-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ndx5IQCioZ5oACqtCweyk/Q5IyAr97npkwT1evosH8w884QHDl2bPYUETazNQrJX hvz+tv5pzO1eer9vKeqVgA== 0001005477-01-501958.txt : 20020410 0001005477-01-501958.hdr.sgml : 20020410 ACCESSION NUMBER: 0001005477-01-501958 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HANCOCK JOHN FINANCIAL SERVICES INC CENTRAL INDEX KEY: 0000736260 STANDARD INDUSTRIAL CLASSIFICATION: LIFE INSURANCE [6311] IRS NUMBER: 043483032 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-15607 FILM NUMBER: 1787474 BUSINESS ADDRESS: STREET 1: LAW DIVISION STREET 2: PO BOX 111 CITY: BOSTON STATE: MA ZIP: 02117 MAIL ADDRESS: STREET 1: LAW DIVISION STREET 2: PO BOX 111 CITY: BOSTON STATE: MA ZIP: 02117 10-Q 1 d01-35050.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2001 Commission File Number: 1-15607 JOHN HANCOCK FINANCIAL SERVICES, INC. Exact name of registrant as specified in charter DELAWARE 04-3483032 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) John Hancock Place Boston, Massachusetts 02117 (Address of principal executive offices) (617) 572-6000 (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_| Number of shares outstanding of our only class of common stock as of November 9, 2001: 298,674,423 JOHN HANCOCK FINANCIAL SERVICES, INC. PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS
September 30, 2001 December 31, (Unaudited) 2000 --------------------------------- (in millions) Assets Investments Fixed maturities: Held-to-maturity--at amortized cost (fair value: September 30--$1,843.6; December 31--$11,651.2).. $ 1,855.8 $11,888.6 Available-for-sale--at fair value (cost: September 30--$31,644.2; December 31--$15,829.7) ...... 32,562.7 16,061.9 Trading securities--at fair value (cost: September 30--$16.5) .................................. 17.0 -- Equity securities: Available-for-sale--at fair value (cost: September 30--$849.5; December 31--$870.6) ............ 874.8 1,134.4 Trading securities--at fair value (cost: September 30--$267.4; December 31--$193.4) ............ 249.0 231.6 Mortgage loans on real estate ................................... 8,846.9 8,969.4 Real estate ..................................................... 481.7 519.0 Policy loans .................................................... 446.3 428.6 Short-term investments .......................................... 147.5 151.9 Other invested assets ........................................... 1,251.3 1,353.0 --------------------------- Total Investments ............................................ 46,733.0 40,738.4 Cash and cash equivalents ....................................... 1,164.1 2,974.4 Accrued investment income ....................................... 678.7 586.9 Premiums and accounts receivable ................................ 202.9 210.8 Deferred policy acquisition costs ............................... 2,665.1 2,528.1 Reinsurance recoverable ......................................... 1,858.8 1,958.6 Other assets .................................................... 2,703.0 2,191.3 Closed block assets - Note 5 .................................... 10,103.3 9,710.0 Separate accounts assets ........................................ 21,890.5 26,454.8 --------------------------- Total Assets ................................................. $87,999.4 $87,353.3 ============================
The accompanying notes are an integral part of these unaudited consolidated financial statements. 2 JOHN HANCOCK FINANCIAL SERVICES, INC. CONSOLIDATED BALANCE SHEETS -- (CONTINUED)
September 30, 2001 December 31, (Unaudited) 2000 ------------------------------- (in millions) Liabilities and Shareholders' Equity Liabilities Future policy benefits.......................................................... $24,468.3 $22,996.4 Policyholders' funds............................................................ 17,609.9 15,741.1 Unearned revenue................................................................ 726.4 671.3 Unpaid claims and claim expense reserves........................................ 234.5 253.7 Dividends payable to policyholders.............................................. 137.9 130.8 Short-term debt................................................................. 451.0 245.3 Long-term debt.................................................................. 715.8 534.0 Income taxes.................................................................... 794.6 431.3 Other liabilities............................................................... 2,482.3 1,986.0 Closed block liabilities - Note 5............................................... 12,273.2 12,035.9 Separate accounts liabilities................................................... 21,890.5 26,454.8 ---------------------------- Total Liabilities............................................................ 81,784.4 81,480.6 Minority interest............................................................... 95.9 93.5 Commitments and contingencies - Note 4 Shareholders' Equity Common stock, $.01 par value; 2.0 billion shares authorized; 315.8 and 315.0 million shares issued, 299.7 million and 312.0 million shares outstanding, in 2001 and 2000, respectively.................................. 3.2 3.2 Additional paid in capital...................................................... 5,096.1 5,086.4 Retained earnings............................................................... 1,220.4 700.6 Accumulated other comprehensive income.......................................... 383.4 80.8 Treasury stock, at cost (16.1 million and 3.0 million shares, in 2001 and 2000, respectively)..................................... (584.0) (91.8) ---------------------------- Total Shareholders' Equity................................................... 6,119.1 5,779.2 ---------------------------- Total Liabilities and Shareholders' Equity................................... $87,999.4 $87,353.3 ============================
The accompanying notes are an integral part of these unaudited consolidated financial statements. 3 JOHN HANCOCK FINANCIAL SERVICES, INC. UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Nine Months Ended September 30, September 30, 2001 2000 2001 2000 ------------------------- ----------------------- (in millions) Revenues Premiums.................................................................... $ 490.5 $ 482.7 $1,917.2 $1,743.9 Universal life and investment-type product charges.......................... 199.9 193.8 561.5 580.0 Net investment income....................................................... 825.3 796.0 2,469.7 2,421.2 Net realized investment and other gains (losses), net of related amortization of deferred policy acquisition costs and amounts credited to participating pension contractholders ($18.0 and $(4.6) for the three months ended September 30, 2001 and 2000 and $13.3 and $7.9 for the nine months ended September 30, 2001 and 2000, respectively).......... (60.8) (2.7) (95.6) 78.6 Investment management revenues, commissions and other fees.................. 143.7 180.7 450.2 596.3 Other revenue............................................................... 52.2 5.3 114.0 13.3 Contribution from the closed block - Note 5................................. 34.2 39.4 70.9 90.7 ----------------------- --------------------- Total revenues.............................................................. 1,685.0 1,695.2 5,487.9 5,524.0 Benefits and expenses Benefits to policyholders, excluding amounts related to net realized investment and other gains (losses) credited to participating pension contractholders ($14.1 and $(4.0) for the three months ended September 30, 2001 and 2000 and $15.0 and $(8.7) for the nine months ended September 30, 2001 and 2000, respectively).......................... 1,019.0 976.4 3,396.6 3,148.8 Other operating costs and expenses.......................................... 349.8 377.5 1,103.4 1,209.8 Amortization of deferred policy acquisition costs, excluding amounts related to net realized investment and other gains (losses) ($3.9 and $(0.6) for the three months ended September 30, 2001 and 2000 and $(1.7) and $0.8 for the nine months ended September 30, 2001 and 2000, respectively)....................................................... 67.5 48.5 200.9 142.5 Dividends to policyholders.................................................. 18.1 26.8 72.0 120.5 ----------------------- --------------------- Total benefits and expenses................................................. 1,454.4 1,429.2 4,772.9 4,621.6 ----------------------- --------------------- Income before income taxes and cumulative effect of accounting changes................................................ 230.6 266.0 715.0 902.4 Income taxes................................................................... 59.5 81.7 202.4 294.2 ----------------------- --------------------- Income before cumulative effect of accounting changes.......................... 171.1 184.3 512.6 608.2 Cumulative effect of accounting changes, net of tax - Note 1................... -- -- 7.2 -- Net income..................................................................... $ 171.1 $ 184.3 $ 519.8 $ 608.2 ======================= =====================
The accompanying notes are an integral part of these unaudited consolidated financial statements. 4 JOHN HANCOCK FINANCIAL SERVICES, INC. UNAUDITED CONSOLIDATED STATEMENTS OF INCOME -- (CONTINUED)
For the Period Three Months Three Months Nine Months February 1 Ended Ended Ended Through September 30, September 30, September 30, September 30, 2001 2000 2001 2000 --------------------------------------------------------------------------- (in millions, except per share data) Basic earnings per common share: Income before cumulative effect of accounting changes ..................................... $0.57 $0.59 $1.67 $1.79 Cumulative effect of accounting changes ........ -- -- 0.02 -- -------------------------------------------------------------------- Net income ..................................... $0.57 $0.59 $1.69 $1.79 ==================================================================== Diluted earnings per common share: Income before cumulative effect of accounting changes ..................................... $0.56 $0.58 $1.66 $1.78 Cumulative effect of accounting changes ........ -- -- 0.02 -- -------------------------------------------------------------------- Net income ..................................... $0.56 $0.58 $1.68 $1.78 ==================================================================== Share data: Weighted-average shares used in basic earnings per common share calculations ............... 302.6 314.8 306.8 314.8 Dilutive securities: Stock options .................................. 3.2 1.9 2.7 1.6 Non-vested stock ............................... 0.2 0.3 0.3 0.2 -------------------------------------------------------------------- Weighted-average shares used in diluted earnings per common share calculations ............... 306.0 317.0 309.8 316.6 ====================================================================
The accompanying notes are an integral part of these unaudited consolidated financial statements. 5 JOHN HANCOCK FINANCIAL SERVICES, INC. UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
Additional Accumulated Other Total Outstanding Common Paid In Retained Comprehensive Treasury Shareholders' Shares Stock Capital Earnings Income (Loss) Stock Equity (in thousands) ------------------------------------------------------------------------------------------ (in millions) Balance at July 1, 2000.................. $3.2 $5,076.4 $379.9 $(98.4) $ -- $5,361.1 315,077.5 Forfeitures of restricted stock ......... (41.7) Additional paid in capital............... 10.6 10.6 Comprehensive income: Net income............................ 184.3 184.3 Other comprehensive income, net of tax: Net unrealized gains (losses)......... 55.6 55.6 Foreign currency translation adjustment.......................... (11.6) (11.6) Minimum pension liability............. (5.5) (5.5) -------- Comprehensive income.................. 222.8 ------------------------------------------------------------------------------------- Balance at September 30, 2000............ $3.2 $5,087.0 $564.2 $(59.9) $ -- $5,594.5 315,035.8 ======================================================================================= Additional Accumulated Other Total Outstanding Common Paid In Retained Comprehensive Treasury Shareholders' Shares Stock Capital Earnings Income (Loss) Stock Equity (in thousands) --------------------------------------------------------------------------------------- (in millions) Balance at July 1, 2001.................. $3.2 $5,094.4 $1,049.3 $295.0 $(402.9) $6,039.0 304,265.4 Options exercised........................ 1.7 1.7 138.9 Restricted stock issued.................. 0.1 Forfeitures of restricted stock.......... (9.9) Issuance of shares for board compensation 1.4 Treasury stock acquired.................. (181.1) (181.1) (4,724.9) Comprehensive income: Net income............................ 171.1 171.1 Other comprehensive income, net of tax: Net unrealized gains (losses)......... 72.4 72.4 Net accumulated gains (losses) on cash flow hedges................. 34.2 34.2 Foreign currency translation adjustment.......................... (18.2) (18.2) -------- Comprehensive income................. 259.5 --------------------------------------------------------------------------------------- Balance at September 30, 2001............ $3.2 $5,096.1 $1,220.4 $383.4 $(584.0) $6,119.1 299,671.0 =======================================================================================
The accompanying notes are an integral part of these unaudited consolidated financial statements. 6 JOHN HANCOCK FINANCIAL SERVICES, INC. UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME - (CONTINUED)
Additional Accumulated Other Total Outstanding Common Paid In Retained Comprehensive Treasury Shareholders' Shares Stock Capital Earnings Income (Loss) Stock Equity (in thousands) --------------------------------------------------------------------------------------- (in millions) Balance at January 1, 2000............... $ -- $ -- $ 4,825.0 $(33.9) $ -- $ 4,791.1 -- Demutualization transaction.............. 2.2 3,373.3 (4,869.0) (1,493.5) 212,786.5 Initial public offering.................. 1.0 1,656.7 1,657.7 102,000.0 Additional paid in capital............... 57.0 57.0 Restricted stock issued.................. 291.0 Forfeitures of restricted stock.......... (41.7) Comprehensive income: Net income before demutualization..... 44.0 44.0 Net income after demutualization...... 564.2 564.2 --------- --------- Net income for the period............. 608.2 608.2 Other comprehensive income, net of tax: Net unrealized gains (losses)......... 9.4 9.4 Foreign currency translation adjustment.......................... (18.9) (18.9) Minimum pension liability............. (16.5) (16.5) --------- Comprehensive income.................. 582.2 --------------------------------------------------------------------------------------- Balance at September 30, 2000............ $3.2 $5,087.0 $ 564.2 $(59.9) $ -- $ 5,594.5 315,035.8 ======================================================================================= Additional Accumulated Other Total Outstanding Common Paid In Retained Comprehensive Treasury Shareholders' Shares Stock Capital Earnings Income (Loss) Stock Equity (in thousands) --------------------------------------------------------------------------------------- (in millions) Balance at January 1, 2001............... $3.2 $5,086.4 $ 700.6 $ 80.8 $ (91.8) $5,779.2 311,988.9 Options exercised........................ 9.7 9.7 738.2 Restricted stock issued.................. 56.1 Forfeitures of restricted stock.......... (11.1) Issuance of shares for board compensation 1.4 Treasury stock acquired.................. (492.2) (492.2) (13,102.5) Comprehensive income: Net income............................ 519.8 519.8 Other comprehensive income, net of tax: Net unrealized gains (losses)......... 82.3 82.3 Net accumulated gains (losses) on cash flow hedges................. 14.2 14.2 Foreign currency translation adjustment.......................... (21.5) (21.5) -------- Comprehensive income.................. 594.8 Change in accounting principles....... 227.6 227.6 --------------------------------------------------------------------------------------- Balance at September 30, 2001............ $3.2 $5,096.1 $1,220.4 $383.4 $(584.0) $6,119.1 299,671.0 =======================================================================================
The accompanying notes are an integral part of these unaudited consolidated financial statements. 7 JOHN HANCOCK FINANCIAL SERVICES, INC. UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 2001 2000 ---------------------------------- (in millions) Cash flows from operating activities: Net income....................................................................... $ 519.8 $ 608.2 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of discount - fixed maturities................................... (119.7) (85.9) Net realized investment and other (gains) losses, net........................ 95.6 (78.6) Change in deferred policy acquisition costs................................... (212.4) (172.0) Depreciation and amortization................................................. 60.4 80.3 Net cash flows from trading securities........................................ (34.4) (142.4) Increase in accrued investment income......................................... (91.8) (98.8) Decrease (increase) in premiums and accounts receivable....................... 7.9 (25.1) Increase in other assets and other liabilities, net........................... (123.7) (608.5) Increase in policy liabilities and accruals, net.............................. 1,257.0 1,291.3 Increase in income taxes...................................................... 265.8 296.6 Initial cash transferred to the closed block.................................. -- (158.6) Contribution from the closed block............................................ (70.9) (90.7) ------------------------------ Net cash provided by operating activities................................... 1,553.6 815.8 Cash flows from investing activities: Sales of: Fixed maturities available-for-sale........................................... 14,207.0 4,325.0 Equity securities available-for-sale.......................................... 354.0 255.3 Real estate................................................................... 4.3 49.5 Short-term investments and other invested assets.............................. 118.6 24.5 Maturities, prepayments and scheduled redemptions of: Fixed maturities held-to-maturity............................................. 161.1 1,216.9 Fixed maturities available-for-sale........................................... 1,988.0 1,149.9 Short-term investments and other invested assets.............................. 112.6 406.6 Mortgage loans on real estate................................................. 917.6 956.3 Purchases of: Fixed maturities held-to-maturity............................................. (31.6) (1,292.9) Fixed maturities available-for-sale........................................... (21,505.1) (6,232.5) Equity securities available-for-sale.......................................... (241.4) (194.4) Real estate................................................................... (5.5) (48.0) Short-term investments and other invested assets.............................. (400.3) (568.8) Mortgage loans on real estate issued.......................................... (1,001.3) (1,290.8) Cash (paid) received related to acquisition of business....................... (41.0) 141.3 Cash received on sale of subsidiary........................................... 12.8 -- Other, net.................................................................... 38.0 31.6 ------------------------------ Net cash used in investing activities....................................... (5,312.2) (1,070.5)
