-----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, KmnHZHiGJmT6QCruwgmntNlzJIlH+KrneC63qwT1A8sJERtWk2qOD2XA2pLJ7VWv IdIicUUnC5Ar8M8jin2w8Q== 0000931763-99-002380.txt : 19990816 0000931763-99-002380.hdr.sgml : 19990816 ACCESSION NUMBER: 0000931763-99-002380 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990813 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNUMPROVIDENT CORP CENTRAL INDEX KEY: 0000005513 STANDARD INDUSTRIAL CLASSIFICATION: ACCIDENT & HEALTH INSURANCE [6321] IRS NUMBER: 621598430 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-11834 FILM NUMBER: 99689642 BUSINESS ADDRESS: STREET 1: 2210 CONGRESS STREET CITY: PORTAANOOGA STATE: TN ZIP: 37402 BUSINESS PHONE: 2077702211 MAIL ADDRESS: STREET 1: ONE FOUNTAIN SQUARE CITY: CHATTANOOGA STATE: TN ZIP: 37402 FORMER COMPANY: FORMER CONFORMED NAME: PROVIDENT COMPANIES INC /DE/ DATE OF NAME CHANGE: 19961204 FORMER COMPANY: FORMER CONFORMED NAME: PROVIDENT LIFE & ACCIDENT INSURANCE CO OF AMERICA DATE OF NAME CHANGE: 19950407 10-Q 1 FORM 10-Q - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended June 30, 1999. Commission file number 1-11834 UNUMPROVIDENT CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 62-1598430 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 2211 CONGRESS STREET PORTLAND, MAINE 04122 (Address of principal executive offices) (Zip Code) (207) 770-2211 (Registrant's telephone number, including area code) Provident Companies, Inc., 1 Fountain Square, Chattanooga, Tennessee 37402 (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] Indicate the number of shares outstanding for each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at June 30, 1999 ----- ---------------------------- Common Stock, $0.10 Par Value 238,790,635
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Page ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited): Condensed Consolidated Statements of Financial Condition at June 30, 1999 and December 31, 1998................. 3 Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 1999 and 1998...... 4 Condensed Consolidated Statements of Stockholders' Equity for the Six Months Ended June 30, 1999 and 1998................................................... 5 Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1999 and 1998................................. 6 Notes to Condensed Consolidated Financial Statements.... 7 Independent Auditors' Review Report..................... 20 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................... 21 Item 3. Quantitative and Qualitative Disclosures About Market Risk................................................... 36 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders..... 38 Item 6. Exhibits and Reports on Form 8-K........................ 40
2 PART I--FINANCIAL INFORMATION Item 1. Financial Statements UNUMPROVIDENT CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)
June 30 December 31 1999 1998 --------- ----------- (in millions of dollars) Assets Investments: Fixed Maturity Securities: Available-for-Sale.................................. $21,807.0 $22,732.2 Held-to-Maturity.................................... 319.2 307.0 Mortgage Loans........................................ 1,328.1 1,321.2 Real Estate........................................... 314.4 309.8 Policy Loans.......................................... 2,239.8 2,227.2 Short-term Investments................................ 196.3 245.1 Other Investments..................................... 42.4 43.5 --------- --------- Total Investments................................. 26,247.2 27,186.0 Cash and Bank Deposits................................. 186.8 111.2 Premiums Receivable.................................... 749.4 570.1 Reinsurance Receivable................................. 4,893.8 4,871.0 Accrued Investment Income.............................. 523.6 502.5 Deferred Policy Acquisition Costs...................... 2,256.6 2,060.5 Value of Business Acquired............................. 552.5 570.5 Goodwill............................................... 772.3 814.7 Other Assets........................................... 1,295.3 1,502.7 Separate Account Assets................................ 439.8 413.0 --------- --------- Total Assets...................................... $37,917.3 $38,602.2 ========= ========= Liabilities and Stockholders' Equity Policy and Contract Benefits........................... $ 1,469.5 $ 1,384.9 Reserves for Future Policy and Contract Benefits and Unearned Premiums..................................... 22,870.8 22,490.7 Other Policyholders' Funds............................. 3,634.1 4,102.7 Federal Income Tax..................................... 489.7 969.8 Short-term Debt........................................ 490.0 323.7 Long-term Debt......................................... 1,226.5 1,225.2 Other Liabilities...................................... 1,605.2 1,246.0 Separate Account Liabilities........................... 439.8 413.0 --------- --------- Total Liabilities................................. 32,225.6 32,156.0 --------- --------- Commitments and Contingent Liabilities--Note 10 Company-Obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trust Holding Solely Junior Subordinated Debt Securities of the Company........................ 300.0 300.0 --------- --------- Stockholders' Equity Common Stock, $0.10 par Authorized: 725,000,000 shares Issued: 238,966,930 and 237,802,647 shares............ 23.9 23.8 Additional Paid-in Capital............................. 1,002.5 959.2 Accumulated Other Comprehensive Income................. 265.3 914.7 Retained Earnings...................................... 4,109.2 4,279.2 Treasury Stock at Cost: 176,295 shares................. (9.2) (9.2) Deferred Compensation.................................. -- (21.5) --------- --------- Total Stockholders' Equity........................ 5,391.7 6,146.2 --------- --------- Total Liabilities and Stockholders' Equity........ $37,917.3 $38,602.2 ========= =========
See notes to condensed consolidated financial statements. 3 UNUMPROVIDENT CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Six Months Ended Ended June 30 June 30 ------------------ ------------------ 1999 1998 1999 1998 -------- -------- -------- -------- (in millions of dollars, except share data) Revenue Premium Income....................... $1,687.4 $1,506.1 $3,368.9 $2,998.7 Net Investment Income................ 518.0 513.5 1,017.6 1,038.6 Net Realized Investment Gains........ 4.2 5.1 11.4 14.4 Other Income......................... 68.0 82.4 148.8 157.5 -------- -------- -------- -------- Total Revenue...................... 2,277.6 2,107.1 4,546.7 4,209.2 -------- -------- -------- -------- Benefits and Expenses Benefits and Change in Reserves for Future Benefits..................... 1,690.7 1,304.7 3,192.8 2,618.5 Commissions.......................... 219.6 206.2 462.1 439.6 Interest and Debt Expense............ 33.6 30.7 66.5 58.0 Deferral of Policy Acquisition Costs............................... (189.0) (158.7) (420.2) (347.7) Amortization of Deferred Policy Acquisition Costs................... 111.4 90.0 224.6 178.2 Amortization of Value of Business Acquired and Goodwill............... 17.5 16.9 60.2 33.8 Other Operating Expenses............. 668.4 351.8 1,072.1 716.0 -------- -------- -------- -------- Total Benefits and Expenses........ 2,552.2 1,841.6 4,658.1 3,696.4 -------- -------- -------- -------- Income (Loss) Before Federal Income Taxes................................. (274.6) 265.5 (111.4) 512.8 Federal Income Taxes (Credit).......... (83.4) 92.0 (9.5) 174.7 -------- -------- -------- -------- Net Income (Loss)...................... $ (191.2) $ 173.5 $ (101.9) $ 338.1 ======== ======== ======== ======== Net Income (Loss) Per Common Share Basic................................ $ (0.80) $ 0.73 $ (0.43) $ 1.42 Assuming Dilution.................... $ (0.80) $ 0.71 $ (0.43) $ 1.39 Dividends Per Common Share............. $ 0.14 $ 0.14 $ 0.28 $ 0.28
See notes to condensed consolidated financial statements. 4 UNUMPROVIDENT CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
Accumulated Additional Other Preferred Common Paid-in Comprehensive Retained Treasury Deferred Stock Stock Capital Income Earnings Stock Compensation Total --------- ------ ---------- ------------- -------- -------- ------------ -------- (in millions of dollars) Balance at December 31, 1997................... $ 156.2 $23.7 $ 954.8 $ 799.0 $3,797.7 $(1.5) $(15.8) $5,714.1 Comprehensive Income, Net of Tax Net Income............. 338.1 338.1 Change in Net Unrealized Gain on Securities............ 138.8 138.8 Change in Foreign Currency Translation Adjustment............ (6.3) (6.3) -------- Total Comprehensive Income................ 470.6 -------- Common Stock Activity... (19.0) (7.7) (2.7) (29.4) Preferred Stock Redeemed............... (156.2) (156.2) Dividends to Stockholders........... (67.9) (67.9) ------- ----- -------- ------- -------- ----- ------ -------- Balance at June 30, 1998................... $ -- $23.7 $ 935.8 $ 931.5 $4,067.9 $(9.2) $(18.5) $5,931.2 ======= ===== ======== ======= ======== ===== ====== ======== Balance at December 31, 1998................... $ -- $23.8 $ 959.2 $ 914.7 $4,279.2 $(9.2) $(21.5) $6,146.2 Comprehensive Loss, Net of Tax Net Loss........ (101.9) (101.9) Change in Net Unrealized Gain on Securities............ (657.0) (657.0) Change in Foreign Currency Translation Adjustment............ 7.6 7.6 -------- Total Comprehensive Loss.................. (751.3) -------- Common Stock Activity... 0.1 43.3 21.5 64.9 Dividends to Stockholders........... (68.1) (68.1) ------- ----- -------- ------- -------- ----- ------ -------- Balance at June 30, 1999................... $ -- $23.9 $1,002.5 $ 265.3 $4,109.2 $(9.2) $ -- $5,391.7 ======= ===== ======== ======= ======== ===== ====== ========
See notes to condensed consolidated financial statements. 5 UNUMPROVIDENT CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended June 30 -------------------- 1999 1998 --------- --------- (in millions of dollars) Net Cash Provided by Operating Activities................ $ 740.1 $ 633.8 --------- --------- Cash Flows from Investing Activities Proceeds from Sales of Investments..................... 1,472.9 1,268.4 Proceeds from Maturities of Investments................ 705.7 868.9 Purchase of Investments................................ (2,579.5) (2,201.5) Net Purchases of Short-term Investments................ 48.1 20.5 Disposition of Business................................ -- 58.0 Other.................................................. (48.8) (41.9) --------- --------- Net Cash Provided Used by Investing Activities........... (401.6) (27.6) --------- --------- Cash Flows from Financing Activities Deposits to Policyholder Accounts...................... 78.1 150.6 Maturities and Benefit Payments from Policyholder Accounts.............................................. (480.5) (790.7) Net Short-term Borrowings.............................. 149.5 548.6 Issuance of Long-term Debt............................. 200.0 250.0 Long-term Debt Repayments.............................. (183.3) (763.0) Issuance of Company-Obligated Mandatorily Redeemable Preferred Securities.................................. -- 300.0 Redemption of Preferred Stock.......................... -- (156.2) Dividends Paid to Stockholders......................... (68.1) (71.1) Repurchase of Common Stock............................. -- (70.8) Other.................................................. 42.1 19.7 --------- --------- Net Cash Used by Financing Activities.................... (262.2) (582.9) --------- --------- Effect of Foreign Exchange Rate on Cash.................. (0.7) (0.4) --------- --------- Net Increase in Cash and Bank Deposits................... 75.6 22.9 Cash and Bank Deposits at Beginning of Period............ 111.2 94.5 --------- --------- Cash and Bank Deposits at End of Period.................. $ 186.8 $ 117.4 ========= =========
See notes to condensed consolidated financial statements. 6 UNUMPROVIDENT CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Note 1--Basis of Presentation On June 30, 1999, UNUM Corporation (UNUM) merged into Provident Companies, Inc. (Provident) under the name UNUMProvident Corporation (the Company). The merger was accounted for as a pooling of interests. The historical financial results presented herein and the unaudited combined condensed statement of financial condition as of December 31, 1998, give effect to the merger as if it had been completed at the beginning of the earliest period presented. The Company values its available-for-sale fixed maturity and equity securities at fair value, with unrealized holding gains and losses reported as a component of comprehensive income. Companies are required to also adjust deferred acquisition costs and/or certain policyholder liabilities to reflect the changes that would have been necessary if the unrealized investment gains and losses related to the available-for-sale securities had been realized. Prior to the merger, UNUM adjusted policyholder liabilities and Provident adjusted deferred policy acquisition costs (DPAC) and value of business acquired (VOBA) for those products where these assets existed. To present financial information in a common reporting format, management has determined that the combined entity will adjust policyholder liabilities rather than DPAC and VOBA. Prior period financial statements have been restated to reflect this reclassification. The reclassification did not change other comprehensive income, accumulated other comprehensive income, or fixed maturity and equity securities. The reclassification reflected in the December 31, 1998, consolidated statement of financial condition resulted in an increase of $329.7 million in DPAC, $1.5 million in VOBA, and, $331.2 million in reserves for future policy and contract benefits. Certain additional reclassification adjustments have been made to conform the companies' presentations in the condensed consolidated financial statements. The condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month and six month periods ended June 30, 1999, are not necessarily indicative of the results that may be expected for the year ended December 31, 1999. These results are also not necessarily indicative of the results of operations that would have been realized had the merger been completed prior to June 30, 1999. For further information, refer to the consolidated financial statements and footnotes thereto included in Provident's and UNUM's reports on Form 10-Q for the six months ended June 30, 1998, Form 10-K/A for the year ended December 31, 1998, and Form 10-Q/A for the three months ended March 31, 1999. Note 2--Merger On June 30, 1999, prior to the completion of the merger, each outstanding share of Provident common stock was reclassified and converted into 0.73 of a share of Provident common stock. Immediately after this reclassification, the merger was completed, and each share of Provident common stock and UNUM common stock issued and outstanding immediately prior to the merger was converted into one share of the Company's common stock, and the par value was reduced from $1.00 to $0.10 per share. In the merger, the shares of Provident common stock were not further affected, but thereafter became shares of the Company's common stock. UNUM common stock held in treasury was retired. Stockholders' equity and per share amounts have been adjusted to reflect these items. 7 In the second quarter of 1999 the Company recorded expenses related to the merger and the early retirement offer to employees as follows (in millions): Employee related expense......................................... $ 45.2 Exit activities related to duplicate facilities/asset abandonments.................................................... 57.4 Investment banking, legal, and accounting fees................... 39.6 ------ Subtotal......................................................... 142.2 Expense related to the early retirement offer to employees....... 125.9 ------ Subtotal......................................................... 268.1 Income tax benefit............................................... 74.3 ------ Total............................................................ $193.8 ======
Employee related expense consists of employee severance costs, restricted stock costs which fully vested upon stockholder adoption of the merger agreement or upon completion of the merger, and outplacement costs to assist employees who have been involuntarily terminated. Severance benefits and costs associated with the vesting of restricted stock are $27.7 million and $17.5 million, respectively. The Company currently estimates that in total approximately 1,400 positions will be eliminated over a twelve month period beginning June 30, 1999, with an estimated 1,000 of these positions eliminated through the early retirement offer. Exit activities related to duplicate facilities/asset abandonments consist of closing of duplicate offices and write-off of redundant computer hardware and software. The Company currently expects to close approximately 90 duplicate field offices over a period of one year after June 30, 1999, the completion date of the merger. The cost associated with these office closures is approximately $25.6 million, which represents the cost of future minimum lease payments less any estimated amounts recovered under subleases. Also, the total book value of physical assets, primarily computer equipment, redundant systems, and systems incapable of supporting the combined entity, are being abandoned as a result of the merger. This abandonment resulted in a write-down of the assets' book values by approximately $31.8 million. The expenses related to the merger reduced earnings $142.2 million before tax and $112.0 million after tax ($0.47 per common share). The expense related to the early retirement offer reduced earnings $125.9 million before tax and $81.8 million after tax ($0.34 per common share). In accordance with Provident's and UNUM's restricted stock and stock option plan provisions concerning a change in control, 546,362 shares of outstanding restricted stock became unrestricted and stock options on 5,301,683 shares became immediately exercisable effective with the merger. The expense related to restricted stock vesting has been included in merger-related expenses. The Company applies Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations in accounting for the stock option plans. Accordingly, no compensation cost was recognized for stock option vesting. Prior to the merger, UNUM's process and assumptions used to calculate the discount rate for claim reserves of certain disability businesses differed from that used by Provident. While UNUM's and Provident's methods were both in accordance with generally accepted accounting principles, management believed that the combined entity should have consistent discount rate accounting policies and methods for applying those policies for similar products. UNUM's former methodology used the same investment strategy for assets backing both liabilities and surplus. Provident's methodology, which allows for different investment strategies for assets backing surplus than those backing product liabilities, was determined by management to be the more appropriate approach for the Company. Accordingly, the Company adopted Provident's method of calculating the discount rate for claim reserves. 8 The discount rates affected by this change in UNUM's methodology are as follows:
June 30, 1999 -------------------------- Current Rates Former Rates ------------- ------------ Group Long-term Disability (North America)......... 6.75% 7.74% Group Long-term Disability and Individual Disability (United Kingdom)....................... 7.45% 8.80% Individual Disability (North America).............. 6.88% 7.37%
The unpaid claim reserves for these disability lines as of June 30, 1999 were $5,318.3 million using the former method for determining reserve discount rates and $5,559.0 million using the current method. The impact on 1999 second quarter earnings related to the change in method of calculating the discount rate for claim reserves was $240.7 million before tax and $156.5 million after tax ($0.66 per common share). The Company continues to review its accounting policies, including assumptions underlying the application thereof, as well as its financial statement classifications and related disclosures. It may be necessary to further adjust the financial statements to change to those accounting policies, practices, and classifications that are determined to be most appropriate. The reviews are expected to be completed by year end and could result in further changes to accounting policies, accounting estimates, or financial statement classifications which could be material to the Company's results of operations for 1999. The results of operations for the separate companies and the combined amounts are as follows:
Three Months Six Months Ended Ended June 30 June 30 ------------------ ------------------ 1999 1998 1999 1998 -------- -------- -------- -------- (in millions of dollars) Revenue UNUM................................... $1,277.1 $1,124.1 $2,557.8 $2,232.6 Provident.............................. 1,000.5 983.0 1,988.9 1,976.6 -------- -------- -------- -------- Combined Revenue..................... $2,277.6 $2,107.1 $4,546.7 $4,209.2 ======== ======== ======== ======== Net Income (Loss) UNUM................................... $ (205.2) $ 98.7 $ (189.7) $ 192.2 Provident.............................. 14.0 74.8 87.8 145.9 -------- -------- -------- -------- Combined Net Income (Loss)........... $ (191.2) $ 173.5 $ (101.9) $ 338.1 ======== ======== ======== ========
Included in UNUM's net income for the three and six months ended June 30, 1999, is $131.8 million after tax for expenses related to the merger and the early retirement offer to employees and $156.5 million after tax for the reserve discount rate change. UNUM's net income for the six months ended June 30, 1999 also includes an after-tax first quarter charge of $88.0 million related to its reinsurance businesses. Included in Provident's net income for the three and six months ended June 30, 1999, is $62.0 million after tax for expenses related to the merger and the early retirement offer to employees. 9 The balance sheets for the separate companies and the combined amounts are as follows:
June 30, 1999 ----------------------------- UNUM Provident Combined --------- --------- --------- (in millions of dollars) Assets Total Investments................................ $ 9,821.5 $16,425.7 $26,247.2 Reinsurance Receivable........................... 1,862.5 3,031.3 4,893.8 All Other Assets................................. 3,612.3 3,164.0 6,776.3 --------- --------- --------- Total Assets................................... $15,296.3 $22,621.0 $37,917.3 ========= ========= ========= Liabilities and Stockholders' Equity Policy and Contract Benefits, Reserves for Future Policy and Contract Benefits, and Unearned Premiums.... $ 9,594.3 $14,746.0 $24,340.3 Other Policyholders' Funds....................... 878.8 2,755.3 3,634.1 All Other Liabilities............................ 2,417.6 1,833.6 4,251.2 --------- --------- --------- Total Liabilities.............................. 12,890.7 19,334.9 32,225.6 --------- --------- --------- Company--Obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trust Holding Solely Junior Subordinated Debt Securities of the Company..................................... -- 300.0 300.0 --------- --------- --------- Stockholders' Equity............................. 2,405.6 2,986.1 5,391.7 --------- --------- --------- Total Liabilities and Stockholders' Equity..... $15,296.3 $22,621.0 $37,917.3 ========= ========= =========
Note 3--Liability for Unpaid Claims and Claim Adjustment Expenses It is the Company's policy to estimate the ultimate cost of settling claims in each reporting period based upon the information available to management at the time. Actual claim resolution results are monitored and compared to those anticipated in claim reserve assumptions. Claim resolution rate assumptions are based upon industry standards adjusted as appropriate to reflect actual Company experience as well as Company actions which would have a material impact on claim resolutions. Company actions for which plans have been established and committed to by management are factors which would modify past experience in establishing claim reserves. Adjustments to the reserve assumptions will be made if expectations change. Given that insurance products contain inherent risks and uncertainties, the ultimate liability may be more or less than such estimates indicate. During the fourth quarter of 1998, the Company recorded a $153.0 million increase in the reserve for individual and group disability claims incurred as of December 31, 1998. Incurred claims include claims known as of that date and an estimate of those claims that have been incurred but not yet reported. Claims that have been incurred but not yet reported are considered liabilities of the Company. These claims are expected to be reported during 1999 and will be affected by the claims operations integration activities. The $153.0 million claim reserve increase represents the estimated value of cash payments to be made to these claimants over the life of the claims as a result of the claims operations integration activities. Management believes the reserve adjustment was required based upon the integration plans it has in place and to which it has committed and based upon its ability to develop a reasonable estimate of the financial impact of the expected disruption to the claims management process. Claims management is an integral part of the disability operations. Disruptions in that process can create material, short-term increases in claim costs. The merger has had a near-term adverse impact on the efficiency and effectiveness of the Company's claims management function resulting in some delay in claim resolutions and additional claim payments to policyholders. Claims personnel have been distracted from normal claims management activities as a result of planning and implementing the integration of the two companies' claims organizations. In addition, employee 10 turnover and additional training have reduced resources and productivity. An important part of the claims management process is assisting disabled policyholders with rehabilitation efforts. This complex activity is important to the policyholders because it can assist them in returning to productive work and lifestyles more quickly, and it is important to the Company because it shortens the duration of claim payments and thereby reduces the ultimate cost of settling claims. Immediately following the announcement of the merger and continuing into December of 1998, senior management of the Company worked to develop the strategic direction of the Company's claims organization. As part of the strategic direction, senior management committed claims management personnel to be involved in developing the detailed integration plans and implementing the plans during 1999. Knowing that those involved in the claims operations integration activities would not be available full time to perform their normal claims management functions, management deemed it necessary to anticipate this effect on the claim reserves at December 31, 1998. For the first six months of 1999, approximately 90 claims managers and benefit specialists have spent nearly 40 percent of their time developing the detailed integration plans. Effective with the merger, all claims personnel are expected to be involved in the process of implementing the new work processes and required training. The implementation and training efforts are estimated to require an average of one month of productive time from each of the claims staff between June 30, 1999 and December 31, 1999. Management now believes that implementation and related systems conversions will continue over the next 18 months. However, due to actions taken by management to mitigate effects on resolution rates, the effect on resolution rates is not anticipated to extend beyond the end of 1999. Actions by management to mitigate the effect on resolution rates include aggressive hiring of new claims staff, restrictions on early retirement elections, selective use of personnel for integration planning, and significant communications with staff members. The reserving process begins with the assumptions indicated by past experience and modifies these assumptions for current trends and other known factors. The Company anticipated the merger-related developments discussed above would generate a significant change in claims department productivity, reducing claim resolution rates, a key assumption when establishing reserves. Management developed actions to mitigate the impact of the merger on claims department productivity, including the hiring of additional claims staff and the restriction of early retirement elections by claims personnel. Where feasible, management also planned to obtain additional claims management resources through outsourcing. All such costs are expensed in the period incurred and are not material in relation to results of operations. Management reviewed its integration plans and the actions intended to mitigate the impact of the integration with claims managers to determine the extent of disruption in normal activities. Considering all of the above, the revised claim resolution rates, as a percentage of original assumptions (i.e., before adjusting for the effect of the claims operations integration activities), are 90 percent for the first and second quarters of 1999, 84 percent for the third quarter, and 89 percent for the fourth quarter of 1999. The revised claim resolution rates for the third quarter and fourth quarter are lower than the first and second quarters because all claims personnel are expected to be involved in the implementation and training efforts. The effect of integration activities on resolution rates is not expected to extend beyond December 31, 1999. In order to validate these assumptions, the Company also examined the historical level and pattern of claims management effectiveness as reflected in claim resolution rates for the insurance subsidiaries of The Paul Revere Corporation (Paul Revere) which was acquired in 1997. Subsequent to the Paul Revere acquisition and integration, management has been able to develop experience studies for the Paul Revere business. These studies are prepared for pricing purposes and to identify trends or changes in the business. These studies, which were not available for the Paul Revere business at the time of the acquisition, allowed management to gain a greater understanding of the impact of the claims integration activities on the claim resolution rates of the Paul Revere business. These studies show that the Paul Revere business experienced a decline in its claim resolution rates from a base in 1995 of 100 percent to 90.4 percent in 1996 and 80.3 percent in 1997. Changes in morbidity and other factors were considered and reviewed to determine that a primary cause of the reduced claim resolution rates was the disruption caused by the change in the claims management process. Although the circumstances of the merger are very different from the Paul Revere acquisition, the claims integration activities are similar, and the Paul Revere experience is relevant. The 11 primary circumstances that created claims disruption for Paul Revere were the initial lack of clarity of the organization, process, and structure, the need to plan for a significant transition to new claims processes, and the training and implementation related to those changes. All of those elements have impacted the Company as a result of the merger. One primary difference is that the duration of the potential disruption in the merger is not expected to be as long as was the case with the Paul Revere acquisition. The Company's revised claim resolution rates assumed for the first two quarters of 1999 were compared to the Paul Revere experience in 1996, the period preceding the acquisition. It was determined that the revised assumptions appeared to be reasonable. During the third and fourth quarters of 1999, the claims integration plans provide for increased activity due to training and implementation of new processes. The Company's revised claim resolution rates for the third and fourth quarters of 1999 were compared to the Paul Revere experience in 1997 during the implementation and training phase of the Paul Revere claims organization when claims resolution rates declined to 80.3 percent of prior levels. Management judged that it was reasonable to assume that the impact to the Company would be less than it was to Paul Revere since some of the Company's claims management practices will not change. The historical experience of Paul Revere provides a statistical reference for the expected experience for the Company when adjusted for the projected effects of the claims integration plans. In order to evaluate the financial effect of merger-related integration activities, the Company projected the ultimate cost of settling all claims incurred as of December 31, 1998, using the revised claim resolution rates. This projection was compared to the projection excluding the adjustment to the claim resolution rates to obtain the amount of the charge. The Company reviewed its estimates of the financial impact of the claims operations integration activities with its actuaries and independent auditors. Claim reserves at December 31, 1998 include $153.0 million as the estimated value of projected additional claim payments resulting from these claims operations integration activities. This reserve increase was reflected as a $142.6 million increase in benefits and reserves for future benefits, and a $10.4 million reduction in other income. If claim resolutions emerge as expected, there will be no impact to results of operations during 1999. Any variance from the assumptions will be reflected in operations in the current period. The adverse impact of the claims operations integration activities on resolution rates is not expected to continue beyond 1999. As part of the periodic review of claim reserves, management will review the status and execution of the claims operations integration plans with the claims management on a quarterly basis. The review will consider claims operations integration activities planned for future periods and evaluate whether the future planned activities will result in claim resolution rates consistent with those considered in the reserve established at December 31, 1998. The claim reserves may require further increases or decreases as facts concerning the merger and its effect on benefits to policyholders emerge. Among the factors that could affect the reserve assumptions are the level of employee turnover, timing and complexity of computer system conversions, and the timing and level of training and integration activities of the claims management staff relative to the original integration plans of the Company. Quarterly information concerning the estimated and actual impact of the claims operations integration activities are as follows:
1999 --------------------------- 1st 2nd 3rd 4th ------ ----- ----- ----- (in millions of dollars) Revised Claim Resolution Rates at December 31, 1998............................................. 90% 90% 84% 89% Actual Claim Resolution Rates for the Period...... 89% 90% Estimated Effect of Lower Claim Resolution Rates at December 31, 1998............................. $ 36.2 $36.2 $47.6 $33.0 Actual Effect of Lower Claim Resolution Rates for the Period....................................... $ 39.2 $36.2 Further Increases (Decreases) to the Estimated Liability at December 31, 1998 Recorded During the Period....................................... $ -- $ -- Liability Remaining for Claims Operation Integration Activities at End of Period.......... $116.8 $80.6
12 Management expects the remaining claims operations integration activities to impact claim reserves as anticipated at December 31, 1998. Management will continue to evaluate the impact of the merger on disability claims experience and the assumptions related to expected claim resolutions. Note 4--Reinsurance Businesses During the first quarter of 1999, the Company recognized a before-tax charge of $101.1 million ($88.0 million after tax) relating to its reinsurance businesses. The charge consisted of the following: Lloyd's of London Estimated Losses--The periodic method of accounting is followed for Lloyd's of London (Lloyd's) syndicate participation, which requires the premiums be recognized as revenue over the policy term and claims, including the estimate of claims incurred but not reported, to be recognized as incurred. During the first quarter of 1999, the Company received more information about the Lloyd's market from various sources, including managing agents/underwriters syndicate reports and published information from Moody's Investors Service. The information received indicated significant deterioration in the loss experience of open years of account primarily related to significant losses in certain syndicates (space and aviation, accident and health, and other non-marine classes of business) and continued pressure on the pricing of insurance coverage provided by the Lloyd's market. In addition, the Company discussed projected results of the Lloyd's market with the underwriters of the syndicates that are managed through a subsidiary of the Company. These projected results also indicated future deterioration of the open years of account. Using this information and recent experience with prior revisions of estimated losses in this business, the Company performed a review of its claim reserve liabilities related to its open years of account The review of estimates related to open years of account was performed based on a periodic review of these estimates as information was received from the Lloyd's syndicates. The review resulted in revised best estimates of the expected ultimate profit (loss) for each open year of account, which were significantly below the levels estimated in 1998. The resulting charge to earnings in the amount of $44.0 million was reflected in the Company's income in the first quarter of 1999 for the open years of account 1996 through 1999. In addition to the risk participation charge, the Company recorded a charge of $1.5 million, which represented the reduction of previously recognized profit commissions related to the Lloyd's management company operations. Reinsurance Facility Losses--As a result of the review performed on the Lloyd's syndicates discussed above and other third party publicized reinsurance exposures, the Company undertook a periodic review of certain other reinsurance facilities related to new information regarding the ultimate cost of settling claims. The reinsurance pool business consists of more than 20 different pool facilities, the majority of which are managed by the subsidiary Duncanson & Holt, Inc. and a few which are managed by third parties. Reserve assumptions are periodically reviewed to support the determination of the ultimate cost of settling claims for certain reinsurance pools. During the first quarter of 1999, the Company reviewed the actuarial assumptions used to set reserves for certain reinsurance facilities based on the most current information available from the reinsurance pool managers. The Company also received new information pertaining to a reinsurance pool managed by a third party that indicated a reserve increase was required. The Company relied primarily on the third party pool manager's judgement and recorded its portion of the reserve as reflected in the reinsurance pool statement from the third party pool manager. The new information received from the managed facilities and the third party facility indicated deterioration in loss experience, primarily related to a longer duration of claims and increased incidence of new claims in certain facilities. The result of these reviews was an increase to claim reserves of $28.6 million, which was recorded in the first quarter of 1999. The Company determined that the increase to reserves was needed based on revised actuarial assumptions to reflect current and expected trends in claims experience and expenses. Goodwill Impairment--When an event or change in circumstance occurs that indicates the recoverability of an asset should be assessed for impairment, a recoverability test is performed to determine if an impairment has occurred. Following the poor results of the reinsurance businesses in the first quarter of 1999, the Company updated the goodwill recoverability test using the most current results and forecasts. The goodwill 13 recoverability test used the held for use model that compares the undiscounted cash flows of these businesses to determine whether those cash flows can recover the unamortized goodwill. After factoring in the first quarter results and current revised forecasts due to recent poor performance for these businesses, future undiscounted cash flows were insufficient to recover the entire goodwill amount, indicating that the goodwill was impaired. Goodwill recoverability testing of these businesses performed prior to March 31, 1999, had indicated that the goodwill was not impaired. As a result of the impairment, the Company calculated the estimated fair value of these businesses. In estimating the fair value, two valuation techniques were utilized, a discount free cash flow model and a multiple of earnings model. The Company believed that these valuation techniques were appropriate for this type of business as these techniques were what the Company would use in evaluating a potential acquisition of this type of business. The results of the two valuation techniques created a range of fair values from $47.0 million to $64.0 million. The Company evaluated the range of values produced by the valuation techniques and using internal management judgement of the potential liquidation value, the Company determined its best estimate of fair value of its investment to be the midpoint of the range, or $55.0 million. The estimated fair value of $55.0 million was compared to $82.0 million of book value for the investment, resulting in a write-down of goodwill in the amount of $27.0 million in the first quarter of 1999. In the second quarter of 1999, the Company stated its intent to sell its reinsurance management operations, assuming the transaction would achieve the Company's financial objectives. The Company estimated the fair value of the operations using the held-for-sale model, which compares the carrying value of the asset with the fair value less costs to sell the asset. This resulted in an additional write-down of goodwill in the amount of $2.0 million before and after tax. Recent information indicates that in certain reinsurance pools there are disputes among the pool members and reinsurance participants concerning the scope of their obligations and liabilities within the complex pool arrangements, including a pool for which a subsidiary of the Company acted as pool underwriting agent and another subsidiary is a pool member. It is likely that the Company's agent subsidiary will be brought into a dispute, arbitration, or litigation with other pool members or reinsurers of the pool for which it acted as agent and which have been subject to a recent arbitration proceeding, but it is unclear what exposure the Company's subsidiary may ultimately have to share in losses of pool members or reinsurers because of the subsidiary's activities as agent in placing reinsurance. Note 5--Debt On December 4, 1997, the Company borrowed $168.3 million through a private placement. Under the terms of the agreement, the investor exercised the right to redeem the private placement at par value during the second quarter of 1999. The Company refinanced this debt by issuing $200.0 million of variable rate medium-term notes in June of 1999. The notes are due in June of 2000 and had an interest rate of 5.135% at June 30, 1999. Note 6--Federal Income Taxes A portion of the losses recognized in the first quarter of 1999 relating to the Company's reinsurance businesses does not receive a tax benefit, which unfavorably impacted the effective tax rate in the first quarter of 1999. Additionally, a portion of the second quarter 1999 expenses related to the merger was non-deductible for federal income tax purposes, resulting in a tax rate for the quarter and year-to-date that was less than the U.S. federal statutory tax rate of 35 percent. It is expected that the tax rate will move closer to the statutory rate by the end of the year. In the second quarter of 1999, the Company reached a settlement agreement with the Internal Revenue Service related to an issue in dispute for the 1992 tax year. The Company recorded a tax benefit of $5.1 million and related interest of $1.4 million. 14 Note 7--Stockholders' Equity and Earnings Per Common Share In accordance with the restated certificate of incorporation, the Company has 25,000,000 shares of preferred stock authorized with a par value of $0.10 per share. At June 30, 1999, no preferred stock had been issued. Earnings per common share are determined as follows:
Three Months Ended Six Months Ended June 30 June 30 ---------------------- ---------------------- 1999 1998 1999 1998 ---------- ---------- ---------- ---------- (in millions of dollars, except share data) Numerator: Net Income (Loss).............. $ (191.2) $ 173.5 $ (101.9) $ 338.1 Preferred Stock Dividends...... -- -- -- 1.9 ---------- ---------- ---------- ---------- $ (191.2) $ 173.5 $ (101.9) $ 336.2 ========== ========== ========== ========== Denominator (000s): Weighted Average Common Shares--Basic................. 238,438.4 237,021.2 238,108.9 236,824.0 Dilutive Securities............ -- 5,813.7 -- 5,906.4 ---------- ---------- ---------- ---------- Weighted Average Common Shares--Assuming Dilution..... 238,438.4 242,834.9 238,108.9 242,730.4 ========== ========== ========== ==========
In computing earnings per share assuming dilution, only potential common shares that are dilutive (those that reduce earnings per share) are included. Potential common shares are not used when computing earnings per share assuming dilution if the result would be antidilutive, such as when a net loss is reported or if options are out-of-the-money. In-the-money options to purchase approximately 4.3 million common shares for both the three and six month periods ended June 30, 1999, were not considered dilutive due to net losses being reported for the periods. Options which were not considered dilutive due to the options being out-of-the-money were immaterial for the three and six month periods ended June 30, 1999 and 1998. Note 8--Comprehensive Income (Loss) The components of other comprehensive income, net of deferred tax, are as follows:
June 30 December 31 1999 1998 ------------ --------------- (in millions of dollars) Net Unrealized Gain on Securities................ $ 312.4 $ 969.4 Foreign Currency Translation Adjustment.......... (47.1) (54.7) ------------ ------------ Accumulated Other Comprehensive Income........... $ 265.3 $ 914.7 ============ ============
15 The components of comprehensive income (loss) and the related deferred tax (credit) are as follows:
Three Months Six Months Ended June 30 Ended June 30 --------------- --------------- 1999 1998 1999 1998 ------- ------ ------- ------ (in millions of dollars) Net Income (Loss)............................. $(191.2) $173.5 $(101.9) $338.1 ------- ------ ------- ------ Change in Net Unrealized Gain on Securities: Change Before Reclassification Adjustment... (478.2) 202.6 (974.5) 226.6 Reclassification Adjustment for Net Realized Investment Gains Included in Net Income (Loss)..................................... (4.2) (5.1) (11.4) (14.4) Change in Foreign Currency Translation Adjustment................................... 12.2 (16.8) 15.1 (9.3) ------- ------ ------- ------ (470.2) 180.7 (970.8) 202.9 Change in Deferred Tax (Credit)............... (146.7) 63.8 (321.4) 70.4 ------- ------ ------- ------ Other Comprehensive Income (Loss)............. (323.5) 116.9 (649.4) 132.5 ------- ------ ------- ------ Comprehensive Income (Loss)................... $(514.7) $290.4 $(751.3) $470.6 ======= ====== ======= ======
16 Note 9--Segment Information Selected data by segment is as follows:
Three Months Ended Six Months Ended June 30 June 30 -------------------- ------------------ 1999 1998 1999 1998 --------- --------- -------- -------- (in millions of dollars) Premium Income Employee Benefits................. $ 960.7 $ 827.2 $1,914.0 $1,633.6 Individual........................ 427.3 414.4 860.4 836.9 Voluntary Benefits................ 173.1 166.8 344.3 331.3 Other............................. 126.3 97.7 250.2 196.9 --------- --------- -------- -------- 1,687.4 1,506.1 3,368.9 2,998.7 Net Investment Income and Other Income Employee Benefits................. 183.5 166.2 360.3 328.2 Individual........................ 233.8 223.6 461.3 442.7 Voluntary Benefits................ 26.8 24.8 53.4 49.9 Other............................. 135.0 168.4 276.4 358.5 Corporate......................... 6.9 12.9 15.0 16.8 --------- --------- -------- -------- 586.0 595.9 1,166.4 1,196.1 Total Revenue (Excluding Net Realized Investment Gains and Losses) Employee Benefits................. 1,144.2 993.4 2,274.3 1,961.8 Individual........................ 661.1 638.0 1,321.7 1,279.6 Voluntary Benefits................ 199.9 191.6 397.7 381.2 Other............................. 261.3 266.1 526.6 555.4 Corporate......................... 6.9 12.9 15.0 16.8 --------- --------- -------- -------- 2,273.4 2,102.0 4,535.3 4,194.8 Benefits and Expenses Employee Benefits................. 1,191.5 847.3 2,156.1 1,677.1 Individual........................ 614.1 557.2 1,194.0 1,119.8 Voluntary Benefits................ 168.8 160.7 335.1 323.0 Other............................. 253.6 229.5 580.0 498.7 Corporate......................... 324.2 46.9 392.9 77.8 --------- --------- -------- -------- 2,552.2 1,841.6 4,658.1 3,696.4 Income (Loss) Before Net Realized Investment Gains and Losses and Federal Income Taxes Employee Benefits................. (47.3) 146.1 118.2 284.7 Individual........................ 47.0 80.8 127.7 159.8 Voluntary Benefits................ 31.1 30.9 62.6 58.2 Other............................. 7.7 36.6 (53.4) 56.7 Corporate......................... (317.3) (34.0) (377.9) (61.0) --------- --------- -------- -------- (278.8) 260.4 (122.8) 498.4 Net Realized Investment Gains....... 4.2 5.1 11.4 14.4 --------- --------- -------- -------- Income (Loss) Before Federal Income Taxes.............................. (274.6) 265.5 (111.4) 512.8 Federal Income Taxes (Credit)....... (83.4) 92.0 (9.5) 174.7 --------- --------- -------- -------- Net Income (Loss)................... $ (191.2) $ 173.5 $ (101.9) $ 338.1 ========= ========= ======== ========
17
June 30 December 31 --------- ----------- 1999 1998 --------- ----------- (in millions of dollars) Assets Employee Benefits........................................ $ 9,503.8 $ 9,275.7 Individual............................................... 15,671.5 15,887.7 Voluntary Benefits....................................... 2,058.4 2,057.3 Other.................................................... 9,151.0 9,610.2 Corporate................................................ 1,532.6 1,771.3 --------- --------- $37,917.3 $38,602.2 ========= =========
The Employee Benefits segment includes group long-term and short-term disability insurance, group life insurance, accidental death and dismemberment coverages, group long-term care, and the results of managed disability. The Individual segment includes results from the individual disability, individual life, and individual long-term care lines of business. The Voluntary Benefits segment includes the results of products sold to employees through payroll deduction at the work site. These products include life insurance and health products, primarily disability, accident and sickness, and cancer. The Other operating segment includes results from products no longer actively marketed, including corporate-owned life insurance, group pension, health insurance, individual annuities, and reinsurance pools and management. The Corporate segment includes investment earnings on corporate assets not specifically allocated to a line of business, corporate interest expense, amortization of goodwill, and certain corporate expenses not allocated to a line of business. Note 10--Commitments and Contingent Liabilities In 1997, two alleged class action lawsuits were filed in Superior Court in Worcester, Massachusetts (the Court) against the Company--one purporting to represent all career agents of subsidiaries of Paul Revere whose employment relationships ended on June 30, 1997 and were offered contracts to sell insurance policies as independent producers and the other purporting to represent independent brokers who sold certain Paul Revere individual disability income policies with benefit riders. Motions filed by the Company to dismiss most of the counts in the complaints, which allege various breach of contract and statutory claims, have been denied, but the cases remain at a preliminary stage. To date no class has been certified in either lawsuit. The Company has filed a conditional counterclaim in each action which requests a substantial return of commissions should the Court agree with the plaintiff's interpretation of the contract. The Company has strong defenses to both lawsuits and will vigorously defend its position and resist certification of the classes. In addition, the same plaintiff's attorney who has filed the purported class action lawsuits has filed 44 individual lawsuits on behalf of current and former Paul Revere sales managers alleging various breach of contract claims. The Company has filed a motion in federal court to compel arbitration for 16 of the plaintiffs who are licensed by the National Association of Securities Dealers and have executed the Uniform Application for Registration or Transfer in the Securities Industry (Form U-4). The Company has strong defenses and will vigorously defend its position in these cases as well. Although the alleged class action lawsuits and the 44 individual lawsuits are in the early stages, management does not currently expect these suits to materially affect the financial position or results of operations of the Company. Various lawsuits against the Company have arisen in the normal course of business. Contingent liabilities that might arise from litigation are not deemed likely to materially affect the financial position or results of operations of the Company. Note 11--Changes in Accounting Principles and Accounting Pronouncement Outstanding Effective January 1, 1999, the Company adopted the provisions of Statement of Position 97-3 (SOP 97-3), Accounting by Insurance and Other Enterprises for Insurance-Related Assessments. SOP 97-3 provides guidance for determining when an entity should recognize a liability or an asset for insurance-related assessments and how to measure these items. UNUM and Provident adopted the provisions of Statement of 18 Position 98-1 (SOP 98-1), Accounting for the Costs of Computer Software Developed for or Obtained for Internal Use, effective January 1, 1998 and January 1, 1999, respectively. SOP 98-1 requires the capitalization of certain costs incurred in connection with developing or obtaining software for internal use. The effect of the adoptions of SOP 97-3 and SOP 98-1 on the Company's financial position and results of operations was immaterial. In June 1999, Statement of Financial Accounting Standards No. 137 (SFAS 137), Accounting for Derivative Instruments and Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133 was issued. SFAS 137 defers for one year the effective date of Statement of Financial Accounting Standards No. 133 (SFAS 133), Accounting for Derivative Instruments and Hedging Activities. The Company plans to adopt the provisions of SFAS 133 effective January 1, 2001. At this time the Company has not determined the effects that adoption of SFAS 133 will have on its financial statements. 19 Independent Auditors' Review Report Board of Directors and Shareholders UNUMProvident Corporation We have reviewed the accompanying condensed consolidated statement of financial condition of UNUMProvident Corporation and Subsidiaries as of June 30, 1999, and the related condensed consolidated statements of operations for the three and six month periods ended June 30, 1999 and 1998, and the condensed consolidated statements of stockholders' equity and cash flows for the six month periods ended June 30, 1999 and 1998. These financial statements are the responsibility of the Company's management. We were furnished with the report of other accountants on their review of the interim information of the former UNUM Corporation and Subsidiaries whose total assets as of June 30, 1999, and whose revenues for the three-month and six-month periods then ended constituted 40 percent, 56 percent, and 56 percent, respectively, of the related consolidated totals. We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data, and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, which will be performed for the full year with the objective of expressing an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews and the report of other accountants, we are not aware of any material modifications that should be made to the accompanying financial statements for them to be in conformity with generally accepted accounting principles. ERNST & YOUNG LLP Chattanooga, Tennessee August 2, 1999 20 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Cautionary Statement Regarding Forward-Looking Statements The Private Securities Litigation Reform Act of 1995 (the Act) provides a "safe-harbor" for forward-looking statements which are identified as such and are accompanied by the identification of important factors which could cause actual results to differ materially from the forward-looking statements. UNUMProvident Corporation (the Company) claims the protection afforded by the safe harbor in the Act. Certain information contained in this discussion, or in any other written or oral statements made by the Company, is or may be considered as forward-looking. Examples of disclosures that contain such information include, among others, sales estimates, income projections, reserves and related assumptions, and the year 2000 date conversion. Forward- looking statements are those not based on historical information, but rather relate to future operations, strategies, financial results, or other developments. These statements may be made directly in this document or may be made part of this document by reference to other documents filed with the Securities and Exchange Commission by the Company, which is known as "incorporation by reference". You can find many of these statements by looking for words such as "may," "should," "believes," "expects," "anticipates," "estimates," "intends," "projects," "goals," "objectives," or similar expressions in this document or in documents incorporated herein. These forward-looking statements are subject to numerous assumptions, risks, and uncertainties. Factors that may cause actual results to differ materially from those contemplated by the forward-looking statements include, among others, the following possibilities: . Competitive pressures in the insurance industry may increase significantly through industry consolidation, competitor demutualization, or otherwise. . General economic or business conditions, both domestic and foreign, whether relating to the economy as a whole or to particular sectors, may be less favorable than expected, resulting in, among other things, lower than expected revenues, and the Company could experience higher than expected claims or claims with longer duration than expected. . Insurance reserve liabilities can fluctuate as a result of changes in numerous factors, and such fluctuations can have material positive or negative effects on net income. . Costs or difficulties related to the integration of the business of the Company following the merger may be greater than expected, including with respect to the management of claims. . Legislative or regulatory changes may adversely affect the businesses in which the Company is engaged. . Necessary technological changes, including changes to address year 2000 data systems issues, may be more difficult or expensive to make than anticipated, and year 2000 issues at other companies may adversely affect operations. . Adverse changes may occur in the securities market. . Changes in the interest rate environment may adversely affect profit margins and the Company's investment portfolio. . The rate of customer bankruptcies may increase. . Incidence and recovery rates may be influenced by, among others, the emergence of new diseases, new trends and developments in medical treatments, and the effectiveness of risk management programs. For further discussion of risks and uncertainties which could cause actual results to differ from those contained in the forward-looking statements, see "Forward-Looking Information" in UNUM Corporation's 21 Form 10-K/A and "Cautionary Statement Regarding Forward-Looking Statements" and "Risk Factors" in Provident Companies Inc.'s Form 10-K/A, in each case for the fiscal year ended December 31, 1998. All subsequent written and oral forward-looking statements attributable to the Company or any person acting on its behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. The Company does not undertake any obligation to release publicly any revisions to such forward-looking statements to reflect events or circumstances after the date of this document or to reflect the occurrence of unanticipated events. Introduction On June 30, 1999, UNUM Corporation (UNUM) merged into Provident Companies, Inc. (Provident) under the name UNUMProvident Corporation. The merger was accounted for as a pooling of interests. The historical financial results discussed herein give effect to the merger as if it had been completed at the beginning of the earliest period presented. See Notes 1 and 2 of the "Notes to Condensed Consolidated Financial Statements" for further discussion. The following should be read in conjunction with the condensed consolidated financial statements and notes thereto in Part I, Item 1 contained herein and with the discussion, analysis, and consolidated financial statements and notes thereto in Part I, Item 1 and Part II, Items 6, 7, 7A, and 8 of Provident's and UNUM's Annual Reports on Form 10-K/A. This discussion of consolidated operating results and operating results by segment excludes net realized investment gains and losses from revenue and income before taxes. The Company's investment focus has been on investment income to support its insurance liabilities as opposed to the generation of realized investment gains. Due to the nature of the Company's business, a long- term focus is necessary to maintain profitability over the life of the business. The realization of investment gains and losses will impact future earnings levels as the underlying business is long-term in nature and requires that the Company be able to sustain the assumed interest rates in its liabilities. However, income excluding realized investment gains and losses does not replace net income as a measure of the Company's profitability. Management believes that the trends in new annualized sales in the Employee Benefits, Individual, and Voluntary Benefits segments are important for investors to assess in their analysis of the Company's results of operations. The trends in new sales are indicators of the level of market acceptance of new products, particularly in the individual disability income line of business, and the Company's potential for growth in its respective markets. The Company has closely linked its various incentive compensation plans for management and employees to the achievement of its goals for new sales. Management's goals, over time, are to achieve sales growth of 15 percent and premium growth of over 10 percent. Accounting Policy Changes, Financial Statement Reclassifications, and Merger Expenses As a result of the merger, certain accounting policy changes and reclassification adjustments were made. The following summarizes these changes and reclassifications as well as the expenses related to the merger and the early retirement offer to employees that were recorded in the second quarter. In the second quarter of 1999, the Company recorded a before-tax charge of $240.7 million ($156.5 million after tax) as a result of changing the method of calculating the discount rate for claim reserves on certain of the Company's disability businesses. Prior to the merger, UNUM's process and assumptions used to calculate the discount rate for claim reserves of certain disability businesses differed from that used by Provident. While UNUM's and Provident's methods for calculating the discount rate for disability claim reserves were both in accordance with generally accepted accounting principles, management believed that the combined entity should have consistent discount rate accounting policies and methods for applying these policies for similar products. The previous UNUM methodology used the same investment strategy for assets 22 backing both liabilities and surplus. Provident's methodology, which allows for different investment strategies for assets backing surplus than those backing product liabilities, was determined by management to be the more appropriate approach for the combined entity. Accordingly, UNUM adopted Provident's method of calculating the discount rate for claim reserves. The impact of the charge in the second quarter of 1999 was a $191.7 million, $38.9 million, and $10.1 million increase in benefits to policyholders reflected in the Employee Benefits, Individual, and Other segments, respectively. See Note 2 of the "Notes to Condensed Consolidated Financial Statements" for further discussion. The Company values its available-for-sale fixed maturity and equity securities at fair value, with unrealized holding gains and losses reported as a component of comprehensive income. Companies are required to also adjust deferred acquisition costs and/or certain policyholder liabilities to reflect the changes that would have been necessary if the unrealized investment gains and losses related to the available-for-sale securities had been realized. Prior to the merger, UNUM adjusted policyholder liabilities and Provident adjusted deferred policy acquisition costs (DPAC) and value of business acquired (VOBA) for those products where these assets existed. To present financial information in a common reporting format, management has determined that the combined entity will adjust policyholder liabilities rather than DPAC and VOBA. Prior period financial statements have been restated to reflect this reclassification. The reclassification did not change other comprehensive income, accumulated other comprehensive income, or fixed maturity and equity securities. The reclassification reflected in the December 31, 1998, consolidated statement of financial condition resulted in an increase of $329.7 million in DPAC, $1.5 million in VOBA, and $331.2 million in reserves for future policy and contract benefits. The Company continues to review its accounting policies, including assumptions underlying the application thereof, as well as its financial statement classifications and related disclosures. It may be necessary to further adjust the financial statements to change to those accounting policies, practices, and classifications that are determined to be most appropriate. The reviews include within their scope the assumptions underlying liabilities for current and future policy and contract benefits and will compare assumptions as well as consider the expected effect of current and future trends in morbidity and mortality on the assumptions underlying pricing and reserves. In addition, the Company is implementing pricing changes in the group disability line of business to improve its profitability. Price changes will be increases or decreases by market segment, as appropriate, to respond to current claim experience and various other factors and assumptions. Considering these changes, the Company is also reviewing the period over which it will amortize deferred policy acquisition costs related to future new business. The reviews are expected to be completed by year end and may result in further changes to accounting policies, accounting estimates, or financial statement classifications which could be material to the Company's results of operations for 1999. The Company is also reviewing its method of reporting new annualized sales for Employee Benefits. New sales in this segment are currently reported based on the date the application is submitted to the Company rather than the effective date of the policy. The Company is evaluating whether to adopt the effective date as the date to report a new sale. Premiums are recognized as premium income over the premium paying period; therefore, a change in new sales reporting policy will have no impact on reported premium income or reported income. On the date the merger was completed, the Company recorded before-tax expenses related to the merger of approximately $142.2 million ($112.0 million after tax) for severance and related costs, exit costs for duplicative facilities and asset abandonments, and investment banking, legal, and accounting fees. The Company also recorded in the second quarter a before-tax expense of approximately $125.9 million ($81.8 million after tax) related to the early retirement offer to the Company's employees. These expenses are reported in the Corporate segment as other operating expenses and are further discussed in the section "Corporate 23 Segment Operating Results." Additionally, in the three and six months ended June 30, 1999 the Company expensed $20.0 million ($13.0 million after tax) of incremental costs associated with the merger. These incremental costs consist primarily of compensation, training, integration, and licensing costs. Consolidated Operating Results
Three Months Ended June 30 Six Months Ended June 30 --------------------------- --------------------------- 1999 1998 % Change 1999 1998 % Change -------- -------- -------- -------- -------- -------- (in millions of dollars) Premium Income.......... $1,687.4 $1,506.1 12.0% $3,368.9 $2,998.7 12.3% Net Investment Income... 518.0 513.5 0.9 1,017.6 1,038.6 (2.0) Other Income............ 68.0 82.4 (17.5) 148.8 157.5 (5.5) -------- -------- -------- -------- Total Revenue........... 2,273.4 2,102.0 8.2 4,535.3 4,194.8 8.1 Benefits and Expenses... 2,552.2 1,841.6 38.6 4,658.1 3,696.4 26.0 -------- -------- -------- -------- Income (Loss) Before Federal Income Taxes and Net Realized Investment Gains....... (278.8) 260.4 (122.8) 498.4 Federal Income Taxes (Credit)............... (84.9) 90.3 (13.5) 169.9 -------- -------- -------- -------- Income (Loss) Before Net Realized Investment Gains.................. (193.9) 170.1 (109.3) 328.5 Net Realized Investment Gains.................. 2.7 3.4 (20.6) 7.4 9.6 (22.9) -------- -------- -------- -------- Net Income (Loss)....... $ (191.2) $ 173.5 $ (101.9) $ 338.1 ======== ======== ======== ========
During the first quarter of 1999, the Company recognized a before-tax charge of $101.1 million ($88.0 million after tax) related to its reinsurance businesses. The charge included $45.5 million related to the Lloyd's of London managed and non-managed syndicates. Included in the $45.5 million was $44.0 million related to the Company's risk participation in various Lloyd's of London syndicates, which primarily consisted of the recognition of estimated losses for all open syndicate years. The remaining $1.5 million represented a reduction of profit commissions related to the reinsurance management company operations. The charge also included a reserve increase of $28.6 million for expected ultimate losses in certain reinsurance pools in which the Company participates and a $27.0 million write-down to recognize goodwill impairment on the Company's reinsurance management company. Based upon the poor results to date and revisions to future expected earnings from these businesses, management determined that the goodwill associated with the reinsurance management company was not recoverable when measured using the estimated future undiscounted cash flows. The impairment represented the difference between the carrying value of the reinsurance management company and the estimated fair value using both an earnings valuation model and a discounted free cash flow valuation model. A portion of these losses does not receive a tax benefit, which unfavorably impacted the effective tax rate in the first quarter of 1999. The impact of the charge in the first quarter of 1999 was a $72.6 million reserve increase in the provision for future benefits and a $1.5 million reduction in other income, both of which were reflected in the Other segment, and a $27.0 million increase in other operating expenses reflected in the Corporate segment. In the second quarter of 1999, the Company stated its intent to sell its reinsurance management operations, assuming the transaction would achieve the Company's financial objectives. The Company estimated the fair value of the operations using the held-for-sale model, which compares the carrying value of the asset with the fair value less costs to sell. This valuation resulted in an additional before-tax write-down of goodwill of $2.0 million ($2.0 million after tax), reflected in the Corporate segment. The $2.0 million additional write-down is an estimate of the costs to sell as required when performing a valuation using the held-for-sale model. Management continues to work with interested buyers. See Note 4 of the "Notes to Condensed Consolidated Financial Statements" for further discussion. As noted above, the Company recorded before-tax expenses related to the merger of approximately $142.2 million in the second quarter of 1999. A portion of these expenses is non-deductible for federal income 24 tax purposes, resulting in a tax rate for the quarter that was less than the U.S. federal statutory tax rate of 35 percent. It is expected that the tax rate will move closer to the statutory rate by the end of the year. In the second quarter of 1999, the Company reached a settlement agreement with the Internal Revenue Service related to an issue in dispute for the 1992 tax year. The Company recorded a tax benefit of $5.1 million and related interest of $1.4 million. In the following discussion of operating results by segment, "revenue" includes premium income, net investment income, and other income. "Income" excludes net realized investment gains and losses and federal income taxes. Employee Benefits Segment Operating Results
Three Months Ended June 30 Six Months Ended June 30 ------------------------ ------------------------ 1999 1998 % Change 1999 1998 % Change ------- ------ -------- ------- ------- -------- (in millions of dollars) Premium Income Group Long-term Disability................ $ 499.0 $441.9 12.9% $ 997.1 $ 874.2 14.1% Group Short-term Disability................ 115.9 90.2 28.5 227.1 176.1 29.0 Group Life................. 288.8 244.8 18.0 575.8 479.5 20.1 Accidental Death & Dismemberment............. 46.2 43.8 5.5 93.9 90.4 3.9 Group Long-term Care....... 10.8 6.5 66.2 20.1 13.4 50.0 ------- ------ ------- ------- Total Premium Income......... 960.7 827.2 16.1 1,914.0 1,633.6 17.2 Net Investment Income........ 148.7 136.5 8.9 292.7 269.1 8.8 Other Income................. 34.8 29.7 17.2 67.6 59.1 14.4 ------- ------ ------- ------- Total Revenue................ 1,144.2 993.4 15.2 2,274.3 1,961.8 15.9 Benefits and Expenses........ 1,191.5 847.3 40.6 2,156.1 1,677.1 28.6 ------- ------ ------- ------- Income (Loss) Before Federal Income Taxes and Net Realized Investment Gains... $ (47.3) $146.1 $ 118.2 $ 284.7 (58.5) ======= ====== ======= =======
The Employee Benefits segment includes group long-term and short-term disability insurance, group life insurance, accidental death and dismemberment coverages, group long-term care, and the results of managed disability. The increases in premium income result from strong sales trends over the past several quarters. Employee Benefits new annualized sales increased 29.6 percent to $262.6 million in the second quarter of 1999 from $202.6 million in the second quarter of 1998. New annualized sales for this segment increased 31.9 percent to $510.9 million for the first six months of 1999 from $387.3 million in the same period of 1998. Sales related to employee benefits can fluctuate significantly from quarter to quarter due to large case size and timing of sales submissions. Because of this fluctuation and the pricing changes which are being implemented, management expects that the rate of growth in new annualized group disability and other employee benefit sales will moderate during the balance of 1999. Revenue from the managed disability line of business, which includes GENEX Services, Inc. and Options and Choices, Inc., totaled $27.4 million in the second quarter of 1999 compared to $24.4 million in the second quarter of 1998. On a year-to-date basis, this revenue was $53.2 million in 1999 compared to $47.7 million in 1998. Group Disability Group disability revenue increased to $743.0 million in the second quarter of 1999 versus $649.3 million in 1998. Premium growth for group long-term disability was driven by favorable persistency, prior period sales, 25 and strong new annualized sales, which were $101.4 million in the second quarter of 1999 compared to $90.9 million in the same period of 1998. New annualized sales for group short-term disability increased 20.3 percent to $50.3 million in the second quarter of 1999 as compared to the second quarter of 1998, reflecting management's continuing efforts to cross-sell group short- term disability products with other employee benefits products. Group disability reported a loss of $109.6 million for the second quarter of 1999, as compared with $100.0 million of income for the same period in 1998. As discussed in the preceding "Accounting Policy Changes, Financial Statement Reclassifications, and Merger Expenses," the Company lowered the discount rate used to calculate certain of UNUM's disability claim reserves to conform with Provident's process and assumptions, which decreased group disability before- tax earnings by $191.7 million for the quarter and year-to-date. Excluding the effect of the discount rate change, this line reported a higher benefit ratio for its domestic business in the second quarter of 1999 as compared with 1998, primarily due to higher new claims incidence and the lengthening duration of claims incurred in 1999 in both long-term and short-term disability. Also contributing to the 1999 versus 1998 increase in the benefit ratio was the positive impact in the second quarter of 1998 of updated factors used in calculating social security offset amounts. The higher incidence level, which was noted in the first quarter of 1999, continued through the second quarter of 1999. The higher level of incidence for long-term disability was noted in the health services and manufacturing sectors. The health services sector has experienced higher incidence levels in recent quarters. This higher level of claim incidence is being taken into account in the pricing of new business and renewal of existing cases. Group disability reported a loss of $4.1 million for the first six months of 1999, as compared with $196.1 million of income for the same period in 1998. New annualized sales for the first six months of 1999 were $207.0 million and $94.9 million for group long-term and short-term disability, respectively, compared to $175.5 million and $78.0 million for the comparable period in 1998. As discussed under "Cautionary Statement Regarding Forward-Looking Statements," certain risks and uncertainties are inherent in the Company's business. Components of claims experience, including but not limited to, incidence levels and claims duration, may continue for some period of time at or above the higher levels experienced in 1998. Therefore, management continues to monitor claims experience in group disability and responds to changes by periodically adjusting prices, refining underwriting guidelines, changing product features, and strengthening risk management policies and procedures. The Company expects to price new business and re-price existing business, at contract renewal dates, in an attempt to mitigate the effect of these and other factors, including interest rates, on new claim liabilities. However, given the competitive market conditions for the Company's disability products, it is uncertain whether pricing actions can mitigate the entire effect. In the fourth quarter of 1998, the Company recorded a $50.3 million before- tax charge for the group long-term disability line of business in the Employee Benefits segment for the expected increase in claims durations due to management's expectation that productivity in the claims organization will be impacted as a result of planning, consolidation, and integration efforts related to the merger. Management expects the claims integration efforts to have some benefits, primarily related to claims incurred in future periods, as well as the potential for improved customer satisfaction and lower ultimate claim costs as best practices in return-to-work and claims management are implemented. As benefits related to the integration become known, reserve assumptions will be revised, if appropriate. Insurance policies that are impacted by the temporary change in claim resolution rates will not perform as anticipated when priced. However, since the cause of the additional claim cost is of a temporary nature, it is not anticipated to have an effect on future policy pricing. The $50.3 million reserve increase is not considered material from a capital adequacy position. During the first and second quarters of 1999, those claim operations integration activities progressed as assumed. At December 31, 1998, management assumed the revised claim resolution rates for the first and second quarters of 1999 to be 90 percent of assumptions, before adjusting for the impact of the claim operations integration activities. The actual experience was 89 percent for the first quarter of 1999 and 90 percent for the second quarter. If the impact of merger-related claim operations integration activities on claim 26 durations had not been anticipated at December 31, 1998, second quarter and six months 1999 before-tax income for the group long-term disability line of business would have been negatively impacted by $11.8 million and $23.6 million, respectively. Management expects the remaining claim operations integration activities to impact claim reserves as anticipated at December 31, 1998. Management will continue to evaluate the impact of the merger on disability claims experience and the assumptions related to expected claim resolutions. If the claim operations integration activities take longer than expected to implement or if they result in unforeseen difficulties, claim durations could continue to increase and income could be adversely affected. See Note 3 of the "Notes to Condensed Consolidated Financial Statements" for further discussion. Group Life, Accidental Death and Dismemberment, and Long-term Care Group life, accidental death and dismemberment, and long-term care reported income of $61.0 million in the second quarter of 1999 compared to $44.7 million in the second quarter of 1998. The increase resulted from the growth in premium income, which was driven by strong sales, and a favorable benefit ratio in the accidental death and dismemberment line. New annualized sales increased 58.7 percent to $110.9 million in the second quarter of 1999. Year-to-date 1999 income was $119.5 million versus $86.3 million in 1998. Year-to-date new annualized sales were $209.0 million in 1999 compared to $133.8 million in 1998. Individual Segment Operating Results
Three Months Ended June 30 Six Months Ended June 30 ------------------------------- ------------------------ 1999 1998 % Change 1999 1998 % Change --------- --------- ----------- ------- ------- -------- (in millions of dollars) Premium Income Individual Disability.. $ 383.9 $ 377.8 1.6% $ 775.2 $ 765.2 1.3% Individual Life....... 21.8 22.2 (1.8) 44.4 44.0 0.9 Individual Long-term Care................. 21.6 14.4 50.0 40.8 27.7 47.3 --------- --------- ------- ------- Total Premium Income.... 427.3 414.4 3.1 860.4 836.9 2.8 Net Investment Income... 222.7 205.7 8.3 432.0 405.0 6.7 Other Income............ 11.1 17.9 (38.0) 29.3 37.7 (22.3) --------- --------- ------- ------- Total Revenue........... 661.1 638.0 3.6 1,321.7 1,279.6 3.3 Benefits and Expenses... 614.1 557.2 10.2 1,194.0 1,119.8 6.6 --------- --------- ------- ------- Income Before Federal Income Taxes and Net Realized Investment Gains.................. $ 47.0 $ 80.8 (41.8) $ 127.7 $ 159.8 (20.1) ========= ========= ======= =======
