AMENDED AND RESTATED EMPLOYMENT AGREEMENT

 

AGREEMENT by and between UnumProvident Corporation, a Delaware corporation having its principal executive offices in Chattanooga, Tennessee (the “Company”), and Thomas R. Watjen (the “Executive”) dated as of January 1, 2002.

 

WHEREAS, the Executive currently serves as a senior executive officer of the Company pursuant to an employment agreement entered into effective June 30,1999;

 

WHEREAS, the Company recognizes the Executive’s substantial contribution to the growth and success of the Company, desires to provide for the continued employment of the Executive and to make certain changes in the Executive’s employment arrangements with the Company, which the Board has determined will reinforce and encourage the continued attention and dedication to the Company of the Executive as a member of the Company’s senior management in the best interests of the Company and its shareholders;

 

WHEREAS, the Executive is willing to continue to serve the Company on the terms and conditions set forth below;

 

NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:

 

1. 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 date hereof (the “Effective Date”) and ending on the second anniversary of the Effective Date (the “Initial Term”). Beginning on the second anniversary of the Effective Date, the Initial Term shall be automatically extended for successive two-year terms unless either the Company or the Executive shall give (in accordance with Section 11(b)) the other party written notice (a “Notice of Non-Renewal”) at least ninety (90) days but not more than one hundred and twenty (120) days prior to the expiration of such term of intention not to extend this Agreement.

 

2. Terms of Employment.

 

(a) Position and Duties.

 

(i) The Executive shall serve as Executive Vice President, Finance and Risk Management of the Company until May 15, 2002 and Vice Chairman and Chief Operating Officer of the Company, as a publicly held company, after May 15, 2002 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 such matters as acquisitions, dispositions and the evolving organizational structure of the Company.

 

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(ii) Excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote substantially all of his business attention and time 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 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 $650,000. 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 not less than 100% of Annual Base Salary, or such greater amount as determined from time to time by the Compensation Committee of the Company’s Board of Directors (the “Compensation Committee”) (the “Target Bonus Amount”).

 

(iii) Incentive Awards.    Annual equity grants will be made by the Compensation Committee based upon competitive market analyses and such other factors it may deem appropriate.

 

(iv) Deferred Compensation.    The Company shall credit to a deferred compensation account maintained on its books in the name of the Executive an additional annual deferred payment (and interest, if any, as determined by the Compensation Committee) (the “Deferred Compensation”) in an amount determined by the Compensation Committee in any year in which the Company meets or exceeds its performance targets under its long-term incentive program for officers of the Company and the Compensation Committee

 

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determines that Deferred Compensation is appropriate. The Deferred Compensation amount shall be paid to the Executive on the third anniversary of the date it was first credited; provided, however, that payment of all or portions may be accelerated to an earlier anniversary date as specified by the Compensation Committee based on the achievement of individual performance goals.

 

(v) 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 and policies intended to reimburse the Executive in respect of state and local income taxes imposed by jurisdictions where the Executive does not reside and attributable to compensation paid by the Company) (collectively, “Employee Benefit Plans”) applicable to senior executive officers of the Company.

 

(vi) Retirement Benefit.    The Executive shall be entitled to a minimum annual retirement benefit payable monthly (the “Retirement Benefit”) pursuant to the terms of and under the current formula contained in the Unum Corporation Senior Executive Retirement Plan. In addition, the Executive shall be entitled to post-retirement welfare benefit plan coverage to the extent such coverage is provided by the Company. For purposes of the Retirement Benefit and the post-retirement welfare benefits, the Executive shall receive full credit for all of his years of service with the Company for all purposes.

 

(vii) Other Perquisites.    The Executive shall be entitled for up to forty (40) hours per year for his personal use of the Company’s aircraft and up to $12,000 for the Executive’s charitable gifts made to institutions whose primary activities benefit the communities in which the Company has business operations other than the community in which the Executive maintains his business residence. In addition, the Company shall pay the Executive such amount as is necessary to reimburse the Executive for any federal, state and local income taxes payable by the Executive with respect to income recognized in regard to the foregoing perquisites, such that the Executive will be in the same after-tax position as if no such reimbursements had been paid.

 

3. 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

 

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on the 90th day after receipt of such notice by the Executive (the “Disability Effective Date”), provided that, within the 90 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”) which specifically identifies the manner in which the CEO 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 a 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 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

 

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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 2(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 2(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 9(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 4(a)(i)).