The accompanying notes are an integral part of these unaudited consolidated financial statements. 8 JOHN HANCOCK FINANCIAL SERVICES, INC. UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
Nine Months Ended September 30, 2001 2000 ---------------------------------- (in millions) Cash flows from financing activities: Issuance of common stock........................................................ $ -- $ 1,715.0 Payments to eligible policyholders under Plan of Reorganization................. -- (1,067.0) Acquisition of treasury stock................................................... (492.2) -- Universal life and investment-type contract deposits............................ 8,256.9 5,250.3 Universal life and investment-type contract maturities and withdrawals.......... (6,142.6) (5,435.8) Issuance of long-term debt...................................................... 145.2 20.0 Repayment of long-term debt..................................................... (14.0) (73.2) Net decrease in commercial paper................................................ 195.0 64.6 ----------------------------- Net cash provided by financing activities................................... 1,948.3 473.9 ----------------------------- Net (decrease) increase in cash and cash equivalents........................ (1,810.3) 219.2 Cash and cash equivalents at beginning of period............................ 2,974.4 1,817.9 ----------------------------- Cash and cash equivalents at end of period.................................. $ 1,164.1 $ 2,037.1 =============================
The accompanying notes are an integral part of these unaudited consolidated financial statements. 9 JOHN HANCOCK FINANCIAL SERVICES, INC. NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Note 1 -- Summary of Significant Accounting Policies Basis of Presentation The accompanying unaudited consolidated financial statements of John Hancock Financial Services, Inc. (the Company) have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, these unaudited consolidated financial statements contain all adjustments, consisting of only normal and recurring adjustments, necessary for a fair presentation of the financial position and results of operations. Operating results for the three and nine month periods ended September 30, 2001 are not necessarily indicative of the results that may be expected for the year ending December 31, 2001. These unaudited consolidated financial statements should be read in conjunction with the Company's annual audited financial statements as of December 31, 2000 included in the Company's Form 10-K for the year ended December 31, 2000 filed with the United States Securities and Exchange Commission (hereafter referred to as the Company's 2000 Form 10-K). The balance sheet at December 31, 2000 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. Reorganization and Initial Public Offering In connection with John Hancock Mutual Life Insurance Company's (the Mutual Company) Plan of Reorganization (the Plan), effective February 1, 2000, the Mutual Company converted from a mutual life insurance company to a stock life insurance company (i.e. demutualized) and became a wholly-owned subsidiary of John Hancock Financial Services, Inc., which is a holding company. All policyholder membership interests in the Mutual Company were extinguished on that date and eligible policyholders of the Mutual Company received, in the aggregate, 212.8 million shares of common stock, $1,438.7 million of cash and $43.7 million of policy credits as compensation. In addition, the Company established a closed block, to fund the guaranteed benefits and dividends of certain participating insurance policies. In connection with the Plan, the Mutual Company changed its name to John Hancock Life Insurance Company (the Life Company). In addition, on February 1, 2000, the Company completed its initial public offering (IPO) in which 102.0 million shares of common stock were issued at a price of $17.00 per share. Net proceeds from the IPO were $1,657.7 million, of which $105.7 million was retained by the Company and $1,552.0 million was contributed to the Life Company. Cumulative Effect of Accounting Changes During the first quarter of 2001, the Company changed the method of accounting for the recognition of deferred gains and losses considered in the calculation of the annual expense for its employee pension plan under Statement of Financial Accounting Standards (SFAS) No. 87, "Employers' Accounting for Pensions," and for its postretirement health and welfare plans under SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." The Company changed the method of recognizing gains and losses from deferral within a 10% corridor and amortization of gains outside this corridor over the future working careers of the participants to deferral within a 5% corridor and amortization of gains and losses outside this corridor over the future working careers of the participants. The new method is preferable because in the Company's situation, it produces results that more closely match current economic realities of the Company's retirement and welfare plans through the use of the current fair values of assets while still mitigating the impact of extreme gains and losses. As a result, on January 1, 2001, the Company recorded a credit of $18.6 million (net of tax of $9.9 million), related to its employee benefit pension plans, and a credit of $4.7 million (net of tax of $2.6 million), related to its postretirement health and welfare plans. The total credit recorded as a cumulative effect of an accounting change was $23.3 million (net of tax of $12.5 million), or $0.07 diluted earnings per share for the nine months ended September 30, 2001. This change in accounting increased net income for the three and nine month periods ended September 30, 2001 by $1.1 million and $3.3 million, respectively. The pro forma results, assuming this change in accounting had taken place as of the beginning of 2000, would not be materially different from the reported results. 10 JOHN HANCOCK FINANCIAL SERVICES, INC. NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) Note 1 -- Summary of Significant Accounting Policies - (Continued) In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement 133." This Statement amends SFAS No. 133 to defer its effective date for one year, to fiscal years beginning after June 15, 2000. In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities." This Statement makes certain changes in the hedging provisions of SFAS No. 133, and is effective concurrent with SFAS No. 133. As amended, SFAS No. 133 requires all derivatives to be recognized on the balance sheet at fair value, and establishes special accounting for the following three types of hedges: fair value hedges, cash flow hedges, and hedges of foreign currency exposures of net investments in foreign operations. Special accounting for qualifying hedges provides for matching the timing of gain or loss recognition on the hedging instrument with the recognition of the corresponding change in value of the hedged item. If the derivative is accounted for as a hedge, depending on the nature of the hedge, the change in the fair value of derivatives is either offset against the change in the fair value of the hedged asset, liability or firm commitment through earnings or recognized in other comprehensive income until the change in value of the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value is recognized immediately in earnings and is included in net realized and other investment gains. As a result, such amounts are not included in the determination of the Company's segment after-tax operating income. In addition, SFAS No. 133, as amended, precludes the designation of held-to-maturity fixed maturity investment securities as hedged items in hedging relationships where the hedged risk is interest rate risk. On January 1, 2001, the Company adopted SFAS No. 133, as amended. The Company's risk management philosophy has not changed as a result of adoption of the Statement. The adoption of SFAS No. 133, as amended, resulted in a charge to operations accounted for as a cumulative effect of accounting change of $16.1 million (net of tax of $8.3 million) as of January 1, 2001. In addition, as of January 1, 2001, a $227.6 million (net of tax of $122.6 million) cumulative effect of accounting change was recorded in other comprehensive income for (1) the transition adjustment in the adoption of SFAS 133, as amended, an increase of $40.5 million (net of tax of $21.8 million), and (2) the reclassification of certain securities from the held-to-maturity category to the available-for-sale category, an increase of $187.1 million (net of tax of $100.8 million). New Accounting Pronouncements In July 2001, the FASB issued SFAS No. 141, "Business Combinations." SFAS No. 141 requires that all business combinations be accounted for under a single method - the purchase method. Use of the pooling-of-interests method is no longer permitted. SFAS No. 141 also clarifies the criteria to recognize intangible assets separately from goodwill. SFAS No. 141 is effective for business combinations initiated after June 30, 2001. In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142 requires that goodwill and other intangible assets deemed to have indefinite lives no longer be amortized to earnings, but instead be reviewed at least annually for impairment. Intangible assets with definite lives will continue to be amortized over their useful lives. SFAS No. 142 will be effective January 1, 2002. The Company estimates that adoption of SFAS No. 142 will result in an increase in net income of approximately $10-15 million for the year ended December 31, 2002. During 2002, the Company will perform the first of the required impairment tests of goodwill as of January 1, 2002 based on the guidance in SFAS No. 142. The Company does not expect the impact of these impairment tests on its earnings and financial position to be material. In September 2001, the FASB's Emerging Issues Task Force reached a consensus on Issue 01-10 - "Accounting for the Impact of the Terrorist Attacks of September 11, 2001." Issue 01-10 presents guidance relative to accounting for and financial reporting of the events of September 11, 2001 (the Events), including both how and when to measure, record and report losses and any resulting liabilities which are directly attributable to the Events. Based on a comprehensive review of the Company's operations, the Company believes that the Events had no material financial impact on the earnings and financial position of the Company. In December 2000, the American Institute of Certified Public Accountants (AICPA) issued Statement of Position (SOP) 00-3, "Accounting by Insurance Enterprises for Demutualizations and Formations of Mutual Insurance Holding Companies and Certain Long-Duration Participating Contracts." SOP 00-3, which was adopted with respect to accounting for demutualization expenses by the Company effective December 15, 2000, requires that demutualization related expenses be 11 JOHN HANCOCK FINANCIAL SERVICES, INC. NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) Note 1 -- Summary of Significant Accounting Policies - (Continued) classified as a single line item within income from continuing operations and should not be classified as an extraordinary item. The adoption of SOP 00-3 resulted in the reclassification of demutualization expenses previously recorded as an extraordinary item in the nine month period ended September 30, 2000 of $10.2 million (net of tax of $0.4 million). There were no demutualization expenses for the three months ended September 30, 2000. The remaining provisions of this SOP, which will require (1) the inclusion of all closed block activity together with all other assets, liabilities, revenues and expenses and (2) recognition of a policyholder dividend obligation that represents cumulative actual closed block earnings in excess of expected periodic amounts calculated at the date of the demutualization, are effective no later than December 31, 2001. See Note 5 for a summary description of the closed block assets, liabilities, revenues and expenses, which do not include the policyholder dividend obligation that will be required in 2001. The Company currently is evaluating the effect that establishing the policyholder dividend obligation will have on its results of operations and financial position. That impact is not known at this time. Reclassifications During the third quarter of 2001, the Company began classifying investment returns related to equity indexed universal life insurance policies sold through The Maritime Life Assurance Company (Maritime), a majority-owned subsidiary of the Company, with benefits to policyholders and reclassified prior period balances from net investment income to benefits to policyholders. See Note 6 to the unaudited consolidated financial statements, Derivative and Hedging Instruments in the section entitled Derivatives Not Designated as Hedging Instruments. Codification In March 1998, the National Association of Insurance Commissioners (NAIC) adopted codified statutory accounting principles (Codification) effective January 1, 2001. Codification changes prescribed statutory accounting practices and results in changes to the accounting practices that the Company's domestic life insurance subsidiaries use to prepare their statutory-basis financial statements. The states of domicile of these subsidiaries adopted Codification as the prescribed basis of accounting on which domestic insurers must report their statutory-basis results effective January 1, 2001. The cumulative effect of changes in accounting principles adopted to conform to the requirements of Codification is reported as an adjustment to surplus in the statutory-basis financial statements as of January 1, 2001. Although the implementation of Codification reduced the Company's domestic life insurance subsidiaries' statutory-basis capital and surplus, these subsidiaries remain in compliance with all regulatory and contractual obligations. Recent Acquisitions On October 1, 2001, Maritime completed its purchase of the shares of Royal & Sun Alliance Life Insurance Company of Canada (RSAF) for an amount of approximately $149.9 million (USD), financed primarily by a public debt offering in Canada. RSAF's business includes life insurance, guaranteed interest savings and retirement products and segregated funds. The Company believes that this purchase will strengthen its competitive position in the Canadian market. The proforma results for the periods ending September 30, 2001 and 2000, assuming the acquisitions of RSAF had taken place as of the beginning of 2001 and 2000, respectively, would not be materially different from the reported results. On April 2, 2001, a subsidiary of the Company, Signature Fruit Company, LLC (Signature Fruit), acquired certain assets and assumed certain liabilities out of bankruptcy proceedings of Tri Valley Growers, Inc., a cooperative association. The transaction was accounted for as a purchase and the results of operations are included in the accompanying financial statements since the date of acquisition. The fair values of assets acquired and liabilities assumed were $252.1 million and $199.1 million, respectively. The net losses related to the acquired operations included in the Company's results for the three and nine month periods ended September 30, 2001 were $2.7 million and $4.0 million, respectively. The pro forma results for the three and nine month periods ended September 30, 2001 and 2000, respectively, assuming the acquisition had taken place at the beginning of the periods presented, would not be materially different from the reported results. On March 1, 2000, the Company acquired the individual long-term care insurance business of Fortis, Inc. (Fortis). The pro forma results for the three and nine month periods ended September 30, 2000, assuming the acquisition of Fortis had taken place as of the beginning of 2000, would not be materially different from the reported results. 12 JOHN HANCOCK FINANCIAL SERVICES INC. NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Note 2 -- Segment Information The Company operates in the following five business segments: two segments primarily serve retail customers, two segments serve institutional customers and our fifth segment is the Corporate and Other Segment, which includes our international operations. Our retail segments are the Protection Segment and the Asset Gathering Segment. Our institutional segments are the Guaranteed and Structured Financial Products Segment (G&SFP) and the Investment Management Segment. For additional information about the Company's business segments, refer to the Company's 2000 Form 10-K. The following tables summarize selected financial information by segment for the three and nine month periods ended or as of September 30, 2001 and 2000 and reconciles segment revenues and segment after-tax operating income to amounts reported in the unaudited consolidated statements of income (in millions). Included in the Protection Segment for 2001 and 2000 are the closed block assets and liabilities, as well as the contribution from the closed block, which is reflected in "Revenues" in the table below (see Note 5).
