. The Company's life insurance subsidiaries design products and configure investment portfolios so as to provide and maintain sufficient liquidity to support anticipated withdrawal demands and contract benefits and maturities. Asset/liability management programs and procedures are used to monitor the relative duration of the Company's assets and liabilities. While the Company's life insurance subsidiaries own a significant amount of liquid assets, many of their assets are relatively illiquid. Significant unanticipated withdrawal or surrender activity could, under some circumstances, compel the Company's life insurance subsidiaries to dispose of illiquid assets on unfavorable terms, which could have a material adverse effect on the Company. INTEREST RATE FLUCTUATIONS. Significant changes in interest rates expose life insurance companies to the risk of not earning anticipated spreads between the interest rate earned on investments and the interest rate credited to its life insurance and investment products. Both rising and declining interest rates can negatively affect the Company's spread income. For example, certain of the Company's insurance and investment products guarantee a minimum credited interest rate. While the Company develops and maintains asset/liability management programs and procedures designed to preserve spread income in rising or falling interest rate environments, no assurance can be given that significant changes in interest rates will not materially affect such spreads. Lower interest rates may result in lower sales of the Company's life insurance and investment products. INVESTMENT RISKS. The Company's invested assets are subject to inherent risks of defaults and changes in market values. The value of the Company's commercial mortgage portfolio depends in part on the financial condition of the tenants occupying the properties on which the Company has made loans. Factors that may affect the overall default rate on, and market value of, the Company's invested assets include the level of interest rates, performance of the financial markets, and general economic conditions, as well as particular circumstances affecting the businesses of individual borrowers and tenants. CONTINUING SUCCESS OF ACQUISITION STRATEGY. The Company has actively pursued a strategy of acquiring blocks of insurance policies. This acquisition strategy has increased the Company's earnings in part by allowing the Company to position itself to realize certain operating efficiencies associated with economies of scale. There can be no assurance, however, that suitable acquisitions, presenting opportunities for continued growth and operating efficiencies, will continue to be available to the Company, or that the Company will realize the anticipated financial results from its acquisitions. REGULATION AND TAXATION. The Company's insurance subsidiaries are subject to government regulation in each of the states in which they conduct business. Such regulation is vested in state agencies having broad administrative power dealing with all aspects of the insurance business including premium rates, benefits, marketing practices, advertising, policy forms, underwriting standards, and capital adequacy, and is concerned primarily with the protection of policyholders rather than stockholders. The Company cannot predict the form of any future regulatory initiatives. Under the Internal Revenue Code of 1986, as amended (the Code), income tax payable by policyholders on investment earnings is deferred during the accumulation period of certain life insurance and annuity products. This favorable tax treatment may give certain of the Company's products a competitive advantage over other non-insurance products. To the extent that the Code is revised to reduce the tax-deferred status of life insurance and annuity products, or to increase the tax-deferred status of competing products, all life insurance companies, including the Company's subsidiaries, would be adversely affected. The Company cannot predict what future initiatives the President or Congress may propose which may affect the life and health insurance industry and the Company. LITIGATION. A number of civil jury verdicts have been returned against life and health insurers in the jurisdictions in which the Company does business involving the insurers' sales practices, alleged agent misconduct, failure to properly supervise agents, and other matters. Increasingly these lawsuits have resulted in the award of substantial judgments against the insurer that are disproportionate to the actual damages, including material amounts of punitive damages. In some states (including Alabama), juries have substantial discretion in awarding punitive damages which creates the potential for unpredictable material adverse judgments in any given punitive damages suit. The Company and its subsidiaries, like other life and health insurers, in the ordinary course of business, are involved in such litigation. The outcome of any such litigation cannot be predicted with certainty. In addition, in some lawsuits involving insurers' sales practices, insurers have made material settlement payments to end litigation. RELIANCE UPON THE PERFORMANCE OF OTHERS. The Company has entered into various ventures involving other parties. Examples include, but are not limited to: many of the Company's products are sold through independent distribution channels; the Investment Products Division's variable annuity deposits are invested in funds managed by Goldman Sachs Asset Management and its affiliates; a portion of the sales in the Financial Institutions, Group, and Individual Life Divisions comes from arrangements with unrelated marketing organizations; and the Company has entered the Hong Kong insurance market in a joint venture with the Lippo Group. Therefore the Company's results may be affected by the performance of others. REINSURANCE. As is customary in the insurance industry, the Company's insurance subsidiaries cede insurance to other insurance companies. However, the ceding insurance company remains liable with respect to ceded insurance should any reinsurer fail to meet the obligations assumed by it. Additionally, the Company assumes policies of other insurers. Any regulatory or other adverse development affecting the ceding insurer could also have an adverse effect on the Company. Forward-looking statements express expectations of future events and/or results. All forward-looking statements are inherently uncertain as they are based on various expectations and assumptions concerning future events and they are subject to numerous known and unknown risks and uncertainties which could cause actual events or results to differ materially from those projected. Due to these inherent uncertainties, investors are urged not to place undue reliance on forward-looking statements. In addition, the Company undertakes no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events, or changes to projections over time. -----END PRIVACY-ENHANCED MESSAGE-----