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Submitted to Probity Investments

By Candice E. Williams

1111 Crowne Oaks Circle

Winston-Salem, NC 27106

I recommend that Probity Investments submit the following proposal for inclusion in Protective Life Corporation's proxy materials for the corporation’s 2000 Annual Meeting. This proposal must be submitted by December 28, 1999 to be included in the April 2000 proxy materials.

SHAREHOLDER PROPOSAL

WHEREAS, Protective Life Corporation is a leader in the field of life insurance, and

WHEREAS, the Financial Modernization Bill has repealed the Glass-Steagall Act of 1933 and thereby allows banking institutions to sell insurance products, and

WHEREAS, one of the missions of the corporation is to "rank at the top of the industry in long-range earnings growth and return on equity", and

WHEREAS, life insurance companies will become attractive takeover targets because of the Financial Modernization Bill, therefore

BE IT RESOLVED, that the shareholders recommend the corporation adopts a Rights Plan to preserve values of the stockholders, in the event of a takeover.

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SUPPORT STATEMENT

Protective Life Corporation (hereinafter called the corporation) is a holding company whose subsidiaries provide financial services through the production, distribution and administration of insurance and investment products. The corporation’s principal subsidiary is Protective Life Insurance Company. (see website).

The corporation prides itself on its A+ (Superior) rating by A.M. Best. Also, the corporation has strong ties with its shareholders and one of its missions is to insure them a profit. The corporation’s symbol is a triangle, which symbolizes the three constituencies that it serves: customers, the corporation’s own people and stockholders.

On November 12, 1999, President Clinton signed into law a bill that has now become known as the Financial Modernization Bill. This bill rewrites the current banking law. It effectively repeals the Glass-Steagall Act of 1933. Now, banking institutions will be able to sell insurance products. All of this is culminating into predictions that life insurance companies will become attractive takeover targets. (see "New Rules for Financial Services").

Since the corporation is one of the top-rated insurance companies and has shown its dedication to its shareholders, it should adopt a Rights Plan to preserve its shareholders’ values in case of a takeover.

Our goal is not to prevent future mergers, but only to insure that the corporation will be given fair negotiating power and fulfill its promise to its shareholders that it will return to them a profit on their investment. Since the current takeover regulation favors a "raider", the corporation should protect itself through a Rights Plan.

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MEMORANDUM

To: Probity Investments
From: Candice E. Williams
Date: November 16, 1999

Re: Protective Life Corporation Shareholder Proposal

 

Probity Investments is the nation’s largest mutual fund group. Probity has achieved this status by carefully investing in companies throughout the United States who have proven themselves to be committed to their goals and shareholders, such as Protective Life Corporation.

 

Reason for Proposal:

The proposal is that the corporation should adopt a Rights Plan to insure shareholders’ stock value. With the enactment of the new Financial Modernization Bill, life insurance companies have become prime takeover targets. The new law now permits banking institutions to provide life insurance services.

Rights Plans were popularized in the mid-1980’s by the New York law firm Wachtell, Lipton, Rosen & Katz. They are commonly called "poison pills." A Rights Plan gives various rights to shareholders entitling them to securities of the company on the happening of some event, usually a takeover attempt. They are one of the most popular defenses for management of corporations that are seeking to deter a hostile takeover.

 

There are two types of Rights Plans. One is a "flip-over" plan and the other is a "flip-in" plan. This proposal would best be suited for a "flip-in" plan. In this plan, the directors would cause the corporation to issue "rights" to shareholders. The rights have little value when they are issued, however, their value increases upon a "triggering event", such as a "raider" who acquires 20 percent of the corporation’s shares or the announcement of a tender offer for the corporation’s shares. Upon the occurrence of a triggering event, each shareholder has the right to purchase additional shares for less. For example, a shareholder could purchase $500.00 of stock for $250.00. Therefore, the raider’s stock will be diluted, since he is excluded from the right.

 

Anticipated Procedural and Substantive Pitfalls:

There are no anticipated procedural pitfalls. Pursuant to SEC 14a-8, Probity has held over $2000.00 in market value of Protective’s stock for over a year. Probity will continue to hold the stock through the date of the meeting. The Proposal is under the 500-word limit imposed by Rule 14a-8. Furthermore, a qualified representative will represent Probity ‘s proposal at the meeting.

 

Pursuant to Rule 14a-8, the corporation may still exclude the proposal under a list of reasons found in the rule. The two most common are (1) the proposal relates to operations which account for less than 5 percent of the corporation’s total assets for the year, less than 5 percent of net earnings and gross sales for the year, and is not otherwise significantly related to the corporation’s business and (2) the proposal relates to the conduct of the corporation’s ordinary business operations. These exclusions, as well as the others, are not anticipated to qualify to exclude the proposal.

Assuming the proposal is included in the proxy materials, the primary anticipated pitfall is getting the shareholders to vote for the proposal. There is a popular misconception that a Rights Plan makes the corporation acquisition-proof. Indeed, early studies from 1988 showed poison pills had a negative effect on stock prices. Malatesta & Walkling, Poison Pill Securities: Stockholder Wealth, Profitability, and Ownership Structure, 20 J. FIN. ECON. 347 (1988). It is likely that shareholders will have a misconception that adopting a Rights Plan will actually drive away possible acquisition opportunities and drive the price of their stock down.

 

However, studies from 1994 and 1995 have shown that there is no real effect on stock prices. A 1995 study showed that poison pills do not deter takeovers and are in fact related to high takeover premiums for selling shareholders, both unconditionally and conditional on a takeover. Furthermore, the study showed anti-takeover measures in general increase the bargaining power of target companies and do not prevent most transactions. Robert Comment & William Schwa, Poison or Placebo? Evidence on the Wealth Effects of Modern takeover Measures, 39 J.FIN.ECON. 3 (1995).

 

A 1994 study showed there could even be a positive price effect after the adoption of a rights plan, when the majority of the board of directors are outside directors. James A. Brickley, Jeffrey L. Coles, and Rory L. Terry, Outside Directors and the Adoption of Poison Pills, 35 J. FIN.ECON. 371, 1379 (1994). Eight of eleven of the corporation’s directors are outside directors. (See website).

 

In summary, our key to having shareholders approve this proposal will be through shareholder education concerning the positive effect of a Rights Plan. Again, we must stress that we are not trying to prevent acquisition opportunities concerning the corporation, but we only want to preserve shareholder stock value.

 

For further information about Protective Life Corporation, please see Articles of Incorporation and Bylaws.