Retail Institutional Retail Asset Institutional Investment Corporate Protection Gathering G&SFP Management and Other Consolidated ------------------------------------------------------------------------------------- As of or for the three months ended September 30, 2001 Revenues: Segment revenues.................. $ 475.2 $ 296.2 $ 493.9 $ 33.2 $ 442.3 $ 1,740.8 Net realized investment and other gains (losses), net............... (0.8) 9.7 (57.8) -- (6.9) (55.8) ------------------------------------------------------------------------------- Revenues.......................... $ 474.4 $ 305.9 $ 436.1 $ 33.2 $ 435.4 $1,685.0 =============================================================================== Net investment income............. $ 152.4 $ 130.9 $ 455.5 $ 8.9 $ 77.6 $ 825.3 Net Income: Segment after-tax operating income.......................... 72.7 41.0 61.9 7.0 22.3 204.9 Net realized investment and other gains (losses), net............. (0.3) 6.6 (36.9) -- (4.0) (34.6) Surplus tax....................... 1.5 -- 2.1 -- 0.2 3.8 Restructuring charges............. (1.0) (0.3) -- (0.2) (1.5) (3.0) ------------------------------------------------------------------------------- Net income........................ $ 72.9 $ 47.3 $ 27.1 $ 6.8 $ 17.0 $ 171.1 =============================================================================== Supplemental Information: Inter-segment revenues............ -- -- -- $ 6.5 $ (6.5) -- Equity in net income of investees accounted for by the equity method.......................... $ 5.1 $ 2.2 $ 7.9 $ 3.4 $ (7.3) $ 11.3 Amortization of deferred policy acquisition costs, excluding amounts related to net realized investment and other gains (losses)........................ 34.9 22.5 0.4 -- 9.7 67.5 Segment assets.................... $27,256.2 $13,835.4 $31,741.7 $2,792.9 $12,373.2 $87,999.4
13 JOHN HANCOCK FINANCIAL SERVICES INC. NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Note 2 -- Segment Information - (Continued)
Retail Institutional Retail Asset Institutional Investment Corporate Protection Gathering G&SFP Management and Other Consolidated ------------------------------------------------------------------------------------- As of or for the three months ended September 30, 2000 Revenues: Segment revenues.................. $ 437.2 $ 297.2 $ 492.1 $ 45.4 $ 424.5 $ 1,696.4 Net realized investment and other gains (losses), net............... (3.0) 4.2 (17.9) 1.1 14.4 (1.2) -------------------------------------------------------------------------------- Revenues.......................... $ 434.2 $ 301.4 $ 474.2 $ 46.5 $ 438.9 $ 1,695.2 ================================================================================ Net investment income............. $ 142.2 $ 111.5 $ 438.6 $ 7.0 $ 96.7 $ 796.0 Net Income: Segment after-tax operating income.......................... 63.8 38.4 48.2 7.8 23.9 182.1 Net realized investment and other gains (losses), net............. (2.0) 2.6 (11.3) 0.7 7.3 (2.7) Restructuring charges............. (1.8) (0.4) (0.1) -- (0.1) (2.4) Surplus tax....................... 5.5 0.4 4.0 -- (2.6) 7.3 -------------------------------------------------------------------------------- Net income........................ $ 65.5 $ 41.0 $ 40.8 $ 8.5 $ 28.5 $ 184.3 ================================================================================ Supplemental Information: Inter-segment revenues............ -- -- -- $ 9.7 $ (9.7) -- Equity in net income of investees accounted for by the equity method.......................... $ (2.8) $ (1.5) $ (0.4) $ (2.5) $ 13.1 $ 5.9 Amortization of deferred policy acquisition costs, excluding amounts related to net realized investment gains................ 19.4 17.5 0.8 -- 10.8 48.5 Segment assets.................... $26,879.3 $14,439.1 $30,801.0 $2,149.6 $12,436.0 $86,705.0
14 JOHN HANCOCK FINANCIAL SERVICES INC. NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Note 2 -- Segment Information - (Continued)
Retail Institutional Retail Asset Institutional Investment Corporate Protection Gathering G&SFP Management and Other Consolidated ------------------------------------------------------------------------------------- As of or for the nine months ended September 30, 2001 Revenues: Segment revenues.................. $ 1,386.0 $ 880.0 $ 1,870.1 $ 99.7 $ 1,354.4 $ 5,590.2 Net realized investment and other gains (losses), net.......... (38.8) (1.5) (81.3) (0.1) 19.4 (102.3) ------------------------------------------------------------------------------- Revenues.......................... $ 1,347.2 $ 878.5 $ 1,788.8 $ 99.6 $ 1,373.8 $ 5,487.9 =============================================================================== Net investment income............. $ 444.8 $ 373.5 $ 1,387.3 $ 18.1 $ 246.0 $ 2,469.7 Net Income: Segment after-tax operating income.......................... 224.8 109.9 180.5 17.0 62.6 594.8 Net realized investment and other gains (losses), net............. (24.0) -- (51.3) (0.1) 11.7 (63.7) Surplus tax....................... 1.5 -- 2.1 -- 0.2 3.8 Restructuring charges............. (3.8) (15.4) (0.7) (0.7) (1.7) (22.3) Cumulative effect of accounting changes, net of tax............ 11.7 (0.5) (1.2) (0.2) (2.6) 7.2 ------------------------------------------------------------------------------- Net income........................ $ 210.2 $ 94.0 $ 129.4 $ 16.0 $ 70.2 $ 519.8 =============================================================================== Supplemental Information: Inter-segment revenues............ -- -- -- $ 21.2 $ (21.2) -- Equity in net income of investees accounted for by the equity method.......................... $ 9.9 $ 6.1 $ 16.0 $ 3.8 $ 21.0 $ 56.8 Amortization of deferred policy acquisition costs, excluding amounts related to net realized investment gains................ 90.8 59.5 1.9 -- 48.7 200.9 Segment assets.................... $27,256.2 $13,835.4 $31,741.7 $2,792.9 $12,373.2 $87,999.4
15 JOHN HANCOCK FINANCIAL SERVICES INC. NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Note 2 -- Segment Information - (Continued)
Retail Institutional Retail Asset Institutional Investment Corporate Protection Gathering G&SFP Management and Other Consolidated ------------------------------------------------------------------------------------- As of or for the nine months ended September 30, 2000 Revenues: Segment revenues.................. $ 1,370.0 $ 894.1 $ 1,699.2 $ 173.3 $ 1,309.4 $ 5,446.0 Net realized investment and other gains (losses), net............ 11.5 10.1 (38.9) 1.7 93.6 78.0 ------------------------------------------------------------------------------- Revenues.......................... $ 1,381.5 $ 904.2 $ 1,660.3 $ 175.0 $ 1,403.0 $ 5,524.0 =============================================================================== Net investment income............. $ 463.3 $ 327.4 $ 1,288.0 $ 17.3 $ 325.2 $ 2,421.2 Net Income: Segment after-tax operating income......................... 193.4 104.0 160.3 40.2 73.3 571.2 Net realized investment and other gains (losses), net............ 7.0 6.3 (24.4) 1.0 57.4 47.3 Restructuring charges............. (5.4) (1.4) (2.3) -- (1.0) (10.1) Surplus tax....................... 8.4 0.5 5.5 -- 0.1 14.5 Demutualization expenses.......... (0.2) (0.1) (0.2) -- (9.7) (10.2) Other demutualization related costs.......................... (6.7) (1.4) (1.7) -- (0.4) (10.2) Group pension dividend transfer... -- -- 5.7 -- -- 5.7 ------------------------------------------------------------------------------- Net income........................ $ 196.5 $ 107.9 $ 142.9 $ 41.2 $ 119.7 $ 608.2 =============================================================================== Supplemental Information: Inter-segment revenues............ -- -- -- $ 31.2 $ (31.2) -- Equity in net income of investees accounted for by the equity method......................... $ 2.9 $ 1.7 $ 5.9 $ 5.5 $ 71.6 $ 87.6 Amortization of deferred policy acquisition costs, excluding amounts related to net realized investment gains............... 45.6 53.6 2.2 -- 41.1 142.5 Segment assets.................... $26,879.3 $14,439.1 $30,801.0 $2,149.6 $12,436.0 $86,705.0
Note 3 -- Severance As part of the Company's on-going Competitive Position Project, the Company has initiated a restructuring plan to reduce costs and increase future operating efficiency by consolidating portions of its operations. The plan consists primarily of reducing staff in the home office and terminating certain operations outside the home office. In connection with the restructuring plan, approximately 798 employees have been or will be terminated. As of September 30, 2001 and December 31, 2000, the liability for employee termination costs, included in other liabilities was $19.3 million and $20.6 million, respectively. Employee termination costs, included in other operating costs and expenses, were $4.4 million and $3.6 million for the three months ended September 30, 2001 and 2000 and $35.0 million and $16.6 million for the nine months ended September 30, 2001 and 2000, respectively. Of the total number of employees affected, approximately 794 employees were terminated as of September 30, 2001, having received benefit payments of approximately $62.1 million. 16 JOHN HANCOCK FINANCIAL SERVICES INC. NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Note 4 -- Contingencies In the normal course of its business operations, the Company is involved with litigation from time to time with claimants, beneficiaries and others, and a number of litigation matters were pending as of September 30, 2001. It is the opinion of management, after consultation with counsel, that the ultimate liability with respect to these claims, if any, will not materially affect the financial position or results of operations of the Company. During 1997, the Company entered into a court-approved settlement relating to a class action lawsuit involving certain individual life insurance policies sold from 1979 through 1996. In entering into the settlement, the Company specifically denied any wrongdoing. The total reserves held in connection with the settlement to provide for relief to class members and for legal and administrative costs associated with the settlement amounted to $43.1 million and $224.0 million at September 30, 2001 and December 31, 2000, respectively. There were no additional reserves recorded related to the settlement for the three and nine month periods ended September 30, 2001 and 2000. The estimated reserve is based on a number of factors, including the estimated cost per claim and the estimated costs to administer the claims. During 1996, management determined that it was probable that a settlement would occur and that a minimum loss amount could be reasonably estimated. Accordingly, the Company recorded its best estimate based on the information available at the time. The terms of the settlement agreement were negotiated throughout 1997 and approved by the court on December 31, 1997. In accordance with the terms of the settlement agreement, the Company contacted class members during 1998 to determine the actual type of relief to be sought by class members. The majority of the responses from class members were received by the fourth quarter of 1998. The type of relief sought by class members differed from the Company's previous estimates, primarily due to additional outreach activities by regulatory authorities during 1998 encouraging class members to consider alternative dispute resolution relief. In 1999, the Company updated its estimate of the cost of claims subject to alternative dispute resolution relief and revised its reserve estimate accordingly. Given the uncertainties associated with estimating the reserve, it is reasonably possible that the final cost of the settlement could differ materially from the amounts presently provided for by the Company. The Company will continue to update its estimate of the final cost of the settlement as the claims are processed and more specific information is developed, particularly as the actual cost of the claims subject to alternative dispute resolution becomes available. However, based on information available at the time, and the uncertainties associated with the final claim processing and alternative dispute resolution, the range of any additional cost related to the settlement cannot be estimated with precision. On February 28, 1997, the Company sold a major portion of its group insurance business to UNICARE Life & Health Insurance Company (UNICARE), a wholly owned subsidiary of WellPoint Health Networks, Inc. The business sold included the Company's group accident and health business and related group life business and Cost Care, Inc., Hancock Association Services Group and Tri-State, Inc., all of which were indirect wholly owned subsidiaries of the Company. The Company retained its group long-term care insurance operations. The insurance business sold was transferred to UNICARE through a 100% coinsurance agreement. The Company secured a $397.0 million letter of credit facility with a group of banks. The banks have agreed to issue a letter of credit to the Company pursuant to which the Company may draw up to $397.0 million for any claims not satisfied by UNICARE under the coinsurance agreement after the Company has incurred the first $113.0 million of losses from such claims. The amount available pursuant to the letter of credit agreement and any letter of credit issued thereunder automatically will be reduced on a scheduled basis consistent with the anticipated run-off of liabilities related to the business reinsured under the coinsurance agreement. The letter of credit facility was reduced to $127.0 million on March 1, 2001. The letter of credit and any letter of credit issued thereunder are scheduled to expire on March 1, 2002. The Company remains liable to its policyholders to the extent that UNICARE does not meet its contractual obligations under the coinsurance agreement. Through the Company's group health insurance operations, the Company entered into a number of reinsurance arrangements in respect of personal accident insurance and the occupational accident component of workers compensation insurance, a portion of which was originated through a pool managed by Unicover Managers, Inc. Under these arrangements, the Company both assumed risks as a reinsurer and also passed 95% of these risks on to other companies. This business had originally been reinsured by a number of different companies and has become the subject of widespread disputes. The disputes concern the placement of the business with reinsurers and recovery of the reinsurance. The Company is engaged in disputes, including a number of legal proceedings, in respect of this business. The risk to the Company is that other companies that reinsured the business from the Company may seek to avoid their reinsurance obligations. However, the 17 JOHN HANCOCK FINANCIAL SERVICES INC. NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Note 4 -- Contingencies - (Continued) Company believes that it has a reasonable legal position in this matter. During the fourth quarter of 1999 and early 2000, the Company received additional information about its exposure to losses under the various reinsurance programs. As a result of this additional information and in connection with global settlement discussions initiated in late 1999 with other parties involved in the reinsurance programs, during the fourth quarter of 1999 the Company recognized a charge for uncollectable reinsurance of $133.7 million, after tax, as its best estimate of its remaining loss exposure. The Company believes that any exposure to loss from this issue, in addition to amounts already provided for as of September 30, 2001, would not be material. Reinsurance ceded contracts do not relieve the Company from its obligations to policyholders. The Company remains liable to its policyholders for the portion reinsured to the extent that any reinsurer does not meet its obligations for reinsurance ceded to it under the reinsurance agreements. Failure of the reinsurers to honor their obligations could result in losses to the Company; consequently, estimates are established for amounts deemed or estimated to be uncollectable. To minimize its exposure to significant losses from reinsurance insolvencies, the Company evaluates the financial condition of its reinsurers and monitors concentration of credit risk arising from similar characteristics of the reinsurers. Note 5 -- Closed Block Under the Plan, the Company created a closed block for the benefit of policies included therein. The following table sets forth certain summarized financial information relating to the closed block as of the dates indicated:
September 30, December 31, 2001 2000 ------------------------------------ (in millions) Assets Investments Fixed maturities: Held-to-maturity--at amortized cost (fair value: September 30--$106.1; December 31--$2,327.4)...................... $ 108.1 $ 2,269.9 Available-for-sale--at fair value (cost: September 30--$5,101.6; December 31--$2,378.7).......................... 5,298.5 2,353.0 Equity securities: Available-for-sale--at fair value (cost: September 30--$10.3; December 31--$5.3)................................. 11.5 6.3 Mortgage loans on real estate........................................................ 1,831.4 1,930.6 Policy loans......................................................................... 1,548.6 1,540.6 Short-term investments............................................................... 11.7 62.1 Other invested assets................................................................ 64.5 40.7 --------------------------- Total Investments................................................................. 8,874.3 8,203.2 Cash and cash equivalents............................................................ 174.8 305.6 Accrued investment income............................................................ 164.9 149.3 Premiums and accounts receivable..................................................... 22.6 27.1 Deferred policy acquisition costs.................................................... 778.7 947.3 Other assets......................................................................... 88.0 77.5 --------------------------- Total Closed Block Assets......................................................... $10,103.3 $ 9,710.0 =========================== Liabilities Future policy benefits............................................................... $10,105.1 $ 9,910.5 Policyholders' funds................................................................. 1,492.1 1,459.5 Other liabilities.................................................................... 676.0 665.9 --------------------------- Total Closed Block Liabilities.................................................... $12,273.2 $12,035.9 ===========================