The Individual segment includes results from the individual disability, individual life, and individual long-term care lines of business. Individual Disability New annualized sales in the individual disability income line of business were up 4.3 percent in the second quarter of 1999, rising to $31.4 million from $30.1 million in the second quarter of 1998. Excluding discontinued products, new annualized sales increased 17.8 percent to $27.8 million in the second quarter of 1999 from $23.6 million in the comparable year ago period. Year-to- date new annualized sales were $65.3 million, an 11.8 percent increase over the comparable period of 1998. The persistency of existing individual disability income business continued to be favorable. Management expects that premium income in the individual disability income line will grow on a year-over-year basis as the product transition produces increasing levels of new sales of individual disability products. Income in the individual disability income line of business decreased to $35.2 million in the second quarter of 1999 from $69.3 million in the second quarter of 1998. On a year-to-date basis, income was $106.8 million in 1999 and $141.1 million in 1998. As discussed in the preceding "Accounting Policy Changes, Financial Statement Reclassifications, and Merger Expenses," the Company lowered the discount rate used to calculate certain of UNUM's disability claim reserves to 27 conform with Provident's process and assumptions, which decreased individual disability before-tax earnings by $38.9 million for the quarter and six months. Excluding the effect of the discount rate change, this line reported an increase in the benefit ratio compared to the second quarter of 1998, primarily due to a decrease in claim resolutions on claims incurred in 1999. However, when compared to the prior three quarters, the claim resolution rate has improved. Individual disability experienced slightly lower new claim levels for the quarter as compared to second quarter 1998. As noted in the "Employee Benefits Segment Operating Results," claim resolution rates were revised downward in the fourth quarter of 1998 for claim operations integration activities related to the merger. The Company recorded a $100.3 million before-tax charge in the fourth quarter of 1998 in the Individual segment related to the revised claim resolution rates for individual disability. At December 31, 1998, management assumed the revised claim resolution rates for the first and second quarters of 1999 to be 90 percent of assumptions, before adjusting for the impact of the claim operations integration activities. The actual experience for the Company in the first and second quarters of 1999 was 89 percent and 90 percent, respectively. If the impact of merger-related claim operations integration activities on claim durations had not been anticipated at December 31, 1998, second quarter and year-to-date 1999 before-tax operating income for the individual disability line of business would have been negatively impacted by $23.8 million and $47.6 million, respectively. The $100.3 million reserve increase in the Individual segment is not considered material from a capital adequacy position. See Note 3 of the "Notes to Condensed Consolidated Financial Statements" for further discussion. Individual Life and Long-term Care The individual long-term care line of business reported increased premium income for the quarter and year-to-date, primarily due to new sales growth. New annualized sales were $10.5 million and $18.1 million for the quarter and year- to-date, an increase of 150.0 percent and 144.6 percent, respectively. The Company expects the strong sales momentum in individual long-term care to continue. Income in the individual life and long-term care lines of business increased to $11.8 million in the second quarter of 1999 from $11.5 million in the second quarter of 1998. Year-to-date income was $20.9 million or 11.8 percent higher than the first six months of 1998, due primarily to the increase in premium income and an improvement in the individual life benefit ratio. Voluntary Benefits Segment Operating Results
Six Months Ended Three Months Ended June 30 June 30 ----------------------------------------------------- 1999 1998 % Change 1999 1998 % Change --------- --------- ----------------- ------ -------- (in millions of dollars) Premium Income.......... $ 173.1 $ 166.8 3.8% $344.3 $331.3 3.9% Net Investment Income... 25.2 23.2 8.6 50.1 45.4 10.4 Other Income............ 1.6 1.6 -- 3.3 4.5 (26.7) --------- --------- ------ ------ Total Revenue........... 199.9 191.6 4.3 397.7 381.2 4.3 Benefits and Expenses... 168.8 160.7 5.0 335.1 323.0 3.7 --------- --------- ------ ------ Income Before Federal Income Taxes and Net Realized Investment Gains.................. $ 31.1 $ 30.9 0.6 $ 62.6 $ 58.2 7.6 ========= ========= ====== ======
The Voluntary Benefits segment includes the results of products sold to employees through payroll deduction at the work site. These products include life insurance and health products, primarily disability, accident and sickness, and cancer. Revenue in the Voluntary Benefits segment increased to $199.9 million in the second quarter of 1999 from $191.6 million in the second quarter of 1998. On a year-to-date basis, revenue for 1999 was $397.7 million compared to $381.2 million in 1998. The increase in premium income is driven by sales growth and favorable 28 persistency. New annualized sales in this segment increased 10.6 percent to $58.3 million in the second quarter of 1999 from $52.7 million in the comparable period of 1998. For the six months, new annualized sales were $117.1 million in 1999 and $104.2 million in 1998. These sales are not necessarily indicative of the levels that may be attained in the future. Management continues its efforts to increase sales through the realignment of the sales organization and the enhancement of collaborative sales. Income in the Voluntary Benefits segment in the second quarter of 1999 was $31.1 million versus $30.9 million in 1998. For the first six months, income was $62.6 million in 1999 and $58.2 million in 1998. The increase in income is primarily due to the increase in premium income in all of the product lines, partially offset by a slightly higher benefit ratio in the accident, sickness, and disability product line. Other Segment Operating Results
Three Months Ended Six Months Ended June 30 June 30 --------------------- ----------------------- 1999 1998 % Change 1999 1998 % Change ------ ----- -------- ------ ------ -------- (in millions of dollars) Premium Income................... $126.3 $97.7 29.3% $250.2 $196.9 27.1% Net Investment Income............ 114.5 135.6 (15.6) 228.0 302.8 (24.7) Other Income..................... 20.5 32.8 (37.5) 48.4 55.7 (13.1) ------ ----- ------ ------ Total Revenue.................... 261.3 266.1 (1.8) 526.6 555.4 (5.2) Benefits and Expenses............ 253.6 229.5 10.5 580.0 498.7 16.3 ------ ----- ------ ------ Income (Loss) Before Federal Income Taxes and Net Realized Investment Gains................ $ 7.7 $36.6 (79.0) $(53.4) $ 56.7 ====== ===== ====== ======
The Other operating segment includes results from products no longer actively marketed, including corporate-owned life insurance, group pension, health insurance, individual annuities, and reinsurance pools and management. It is expected that revenue and earnings in this segment will decline over time as these business lines wind down. The run-off of the group pension line results in a decline in assets under management and, in turn, a continued decline in the net investment income produced by the assets. Management expects to reinvest the capital supporting these lines of business in the future growth of the Employee Benefits, Individual, and Voluntary Benefits segments. The closed blocks of business have been segregated for reporting and monitoring purposes. Corporate-Owned Life Income from this line of business increased to $9.6 million in the second quarter of 1999 compared to $5.6 million in the same period of 1998. Income was $14.2 million in the first six months of 1999 versus $11.0 million in 1998. These results reflect better mortality experience in the second quarter of 1999 and wider spreads between interest earned and credited rates. Group Pension Income in the group pension line of business was $9.7 million in the second quarter of 1999 versus $6.7 million in the second quarter of 1998. For the first six months, income was $14.5 million in 1999 compared to $14.4 million in 1998. The increase in income in the second quarter of 1999 over the second quarter of 1998 is the result of higher investment income than required for crediting purposes. On a year-to-date basis, the 1998 results were lower due to a $1.9 million charge for guaranty fund assessments. Individual Annuities In the second quarter of 1998, the Company closed the sale of Provident's in-force individual and tax-sheltered annuity business to affiliates of American General Corporation (American General). The sale was effected by reinsurance in the form of 100 percent coinsurance agreements. The in-force business sold 29 consisted primarily of individual fixed annuities and tax-sheltered annuities. In addition, American General acquired a number of miscellaneous group pension lines of business sold in the 1970s and 1980s which were no longer actively marketed. The sale did not include Provident's block of guaranteed investment contracts or group single premium annuities, which will continue in a run-off mode. In consideration for the transfer of the approximately $2.4 billion of statutory reserves, American General paid the Company a ceding commission of approximately $58.0 million. The before-tax gain included in other income for the second quarter of 1998 was $12.2 million. Reinsurance Pools and Management Premium income increased $25.2 million and $59.1 million for the three and six months, respectively, to $99.8 million and $203.6 million due primarily to increased participation in the Lloyd's of London syndicates. The reinsurance pools and management reported a loss of $12.6 million in the second quarter of 1999 compared to income of $4.2 million in the second quarter of 1998. As discussed in the preceding "Accounting Policy Changes, Financial Statement Reclassifications, and Merger Expenses," the Company lowered the discount rate used to calculate certain of UNUM's disability claim reserves to conform with Provident's process and assumptions, which decreased group long-term disability reinsurance second quarter 1999 before-tax earnings by $10.1 million. The reinsurance pools and management reported a loss of $86.6 million in the first six months of 1999 compared to income of $9.9 million in 1998. During the first quarter of 1999, the Company conducted a comprehensive strategic review of its reinsurance businesses to determine the appropriateness of their fit within the context of the merged entity. These businesses include the reinsurance management operations and the risk assumption (reinsurance pool participation, direct reinsurance, and Lloyd's of London syndicate participation). In the second quarter of 1999, the Company concluded that these businesses were not solidly aligned with its strength in the disability insurance market and stated its intent to sell its reinsurance management operations assuming the transaction would achieve the Company's financial objectives. Year-to-date earnings in the reinsurance pools and management line decreased $74.1 million due to the first quarter charge related to the reinsurance businesses. See previous discussion under "Consolidated Operating Results" and Note 4 of the "Notes to Condensed Consolidated Financial Statements." In the fourth quarter of 1998, the Company recorded a $2.4 million before- tax charge related to the revised claim resolution rates for group long-term disability reinsurance. If the impact of merger-related claim operations integration activities on claim duration had not been anticipated at December 31, 1998, second quarter and six months 1999 before-tax earnings for the reinsurance pools and management line of business would have been negatively impacted by $0.6 million and $1.2 million, respectively. See Note 3 of the "Notes to Condensed Consolidated Financial Statements" for further discussion. Other Effective January 1, 1998, the Company entered into an agreement with Connecticut General Life Insurance Company (Connecticut General) for Connecticut General to reinsure, on a 100 percent coinsurance basis, its in- force medical stop-loss insurance coverages sold to clients of CIGNA Healthcare and its affiliates (CIGNA). This reinsured block constitutes substantially all of the Company's medical stop-loss insurance business. The small portion remaining consists of medical stop-loss coverages sold to clients other than those of CIGNA. The medical stop-loss business produced revenue of $14.1 million in 1998. Corporate Segment Operating Results The Corporate segment includes investment earnings on corporate assets not specifically allocated to a line of business, corporate interest expense, amortization of goodwill, and certain corporate expenses not allocated to a line of business. 30 Revenue in the Corporate segment was $6.9 million in the second quarter of 1999 and $12.9 million in the second quarter of 1998. For the first six months, revenue was $15.0 million in 1999 and $16.8 million in 1998. The Corporate segment reported a loss of $317.3 million in the second quarter of 1999 compared to a loss of $34.0 million in the second quarter of 1998. On a year- to-date basis, the losses were $377.9 million for 1999 and $61.0 million for 1998. Interest and debt expense increased to $33.6 million and $66.5 million for the second quarter and six months of 1999 compared to $27.7 million and $55.0 million for the comparable periods of 1998 due to a higher average debt balance. In addition, the Company recorded a before-tax write-down of goodwill of $27.0 million and $2.0 million in the 1999 first quarter and second quarter, respectively. As discussed in the preceding section "Accounting Policy Changes, Financial Statement Reclassifications, and Merger Expenses," in the second quarter of 1999 the Company recorded before-tax expenses related to the merger of approximately $142.2 million and a before-tax expense of approximately $125.9 million related to the early retirement offer to the Company's employees. The expenses related to the merger and to the early retirement offer to employees consist of the following (in millions): Employee related expense............................................. $ 45.2 Exit activities related to duplicate facilities/asset abandonments... 57.4 Investment banking, legal, and accounting fees....................... 39.6 ------ Subtotal............................................................. 142.2 Expense related to the early retirement offer to employees........... 125.9 ------ Subtotal............................................................. 268.1 Income tax benefit................................................... 74.3 ------ Total................................................................ $193.8 ======
Employee related expense consists of employee severance costs, restricted stock costs which fully vested upon stockholder adoption of the merger agreement or upon completion of the merger, and outplacement costs to assist employees who have been involuntarily terminated. Severance benefits and costs associated with the vesting of restricted stock are $27.7 million and $17.5 million, respectively. The Company currently estimates that in total approximately 1,400 positions will be eliminated over a twelve month period beginning June 30, 1999, with an estimated 1,000 of these positions eliminated through the early retirement offer. As further opportunities for cost reductions are identified, there may be additional expenses for severance costs and exit activities. Exit activities related to duplicate facilities/asset abandonments consist of closing of duplicate offices and write-off of redundant computer hardware and software. The Company currently expects to close approximately 90 duplicate field offices over a period of one year after June 30, 1999, the completion date of the merger. The cost associated with these office closures is approximately $25.6 million, which represents the cost of future minimum lease payments less any estimated amounts recovered under subleases. Also, the total book value of physical assets, primarily computer equipment, redundant systems, and systems incapable of supporting the combined entity, are being abandoned as a result of the merger. This abandonment resulted in a write-down of the assets' book values by approximately $31.8 million. These expenses are $35.1 million higher on a before-tax basis than the estimated expenses disclosed in the Joint Proxy Statement/Prospectus of UNUM and Provident dated June 2, 1999, primarily because the actual number of employees who accepted the early retirement offer was approximately 350 employees higher than estimated, resulting in additional before-tax expense of approximately $32.0 million. Partially offsetting this increase was a reduction in employee severance and outplacement costs in that fewer positions will be involuntarily terminated due to the early retirement election. The financial statements do not reflect any benefit expected from revenue enhancements or derived from potential cost savings related to the merger. Although management anticipates revenue enhancements and costs 31 savings will result from the merger, there can be no assurance that these items will be achieved. Economies of scale, the elimination of duplicative expenditures, and the consistent use of the best practices of Provident and UNUM are expected to enable the Company to achieve annual cost savings of approximately $130 million in 2000. In addition to the expenses described above, in the three and six months ended June 30, 1999, the Company has expensed $20.0 million of other incremental costs associated with the merger, $17.1 million of which are included in the Corporate segment. These expenses consist primarily of compensation, training, integration, and licensing costs. Investments Investment activities are an integral part of the Company's business, and profitability is significantly affected by investment results. Invested assets are segmented into portfolios, which support the various product lines. Generally, the investment strategy for the portfolios is to match the effective asset durations with related expected liability durations and to maximize investment returns, subject to constraints of quality, liquidity, diversification, and regulatory considerations. The Company is reviewing its investment strategies in the context of the combined entity and is extending the duration of its investments and shifting the mix of assets in the portfolio by repositioning approximately $2.0 billion of its investments. Management believes this strategy will reduce its vulnerability to interest rate risk in the future and anticipates that, as a result, investment income may increase on an annualized basis approximately $30.0 million. Fixed Maturity Securities The Company's investment in mortgage-backed securities was approximately $1.9 billion on an amortized cost basis at June 30, 1999, and $2.1 billion at December 31, 1998. At June 30, 1999, the mortgage-backed securities had an average life of 11.5 years and effective duration of 8.9 years. The mortgage- backed securities are valued on a monthly basis using valuations supplied by the brokerage firms that are dealers in these securities. The primary risk involved in investing in mortgage-backed securities is the uncertainty of the timing of cash flows from the underlying loans due to prepayment of principal. The Company uses models which incorporate economic variables and possible future interest rate scenarios to predict future prepayment rates. The Company has not invested in mortgage-backed derivatives, such as interest-only, principal-only or residuals, where market values can be highly volatile relative to changes in interest rates. Below-investment-grade bonds are inherently more risky than investment-grade bonds since the risk of default by the issuer, by definition and as exhibited by bond rating, is higher. Also, the secondary market for certain below- investment-grade issues can be highly illiquid. Management does not anticipate any liquidity problem caused by the investments in below-investment-grade securities, nor does it expect these investments to adversely affect its ability to hold its other investments to maturity. The Company's exposure to below-investment-grade fixed maturity securities at June 30, 1999, was $1,601.7 million, representing 6.1 percent of invested assets, below the Company's internal limit of 10.0 percent of invested assets for this type of investment. The Company's exposure to below-investment-grade fixed maturities totaled $1,452.6 million at December 31, 1998, representing 5.3 percent of invested assets. Mortgage Loans and Real Estate The Company's mortgage loan portfolio was $1,328.1 million and $1,321.2 million at June 30, 1999, and December 31, 1998, respectively. The Company uses a comprehensive rating system to evaluate the investment and credit risk of each mortgage loan and to identify specific properties for inspection and reevaluation. The Company establishes allowances for probable mortgage loan losses based on a review of individual loans and the overall loan portfolio, considering the value of the underlying collateral. The mortgage loan portfolio is well diversified geographically and among property types. The incidence of new problem mortgage loans and foreclosure activity has remained low in 1999 and 1998, reflecting 32 improvements in overall economic activity and improving real estate markets in the geographic areas where the Company has mortgage loans. Management expects the level of delinquencies and problem loans to remain low in the future. At June 30, 1999, and December 31, 1998, impaired loans totaled $18.3 million and $20.7 million, respectively. Included in the impaired loans at June 30 were $6.7 million of loans which had a related, specific allowance for probable losses of $2.4 million and $11.6 million of loans which had no related, specific allowance for probable losses. Impaired mortgage loans are not expected to have a material impact on the Company's liquidity, financial position, or results of operations. Restructured mortgage loans totaled $12.3 million at June 30, 1999, compared to $14.5 million at December 31, 1998, and represent loans that have been refinanced with terms more favorable to the borrower. Interest lost on restructured loans was immaterial for the six and twelve month periods ended June 30, 1999, and December 31, 1998. Real estate was $314.4 million and $309.8 million at June 30, 1999, and December 31, 1998. Investment real estate is carried at cost less accumulated depreciation. Real estate acquired through foreclosure is valued at fair value at the date of foreclosure and may be classified as investment real estate if it meets the Company's investment criteria. If investment real estate is determined to be permanently impaired, the carrying amount of the asset is reduced to fair value. Occasionally, investment real estate is reclassified to real estate held for sale when it no longer meets the Company's investment criteria. Real estate held for sale, which is valued net of a valuation allowance that reduces the carrying value to the lower of cost or fair value less estimated cost to sell, amounted to $114.5 million at June 30, 1999, and $15.6 million at December 31, 1998. The Company reasonably expects to sell this real estate during 1999. The sale is not expected to have a material impact on the Company's liquidity, financial position, or results of operations. Allowances for probable losses on mortgage loans and real estate held for sale are established based on a review of specific assets as well as on an overall portfolio basis, considering the value of the underlying assets and collateral. If a decline in value is considered to be other than temporary or if the asset is deemed permanently impaired, the investment is reduced to estimated net realizable value, and the reduction is recorded as a realized investment loss. The allowance for probable losses on mortgage loans and real estate was $32.9 million and $53.0 million, respectively, at June 30, 1999. Management monitors the risk associated with the invested asset portfolio and regularly reviews and adjusts the allowance for probable losses. Other The Company's exposure to non-current investments totaled $15.1 million at June 30, 1999, or 0.05 percent of invested assets. These non-current investments are mortgage loans that became more than thirty days past due in principal and interest payments. The Company utilizes forward interest rate swaps, forward treasury purchases, and options on forward interest rate swaps or forward treasuries to manage duration and increase yield on cash flows expected from current holdings. All transactions are hedging in nature and not speculative. Almost all transactions are associated with the individual disability product portfolio. All other product portfolios are periodically reviewed to determine if hedging strategies would be appropriate for risk management purposes. Liquidity and Capital Resources The Company's liquidity requirements are met primarily by cash flows provided from operations, principally in its insurance subsidiaries. Premium and investment income, as well as maturities and sales of invested assets, provide the primary sources of cash. Cash is applied to the payment of policy benefits, costs of acquiring new business (principally commissions) and operating expenses as well as purchases of new investments. The Company has established an investment strategy that management believes will provide for adequate cash flows from operations. Cash flows from operations were $740.1 million for the six months ended June 30, 1999, as compared to $633.8 million in the comparable period in 1998. 33 The Company believes the cash flows from its operations will be sufficient to meet its operating and financial cash flow requirements excluding the strain placed on capital as a result of the charges recorded in connection with the merger and the early retirement program. As a result of the effect of the reserve increase, the merger related expenses, and the cost of the early retirement program on capital as well as refinancing requirements, the Company will need to raise approximately $500 million in capital during the remainder of 1999. Approximately half of this is incremental to the June 30, 1999 balance. The Company expects to raise the capital for its insurance subsidiaries through the debt markets and is currently exploring the alternatives available. The Company intends to file a shelf registration later this year in order to provide funding flexibility through the issuance of debt or equity securities. The funding will be used to finance, among other requirements, the capital need referenced above and to fund internal expansion, acquisitions, investment opportunities, and the retirement of the Company's debt and equity. At June 30, 1999, the Company had short-term and long-term debt totaling $490.0 million and $1,226.5 million, respectively. Included in the short-term debt was $150.6 million used to finance investment activities. At June 30, 1999, approximately $308.8 million was available for additional financing under the existing revolving credit facility. Contingent upon market conditions and corporate needs, management may refinance short-term notes payable for longer- term securities. In the normal course of business, the Company enters into letters of credit, primarily to satisfy capital requirements related to certain subsidiary transactions. The Company had outstanding letters of credit of $156.8 million at June 30, 1999. In the fourth quarter of 1997, the Company borrowed $168.3 million through a private placement. Under the terms of the agreement, the investor exercised the right to redeem the private placement at par value during the second quarter of 1999. The Company refinanced this debt by issuing $200.0 million of variable rate medium-term notes in June of 1999, due in June of 2000. The notes had an interest rate of 5.135% at June 30, 1999. In 1998, the Company rescinded its stock repurchase program as a result of the pending merger. As a result, no shares of common stock were repurchased during the first six months of 1999. During the first six months of 1998, the Company acquired approximately 1.3 million shares of its common stock in the open market at an aggregate cost of $70.8 million. At the completion of the merger, UNUM common stock held in treasury was retired. Ratings Standard & Poor's Corporation (S&P), Moody's Investors Service (Moody's), and A.M. Best Company (AM Best) are among the third parties that provide the Company assessments of its overall financial position. Ratings from these agencies for financial strength are available for the individual U.S. domiciled insurance company subsidiaries. Financial strength ratings are based primarily on U.S. statutory financial information for the individual U.S. domiciled insurance companies. Debt ratings for the Company are based primarily on consolidated financial information prepared using generally accepted accounting principles. Both financial strength ratings and debt ratings incorporate qualitative analyses by rating agencies on an ongoing basis. 34 The rating agencies reviewed and, in some instances, revised their ratings to reflect the completion of the merger. The table below reflects the most recent debt ratings for the Company and the financial strength ratings for the U.S. domiciled insurance company subsidiaries.
S&P Moody's AM Best ---------------- ------------------------- ------------ UNUMProvident Corporation Senior Debt........... A (Strong) A2 (Upper Medium Grade) Not Rated Junior Subordinated Debt................. BBB+ (Good) A3 (Upper Medium Grade) Not Rated Commercial Paper...... A-1 (Strong) Prime-1 (Superior Ability) Not Rated U.S. Insurance Subsidiaries Provident Life & Accident............. AA- (Very Strong) Aa3 (Excellent) A+ (Superior) Provident Life & Casualty............. Not Rated Not Rated A+ (Superior) Provident National Assurance............ Not Rated Aa3 (Excellent) A+ (Superior) UNUM Life of America.. AA- (Very Strong) Aa3 (Excellent) A+ (Superior) First UNUM Life....... AA- (Very Strong) Aa3 (Excellent) A+ (Superior) Colonial Life & Accident............. AA- (Very Strong) Aa3 (Excellent) A+ (Superior) Paul Revere Life...... AA- (Very Strong) Aa3 (Excellent) A+ (Superior) Paul Revere Variable.. AA- (Very Strong) Aa3 (Excellent) A+ (Superior) Paul Revere Protective........... AA- (Very Strong) Aa3 (Excellent) A+ (Superior)
Year 2000 Date Conversion As are many other businesses in this country and abroad, the Company is affected in numerous ways, both by its own computer information systems and by third parties with which it has business relationships, in the processing of date data relating to the year 2000 and beyond. Failure to adequately address and substantially resolve year 2000 issues could, and as to mission critical systems in certain circumstances would, have a material adverse effect on the Company's business, results of operations, or financial condition. While there can be no assurance as to its success, the Company has a project underway which is intended and designed to avoid and/or mitigate any such material adverse effect from year 2000 issues. The Company's program for the year 2000 is organized into a number of phases for rectifying its internal computer systems, including assessment, code remediation, testing and deployment. As of June 30, 1999, the Company had completed the assessment and code remediation phases for all of its critical and non-critical business systems with over 90 percent completing the compliance testing phase. Deployment is substantially completed for most critical and non-critical systems. As previously discussed in Provident's and UNUM's Annual Reports on Form 10-K/A, management continues to expect completion of all phases by the end of 1999. There are numerous instances in which third parties having a relationship with the Company have year 2000 issues to address and resolve. These include, among others, vendors of hardware and software, holders of group insurance policies, issuers of investment securities, financial institutions, governmental agencies, and suppliers. An aspect of the Company's year 2000 program has been to assess its critical external dependencies and, as part of its due diligence efforts, to contact certain third parties seeking written assurance as to their expectancy to be year 2000 compliant. The nature of the Company's follow up to its written requests to third parties depends upon its assessment of the response and of the materiality of the effect of non- compliance by the third party on the Company. In some instances the Company is performing site visits to certain third party businesses and testing their systems for compliance. In addition, the Company is testing external electronic interfaces with certain critical business partners. To date, no significant issues from critical external dependencies have been identified; however, there can be no guarantee that the computer systems of these third parties will be year 2000 compliant. The Company is developing contingency plans to alleviate the potential business impact of third parties not being year 2000 compliant. Management expects these plans to be finalized and ready for implementation in third quarter 1999. The effort of internal business and systems personnel 35 devoted to the project has been considerable. Temporary personnel and subject matter consultants have been utilized, when appropriate, to assist full time personnel in some phases or aspects of the project. The Company has utilized compensation programs to retain project personnel in order to keep the project on schedule. While the project has required systems management to more closely scrutinize the prioritization of information technology projects, it is not believed that any deferral of information technology projects has had a material impact on the Company. The Company has also had occasional contact with certain peer companies comparing approaches to year 2000 issues. Given the range of possibilities that may occur in connection with non- compliance with year 2000 that could affect the Company, particularly as a consequence of third parties, the Company is unable to provide an estimate of the impact of such non-compliance on its business, results of operations, or financial condition. With regard to non-compliance resulting from the Company's systems, which the Company believes to be less likely than that resulting from third parties, the Company would devote its financial and personnel resources to remediate the problem as soon as possible. With regard to non-compliance resulting from third party failure, the Company is finalizing appropriate contingency arrangements that will minimize such impact; however, given the range of possibilities, no assurance can be given that the Company's efforts will be successful. In addition, the Company is developing detailed plans for activities for managing the year-end rollover period. This includes plans for appropriate backup of data, year-end processing schedules, limiting installations of new code, and the availability of special response teams tasked with identifying and resolving any issues which might occur during the rollover period. These teams include both information technology and business professionals. The foregoing discussion of the year 2000 issue contains forward-looking statements relating to such matters as financial performance and the business of the Company. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. In order for the Company to comply with the terms of the safe harbor, the Company notes that a variety of factors could cause the Company's actual results and experience relating to compliance with year 2000 to differ materially from the anticipated results or other expectations expressed in the Company's forward-looking statements concerning year 2000 issues, which involve certain risks and uncertainties. These factors include (i) the unanticipated material impact of a system fault of the Company relating to year 2000, (ii) the failure to successfully remediate, in spite of testing, material systems of the Company, (iii) the time it may take to successfully remediate a failure once it occurs, as well as the resulting costs and loss of revenues, and (iv) the failure of third parties to properly remediate material year 2000 problems. Since inception of the project, the Company has expensed approximately $29.4 million through June 30, 1999, in connection with incremental cost of the year 2000 project and estimates an additional $3.0 million to complete the project. The costs of the project and the date on which the Company plans to complete year 2000 modifications are based on management's best estimates, derived using numerous assumptions about future events. However, there can be no guarantee that these estimates will be achieved, and actual results could differ materially from those plans. See Part II, Item 7 of Provident's and UNUM's Annual Reports on Form 10-K/A for further discussion of the year 2000 issues. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The Company is subject to various market risk exposures including interest rate risk and foreign exchange rate risk. The Company employs various derivative programs to manage these material market risks. The operations of the Company are subject to risk resulting from interest rate fluctuations, primarily long-term U.S. interest rates. Changes in interest rates and individuals' behavior affect the amount and timing of asset and liability cash flows. Management continually models and tests asset and liability portfolios to improve interest rate risk management and net yields. Testing the asset and liability portfolios under various interest rate and economic scenarios allows management to choose the most appropriate investment strategy within acceptable risk tolerances. This analysis is the precursor to the Company's activities in derivative financial instruments. 36 The Company uses interest rate swaps, interest rate forward contracts, exchange-traded interest rate futures contracts, and options to hedge interest rate risks and to match asset durations and cash flows with corresponding liabilities. The Company is also subject to foreign exchange risk arising from its foreign operations and certain foreign dollar denominated investment securities. Foreign operations represent 6.6 percent and 6.5 percent of total assets at June 30, 1999 and December 31, 1998, respectively, and 9.3 percent and 9.9 percent of total revenue for the six month periods ended June 30, 1999 and 1998, respectively. At June 30, 1999, there were no outstanding derivatives hedging this foreign currency risk. See Part II, Items 7, 7A, and 8 of Provident's and UNUM's Annual Reports on Form 10-K/A for further discussion of the qualitative and quantitative aspects of market risk, including derivative financial instrument activity. During the first six months of 1999, there was no substantive change to the Company's market risk. 37 PART II--OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At the Annual Meeting of the Stockholders of Provident held at 8:30 a.m. on June 30, 1999, Provident stockholders elected all of management's nominees for the Board of Directors as listed in the proxy statement and set forth below and approved the following proposals:
Votes in Votes Favor Withheld ----------- -------- 1. Election of Directors William L. Armstrong..................................... 122,289,161 372,751 William H. Bolinder...................................... 122,289,150 372,762 J. Harold Chandler....................................... 122,258,709 403,203 Charlotte M. Heffner..................................... 122,285,850 376,062 Hugh B. Jacks............................................ 122,285,974 375,938 Hugh O. Maclellan, Jr.................................... 122,286,452 375,460 A.S. MacMillan........................................... 122,289,510 372,402 C. William Pollard....................................... 122,289,915 371,997 Steven S Reinemund....................................... 122,287,801 374,111 Burton E. Sorensen....................................... 122,284,824 377,088 Thomas R. Watjen......................................... 122,287,370 374,542
Votes Votes Votes For Against Abstaining Broker Non-votes ----------- --------- ---------- ---------------- 2. Adoption of Agreement and Plan of Merger............ 116,541,445 106,410 330,400 5,683,657 3. Approval of Amendment to the Amended and Restated Certificate of Incorporation............. 116,455,548 171,557 351,150 5,683,657 4. Approval of Amendment to Stock Plan of 1999........ 116,688,387 5,555,781 417,744 0
Effective upon the merger with UNUM, Messrs. Bolinder, Jacks, and Watjen and Ms. Heffner resigned from the board, and the following persons, each of whom was a director of UNUM immediately prior to the merger were appointed to fill vacancies on the Board: James F. Orr III Cynthia A. Montgomery Lois Dickson Rice Ronald E. Goldsberry James L. Moody, Jr. John W. Rowe George J. Mitchell Lawrence R. Pugh
38 REVIEW BY INDEPENDENT AUDITORS The condensed consolidated financial statements at June 30, 1999, and for the three month and six month periods then ended, have been reviewed, prior to filing, by Ernst & Young LLP, the Company's independent auditors, and their report is included herein. 39 PART II--OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a)Exhibit 3.1 Restated Certificate of Incorporation Exhibit 3.2 Amended and Restated Bylaws Exhibit 10.1 Employment Agreement between the Company and James F. Orr III Exhibit 10.2 Employment Agreement between the Company and J. Harold Chandler Exhibit 10.3 Employment Agreement between the Company and F. Dean Copeland Exhibit 10.4 Employment Agreement between the Company and Robert W. Crispin Exhibit 10.5 Employment Agreement between the Company and Elaine D. Rosen Exhibit 10.6 Employment Agreement between the Company and Thomas R. Watjen Exhibit 15 Letter re unaudited interim financial information Exhibit 18 Letter re change in accounting principles Exhibit 27 Financial data schedules (for SEC use only) (b)Reports on Form 8-K: Form 8-K filed on June 30, 1999, relating to the completion of the merger with UNUM Corporation.
40 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. UNUMProvident Corporation (Registrant) Date: August 12, 1999 /s/ J. Harold Chandler _____________________________________ J. Harold Chandler President and Chief Operating Officer Date: August 12, 1999 /s/ Thomas R. Watjen _____________________________________ Thomas R. Watjen Executive Vice President--Finance (principal financial officer) Date: August 12, 1999 /s/ Robert E. Broatch _____________________________________ Robert E. Broatch Senior Vice President and Chief Financial Officer (chief accounting officer) 41 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------- EXHIBITS TO FORM 10-Q ---------------- UNUMPROVIDENT CORPORATION - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 42 INDEX OF EXHIBITS
EXHIBIT PAGE ------- ---- Exhibit 3.1 Restated Certificate of Incorporation..................... Exhibit 3.2 Amended and Restated Bylaws............................... Exhibit 10.1 Employment Agreement between the Company and James F. Orr III....................................................... Exhibit 10.2 Employment Agreement between the Company and J. Harold Chandler.................................................. Exhibit 10.3 Employment Agreement between the Company and F. Dean Copeland.................................................. Exhibit 10.4 Employment Agreement between the Company and Robert W. Crispin................................................... Exhibit 10.5 Employment Agreement between the Company and Elaine D. Rosen..................................................... Exhibit 10.6 Employment Agreement between the Company and Thomas R. Watjen.................................................... Exhibit 15 Letter re unaudited interim financial information......... Exhibit 18 Letter re change in accounting principles................. Exhibit 27 Financial data schedules (for SEC use only)...............