 

Notwithstanding the foregoing, placing the Executive on a paid leave for up to 30 days, pending the determination of whether there is a basis to terminate the Executive for Cause, shall not constitute a Good Reason event; provided, further, that, if the Executive is subsequently terminated for Cause, then the Executive shall repay any amounts paid by the Company to the Executive during such paid leave period.

 

(d) Change in Control.    For purposes of this Agreement, “Change in 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 of 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

 

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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

 

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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 for Cause, the date of receipt of the Notice of Termination or any later date specified therein within 90 days of such

 

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notice, (ii) if the Executive’s employment is terminated by reason of death or Disability, the date of death of the Executive or the Disability Effective Date, as the case may be, (iii) if the Executive’s employment is terminated by the Company other than for Cause, death or Disability, 90 days after giving such notice, (iv) if the Executive’s employment is terminated by the Executive, 90 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 90-day period or accelerate the Date of Termination, and (v) if the Executive’s employment is terminated pursuant to a Notice of Non-Renewal, the date specified in Section 1 as the end of the two-year term in which such notice is provided.

 

4. 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 (including a termination pursuant to a Notice of Non-Renewal under Section 1) other than for Cause or Disability, or the Executive shall terminate employment for Good Reason, this Agreement shall terminate without further obligation to the Executive other than:

 

(i) the Company shall pay to the Executive (x) if such termination occurs during the two-year period after a Change in Control (such two-year period being hereafter referred to as the “CIC Period”) or during the twelve (12) month period after the Company enters into an agreement that would constitute a Change in Control (the date of such agreement being a “Potential Change in Control” and such period being hereinafter referred to as the “Potential CIC Period”), in a lump sum in cash within ten (10) days after the Date of Termination, and (y) if such termination occurs any other time, in equal monthly payments during the eighteen (18) months commencing on the Date of Termination:

 

A. the product of three (3) times the sum of (x) the highest annual bonus paid to the Executive for any of the three (3) years prior to the Date of Termination (the “Recent Annual Bonus”) and (y) 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 multiplied by (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”);

 

C. the Deferred Compensation; and

 

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D. 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 (3) 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) 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 or Potential 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) if termination occurs during the CIC Period or Potential CIC Period, all stock options, restricted stock awards and other equity based awards granted after July 1, 1999 (the “Equity Awards”) shall vest (and such options shall remain exercisable for a period of two (2) 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”).

 

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(b) Death or Disability.    If the Executive’s employment is terminated by reason of the Executive’s death or Disability, 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 the Deferred Compensation, the Accrued Obligations, the timely payment or provision of Other Benefits, and the Retirement Benefit. In addition, the Equity Awards shall vest immediately and stock options shall remain exercisable for a period of at least three (3) years or the earlier expiration of their initial term. Deferred Compensation and Accrued Obligations shall be paid to the Executive, the Executive’s legal representatives, as applicable, in a lump sum in cash within 30 days of the Date of Termination. If, however, the Executive’s employment is terminated by reason of accidental death after a Notice of Termination given either by the Executive for Good Reason or by the Company other than for Cause, the Company shall also pay to the Executive’s legal representatives in one lump sum the amounts specified in Sections 4(a)(i)(A) and (B).

 

(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.

 

5. 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.

 

6. 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

 

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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”).

 

7. 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 7) (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 7(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 7(c), all determinations required to be made under this Section 7, 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 7, shall be paid by the Company to the Executive within five (5) days of the later of (i) the due date for the payment of any Excise Tax, and

 

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(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 7(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 (10) 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 7(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and

 

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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 7(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 7(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.

 

8. Competition; Confidential Information.

 

(a) During the term of this Agreement, 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 any of its subsidiaries, 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

 

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management or operation of disability insurance or complementary special risk products and services in any country where the Company or any of its subsidiaries is conducting business.