18 JOHN HANCOCK FINANCIAL SERVICES INC. NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Note 5 -- Closed Block - (Continued) The following table sets forth certain summarized financial information relating to the closed block for the periods indicated:
For the Period Three Months Three Months Nine Months February 1 Ended Ended Ended Through September 30, September 30, September 30, September 30, 2001 2000 2001 2000 ---------------------------------------------------------------------- (in millions) Revenues Premiums ........................................ $226.8 $ 217.2 $ 672.0 $ 619.0 Net investment income ........................... 167.5 155.8 500.0 423.1 Net realized investment and other gains (losses), net ......................... 5.9 1.4 (3.2) 1.3 Other closed block revenue (expense) ............ -- (0.2) 0.4 (0.4) -------------------------------------------------------------- Total closed block revenues ................... 400.2 374.2 1,169.2 1,043.0 Benefits and Expenses Benefits to policyholders ....................... 248.5 203.1 717.3 613.4 Other operating costs and expenses .............. (2.7) (3.4) (6.6) (9.1) Amortization of deferred policy acquisition costs 12.1 27.1 51.4 55.5 Dividends to policyholders ...................... 108.1 108.0 336.2 292.5 -------------------------------------------------------------- Total closed block benefits and expenses ...... 366.0 334.8 1,098.3 952.3 -------------------------------------------------------------- Contribution from the closed block ............ $ 34.2 $ 39.4 $ 70.9 $ 90.7 ==============================================================
Note 6 -- Derivatives and Hedging Instruments The Company uses various derivative instruments to hedge and manage its exposure to changes in interest rate levels, foreign exchange rates, and equity market prices, and to manage the duration of assets and liabilities. The fair value of derivative instruments classified as assets at September 30, 2001 was $180.1 million, and appears on the consolidated balance sheet in other assets. The fair value of derivative instruments classified as liabilities at September 30, 2001 was $717.6 million, and appears on the consolidated balance sheet in other liabilities. In certain of these cases, the Company uses hedge accounting as allowed by SFAS No. 133, as amended, by designating derivative instruments as either fair value or cash flow hedges. For derivative instruments that are designated and qualify as fair value hedges, the change in fair value of the derivative instrument as well as the offsetting change in fair value of the hedged item are recorded in net realized investment and other gains and losses. For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the change in fair value of the derivative instrument is recorded in other comprehensive income, and then reclassified into income when the hedged item affects income. Hedge effectiveness is assessed quarterly by a variety of techniques including regression analysis and cumulative dollar offset. In certain cases, there is no hedge ineffectiveness because the derivative instrument was constructed such that all the terms of the derivative exactly match the hedged risk in the hedged item. In cases where the Company receives or pays a premium as consideration for entering into a derivative instrument (i.e., interest rate caps and floors, swaptions, and equity collars), the premium is amortized into investment income over the useful life of the derivative instrument. The fair value of such premiums (i.e., the inherent ineffectiveness of the derivative) is excluded from the assessment of hedge effectiveness and is included in net realized investment and other gains and losses. 19 JOHN HANCOCK FINANCIAL SERVICES INC. NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Note 6-- Derivatives and Hedging Instruments - (Continued) Fair Value Hedges The Company uses interest rate futures contracts and interest rate swap agreements as part of its overall strategies of managing the duration of assets and liabilities or the average life of certain asset portfolios to specified targets. Interest rate swap agreements are contracts with a counterparty to exchange interest rate payments of a differing character (e.g., fixed-rate payments exchanged for variable-rate payments) based on an underlying principal balance (notional principal). The net differential to be paid or received on interest rate swap agreements and currency rate swap agreements is accrued and recognized as a component of net investment income. The Company also manages interest rate exposure by using interest rate swap agreements to modify certain liabilities, such as fixed rate debt and Constant Maturity Treasuries (CMT) indexed liabilities, by converting them to a LIBOR-based floating rate. The Company enters into interest rate cap agreements, cancelable interest rates swap agreements, and written swaptions to manage the interest rate exposure of options that are embedded in certain assets and liabilities. A written swaption obligates the Company to enter into an interest rate agreement on the expiration date, contingent on future interest rates. Interest rate cap and floor agreements are contracts with a counterparty which require the payment of a premium for the right to receive payments for the difference between the cap or floor interest rate and a market interest rate on specified future dates based on an underlying principal balance (notional principal). Amounts earned on interest rate cap and floor agreements and swaptions are recorded as an adjustment to net investment income. The Company uses equity collar agreements to reduce its equity market exposure with respect to certain common stock investments that the Company holds. A collar consists of a written call option that limits the Company's potential for gain from appreciation in the stock price as well as a purchased put option that limits the Company's potential for loss from a decline in the stock price. Currency rate swap agreements are used to manage the Company's exposure to foreign exchange rate fluctuations. Currency rate swap agreements are contracts to exchange the currencies of two different countries at the same rate of exchange at specified future dates. For the three and nine month periods ended September 30, 2001, the Company recognized a net loss of $40.7 million and $39.8 million, respectively, related to the ineffective portion of its fair value hedges, and a net loss of $6.1 million and $7.2 million, respectively, related to the portion of the hedging instruments that were excluded from the assessment of hedge effectiveness. For the three and nine month periods ended September 30, 2001, all of the Company's hedged firm commitments qualified as fair value hedges. Cash Flow Hedges The Company uses forward starting interest rate swap agreements to hedge the variable cash flows associated with future asset acquisitions, which will support the Company's long-term care insurance businesses. These agreements will reduce the impact of future interest rate changes on the cost of acquiring adequate assets to support the investment income assumptions used in pricing these products. The Company used interest rate futures contracts to hedge the variable cash flows associated with variable benefit payments that it will make on certain annuity contracts. The Company used interest rate floor agreements to hedge the interest rate risk associated with minimum interest rate guarantees in certain of its life insurance and annuity businesses. For the three and nine month periods ended September 30, 2001, the Company recognized a net gain of $1.2 million and $0.7 million, respectively, related to the ineffective portion of its cash flow hedges, and a net gain of $46.9 million and $24.3 million, respectively, related to the portion of the hedging instruments that was excluded from the assessment of hedge effectiveness. For the three and nine month periods ended September 30, 2001, all of the Company's hedged forecast transactions qualified as cash flow hedges. 20 JOHN HANCOCK FINANCIAL SERVICES INC. NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Note 6 -- Derivatives and Hedging Instruments - (Continued) For both the three and nine month periods ended September 30, 2001, a net loss of $0.5 million was reclassified from other accumulated comprehensive income to earnings. It is anticipated that approximately $0.4 million will be reclassified from other accumulated comprehensive income to earnings within the next twelve months. The maximum length for which variable cash flows are hedged is 24 years. For the three and nine month periods ended September 30, 2001, none of the Company's cash flow hedges have been discontinued because it was probable that the original forecasted transactions would not occur by the end of the originally specified time period documented at inception of the hedging relationship. The transition adjustment for the adoption of SFAS No. 133, as amended, resulted in an increase in other comprehensive income of $23.0 million (net of tax of $12.3 million) representing the accumulation in other comprehensive income of the effective portion of the Company's cash flow hedges as of January 1, 2001. For the three and nine month periods ended September 30, 2001, $34.2 million and $14.2 million of gains (net of tax of $18.4 million and $7.6 million) representing the effective portion of the change in fair value of derivative instruments designated as cash flow hedges was added to accumulated other comprehensive income, resulting in a balance of $37.0 million (net of tax of $19.9 million). Derivatives Not Designated as Hedging Instruments The Company enters into interest rate swap agreements, cancelable interest rate swap agreements, interest rate futures contracts, and interest rate cap and floor agreements to manage exposure to interest rates as described above under Fair Value Hedges without designating the derivatives as hedging instruments. The Company enters into equity indexed futures contracts and equity indexed option contracts and equity swaps to generate investment return related to equity indexed universal life insurance policies. For the three month periods ended September 30, 2001 and 2000, $(11.4) million and $0.1 million, respectively, and for the nine month periods ended September 30, 2001 and 2000, $19.1 million and $(35.3) million, respectively, of gains and losses on these derivatives are included in benefits to policyholders and are offset by crediting similar amounts to policyholders' accounts. Note 7 -- Related Party Transactions Certain directors of the Company are members or directors of other entities that periodically perform services for or have other transactions with the Company. Such transactions are either subject to bidding procedures or are otherwise entered into on terms comparable to those that would be available to unrelated third parties and are not material to the Company's results of operations or financial condition. Note 8 -- Subsequent Events On November 5, 2001 the Company announced that its Board of Directors has declared an annual dividend to shareholders of $0.31 per common share payable on December 13, 2001 to shareholders of record on November 16, 2001. 21 JOHN HANCOCK FINANCIAL SERVICES, INC. ITEM 2. MANAGEMENT'S DISCUSSION and ANALYSIS of FINANCIAL CONDITION and RESULTS of OPERATIONS Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) addresses the financial condition of John Hancock Financial Services, Inc. (John Hancock or the Company) as of September 30, 2001, compared with December 31, 2000, and its consolidated results of operations for the three and nine month periods ended September 30, 2001 and September 30, 2000, and, where appropriate, factors that may affect future financial performance. The discussion of the Company's consolidated financial results of operations includes the results of the closed block for the nine months ended September 30, 2001 and the period February 1, 2000 (the date the closed block became effective) through September 30, 2000 combined on a line by line basis with the results of operations outside the closed block for such period, as further discussed below. This discussion should be read in conjunction with the Company's MD&A and annual audited financial statements as of December 31, 2000 included in the Company's Form 10-K for the year ended December 31, 2000 filed with the United States Securities and Exchange Commission (hereafter referred to as the Company's 2000 Form 10-K) and unaudited consolidated financial statements and related notes included elsewhere in this Form 10-Q. Statements, analyses, and other information contained in this report relating to trends in the Company's operations and financial results, the markets for the Company's products, the future development of the Company's business, and the contingencies and uncertainties to which the Company may be subject, as well as other statements including words such as "anticipate," "believe," "plan," "estimate," "intend," "will," "should," "may," and other similar expressions, are "forward-looking statements" under the Private Securities Litigation Reform Act of 1995. Such statements are made based upon management's current expectations and beliefs concerning future events and their effects on the Company, which may not be those anticipated by management. The Company's actual results may differ materially from the results anticipated in these forward-looking statements. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Important Factors that May Affect Future Results" included herein for a discussion of factors that could cause or contribute to such material differences. The Reorganization and Initial Public Offering The Board of Directors of John Hancock Mutual Life Insurance Company (the Mutual Company) unanimously adopted the Plan of Reorganization (the Plan) on August 31, 1999. Under the terms of the Plan, effective February 1, 2000, the Mutual Company converted from a mutual life insurance company to a stock life insurance company (i.e. demutualized) and became a wholly-owned subsidiary of John Hancock Financial Services, Inc., which is a holding company. All policyholder membership interests in the Mutual Company were extinguished on that date and eligible policyholders of the Mutual Company received, in aggregate, 212.8 million shares of common stock, $1,438.7 million of cash and $43.7 million of policy credits as compensation. In connection with the reorganization, the Mutual Company changed its name to John Hancock Life Insurance Company (the Life Company). In addition, on February 1, 2000, the Company completed its initial public offering (IPO) in which 102.0 million shares of common stock were issued at a price of $17.00 per share. Net proceeds from the IPO were $1,657.7 million, of which $105.7 million was retained by the Company and $1,552.0 million was contributed to the Life Company. Under the Plan, as of February 1, 2000, the Life Company created a closed block for the benefit of policies included therein. The purpose of the closed block is to protect the policy dividend expectations of the policies included in the closed block after demutualization. Unless the Commissioner of Insurance of the Commonwealth of Massachusetts and, in certain circumstances the New York Superintendent of Insurance, consent to an earlier termination, the closed block will continue in effect until the date none of such policies are in-force. As of February 1, 2000, the Company segregated closed block assets of $9,343.0 million, an amount that is expected to produce cash flows which, together with anticipated revenues from policies included in the closed block, is expected to be sufficient to provide for payment of policy benefits, taxes and direct asset acquisition and disposal costs, and for continuation of policy dividend scales payable in 1999, so long as the experience underlying such dividend scales continues. The assets allocated to the closed block and any cash flows provided by these assets will solely benefit the holders of policies included in the closed block. As of February 1, 2000, when the closed block was established, total closed block liabilities were $12,118.3 million. If the assets allocated to the closed block, the cash flows therefrom and the revenues from the closed block business prove to be insufficient to pay the benefits guaranteed under the policies included in the closed block, the Life Company will be required to make payments from its general funds in an amount equal to the shortfall. We funded 22 JOHN HANCOCK FINANCIAL SERVICES, INC. the closed block to provide for payment of guaranteed benefits on such policies and for continuation of dividends paid under 1999 policy dividends scales, assuming the experience underlying such dividend scales continues. Therefore, we do not believe it will be necessary to use general funds to pay guaranteed benefits on closed block business unless the closed block business experiences substantial adverse deviations in investment, mortality, persistency or other experience factors. For additional information on the closed block see Note 5 to the unaudited consolidated financial statements and the Company's 2000 Form 10-K. The costs relating to the demutualization, excluding costs relating to the offering, were approximately $129.1 million (net of income taxes of $20.4 million), of which $20.4 million (net of tax of $5.9 million) was recognized in the nine month period ending September 30, 2000. No demutualization costs were incurred in 2001. Demutualization expenses include printing and mailing costs and our aggregate cost of engaging independent accounting, actuarial, financial, investment banking, legal and other consultants to advise us. In addition, our costs include the costs of the staff and advisors of the Massachusetts Division of Insurance and the New York Insurance Department as to the demutualization process and related matters. Results of Operations The table below presents the consolidated results of operations for the three and nine month periods ended September 30, 2001 and 2000, respectively. For comparability with prior periods, the table below includes the results of operations of the closed block for the three and nine month periods ended September 30, 2001, the three month period ended September 30, 2000 and the eight month period February 1, 2000 through September 30, 2000 within the nine month period ended September 30, 2000 combined on a line by line basis with the results of operations outside the closed block.