43 EX-3.1 2 RESTATED CERTIFICATE OF INCORPORATION EXHIBIT 3.1 RESTATED CERTIFICATE OF INCORPORATION OF UNUMPROVIDENT CORPORATION FIRST: The name of the Corporation is UNUMProvident Corporation. SECOND: The address of the registered office of the Corporation in the state of Delaware is 1209 Orange Street, in the city of Wilmington, county of New Castle. The name of the Corporation's registered agent at that address is The Corporation Trust Company. THIRD: The purpose of the Corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of Delaware as set forth in Title 8 of the Delaware Code (the "GCL"). FOURTH: A. The total number of shares of capital stock which the Corporation shall have authority to issue is 750,000,000 shares, consisting of 725,000,000 shares of Common Stock, par value $.10 per share (the "Common Stock") and 25,000,000 shares of Preferred Stock, par value $.10 per share (the "Preferred Stock"). B. Shares of Preferred Stock may be issued from time to time in one or more classes or series as may be determined from time to time by the Board of Directors of the Corporation (the "Board of Directors"), each such class or series to be distinctly designated. Except in respect of the particulars fixed by the Board of Directors for classes or series provided for by the Board of Directors as permitted hereby, all shares of Preferred Stock shall be of equal rank and shall be identical. All shares of any one series of Preferred Stock so designated by the Board of Directors shall be alike in every particular, except that shares of any one series issued at different times may differ as to the dates from which dividends thereon shall be cumulative. The voting rights, if any, of each such class or series and the preferences and relative, participating, optional and other special rights of each such class or series and the qualifications, limitations and restrictions thereof, if any, may differ from those of any and all other classes or series at any time outstanding; and the Board of Directors of the Corporation is hereby expressly granted authority to fix, by resolutions duly adopted prior to the issuance of any shares of a particular class or series of Preferred Stock so designated by the Board of Directors, the voting powers of stock of such class or series, if any, and the designations, preferences and relative, participating, optional and other special rights and the qualifications, limitations and restrictions of such class or series, including, but without limiting the generality of the foregoing, the following: (1) The distinctive designation of, and the number of shares of Preferred Stock which shall constitute, such class or series, and such number may be increased (except where otherwise provided by the Board of Directors) or decreased (but not below the number of shares thereof then outstanding) from time to time by like action of the Board of Directors; (2) The rate and time at which, and the terms and conditions upon which, dividends, if any, on Preferred Stock of such class or series shall be paid, the extent of the preference or relation, if any, of such dividends to the dividends payable on any other class or classes, or series of the same or other classes of stock and whether such dividends shall be cumulative or non-cumulative; (3) The right, if any, of the holders of Preferred Stock of such class or series to convert the same into, or exchange the same for, shares of any other class or classes or of any series of the same or any other class or classes of stock and the terms and conditions of such conversion or exchange; (4) Whether or not Preferred Stock of such class or series shall be subject to redemption, and the redemption price or prices and the time or times at which, and the terms and conditions upon which, Preferred Stock of such class or series may be redeemed; (5) The rights, if any, of the holders of Preferred Stock of such class or series upon the voluntary or involuntary liquidation of the Corporation; (6) The terms of the sinking fund or redemption or purchase account, if any, to be provided for the Preferred Stock of such class or series; and (7) The voting powers, if any, of the holders of such class or series of Preferred Stock. C. Except as otherwise provided in this Certificate of Incorporation, the Board of Directors shall have authority to authorize the issuance, from time to time without any vote or other action by the stockholders, of any or all shares of stock of the Corporation of any class or series at any time authorized, and any securities convertible into or exchangeable for any such shares, and any options, rights or warrants to purchase or acquire any such shares, in each case to such persons and on such terms (including as a dividend or distribution on or with respect to, or in connection with a split or combination of, the outstanding shares of stock of the same or any other class) as the Board of Directors from time to time in its discretion lawfully may determine; PROVIDED, HOWEVER, that the consideration for the issuance of shares of stock of the Corporation having par value (unless issued as such a dividend or distribution or in connection with such a split or combination) shall not be less than such par value. Shares so issued shall be fully paid stock, and the holders of such stock shall not be liable to any further call or assessments thereon. D. Except as provided in this Certificate of Incorporation, each holder of Common Stock shall be entitled to one vote for each share of Common Stock held by him. FIFTH: The following provisions are inserted for the management of the business and the conduct of the affairs of the Corporation, and for further definition, limitation and regulation of the powers of the Corporation and of the Board of Directors and stockholders: (1) The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors. (2) The Board of Directors shall consist of not less than three nor more than fifteen directors. The exact number of directors shall be determined from time to time by resolution adopted by the affirmative vote of a majority of the Board of Directors, subject to Article III, Section 11 of 2 the By-laws of the Corporation. The Directors shall be divided into three classes, designated Class I, Class II and Class III. Each class shall consist, as nearly as may be possible, of one-third of the total number of Directors constituting the entire Board of Directors. (3) Upon, or as soon as practicable following, the filing of the Certificate of Merger to which this Certificate of Incorporation is attached, Class I Directors shall be elected for a one-year term, Class II Directors for a two-year term and Class III Directors for a three-year term. At each succeeding annual meeting of stockholders, successors to the class of Directors whose term expires at that annual meeting shall be elected for a three-year term. If the number of Directors is changed in accordance with the terms of this Certificate of Incorporation or the By- laws, any increase or decrease shall be apportioned among the classes so as to maintain the number of Directors in each class as nearly equal as possible, and any additional Director of any class elected to fill a vacancy resulting from an increase in such class shall hold office for a term that shall coincide with the remaining term of that class, but in no case will a decrease in the number of Directors shorten the term of any incumbent Director. A Director shall hold office until the annual meeting for the year in which his term expires and until his successor shall be elected and shall qualify, subject, however, to the Director's prior death, resignation, disqualification or removal from office. The stockholders shall not have the right to remove any one or all of the Directors except for cause and in that event only by the affirmative vote of the holders of eighty percent (80%) of the votes entitled to be cast by the holders of all outstanding shares of Voting Stock (as hereinafter defined) voting together as a single class. Any vacancy on the Board of Directors that results from a newly created Directorship shall only be filled by the affirmative vote of a majority of the Board of Directors then in office, and any other vacancy occurring on the Board of Directors shall only be filled by a majority of the Directors then in office, although less than a quorum, or by a sole remaining Director. Any Director elected to fill a vacancy not resulting from an increase in the number of Directors shall have the same remaining term as that of his predecessor. (4) Notwithstanding the foregoing, whenever the holders of any one or more classes or series of Preferred Stock issued by the Corporation shall have the right, voting separately by class or series, to elect Directors at an annual or special meeting of stockholders, the election, term of office, filling of vacancies and other features of such Directorships shall be governed by the terms of this Certificate of Incorporation applicable thereto (including the resolutions adopted by the Board of Directors pursuant to Section B of Article FOURTH), and such Directors so elected shall not be divided into classes pursuant to Paragraph (2) of this Article FIFTH unless expressly provided by such terms. Election of Directors need not be by written ballot unless the By-Laws so provide. (5) The Board of Directors may from time to time determine whether, to what extent, at what times and places and under what conditions and regulations the accounts, books and papers of the Corporation, or any of them, shall be open to the inspection of the stockholders, and no stockholder shall have any right to inspect any account, book or document of the Corporation, except as and to the extent expressly provided by law with 3 reference to the right of stockholders to examine the original or duplicate stock ledger, or otherwise expressly provided by law, or except as expressly authorized by resolution of the Board of Directors. (6) In addition to the powers and authority hereinbefore or by statute expressly conferred upon them, the Directors are hereby empowered to exercise all such powers and do all such acts and things as may be exercised or done by the Corporation, subject, nevertheless, to the provisions of the statutes of Delaware, this Certificate of Incorporation, and the By-laws. (7) Except as may be otherwise determined by the Board of Directors in fixing the terms of any class or series of Preferred Stock pursuant to Article FOURTH hereof, no action shall be taken by stockholders of the Corporation except at an annual or special meeting of stockholders of the Corporation and the right of stockholders to act by written consent in lieu of a meeting is specifically denied. SIXTH: A. The Board of Directors shall have concurrent power with the stockholders as set forth in this Certificate of Incorporation to make, alter, amend, change, add to or repeal the By-Laws of the Corporation. B. Subject to Article III, Section 11 of the By-laws, the Board of Directors may amend the By-Laws of the Corporation upon the affirmative vote of the number of directors which shall constitute, under the terms of the By-Laws, the action of the Board of Directors. Stockholders may not amend the By-Laws of the Corporation except upon the affirmative vote of at least eighty percent (80%) of the votes entitled to be cast by the holders of all outstanding shares of Voting Stock voting together as a single class. SEVENTH: A. In addition to any affirmative vote required by law, this Certificate of Incorporation, the By-Laws of the Corporation or otherwise, except as otherwise expressly provided in Section B of this Article SEVENTH, the Corporation shall not engage, directly or indirectly, in any Business Combination (as hereinafter defined) with an Interested Stockholder (as hereinafter defined) without the affirmative vote of (i) not less than eighty percent (80%) of the votes entitled to be cast by the holders of all outstanding shares of Voting Stock voting together as a single class, and (ii) not less than a majority of the votes entitled to be cast by the holders of all outstanding shares of Voting Stock which are beneficially owned by persons other than such Interested Stockholder voting together as a single class. Such affirmative vote shall be required notwithstanding the fact that no vote may be required, or that a lesser percentage or separate class vote may be specified, by law or in any agreement with any national securities exchange or otherwise. B. The provisions of Section A of this Article SEVENTH shall not be applicable to any particular Business Combination, and such Business Combination shall require only such affirmative vote, if any, as is required by law, this Certificate of Incorporation, the By-Laws of the Corporation, or otherwise, if such Business Combination shall have been approved by a majority (whether such approval is made prior to or subsequent to the acquisition of beneficial ownership of Voting Stock that caused the Interested Stockholder to become an Interested Stockholder) of the Continuing Directors (as hereinafter defined). 4 C. For the purposes of this Certificate of Incorporation: (1) The term "Business Combination" shall mean: (a) any merger or consolidation of this Corporation or any Subsidiary (as hereinafter defined) with (i) any Interested Stockholder or (ii) any other corporation (whether or not itself an Interested Stockholder) which is or after such merger or consolidation would be an Affiliate or Associate of an Interested Stockholder; or (b) any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions) between the Corporation or any Subsidiary and any Interested Stockholder or any Affiliate or Associate of any Interested Stockholder involving any assets or securities of the Corporation, any Subsidiary or any Interested Stockholder or any Affiliate or Associate of any Interested Stockholder the value of which would constitute, immediately prior to such transaction, a Substantial Part (as hereinafter defined) of the assets of the Corporation; or (c) the adoption of any plan or proposal for the liquidation or dissolution of, or similar transaction involving, the Corporation proposed by or on behalf of an Interested Stockholder or any Affiliate or Associate of any Interested Stockholder; or (d) any reclassification of securities (including any reverse stock split), or recapitalization of the Corporation, or any merger or consolidation of the Corporation with any of its Subsidiaries or any other transaction (whether or not with or otherwise involving an Interested Stockholder) that has the effect, directly or indirectly, of increasing the proportionate share of any class or series of Capital Stock, or any securities convertible into Capital Stock or into equity securities of any Subsidiary, that is beneficially owned by any Interested Stockholder or any Affiliate or Associate of any Interested Stockholder; or (e) any agreement, contract or other arrangement providing for any one or more of the actions specified in the foregoing clauses (a) to (d). (2) The term "Capital Stock" shall mean all capital stock of the Corporation authorized to be issued from time to time under Article FOURTH of this Certificate of Incorporation, and the term "Voting Stock" shall mean all Capital Stock which by its terms may be voted on all matters submitted to stockholders of the Corporation generally. (3) The term "person" shall mean any individual, firm, corporation or other entity and shall include any group comprised of any person and any other person with whom such person or any Affiliate or Associate of such person has any agreement, arrangement or understanding, directly or indirectly, for the purpose of acquiring, holding, voting or disposing of Capital Stock. (4) The term "Interested Stockholder" shall mean any person (other than the Corporation or any Subsidiary and other than any profit-sharing, employee stock ownership or other employee benefit plan of the Corporation or any Subsidiary or any trustee of or fiduciary with respect to any such plan or any trust or any other entity formed for the purposes of holding 5 Voting Stock for the purpose of funding any such plan or funding other employee benefits for employees of the Corporation or any Subsidiary, in each case when acting in such capacity) who (a) is the beneficial owner of Voting Stock representing fifteen percent (15%) or more of the votes entitled to be cast by the holders of all then outstanding shares of Voting Stock; or (b) is an Affiliate or Associate of the Corporation and at any time within the two-year period immediately prior to the date in question was the beneficial owner of Voting Stock representing fifteen percent (15%) or more of the votes entitled to be cast by the holders of all then outstanding share of Voting Stock. (5) A person shall be a "beneficial owner" of any Capital Stock (a) which such person or any of its Affiliates or Associates beneficially owns, directly or indirectly; (b) which such person or any of its Affiliates or Associates has, directly or indirectly, (i) the right to acquire (whether such right is exercisable immediately or subject only to the passage of time), pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (ii) the right to vote pursuant to any agreement, arrangement or understanding; or (c) which are beneficially owned, directly or indirectly, by any other person with which such person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of Capital Stock. For the purposes of determining whether a person is an Interested Stockholder pursuant to Paragraph 4 of this Section C, the number of shares of Capital Stock deemed to be outstanding shall include shares deemed beneficially owned by such person through application of Paragraph 5 of this Section C, but shall not include any other shares of Capital Stock that may be issuable pursuant to any agreement, arrangement or understanding, or upon exercise of conversion rights, warrants or options, or otherwise. (6) The terms "Affiliate" and "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the "Act"), (the term "registrant" in Rule 12b-2 meaning in this case the Corporation). (7) The term "Subsidiary" means any corporation of which a majority of any class of equity security is beneficially owned by the Corporation; PROVIDED, HOWEVER, that for the purposes of the definition of Interested Stockholder set forth in Paragraph 4 of this Section C, the term "Subsidiary" shall mean only a corporation of which a majority of each class of equity security is beneficially owned by the Corporation. (8) The term "Continuing Director" means any member of the Board of Directors, while such person is a member of the Board of Directors, who is not an Affiliate or Associate or representative of the Interested Stockholder and was a member of the Board prior to the time that the Interested Stockholder became an Interested Stockholder, and any successor of a Continuing Director, while such successor is a member of the Board of Directors, who is not an Affiliate or Associate or representative of the Interested Stockholder and is recommended or elected to succeed the Continuing Director by a majority of Continuing Directors. In order for a Business Combination or other action to be approved, or a fact or other 6 matter to be determined, "by a majority of the Continuing Directors" hereunder, there must be one or more Continuing Directors then serving on the Board of Directors. (9) The term "Substantial Part" means assets having an aggregate Fair Market Value (as hereinafter defined) in excess of ten percent (10%) of the book value of the total consolidated assets of the Corporation and its Subsidiaries as of the end of the Corporation's most recent fiscal year ending prior to the time the stockholders of the Corporation would be required to approve or authorize the Business Combination involving assets constituting any such Substantial Part. (10) The term "Fair Market Value" means (a) in the case of cash, the amount of such cash; (b) in the case of stock, the highest closing sale price, during the 30-day period immediately preceding the date in question, of a share of such stock on the Composite Tape for New York Stock Exchange, Inc. Listed Stocks, or, if such stock is not quoted on the Composite Tape, on the New York Stock Exchange, Inc., or, if such stock is not listed on such exchange, on the principal United States securities exchange registered under the Act on which such stock is listed, or if such stock is not listed on any such exchange, the highest closing bid quotation with respect to a share of such stock, during the 30-day period preceding the date in question, on the National Association of Securities Dealers, Inc. Automated Quotation System or any similar system then in use, or if no such quotations are available, the fair market value on the date in question of a share of such stock as determined by a majority of the Continuing Directors in good faith; and (c) in the case of property other than cash or stock, the fair market value of such property on the date in question as determined in good faith by a majority of the Continuing Directors. D. A majority of the Continuing Directors shall have the power and duty to determine for the purposes of this Article SEVENTH, on the basis of information known to them after reasonable inquiry, (a) whether a person is an Interested Stockholder, (b) the number of shares of Capital Stock or other securities beneficially owned by any person, (c) whether a person is an Affiliate or Associate of another and (d) whether the assets that are the subject of any Business Combination have, or the consideration to be received for the issuance or transfer of securities by this Corporation or any Subsidiary in any Business Combination has, an aggregate Fair Market Value in excess of the amount set forth in Paragraph 1(b) of Section C of this Article SEVENTH. Any such determination made in good faith shall be binding and conclusive on all parties. E. Nothing contained in this Article SEVENTH shall be construed to relieve any Interested Stockholder from any fiduciary obligation imposed by law. EIGHTH: When considering a merger, consolidation, Business Combination or similar transaction, the Board of Directors, committees of the Board, individual directors and individual officers may, in considering the best interests of the Corporation and its stockholders, consider the effects of any such transaction upon the employees, customers and suppliers of the Corporation, and upon communities in which offices of the Corporation are located. NINTH: Notwithstanding any other provisions of this Certificate of Incorporation or the By-Laws of the Corporation (and notwithstanding the fact that a lesser percentage or separate class vote may be specified by law, this 7 Certificate of Incorporation or the By-Laws of the Corporation), (i) the affirmative vote of the holders of not less than eighty percent (80%) of the votes entitled to be cast by the holders of all outstanding shares of Voting Stock, voting together as a single class, shall be required to amend or repeal, or adopt any provisions inconsistent with, Articles FIFTH and SIXTH, and (ii) the affirmative vote of the holders of (x) not less than eighty percent (80%) of the votes entitled to be cast by the holders of all outstanding shares of Voting Stock voting together as a single class, and (y) not less than a majority of the votes entitled to be cast by the holders of all outstanding shares of Voting Stock which are beneficially owned by persons other than Interested Stockholders, if any, voting together as a single class, shall be required to amend or repeal, or adopt any provisions inconsistent with, Articles SEVENTH and NINTH; PROVIDED, HOWEVER, that, with respect to Articles FIFTH, SIXTH, SEVENTH and NINTH such special voting requirements shall not apply to, and such special votes shall not be required for, any amendment, repeal or adoption recommended by the Board if a majority of the directors then in office are persons who would be eligible to serve as Continuing Directors. TENTH: No director shall be personally liable to the Corporation or any of its stockholders for monetary damages for any breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the Delaware General Corporation Law or (iv) for any transaction from which the director derived an improper personal benefit. Any repeal of modification of this Article TENTH by the stockholders of the Corporation shall not adversely affect any right of protection of a director of the Corporation existing at the time of such repeal or modification with respect to acts or omissions occurring prior to such repeal or modification. ELEVENTH: Subject to the provisions of this Certificate of Incorporation, the Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or thereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation. 8 EX-3.2 3 AMENDED AND RESTATED BYLAWS EXHIBIT 3.2 AMENDED AND RESTATED BYLAWS OF UNUMPROVIDENT CORPORATION (HEREINAFTER CALLED THE "CORPORATION") ARTICLE I OFFICES SECTION 1. REGISTERED OFFICE. The registered office of the Corporation shall be in the City of Wilmington, County of New Castle, State of Delaware. SECTION 2. OTHER OFFICES. The Corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine. ARTICLE II MEETINGS OF STOCKHOLDERS SECTION 1. PLACE OF MEETINGS. Meetings of the stockholders for the election of directors or for any other purpose shall be held at such time and place, either within or without the State of Delaware as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting or in a duly executed waiver of notice thereof. SECTION 2. ANNUAL MEETINGS. The Annual Meetings of Stockholders shall be held on such date and at such time as shall be designated from time to time by the Board of Directors and stated in the notice of the meetings, at which meetings the stockholders shall elect by a plurality vote the directors to be elected at such meetings, and transact such other business as may properly be brought before the meetings. Written notice of the Annual Meeting stating the place, date and hour of the meeting shall be given to each stockholder entitled to vote at such meeting not less than ten nor more than sixty days before the date of the meeting. SECTION 3. SPECIAL MEETINGS. Unless otherwise prescribed by law or by the Certificate of Incorporation, Special Meetings of Stockholders, for any purpose or purposes, may be called by either (i) the Chairman, if there be one, (ii) the Chief Executive Officer or (iii) the President, and shall be called by any such officer at the request in writing of a majority of the Board of Directors. Such request shall state the purpose or purposes of the proposed meeting. Written notice of a Special Meeting stating the place, date and hour of the meeting and the purpose or purposes for which the meeting is called shall be given not less than ten nor more than sixty days before the date of the meeting to each stockholder entitled to vote at such meeting. SECTION 4. QUORUM. Except as otherwise provided by law or by the Certificate of Incorporation, the holders of a majority of the capital stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally noticed. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder entitled to vote at the meeting. The foregoing provisions shall be subject to the voting rights of holders of any Preferred Stock of the Corporation and any quorum requirements relating thereto. SECTION 5. VOTING. Unless otherwise required by law, applicable stock exchange rules or regulations, the Certificate of Incorporation or these By-Laws, any question brought before any meeting of stockholders shall be decided by a majority of the votes entitled to be cast by the holders of stock represented and entitled to vote thereat and each stockholder represented at a meeting of stockholders shall be entitled to cast one vote for each share of the capital stock entitled to vote thereat held by such stockholder. Such votes may be cast in person or by proxy but no proxy shall be voted on or after three years from its date, unless such proxy provides for a longer period. The Board of Directors, in its discretion, or the officer of the Corporation presiding at a meeting of stockholders, in his discretion, may require that any votes cast at such meeting shall be cast by written ballot. SECTION 6. PROPER BUSINESS AT ANNUAL MEETINGS. At any annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before such meeting. To be properly brought before an annual meeting, business must be specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, or otherwise properly brought before the meeting by or at the direction of the Board of Directors, or otherwise properly brought before the meeting by a stockholder. For business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation, must be a stockholder of the Corporation of record at the time of the delivery of said notice and must be entitled to vote at the meeting. To be timely, a stockholder's notice must be delivered to, or mailed and received at, the principal executive offices of the Corporation, not less than 60 days nor more than 90 days prior to the annual meeting; PROVIDED, HOWEVER, that in the event that less than 75 days' notice or prior public disclosure of the date of such meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the 15th day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure was first made. A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting, including the complete text of any resolutions to be presented at the meeting with respect to such business, and the reasons for conducting such business at the annual meeting, (ii) the name and address of record of the stockholder proposing such business and the beneficial owner, if any, on whose behalf the proposal is made, (iii) the class and number of shares of the Corporation which are beneficially owned by the stockholder and such beneficial owner, (iv) any material interest of the stockholder and such beneficial owner in such business and (v) a representation that the stockholder is a holder of record of shares of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to propose such business. The chairman of an annual meeting shall, if the facts warrant, determine and declare to the meeting that such business was not properly brought before the meeting in accordance with these provisions, and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. SECTION 7. LIST OF STOCKHOLDERS ENTITLED TO VOTE. The officer of the Corporation who has charge of the stock ledger of the Corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder of the Corporation who is present. SECTION 8. STOCK LEDGER. The stock ledger of the Corporation shall be the only evidence as to who are the stockholders entitled to examine the stock 2 ledger, the list required by Section 7 of this Article II or the books of the Corporation, or to vote in person or by proxy at any meeting of stockholders. SECTION 9. (a) ORGANIZATION. Meetings of stockholders shall be presided over by the Chairman of the Board, if any, or in his absence by the Vice Chairman of the Board, if any, or in his absence by the Chief Executive Officer, or in his absence by the President, or in his absence by a Vice President, or in the absence of the foregoing persons by a chairman designated by the Board of Directors, or in the absence of such designation by a chairman chosen at the meeting. The Secretary shall act as secretary of the meeting, but in his absence the chairman of the meeting may appoint any person to act as secretary of the meeting. (b) CONDUCT OF MEETINGS. The date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at a meeting shall be announced at the meeting by the person presiding over the meeting. The Board of Directors may adopt by resolution such rules and regulations for the conduct of the meeting of stockholders as it shall deem appropriate. Except to the extent inconsistent with such rules and regulations as adopted by the Board of Directors, the chairman of any meeting of stockholders shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are appropriate for the proper conduct of the meeting. Such rules, regulations or procedures, whether adopted by the Board of Directors or prescribed by the chairman of the meeting, may include, without limitation, the following: (i) the establishment of an agenda or order of business for the meeting; (ii) rules and procedures for maintaining order at the meeting and the safety of those present; (iii) limitations on attendance at or participation in the meeting to stockholders of record of the corporation, their duly authorized and constituted proxies or such other persons as the chairman of the meeting shall determine; (iv) restrictions on entry to the meeting after the time fixed for the commencement thereof and (v) limitations on the time allotted to questions or comments by participants. Unless and to the extent determined by the Board of Directors or the chairman of the meeting, meetings of stockholders shall not be required to be held in accordance with the rules of parliamentary procedure. ARTICLE III DIRECTORS SECTION 1. NUMBER AND ELECTION OF DIRECTORS. Subject to Article III, Section 11 of these By-laws, the number of directors constituting the Board of Directors shall be fixed from time to time by the Board of Directors in the manner prescribed in the Certificate of Incorporation and shall initially be 15, eight of whom shall be designated by UNUM Corporation and seven of whom shall be designated by Provident Companies, Inc. Except as provided in Section 3 of this Article, the directors to be elected at each Annual Meeting of Stockholders shall be elected by a plurality of the votes cast at such Annual Meeting of Stockholders, and each director so elected shall hold office until the third Annual Meeting following such election and until his successor is duly elected and qualified, or until his earlier resignation, retirement or removal. No person elected or re-elected a director shall, after such person's seventy-second birthday, serve as a director of the Corporation beyond the date of the Corporation's annual meeting ending the term for which such person has been elected; PROVIDED, that, no person shall be required to retire because of their age prior to such date. Any director may resign at any time upon notice to the Corporation. Directors need not be stockholders. 3 SECTION 2. NOMINATION PROCEDURES. Only persons who are nominated in accordance with the following procedures shall be eligible for election as Directors. Nominations of persons for election to the Board of Directors of the Corporation may be made at a meeting of stockholders by or at the direction of the Board of Directors, by any nominating committee or person appointed by the Board of Directors or by any stockholder of the Corporation entitled to vote for the election of Directors at the meeting. Such nominations, other than those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in writing to the Secretary of the Corporation by a stockholder of the Corporation of record at the time of the delivery of said notice who is entitled to vote at the meeting. To be timely, a stockholder's notice shall be delivered to, or mailed and received at, the principal executive offices of the Corporation not less than 60 days nor more than 90 days prior to the meeting; PROVIDED, HOWEVER, that in the event that less than 75 days' notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the 15th day following the day on which such notice of the date of the meeting was mailed or such public disclosure was first made. Such stockholder's notice shall set forth (a) as to each person whom the stockholder proposes to nominate for election or re-election as a director, (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of the person, (iii) the class and number of shares of the Corporation which are beneficially owned by the person, (iv) a description of all arrangements, understandings or relationships between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder and (v) any other information relating to the person that is required to be disclosed in solicitations of proxies for election of Directors pursuant to Rule 14(a) under the Securities Exchange Act of 1934, as amended (the "Act"), and any other applicable laws or rules or regulations of any governmental authority or of any national securities exchange or similar body overseeing any trading market on which shares of the Corporation are traded, and (b) as to the stockholder giving the notice (i) the name and address of record of the stockholder and the beneficial owner, if any, on whose behalf the nomination is made, and (ii) the class and number of shares of the Corporation which are beneficially owned by the stockholder and such beneficial owner and (iii) a representation that the stockholder is a holder of record of shares of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice. No person shall be eligible for election as a Director of the Corporation unless nominated in accordance with the procedures set forth herein. The chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the foregoing procedure, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. SECTION 3. VACANCIES. Subject to the provisions of the Certificate of Incorporation, vacancies and newly created directorships resulting from any increase in the authorized number of directors, which increase shall be subject to Article III, Section 11, shall only be filled by a majority of the directors then in office, though less than a quorum, or by a sole remaining director, and the directors so chosen shall hold office until the next annual election and 4 until their successors are duly elected and qualified, or until their earlier resignation or removal. SECTION 4. DUTIES AND POWERS. The business of the Corporation shall be managed by or under the direction of the Board of Directors which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Certificate of Incorporation or by these By-Laws directed or required to be exercised or done by the stockholders. SECTION 5. MEETINGS. The Board of Directors of the Corporation may hold meetings, both regular and special, either within or without the state of Delaware. Regular meetings of the Board of Directors may be held without notice at such time and at such place as may from time to time be determined by the Board of Directors. Special meetings of the Board of Directors may be called by the Chairman, if there be one, the Chief Executive Officer, the President, or any three directors. Notice thereof stating the place, date and hour of the meeting shall be given to each director either by mail not less than forty-eight (48) hours before the date of the meeting, by telephone or telegram on twenty-four (24) hours' notice, or on much shorter notice as the person or persons calling such meeting may deem necessary or appropriate in the circumstances. SECTION 6. QUORUM. Except as may be otherwise specifically provided by law, the Certificate of Incorporation or these By-Laws, at all meetings of the Board of Directors, a majority of the entire Board of Directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. SECTION 7. ACTIONS OF BOARD. Unless otherwise provided by the Certificate of Incorporation or these By-Laws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all the members of the Board of Directors or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors or committee. SECTION 8. MEETINGS BY MEANS OF CONFERENCE TELEPHONE OR SIMILAR COMMUNICATIONS EQUIPMENT. Unless otherwise provided by the Certificate of Incorporation or these By-Laws, members of the Board of Directors of the Corporation, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors or such committee by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this Section 8 shall constitute presence in person at such meeting. SECTION 9. COMMITTEES. (a) The Board of Directors may, by resolution passed by a majority of the entire Board of Directors, designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board of Directors may designate one or more directors as 5 alternate members of any committee, who may replace any absent or disqualified member at any meeting of any such committee. In the absence or disqualification of a member of a committee, and in the absence of a designation by the Board of Directors of an alternate member to replace the absent or disqualified member, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any absent or disqualified member. Any committee, to the extent allowed by law and provided in the resolution establishing such committee, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation. Each committee shall keep regular minutes and report to the Board of Directors when required. (b) The Corporation shall have an Executive Committee which, among any other powers which shall from time to time be granted to such committee by resolution of the Board of Directors, shall have the sole power and authority to recommend nominees on behalf of the Corporation to the Board of Directors (i) for election to the Board of Directors at the stockholders meetings at which directors are to be elected, (ii) to fill vacancies on the Board of Directors of the Corporation in between such stockholders meetings and (iii) to serve on, and fill vacancies in, any committee of the Board of Directors. (c) Notwithstanding anything to the contrary contained in these By-laws, until July 1, 2001, the Executive Committee will consist of three directors which were initially designated by UNUM Corporation, which will include the Chief Executive Officer initially serving the Corporation (who will serve as Chairman of such committee), and three directors which were initially designated by Provident Companies, Inc., which will include the President initially serving the Corporation, in each case in accordance with the Agreement and Plan of Merger, dated as of November 22, 1998, between UNUM Corporation and Provident Companies, Inc. (the "Merger Agreement"). SECTION 10. INTERESTED DIRECTORS. No contract or transaction between the Corporation and one or more of its directors or officers, or between the Corporation and any other corporation, partnership, association, or other organization in which one or more of its directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors or committee thereof which authorizes the contract or transaction, or solely because his or their votes are counted for such purpose if (i) the material facts as to his or their relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board of Directors or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (ii) the material facts as to his or their relationship or interest and as to the contract or transaction are disclosed or are known to the shareholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the shareholders; or (iii) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified, by the Board of Directors, a committee thereof or the shareholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of 6 the Board of Directors or of a committee which authorizes the contract or transaction. SECTION 11. CERTAIN MODIFICATIONS. Notwithstanding anything to the contrary contained in these By-laws, until July 1, 2001, the following actions taken either directly or indirectly by the Board of Directors shall, when a quorum is present, require the affirmative vote of not less than seventy-five percent of the directors voting at a meeting for which proper notice of the actions taken was duly given: (i) any change in the size of the Board of Directors or in the size of any class of directors; (ii) any change in the composition or power and authority of the Executive Committee of the Board of Directors or the chairmanship thereof; (iii) any change or amendment to these By-laws; and (iv) any proposals to be submitted to the stockholders of the Corporation by the Board of Directors. From and after July 1, 2001, any of the actions set forth in clauses (i) through (iv) of the immediately preceding sentence may be taken upon the affirmative vote of the number of directors which shall constitute, under the terms of these By-laws, the action of the Board of Directors. ARTICLE IV OFFICERS SECTION 1. GENERAL. The officers of the Corporation shall be chosen by the Board of Directors and shall be a Chief Executive Officer, a President, a Secretary and a Treasurer. The Board of Directors, in its discretion, may also choose a Chairman of the Board of Directors (who must be a director) and one or more Vice-Presidents, Assistant Secretaries, Assistant Treasurers and other officers. Any number of offices may be held by the same person, unless otherwise prohibited by law, the Certificate of Incorporation or these By-Laws. The officers of the Corporation need not be stockholders of the Corporation nor, except in the case of the Chairman of the Board of Directors, need such officers be directors of the Corporation. SECTION 2. ELECTION. The Board of Directors shall elect the officers of the Corporation who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors; and all officers of the Corporation shall hold office until their successors are chosen and qualified, or until their earlier resignation or removal. Any officer elected by the Board of Directors may be removed at any time by the affirmative vote of a majority of the Board of Directors. Any vacancy occurring in any office of the Corporation shall be filled by the Board of Directors. SECTION 3. VOTING SECURITIES OWNED BY THE CORPORATION. Powers of attorney, proxies, waivers of notice of meeting, consents and other instruments relating to securities owned by the Corporation may be executed in the name of and on behalf of the Corporation by the Chief Executive Officer, the President or any Vice-President and any such officer may, in the name of and on behalf of the Corporation, take all such action as any such officer may deem advisable to vote in person or by proxy at any meeting of security holders of any corporation in which the Corporation may own securities and at any such meeting shall possess and may exercise any and all rights and power incident to the ownership of such securities and which, as the owner thereof, the Corporation might have exercised and possessed if present. The Board of Directors may, by resolution, from time to time confer like powers upon any other person or persons. 7 SECTION 4. CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of the Board of Directors, if there be one, shall preside at all meetings of the stockholders and of the Board of Directors. Except where by law the signature of the Chief Executive Officer or the President is required, the Chairman of the Board of Directors shall possess the same power as the Chief Executive Officer or the President to sign all contracts, certificates and other instruments of the Corporation which may be authorized by the Board of Directors. During the absence or disability of the Chief Executive Officer and the President, the Chairman of the Board of Directors shall exercise all the powers and discharge all the duties of the Chief Executive Officer or the President. The Chairman of the Board of Directors shall also perform such other duties and may exercise such other powers as from time to time may be assigned to him by these By-Laws or by the Board of Directors. SECTION 5. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall, subject to the control of the Board of Directors, have general supervision of the business of the Corporation and shall see that all orders and resolutions of the Board of Directors are carried into effect. He shall execute all bonds, mortgages, contracts and other instruments of the Corporation requiring a seal, under the seal of the Corporation, except where required or permitted by law to be otherwise signed and executed and except that the other officers of the Corporation may sign and execute documents when so authorized by these By-Laws, the Board of Directors, the Chief Executive Officer or the President. In the absence or disability of the Chairman of the Board of Directors, or if there be none, the Chief Executive Officer shall preside at all meetings of the stockholders and the Board of Directors. The Chief Executive Officer shall also perform such other duties and may exercise such other powers as from time to time may be assigned to him by these By-Laws or by the Board of Directors. SECTION 6. PRESIDENT. The President shall, subject to the control of the Board of Directors and the Chief Executive Officer (provided that until July 1, 2000, the President and the Chief Executive Officer will participate equally in setting the overall strategic direction of the Corporation), have general supervision of the business of the Corporation and shall see that all orders and resolutions of the Board of Directors are carried into effect. He shall execute all bonds, mortgages, contracts and other instruments of the Corporation requiring a seal, under the seal of the Corporation, except where required or permitted by law to be otherwise signed and executed and except that the other officers of the Corporation may sign and execute documents when so authorized by these By-Laws, the Board of Directors, the Chief Executive Officer or the President. In the absence or disability of the Chairman of the Board of Directors and the Chief Executive Officer, or if neither shall exist, the President shall preside at all meetings of the stockholders and the Board of Directors. The President shall also perform such other duties and may exercise such other powers as from time to time may be assigned to him by these By-Laws or by the Board of Directors. From the Effective Time until July 1, 2000, the President initially serving the Corporation shall also be the Chief Operating Officer. SECTION 7. VICE-PRESIDENTS. At the request of the Chief Executive Officer or the President or in the event of either of their absences or inability or refusal to act (and if there be no Chairman of the Board of Directors), the Vice-President or the Vice-Presidents if there is more than one (in the order designated by the Board of Directors) shall perform the duties of the Chief Executive Officer and President, and when so acting, shall have all the powers 8 of and be subject to all the restrictions upon the Chief Executive Officer and President. Each Vice-President shall perform such other duties and have such other powers as the Board of Directors from time to time may prescribe. If there be no Chairman of the Board of Directors and no Vice-President, the Board of Directors shall designate the officer of the Corporation who, in the absence of the Chief Executive Officer and President or in the event of the inability or refusal of the Chief Executive Officer and President to act, shall perform the duties of the Chief Executive Officer and President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Chief Executive Officer and President. SECTION 8. SECRETARY. The Secretary shall attend all meetings of the Board of Directors and all meetings of stockholders and record all the proceedings thereat in a book or books to be kept for that purpose; the Secretary shall also perform like duties for the standing committees when required. The Secretary shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors, the Chief Executive Officer or President, under whose supervision he shall be. If the Secretary shall be unable or shall refuse to cause to be given notice of all meetings of the stockholders and special meetings of the Board of Directors, and if there be no Assistant Secretary, then either the Board of Directors, the Chief Executive Officer or the President may choose another officer to cause such notice to be given. The Secretary shall have custody of the seal of the Corporation and the Secretary or any Assistant Secretary, if there be one, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by the signature of the Secretary or by the signature of any such Assistant Secretary. The Board of Directors may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing by his signature. The Secretary shall see that all books, reports, statements, certificates and other documents and records required by law to be kept or filed are properly kept or filed, as the case may be. SECTION 9. TREASURER. The Treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. The Treasurer shall disburse the funds of the Corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the Chief Executive Officer, the President and the Board of Directors, at its regular meetings, or when the Board of Directors so requires, an account of all his transactions as Treasurer and of the financial condition of the Corporation. If required by the Board of Directors, the Treasurer shall give the Corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of his office and for the restoration to the Corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the Corporation. SECTION 10. ASSISTANT SECRETARIES. Except as may be otherwise provided in these By-Laws, Assistant Secretaries, if there be any, shall perform such duties 9 and have such powers as from time to time may be assigned to them by the Board of Directors, the Chief Executive Officer, the President, any Vice-President, if there be one, or the Secretary, and in the absence of the Secretary or in the event of his disability or refusal to act, shall perform the duties of the Secretary, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Secretary. SECTION 11. ASSISTANT TREASURERS. Assistant Treasurers, if there be any, shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors, the Chief Executive Officer, the President, any Vice-President, if there be one, or the Treasurer, and in the absence of the Treasurer or in the event of his disability or refusal to act, shall perform the duties of the Treasurer, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Treasurer. If required by the Board of Directors, an Assistant Treasurer shall give the Corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of his office and for the restoration to the Corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the Corporation. SECTION 12. OTHER OFFICERS. Such other officers as the Board of Directors may choose shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors. The Board of Directors may delegate to any other officer of the Corporation the power to choose such other officers and to prescribe their respective duties and powers. SECTION 13. CERTAIN ACTIONS. Notwithstanding anything to the contrary contained in these By-laws and other than in accordance with their respective employment contracts, until July 1, 2001, the removal of the current Chairman and Chief Executive Officer or the current President and Chief Operating Officer as of the effective date of the merger contemplated by the Merger Agreement, any modification to the provisions of either of their respective employment contracts which provide their respective terms of office or any modification to either of their respective roles, duties or authority shall, when a quorum is present, require the affirmative vote of seventy-five percent of the directors voting at a meeting for which proper notice of the actions taken was duly given. From and after July 1, 2001, any of the actions set forth in the immediately preceding sentence may be taken upon the affirmative vote of the number of directors which shall constitute, under the terms of these By-laws, the action of the Board of Directors. ARTICLE V STOCK SECTION 1. FORM OF CERTIFICATES. Every holder of stock in the Corporation shall be entitled to have a certificate signed, in the name of the Corporation (i) by the Chairman of the Board of Directors, the Chief Executive Officer, the President or a Vice-President and (ii) by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the Corporation, certifying the number of shares owned by him in the Corporation. 