 

(b) If the Executive engages in any activity described in Section 8(a) or, breaches Section 8(c), or solicits (as defined below) any employee of the Company or any of its subsidiaries after the Date of Termination and during the period in which he is receiving payments pursuant to Section 4(a)(i) (any such event a “Forfeiture Event”), then all such payments shall immediately cease, the Executive shall forfeit his rights under Section 4 of this Agreement and all outstanding Equity Awards shall terminate and cease to be exercisable as of such date. In addition, the Executive shall remit to the Company in cash an amount equal to the income recognized on the exercise of any stock options during the 90-day period prior to Forfeiture Event. For purposes of this Agreement, “solicit” shall mean any direct or indirect communication of any kind whatsoever, regardless of by whom initiated, inviting, advising, encouraging or requesting any employee of the Company or any of its subsidiaries, in any manner, to resign from the Company or to apply for or accept employment with any person or entity. For purposes of implementing this provision, the Executive shall notify the Company in advance of undertaking any employment, consulting or other relationship with any business during the eighteen-month period after the Date of Termination. This Section 8(b) shall cease to apply upon the occurrence of a Change in Control.

 

(c) 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 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.

 

(d) Any termination of the Executive’s employment or of this Agreement shall have no effect on the continuing operation of this Section 8.

 

(e) 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 Section 8(a), (b) or (c). The Executive agrees that the Company shall be entitled to equitable and/or injunctive relief to prevent any breach or threatened breach of such provisions, and to specific performance of each of the terms thereof in addition to any other legal or equitable

 

14

 

 

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remedies that the Company may have. The Executive further agrees that he shall not, in any equity proceeding relating to the enforcement of the terms of this Section 8, raise the defense that the Company has an adequate remedy at law.

 

(f) The terms and provisions of this Section 8 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 8 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 8 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.

 

(g) The parties acknowledge that this Agreement would not have been entered into and the benefits described in Sections 2 or 4 would not have been promised in the absence of the Executive’s promises under this Section 8.

 

9. 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.

 

10. Disputes.

 

(a) Mandatory Arbitration.    Subject to the provisions of this Section 10, any controversy or claim between the Executive and the Company arising out of or relating to or concerning this Agreement or any aspect of the Executive’s employment with the Company or the termination of that employment (together, an “Employment Matter”) will be finally settled by arbitration in the County of New York

 

15

 

 

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administered by the American Arbitration Association (the “AAA”) under its Commercial Arbitration Rules then in effect. However, the AAA’s Commercial Arbitration Rules will be modified in the following ways: (i) each arbitrator will agree to treat as confidential evidence and other information presented to them, (ii) there will be no authority to award punitive damages (and the Executive and the Company agree not to request any such award) and (iii) a decision must be rendered within 10 business days of the parties’ closing statements or submission of post-hearing briefs.

 

(b) Injunctions and Enforcement of Arbitration Awards.    The Executive or the Company may bring an action or special proceeding in a state or federal court of competent jurisdiction to enforce any arbitration award under Section 10(a). Also, the Company may bring such an action or proceeding, in addition to its rights under Section 10(a) and whether or not an arbitration proceeding has been or is ever initiated, to temporarily, preliminarily or permanently enforce any part of Section 8. The Executive agrees that (i) violating any part of Section 8(a), 8(b) or 8(c) would cause damage to the Company that cannot be measured or repaired, (ii) the Company therefore is entitled to an injunction, restraining order or other equitable relief restraining any actual or threatened violation of Section 8(a), 8(b) or 8(c), (iii) no bond will need to be posted for the Company to receive such an injunction, order or other relief and (iv) no proof will be required that monetary damages for violations of Section 8(a) or Section 8(c) would be difficult to calculate and that remedies at law would be inadequate.

 

(c) Waiver of Jury Trial. To the extent permitted by law, the Executive and the Company waive any and all rights to a jury trial with respect to any Employment Matter.

 

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:

Thomas R. Watjen

P.O. Box 281

Lookout Mountain, TN 37350

 

16

 

 

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If to the Company:

UnumProvident Corporation

1 Fountain Square

Chattanooga, TN 37402

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 3(c)(i)-(vi) 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 substantially in the form attached hereto as Exhibit A.

 

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       

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17

 

 

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UNUMPROVIDENT CORPORATION

 

By    /s/     J. Harold Chandler       

                             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

<PAGE>

 

                    (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

<PAGE>

 

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

<PAGE>

 

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

<PAGE>

 

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

<PAGE>

 

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

<PAGE>

 

          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

<PAGE>

 

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

<PAGE>

 

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

<PAGE>

 

               (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

<PAGE>

 

                    (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

<PAGE>

 

          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

<PAGE>

 

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

<PAGE>

 

          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

<PAGE>

 

               (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