Three Months Ended Nine Months Ended September 30, September 30, 2001 2000 2001 2000 ------------------------------------------------------------ (in millions) Revenues (1) $2,051.0 $2,030.0 $6,586.2 $6,476.3 Benefits and expenses (1) 1,820.4 1,764.0 5,871.2 5,573.9 ---------------------------------------------------- Income before income taxes and cumulative effect of accounting changes 230.6 266.0 715.0 902.4 Income taxes 59.5 81.7 202.4 294.2 ---------------------------------------------------- Income before cumulative effect of accounting changes 171.1 184.3 512.6 608.2 Cumulative effect of accounting changes, net of tax -- -- 7.2 -- ---------------------------------------------------- Net income $ 171.1 $ 184.3 $ 519.8 $ 608.2 ====================================================
(1) Revenues and benefits and expenses above differ from the Unaudited Consolidated Statements of Income due to closed block expenses for the three and nine month periods ended September 30, 2001 and the three month period ended September 30, 2000 and the period February 1, 2000 through September 30, 2000 of $366.0 million, $1,098.3 million, $334.8 million and $952.3 million, respectively. These expenses are included in revenues through the contribution from the closed block on the unaudited consolidated statements of income for the three and nine month periods ended September 30, 2001 and 2000, respectively. 23 JOHN HANCOCK FINANCIAL SERVICES, INC. Three Months Ended September 30, 2001 Compared to Three Months Ended September 30, 2000 Consolidated income before income taxes and cumulative effect of accounting changes of $230.6 million for the three months ended September 30, 2001 decreased by $35.4 million, or 13.3%, from that reported in the comparable prior year period, primarily due to a decrease in net realized investment and other gains of $53.6 million. The Company generated $54.9 million in net realized investment and other losses in the three months ended September 30, 2001, compared to $1.3 million in net realized investment and other losses for the three months ended September 30, 2000. Net realized investment and other gains generated in 2000 were the result of the initiative to divest the Company of real estate investments, while net realized investment and other losses generated in 2001 were primarily the result of deteriorating economic conditions offset by gains from the sale of equity investments. The Corporate and Other Segment drove the Company's decrease in income before income taxes and cumulative effect of accounting changes. Income before income taxes and cumulative effect of accounting changes in the Corporate and Other Segment decreased $35.8 million primarily due to corporate operations businesses in which investment income and net realized investment and other gains decreased from the comparable prior year period. Income before income taxes and cumulative effect of accounting changes in the Guaranteed and Structured Financial Products Segment (G&SFP) decreased $19.6 million primarily driven by $57.8 million net realized investment and other losses incurred during the period, an increase of $39.9 million. The Investment Management Segment decreased $3.6 million primarily due to lower advisory fees on lower average assets under management in the current period. Partially offsetting these decreases in income before income taxes and cumulative effect of accounting changes was an increase in the Protection Segment of $19.9 million driven by an increase in net investment income and net realized investment and other gains. In addition, income before income taxes and cumulative effect of accounting changes increased $3.7 million in the Asset Gathering Segment primarily due to a an increase in net investment income and net realized investment and other gains partially offset by a decrease in investment-type product fees. Revenues of $2,051.0 million for the three months ended September 30, 2001 increased $21.0 million, or 1.0%, compared to the three months ended September 30, 2000, primarily due to an increase of $71.4 million, or 9.3%, in the Protection Segment. Protection Segment revenues increased primarily due to growth in premiums of $39.7 million and net investment income of $21.9 million from the comparable prior year period. Revenues in the Asset Gathering Segment increased $4.5 million, or 1.5%, primarily due to an increase in net investment income of $19.4 million and net realized investment and other gains of $5.5 million partially offset by a decrease in advisory fees of $20.3 million. These increases in revenues were partially offset by a decrease of $38.1 million in the G&SFP Segment. This decrease was primarily due to a $39.9 million increase in net realized investment and other losses and a $13.3 million decrease in premiums partially offset by a $16.9 million increase net investment income. Revenue decreased $13.3 million, or 28.6%, in the Investment Management Segment, primarily due to a $16.0 million decrease in advisory fees on lower average assets under management in the current period and $8.2 million of one-time performance fees received by the mezzanine fund manager in 2000 partially offset by $1.2 million in higher mortgage origination and servicing fees. In addition, revenue in the Corporate and Other Segment decreased $3.5 million, or 0.8%, primarily due to net realized investment and other losses and a decrease in net investment income. Corporate and Other Segment incurred $6.9 million in net realized investment and other losses in the three months ended September 30, 2001 compared to $14.4 million in net realized investment and other gains in the comparable prior year period, a decrease of $21.3 million. Segment net investment income decreased $19.1 million, or 19.8%, to $77.6 million primarily due to the utilization of capital for the stock buy back program, dividends paid to shareholders and capital supplied for the growth of the retail and institutional businesses. Partially offsetting these decreases in revenues in Corporate and Other was an increase in other revenue of $45.2 million primarily due to an acquisition by Signature Fruit, LLC (Signature Fruit), a subsidiary that acquired certain assets and assumed certain liabilities out of bankruptcy proceedings of Tri Valley Growers, Inc. Benefits and expenses of $1,820.4 million for the three months ended September 30, 2001 increased $56.4 million, or 3.2%, compared to the three months ended September 30, 2000. The increase is driven by the Protection Segment increase of $51.5 million, or 7.6%, primarily due to an increase in the policy reserves in both the traditional and non-traditional products, partially offset by a decrease in operating expenses. Benefits and expenses in the Corporate and Other Segment increased $32.1 million, or 8.1%, primarily due to an increase in operating expenses on the impact of an acquisition by Signature Fruit. Benefits and expenses in the Asset Gathering Segment increased $0.8 million, or 0.4% primarily due to increases in benefit to policyholders and amortization of deferred acquisition costs partially offset by decreases in operating expenses. The G&SFP Segment decreased $18.3 million, or 4.4%, primarily due to a decrease in reserves reflecting lower sales of single premium annuities in the third quarter of 2001. Investment Management Segment benefits and expenses decreased $9.7 million, or 30.4%, primarily due to a $4.9 million of one-time performance fees paid to the management of the mezzanine fund in 2000, lower in operating expenses on a 24 JOHN HANCOCK FINANCIAL SERVICES, INC. decline in incentive compensation payments based on lower investment advisory fees in the current year period. Nine Months Ended September 30, 2001 Compared to Nine Months Ended September 30, 2000 Consolidated income before income taxes and cumulative effect of accounting changes of $715.0 million for the nine months ended September 30, 2001 decreased by $187.4 million, or 20.8%, from that reported in the comparable prior year period, primarily due to a decrease in net realized investment and other gains (losses) of $178.7 million. The Company generated $98.8 million in net realized investment and other losses in the nine months ended September 30, 2001, compared to $79.9 million in net realized investment and other gains for the nine months ended September 30, 2000. Net realized investment and other gains generated in 2000 were the result of the initiative to divest the Company of real estate investments, while losses generated in 2001 were primarily the result of deteriorating economic conditions. Income before taxes and cumulative effect of accounting changes in the Corporate and Other Segment decreased $112.7 million primarily due to corporate operations which decreased $83.6 million on lower net realized investment and other gains. The Investment Management Segment income before income taxes and cumulative effect of accounting changes decreased $43.0 million on lower advisory fee income in 2001 and one-time revenue activity in the prior year period. Investment Management Segment advisory fees decreased due to lower average assets under management in the current period and one-time fees and a lawsuit settlement in the timber investment management unit and a performance fee earned by the mezzanine fund manager in the prior year period. The G&SFP Segment income before income taxes and cumulative effect of accounting changes decreased $19.6 million, or 9.4%, to $188.5 million primarily due to decreased net realized investment and other gains. The Asset Gathering Segment decreased $29.2 million, or 18.1%, due to lower commission income due to lower sales and redemptions in the mutual funds business and lower net realized investment and other gains, partially offset by lower operating expense. Partially offsetting these decreases was an increase in the Protection Segment of $17.1 million, or 6.0%, primarily due to growth in net investment income and lower operating expenses, partially offset by decreased net realized investment and other gains (losses). Revenues of $6,586.2 million for the nine months ended September 30, 2001 increased $109.9 million, or 1.7%, compared to the nine months ended September 30, 2000, including revenue growth of $128.5 million in the G&SFP Segment, an increase of 7.7%. The increase in G&SFP revenues is primarily due to the premium growth in the single premium annuity business, which improved $91.2 million due to two large sales in the first quarter of 2001. G&SFP net investment income also increased resulting from an increase in invested assets backing spread based products compared to the prior year period. Revenues increased $111.7 million, or 4.8%, in the Protection Segment, primarily due to an increase in premiums and growth in net investment income, partially offset by a decrease in net realized investment and other gains. These increases in revenues were partially offset by a decrease in the Corporate and Other Segment, which decreased $29.2 million, or 2.0%. Corporate and Other's net investment income decreased $79.2 million driven by the utilization of capital for the stock buy back program, dividends paid to shareholders and capital supplied for the growth of the retail and institutional businesses. In addition, net realized investment and other gains from venture capital partnerships decreased by $26.1 million. The Investment Management Segment revenues decreased $75.4 million, or 43.0%, primarily due to lower average assets under management in the current period and nonrecurring advisory fee income in the prior period. Investment Management Segment advisory fee income in the prior year period included the receipt of an incentive fee in connection with the restructuring of a timber management contract, as well as the lawsuit settlement, and a performance fee received by the mezzanine fund manager. Asset Gathering Segment revenues decreased $25.7 million, or 2.8%, primarily due to decreases in management advisory fees and commission income from the mutual funds business of $75.6 million, driven by the impact of redemptions, market depreciation and lower sales. In addition, net realized investment and other gains decreased $11.6 million. The decrease in Asset Gathering Segment Revenues was partially offset by an increase in net investment income of $46.1 million driven by the fixed annuity business and $22.9 million in increased premiums primarily due to the single premium immediate annuity business. Benefits and expenses of $5,871.2 million for the nine months ended September 30, 2001 increased $297.3 million, or 5.3%, compared to the nine months ended September 30, 2000. The increase is driven by G&SFP increasing $148.0 million, or 10.2%, primarily due to an increase in reserves resulting from sales of single premium annuities in the nine months ended September 30, 2001. Benefits and expenses in the Protection Segment increased $94.5 million, or 4.6%, primarily due to increases in the benefits to policyholders for growth in the individual long-term care insurance business and amortization of deferred policy acquisition costs, partially offset by decreased operating expenses due to on-going cost reduction programs. The Corporate and Other Segment benefits and expenses increased $83.7 million or 6.8% driven by a $90.0 million increase operating expenses primarily the result of an acquisition by Signature Fruit. The Asset Gathering Segment's increase in benefits and expenses of $3.5 million, or 0.5%, is primarily due to increased 25 JOHN HANCOCK FINANCIAL SERVICES, INC. benefits to policyholders business and amortization of deferred policy acquisition costs, partially offset by lower operating expenses driven by lower commission expense in the mutual fund business on lower front end load mutual fund sales and lower redemptions of deferred sales charge mutual fund shares. Partially offsetting these increases in benefits and expenses is a decrease of $32.4 million, or 30.6%, in the Investment Management Segment. The decrease in Investment Management is driven by lower operating expenses due to reduced incentive compensation payments and on-going expense reduction efforts and one-time expenses in the prior year. One-time expenses in the prior year included the payment of incentive fees for the restructuring of a portfolio, a legal settlement in the timber investment management business and performance fees paid to the management of the mezzanine fund. Results of Operations by Segment We operate our business in five segments. Two segments primarily serve retail customers, two segments serve institutional customers and our fifth segment is the Corporate and Other Segment, which includes our international operations. Our retail segments are the Protection Segment and the Asset Gathering Segment. Our institutional segments are the Guaranteed and Structured Financial Products Segment and the Investment Management Segment. We evaluate segment performance and base management's incentives on segment after-tax operating income, which excludes the effect of net realized investment gains and losses and other unusual or non-recurring events and transactions. Segment after-tax operating income is determined by adjusting GAAP net income for net realized investment and other gains and losses, cumulative effect of accounting changes, and certain other items which we believe are not indicative of overall operating trends. While these items may be significant components in understanding and assessing our consolidated financial performance, we believe that the presentation of segment after-tax operating income enhances the understanding of our results of operations by highlighting net income attributable to the normal, recurring operations of the business. However, segment after-tax operating income is not a substitute for net income determined in accordance with GAAP. A discussion of the adjustments to GAAP reported income, many of which affect each operating segment, follows the table below. A reconciliation of segment after-tax operating income, as adjusted, to GAAP reported net income precedes each segment discussion.
Three Months Ended Nine Months Ended September 30, September 30, ------------------------------------------------------ 2001 2000 2001 2000 ------------------------------------------------------ (in millions) Segment Data: (1) Segment after-tax operating income: Protection Segment..................................... $ 72.7 $ 63.8 $224.8 $193.4 Asset Gathering Segment................................ 41.0 38.4 109.9 104.0 ------------------------------------------------- Total Retail........................................ 113.7 102.2 334.7 297.4 Guaranteed and Structured Financial Products Segment............................................. 61.9 48.2 180.5 160.3 Investment Management Segment.......................... 7.0 7.8 17.0 40.2 ------------------------------------------------- Total Institutional................................. 68.9 56.0 197.5 200.5 Corporate and Other Segment............................ 22.3 23.9 62.6 73.3 ------------------------------------------------- Total segment after-tax operating income............... 204.9 182.1 594.8 571.2 After-tax adjustments: (1) Net realized investment and other gains (losses), net. (34.6) (2.7) (63.7) 47.3 Restructuring charges.................................. (3.0) (2.4) (22.3) (10.1) Group pension dividend transfer........................ -- -- -- 5.7 Demutualization expenses............................... -- -- -- (10.2) Other demutualization related costs.................... -- -- -- (10.2) Surplus tax............................................ 3.8 7.3 3.8 14.5 ------------------------------------------------- Total after-tax adjustments......................... (33.8) 2.2 (82.2) 37.0 ------------------------------------------------- Income before cumulative effect of accounting changes................................ 171.1 184.3 512.6 608.2 Cumulative effect of accounting changes, net of tax.... -- -- 7.2 - ------------------------------------------------- Net income............................................. $171.1 $184.3 $519.8 $608.2 =================================================
(1) See "Adjustments to GAAP Reported Net Income" set forth below. 26 JOHN HANCOCK FINANCIAL SERVICES, INC. Adjustments to GAAP Reported Net Income Our GAAP reported net income is affected by net realized investment and other gains and losses and other unusual or non-recurring events and transactions presented in the reconciliation of GAAP reported net income to segment after-tax operating income in Note 2 - Segment Information in the notes to the unaudited consolidated financial statements. A description of these adjustments follows. In both periods, net realized investment and other gains and losses, except for gains and losses from mortgage securitizations and mezzanine funds have been excluded from segment after-tax operating income due to their volatility between periods and because such data are often excluded by analysts and investors when evaluating the overall financial performance of insurers. The volatility between periods can be impacted by economic conditions, as well as by changes in the volume of activity, which can be influenced by us and our investment decisions. Net realized investment gains and losses from mortgage securitizations and mezzanine funds were not excluded from segment after-tax operating income because we view the related gains and losses as an integral part of the core business of those operations. Net realized investment and other gains have been reduced by: (1) amortization of deferred policy acquisition costs to the extent that such amortization results from net realized investment and other gains and losses and (2) the portion of net realized investment and other gains and losses credited to participating pension contract holder accounts. We believe presenting net realized investment and other gains and losses in this format provides information useful in evaluating our operating performance. This presentation may not be comparable to presentations made by other insurers. Summarized below is a reconciliation of (a) net realized investment and other gains per the unaudited consolidated financial statements and (b) the adjustment made for net realized investment and other gains to calculate segment after-tax operating income for the three and nine month periods ended September 30, 2001 and 2000.