10 SECTION 2. SIGNATURES. Where a certificate is countersigned by (i) a transfer agent other than the Corporation or its employee, or (ii) a registrar other than the Corporation or its employee, any other signature on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. SECTION 3. LOST CERTIFICATES. The Board of Directors may direct a new certificate to be issued in place of any certificate theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate, or his legal representative, to advertise the same in such manner as the Board of Directors shall require and/or to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed. SECTION 4. TRANSFERS. Stock of the Corporation shall be transferable in the manner prescribed by law and in these By-Laws. Transfers of stock shall be made on the books of the Corporation only by the person named in the certificate or by his attorney lawfully constituted in writing and upon the surrender of the certificate therefor, which shall be canceled before a new certificate shall be issued. SECTION 5. RECORD DATE. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty days nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; PROVIDED, HOWEVER, that the Board of Directors may fix a new record date for the adjourned meeting. SECTION 6. BENEFICIAL OWNERS. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by law. ARTICLE VI NOTICES SECTION 1. NOTICES. Whenever written notice is required by law, the Certificate of Incorporation or these By-Laws, to be given to any director, 11 member of a committee or stockholder, such notice may be given by mail, addressed to such director, member of a committee or stockholder, at his address as it appears on the records of the Corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Written notice may also be given personally or by telegram, telex or cable. SECTION 2. WAIVERS OF NOTICE. Whenever any notice is required by law, the Certificate of Incorporation or these By-Laws, to be given to any director, member of a committee or stockholder, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. ARTICLE VII GENERAL PROVISIONS SECTION 1. DIVIDENDS. Dividends upon the capital stock of the Corporation, subject to the provisions of the Certificate of Incorporation, if any, may be declared by the Board of Directors at any regular or special meeting, and may be paid in cash, in property, or in shares of the capital stock. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board of Directors from time to time, in its absolute discretion, deems proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for any proper purpose, and the Board of Directors may modify or abolish any such reserve. SECTION 2. DISBURSEMENTS. All checks or demands for money and notes of the Corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate. SECTION 3. FISCAL YEAR. The fiscal year of the Corporation shall be fixed by resolution of the Board of Directors. SECTION 4. CORPORATE SEAL. The corporate seal shall have inscribed thereon the name of the Corporation, the year of its organization and the words "Corporate Seal, Delaware". The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. ARTICLE VIII INDEMNIFICATION SECTION 1. INDEMNIFICATION IN ACTIONS, SUITS, OR PROCEEDINGS OTHER THAN THOSE BY OR IN THE RIGHT OF THE CORPORATION. Subject to Section 3 of this Article VIII, the Corporation shall indemnify each person who is or was, or is threatened to be made, a party to or witness in any threatened, pending or completed action, suit, proceeding or claim, whether civil, criminal, administrative or investigative (other than one by or in the right of the Corporation), by reason of the fact that he is or was a director, officer or employee of the Corporation or of Union Mutual Life Insurance Company, a Maine mutual insurance company (the "Mutual Company"), or is or was serving at the request of the Corporation or the Mutual Company as a director, officer, employee or trustee of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against expenses (including attorney's fees and expenses), judgments, 12 fines, penalties, and amounts paid in settlement, incurred by him in connection with defending, investigating, preparing to defend, or being or preparing to be a witness in, such action, suit, proceeding or claim, if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. SECTION 2. INDEMNIFICATION IN ACTIONS, SUITS OR PROCEEDINGS BY OR IN THE RIGHT OF THE CORPORATION. Subject to Section 3 of this Article VIII, the Corporation shall indemnify each person who is or was, or is threatened to be made, a party to or witness in any threatened, pending or completed action, suit, proceeding or claim by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer or employee of the Corporation or of the Mutual Company or is or was serving at the request of the Corporation or the Mutual Company as a director, officer, employee or trustee of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against expenses (including attorney's fees and expenses), and, if and to the extent permitted by applicable law, judgments, penalties and amounts paid in settlement, incurred by him in connection with defending, investigating, preparing to defend, or being or preparing to be a witness in, such action, suit, proceeding or claim, if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation; PROVIDED, HOWEVER, that no indemnification shall be made in respect of any such claim or any issue or matter in any such action, suit or proceeding as to which such person shall have been adjudged to be liable to the Corporation unless (and only to the extent that) the Court of Chancery or the court in which such claim, action, suit or proceeding was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnification for such expenses and amounts which the Court of Chancery or such other court shall deem proper. SECTION 3. AUTHORIZATION OF INDEMNIFICATION. (a) Any indemnification under this Article VIII (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the person seeking indemnification is proper in the circumstances because he has met the applicable standard of conduct set forth in Section 1 or 2 of this Article VIII, as the case may be. Such determination (and determinations under Sections 5 and 6 of this Article VIII) shall be made (i) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to the action, suit, proceeding or claim with respect to which indemnification is sought ("disinterested directors"), or (ii) if such a quorum is not obtainable, or if a quorum of disinterested directors so directs, in a written opinion of independent legal counsel chosen by the Board of Directors, or (iii) by the stockholders; PROVIDED, HOWEVER, that if a Change in Control (as defined in this Section 3) has occurred and the person seeking indemnification so requests, such determination (and determination under Sections 5 and 6 of this Article VIII) shall be made in a written opinion rendered by independent legal counsel chosen by the person seeking indemnification and not reasonably objected to by the Board of Directors (whose fees and expenses shall be paid by the Corporation). To the extent, however, that a director, officer, employee or trustee or former director, officer, employee or trustee has been successful on the merits or otherwise in defense of any action, suit, proceeding or claim described above, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorney's fees and expenses) incurred by him in connection therewith, without the necessity of authorization in the specific case. 13 (b) For purposes of the proviso to the second sentence of Section 3(a), "independent legal counsel" shall mean legal counsel other than an attorney, or a firm having associated with it an attorney, who has been retained by or who has performed services for the Corporation, the Mutual Company or the person seeking indemnification within the previous three years. (c) A "Change in Control" shall mean a change in control of the Corporation of a nature that would be required to be reported in response to Item 5(f) of Schedule 14A of Regulation 14A promulgated under the Act, whether or not the Corporation is then subject to such reporting requirement; provided that, without limitation, such a change in control shall be deemed to have occurred if (i) any "person" (as such term is used in sections 13(d) and 14(d) of the Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Act), directly or indirectly, of securities of the Corporation representing 35% or more of the combined voting power of the Corporation's then outstanding securities without the prior approval of at least two-thirds of the members of the Board of Directors in office immediately prior to such acquisition, or (ii) the Corporation is a party to a merger, consolidation, sale of assets or other reorganization, or proxy contest, as a consequence of which members of the Board of Directors in office immediately prior to such transaction or event constitute less than a majority of the Board of Directors thereafter, or (iii) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors (including for this purpose any new director whose election or nomination for election by the Corporation's stockholders was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period) cease for any reason to constitute at least a majority of the Board of Directors. SECTION 4. GOOD FAITH DEFINED, ETC. (a) For purposes of any determination under Section 3 of this Article VIII, a person shall be deemed to have acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, or, with respect to any criminal action or proceeding, to have had no reasonable cause to believe his conduct was unlawful, if such person relied on the records or books of account of the Corporation, the Mutual Company or another enterprise, or on information supplied to him by the officers of the Corporation, the Mutual Company or another enterprise, or on information or records given or reports made to the Corporation, the Mutual Company or another enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Corporation, the Mutual Company or another enterprise. The term "another enterprise" as used in this Section 4(a) shall mean any other corporation or any partnership, joint venture, trust, employee benefit plan or other enterprise of which such person is or was serving at the request of the Corporation or the Mutual Company as a director, officer, employee or trustee. (b) The termination of any action, suit, proceeding or claim by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Corporation, or, with respect to any criminal action or proceeding, that he had no reasonable cause to believe that his conduct was unlawful. 14 (c) References in this Article VIII to "penalties" include any excise taxes assessed on a person with respect to an employee benefit plan; references in this Article VIII to "serving at the request of the Corporation or the Mutual Company" include any service as a director, officer or employee or former director, officer or employee of the Corporation or the Mutual Company which imposes duties on, or involves services by, such person with respect to an employee benefit plan or its participants or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the participants or beneficiaries of such an employee benefit plan shall be deemed to have acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation. (d) The provisions of this Section 4 shall not be deemed to be exclusive or to limit in any way the circumstances in which a person may be deemed to have met the applicable standard of conduct set forth in Section 1 or 2 of this Article VIII, as the case may be. SECTION 5. RIGHT TO INDEMNIFICATION UPON APPLICATION; PROCEDURE UPON APPLICATION; ETC. Except as otherwise provided in the proviso to Section 2 of this Article VIII: (a) Any indemnification under Section 1 or 2 of this Article VIII shall be made no later than 45 days after receipt by the Corporation of the written request of the director, officer, employee or trustee or former director, officer, employee or trustee unless a determination is made within said 45-day period in accordance with Section 3 of this Article VIII that such person has not met the applicable standard of conduct set forth in Section 1 or 2 of this Article VIII. (b) The right to indemnification under Section 1 or 2 of this Article VIII or advances under Section 6 of this Article VIII shall be enforceable by the director, officer, employee or trustee or former director, officer, employee or trustee in any court of competent jurisdiction. Following a Change in Control, the burden of proving that indemnification is not appropriate shall be on the Corporation. Neither the absence of any prior determination that indemnification is proper in the circumstances, nor a prior determination that indemnification is not proper in the circumstances, shall be a defense to the action or create a presumption that the director, officer, employee or trustee or former director, officer, employee or trustee has not met the applicable standard of conduct. The expenses (including attorney's fees and expenses) incurred by the director, officer, employee or trustee or former director, officer, employee or trustee in connection with successfully establishing his right to indemnification, in whole or in part, in any such action (or in any action or claim brought by him to recover under any insurance policy or policies referred to in Section 9 of this Article VIII) shall also be indemnified by the Corporation. (c) If any person is entitled under any provision of this Article VIII to indemnification by the Corporation for some or a portion of expenses, judgments, fines, penalties or amounts paid in settlement incurred by him, but not, however, for the total amount thereof, the Corporation shall nevertheless indemnify such person for the portion of such expenses, judgments, fines, penalties and amounts to which he is entitled. 15 SECTION 6. EXPENSES PAYABLE IN ADVANCE. Expenses (including attorney's fees and expenses) incurred by a director, officer, employee or trustee or a former director, officer, employee or trustee in defending, investigating, preparing to defend, or being or preparing to be a witness in, a threatened or pending action, suit, proceeding or claim against him, whether civil or criminal, may be paid by the Corporation in advance of the final disposition of such action, suit, proceeding or claim upon receipt by the Corporation of a written request therefor and a written undertaking by or on behalf of the director, officer, employee or trustee or former director, officer, employee or trustee to repay such amounts if it shall be determined in accordance with Section 3 of this Article VIII that he is not entitled to be indemnified by the Corporation; PROVIDED, HOWEVER, that if he seeks to enforce his rights in a court of competent jurisdiction pursuant to Section 5(b) of this Article VIII, said undertaking to repay shall not be applicable or enforceable unless and until there is a final court determination that he is not entitled to indemnification as to which all rights of approval have been exhausted or have expired. SECTION 7. CERTAIN PERSONS NOT ENTITLED TO INDEMNIFICATION. Notwithstanding any other provision of this Article VIII, no person shall be entitled to indemnification under this Article VIII or to advances under Section 6 of this Article VIII with respect to any action, suit, proceeding or claim brought or made by him against the Corporation or the Mutual Company, other than an action, suit, proceeding or claim seeking, or defending such person's right to, indemnification and/or expense advances pursuant to this Article VIII or otherwise. SECTION 8. NON-EXCLUSIVITY AND SURVIVAL OF INDEMNIFICATION. The provisions of this Article VIII shall not be deemed exclusive of any other rights to which the person seeking indemnification or expense advances may be entitled under any agreement, contract, or vote of stockholders or disinterested directors, or pursuant to the direction (howsoever embodied) of any court of competent jurisdiction, or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office. Except as otherwise provided in Section 7 of this Article VIII, but notwithstanding any other provision of this Article VIII, it is the policy of the Corporation that indemnification of and expense advances to the persons specified in Sections 1 and 2 of this Article VIII shall be made to the fullest extent permitted by law, and, accordingly, in the event of any change in law, by legislation or otherwise, permitting greater indemnification of and/or expense advances to any such person, the provisions of this Article VIII shall be construed so as to require such greater indemnification and/or expense advances. The provisions of this Article VIII shall not be deemed to preclude the indemnification of any person who is not specified in Section 1 or 2 of this Article VIII but whom the Corporation has the power to indemnify under the provisions of the General Corporation Law of the State of Delaware or otherwise. The provisions of this Article VIII shall continue as to a person who has ceased to be a director, officer, employee or trustee and shall inure to the benefit of the heirs, executors and administrators of such person. SECTION 9. INSURANCE. The Corporation may purchase and maintain at its expense insurance on behalf of any person who is or was a director, officer or employee of the Corporation or the Mutual Company or is or was serving at the 16 request of the Corporation or the Mutual Company as a director, officer, employee or trustee of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise against any liability or expense asserted against or incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power or the obligation to indemnify him against such liability or expense under the provisions of this Article VIII or the provisions of Section 145 of the General Corporation Law of the State of Delaware. The Company shall not be obligated under this Article VIII to make any payment in connection with any claim made against any person if and to the extent that such person has actually received payment therefor under any insurance policy or policies. SECTION 10. SUCCESSORS; MEANING OF "CORPORATION". This Article VIII shall be binding upon and enforceable against any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business and/or assets of the Corporation. For purposes of this Article VIII, but subject to the provisions of any agreement relating to any merger or consolidation of the kind referred to in clause (i) below or of any agreement relating to the acquisition of any corporation of the kind referred to in clause (ii) below, references to "the Corporation" shall include (i) any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger with the Corporation which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers and employees, so that any person who is or was a director, officer or employee of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or trustee of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, shall stand in the same position under the provisions of this Article VIII with respect to the Corporation as he would have with respect to such constituent corporation if its separate existence had continued; and (ii) any corporation of which at least a majority of the voting power (as represented by its outstanding stock having voting power generally in the election of directors) is owned directly or indirectly by the Corporation. SECTION 11. SEVERABILITY. The provisions of this Article VIII shall be severable in the event that any provision hereof (including any provision within a single section, subsection, clause, paragraph or sentence) is held invalid, void or otherwise unenforceable on any ground by any court of competent jurisdiction. In the event of any such holding, the remaining provisions of this Article VIII shall continue in effect and be enforceable to the fullest extent permitted by law. ARTICLE IX AMENDMENTS SECTION 1. POWER TO AMEND. The Board of Directors shall have concurrent power with the stockholders as set forth in the By-Laws and the Certificate of Incorporation to make, alter, amend, change, add to or repeal the By-Laws. SECTION 2. REQUIRED VOTE. The Board of Directors may amend the By-Laws upon the affirmative vote of the number of directors which shall constitute, under the terms of the By-Laws, the action of the Board of Directors. Notwithstanding anything to the contrary contained in these By-laws including, without limitation, the last preceding sentence, until July 1, 2001, the amendment of Article III, Section 11 or Article IV, Section 13 of these By-laws, shall, when a quorum is present, require the affirmative vote of seventy-five percent of the directors voting at a meeting for which proper notice of the actions taken was duly given. Stockholders may not amend the By-Laws except upon the affirmative vote of at least eighty percent (80%) of the votes entitled to be cast by the holders of all outstanding shares of Voting Stock (as such term is defined in the Certificate of Incorporation) voting together as a single class. 17 EX-10.1 4 EMPLOYMENT AGREEMENT FOR JAMES F. ORR III EXHIBIT 10.1 EMPLOYMENT AGREEMENT AGREEMENT by and between UNUM Corporation, a Delaware corporation having its principal executive offices in Portland, Maine ("Unum"), Provident Companies, Inc., a Delaware corporation ("Provident") and James F. Orr III (the "Executive") dated as of the 25 day of May, 1999. Unum and Provident have determined that it is in the best interests of their respective shareholders to assure that Unum will have the continued dedication of the Executive pending the merger of Provident and Unum (the "Merger") pursuant to the Agreement and Plan of Merger dated as of November 22, 1998 (the "Merger Agreement") and to provide the surviving company as defined in the Merger Agreement (the "Company") with continuity of management. Therefore, in order to accomplish these objectives, the Executive, Unum and the Company entered into an employment agreement dated as of November 22, 1998, and desire to amend and restate such agreement by entering into this Agreement. NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS: 1. Effective Date. The "Effective Date" shall mean the effective date of the Merger, provided the Executive is employed by Unum on that date. As of the date hereof, the prior Executive Severance Agreement effective August 1, 1991 ("Former Executive Severance Agreement") between the Executive and Unum shall terminate and become null and void, provided that upon any termination of the transactions contemplated by the Merger Agreement, this sentence will be inapplicable. 2. Employment Period. Unum and the Company hereby agree to continue to employ the Executive, and the Executive hereby agrees to continue in the employ of Unum and enter into the employ of the Company subject to the terms and conditions of this Agreement, for the period commencing on the Effective Date and ending on June 30, 2005 (the "Employment Period"). 3. Terms of Employment. (a) Position and Duties. (i) During the Employment Period, the Executive shall serve as Chairman and Chief Executive Officer ("CEO") of the Company through June 30, 2000 or such earlier date upon which the Executive elects to relinquish such position (the "Initial Period"), and thereafter as Chairman and Chair of the Executive Committee of the Board of Directors (the "Board") of the Company with the appropriate authority, duties and responsibilities attendant to such positions and with the powers and duties set forth in Exhibit B of the Merger Agreement (as amended as of May 25, 1999) and will participate equally through the Initial Period with J. Harold Chandler, while he is serving as President and Chief Operating Officer, in setting the overall strategic direction of the Company. During the Employment Period, Executive's status as an employee may be converted to that of a consultant by the Executive at any time after June 30, 2000 upon Executive's resignation as Chairman at which time the Employment Period shall end. Following any such conversion, Executive shall no longer be an employee but agrees to provide services as a consultant for a period of at least two years but not beyond June 30, 2006 (the "Consulting Period"). As compensation for his services as a consultant, Executive shall be paid a monthly retainer equal to one twelfth of his Annual Base Salary immediately preceding his becoming a consultant. As a consultant, Executive shall provide such consulting services to the Company as the Board may request. (ii) During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote substantially all of his attention and time during normal business hours to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, to use the Executive's reasonable best efforts to perform faithfully and efficiently such responsibilities. During the Employment Period it shall not be a violation of this Agreement for the Executive to (A) serve, with prior approval of the Board, on corporate, civic or charitable boards or committees (B) deliver lectures, fulfill speaking engagements or teach at educational institutions and (C) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive's responsibilities as an employee of the Company in accordance with this Agreement. It is expressly understood and agreed that to the extent that any such activities have been conducted by the Executive prior to the Effective Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) subsequent to the Effective Date shall not thereafter be deemed to interfere with the performance of the Executive's responsibilities to the Company. (b) Compensation. (i) Annual Base Salary. During the Initial Period, the Executive shall receive an annual base salary ("Annual Base Salary") of at least $900,000. Thereafter, the Executive shall receive an amount determined by the Board, but no less than his final Annual Base Salary as Chief Executive Officer. Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement. Annual Base Salary shall not be -2- reduced after any such increase and the term Annual Base Salary as utilized in this Agreement shall refer to Annual Base Salary as so increased. (ii) Annual Bonus. Through the period ending June 30, 2001, the Executive shall be eligible to receive an annual cash bonus ("Annual Bonus") with a target level of not less than 100% of Annual Base Salary, or such greater amount as determined by the Compensation Committee of the Company's Board of Directors (the "Compensation Committee"). Thereafter, no Annual Bonus will be paid. The annual bonus for the period January 1, 2001 through June 30, 2001 shall be 50% of the annual bonus that would have been paid with respect to the full calendar year. (iii) Incentive Awards. Immediately after the Effective Date, the Company shall grant the Executive options to purchase 500,000 shares of the Company's common stock (the "Stock Options") pursuant to the terms of the Company's Stock Plan of 1999 (the "Plan"). Except as otherwise provided herein, the Stock Options shall vest in four equal installments, on the first, second, third, and fourth anniversaries of the date of grant. Subsequent annual equity grants will be made by the Compensation Committee based upon competitive market analyses and such other factors it may deem appropriate and Executive shall be ineligible for equity grants thereafter. In addition, immediately after the Effective Date, the Company shall make an award of 250,000 shares of restricted stock pursuant to the terms of the Plan (the "Restricted Stock"). All restrictions on transfer of the Restricted Stock and all other restrictions on such Stock shall lapse on July 1, 2005 if the Executive is still employed by the Company or is rendering consulting services to the Company as contemplated by Section 3(a)(i) of this Agreement on such date; provided, however, that all such restrictions may lapse at an earlier date as specified in this Agreement or as otherwise determined by the Compensation Committee. (iv) Other Employee Benefit Plans. During the Employment Period, except as otherwise expressly provided herein, the Executive shall be entitled to participate in all employee benefit, welfare and other plans, practices, policies and programs, (collectively, "Employee Benefit Plans") applicable to senior executive officers of the Company. (v) Retirement Benefit. Upon the Executive's termination of employment before June 30, 2001, without Cause (as hereinafter defined) or for Good Reason (as hereinafter defined) or for any reason after June 30, 2001, the Executive shall be entitled to an annual retirement benefit payable monthly (the "Retirement Benefit") equal to (a) 50% (the "Replacement Percentage") of the average of his Base Salary and Annual Bonus for the five years -3- in which such amounts were highest within the last ten years of employment, less (b) any benefit payable pursuant to the Company's or any of its affiliated company's tax-qualified defined benefit retirement plan and any benefit to which he might be entitled under any nonqualified defined benefit retirement plan maintained by the Company or its affiliated companies. In calculating the Retirement Benefit, the Replacement Percentage shall increase by 1% for each full year the Executive is employed by the Company after his 55th birthday up to a maximum Replacement Percentage of 60%. In addition, for the portion of the Employment Period after the Initial Period, the Executive shall be deemed to have received an Annual Bonus which is the same, as a percentage of Annual Base Salary, as the Annual Bonus received by the then acting CEO. As used in this Agreement, the term "affiliated companies" shall include any company controlled by, controlling or under common control with the Company. The Retirement Benefit shall be payable for the life of the Executive commencing the first of the month following the later of Executive's fifty- fifth birthday and Executive's termination of employment. Upon commencement of the Retirement Benefit, any amounts owed under the Executive's current split dollar life policy will be forgiven and the amount forgiven will be grossed up for applicable federal, state and local taxes. Upon the Executive's death (whether prior to or after commencement of the Retirement Benefit), his surviving spouse shall be paid an annual benefit of 75% of the Retirement Benefit for her life. 4. Termination of Employment. (a) Death or Disability. The Executive's employment shall terminate automatically upon the Executive's death during the Employment Period. If the Company determines in good faith that the Disability of the Executive has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to the Executive written notice in accordance with Section 11(b) of this Agreement of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within the 30 days after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. For purposes of this Agreement, "Disability" shall mean the absence of the Executive from the Executive's duties with the Company on a full-time basis for 180 business days during any consecutive twelve month period as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative. -4- (b) Cause. The Company may terminate the Executive's employment during the Employment Period for Cause. For purposes of this Agreement, "Cause" shall mean: (i) the continued failure of the Executive to perform substantially the Executive's duties with the Company or one of its affiliates (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Executive by the Board which specifically identifies the manner in which the Board believes that the Executive has not substantially performed the Executive's duties, or (ii) the willful engaging by the Executive in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company, or (iii) conviction of a felony or guilty or nolo contendere plea by the Executive with respect thereto. For purposes of this provision, no act or failure to act, on the part of the Executive, shall be considered "willful" unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive's action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the Chief Executive Officer (while the Executive does not serve as such) or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company. The cessation of employment of the Executive shall not be deemed to be for Cause unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than 75% through 2001, and thereafter two thirds of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Executive and the Executive is given an opportunity, together with counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, the Executive is guilty of the conduct described in subparagraph (i) or (ii) above, and specifying the particulars thereof in detail. (c) Good Reason. The Executive's employment may be terminated by the Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall mean in the absence of a written consent of the Executive: (i) the assignment to the Executive of any duties inconsistent with the Executive's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by -5- Section 3(a)(i) of this Agreement, or any other action by the Company which results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (ii) any failure by the Company to comply with any of the provisions of Section 3(b) of this Agreement, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (iii) any purported termination by the Company of the Executive's employment otherwise than as expressly permitted by this Agreement, or any failure to renew this Agreement; (iv) any failure by the Company to comply with and satisfy Section 10(c) of this Agreement; or (v) failure of the Company to appoint the Executive to any of the positions as specified in Section 3(a)(i) as of the date specified therein. (d) Notice of Termination. Any termination by the Company or by the Executive shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 11(b) of this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than thirty days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. (e) Date of Termination. "Date of Termination" means if the Executive's employment is terminated by the Company other than for Disability, or by the Executive, the date of receipt of the Notice of Termination or any later date specified therein within 30 days of such notice, and if the Executive's employment is terminated by -6- reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date, as the case may be. 5. Obligations of the Company upon Termination. (a) Good Reason; Other Than for Cause, Death or Disability. If, during the Employment Period, the Company shall terminate the Executive's employment other than for Cause or Disability, or the Executive shall terminate employment for Good Reason: (i) the Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination: A. the greater of the following amounts: (x) the product of three (3) times the sum of (1) the highest annual bonus paid to the Executive for any of the three years prior to the Date of Termination (the "Recent Annual Bonus") and (2) the Executive's Annual Base Salary; and (y) the amount equal to the product of (1) the number of months and portions thereof from the Date of Termination until the end of the Employment Period divided by twelve and (2) the sum of the Executive's Annual Base Salary and the Recent Annual Bonus; B. the sum of (x) the Executive's Annual Base Salary through the Date of Termination to the extent not theretofore paid, and (y) the product of (1) the Recent Annual Bonus and (2) a fraction, the numerator of which is the number of days in the fiscal year in which the Date of Termination occurs through the Date of Termination and the denominator of which is 365, to the extent not theretofore paid (the sum of the amounts described in clauses (x) and (y) shall be hereinafter referred to as the "Accrued Obligations"); and C. the actuarial present value of the Retirement Benefit determined using the actuarial assumptions prescribed under the Company's tax-qualified defined benefit plan under which the Executive was eligible for participation at the time of termination of employment, assuming the Executive had accumulated the greater of (x) three additional years of employment and (y) the number of years and portions thereof of employment from the Date of Termination until the end of the Employment Period. If any portion of the Retirement Benefit in excess of the amount payable under any tax qualified defined benefit plan maintained by the Company or its affiliated companies is not payable in one lump sum, then the Executive shall not receive a benefit under such plan but shall instead -7- receive payment pursuant to this paragraph C. The intent of this provision is to preclude any duplication of benefits. (ii) for the remainder of the Executive's life and that of his spouse, the Company shall continue to provide medical and dental benefits to the Executive and his spouse on the same basis as such benefits are provided to the Chief Executive Officer of the Company from time to time ("Medical Benefits"); provided that such Medical Benefits shall be secondary to any other coverage obtained by the Executive and further provided that the aggregate amount of premium payments for such coverage shall not exceed $1,000,000; (iii) the Restricted Stock shall vest if such termination occurs after June 30, 2001, the Stock Options shall vest and remain exercisable for the remainder of their term and all other stock options, restricted stock awards and other equity-based awards shall vest and options shall remain exercisable for a period of three years or the earlier expiration of their initial term; and (iv) to the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies through the Date of Termination (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"). (b) Death or Disability. If the Executive's employment is terminated by reason of the Executive's death during the Employment Period, this Agreement shall terminate without further obligations to the Executive's legal representatives or to the Executive, as the case may be, under this Agreement, other than for payment of Accrued Obligations, the timely payment or provision of Other Benefits and Medical Benefits, and the Retirement Benefit. In addition, the Stock Options shall vest immediately and remain exercisable for a period of at least three years or the earlier expiration of their initial term. Accrued Obligations shall be paid to the Executive, the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination. (c) Cause; Other than for Good Reason. If the Executive's employment shall be terminated for Cause or the Executive terminates his employment without Good Reason during the Employment Period, this Agreement shall terminate without further obligations to the Executive other than the obligation to pay to the Executive (i) his Annual Base Salary through the Date of Termination to the extent theretofore unpaid, (ii) the Medical Benefits, (iii) the Other Benefits, and (iv) if the Date of Termination is after June 30, 2001, the Retirement Benefit. -8- 6. Non-exclusivity of Rights. Except as specifically provided, nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which the Executive may qualify, nor, subject to Section 11(f), shall anything herein limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Company or any of its affiliated companies. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement provided, that the Executive shall not be eligible for severance benefits under any other program or policy of the Company. 7. Full Settlement. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement, and such amounts shall not be reduced whether or not the Executive obtains other employment. The Company agrees to pay as incurred, to the full extent permitted by law, all legal fees and expenses which the Executive may reasonably incur as a result of any contest (regardless of the outcome thereof) pursued or defended against in good faith by the Executive regarding the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive about the amount of any payment pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code"). 8. Certain Additional Payments by the Company. (a) Anything in this Agreement to the contrary notwithstanding and except as set forth below, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 8) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter -9- collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. Notwithstanding the foregoing provisions of this Section 8(a), if it shall be determined that the Executive is entitled to a Gross-Up Payment, but that the Payments do not exceed 110% of the greatest amount (the "Reduced Amount") that could be paid to the Executive such that the receipt of Payments would not give rise to any Excise Tax, then no Gross-Up Payment shall be made to the Executive and the Payments, in the aggregate, shall be reduced to the Reduced Amount. (b) Subject to the provisions of Section 8(c), all determinations required to be made under this Section 8, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by the Company's independent auditors or such other certified public accounting firm reasonably acceptable to the Executive as may be designated by the Company (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Company. All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 8, shall be paid by the Company to the Executive within five days of the later of (i) the due date for the payment of any Excise Tax, and (ii) the receipt of the Accounting Firm's determination. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 8(c) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive. (c) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to -10- the expiration of the 30-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) give the Company any information reasonably requested by the Company relating to such claim, (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, (iii) cooperate with the Company in good faith in order effectively to contest such claim, and (iv) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 8(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable -11- hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (d) If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 8(c), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 8(c), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 9. Covenant Not to Compete; Confidential Information. (a) During the term of this Agreement, and for a one year period after the Date of Termination or after the end of the Consulting Period, the Executive shall not directly or indirectly, own, manage, operate, join, control, or participate in the ownership, management, operation or control of, or be employed by or connected in any manner with, any competing business, whether for compensation or otherwise, without the prior written consent of the Company. For the purposes of this Agreement, a "competing business" shall be any business which is a significant competitor of the Company, or which the Company reasonably determines may become a significant competitor, unless the Executive's primary duties and responsibilities with respect to such business are not related to the management or operation of disability insurance or complementary special risk products and services in any country where the Company is conducting business. Should the Executive, directly or indirectly, own, manage, operate, join, control or participate in the ownership, management, operation or control of, or be employed by or connected in any manner with, any competing business, all payments under this Agreement shall cease. (b) The Executive hereby acknowledges that, as an employee of the Company, he will be making use of, acquiring and adding to confidential information of a special and unique nature and value relating to the Company and its strategic plan and financial operations. The Executive further recognizes and acknowledges that all confidential information is the exclusive property of the Company, is material and confidential, and is critical to the successful conduct of the business of the Company. Accordingly, the Executive hereby covenants and agrees that he will use confidential information for the benefit of the Company only and shall not at any time, directly or indirectly, during the term of this Agreement, and thereafter for all periods during which -12- severance or other amount is paid, divulge, reveal or communicate any confidential information to any person, firm, corporation or entity whatsoever, or use any confidential information for his own benefit or for the benefit of others. In no event shall an asserted violation of the provisions of this Section 9(b) constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. (c) Any termination of the Executive's employment or of this Agreement shall have no effect on the continuing operation of this Section 9. (d) In addition to the cessation of payments set forth in Section 9(a), the Executive acknowledges and agrees that the Company will have no adequate remedy at law, and could be irreparably harmed, if the Executive breaches or threatens to breach any of the provisions of this Section 9. The Executive agrees that the Company shall be entitled to equitable and/or injunctive relief to prevent any breach or threatened breach of this Section 9, and to specific performance of each of the terms hereof in addition to any other legal or equitable remedies that the Company may have. The Executive further agrees that he shall not, in any equity proceeding relating to the enforcement of the terms of this Section 9, raise the defense that the Company has an adequate remedy at law. (e) The terms and provisions of this Section 9 are intended to be separate and divisible provisions and if, for any reason, any one or more of them is held to be invalid or unenforceable, neither the validity nor the enforceability of any other provision of this Agreement shall thereby be affected. The parties hereto acknowledge that the potential restrictions on the Executive's future employment imposed by this Section 9 are reasonable in both duration and geographic scope and in all other respects. If for any reason any court of competent jurisdiction shall find any provisions of this Section 9 unreasonable in duration or geographic scope or otherwise, the Executive and the Company agree that the restrictions and prohibitions contained herein shall be effective to the fullest extent allowed under applicable law in such jurisdiction. (f) The parties acknowledge that this Agreement would not have been entered into and the benefits described in Sections 3 or 5 would not have been promised in the absence of the Executive's promises under this Section 9. 10. Successors. (a) This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. -13- (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 11. Miscellaneous. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: If to the Company: UNUM Corporation 2211 Congress Street Portland, Maine 04122 Telecopy Number: (207) 770-4377 Attention: Kevin J. Tierney -14- or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (d) The Company may withhold from any amounts payable under this Agreement such Federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation. (e) The Executive's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason pursuant to Section 4(c)(i)-(iv) of this Agreement, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. (f) From and after the Effective Date this Agreement shall supersede any other employment, severance or change of control agreement between the parties with respect to the subject matter hereof. -15- IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization from its Board of Directors, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written. /s/ James F. Orr III ----------------------------------- Executive UNUM Corporation By /s/ Kevin J. Tierney ----------------------------------- Provident agrees that as of the Effective Date it will honor this Agreement and treat the Agreement as its own. Provident Companies, Inc. By /s/ Dean Copeland ----------------------------------- -16- EXHIBIT 10.1 AMENDMENT TO EMPLOYMENT AGREEMENT AGREEMENT by and between UNUM Corporation, a Delaware corporation having its principal executive offices in Portland, Maine ("Unum"), Provident Companies, Inc., a Delaware corporation ("Provident") and James F. Orr III (the "Executive") dated as of the 29 day of June, 1999. The Executive, Unum and Provident entered into an employment agreement dated as of November 22, 1998, which was amended and restated as of May 25, 1999 (the "Agreement"), and desire to further amend such Agreement. NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS: 1. Section 3(b)(iii) of the Agreement is amended to provide as follows: (iii) Incentive Awards. Immediately after the Effective Date, the Company shall grant the Executive options to purchase 500,000 shares of the Company's common stock (the "Stock Options") pursuant to the terms of the Company's Stock Plan of 1999 (the "Plan"). Except as otherwise provided herein, the Stock Options shall vest in four equal installments, on the first, second, third, and fourth anniversaries of the date of grant. Subsequent annual equity grants will be made by the Compensation Committee based upon competitive market analyses and such other factors it may deem appropriate and Executive shall be ineligible for equity grants thereafter. In addition, immediately after the Effective Date, the Company shall make an award of 250,000 shares of restricted stock pursuant to the terms of the Plan or such other stock-based incentive plan as the Company maintains (the "Restricted Stock"). All restrictions on transfer of the Restricted Stock and all other restrictions on such Stock shall lapse on July 1, 2005 if the Executive is still employed by the Company or is rendering consulting services to the Company as contemplated by Section 3(a)(i) of this Agreement on such date; provided, however, that all such restrictions may lapse at an earlier date as specified in this Agreement or as otherwise determined by the Compensation Committee. 2. This amendment is effective as of the initial date of the Agreement. IN WITNESS WHEREOF, the Executive, Unum and Provident have caused these presents to be executed, all as of the day and year first above written. /s/ James F. Orr III ------------------------------ Executive UNUM Corporation By /s/ Kevin J. Tierney -------------------------- Provident Companies, Inc. By /s/ Dean Copeland ---------------------------- EX-10.2 5 EMPLOYMENT AGREEMENT FOR J. HAROLD CHANDLER EXHIBIT 10.2 EMPLOYMENT AGREEMENT AGREEMENT by and between Provident Companies, Inc., a Delaware corporation having its principal executive offices in Chattanooga, Tennessee, (the "Company") and J. Harold Chandler (the "Executive") dated as of the 25 day of May, 1999. The Company and UNUM Corporation, a Delaware corporation ("Unum") have determined that it is in the best interests of their respective shareholders to assure that the Company will have the continued dedication of the Executive pending the merger of the Company and Unum (the "Merger") pursuant to the Agreement and Plan of Merger dated as of November 22, 1998 (the "Merger Agreement") and to provide the Company after the Merger with continuity of management. Therefore, in order to accomplish these objectives, the Executive and the Company entered into an employment agreement dated November 22, 1998 and desire to amend and restate such agreement by entering into this Agreement. NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS: 1. Effective Date. The "Effective Date" shall mean the effective date of the Merger, provided the Executive is employed by the Company on that date. As of the date hereof, the prior Employment Agreement effective November 8, 1993 ("Former Employment Agreement") between the Executive and the Company shall terminate and become null and void, provided that upon any termination of the transactions contemplated by the Merger Agreement, this sentence will be inapplicable. 2. Employment Period. The Company hereby agrees to continue to employ the Executive, and the Executive hereby agrees to continue in the employ of the Company subject to the terms and conditions of this Agreement, for the period commencing on the Effective Date and ending on June 30, 2005 (the "Employment Period"). Beginning on June 30, 2005, the Employment Period shall be automatically extended for one year terms unless either the Company or the Executive shall give the other party not less than ninety (90) days prior written notice of the intention to terminate this Agreement. 3. Terms of Employment. (a) Position and Duties. (i) During the Employment Period, the Executive shall serve as President and Chief Operating Officer of the Company through June 30, 2000 and thereafter as Chief Executive Officer of the Company with the appropriate authority, duties and responsibilities attendant to such positions including, when requested, serving in a comparable position with respect to any subsidiary of the Company and with the powers and duties set forth in Exhibit B of the Merger Agreement (as amended as of May 25, 1999) ("Exhibit B") and will participate equally, through June 30, 2000, with the then acting Chief Executive Officer of the Company in setting the overall strategic direction of the Company; provided, however, that the Executive shall become the Chief Executive Officer of the Company on such earlier date as the person serving in such capacity immediately after the Effective Date shall cease to hold such position. The Executive shall serve on the Company's Board of Directors (the "Board") during the Employment Period, shall be a member of such committees as contemplated pursuant to Exhibit B or otherwise appointed to by the Board and shall succeed to the position of Chairman of the Board when the person serving in such capacity immediately after the Effective Date shall cease to hold that position, but in no event later than July 1, 2005. (ii) During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote substantially all of his attention and time during normal business hours to the business and affairs of the Company and its subsidiaries and, to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, to use the Executive's reasonable best efforts to perform faithfully and efficiently such responsibilities. During the Employment Period it shall not be a violation of this Agreement for the Executive to (A) serve, with prior approval of the Board, on corporate, civic or charitable boards or committees (B) deliver lectures, fulfill speaking engagements or teach at educational institutions and (C) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive's responsibilities as an employee of the Company in accordance with this Agreement. It is expressly understood and agreed that to the extent that any such activities have been conducted by the Executive prior to the Effective Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) subsequent to the Effective Date shall not thereafter be deemed to interfere with the performance of the Executive's responsibilities to the Company. (b) Compensation. (i) Annual Base Salary. During the Employment Period, the Executive shall receive an annual base salary ("Annual Base Salary") of at least $900,000 or such higher annual base salary that is paid to the Company's Chief Executive Officer if the Executive is not serving in that position. Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement. Annual Base Salary shall not be -2- reduced after any such increase and the term Annual Base Salary as utilized in this Agreement shall refer to Annual Base Salary as so increased. (ii) Annual Bonus. During the Employment Period, the Executive shall be eligible to receive an annual cash bonus ("Annual Bonus") with a target level of not less than 100% of Annual Base Salary, or such greater amount as determined by the Compensation Committee of the Company's Board of Directors (the "Compensation Committee"). (iii) Incentive Awards. Immediately after the Effective Date, the Company shall grant the Executive options to purchase 500,000 shares of the Company's common stock (the "Stock Options") pursuant to the terms of the Company's Stock Plan of 1999. Except as otherwise provided herein, the Stock Options shall vest in four equal installments, on the first, second, third, and fourth anniversaries of the date of grant. Subsequent annual equity grants will be made by the Compensation Committee based upon competitive market analyses and such other factors it may deem appropriate. (iv) Other Employee Benefit Plans. During the Employment Period, except as otherwise expressly provided herein, the Executive shall be entitled to participate in all employee benefit, welfare and other plans, practices, policies and programs, other than pre-existing split- dollar life insurance (collectively, "Employee Benefit Plans") applicable to the Chief Executive Officer of the Company on a basis no less favorable than that provided to the Chief Executive Officer of the Company. The Executive shall also be reimbursed for all reasonable costs associated with the purchase or rental of an additional residence at the Company's headquarters in Portland, Maine, and all reasonable expenses of relocation for the Executive and his family. These expenses shall include, but not be limited to: all costs of the physical move; en route travel expenses including hotel and meal expenses; temporary living expenses for up to twelve (12) weeks, including meals; three (3) house-hunting trips for the Executive and his family; weekly commuting expenses from his prior home to Portland, Maine, and return until the Executive and his family have moved; closing costs and real estate commissions incurred in the sale of his former primary residence and the purchase of a house in the Portland, Maine area; an additional amount to cover federal, state and local income taxes incurred as a result of the relocation expenses paid hereunder; and any other expenses covered pursuant to the Company's normal relocation policy. Additionally, the Executive agrees to sell and the Company agrees to purchase the Executive's former home at a value based upon an appraisal by a mutually satisfactory third party appraiser; provided, however, that the purchase price shall be not less than the Executive's original purchase price plus any satisfactorily documented capital improvements. -3- (v) Retirement Benefit. Upon the Executive's termination of employment before June 30, 2001, without Cause (as hereinafter defined) or for Good Reason (as hereinafter defined) or for any reason after June 30, 2001, the Executive shall be entitled to an annual retirement benefit payable monthly (the "Retirement Benefit") equal to (a) 50% (the "Replacement Percentage") of the average of his Base Salary and Annual Bonus for the five years in which such amounts were highest within the last ten years of employment less (b) any benefit payable pursuant to the Company's or any of its affiliated company's tax-qualified defined benefit retirement plan and any benefit to which he might be entitled under any nonqualified defined benefit retirement plan maintained by the Company or its affiliated companies. In calculating the Retirement Benefit, the Replacement Percentage shall increase by 1% for each full year the Executive is employed by the Company after his 55th birthday up to a maximum Replacement Percentage of 60%. As used in this Agreement, the term "affiliated companies" shall include any company controlled by, controlling or under common control with the Company. The Retirement Benefit shall be payable for the life of the Executive commencing the first of the month following the later of Executive's fifty-fifth birthday and Executive's termination of employment. Upon the Executive's death (whether prior to or after commencement of the Retirement Benefit), his surviving spouse shall be paid an annual benefit of 75% of the Retirement Benefit for her life provided that if such benefit commences before the Executive's 55th birthday, it shall be actuarially reduced. 4. Termination of Employment. (a) Death or Disability. The Executive's employment shall terminate automatically upon the Executive's death during the Employment Period. If the Company determines in good faith that the Disability of the Executive has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to the Executive written notice in accordance with Section 11(b) of this Agreement of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within the 30 days after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. For purposes of this Agreement, "Disability" shall mean the absence of the Executive from the Executive's duties with the Company on a full-time basis for 180 business days during any consecutive twelve month period as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative. -4- (b) Cause. The Company may terminate the Executive's employment during the Employment Period for Cause. For purposes of this Agreement, "Cause" shall mean: (i) the continued failure of the Executive to perform substantially the Executive's duties with the Company or one of its affiliates (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Executive by the Board which specifically identifies the manner in which the Board believes that the Executive has not substantially performed the Executive's duties, or (ii) the willful engaging by the Executive in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company, or (iii) conviction of a felony or guilty or nolo contendere plea by the Executive with respect thereto. For purposes of this provision, no act or failure to act, on the part of the Executive, shall be considered "willful" unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive's action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the Chief Executive Officer (while the Executive does not serve as such) or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company. The cessation of employment of the Executive shall not be deemed to be for Cause unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than 75% through 2001, and thereafter two thirds of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Executive and the Executive is given an opportunity, together with counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, the Executive is guilty of the conduct described in subparagraph (i) or (ii) above, and specifying the particulars thereof in detail. -5- (c) Good Reason. The Executive's employment may be terminated by the Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall mean in the absence of a written consent of the Executive: (i) the assignment to the Executive of any duties inconsistent with the Executive's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 3(a)(i) of this Agreement, or any other action by the Company which results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (ii) any failure by the Company to comply with any of the provisions of Section 3(b) of this Agreement, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (iii) any purported termination by the Company of the Executive's employment otherwise than as expressly permitted by this Agreement, or any failure to renew this Agreement; (iv) any failure by the Company to comply with and satisfy Section 10(c) of this Agreement; or (v) failure of the Company to appoint the Executive to any of the positions as specified in Section 3(a)(i) as of the date specified therein. (d) Notice of Termination. Any termination by the Company or by the Executive shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 11(b) of this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than thirty days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good -6- Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. (e) Date of Termination. "Date of Termination" means if the Executive's employment is terminated by the Company other than for Disability, or by the Executive, the date of receipt of the Notice of Termination or any later date specified therein within 30 days of such notice, and if the Executive's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date, as the case may be. 5. Obligations of the Company upon Termination. (a) Good Reason; Other Than for Cause, Death or Disability. If, during the Employment Period, the Company shall terminate the Executive's employment other than for Cause or Disability, or the Executive shall terminate employment for Good Reason: (i) the Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination: A. the greater of the following amounts: (x) the product of three (3) times the sum of (1) the highest annual bonus paid to the Executive for any of the three years prior to the Date of Termination (the "Recent Annual Bonus") and (2) the Executive's Annual Base Salary; and (y) the amount equal to the product of (1) the number of months and portions thereof from the Date of Termination until the end of the Employment Period divided by twelve and (2) the sum of the Executive's Annual Base Salary and the Recent Annual Bonus; B. the sum of (x) the Executive's Annual Base Salary through the Date of Termination to the extent not theretofore paid, and (y) the product of (1) the Recent Annual Bonus and (2) a fraction, the numerator of which is the number of days in the fiscal year in which the Date of Termination occurs through the Date of Termination and the denominator of which is 365, to the extent not theretofore paid (the sum of the amounts described in clauses (x) and (y) shall be hereinafter referred to as the "Accrued Obligations"); and C. the actuarial present value of the Retirement Benefit determined using the actuarial assumptions prescribed under the tax- qualified defined benefit plan under which the Executive was eligible -7- for participation at the time of termination of employment, assuming the Executive had accumulated the greater of (x) three additional years of employment and (y) the number of years and portions thereof of employment from the Date of Termination until the end of the Employment Period. If any portion of the Retirement Benefit in excess of the amount payable under any tax qualified defined benefit plan maintained by the Company or its affiliated companies is not payable in one lump sum, then the Executive shall not receive a benefit under such plan but shall instead receive payment pursuant to this paragraph C. The intent of this provision is to preclude any duplication of benefits. (ii) for the remainder of the Executive's life and that of his spouse, the Company shall continue to provide medical and dental benefits to the Executive and his spouse on the same basis as such benefits are provided to the Chief Executive Officer of the Company from time to time ("Medical Benefits"); provided that such Medical Benefits shall be secondary to any other coverage obtained by the Executive and further provided that the aggregate amount of premium payments for such coverage shall not exceed $1,000,000. (iii) the Stock Options shall vest and remain exercisable for the remainder of their term and all other stock options, restricted stock awards and other equity-based awards shall vest (and options shall remain exercisable for a period of, at least three years or the earlier expiration of their initial term); and (iv) to the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies through the Date of Termination (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"). (b) Death or Disability. If the Executive's employment is terminated by reason of the Executive's death during the Employment Period, this Agreement shall terminate without further obligations to the Executive's legal representatives or to the Executive, as the case may be, under this Agreement, other than for payment of Accrued Obligations, the timely payment or provision of Other Benefits and Medical Benefits, and the Retirement Benefit. In addition, the Stock Options shall vest immediately and remain exercisable for a period of at least three years or the earlier expiration of their initial term. Accrued Obligations shall be paid to the Executive, the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination. -8- (c) Cause; Other than for Good Reason. If the Executive's employment shall be terminated for Cause or the Executive terminates his employment without Good Reason during the Employment Period, this Agreement shall terminate without further obligations to the Executive other than the obligation to pay to the Executive (i) his Annual Base Salary through the Date of Termination to the extent theretofore unpaid, (ii) the Other Benefits, and (iii) if the Date of Termination is after June 30, 2001, the Retirement Benefit; provided, however that the Medical Benefits shall be paid if the Executive's employment is terminated other than for Cause after he attains age 55. 6. Non-exclusivity of Rights. Except as specifically provided, nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which the Executive may qualify, nor, subject to Section 11(f), shall anything herein limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Company or any of its affiliated companies. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement; provided that the Executive shall not be eligible for severance benefits under any other program or policy of the Company. 7. Full Settlement. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement, and such amounts shall not be reduced whether or not the Executive obtains other employment. The Company agrees to pay as incurred, to the full extent permitted by law, all legal fees and expenses which the Executive may reasonably incur as a result of any contest (regardless of the outcome thereof) pursued or defended against in good faith by the Executive regarding the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive about the amount of any payment pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code"). -9- 8. Certain Additional Payments by the Company. (a) Anything in this Agreement to the contrary notwithstanding and except as set forth below, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 8) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. Notwithstanding the foregoing provisions of this Section 8(a), if it shall be determined that the Executive is entitled to a Gross-Up Payment, but that the Payments do not exceed 110% of the greatest amount (the "Reduced Amount") that could be paid to the Executive such that the receipt of Payments would not give rise to any Excise Tax, then no Gross-Up Payment shall be made to the Executive and the Payments, in the aggregate, shall be reduced to the Reduced Amount. (b) Subject to the provisions of Section 8(c), all determinations required to be made under this Section 8, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by the Company's independent auditors or such other certified public accounting firm reasonably acceptable to the Executive as may be designated by the Company (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Company. All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 8, shall be paid by the Company to the Executive within five days of the later of (i) the due date for the payment of any Excise Tax, and (ii) the receipt of the Accounting Firm's determination. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts -10- its remedies pursuant to Section 8(c) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive. (c) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) give the Company any information reasonably requested by the Company relating to such claim, (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, (iii) cooperate with the Company in good faith in order effectively to contest such claim, and (iv) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 8(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the -11- Company shall determine; provided, however, that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (d) If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 8(c), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 8(c), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 9. Covenant Not to Compete; Confidential Information. (a) During the term of this Agreement, and for a one year period after the Date of Termination, the Executive shall not directly or indirectly, own, manage, operate, join, control, or participate in the ownership, management, operation or control of, or be employed by or connected in any manner with, any competing business, whether for compensation or otherwise, without the prior written consent of the Company. For the purposes of this Agreement, a "competing business" shall be any business which is a significant competitor of the Company, or which the Company reasonably determines may become a significant competitor, unless the Executive's primary duties and responsibilities with respect to such business are not related to the management or operation of disability insurance or complementary special risk products and services in any country where the Company is conducting business. Should the Executive, directly or indirectly, own, manage, operate, join, control or participate in the ownership, management, operation or control of, or be employed by or connected in any manner with, any competing business, all payments under this Agreement shall cease. -12- (b) The Executive hereby acknowledges that, as an employee of the Company, he will be making use of, acquiring and adding to confidential information of a special and unique nature and value relating to the Company and its strategic plan and financial operations. The Executive further recognizes and acknowledges that all confidential information is the exclusive property of the Company, is material and confidential, and is critical to the successful conduct of the business of the Company. Accordingly, the Executive hereby covenants and agrees that he will use confidential information for the benefit of the Company only and shall not at any time, directly or indirectly, during the term of this Agreement, and thereafter for all periods during which severance or other amount is paid, divulge, reveal or communicate any confidential information to any person, firm, corporation or entity whatsoever, or use any confidential information for his own benefit or for the benefit of others. In no event shall an asserted violation of the provisions of this Section 9(b) constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. (c) Any termination of the Executive's employment or of this Agreement shall have no effect on the continuing operation of this Section 9. (d) In addition to the cessation of payments set forth in Section 9(a), the Executive acknowledges and agrees that the Company will have no adequate remedy at law, and could be irreparably harmed, if the Executive breaches or threatens to breach any of the provisions of this Section 9. The Executive agrees that the Company shall be entitled to equitable and/or injunctive relief to prevent any breach or threatened breach of this Section 9, and to specific performance of each of the terms hereof in addition to any other legal or equitable remedies that the Company may have. The Executive further agrees that he shall not, in any equity proceeding relating to the enforcement of the terms of this Section 9, raise the defense that the Company has an adequate remedy at law. (e) The terms and provisions of this Section 9 are intended to be separate and divisible provisions and if, for any reason, any one or more of them is held to be invalid or unenforceable, neither the validity nor the enforceability of any other provision of this Agreement shall thereby be affected. The parties hereto acknowledge that the potential restrictions on the Executive's future employment imposed by this Section 9 are reasonable in both duration and geographic scope and in all other respects. If for any reason any court of competent jurisdiction shall find any provisions of this Section 9 unreasonable in duration or geographic scope or otherwise, the Executive and the Company agree that the restrictions and prohibitions contained herein shall be effective to the fullest extent allowed under applicable law in such jurisdiction. -13- (f) The parties acknowledge that this Agreement would not have been entered into and the benefits described in Sections 3 or 5 would not have been promised in the absence of the Executive's promises under this Section 9. 10. Successors. (a) This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 11. Miscellaneous. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: -14- If to the Executive: Provident Companies, Inc. 1 Fountain Square Chattanooga, Tennessee 37402 If to the Company: Provident Companies, Inc. 1 Fountain Square Chattanooga, Tennessee 37402 Telecopy Number: (423) 755-5036 Attention: F. Dean Copeland or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (d) The Company may withhold from any amounts payable under this Agreement such Federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation. (e) The Executive's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason pursuant to Section 4(c)(i)-(iv) of this Agreement, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. (f) From and after the Effective Date this Agreement shall supersede any other employment, severance or change of control agreement between the parties with respect to the subject matter hereof. -15- IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization from its Board of Directors, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written. /s/ J. Harold Chandler -------------------------------------- J. Harold Chandler Provident Companies, Inc. By /s/ Dean Copeland ----------------------------------- -16- EX-10.3 6 EMPLOYMENT AGREEMENT FOR F. DEAN COPELAND EXHIBIT 10.3 EMPLOYMENT AGREEMENT AGREEMENT by and between Provident Companies, Inc., a Delaware corporation having its principal executive offices in Chattanooga, Tennessee (the "Company"), and F. Dean Copeland (the "Executive") dated as of the 30th day of June, 1999. The Company and Unum Corporation, a Delaware corporation ("Unum"), have determined that it is in the best interests of their respective shareholders to assure that the Company will have the continued dedication of the Executive pending the merger of the Company and Unum (the "Merger") pursuant to the Agreement and Plan of Merger dated as of November 22, 1998 as amended as of May 25, 1999 (the "Merger Agreement") and to provide the Company after the Merger with continuity of management. Therefore, in order to accomplish these objectives, the Executive and the Company desire to enter into this Agreement. NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS: 1. Effective Date. The "Effective Date" shall mean the effective date of the Merger, provided the Executive is employed by the Company on that date. As of the Effective Date, the prior Severance Agreement effective June 16, 1997 ("Former Severance Agreement") between the Executive and the Company shall terminate and become null and void, provided that, upon any termination of the transactions contemplated by the Merger Agreement, this sentence will be inapplicable. 2. Term of Agreement. The Company hereby agrees to continue to employ the Executive, and the Executive hereby agrees to continue in the employ of the Company subject to the terms and conditions of this Agreement, for the period commencing on the Effective Date and ending on the third anniversary of the Effective Date (the "Initial Term"). Beginning on the third anniversary of the Effective Date, the Initial Term shall be automatically extended for one year terms unless either the Company or the Executive shall give the other party not less than ninety (90) days prior written notice of the intention to terminate this Agreement. 3. Terms of Employment. (a) Position and Duties. (i) The Executive shall serve as Executive Vice President, Legal and Administrative Affairs of the Company with the appropriate authority, duties and responsibilities attendant to such position, it being understood that from time to time the scope of such authority, duties and responsibilities will vary depending upon acquisitions, dispositions and organizational structures of the Company. 1 (ii) Excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote substantially all of his attention and time during normal business hours to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, to use the Executive's reasonable best efforts to perform faithfully and efficiently such responsibilities. It shall not be a violation of this Agreement for the Executive to (A) serve, with prior approval of the Board, on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions and (C) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive's responsibilities as an employee of the Company in accordance with this Agreement. It is expressly understood and agreed that to the extent that any such activities have been conducted by the Executive prior to the Effective Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) subsequent to the Effective Date shall not thereafter be deemed to interfere with the performance of the Executive's responsibilities to the Company. (b) Compensation. (i) Annual Base Salary. The Executive shall receive an annual base salary ("Annual Base Salary") of $350,000. Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement. Annual Base Salary shall not be reduced after any such increase and the term Annual Base Salary as utilized in this Agreement shall refer to Annual Base Salary as so increased. (ii) Annual Bonus. The Executive shall be eligible to receive an annual bonus ("Annual Bonus") with a target level of 75% of Annual Base Salary (the "Target Bonus Amount"). (iii) Incentive Awards. Immediately after the Effective Date, the Company shall grant the Executive options to purchase 110,000 shares of the Company's common stock (the "Stock Options") pursuant to the terms of the Company's Stock Plan of 1999. Except as otherwise provided herein, the Stock Options shall vest in four equal installments, on the first, second, third, and fourth anniversaries of the date of grant. Subsequent annual equity grants will be made by the Compensation Committee of the Company's Board of Directors (the "Compensation Committee") based upon competitive market analyses and such other factors it may deem appropriate. (iv) Other Employee Benefit Plans. Except as otherwise expressly provided herein, the Executive shall be entitled to participate in all employee benefit, welfare and other plans, practices, policies and programs (including relocation programs) (collectively, "Employee Benefit Plans") applicable to senior executive officers of the Company. 2 (v) Retirement Benefit. The Executive shall be entitled to an annual retirement benefit payable monthly (the "Retirement Benefit") pursuant to the terms of and under the current formula contained in the UNUM Corporation Supplemental Executive Retirement Plan (the "Plan"); provided, however, in no event shall the Executive's accrued Retirement Benefit be retroactively reduced. In calculating this Retirement Benefit, the Executive shall receive full credit for all of his years of service with the Company for all purposes. 4. Termination of Employment. (a) Death or Disability. The Executive's employment shall terminate automatically upon the Executive's death. If the Company determines in good faith that the Disability of the Executive has occurred (pursuant to the definition of Disability set forth below), it may give to the Executive written notice in accordance with Section 11(b) of this Agreement of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within the 30 days after such receipt, the Executive shall not have returned to full- time performance of the Executive's duties. For purposes of this Agreement, "Disability" shall mean the absence of the Executive from the Executive's duties with the Company on a full-time basis for any twelve month period as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative. (b) Cause. The Company may terminate the Executive's employment for Cause. For purposes of this Agreement, "Cause" shall mean: (i) the continued failure of the Executive to perform substantially the Executive's duties with the Company or one of its affiliates (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Executive by the Chief Executive Officer of the Company ("CEO") or the Chief Operating Officer of the Company ("COO") which specifically identifies the manner in which the CEO or COO believes that the Executive has not substantially performed the Executive's duties, or (ii) the willful engaging by the Executive in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company, or (iii) conviction of a felony or guilty or nolo contendere plea by the Executive with respect thereto. For purposes of this provision, no act or failure to act, on the part of the Executive, shall be considered "willful" unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive's action or omission was in the best interests of the 3 Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the CEO or COO or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company. The cessation of employment of the Executive shall not be deemed to be for Cause unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than two thirds of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Executive and the Executive is given an opportunity, together with counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, the Executive is guilty of the conduct described in subparagraph (i) or (ii) above, and specifying the particulars thereof in detail. (c) Good Reason. The Executive's employment may be terminated by the Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall mean the following events, provided, however, that clauses (i) through (v) shall -------- ------- constitute Good Reason only in the absence of the written consent of the Executive: (i) the assignment to the Executive of any duties inconsistent with the Executive's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 3(a)(i) of this Agreement and its accompanying schedule, or any other action by the Company which results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (ii) any failure by the Company to comply with any of the provisions of Section 3(b) of this Agreement, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (iii) any purported termination by the Company of the Executive's employment otherwise than as expressly permitted by this Agreement, or any failure to renew this Agreement; (iv) any failure by the Company to comply with and satisfy Section 10(c) of this Agreement; or (v) any required relocation of the Executive, provided that no required relocation shall be considered to constitute Good Reason unless it occurs during the CIC Period (as defined in Section 5(a)(i)(A)). (d) Change in Control. For purposes of this Agreement, "Change of Control" shall mean the occurrence of any one of the following events: 4 (i) during any period of two consecutive years, individuals who, at the beginning or such period, constitute the Board (the "Incumbent Directors") cease for any reason to constitute at least a majority of the Board, provided that any person becoming a director and whose election or nomination for election was approved by a vote of at least two-thirds of the Incumbent Directors then on the Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without written objection to such nomination) shall be an Incumbent Director; provided, however, that no individual initially elected or nominated -------- ------- as a director of the Company as a result of an actual or threatened election contest (as described in Rule 14a-11 under the Act) ("Election Contest") or other actual or threatened solicitation of proxies or consents by or on behalf of any "person" (as such term is defined in Section 3(a)(9) of the Act and as used in Sections 13(d)(3) and 14(d)(2) of the Act) other than the Board ("Proxy Contest"), including by reason of any agreement intended to avoid or settle any Election or Contest or Proxy Contest, shall be deemed an Incumbent Director; (ii) any person is or becomes a "beneficial owner" (as defined in Rule 13d-3 under the Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities eligible to vote for the election of the Board (the "Company Voting Securities"); provided, however, that the event described in -------- ------- this paragraph (ii) shall not be deemed to be a Change in Control of the Company by virtue of any of the following acquisitions: (A) by the Company of any subsidiary, (B) by any employee benefit plan (or related trust) sponsored or maintained by the Company or any subsidiary, (C) by an underwriter temporarily holding securities pursuant to an offering of such securities, (D) pursuant to a Non-Qualifying Transaction (as defined in paragraph (iii), or (E) a transaction (other than one described in (iii) below) in which Company Voting Securities are acquired from the Company, if a majority of the Incumbent Directors approve a resolution providing expressly that the acquisition pursuant to this clause (E) does not constitute a Change in Control of the Company under this paragraph (ii); (iii) the consummation of a merger, consolidation, statutory share exchange or similar form of corporate transaction involving the Company or any of its subsidiaries that requires the approval of the Company's stockholders, whether for such transaction or the issuance of securities in the transaction (a "Reorganization"), or sale or other disposition of all or substantially all of the Company's assets to an entity that is not an affiliate of the Company (a "Sale"), unless immediately following such Reorganization or Sale: (A) more than 50% of the total voting power of (x) the corporation resulting from such Reorganization or the corporation which has acquired all or substantially all of the assets of the Company (in either case, the "Surviving Corporation"), or (y) if applicable, the ultimate parent corporation that directly or indirectly has beneficial ownership of 100% of the voting securities eligible to elect directors of the Surviving Corporation (the "Parent Corporation"), is represented by the Company Voting Securities that were outstanding immediately prior to such Reorganization or Sale (or, if applicable, is represented by shares into which such Company Voting Securities were converted 5 pursuant to such Reorganization or Sale), and such voting power among the holders thereof is in substantially the same proportion as the voting power of such Company Voting Securities among the holders thereof immediately prior to the Reorganization or Sale, (B) no person (other than any employee benefit plan (or related trust) sponsored or maintained by the Surviving Corporation or the Parent Corporation) is or becomes the beneficial owner, directly or indirectly, of 20% or more of the total voting power of the outstanding voting securities eligible to elect directors of the Parent Corporation (or, if there is no Parent Corporation, the Surviving Corporation) and (C) at least a majority of the members of the board of directors of the Parent Corporation (or, if there is no Parent Corporation, the Surviving Corporation) following the consummation of the Reorganization or Sale were Incumbent Directors at the time of the Board's approval of the execution of the initial agreement providing for such Reorganization or Sale (any Reorganization or Sale which satisfies all of the criteria specified in (A), (B) and (C) above shall be deemed to be a "Non- Qualifying Transaction"); or (iv) the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company. Notwithstanding the foregoing, a Change in Control of the Company shall not be deemed to occur solely because any person acquires beneficial ownership of more than 20% of the Company Voting Securities as a result of the acquisition of Company Voting Securities by the Company which reduces the number of Company Voting Securities outstanding; provided, that if after such acquisition by the -------- ---- Company such person becomes the beneficial owner of additional Company Voting Securities that increases the percentage of outstanding Company Voting Securities beneficially owned by such person, a Change in Control of the Company shall then occur. (e) Notice of Termination. Any termination by the Company or by the Executive shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 11(b) of this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) specifies the Date of Termination (as defined below). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. (f) Date of Termination. "Date of Termination" means (i) if the Executive's employment is terminated by the Company other than for Disability, the date of receipt of the Notice of Termination or any later date specified therein within 30 days of such notice, (ii) if the Executive's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date, as the 6 case may be, and (iii) if the Executive's employment is terminated by the Executive the Date of Termination shall be thirty days after the giving of such notice by the Executive provided that the Company may elect to place the Executive on paid leave for all or any part of such 30-day period. 5. Obligations of the Company upon Termination. (a) Good Reason; Other Than for Cause, Death or Disability. If, the Company shall terminate the Executive's employment other than for Cause or Disability, or the Executive shall terminate employment for Good Reason: (i) the Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination: A. the product of three (3), if such termination occurs during the Initial Term or the three (3) year period after a Change in Control (such Initial Term and three year period being hereafter referred to as the "CIC Period"), otherwise, two (2) times the sum of (1) the highest annual bonus paid to the Executive for any of the three years prior to the Date of Termination (the "Recent Annual Bonus") and (2) the Executive's Annual Base Salary; B. the sum of (x) the Executive's Annual Base Salary through the Date of Termination to the extent not theretofore paid, and (y) the product of (1) the Recent Annual Bonus and (2) a fraction, the numerator of which is the number of days in the fiscal year in which the Date of Termination occurs through the Date of Termination and the denominator of which is 365, to the extent not theretofore paid (the sum of the amounts described in clauses (x) and (y) shall be hereinafter referred to as the "Accrued Obligations"); and C. if such termination occurs during the CIC Period, a lump sum cash payment equal to the difference between (x) the actuarial present value of the Retirement Benefit determined using the actuarial assumptions prescribed under the tax-qualified defined benefit plan under which the Executive was eligible for participation at the time of termination of employment, assuming the Executive had accumulated three additional years of employment, and (y) the actuarial present value of the Retirement Benefit determined using the actuarial assumptions prescribed under the tax-qualified defined benefit plan under which the Executive was eligible for participation at the time of termination of employment. (ii) the Company shall continue to provide, for a period of three (3), if such termination occurs during the CIC Period, otherwise two (2), years following the Executive's Date of Termination, the Executive (and the Executive's dependents, if applicable) with the same level of medical, dental, accident, disability and life insurance benefits upon substantially the same terms and conditions (including contributions required by the Executive for such benefits) as existed immediately prior to the Executive's Date of Termination (or, if more favorable to the Executive, as such benefits and terms and conditions existed immediately prior to 7 the Change in Control); provided that, if the Executive cannot continue to participate in the Company plans providing such benefits, the Company shall otherwise provide such benefits on the same after-tax basis as if continued participation had been permitted. Notwithstanding the foregoing, in the event the Executive becomes reemployed with another employer and becomes eligible to receive welfare benefits from such employer, the welfare benefits described herein shall be secondary to such benefits during the period of the Executive's eligibility, but only to the extent that the Company reimburses the Executive for any increased cost and provides any additional benefits necessary to give the Executive the benefits provided hereunder. (iii) the Stock Options shall vest and shall remain exercisable for a period of two years or the earlier expiration of their initial term, and if such termination occurs during the CIC Period, all other stock options, restricted stock awards and other equity based awards granted after the date of this Agreement (the "Equity Awards") shall vest (and such options shall remain exercisable for a period of two years or the earlier expiration of their initial term), otherwise, the Equity Awards will expire as provided under the terms of their applicable agreements; and (iv) to the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies through the Date of Termination (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"). (b) Death or Disability. If the Executive's employment is terminated by reason of the Executive's death, this Agreement shall terminate without further obligations to the Executive's legal representatives or to the Executive, as the case may be, under this Agreement, other than for payment of Accrued Obligations, the timely payment or provision of Other Benefits, and the Retirement Benefit. In addition, the Stock Options shall vest immediately and remain exercisable for a period of at least three years or the earlier expiration of their initial term. Accrued Obligations shall be paid to the Executive, the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination. (c) Cause; Other than for Good Reason. If the Executive's employment shall be terminated for Cause or the Executive terminates his employment without Good Reason, this Agreement shall terminate without further obligations to the Executive other than the obligation to pay to the Executive (i) his Annual Base Salary through the Date of Termination to the extent theretofore unpaid and, (ii) the Other Benefits. 6. Non-exclusivity of Rights. Except as specifically provided, nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which the Executive may qualify, nor, subject to Sections 1 and 11(f), shall anything herein limit 8 or otherwise affect such rights as the Executive may have under any contract or agreement with the Company or any of its affiliated companies. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement; provided that the Executive shall not be eligible for severance benefits under any other program or policy of the Company. 7. Full Settlement. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement, and such amounts shall not be reduced whether or not the Executive obtains other employment. The Company agrees to pay as incurred, to the full extent permitted by law, all legal fees and expenses which the Executive may reasonably incur as a result of any contest (regardless of the outcome thereof) pursued or defended against in good faith by the Executive regarding the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive about the amount of any payment pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code"). 8. Certain Additional Payments by the Company. (a) Anything in this Agreement to the contrary notwithstanding and except as set forth below, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 8) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. Notwithstanding the foregoing provisions of this Section 8(a), if it shall be determined that the Executive is entitled to a Gross-Up Payment, but that the Payments do not exceed 110% of the greatest amount (the "Reduced Amount") that could be paid to the Executive such that the 9 receipt of Payments would not give rise to any Excise Tax, then no Gross-Up Payment shall be made to the Executive and the Payments, in the aggregate, shall be reduced to the Reduced Amount. (b) Subject to the provisions of Section 8(c), all determinations required to be made under this Section 8, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by the Company's independent auditors or such other certified public accounting firm reasonably acceptable to the Executive as may be designated by the Company (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Company. All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 8, shall be paid by the Company to the Executive within five days of the later of (i) the due date for the payment of any Excise Tax, and (ii) the receipt of the Accounting Firm's determination. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 8(c) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive. (c) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) give the Company any information reasonably requested by the Company relating to such claim, (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, 10 (iii) cooperate with the Company in good faith in order effectively to contest such claim, and (iv) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 8(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that, if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (d) If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 8(c), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 8(c), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 11 9. Covenant Not to Compete; Confidential Information. (a) During the term of this Agreement, and for a six month period after the Date of Termination, the Executive shall not directly or indirectly, own, manage, operate, join, control, or participate in the ownership, management, operation or control of, or be employed by or connected in any manner with, any competing business, whether for compensation or otherwise, without the prior written consent of the Company. Notwithstanding the preceding sentence, the Executive shall not be prohibited from owning less than one (1%) percent of any publicly traded corporation, whether or not such corporation is deemed to be a competing business. For the purposes of this Agreement, a "competing business" shall be any business which is a significant competitor of the Company, or which the Company reasonably determines may become a significant competitor, unless the Executive's primary duties and responsibilities with respect to such business are not related to the management or operation of disability insurance or complementary special risk products and services in any country where the Company is conducting business. Should the Executive, directly or indirectly, own, manage, operate, join, control or participate in the ownership, management, operation or control of, or be employed by or connected in any manner with, any competing business, all payments under this Agreement shall cease. (b) The Executive hereby acknowledges that, as an employee of the Company, he will be making use of, acquiring and adding to confidential information of a special and unique nature and value relating to the Company and its strategic plan and financial operations. The Executive further recognizes and acknowledges that all confidential information is the exclusive property of the Company, is material and confidential, and is critical to the successful conduct of the business of the Company. Accordingly, the Executive hereby covenants and agrees that he will use confidential information for the benefit of the Company only and shall not at any time, directly or indirectly, during the term of this Agreement, and thereafter for all periods during which severance or other amount is paid, divulge, reveal or communicate any confidential information to any person, firm, corporation or entity whatsoever, or use any confidential information for his own benefit or for the benefit of others. In no event shall an asserted violation of the provisions of this Section 9(b) constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. (c) Any termination of the Executive's employment or of this Agreement shall have no effect on the continuing operation of this Section 9. (d) In addition to the cessation of payments set forth in Section 9(a), the Executive acknowledges and agrees that the Company will have no adequate remedy at law, and could be irreparably harmed, if the Executive breaches or threatens to breach any of the provisions of this Section 9. The Executive agrees that the Company shall be entitled to equitable and/or injunctive relief to prevent any breach or threatened breach of this Section 9, and to specific performance of each of the terms hereof in addition to any other legal or equitable 12 remedies that the Company may have. The Executive further agrees that he shall not, in any equity proceeding relating to the enforcement of the terms of this Section 9, raise the defense that the Company has an adequate remedy at law. (e) The terms and provisions of this Section 9 are intended to be separate and divisible provisions and if, for any reason, any one or more of them is held to be invalid or unenforceable, neither the validity nor the enforceability of any other provision of this Agreement shall thereby be affected. The parties hereto acknowledge that the potential restrictions on the Executive's future employment imposed by this Section 9 are reasonable in both duration and geographic scope and in all other respects. If for any reason any court of competent jurisdiction shall find any provisions of this Section 9 unreasonable in duration or geographic scope or otherwise, the Executive and the Company agree that the restrictions and prohibitions contained herein shall be effective to the fullest extent allowed under applicable law in such jurisdiction. (f) The parties acknowledge that this Agreement would not have been entered into and the benefits described in Sections 3 or 5 would not have been promised in the absence of the Executive's promises under this Section 9. 10. Successors. (a) This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 13 11. Miscellaneous. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: 214 Camden Road, NE Atlanta, Georgia 30309 If to the Company: 1 Fountain Square Chattanooga, Tennessee 37402 Telecopy Number: (423) 755-8503 Attention: Chief Executive Officer or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (d) The Company may withhold from any amounts payable under this Agreement such Federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation. (e) The Executive's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason pursuant to Section 4(c)(i)-(iv) of this Agreement, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. 14 (f) From and after the Effective Date this Agreement shall supersede any other employment, severance or change of control agreement between the parties with respect to the subject matter hereof. 12. General Release. All payments under this Agreement to be made in connection with the Executive's termination of employment will be conditioned on the Executive signing a general form of release. IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization from its Board of Directors, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written. EXECUTIVE /s/ F. Dean Copeland ----------------------------------------- PROVIDENT COMPANIES, INC. By: /s/ J. Harold Chandler ------------------------------------ 15 EX-10.4 7 EMPLOYMENT AGREEMENT FOR ROBERT W. CRISPIN EXHIBIT 10.4 EMPLOYMENT AGREEMENT AGREEMENT by and between Unum Corporation, a Delaware corporation having its principal executive offices in Portland, Maine (the "Company"), and Robert W. Crispin (the "Executive") dated as of the 30th day of June, 1999. The Company and Provident Companies, Inc., a Delaware corporation ("Provident"), have determined that it is in the best interests of their respective shareholders to assure that the Company will have the continued dedication of the Executive pending the merger of the Company and Provident (the "Merger") pursuant to the Agreement and Plan of Merger dated as of November 22, 1998 as amended as of May 25, 1999 (the "Merger Agreement") and to provide the Company after the Merger with continuity of management. Therefore, in order to accomplish these objectives, the Executive and the Company desire to enter into this Agreement. NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS: 1. Effective Date. The "Effective Date" shall mean the effective date of the Merger, provided the Executive is employed by the Company on that date. As of the Effective Date, the prior Severance Agreement effective March 25, 1996 ("Former Severance Agreement") between the Executive and the Company shall terminate and become null and void, provided that, upon any termination of the transactions contemplated by the Merger Agreement, this sentence will be inapplicable. 2. Term of Agreement. The Company hereby agrees to continue to employ the Executive, and the Executive hereby agrees to continue in the employ of the Company subject to the terms and conditions of this Agreement, for the period commencing on the Effective Date and ending on the third anniversary of the Effective Date (the "Initial Term"). Beginning on the third anniversary of the Effective Date, the Initial Term shall be automatically extended for one year terms unless either the Company or the Executive shall give the other party not less than ninety (90) days prior written notice of the intention to terminate this Agreement. 3. Terms of Employment. (a) Position and Duties. (i) The Executive shall serve as Executive Vice President, Distribution of the Company with the appropriate authority, duties and responsibilities attendant to such position, it being understood that from time to time the scope of such authority, duties and responsibilities will vary depending upon acquisitions, dispositions and organizational structures of the Company. 1 (ii) Excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote substantially all of his attention and time during normal business hours to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, to use the Executive's reasonable best efforts to perform faithfully and efficiently such responsibilities. It shall not be a violation of this Agreement for the Executive to (A) serve, with prior approval of the Board, on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions and (C) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive's responsibilities as an employee of the Company in accordance with this Agreement. It is expressly understood and agreed that to the extent that any such activities have been conducted by the Executive prior to the Effective Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) subsequent to the Effective Date shall not thereafter be deemed to interfere with the performance of the Executive's responsibilities to the Company. (b) Compensation. (i) Annual Base Salary. The Executive shall receive an annual base salary ("Annual Base Salary") of $550,000. Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement. Annual Base Salary shall not be reduced after any such increase and the term Annual Base Salary as utilized in this Agreement shall refer to Annual Base Salary as so increased. (ii) Annual Bonus. The Executive shall be eligible to receive an annual bonus ("Annual Bonus") with a target level of 75% of Annual Base Salary (the "Target Bonus Amount"). (iii) Incentive Awards. Immediately after the Effective Date, the Company shall grant the Executive options to purchase 160,000 shares of the Company's common stock (the "Stock Options") pursuant to the terms of the Company's Stock Plan of 1999. Except as otherwise provided herein, the Stock Options shall vest in four equal installments, on the first, second, third, and fourth anniversaries of the date of grant. Subsequent annual equity grants will be made by the Compensation Committee of the Company's Board of Directors (the "Compensation Committee") based upon competitive market analyses and such other factors it may deem appropriate. (iv) Other Employee Benefit Plans. Except as otherwise expressly provided herein, the Executive shall be entitled to participate in all employee benefit, welfare and other plans, practices, policies and programs (including relocation programs) (collectively, "Employee Benefit Plans") applicable to senior executive officers of the Company. 2 (v) Retirement Benefit. The Executive shall be entitled to an annual retirement benefit payable monthly (the "Retirement Benefit") pursuant to the terms of and under the current formula contained in the UNUM Corporation Supplemental Executive Retirement Plan (the "Plan"); provided, however, in no event shall the Executive's accrued Retirement Benefit be retroactively reduced. In calculating this Retirement Benefit, the Executive shall receive full credit for all of his years of service with the Company for all purposes; provided, that, (i) until June 30, 2004, the Executive shall receive credit under the Plan equal to two years of service for each year the Executive is employed by the Company or its affiliates (the "Additional Service Credit") and (ii) such Additional Service Credit shall be appropriately taken into account if the Executive becomes entitled to the benefit described in Section 5(a)(i)(C) before June 30, 2004 (e.g., if the Executive becomes entitled to such benefit on June 30, 2003, the Executive shall receive credit for four additional years of employment under Section 5(a)(i)(C). 4. Termination of Employment. (a) Death or Disability. The Executive's employment shall terminate automatically upon the Executive's death. If the Company determines in good faith that the Disability of the Executive has occurred (pursuant to the definition of Disability set forth below), it may give to the Executive written notice in accordance with Section 11(b) of this Agreement of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within the 30 days after such receipt, the Executive shall not have returned to full- time performance of the Executive's duties. For purposes of this Agreement, "Disability" shall mean the absence of the Executive from the Executive's duties with the Company on a full-time basis for any twelve month period as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative. (b) Cause. The Company may terminate the Executive's employment for Cause. For purposes of this Agreement, "Cause" shall mean: (i) the continued failure of the Executive to perform substantially the Executive's duties with the Company or one of its affiliates (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Executive by the Chief Executive Officer of the Company ("CEO") or the Chief Operating Officer of the Company ("COO") which specifically identifies the manner in which the CEO or COO believes that the Executive has not substantially performed the Executive's duties, or (ii) the willful engaging by the Executive in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company, or 3 (iii) conviction of a felony or guilty or nolo contendere plea by the Executive with respect thereto. For purposes of this provision, no act or failure to act, on the part of the Executive, shall be considered "willful" unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive's action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the CEO or COO or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company. The cessation of employment of the Executive shall not be deemed to be for Cause unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than two thirds of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Executive and the Executive is given an opportunity, together with counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, the Executive is guilty of the conduct described in subparagraph (i) or (ii) above, and specifying the particulars thereof in detail. (c) Good Reason. The Executive's employment may be terminated by the Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall mean the following events, provided, however, that clauses (i) through (v) -------- ------- shall constitute Good Reason only in the absence of the written consent of the Executive: (i) the assignment to the Executive of any duties inconsistent with the Executive's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 3(a)(i) of this Agreement and its accompanying schedule, or any other action by the Company which results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (ii) any failure by the Company to comply with any of the provisions of Section 3(b) of this Agreement, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (iii) any purported termination by the Company of the Executive's employment otherwise than as expressly permitted by this Agreement, or any failure to renew this Agreement; (iv) any failure by the Company to comply with and satisfy Section 10(c) of this Agreement; or 4 (v) any required relocation of the Executive, provided that no required relocation shall be considered to constitute Good Reason unless it occurs during the CIC Period (as defined in Section 5(a)(i)(A)). (d) Change in Control. For purposes of this Agreement, "Change of Control" shall mean the occurrence of any one of the following events: (i) during any period of two consecutive years, individuals who, at the beginning or such period, constitute the Board (the "Incumbent Directors") cease for any reason to constitute at least a majority of the Board, provided that any person becoming a director and whose election or nomination for election was approved by a vote of at least two-thirds of the Incumbent Directors then on the Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without written objection to such nomination) shall be an Incumbent Director; provided, however, that no individual initially elected or nominated -------- ------- as a director of the Company as a result of an actual or threatened election contest (as described in Rule 14a-11 under the Act) ("Election Contest") or other actual or threatened solicitation of proxies or consents by or on behalf of any "person" (as such term is defined in Section 3(a)(9) of the Act and as used in Sections 13(d)(3) and 14(d)(2) of the Act) other than the Board ("Proxy Contest"), including by reason of any agreement intended to avoid or settle any Election or Contest or Proxy Contest, shall be deemed an Incumbent Director; (ii) any person is or becomes a "beneficial owner" (as defined in Rule 13d-3 under the Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities eligible to vote for the election of the Board (the "Company Voting Securities"); provided, however, that the event -------- ------- described in this paragraph (ii) shall not be deemed to be a Change in Control of the Company by virtue of any of the following acquisitions: (A) by the Company of any subsidiary, (B) by any employee benefit plan (or related trust) sponsored or maintained by the Company or any subsidiary, (C) by an underwriter temporarily holding securities pursuant to an offering of such securities, (D) pursuant to a Non-Qualifying Transaction (as defined in paragraph (iii), or (E) a transaction (other than one described in (iii) below) in which Company Voting Securities are acquired from the Company, if a majority of the Incumbent Directors approve a resolution providing expressly that the acquisition pursuant to this clause (E) does not constitute a Change in Control of the Company under this paragraph (ii); (iii) the consummation of a merger, consolidation, statutory share exchange or similar form of corporate transaction involving the Company or any of its subsidiaries that requires the approval of the Company's stockholders, whether for such transaction or the issuance of securities in the transaction (a "Reorganization"), or sale or other disposition of all or substantially all of the Company's assets to an entity that is not an affiliate of the Company (a "Sale"), unless immediately following such Reorganization or Sale: (A) more than 50% of the total voting power of (x) the corporation resulting from such Reorganization or 5 the corporation which has acquired all or substantially all of the assets of the Compan y (in either case, the "Surviving Corporation"), or (y) if applicable, the ultimate parent corporation that directly or indirectly has beneficial ownership of 100% of the voting securities eligible to elect directors of the Surviving Corporation (the "Parent Corporation"), is represented by the Company Voting Securities that were outstanding immediately prior to such Reorganization or Sale (or, if applicable, is represented by shares into which such Company Voting Securities were converted pursuant to such Reorganization or Sale), and such voting power among the holders thereof is in substantially the same proportion as the voting power of such Company Voting Securities among the holders thereof immediately prior to the Reorganization or Sale, (B) no person (other than any employee benefit plan (or related trust) sponsored or maintained by the Surviving Corporation or the Parent Corporation) is or becomes the beneficial owner, directly or indirectly, of 20% or more of the total voting power of the outstanding voting securities eligible to elect directors of the Parent Corporation (or, if there is no Parent Corporation, the Surviving Corporation) and (C) at least a majority of the members of the board of directors of the Parent Corporation (or, if there is no Parent Corporation, the Surviving Corporation) following the consummation of the Reorganization or Sale were Incumbent Directors at the time of the Board's approval of the execution of the initial agreement providing for such Reorganization or Sale (any Reorganization or Sale which satisfies all of the criteria specified in (A), (B) and (C) above shall be deemed to be a "Non-Qualifying Transaction"); or (iv) the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company. Notwithstanding the foregoing, a Change in Control of the Company shall not be deemed to occur solely because any person acquires beneficial ownership of more than 20% of the Company Voting Securities as a result of the acquisition of Company Voting Securities by the Company which reduces the number of Company Voting Securities outstanding; provided, that if after such acquisition by the -------- ---- Company such person becomes the beneficial owner of additional Company Voting Securities that increases the percentage of outstanding Company Voting Securities beneficially owned by such person, a Change in Control of the Company shall then occur. (e) Notice of Termination. Any termination by the Company or by the Executive shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 11(b) of this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) specifies the Date of Termination (as defined below). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. 6 (f) Date of Termination. "Date of Termination" means (i) if the Executive's employment is terminated by the Company other than for Disability, the date of receipt of the Notice of Termination or any later date specified therein within 30 days of such notice, (ii) if the Executive's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date, as the case may be, and (iii) if the Executive's employment is terminated by the Executive the Date of Termination shall be thirty days after the giving of such notice by the Executive provided that the Company may elect to place the Executive on paid leave for all or any part of such 30-day period. 5. Obligations of the Company upon Termination. (a) Good Reason; Other Than for Cause, Death or Disability. If, the Company shall terminate the Executive's employment other than for Cause or Disability, or the Executive shall terminate employment for Good Reason: (i) the Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination: A. the product of three (3), if such termination occurs during the Initial Term or the three (3) year period after a Change in Control (such Initial Term and three year period being hereafter referred to as the "CIC Period"), otherwise, two (2) times the sum of (1) the highest annual bonus paid to the Executive for any of the three years prior to the Date of Termination (the "Recent Annual Bonus") and (2) the Executive's Annual Base Salary; B. the sum of (x) the Executive's Annual Base Salary through the Date of Termination to the extent not theretofore paid, and (y) the product of (1) the Recent Annual Bonus and (2) a fraction, the numerator of which is the number of days in the fiscal year in which the Date of Termination occurs through the Date of Termination and the denominator of which is 365, to the extent not theretofore paid (the sum of the amounts described in clauses (x) and (y) shall be hereinafter referred to as the "Accrued Obligations"); and C. if such termination occurs during the CIC Period, a lump sum cash payment equal to the difference between (x) the actuarial present value of the Retirement Benefit determined using the actuarial assumptions prescribed under the tax-qualified defined benefit plan under which the Executive was eligible for participation at the time of termination of employment, assuming the Executive had accumulated three additional years of employment, and (y) the actuarial present value of the Retirement Benefit determined using the actuarial assumptions prescribed under the tax-qualified defined benefit plan under which the Executive was eligible for participation at the time of termination of employment. 7 (ii) the Company shall continue to provide, for a period of three (3), if such termination occurs during the CIC Period, otherwise two (2), years following the Executive's Date of Termination, the Executive (and the Executive's dependents, if applicable) with the same level of medical, dental, accident, disability and life insurance benefits upon substantially the same terms and conditions (including contributions required by the Executive for such benefits) as existed immediately prior to the Executive's Date of Termination (or, if more favorable to the Executive, as such benefits and terms and conditions existed immediately prior to the Change in Control); provided that, if the Executive cannot continue to participate in the Company plans providing such benefits, the Company shall otherwise provide such benefits on the same after-tax basis as if continued participation had been permitted. Notwithstanding the foregoing, in the event the Executive becomes reemployed with another employer and becomes eligible to receive welfare benefits from such employer, the welfare benefits described herein shall be secondary to such benefits during the period of the Executive's eligibility, but only to the extent that the Company reimburses the Executive for any increased cost and provides any additional benefits necessary to give the Executive the benefits provided hereunder. (iii) the Stock Options shall vest and shall remain exercisable for a period of two years or the earlier expiration of their initial term, and if such termination occurs during the CIC Period, all other stock options, restricted stock awards and other equity based awards granted after the date of this Agreement (the "Equity Awards") shall vest (and such options shall remain exercisable for a period of two years or the earlier expiration of their initial term), otherwise, the Equity Awards will expire as provided under the terms of their applicable agreements; and (iv) to the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies through the Date of Termination (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"). (b) Death or Disability. If the Executive's employment is terminated by reason of the Executive's death, this Agreement shall terminate without further obligations to the Executive's legal representatives or to the Executive, as the case may be, under this Agreement, other than for payment of Accrued Obligations, the timely payment or provision of Other Benefits, and the Retirement Benefit. In addition, the Stock Options shall vest immediately and remain exercisable for a period of at least three years or the earlier expiration of their initial term. Accrued Obligations shall be paid to the Executive, the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination. (c) Cause; Other than for Good Reason. If the Executive's employment shall be terminated for Cause or the Executive terminates his employment without Good Reason, this Agreement shall terminate without further obligations to the Executive other 8 than the obligation to pay to the Executive (i) his Annual Base Salary through the Date of Termination to the extent theretofore unpaid and, (ii) the Other Benefits. 6. Non-exclusivity of Rights. Except as specifically provided, nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which the Executive may qualify, nor, subject to Sections 1 and 11(f), shall anything herein limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Company or any of its affiliated companies. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement; provided that the Executive shall not be eligible for severance benefits under any other program or policy of the Company. 7. Full Settlement. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement, and such amounts shall not be reduced whether or not the Executive obtains other employment. The Company agrees to pay as incurred, to the full extent permitted by law, all legal fees and expenses which the Executive may reasonably incur as a result of any contest (regardless of the outcome thereof) pursued or defended against in good faith by the Executive regarding the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive about the amount of any payment pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code"). 8. Certain Additional Payments by the Company. (a) Anything in this Agreement to the contrary notwithstanding and except as set forth below, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 8) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after 9 payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. Notwithstanding the foregoing provisions of this Section 8(a), if it shall be determined that the Executive is entitled to a Gross-Up Payment, but that the Payments do not exceed 110% of the greatest amount (the "Reduced Amount") that could be paid to the Executive such that the receipt of Payments would not give rise to any Excise Tax, then no Gross-Up Payment shall be made to the Executive and the Payments, in the aggregate, shall be reduced to the Reduced Amount. (b) Subject to the provisions of Section 8(c), all determinations required to be made under this Section 8, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by the Company's independent auditors or such other certified public accounting firm reasonably acceptable to the Executive as may be designated by the Company (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Company. All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 8, shall be paid by the Company to the Executive within five days of the later of (i) the due date for the payment of any Excise Tax, and (ii) the receipt of the Accounting Firm's determination. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 8(c) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive. (c) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: 10 (i) give the Company any information reasonably requested by the Company relating to such claim, (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, (iii) cooperate with the Company in good faith in order effectively to contest such claim, and (iv) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 8(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that, if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (d) If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 8(c), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 8(c), a 11 determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 9. Covenant Not to Compete; Confidential Information. (a) During the term of this Agreement, and for a six month period after the Date of Termination, the Executive shall not directly or indirectly, own, manage, operate, join, control, or participate in the ownership, management, operation or control of, or be employed by or connected in any manner with, any competing business, whether for compensation or otherwise, without the prior written consent of the Company. Notwithstanding the preceding sentence, the Executive shall not be prohibited from owning less than one (1%) percent of any publicly traded corporation, whether or not such corporation is deemed to be a competing business. For the purposes of this Agreement, a "competing business" shall be any business which is a significant competitor of the Company, or which the Company reasonably determines may become a significant competitor, unless the Executive's primary duties and responsibilities with respect to such business are not related to the management or operation of disability insurance or complementary special risk products and services in any country where the Company is conducting business. Should the Executive, directly or indirectly, own, manage, operate, join, control or participate in the ownership, management, operation or control of, or be employed by or connected in any manner with, any competing business, all payments under this Agreement shall cease. (b) The Executive hereby acknowledges that, as an employee of the Company, he will be making use of, acquiring and adding to confidential information of a special and unique nature and value relating to the Company and its strategic plan and financial operations. The Executive further recognizes and acknowledges that all confidential information is the exclusive property of the Company, is material and confidential, and is critical to the successful conduct of the business of the Company. Accordingly, the Executive hereby covenants and agrees that he will use confidential information for the benefit of the Company only and shall not at any time, directly or indirectly, during the term of this Agreement, and thereafter for all periods during which severance or other amount is paid, divulge, reveal or communicate any confidential information to any person, firm, corporation or entity whatsoever, or use any confidential information for his own benefit or for the benefit of others. In no event shall an asserted violation of the provisions of this Section 9(b) constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. (c) Any termination of the Executive's employment or of this Agreement shall have no effect on the continuing operation of this Section 9. 12 (d) In addition to the cessation of payments set forth in Section 9(a), the Executive acknowledges and agrees that the Company will have no adequate remedy at law, and could be irreparably harmed, if the Executive breaches or threatens to breach any of the provisions of this Section 9. The Executive agrees that the Company shall be entitled to equitable and/or injunctive relief to prevent any breach or threatened breach of this Section 9, and to specific performance of each of the terms hereof in addition to any other legal or equitable remedies that the Company may have. The Executive further agrees that he shall not, in any equity proceeding relating to the enforcement of the terms of this Section 9, raise the defense that the Company has an adequate remedy at law. (e) The terms and provisions of this Section 9 are intended to be separate and divisible provisions and if, for any reason, any one or more of them is held to be invalid or unenforceable, neither the validity nor the enforceability of any other provision of this Agreement shall thereby be affected. The parties hereto acknowledge that the potential restrictions on the Executive's future employment imposed by this Section 9 are reasonable in both duration and geographic scope and in all other respects. If for any reason any court of competent jurisdiction shall find any provisions of this Section 9 unreasonable in duration or geographic scope or otherwise, the Executive and the Company agree that the restrictions and prohibitions contained herein shall be effective to the fullest extent allowed under applicable law in such jurisdiction. (f) The parties acknowledge that this Agreement would not have been entered into and the benefits described in Sections 3 or 5 would not have been promised in the absence of the Executive's promises under this Section 9. 10. Successors. (a) This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 13 11. Miscellaneous. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: 20 Piper Road Scarborough, Maine 04074 If to the Company: 2211 Congress Street Portland, Maine 04122 Telecopy Number: (207) 770-4377 Attention: Chief Executive Officer or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (d) The Company may withhold from any amounts payable under this Agreement such Federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation. (e) The Executive's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason pursuant to Section 4(c)(i)-(iv) of this Agreement, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. 14 (f) From and after the Effective Date this Agreement shall supersede any other employment, severance or change of control agreement between the parties with respect to the subject matter hereof. 12. General Release. All payments under this Agreement to be made in connection with the Executive's termination of employment will be conditioned on the Executive signing a general form of release. IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization from its Board of Directors, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written. EXECUTIVE /s/ Robert W. Crispin ---------------------------------- UNUM CORPORATION By: /s/ Kevin J. Tierney ------------------------------ Provident agrees that as of the Effective Date it will honor this Agreement and treat the Agreement as its own. PROVIDENT COMPANIES, INC. By: /s/ Dean Copeland ------------------------------ 15 EX-10.5 8 EMPLOYMENT AGREEMENT FOR ELAINE D. ROSEN EXHIBIT 10.5 EMPLOYMENT AGREEMENT AGREEMENT by and between Unum Corporation, a Delaware corporation having its principal executive offices in Portland, Maine (the "Company"), and Elaine D. Rosen (the "Executive") dated as of the 30th day of June, 1999. The Company and Provident Companies, Inc., a Delaware corporation ("Provident"), have determined that it is in the best interests of their respective shareholders to assure that the Company will have the continued dedication of the Executive pending the merger of the Company and Provident (the "Merger") pursuant to the Agreement and Plan of Merger dated as of November 22, 1998 as amended as of May 25, 1999 (the "Merger Agreement") and to provide the Company after the Merger with continuity of management. Therefore, in order to accomplish these objectives, the Executive and the Company desire to enter into this Agreement. NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS: 1. Effective Date. The "Effective Date" shall mean the effective date of the Merger, provided the Executive is employed by the Company on that date. As of the Effective Date, the prior Severance Agreement effective August 1, 1991 ("Former Severance Agreement") between the Executive and the Company shall terminate and become null and void, provided that, upon any termination of the transactions contemplated by the Merger Agreement, this sentence will be inapplicable. 2. Term of Agreement. The Company hereby agrees to continue to employ the Executive, and the Executive hereby agrees to continue in the employ of the Company subject to the terms and conditions of this Agreement, for the period commencing on the Effective Date and ending on the third anniversary of the Effective Date (the "Initial Term"). Beginning on the third anniversary of the Effective Date, the Initial Term shall be automatically extended for one year terms unless either the Company or the Executive shall give the other party not less than ninety (90) days prior written notice of the intention to terminate this Agreement. 3. Terms of Employment. (a) Position and Duties. (i) The Executive shall serve as Executive Vice President, Products and Risk Management of the Company with the appropriate authority, duties and responsibilities attendant to such position, it being understood that from time to time the scope of such authority, duties and responsibilities will vary depending upon acquisitions, dispositions and organizational structures of the Company. 1 (ii) Excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote substantially all of his attention and time during normal business hours to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, to use the Executive's reasonable best efforts to perform faithfully and efficiently such responsibilities. It shall not be a violation of this Agreement for the Executive to (A) serve, with prior approval of the Board, on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions and (C) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive's responsibilities as an employee of the Company in accordance with this Agreement. It is expressly understood and agreed that to the extent that any such activities have been conducted by the Executive prior to the Effective Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) subsequent to the Effective Date shall not thereafter be deemed to interfere with the performance of the Executive's responsibilities to the Company. (b) Compensation. (i) Annual Base Salary. The Executive shall receive an annual base salary ("Annual Base Salary") of $500,000. Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement. Annual Base Salary shall not be reduced after any such increase and the term Annual Base Salary as utilized in this Agreement shall refer to Annual Base Salary as so increased. (ii) Annual Bonus. The Executive shall be eligible to receive an annual bonus ("Annual Bonus") with a target level of 75% of Annual Base Salary (the "Target Bonus Amount"). (iii) Incentive Awards. Immediately after the Effective Date, the Company shall grant the Executive options to purchase 170,000 shares of the Company's common stock (the "Stock Options") pursuant to the terms of the Company's Stock Plan of 1999. Except as otherwise provided herein, the Stock Options shall vest in four equal installments, on the first, second, third, and fourth anniversaries of the date of grant. Subsequent annual equity grants will be made by the Compensation Committee of the Company's Board of Directors (the "Compensation Committee") based upon competitive market analyses and such other factors it may deem appropriate. (iv) Other Employee Benefit Plans. Except as otherwise expressly provided herein, the Executive shall be entitled to participate in all employee benefit, welfare and other plans, practices, policies and programs (including relocation programs) (collectively, "Employee Benefit Plans") applicable to senior executive officers of the Company. (v) Retirement Benefit. The Executive shall be entitled to an annual retirement benefit payable monthly (the "Retirement Benefit") pursuant to the terms of and 2 under the current formula contained in the UNUM Corporation Supplemental Executive Retirement Plan (the "Plan"); provided, however, in no event shall the Executive's accrued Retirement Benefit be retroactively reduced. In calculating this Retirement Benefit, the Executive shall receive full credit for all of his years of service with the Company for all purposes. 4. Termination of Employment. (a) Death or Disability. The Executive's employment shall terminate automatically upon the Executive's death. If the Company determines in good faith that the Disability of the Executive has occurred (pursuant to the definition of Disability set forth below), it may give to the Executive written notice in accordance with Section 11(b) of this Agreement of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within the 30 days after such receipt, the Executive shall not have returned to full- time performance of the Executive's duties. For purposes of this Agreement, "Disability" shall mean the absence of the Executive from the Executive's duties with the Company on a full-time basis for any twelve month period as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative. (b) Cause. The Company may terminate the Executive's employment for Cause. For purposes of this Agreement, "Cause" shall mean: (i) the continued failure of the Executive to perform substantially the Executive's duties with the Company or one of its affiliates (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Executive by the Chief Executive Officer of the Company ("CEO") or the Chief Operating Officer of the Company ("COO") which specifically identifies the manner in which the CEO or COO believes that the Executive has not substantially performed the Executive's duties, or (ii) the willful engaging by the Executive in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company, or (iii) conviction of a felony or guilty or nolo contendere plea by the Executive with respect thereto. For purposes of this provision, no act or failure to act, on the part of the Executive, shall be considered "willful" unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive's action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the CEO or COO or based upon the advice of 3 counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company. The cessation of employment of the Executive shall not be deemed to be for Cause unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than two thirds of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Executive and the Executive is given an opportunity, together with counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, the Executive is guilty of the conduct described in subparagraph (i) or (ii) above, and specifying the particulars thereof in detail. (c) Good Reason. The Executive's employment may be terminated by the Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall mean the following events, provided, however, that clauses (i) through (v) -------- ------- shall constitute Good Reason only in the absence of the written consent of the Executive: (i) the assignment to the Executive of any duties inconsistent with the Executive's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 3(a)(i) of this Agreement and its accompanying schedule, or any other action by the Company which results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (ii) any failure by the Company to comply with any of the provisions of Section 3(b) of this Agreement, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (iii) any purported termination by the Company of the Executive's employment otherwise than as expressly permitted by this Agreement, or any failure to renew this Agreement; (iv) any failure by the Company to comply with and satisfy Section 10(c) of this Agreement; or (v) any required relocation of the Executive, provided that no required relocation shall be considered to constitute Good Reason unless it occurs during the CIC Period (as defined in Section 5(a)(i)(A)). (d) Change in Control. For purposes of this Agreement, "Change of Control" shall mean the occurrence of any one of the following events: 4 (i) during any period of two consecutive years, individuals who, at the beginning or such period, constitute the Board (the "Incumbent Directors") cease for any reason to constitute at least a majority of the Board, provided that any person becoming a director and whose election or nomination for election was approved by a vote of at least two-thirds of the Incumbent Directors then on the Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without written objection to such nomination) shall be an Incumbent Director; provided, however, that no individual initially elected or nominated -------- ------- as a director of the Company as a result of an actual or threatened election contest (as described in Rule 14a-11 under the Act) ("Election Contest") or other actual or threatened solicitation of proxies or consents by or on behalf of any "person" (as such term is defined in Section 3(a)(9) of the Act and as used in Sections 13(d)(3) and 14(d)(2) of the Act) other than the Board ("Proxy Contest"), including by reason of any agreement intended to avoid or settle any Election or Contest or Proxy Contest, shall be deemed an Incumbent Director; (ii) any person is or becomes a "beneficial owner" (as defined in Rule 13d-3 under the Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities eligible to vote for the election of the Board (the "Company Voting Securities"); provided, however, that the event -------- ------- described in this paragraph (ii) shall not be deemed to be a Change in Control of the Company by virtue of any of the following acquisitions: (A) by the Company of any subsidiary, (B) by any employee benefit plan (or related trust) sponsored or maintained by the Company or any subsidiary, (C) by an underwriter temporarily holding securities pursuant to an offering of such securities, (D) pursuant to a Non-Qualifying Transaction (as defined in paragraph (iii), or (E) a transaction (other than one described in (iii) below) in which Company Voting Securities are acquired from the Company, if a majority of the Incumbent Directors approve a resolution providing expressly that the acquisition pursuant to this clause (E) does not constitute a Change in Control of the Company under this paragraph (ii); (iii) the consummation of a merger, consolidation, statutory share exchange or similar form of corporate transaction involving the Company or any of its subsidiaries that requires the approval of the Company's stockholders, whether for such transaction or the issuance of securities in the transaction (a "Reorganization"), or sale or other disposition of all or substantially all of the Company's assets to an entity that is not an affiliate of the Company (a "Sale"), unless immediately following such Reorganization or Sale: (A) more than 50% of the total voting power of (x) the corporation resulting from such Reorganization or the corporation which has acquired all or substantially all of the assets of the Company (in either case, the "Surviving Corporation"), or (y) if applicable, the ultimate parent corporation that directly or indirectly has beneficial ownership of 100% of the voting securities eligible to elect directors of the Surviving Corporation (the "Parent Corporation"), is represented by the Company Voting Securities that were outstanding immediately prior to such Reorganization or Sale (or, if applicable, is represented by shares into which such Company Voting Securities were converted pursuant to such Reorganization or Sale), and such voting power among the holders thereof is in 5 substantially the same proportion as the voting power of such Company Voting Securities among the holders thereof immediately prior to the Reorganization or Sale, (B) no person (other than any employee benefit plan (or related trust) sponsored or maintained by the Surviving Corporation or the Parent Corporation) is or becomes the beneficial owner, directly or indirectly, of 20% or more of the total voting power of the outstanding voting securities eligible to elect directors of the Parent Corporation (or, if there is no Parent Corporation, the Surviving Corporation) and (C) at least a majority of the members of the board of directors of the Parent Corporation (or, if there is no Parent Corporation, the Surviving Corporation) following the consummation of the Reorganization or Sale were Incumbent Directors at the time of the Board's approval of the execution of the initial agreement providing for such Reorganization or Sale (any Reorganization or Sale which satisfies all of the criteria specified in (A), (B) and (C) above shall be deemed to be a "Non-Qualifying Transaction"); or (iv) the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company. Notwithstanding the foregoing, a Change in Control of the Company shall not be deemed to occur solely because any person acquires beneficial ownership of more than 20% of the Company Voting Securities as a result of the acquisition of Company Voting Securities by the Company which reduces the number of Company Voting Securities outstanding; provided, that if after such acquisition by the -------- ---- Company such person becomes the beneficial owner of additional Company Voting Securities that increases the percentage of outstanding Company Voting Securities beneficially owned by such person, a Change in Control of the Company shall then occur. (e) Notice of Termination. Any termination by the Company or by the Executive shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 11(b) of this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) specifies the Date of Termination (as defined below). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. (f) Date of Termination. "Date of Termination" means (i) if the Executive's employment is terminated by the Company other than for Disability, the date of receipt of the Notice of Termination or any later date specified therein within 30 days of such notice, (ii) if the Executive's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date, as the case may be, and (iii) if the Executive's employment is terminated by the Executive the Date of 6 Termination shall be thirty days after the giving of such notice by the Executive provided that the Company may elect to place the Executive on paid leave for all or any part of such 30-day period. 5. Obligations of the Company upon Termination. (a) Good Reason; Other Than for Cause, Death or Disability. If, the Company shall terminate the Executive's employment other than for Cause or Disability, or the Executive shall terminate employment for Good Reason: (i) the Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination: A. the product of three (3), if such termination occurs during the Initial Term or the three (3) year period after a Change in Control (such Initial Term and three year period being hereafter referred to as the "CIC Period"), otherwise, two (2) times the sum of (1) the highest annual bonus paid to the Executive for any of the three years prior to the Date of Termination (the "Recent Annual Bonus") and (2) the Executive's Annual Base Salary; B. the sum of (x) the Executive's Annual Base Salary through the Date of Termination to the extent not theretofore paid, and (y) the product of (1) the Recent Annual Bonus and (2) a fraction, the numerator of which is the number of days in the fiscal year in which the Date of Termination occurs through the Date of Termination and the denominator of which is 365, to the extent not theretofore paid (the sum of the amounts described in clauses (x) and (y) shall be hereinafter referred to as the "Accrued Obligations"); and C. if such termination occurs during the CIC Period, a lump sum cash payment equal to the difference between (x) the actuarial present value of the Retirement Benefit determined using the actuarial assumptions prescribed under the tax-qualified defined benefit plan under which the Executive was eligible for participation at the time of termination of employment, assuming the Executive had accumulated three additional years of employment, and (y) the actuarial present value of the Retirement Benefit determined using the actuarial assumptions prescribed under the tax-qualified defined benefit plan under which the Executive was eligible for participation at the time of termination of employment. (ii) the Company shall continue to provide, for a period of three (3), if such termination occurs during the CIC Period, otherwise two (2), years following the Executive's Date of Termination, the Executive (and the Executive's dependents, if applicable) with the same level of medical, dental, accident, disability and life insurance benefits upon substantially the same terms and conditions (including contributions required by the Executive for such benefits) as existed immediately prior to the Executive's Date of Termination (or, if more favorable to the Executive, as such benefits and terms and conditions existed immediately prior to the Change in Control); provided that, if the Executive cannot continue to participate in the 7 Company plans providing such benefits, the Company shall otherwise provide such benefits on the same after-tax basis as if continued participation had been permitted. Notwithstanding the foregoing, in the event the Executive becomes reemployed with another employer and becomes eligible to receive welfare benefits from such employer, the welfare benefits described herein shall be secondary to such benefits during the period of the Executive's eligibility, but only to the extent that the Company reimburses the Executive for any increased cost and provides any additional benefits necessary to give the Executive the benefits provided hereunder. (iii) the Stock Options shall vest and shall remain exercisable for a period of two years or the earlier expiration of their initial term, and if such termination occurs during the CIC Period, all other stock options, restricted stock awards and other equity based awards granted after the date of this Agreement (the "Equity Awards") shall vest (and such options shall remain exercisable for a period of two years or the earlier expiration of their initial term), otherwise, the Equity Awards will expire as provided under the terms of their applicable agreements; and (iv) to the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies through the Date of Termination (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"). (b) Death or Disability. If the Executive's employment is terminated by reason of the Executive's death, this Agreement shall terminate without further obligations to the Executive's legal representatives or to the Executive, as the case may be, under this Agreement, other than for payment of Accrued Obligations, the timely payment or provision of Other Benefits, and the Retirement Benefit. In addition, the Stock Options shall vest immediately and remain exercisable for a period of at least three years or the earlier expiration of their initial term. Accrued Obligations shall be paid to the Executive, the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination. (c) Cause; Other than for Good Reason. If the Executive's employment shall be terminated for Cause or the Executive terminates his employment without Good Reason, this Agreement shall terminate without further obligations to the Executive other than the obligation to pay to the Executive (i) his Annual Base Salary through the Date of Termination to the extent theretofore unpaid and, (ii) the Other Benefits. 6. Non-exclusivity of Rights. Except as specifically provided, nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which the Executive may qualify, nor, subject to Sections 1 and 11(f), shall anything herein limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Company or any of its affiliated companies. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with 8 the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement; provided that the Executive shall not be eligible for severance benefits under any other program or policy of the Company. 7. Full Settlement. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement, and such amounts shall not be reduced whether or not the Executive obtains other employment. The Company agrees to pay as incurred, to the full extent permitted by law, all legal fees and expenses which the Executive may reasonably incur as a result of any contest (regardless of the outcome thereof) pursued or defended against in good faith by the Executive regarding the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive about the amount of any payment pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code"). 8. Certain Additional Payments by the Company. (a) Anything in this Agreement to the contrary notwithstanding and except as set forth below, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 8) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. Notwithstanding the foregoing provisions of this Section 8(a), if it shall be determined that the Executive is entitled to a Gross-Up Payment, but that the Payments do not exceed 110% of the greatest amount (the "Reduced Amount") that could be paid to the Executive such that the receipt of Payments would not give rise to any Excise Tax, then no Gross-Up Payment shall be 9 made to the Executive and the Payments, in the aggregate, shall be reduced to the Reduced Amount. (b) Subject to the provisions of Section 8(c), all determinations required to be made under this Section 8, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by the Company's independent auditors or such other certified public accounting firm reasonably acceptable to the Executive as may be designated by the Company (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Company. All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 8, shall be paid by the Company to the Executive within five days of the later of (i) the due date for the payment of any Excise Tax, and (ii) the receipt of the Accounting Firm's determination. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 8(c) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive. (c) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) give the Company any information reasonably requested by the Company relating to such claim, (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, 10 (iii) cooperate with the Company in good faith in order effectively to contest such claim, and (iv) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 8(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that, if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (d) If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 8(c), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 8(c), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 9. Covenant Not to Compete; Confidential Information. 11 (a) During the term of this Agreement, and for a six month period after the Date of Termination, the Executive shall not directly or indirectly, own, manage, operate, join, control, or participate in the ownership, management, operation or control of, or be employed by or connected in any manner with, any competing business, whether for compensation or otherwise, without the prior written consent of the Company. Notwithstanding the preceding sentence, the Executive shall not be prohibited from owning less than one (1%) percent of any publicly traded corporation, whether or not such corporation is deemed to be a competing business. For the purposes of this Agreement, a "competing business" shall be any business which is a significant competitor of the Company, or which the Company reasonably determines may become a significant competitor, unless the Executive's primary duties and responsibilities with respect to such business are not related to the management or operation of disability insurance or complementary special risk products and services in any country where the Company is conducting business. Should the Executive, directly or indirectly, own, manage, operate, join, control or participate in the ownership, management, operation or control of, or be employed by or connected in any manner with, any competing business, all payments under this Agreement shall cease. (b) The Executive hereby acknowledges that, as an employee of the Company, he will be making use of, acquiring and adding to confidential information of a special and unique nature and value relating to the Company and its strategic plan and financial operations. The Executive further recognizes and acknowledges that all confidential information is the exclusive property of the Company, is material and confidential, and is critical to the successful conduct of the business of the Company. Accordingly, the Executive hereby covenants and agrees that he will use confidential information for the benefit of the Company only and shall not at any time, directly or indirectly, during the term of this Agreement, and thereafter for all periods during which severance or other amount is paid, divulge, reveal or communicate any confidential information to any person, firm, corporation or entity whatsoever, or use any confidential information for his own benefit or for the benefit of others. In no event shall an asserted violation of the provisions of this Section 9(b) constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. (c) Any termination of the Executive's employment or of this Agreement shall have no effect on the continuing operation of this Section 9. (d) In addition to the cessation of payments set forth in Section 9(a), the Executive acknowledges and agrees that the Company will have no adequate remedy at law, and could be irreparably harmed, if the Executive breaches or threatens to breach any of the provisions of this Section 9. The Executive agrees that the Company shall be entitled to equitable and/or injunctive relief to prevent any breach or threatened breach of this Section 9, and to specific performance of each of the terms hereof in addition to any other legal or equitable remedies that the Company may have. The Executive further agrees that he shall not, in any equity proceeding relating to the enforcement of the terms of this Section 9, raise the defense that the Company has an adequate remedy at law. 12 (e) The terms and provisions of this Section 9 are intended to be separate and divisible provisions and if, for any reason, any one or more of them is held to be invalid or unenforceable, neither the validity nor the enforceability of any other provision of this Agreement shall thereby be affected. The parties hereto acknowledge that the potential restrictions on the Executive's future employment imposed by this Section 9 are reasonable in both duration and geographic scope and in all other respects. If for any reason any court of competent jurisdiction shall find any provisions of this Section 9 unreasonable in duration or geographic scope or otherwise, the Executive and the Company agree that the restrictions and prohibitions contained herein shall be effective to the fullest extent allowed under applicable law in such jurisdiction. (f) The parties acknowledge that this Agreement would not have been entered into and the benefits described in Sections 3 or 5 would not have been promised in the absence of the Executive's promises under this Section 9. 10. Successors. (a) This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 11. Miscellaneous. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. 13 (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: One Hoylake Circle Scarborough, Maine 04105 If to the Company: 2211 Congress Street Portland, Maine 04122 Telecopy Number: (207) 770-4377 Attention: Chief Executive Officer or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (d) The Company may withhold from any amounts payable under this Agreement such Federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation. (e) The Executive's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason pursuant to Section 4(c)(i)-(iv) of this Agreement, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. (f) From and after the Effective Date this Agreement shall supersede any other employment, severance or change of control agreement between the parties with respect to the subject matter hereof. 12. General Release. All payments under this Agreement to be made in connection with the Executive's termination of employment will be conditioned on the Executive signing a general form of release. 14 IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization from its Board of Directors, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written. EXECUTIVE /s/ Elaine D. Rosen ------------------------------------------------- UNUM CORPORATION By: /s/ Kevin J. Tierney --------------------------------------------- Provident agrees that as of the Effective Date it will honor this Agreement and treat the Agreement as its own. PROVIDENT COMPANIES, INC. By: /s/ Dean Copeland --------------------------------------------- 15 EX-10.6 9 EMPLOYMENT AGREEMENT FOR THOMAS R. WATJEN EXHIBIT 10.6 EMPLOYMENT AGREEMENT AGREEMENT by and between Provident Companies, Inc., a Delaware corporation having its principal executive offices in Chattanooga, Tennessee (the "Company"), and Thomas R. Watjen (the "Executive") dated as of the 30th day of June, 1999. The Company and Unum Corporation, a Delaware corporation ("Unum"), have determined that it is in the best interests of their respective shareholders to assure that the Company will have the continued dedication of the Executive pending the merger of the Company and Unum (the "Merger") pursuant to the Agreement and Plan of Merger dated as of November 22, 1998 as amended as of May 25, 1999 (the "Merger Agreement") and to provide the Company after the Merger with continuity of management. Therefore, in order to accomplish these objectives, the Executive and the Company desire to enter into this Agreement. NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS: 1. Effective Date. The "Effective Date" shall mean the effective date of the Merger, provided the Executive is employed by the Company on that date. As of the Effective Date, the prior Severance Agreement effective December 20, 1994 ("Former Severance Agreement") between the Executive and the Company shall terminate and become null and void, provided that, upon any termination of the transactions contemplated by the Merger Agreement, this sentence will be inapplicable. 2. Term of Agreement. The Company hereby agrees to continue to employ the Executive, and the Executive hereby agrees to continue in the employ of the Company subject to the terms and conditions of this Agreement, for the period commencing on the Effective Date and ending on the third anniversary of the Effective Date (the "Initial Term"). Beginning on the third anniversary of the Effective Date, the Initial Term shall be automatically extended for one year terms unless either the Company or the Executive shall give the other party not less than ninety (90) days prior written notice of the intention to terminate this Agreement. 3. Terms of Employment. (a) Position and Duties. (i) The Executive shall serve as Executive Vice President, Finance of the Company with the appropriate authority, duties and responsibilities attendant to such position, it being understood that from time to time the scope of such authority, duties and responsibilities will vary depending upon acquisitions, dispositions and organizational structures of the Company. 1 (ii) Excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote substantially all of his attention and time during normal business hours to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, to use the Executive's reasonable best efforts to perform faithfully and efficiently such responsibilities. It shall not be a violation of this Agreement for the Executive to (A) serve, with prior approval of the Board, on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions and (C) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive's responsibilities as an employee of the Company in accordance with this Agreement. It is expressly understood and agreed that to the extent that any such activities have been conducted by the Executive prior to the Effective Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) subsequent to the Effective Date shall not thereafter be deemed to interfere with the performance of the Executive's responsibilities to the Company. (b) Compensation. (i) Annual Base Salary. The Executive shall receive an annual base salary ("Annual Base Salary") of $500,000. Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement. Annual Base Salary shall not be reduced after any such increase and the term Annual Base Salary as utilized in this Agreement shall refer to Annual Base Salary as so increased. (ii) Annual Bonus. The Executive shall be eligible to receive an annual bonus ("Annual Bonus") with a target level of 75% of Annual Base Salary (the "Target Bonus Amount"). (iii) Incentive Awards. Immediately after the Effective Date, the Company shall grant the Executive options to purchase 170,000 shares of the Company's common stock (the "Stock Options") pursuant to the terms of the Company's Stock Plan of 1999. Except as otherwise provided herein, the Stock Options shall vest in four equal installments, on the first, second, third, and fourth anniversaries of the date of grant. Subsequent annual equity grants will be made by the Compensation Committee of the Company's Board of Directors (the "Compensation Committee") based upon competitive market analyses and such other factors it may deem appropriate. (iv) Other Employee Benefit Plans. Except as otherwise expressly provided herein, the Executive shall be entitled to participate in all employee benefit, welfare and other plans, practices, policies and programs (including relocation programs) (collectively, "Employee Benefit Plans") applicable to senior executive officers of the Company. (v) Retirement Benefit. The Executive shall be entitled to an annual retirement benefit payable monthly (the "Retirement Benefit") pursuant to the terms of and under the current formula contained in the UNUM Corporation Supplemental Executive 2 Retirement Plan (the "Plan"); provided, however, in no event shall the Executive's accrued Retirement Benefit be retroactively reduced. In calculating this Retirement Benefit, the Executive shall receive full credit for all of his years of service with the Company for all purposes. 4. Termination of Employment. (a) Death or Disability. The Executive's employment shall terminate automatically upon the Executive's death. If the Company determines in good faith that the Disability of the Executive has occurred (pursuant to the definition of Disability set forth below), it may give to the Executive written notice in accordance with Section 11(b) of this Agreement of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within the 30 days after such receipt, the Executive shall not have returned to full- time performance of the Executive's duties. For purposes of this Agreement, "Disability" shall mean the absence of the Executive from the Executive's duties with the Company on a full-time basis for any twelve month period as a result of incapacity due to mental or physical illness which is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive's legal representative. (b) Cause. The Company may terminate the Executive's employment for Cause. For purposes of this Agreement, "Cause" shall mean: (i) the continued failure of the Executive to perform substantially the Executive's duties with the Company or one of its affiliates (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Executive by the Chief Executive Officer of the Company ("CEO") or the Chief Operating Officer of the Company ("COO") which specifically identifies the manner in which the CEO or COO believes that the Executive has not substantially performed the Executive's duties, or (ii) the willful engaging by the Executive in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company, or (iii) conviction of a felony or guilty or nolo contendere plea by the Executive with respect thereto. For purposes of this provision, no act or failure to act, on the part of the Executive, shall be considered "willful" unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive's action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the CEO or COO or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the 3 Executive in good faith and in the best interests of the Company. The cessation of employment of the Executive shall not be deemed to be for Cause unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than two thirds of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Executive and the Executive is given an opportunity, together with counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, the Executive is guilty of the conduct described in subparagraph (i) or (ii) above, and specifying the particulars thereof in detail. (c) Good Reason. The Executive's employment may be terminated by the Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall mean the following events, provided, however, that clauses (i) through (v) -------- ------- shall constitute Good Reason only in the absence of the written consent of the Executive: (i) the assignment to the Executive of any duties inconsistent with the Executive's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 3(a)(i) of this Agreement and its accompanying schedule, or any other action by the Company which results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (ii) any failure by the Company to comply with any of the provisions of Section 3(b) of this Agreement, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (iii) any purported termination by the Company of the Executive's employment otherwise than as expressly permitted by this Agreement, or any failure to renew this Agreement; (iv) any failure by the Company to comply with and satisfy Section 10(c) of this Agreement; or (v) any required relocation of the Executive, provided that no required relocation shall be considered to constitute Good Reason unless it occurs during the CIC Period (as defined in Section 5(a)(i)(A)). (d) Change in Control. For purposes of this Agreement, "Change of Control" shall mean the occurrence of any one of the following events: (i) during any period of two consecutive years, individuals who, at the beginning or such period, constitute the Board (the "Incumbent Directors") cease for 4 any reason to constitute at least a majority of the Board, provided that any person becoming a director and whose election or nomination for election was approved by a vote of at least two-thirds of the Incumbent Directors then on the Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without written objection to such nomination) shall be an Incumbent Director; provided, however, -------- ------- that no individual initially elected or nominated as a director of the Company as a result of an actual or threatened election contest (as described in Rule 14a-11 under the Act) ("Election Contest") or other actual or threatened solicitation of proxies or consents by or on behalf of any "person" (as such term is defined in Section 3(a)(9) of the Act and as used in Sections 13(d)(3) and 14(d)(2) of the Act) other than the Board ("Proxy Contest"), including by reason of any agreement intended to avoid or settle any Election or Contest or Proxy Contest, shall be deemed an Incumbent Director; (ii) any person is or becomes a "beneficial owner" (as defined in Rule 13d-3 under the Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities eligible to vote for the election of the Board (the "Company Voting Securities"); provided, however, that the event -------- ------- described in this paragraph (ii) shall not be deemed to be a Change in Control of the Company by virtue of any of the following acquisitions: (A) by the Company of any subsidiary, (B) by any employee benefit plan (or related trust) sponsored or maintained by the Company or any subsidiary, (C) by an underwriter temporarily holding securities pursuant to an offering of such securities, (D) pursuant to a Non-Qualifying Transaction (as defined in paragraph (iii), or (E) a transaction (other than one described in (iii) below) in which Company Voting Securities are acquired from the Company, if a majority of the Incumbent Directors approve a resolution providing expressly that the acquisition pursuant to this clause (E) does not constitute a Change in Control of the Company under this paragraph (ii); (iii) the consummation of a merger, consolidation, statutory share exchange or similar form of corporate transaction involving the Company or any of its subsidiaries that requires the approval of the Company's stockholders, whether for such transaction or the issuance of securities in the transaction (a "Reorganization"), or sale or other disposition of all or substantially all of the Company's assets to an entity that is not an affiliate of the Company (a "Sale"), unless immediately following such Reorganization or Sale: (A) more than 50% of the total voting power of (x) the corporation resulting from such Reorganization or the corporation which has acquired all or substantially all of the assets of the Company (in either case, the "Surviving Corporation"), or (y) if applicable, the ultimate parent corporation that directly or indirectly has beneficial ownership of 100% of the voting securities eligible to elect directors of the Surviving Corporation (the "Parent Corporation"), is represented by the Company Voting Securities that were outstanding immediately prior to such Reorganization or Sale (or, if applicable, is represented by shares into which such Company Voting Securities were converted pursuant to such Reorganization or Sale), and such voting power among the holders thereof is in substantially the same proportion as the voting power of such Company Voting Securities among the holders thereof immediately prior to the Reorganization or Sale, (B) no person (other than any 5 employee benefit plan (or related trust) sponsored or maintained by the Surviving Corporation or the Parent Corporation) is or becomes the beneficial owner, directly or indirectly, of 20% or more of the total voting power of the outstanding voting securities eligible to elect directors of the Parent Corporation (or, if there is no Parent Corporation, the Surviving Corporation) and (C) at least a majority of the members of the board of directors of the Parent Corporation (or, if there is no Parent Corporation, the Surviving Corporation) following the consummation of the Reorganization or Sale were Incumbent Directors at the time of the Board's approval of the execution of the initial agreement providing for such Reorganization or Sale (any Reorganization or Sale which satisfies all of the criteria specified in (A), (B) and (C) above shall be deemed to be a "Non-Qualifying Transaction"); or (iv) the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company. Notwithstanding the foregoing, a Change in Control of the Company shall not be deemed to occur solely because any person acquires beneficial ownership of more than 20% of the Company Voting Securities as a result of the acquisition of Company Voting Securities by the Company which reduces the number of Company Voting Securities outstanding; provided, that if after such acquisition by the -------- ---- Company such person becomes the beneficial owner of additional Company Voting Securities that increases the percentage of outstanding Company Voting Securities beneficially owned by such person, a Change in Control of the Company shall then occur. (e) Notice of Termination. Any termination by the Company or by the Executive shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 11(b) of this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) specifies the Date of Termination (as defined below). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. (f) Date of Termination. "Date of Termination" means (i) if the Executive's employment is terminated by the Company other than for Disability, the date of receipt of the Notice of Termination or any later date specified therein within 30 days of such notice, (ii) if the Executive's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date, as the case may be, and (iii) if the Executive's employment is terminated by the Executive the Date of Termination shall be thirty days after the giving of such notice by the Executive provided that the Company may elect to place the Executive on paid leave for all or any part of such 30-day period. 6 5. Obligations of the Company upon Termination. (a) Good Reason; Other Than for Cause, Death or Disability. If, the Company shall terminate the Executive's employment other than for Cause or Disability, or the Executive shall terminate employment for Good Reason: (i) the Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination: A. the product of three (3), if such termination occurs during the Initial Term or the three (3) year period after a Change in Control (such Initial Term and three year period being hereafter referred to as the "CIC Period"), otherwise, two (2) times the sum of (1) the highest annual bonus paid to the Executive for any of the three years prior to the Date of Termination (the "Recent Annual Bonus") and (2) the Executive's Annual Base Salary; B. the sum of (x) the Executive's Annual Base Salary through the Date of Termination to the extent not theretofore paid, and (y) the product of (1) the Recent Annual Bonus and (2) a fraction, the numerator of which is the number of days in the fiscal year in which the Date of Termination occurs through the Date of Termination and the denominator of which is 365, to the extent not theretofore paid (the sum of the amounts described in clauses (x) and (y) shall be hereinafter referred to as the "Accrued Obligations"); and C. if such termination occurs during the CIC Period, a lump sum cash payment equal to the difference between (x) the actuarial present value of the Retirement Benefit determined using the actuarial assumptions prescribed under the tax-qualified defined benefit plan under which the Executive was eligible for participation at the time of termination of employment, assuming the Executive had accumulated three additional years of employment, and (y) the actuarial present value of the Retirement Benefit determined using the actuarial assumptions prescribed under the tax-qualified defined benefit plan under which the Executive was eligible for participation at the time of termination of employment. (ii) the Company shall continue to provide, for a period of three (3), if such termination occurs during the CIC Period, otherwise two (2), years following the Executive's Date of Termination, the Executive (and the Executive's dependents, if applicable) with the same level of medical, dental, accident, disability and life insurance benefits upon substantially the same terms and conditions (including contributions required by the Executive for such benefits) as existed immediately prior to the Executive's Date of Termination (or, if more favorable to the Executive, as such benefits and terms and conditions existed immediately prior to the Change in Control); provided that, if the Executive cannot continue to participate in the Company plans providing such benefits, the Company shall otherwise provide such benefits on the same after-tax basis as if continued participation had been permitted. Notwithstanding the 7 foregoing, in the event the Executive becomes reemployed with another employer and becomes eligible to receive welfare benefits from such employer, the welfare benefits described herein shall be secondary to such benefits during the period of the Executive's eligibility, but only to the extent that the Company reimburses the Executive for any increased cost and provides any additional benefits necessary to give the Executive the benefits provided hereunder. (iii) the Stock Options shall vest and shall remain exercisable for a period of two years or the earlier expiration of their initial term, and if such termination occurs during the CIC Period, all other stock options, restricted stock awards and other equity based awards granted after the date of this Agreement (the "Equity Awards") shall vest (and such options shall remain exercisable for a period of two years or the earlier expiration of their initial term), otherwise, the Equity Awards will expire as provided under the terms of their applicable agreements; and (iv) to the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies through the Date of Termination (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"). (b) Death or Disability. If the Executive's employment is terminated by reason of the Executive's death, this Agreement shall terminate without further obligations to the Executive's legal representatives or to the Executive, as the case may be, under this Agreement, other than for payment of Accrued Obligations, the timely payment or provision of Other Benefits, and the Retirement Benefit. In addition, the Stock Options shall vest immediately and remain exercisable for a period of at least three years or the earlier expiration of their initial term. Accrued Obligations shall be paid to the Executive, the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination. (c) Cause; Other than for Good Reason. If the Executive's employment shall be terminated for Cause or the Executive terminates his employment without Good Reason, this Agreement shall terminate without further obligations to the Executive other than the obligation to pay to the Executive (i) his Annual Base Salary through the Date of Termination to the extent theretofore unpaid and, (ii) the Other Benefits. 6. Non-exclusivity of Rights. Except as specifically provided, nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which the Executive may qualify, nor, subject to Sections 1 and 11(f), shall anything herein limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Company or any of its affiliated companies. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of or any 8 contract or agreement with the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement; provided that the Executive shall not be eligible for severance benefits under any other program or policy of the Company. 7. Full Settlement. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement, and such amounts shall not be reduced whether or not the Executive obtains other employment. The Company agrees to pay as incurred, to the full extent permitted by law, all legal fees and expenses which the Executive may reasonably incur as a result of any contest (regardless of the outcome thereof) pursued or defended against in good faith by the Executive regarding the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive about the amount of any payment pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code"). 8. Certain Additional Payments by the Company. (a) Anything in this Agreement to the contrary notwithstanding and except as set forth below, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 8) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. Notwithstanding the foregoing provisions of this Section 8(a), if it shall be determined that the Executive is entitled to a Gross-Up Payment, but that the Payments do not exceed 110% of the greatest amount (the "Reduced Amount") that could be paid to the Executive such that the receipt of Payments would not give rise to any Excise Tax, then no Gross-Up Payment shall be made to the Executive and the Payments, in the aggregate, shall be reduced to the Reduced Amount. 9 (b) Subject to the provisions of Section 8(c), all determinations required to be made under this Section 8, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by the Company's independent auditors or such other certified public accounting firm reasonably acceptable to the Executive as may be designated by the Company (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Company. All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 8, shall be paid by the Company to the Executive within five days of the later of (i) the due date for the payment of any Excise Tax, and (ii) the receipt of the Accounting Firm's determination. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 8(c) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive. (c) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) give the Company any information reasonably requested by the Company relating to such claim, (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, (iii) cooperate with the Company in good faith in order effectively to contest such claim, and 10 (iv) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 8(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that, if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (d) If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 8(c), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 8(c), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 11 9. Covenant Not to Compete; Confidential Information. (a) During the term of this Agreement, and for a six month period after the Date of Termination, the Executive shall not directly or indirectly, own, manage, operate, join, control, or participate in the ownership, management, operation or control of, or be employed by or connected in any manner with, any competing business, whether for compensation or otherwise, without the prior written consent of the Company. Notwithstanding the preceding sentence, the Executive shall not be prohibited from owning less than one (1%) percent of any publicly traded corporation, whether or not such corporation is deemed to be a competing business. For the purposes of this Agreement, a "competing business" shall be any business which is a significant competitor of the Company, or which the Company reasonably determines may become a significant competitor, unless the Executive's primary duties and responsibilities with respect to such business are not related to the management or operation of disability insurance or complementary special risk products and services in any country where the Company is conducting business. Should the Executive, directly or indirectly, own, manage, operate, join, control or participate in the ownership, management, operation or control of, or be employed by or connected in any manner with, any competing business, all payments under this Agreement shall cease. (b) The Executive hereby acknowledges that, as an employee of the Company, he will be making use of, acquiring and adding to confidential information of a special and unique nature and value relating to the Company and its strategic plan and financial operations. The Executive further recognizes and acknowledges that all confidential information is the exclusive property of the Company, is material and confidential, and is critical to the successful conduct of the business of the Company. Accordingly, the Executive hereby covenants and agrees that he will use confidential information for the benefit of the Company only and shall not at any time, directly or indirectly, during the term of this Agreement, and thereafter for all periods during which severance or other amount is paid, divulge, reveal or communicate any confidential information to any person, firm, corporation or entity whatsoever, or use any confidential information for his own benefit or for the benefit of others. In no event shall an asserted violation of the provisions of this Section 9(b) constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. (c) Any termination of the Executive's employment or of this Agreement shall have no effect on the continuing operation of this Section 9. (d) In addition to the cessation of payments set forth in Section 9(a), the Executive acknowledges and agrees that the Company will have no adequate remedy at law, and could be irreparably harmed, if the Executive breaches or threatens to breach any of the provisions of this Section 9. The Executive agrees that the Company shall be entitled to equitable and/or injunctive relief to prevent any breach or threatened breach of this Section 9, and to specific performance of each of the terms hereof in addition to any other legal or equitable 12 remedies that the Company may have. The Executive further agrees that he shall not, in any equity proceeding relating to the enforcement of the terms of this Section 9, raise the defense that the Company has an adequate remedy at law. (e) The terms and provisions of this Section 9 are intended to be separate and divisible provisions and if, for any reason, any one or more of them is held to be invalid or unenforceable, neither the validity nor the enforceability of any other provision of this Agreement shall thereby be affected. The parties hereto acknowledge that the potential restrictions on the Executive's future employment imposed by this Section 9 are reasonable in both duration and geographic scope and in all other respects. If for any reason any court of competent jurisdiction shall find any provisions of this Section 9 unreasonable in duration or geographic scope or otherwise, the Executive and the Company agree that the restrictions and prohibitions contained herein shall be effective to the fullest extent allowed under applicable law in such jurisdiction. (f) The parties acknowledge that this Agreement would not have been entered into and the benefits described in Sections 3 or 5 would not have been promised in the absence of the Executive's promises under this Section 9. 10. Successors. (a) This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 13 11. Miscellaneous. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: P. O. Box 281 Lookout Mountain, Tennessee 37350 If to the Company: 1 Fountain Square Chattanooga, Tennessee 37402 Telecopy Number: (423) 755-8503 Attention: Chief Executive Officer or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (d) The Company may withhold from any amounts payable under this Agreement such Federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation. (e) The Executive's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason pursuant to Section 4(c)(i)-(iv) of this Agreement, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. 14 (f) From and after the Effective Date this Agreement shall supersede any other employment, severance or change of control agreement between the parties with respect to the subject matter hereof. 12. General Release. All payments under this Agreement to be made in connection with the Executive's termination of employment will be conditioned on the Executive signing a general form of release. IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization from its Board of Directors, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written. EXECUTIVE /s/ Thomas R. Watjen ------------------------------------------------ PROVIDENT COMPANIES, INC. By: /s/ J. Harold Chandler -------------------------------------------- 15 EX-15 10 LETTER RE: UNAUDITED FINANCIAL INFORMATION EXHIBIT 15 Board of Directors and Shareholders UNUMProvident Corporation We are aware of the incorporation by reference in the Registration Statements (Form S-8 No. 33-47551, Form S-8 No. 33-88108, Form S-8 No.33-62231, Form S-8 No. 333-81669 and Form S-8 No. 333-81969) of Provident Companies, Inc. pertaining to the Provident Life and Accident Insurance Company MoneyMaker. A Long-Term 401(k) Retirement Savings Plan, the Provident Life and Accident Insurance Company Stock Purchase Plan of 1994, the Provident Life and Accident Insurance Company Employee Stock Purchase Plan of 1995, the Provident Life and Accident Insurance Company Management Incentive Compensation Plan of 1994, The Paul Revere Savings Plan. Provident Companies, Inc. Stock Plan of 1999, Provident Companies, Inc, Non-Employee Director Compensation Plan of 1998, Employee Stock Option Plan of 1998, and Amended and Restated Annual Management Incentive Compensation Plan of 1994, and the UNUMProvident Corporation 1987 Executive Stock Option Plan, UNUMProvident Corporation 1990 Long-Term Stock Incentive Plan, UNUMProvident Corporation Plan 1996 Long-Term Stock Incentive Plan and UNUMProvident Corporation 1998 Goals Stock Option Plan, and in the Registration Statement (From S-3 No. 333-17849) of Provident Companies, Inc. for the registration of 9,523,810 shares of its common stock of our report dated August 2, 1999 relating to the unaudited condensed consolidated interim financial statements of UNUMProvident Corporation which is included in its Form 10-Q for the quarter ended June 30,1999. Pursuant to Rule 436(c) of the Securities Act of 1933, our report is not a part of the registration statements prepared or certified by accountants within the meaning of Section 7 or 11 of the Securities Act of 1993. ERNST & YOUNG LLP Chattanooga, Tennessee August 2, 1999 EX-18 11 LETTER RE: CHANGE IN ACCOUNTING PRINCIPLES EXHIBIT 18 August 2, 1999 Board Of Directors UNUMProvident Corporation Dear Directors: We are providing this letter to you for inclusion as an exhibit to the Form 10-Q filing pursuant to Item 601 of Regulation S-K. We have been provided a copy of the Company's Quarterly Report on Form 10-Q for the period ended June 30, 1999. Note 2 therein describes a change in accounting principle from calculating the discount rate for claim reserves previously associated with the claims of the former UNUM Corporation using UNUM Corporation's processes and assumptions to discounting claim reserves using the new combined Company's processes and assumptions which are consistent with the processes and assumptions previously associated with the claims of the former Provident Companies, Inc. It should be understood that the preferability of one acceptable method of accounting over another for discounting claim reserves has not been addressed in any authoritative accounting literature, and in expressing our concurrence below we have relied on management's determination that this change in accounting principle is preferable. Based on our reading of management's stated reasons and justification for this change in accounting principle in the Form 10-Q, and our discussions with management as to their judgment about the relevant business planning factors relating to the change, we concur with management that such change represents, in the Company's circumstances, the adoption of a preferable accounting principle in conformity with Accounting Principles Board Opinion No. 20. We have not audited any financial statements of the Company as of any date or for any period subsequent to December 31, 1998. Accordingly, our comments are subject to change upon completion of an audit of the financial statements covering the period of the accounting change. Very truly yours, PricewaterhouseCoopers, LLP EX-27.1 12 FINANCIAL DATA SCHEDULE (12 MONTHS)
7 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF PROVIDENT COMPANIES, INC. AND UNUM CORPORATION FOR THE YEAR ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS DEC-31-1998 JAN-01-1998 DEC-31-1998 22,732,200 307,000 352,500 33,100 1,321,200 309,800 27,186,000 111,200 0 2,060,500 38,602,200 22,271,700 219,000 1,384,900 4,102,700 1,548,900 0 0 23,800 6,122,400 38,602,200 6,129,000 2,035,400 55,000 299,900 5,449,700 377,500 1,771,900 920,200 302,800 617,400 0 0 0 617,400 2.60 2.54 0 0 0 0 0 0 0 ON JUNE 30, 1999, PROVIDENT COMPANIES, INC. AND UNUM CORPORATION WERE MERGED TO CREATE UNUMPROVIDENT CORPORATION. THE MERGER WAS ACCOUNTED FOR AS A POOLING OF INTERESTS. THE FINANCIAL RESULTS PRESENTED HEREIN GIVE EFFECT TO THE MERGER AS IF IT HAD BEEN COMPLETED AT THE BEGINNING OF THE PERIOD.
EX-27.2 13 FINANCIAL DATA SCHEDULE (6 MONTHS 6/30/99)
7 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF UNUMPROVIDENT CORPORATION FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1999 JAN-01-1999 JUN-30-1999 21,807,000 319,200 330,900 0 1,328,100 314,400 26,247,200 186,800 0 2,256,600 37,917,300 22,870,800 0 1,469,500 3,634,100 1,716,500 0 0 23,900 5,367,800 37,917,300 3,368,900 1,017,600 11,400 148,800 3,192,800 224,600 1,240,700 (111,400) (9,500) (101,900) 0 0 0 (101,900) (0.43) (0.43) 0 0 0 0 0 0 0 On June 30, 1999, Provident Companies, Inc. and UNUM Corporation were merged to create UNUMProvident Corporation. The merger was accounted for as a pooling of interests. The financial results presented herein give effect to the merger as if it had been completed at the beginning of the period. "Total-Invest" includes equity securities of $32,600. "Policy-Losses" include reserves for future policy and contract benefits of $22,650,300 and unearned premiums of $220,500.
EX-27.3 14 FINANCIAL DATA SCHEDULE (6 MONTHS 6/30/98)
7 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF PROVIDENT COMPANIES, INC. AND UNUM CORPORATION FOR THE 6 MONTHS ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 22,632,700 298,900 335,700 0 1,146,400 308,600 26,809,800 117,400 0 1,905,600 38,020,900 21,738,000 0 1,274,800 4,615,400 1,554,300 0 0 23,700 5,907,500 38,020,900 2,998,700 1,038,600 14,400 157,500 2,618,500 178,200 899,700 512,800 174,700 338,100 0 0 0 338,100 1.42 1.39 0 0 0 0 0 0 0 On June 30, 1999, Provident Companies, Inc. and UNUM Corporation were merged to create UNUMProvident Corporation. The merger was accounted for as a pooling of interests. The financial results presented herein give effect to the merger as if it had been completed at the beginning of the period. "Total-Invest" includes equity securities of $52,000. "Policy-Losses" include reserves for future policy and contract benefits of $21,520,800 and unearned premiums of $217,200.
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