Three Months Ended Nine Months Ended September 30, September 30, ------------------------------------------------------ 2001 2000 2001 2000 ------------------------------------------------------ (in millions) Net realized investment and other gains (losses)............... $(35.0) $(6.0) $(85.3) $ 73.6 Amortization of deferred policy acquisition costs related to net realized investment and other gains (losses)............ (5.8) 0.7 1.5 (2.4) Amounts credited (charged) to participating pension contract holder accounts............................................. (14.1) 4.0 (15.0) 8.7 ------------------------------------------------- Net realized investment and other gains (losses), net of related amortization of deferred policy acquisition costs and amounts credited to participating pension contract holders per unaudited consolidated financial statements (1).............................................. (54.9) (1.3) (98.8) 79.9 Net realized investment and other gains (losses) attributable to mortgage securitizations and mezzanine funds....................................................... 1.0 -- 3.5 2.0 ------------------------------------------------- Net realized investment and other gains (losses), net - pre-tax adjustment to calculate segment operating income.... (55.9) (1.3) (102.3) 77.9 Less income tax effect......................................... 21.3 (1.4) 38.6 (30.6) ------------------------------------------------- Net realized investment and other gains (losses), net - after-tax adjustment to calculate segment operating income.. $(34.6) $(2.7) $(63.7) $ 47.3 =================================================
(1) Net realized investment and other gains (losses), net of related amortization of deferred policy acquisition costs and amounts credited to participating pension contract holders for the three month periods ended September 30, 2001 and 2000, includes $5.9 million and $1.4 million, respectively, and for the nine month periods ended September 30, 2001 and 2000 includes $(3.2) million and $1.3 million, respectively, in net realized gains(losses) generated in the closed block. This balance is included in contribution from the closed block in the unaudited consolidated financial statements. The Company incurred after-tax restructuring charges as part of its on-going Competitive Position Project, which was undertaken to reduce costs and increase future operating efficiency by consolidating portions of our operations as well as the sale of part of the full-service retirement plan business. Additional information regarding restructuring costs is included in Note 3 - Severance in the notes to the unaudited consolidated financial statements. After-tax restructuring costs were $3.0 million and $2.4 million, for the three month periods ended September 30, 2001 and 27 JOHN HANCOCK FINANCIAL SERVICES, INC. 2000, respectively and $22.3 million and $10.1 million for the nine month periods ended September 30, 2001 and 2000, respectively. During 1999, we recorded an amount related to the transfer of certain assets from the Guaranteed and Structured Financial Products Segment to the corporate account within the Corporate and Other Segment. The $5.7 million after-tax credit occurring in the first quarter of 2000 is a change in estimate of this transaction based on information that became available in 2000. In December 2000, the American Institute of Certified Public Accountants issued Statement of Position (SOP) 00-3. SOP 00-3 which was adopted with respect to accounting for demutualization expenses by the Company effective December 31, 2000, requires that demutualization related expenses be classified as a single line item within income from continuing operations and should not be classified as an extraordinary item. No after-tax charges for demutualization related expenses were incurred during the three month period ended September 30, 2000 and $10.2 million (net of tax of $0.4 million) were incurred during the nine month period ended September 30, 2000. No demutualization costs were recognized in 2001. The Company considers demutualization expenses to be an adjustment to GAAP recorded net income. The Company incurred after-tax charges for other demutualization related expenses to improve our financial analysis and financial reporting abilities. These charges primarily included consulting fees and planning and expense management costs. After-tax charges for other demutualization related expenses were $10.2 million (net of tax of $5.4 million) for the nine month period ended September 30, 2000. No such costs were incurred in 2001. Effective within the year 2000, the Company is no longer subject to the surplus tax imposed on mutual life insurance companies. During the three month periods ended September 30, 2001 and 2000, the Company recognized a reduction in equity based taxes of $3.8 million and $7.3 million, respectively, and during the nine month periods ended September 30, 2001 and 2000 the Company recognized a reduction in equity based taxes of $3.8 million and $14.5 million, respectively, resulting from a revised estimate related to prior years. This after-tax credit was excluded from after-tax operating income for these periods. 28 JOHN HANCOCK FINANCIAL SERVICES, INC. Retail-Protection Segment The following table presents certain summary financial data relating to the Protection Segment for the periods indicated.
Three Months Ended Nine Months Ended September 30, September 30, ------------------------------------------------------ 2001 2000 2001 2000 ------------------------------------------------------ (in millions) Revenues.................................................. $841.2 $772.0 $2,484.3 $2,322.3 Benefits and expenses..................................... 727.3 674.1 2,137.5 2,029.5 Income taxes.............................................. 41.2 34.1 122.0 99.4 ------------------------------------------------- Segment after-tax operating income (1).................... 72.7 63.8 224.8 193.4 ------------------------------------------------- After-tax adjustments: (1) Net realized investment and other gains (losses), net....................................... (0.3) (2.0) (24.0) 7.0 Surplus tax............................................ 1.5 5.5 1.5 8.4 Demutualization expenses............................... -- -- -- (6.9) Restructuring charges.................................. (1.0) (1.8) (3.8) (5.4) ------------------------------------------------- Total after-tax adjustments.............................. 0.2 1.7 (26.3) 3.1 ------------------------------------------------- Income before cumulative effect of accounting changes..... 72.9 65.5 198.5 196.5 Cumulative effect of accounting changes, net of tax....... -- -- 11.7 -- ------------------------------------------------- Net income................................................ $ 72.9 $ 65.5 $ 210.2 $ 196.5 ================================================= Other Data: Segment after-tax operating income: Non-traditional life (variable and universal life)..... $ 29.1 $ 25.7 $ 91.0 $ 73.8 Traditional life....................................... 26.9 24.9 83.1 81.6 Long-term care......................................... 19.8 13.8 55.3 39.7 Other.................................................. (3.1) (0.6) (4.6) (1.7) ------------------------------------------------- Segment after-tax operating income (1).................... $ 72.7 $ 63.8 $ 224.8 $ 193.4 =================================================
(1) See "Adjustments to GAAP Reported Net Income" included in this MD&A. Three Months Ended September 30, 2001 Compared to Three Months Ended September 30, 2000 Segment after-tax operating income was $72.7 million for the three months ended September 30, 2001, an increase of $8.9 million, or 13.9%, from $63.8 million for the three months ended September 30, 2000. Non-traditional life insurance business after-tax operating income increased $3.4 million, or 13.2%, primarily due to increased fee income. Traditional life insurance business after-tax operating income increased $2.0 million, or 8.0%, primarily resulting from reductions in operating expenses. Long-term care insurance business after-tax operating income increased $6.0 million, or 43.5%, resulting from lower expenses, higher investment income, and positive morbidity gains. Revenues were $841.2 million for the three months ended September 30, 2001, an increase of $69.2 million, or 9.0%, from $772.0 million for the three months ended September 30, 2000. Premiums increased $39.7 million, or 10.6%, primarily due to long-term care insurance premiums, which increased $22.8 million, or 15.2%, driven by continued growth in the business. In addition, traditional life insurance premiums increased primarily due to the prior year's comparable period reversal of premiums as part of the resolution of the class action lawsuit. The transactions associated with the class action lawsuit had no net effect on operating income in the period because these increases were offset by adjustments to benefits and expenses in the same period. Universal life and investment-type product charges consist primarily of cost of insurance fees and separate account fees and were $105.1 million for the three months ended September 30, 2001, an increase of $7.4 million, or 7.6%, from $97.7 million for the three months ended September 30, 2000. This was primarily due to fee 29 JOHN HANCOCK FINANCIAL SERVICES, INC. increases partially offset by a decline in separate account performance. The segment's net investment income increased $22.0 million, or 7.4%, primarily due to increased asset balances. Benefits and expenses were $727.3 million for the three months ended September 30, 2001, an increase of $53.2 million, or 7.9%, from $674.1 million for the three months ended September 30, 2000. Benefits to policyholders increased $80.5 million, or 19.8%, due to a $47.4 million increase in traditional life insurance reserves primarily attributable to prior year's comparable period reversal of benefits as part of the resolution of the class action lawsuit and $26.0 million due to growth in the long-term care insurance business. The transactions associated with the class action lawsuit had no net effect on operating income in the period because these increases were offset by adjustments to revenues in the same period. Other operating costs and expenses decreased $28.0 million, or 26.0%, primarily due to a decrease of $18.0 million in operating expenses on traditional life insurance products mainly attributable to on-going operating cost reductions. The Segment's effective tax rate on operating income was 36.2% and 34.8% for the three months ended September 30, 2001 and 2000, respectively. Nine Months Ended September 30, 2001 Compared to Nine Months Ended September 30, 2000 Segment after-tax operating income was $224.8 million for the nine months ended September 30, 2001, an increase of $31.4 million, or 16.2%, from $193.4 million for the nine months ended September 30, 2000. Non-traditional life insurance business after-tax operating income increased $17.2 million, or 23.3%, primarily due to higher fee income and net investment income. Traditional life insurance business after-tax operating income increased $1.5 million, or 1.8%, primarily resulting from higher investment income and reductions in operating expenses offset by increased benefits to policyholders. Long-term care insurance business after-tax operating income increased $15.6 million, or 39.3%, resulting from lower expenses, higher investment income, and positive morbidity gains. Revenues were $2,484.3 million for the nine months ended September 30, 2001, an increase of $162.0 million, or 7.0%, from $2,322.3 million for the nine months ended September 30, 2000. Premiums increased $89.7 million, or 7.9%, primarily due to long-term care insurance premiums, which increased $90.4 million, or 22.2% driven by continued growth in the individual business. Universal life and investment-type product charges were $309.0 million for the nine months ended September 30, 2001, an increase of $12.7 million, or 4.3%, from $296.3 million for the nine months ended September 30, 2000. This was due to increases in both universal and variable life product fees, of $6.9 million and $5.8 million respectively from the comparable prior year period, primarily driven by universal life account value increases and variable life products fee increases. Segment net investment income increased $58.3 million, or 6.6%, primarily due to increased asset balances. Benefits and expenses were $2,137.5 million for the nine months ended September 30, 2001, an increase of $108.0 million, or 5.3%, from $2,029.5 million for the nine months ended September 30, 2000. Benefits to policyholders increased $129.7 million, or 10.4%, due to growth in the long-term care insurance business. Long-term care insurance benefits increased $99.2 million primarily due to additions to reserves for premium growth and to higher claim volume from the expansion of this business. Other operating costs and expenses decreased $64.7 million, or 19.9%, primarily due to a decrease of $56.2 million in operating expenses on traditional life insurance products mainly attributable to on-going operating cost reductions. Dividends to policyholders increased $1.8 million, or 0.5%, primarily due to increased dividends on traditional life insurance products offset by decreased dividends in non-traditional life insurance products. Amortization of deferred policy acquisition costs increased $41.2 million, or 40.8%, primarily due to higher gross profits on both the traditional life and non-traditional life products. The Segment's effective tax rate on operating income was 35.2% and 33.9% for the nine months ended September 30, 2001 and 2000, respectively. 30 JOHN HANCOCK FINANCIAL SERVICES, INC. Retail-Asset Gathering Segment The following table presents certain summary financial data relating to the Asset Gathering Segment for the periods indicated.
Three Months Ended Nine Months Ended September 30, September 30, 2001 2000 2001 2000 ------------------------------------------------------ (in millions) Revenues.................................................. $296.2 $297.2 $880.0 $894.1 Benefits and expenses..................................... 240.0 239.5 721.6 738.4 Income taxes.............................................. 15.2 19.3 48.5 51.7 ------------------------------------------------- Segment after-tax operating income (1).................... 41.0 38.4 109.9 104.0 ------------------------------------------------- After-tax adjustments: (1) Net realized investment and other gains, net........................................... 6.6 2.6 -- 6.3 Surplus tax............................................. -- 0.4 -- 0.5 Demutualizaton expenses................................ -- -- -- (0.1) Other demutualization related costs..................... -- -- -- (1.4) Restructuring charges................................... (0.3) (0.4) (15.4) (1.4) ------------------------------------------------- Total after-tax adjustments............................... 6.3 2.6 (15.4) 3.9 ------------------------------------------------- Income before cumulative effect of accounting changes..... 47.3 41.0 94.5 107.9 Cumulative effect of accounting changes, net of tax....... -- -- (0.5) -- ------------------------------------------------- Net income................................................ $ 47.3 $ 41.0 $ 94.0 $107.9 ================================================= Other Data: Segment after-tax operating income (loss): Annuity................................................ $ 25.1 $ 25.3 $ 66.8 $ 70.9 Mutual funds........................................... 14.2 13.4 42.4 35.5 Other.................................................. 1.7 (0.3) 0.7 (2.4) ------------------------------------------------- Segment after-tax operating income (1).................... $ 41.0 $ 38.4 $109.9 $104.0 =================================================
(1) See "Adjustments to GAAP Reported Net Income" included in this MD&A. Three Months Ended September 30, 2001 Compared to Three Months Ended September 30, 2000 Segment after-tax operating income was $41.0 million for the three months ended September 30, 2001, an increase of $2.6 million, or 6.8%, from $38.4 million reported in the comparable prior year period. Annuity business after-tax operating income was $25.1 million for the three months ended September 30, 2001, a decrease of $0.2 million, or 0.8%, primarily due to a decrease in variable annuity product fees, resulting from lower average account balances. Mutual funds after-tax operating income increased $0.8 million, or 6.0%, primarily due to lower commissions and operating expenses, which decreased $21.4 million, or 24.2% from the comparable prior year period. Revenues were $296.2 million for the three months ended September 30, 2001, a decrease of $1.0 million, or 0.3%, from $297.2 million reported for the comparable prior year period. The decrease in revenues was primarily due to lower management advisory fees and commission income, which decreased $20.2 million, or 15.3%, driven by the mutual funds business due to a decrease in average assets under management and lower sales. Net investment income was $131.0 million for the three months ended September 30, 2001, an increase of $19.5 million, or 17.5%, from $111.5 million reported in the comparable prior year period. Net investment income increased primarily due to increases in invested assets backing fixed annuity products and an increase in yields on those assets. The average investment yield on invested assets backing fixed annuity products was 8.24% and 8.08% for the three months ended September 30, 2001 and 2000, respectively. Investment-type product fees were $31.2 million for the three months ended September 30, 2001, a decrease of $2.0 million, or 6.0%, from $33.2 million reported for the 31 JOHN HANCOCK FINANCIAL SERVICES, INC. comparable prior year period. The decrease in investment-type product fees is primarily due to a decline in the average variable annuity reserves which decreased 18.9% to $6,283.6 million for the three months ended September 30, 2001 from $7,747.2 million reported in the comparable prior year period. The decrease in average variable annuity reserves is driven by depreciation of the equity markets. The mortality and expense fees as a percentage of average account balances were 1.26% and 1.34% for the three months ended September 30, 2001 and 2000, respectively. Investment management revenues, commissions, and other fees were $111.9 million for the three months ended September 30, 2001, a decrease of $20.2 million, or 15.3%, from $132.1 million for the comparable prior year period. Average mutual fund assets under management were $29,172.2 million for the three months ended September 30, 2001, a decrease of $3,407.7 million, or 10.5%, from $32,579.9 million reported in the comparable prior year period, due to net redemptions and market depreciation in latter half of the prior year. The mutual fund business experienced net redemptions for the three months ended September 30, 2001 of $11.2 million compared to net deposits of $145.1 million in the comparable prior year period. The mutual fund business incurred $42.4 million in redemptions for the three months ended September 30, 2001 related to the sale of the full-service retirement plan business. Absent the impact on assets under management of the sale of the full-service retirement plan business, the mutual fund business experienced net deposits of $31.2 million for the same period. In addition, mutual fund business assets under management decreased due to realized net market depreciation of $3,411.9 million for the three months ended September 30, 2001 compared to $1,228.3 million of net realized net market appreciation in the comparable prior year period. Investment advisory fees were $42.9 million for the three months ended September 30, 2001, a decrease of $7.4 million, or 14.7%, from $50.3 million reported in the comparable prior year period and were 0.59% and 0.62% of average mutual fund assets under management for the three months ended September 30, 2001 and 2000, respectively. Underwriting and distribution fees decreased $12.9 million, or 18.3%, to $57.4 million for the three months ended September 30, 2001, primarily due to a decrease in asset based distribution fees, front end load charge mutual fund sales and lower deferred sales charges due to decreased assets under management, lower sales and lower redemptions. Shareholder service and other fees were $11.4 million for the three months ended September 30, 2001 compared to $11.7 million reported in the comparable prior year period. Benefits and expenses increased $0.5 million, or 0.2%, to $240.0 million for the three months ended September 30, 2001 from $239.5 million reported in the comparable prior year period. Benefits to policyholders increased $19.5 million, or 20.5%, primarily due to an increase in interest credited on fixed annuity account balances due to higher average account balances and an increase in the average interest credited rate. The average interest credited rate on fixed annuity account balances was 6.02% and 5.80% for the three months ended September 30, 2001 and 2000, respectively. Other operating costs and expenses decreased $23.7 million, or 18.7%, to $103.2 million for the three months ended September 30, 2001 from $126.9 million reported in the comparable prior year period primarily due to a decrease in operating expenses. Operating expenses decreased in the annuities and mutual fund businesses due to on-going expense reduction programs. Amortization of deferred policy acquisition costs increased $4.9 million, or 28.0%, to $22.4 million for the three months ended September 30, 2001 from $17.5 million reported in the comparable prior year period, in the annuities business due to revised projections of estimated gross profits based upon changes in estimated future lapse rates. The Segment's effective tax rate on operating income was 27.0% and 33.4% for the three months ended September 30, 2001 and 2000, respectively. Nine Months Ended September 30, 2001 Compared to Nine Months Ended September 30, 2000 Segment after-tax operating income was $109.9 million for the nine months ended September 30, 2001, an increase of $5.9 million, or 5.7%, from $104.0 million reported in the comparable prior year period. Annuity business after-tax operating income was $66.8 million for the nine months ended September 30, 2001, a decrease of $4.1 million, or 5.8%, primarily due to a decrease in variable annuity product charges, resulting from lower average account balances. Mutual funds after-tax operating income increased $6.9 million, or 19.4%, primarily due to lower commissions and operating expenses that decreased $80.1 million, or 27.0% from the comparable prior year period, partially offset by lower management advisory fees, commissions, and other fee revenue. Revenues were $880.0 million for the nine months ended September 30, 2001, a decrease of $14.1 million, or 1.6%, from $894.1 million reported for the comparable prior year period. The decrease in revenues was due to lower management advisory fees and commission income which decreased $75.6 million, or 17.9%, primarily from the mutual funds business due to a decrease in average assets under management, lower sales and lower redemptions. Net investment income was $373.5 million for the nine months ended September 30, 2001, an increase of $46.2 million, or 14.1%, from $327.3 million reported in the comparable prior year period. Net investment income increased primarily due to increases in invested assets backing fixed annuity products and an increase in yields on those assets. The average investment yield on invested assets backing fixed annuity products was 8.13% and 8.02% for the nine months ended September 30, 2001 and 2000, respectively. Investment-type product fees were $96.6 32 JOHN HANCOCK FINANCIAL SERVICES, INC. million for the nine months ended September 30, 2001, a decrease of $6.5 million, or 6.3%, from $103.1 million reported for the comparable prior year period. The decrease in investment-type product fees is primarily due to a decline in the average variable annuity reserves, driven by depreciation of the equity markets. Average variable annuity reserves decreased 15.3% to $6,533.5 million for the nine months ended September 30, 2001 from $7,717.6 million reported in the comparable prior year period. The mortality and expense fees as a percentage of average account balances were 1.28% and 1.35% for the nine months ended September 30, 2001 and 2000, respectively. Investment management revenues, commissions, and other fees were $346.3 million for the nine months ended September 30, 2001, a decrease of $75.6 million, or 17.9%, from $421.9 million for the comparable prior year period. Average mutual fund assets under management were $29,957.3 million for the nine months ended September 30, 2001, a decrease of $2,684.3 million or 8.2%, from $32,641.6 million reported in the comparable prior year period, due to market depreciation. The mutual fund business experienced net deposits for the nine months ended September 30, 2001 of $112.8 million, despite difficult market conditions in the nine months ended September 30, 2001. In the comparable prior year period , the mutual funds business experienced net redemptions of $219.4 million. The mutual fund business incurred $465.7 million in redemptions for the nine months ended September 30, 2001 related to the sale of the full-service retirement plan business. Absent the impact on assets under management of the sale of the full-service retirement plan business, the mutual fund business experienced net deposits of $578.5 million for the same period. Deposits and reinvestments for the nine months ended September 30, 2001 include the funding of a $247.0 million institutional advisory account. Redemptions and withdrawals continue to slow decreasing $824.5 million, or 17.6%, to $3,848.5 million from $4,673.0 million in the comparable prior year period. Investment advisory fees were $136.0 million for the nine months ended September 30, 2001, a decrease of $9.6 million, or 6.6%, from $145.6 million reported in the comparable prior year period and were 0.61% and 0.59% of average mutual fund assets under management for the nine months ended September 30, 2001 and 2000, respectively. Underwriting and distribution fees decreased $66.8 million, or 27.7%, to $174.0 million for the nine months ended September 30, 2001, primarily due to a decrease in asset based distribution fees, front end load mutual fund sales and lower deferred sales charges due to decreased assets under management, lower sales and lower redemptions. Shareholder service and other fees were $36.3 million for the nine months ended September 30, 2001 compared to $35.5 million reported in the comparable prior year period. Benefits and expenses decreased $16.8 million, or 2.3%, to $721.6 million for the nine months ended September 30, 2001 from $738.4 million reported in the comparable prior year period. Benefits to policyholders increased $68.0 million, or 25.7%, primarily due to an increase in interest credited on fixed annuity account balances due to higher average account balances and an increase in the average interest credited rate. The average interest credited rate on fixed annuity account balances was 6.11% and 5.74% for the nine months ended September 30, 2001, respectively. Other operating costs and expenses decreased $90.6 million, or 21.6%, to $329.4 million for the nine months ended September 30, 2001 from $420.0 million reported in the comparable prior year period. The decrease was primarily due to the decrease in commission fees incurred in the mutual fund business, the result of lower front-end load mutual fund sales and lower deferred sales charges due to lower redemptions. In addition, mutual fund operating expenses decreased due to operating efficiencies, lower subadvisory asset based fees due to a decline in average assets under management, and the sale of the full-service retirement plan business. Amortization of deferred policy acquisition costs increased $5.9 million, or 11.0%, to $59.5 million for the nine months ended September 30, 2001 from $53.6 million reported in the comparable prior year period, primarily due to revised projections of estimated gross profits based upon changes in estimated future lapse rates. The Segment's effective tax rate on operating income was 30.6% and 33.2% for the nine months ended September 30, 2001 and 2000, respectively. 33 JOHN HANCOCK FINANCIAL SERVICES, INC. Institutional-Guaranteed and Structured Financial Products Segment The following table presents certain summary financial data relating to the Guaranteed and Structured Financial Products Segment for the periods indicated.
Three Months Ended Nine Months Ended September 30, September 30, 2001 2000 2001 2000 ------------------------------------------------------ (in millions) Revenues.................................................. $493.9 $492.1 $1,870.1 $1,699.2 Benefits and expenses..................................... 400.2 418.7 1,599.1 1,454.8 Income taxes.............................................. 31.8 25.2 90.5 84.1 ------------------------------------------------- Segment after-tax operating income (1).................... 61.9 48.2 180.5 160.3 ------------------------------------------------- After-tax adjustments: (1) Net realized investment and other gains (losses), net....................................... (36.9) (11.3) (51.3) (24.4) Restructuring charges.................................. -- (0.1) (0.7) (2.3) Surplus tax............................................ 2.1 4.0 2.1 5.5 Demutualization expenses............................... -- -- -- (0.2) Other demutualization related costs.................... -- -- -- (1.7) Group pension dividend transfer........................ -- -- -- 5.7 ------------------------------------------------- Total after-tax adjustments............................... (34.8) (7.4) (49.9) (17.4) ------------------------------------------------- Income before cumulative effect of accounting changes..... 27.1 40.8 130.6 142.9 Cumulative effect of accounting changes, net of tax....... -- -- (1.2) -- ------------------------------------------------- Net income................................................ $ 27.1 $ 40.8 $ 129.4 $ 142.9 ================================================= Other Data: Segment after-tax operating income: Spread-based products: GICs and funding agreements.......................... $ 42.4 $ 32.2 $ 120.7 $ 100.8 Single premium annuities............................. 14.0 7.7 41.4 34.2 Fee-based products..................................... 5.5 8.3 18.4 25.3 ------------------------------------------------- Segment after-tax operating income (1).................... $ 61.9 $ 48.2 $ 180.5 $ 160.3 =================================================
(1) See "Adjustments to GAAP Reported Net Income" included in this MD&A. Three Months Ended September 30, 2001 Compared to Three Months Ended September 30, 2000 Segment after-tax operating income was $61.9 million for the three months ended September 30, 2001, an increase of $13.7 million, or 28.4%, from $48.2 million reported in the comparable prior-year period. GICs and funding agreements after-tax operating income was $42.4 million, an increase of $10.2 million, or 31.7%, from $32.2 million reported in the comparable prior year period, primarily due to increased investment spreads as a result of an increase in average invested assets. On a total-company basis, GICs and funding agreements accounted for 20.7% of after-tax operating income for the three months ended September 30, 2001 as compared to 17.7% in the comparable prior period. Single premium annuities after-tax operating income was $14.0 million, an increase of $6.3 million, or 81.8%, primarily due to underwriting gains in the current period compared to underwriting losses driven by one large contract in the comparable prior year period. Fee-based products' after-tax operating income was $5.5 million, a decrease of $2.8 million, or 33.7%, from $8.3 million reported in the comparable prior year period, primarily due to the transfer of non-participating annuities to spread-based products at year-end, 2000. Revenues increased $1.8 million, or 0.4%, to $493.9 million for the three months ended September 30, 2001 from $492.1 million reported in the comparable prior year period. Net investment income increased $16.9 million, or 3.9%, to $455.5 million for the three months ended September 30, 2001 from $438.6 million reported in the comparable prior year period, primarily as a result of a higher level of average invested assets backing spread-based products. Average invested assets backing spread-based products increased $4,185.2 million, or 23.8% to $21,745.2 million for the three months ended September 30, 2001 from $17,560.0 million reported in the comparable prior year period. The average investment yield on these invested assets decreased to 7.43% for the three months ended 34 JOHN HANCOCK FINANCIAL SERVICES, INC. September 30, 2001 compared to 8.59% reported in the prior year period, reflecting the lower interest rate environment in the current period. Premiums decreased $13.3 million, or 35.2%, to $24.5 million for the three months ended September 30, 2001 from $37.8 million reported in the comparable prior year period primarily driven by single premium annuities. Investment-type product charges were $13.7 million for the three months ended September 30, 2001, a decrease of $2.0 million, or 12.7%, primarily due to lower asset based fees on Separate Account GICs. Investment-type product charges were 0.52% and 0.54% of average fee-based policy reserves for the three months ended September 30, 2001 and 2000, respectively. Benefits and expenses decreased $18.5 million, or 4.4%, to $400.2 million for the three months ended September 30, 2001 from $418.7 million reported in the comparable prior year period. The decrease was largely due to a $12.5 million decrease in benefits to policyholders as a result of decreased sales of single premium annuity contracts. Interest credited on account balances for spread-based products was $307.4 million for the three months ended September 30, 2001, an increase of $8.8 million, or 2.9%, from $298.6 million reported in the comparable prior year period. The increase in interest credited was due to an increase in average account balances for spread-based products of $3,740.7 million to $20,439.8 million for the three months ended September 30, 2001 from $16,699.1 million reported in the comparable prior year period partially offset by a decrease in the average interest credited rate on account balances for spread-based products. Other operating costs and expenses were $15.7 million for the three months ended September 30, 2001, a decrease of $3.5 million, or 18.2%, from $19.2 million reported in the comparable prior year period. The decrease was primarily due to lower management fee expenses and lower systems expenses related to projects completed during 2000. Dividends of $8.8 million for the three months ended September 30, 2001, decreased $2.1 million, or 19.3%, from $10.9 million reported in the comparable prior year period, reflecting a lower level of distributable surplus to participating contract holder accounts. The Segment's effective tax rates on operating income were 33.9% and 34.3% for the three months ended September 30, 2001 and 2000, respectively. The decrease in the effective tax rate is primarily due to increases in certain tax credits and deductions in the current period. Nine Months Ended September 30, 2001 Compared to Nine Months Ended September 30, 2000 Segment after-tax operating income was $180.5 million for the nine months ended September 30, 2001, an increase of $20.2 million, or 12.6%, from $160.3 million reported in the comparable prior-year period. GICs and funding agreements after-tax operating income was $120.7 million, an increase of $19.9 million, or 19.7%, from $100.8 million reported in the comparable prior year period, primarily due to increased investment spreads largely as a result of growth in average invested assets. On a total-company basis, GICs and funding agreements accounted for 20.3% of after-tax operating income for the nine months ended September 30, 2001 as compared to 17.6% in the comparable prior period. Single premium annuities after-tax operating income was $41.4 million, an increase of $7.2 million, or 21.1%, primarily due to underwriting gains in the current period compared to underwriting losses driven by one large contract in the comparable prior year period. Fee-based product after-tax operating income was $18.4 million, a decrease of $6.9 million, or 27.3%, from $25.3 million reported in the comparable prior year period, primarily due to lower asset-based fees on Separate Account GICs. Revenues increased $170.9 million, or 10.1%, to $1,870.1 million for the nine months ended September 30, 2001 from $1,699.2 million reported in the comparable prior year period. Net investment income increased $99.3 million, or 7.7%, to $1,387.3 million for the nine months ended September 30, 2001 compared to the prior year period, primarily as a result of a higher level of average invested assets backing spread-based products. Average invested assets backing spread-based products increased $3,735.2 million, or 22.3% to $20,502.7 million for the nine months ended September 30, 2001 from $16,767.5 million reported in the comparable prior year period. The average investment yield on these invested assets decreased to 7.91% for the nine months ended September 30, 2001 compared to 8.66% reported in the prior year period, reflecting the lower interest rate environment in the current period. Premiums increased $77.1 million, or 21.4%, to $438.1 million, which follow sales proceeds of our annuity products. Investment-type product charges were $44.5 million for the nine months ended September 30, 2001, a decrease of $5.5 million, or 11.0%, primarily due to lower expense recoveries from participating contracts. Investment-type product charges were 0.51% and 0.55% of average fee-based policy reserves for the nine months ended September 30, 2001 and 2000, respectively. Benefits and expenses increased $144.3 million, or 9.9%, to $1,599.1 million for the nine months ended September 30, 2001 from $1,454.8 million reported in the comparable prior year period. The increase was largely due to a $157.4 million increase in benefits to policyholders as a result of increased sales of single premium annuity contracts. Interest credited on account balances for spread-based products was $946.5 million for the nine months ended September 30, 2001, an increase of $92.9 million, or 10.9%, from $853.6 million reported in the comparable prior year period. The increase in interest credited was due to an increase in average account balances for spread-based products of $3,314.7 million to $19,342.8 million for the nine months ended September 30, 2001 from 35 JOHN HANCOCK FINANCIAL SERVICES, INC. $16,028.1 million reported in the comparable prior year period partially offset by a decrease in the average interest credited rate on account balances for spread-based products. The decrease in the average interest credited rate on account balances for spread-based products reflects the lower interest rate environment in the current period. Other operating costs and expenses were $42.6 million for the nine months ended September 30, 2001, a decrease of $9.9 million, or 18.9%, from $52.5 million reported in the comparable prior year period. The decrease was primarily due to lower management fee expenses and lower systems expenses related to projects completed during 2000. Dividends of $26.3 million for the nine months ended September 30, 2001, decreased $2.9 million, or 9.9%, from $29.2 million reported in the comparable prior year period, reflecting a lower level of distributable surplus to participating contract holder accounts. The Segment's effective tax rates on operating income were 33.4% and 34.4% for the nine months ended September 30, 2001 and 2000, respectively. The decrease in the effective tax rate is primarily due to increases in certain tax credits and deductions in the current period. 36 JOHN HANCOCK FINANCIAL SERVICES, INC. Institutional-Investment Management Segment The following table presents certain summary financial data relating to the Investment Management Segment for the periods indicated.
Three months ended Nine months ended September 30, September 30, 2001 2000 2001 2000 ------------------------------------------------------ (in millions) Revenues......................................................... $33.2 $45.4 $99.7 $173.3 Benefits and expenses............................................ 22.2 32.0 71.9 105.4 Income taxes..................................................... 4.0 5.6 10.8 27.7 -------------------------------------------------- Segment after-tax operating income (1)........................... 7.0 7.8 17.0 40.2 -------------------------------------------------- After-tax adjustments: (1) Net realized investment and other gains (losses), net......... -- 0.7 (0.1) 1.0 Restructuring charges......................................... (0.2) -- (0.7) -- -------------------------------------------------- Total after-tax adjustments...................................... (0.2) 0.7 (0.8) 1.0 -------------------------------------------------- Income before cumulative effect of accounting changes............................................ 6.8 8.5 16.2 41.2 Cumulative effect of accounting changes, net of tax.............. -- -- (0.2) -- -------------------------------------------------- Net income....................................................... $ 6.8 $ 8.5 $16.0 $ 41.2 ==================================================
(1) See "Adjustments to GAAP Reported Net Income" included in this MD&A. Three Months Ended September 30, 2001 Compared to Three Months Ended September 30, 2000 Segment after-tax operating income was $7.0 million for the three months ended September 30, 2001, a decrease of $0.8 million, or 10.3%, from $7.8 million reported in the comparable prior year period. The decrease was primarily due to lower advisory fees in 2001, partially offset by higher earnings on the sale of equity investments and higher mortgage origination and servicing fees. Total revenues decreased $12.2 million, or 26.9%, to $33.2 million for the three months ended September 30, 2001 from $45.4 million reported in the comparable prior year period. Net investment income was $8.9 million for the three months ended September 30, 2001, an increase of $1.9 million from $7.0 million reported in the comparable prior year period, primarily due to an increase in income recorded this year on one-time gains on the sale of equity investments held by John Hancock Energy Resources Management. Investment management revenues, commissions, and other fees decreased $16.0 million, or 40.7%, to $23.3 million for the three months ended September 30, 2001, from $39.3 million in the prior year period, primarily due to a decrease in investment advisory fees. Investment advisory fees decreased $17.2 million, or 44.6%, to $21.4 million for the three months ended September 30, 2001 compared to $38.6 million reported in the prior year period primarily due to $8.2 million of one-time performance fees received by the mezzanine fund manager in 2000, and $5.1 million lower investment advisory fees at Independence Investment LLC resulting from lower average assets under management in 2001, partially offset by $1.2 million higher mortgage origination and servicing fees at John Hancock Real Estate Finance. Mortgage origination and servicing fees were $1.9 million for the three months ended September 30, 2001 compared to $0.7 million in the prior year period. Investment management revenues, commissions and other fees were 0.33% and 0.43% of average advisory assets under management in 2001 and 2000, respectively. Net realized investment gains increased $1.0 million for the three months ended September 30, 2001 due to increased securitization activity at John Hancock Real Estate Finance. Benefits and expenses decreased $9.8 million, or 30.6%, to $22.2 million for the three months ended September 30, 2001, from $32.0 million reported in the comparable prior year period. The decrease was primarily due to $4.9 million of one-time performance fees paid to the management of the mezzanine fund in 2000 which were not repeated in 2001, and a decrease of $2.8 million in operating expenses, primarily compensation, at Independence Investment LLC, based on lower investment advisory fee revenues. In addition, operating expenses declined $1.8 million at John Hancock Real Estate Finance. Total operating costs and expenses were 0.31% and 0.35% of average advisory assets under management in 2001 and 2000, respectively. The Segment's effective tax rate on operating income was 36.4% and 41.8% for the three months ended September 30, 2001 and 2000, respectively. 37 JOHN HANCOCK FINANCIAL SERVICES, INC. Nine Months Ended September 30, 2001 Compared to Nine Months Ended September 30, 2000 Segment after-tax operating income was $17.0 million for the nine months ended September 30, 2001, a decrease of $23.2 million, or 57.7%, from $40.2 million reported in the comparable prior year period. The decrease was primarily due to lower investment advisory fees from lower average assets under management in the current period and one-time revenue activity in the prior year period. Revenues decreased $73.6 million, or 42.5%, to $99.7 million for the nine months ended September 30, 2001 from $173.3 million reported in the comparable prior year period. Net investment income was $18.1 million for the nine months ended September 30, 2001, an increase of $0.8 million from the comparable prior year period. Investment management revenues, commissions, and other fees decreased $76.0 million, or 49.3%, for the nine months ended September 30, 2001, primarily due to a decrease in investment advisory fees, which decreased $76.3 million to $73.4 million for the nine months ended September 30, 2001 compared to $149.7 million reported in the prior year period. The decrease in investment advisory fees was primarily due to $35.5 million of incentive fees received in 2000 in connection with the restructuring of a timber management contract, $14.3 million of performance fees received in 2000 by the mezzanine fund manager, a $9.8 million legal settlement during the prior year period associated with our timber management operation and $13.8 million lower investment advisory fees due to lower average assets under management at Independence Investment LLC in the current year period. Mortgage origination and servicing fees were $4.7 million for the nine months ended September 30, 2001 compared to $4.4 million in the prior year period. Investment management revenues, commissions and other fees were 0.35% and 0.54% of average advisory assets under management in 2001 and 2000, respectively. Net realized investment gains increased $1.5 million for the nine months ended September 30, 2001 primarily due to increased securitization activity at John Hancock Real Estate Finance. Benefits and expenses were $71.9 million for the nine months ended September 30, 2001, a decrease of $33.5 million, or 31.8%, from $105.4 million reported in the comparable prior year period. The decrease was primarily due to $13.5 million of incentive compensation payments related to the receipt of incentive fees from a timber management contract and a legal settlement during the prior year period associated with our timber management operation. The Company also paid an $8.6 million performance fee to the management of the mezzanine fund in the prior year period. In addition, operating expenses decreased $7.9 million at Independence Investment LLC, primarily compensation expenses, due to lower average assets under management compared to the prior year period. Operating expenses for John Hancock Real Estate Finance decreased $2.2 million primarily due to on-going expense reduction efforts throughout the segment. Other operating costs and expenses were 0.32% and 0.37% of average advisory assets under management in 2001 and 2000, respectively. The Segment's effective tax rate on operating income was 38.9% and 40.8% for the nine months ended September 30, 2001 and 2000, respectively. The effective tax rate for the Institutional Investment Management Segment is higher than our other business segments primarily due to state taxes on certain subsidiaries. 38 JOHN HANCOCK FINANCIAL SERVICES, INC. Corporate and Other Segment The following table presents certain summary financial data relating to the Corporate and Other Segment for the periods indicated.
Three Months Ended Nine Months Ended September 30, September 30, 2001 2000 2001 2000 ------------------------------------------------------ (in millions) (in millions) Revenues................................................... $442.3 $424.5 $1,354.4 $1,309.4 Benefits and expenses...................................... 426.2 396.0 1,306.2 1,213.2 Income taxes (benefits).................................... (6.2) 4.6 (14.4) 22.9 -------------------------------------------------- Segment after-tax operating income (1)..................... 22.3 23.9 62.6 73.3 -------------------------------------------------- After-tax adjustments: (1) Net realized investment and other gains (losses), net... (4.0) 7.3 11.7 57.4 Restructuring charges................................... (1.5) (0.1) (1.7) (1.0) Surplus tax............................................. 0.2 (2.6) 0.2 0.1 Demutualization expenses................................ -- -- -- (9.7) Other demutualization related costs..................... -- -- -- (0.4) -------------------------------------------------- Total after-tax adjustments................................ (5.3) 4.6 10.2 46.4 -------------------------------------------------- Income before cumulative effect of accounting changes...... 17.0 28.5 72.8 119.7 Cumulative effect of accounting changes, net of tax........ -- -- (2.6) -- -------------------------------------------------- Net income................................................. $ 17.0 $ 28.5 $ 70.2 $ 119.7 ==================================================
(1) See "Adjustments to GAAP Reported Net Income" included in this MD&A. Three Months Ended September 30, 2001 Compared to Three Months Ended September 30, 2000 Segment after-tax operating income from international operations was $8.9 million for the three months ended September 30, 2001, a decrease of $0.3 million from $9.2 million reported in the comparable prior year period. The decrease in segment after-tax operating income is primarily due to The Maritime Life Assurance Company, our majority-owned Canadian subsidiary. Increased expenses for employee benefits and technology projects and reserve increases for Group termination experience were largely offset by tax benefits associated with the reduction in Canadian tax rates. Segment after-tax operating income from corporate operations was $11.6 million for the three months ended September 30, 2001, a decrease of $0.1 million from $11.7 million reported in the comparable prior year period. The decrease was primarily due to lower net investment income on corporate surplus due to greater surplus requirements in our other business lines, the stock buyback program and dividends to stockholders paid for the first time at the end of last year. These negative variances were almost offset by expense reductions. The Segment's effective tax rate on operating income was (38.5)% and 16.1% for the three months ended September 30, 2001 and 2000, respectively. This rate decreased primarily due to a decrease in the deferred tax liability associated with contracts entered into to transfer the management of certain lease investment residuals to a foreign jurisdiction, non-taxable income and a reduction in Maritime's deferred tax liability to reflect decreased Canadian tax rates. Nine Months Ended September 30, 2001 Compared to Nine Months Ended September 30, 2000 Segment after-tax operating income from international operations was $34.9 million for the nine months ended September 30, 2001, an increase of $15.0 million from $19.9 million reported in the comparable prior year period. The increase in segment after-tax operating income is primarily due to Maritime where individual life experienced favorable expense, mortality and investment margins and group insurance benefited from reductions in their waiver of premium and claim litigation reserves. 39 JOHN HANCOCK FINANCIAL SERVICES, INC. Segment after-tax operating income from corporate operations was $22.3 million for the nine months ended September 30, 2001, a decrease of $25.2 million from $47.5 million reported in the comparable prior year period. The decrease was primarily due to nonrecurring net investment income on the proceeds from the IPO in 2000, lower net investment income on corporate surplus due to greater surplus requirements in our other business lines, the stock buyback program and dividends to stockholders. The Segment's effective tax rate on operating income was (29.9)% and 23.8% for the nine months ended September 30, 2001 and 2000, respectively. This rate decreased primarily due to a decrease in the deferred tax liability associated with contracts entered into to transfer the management of certain lease investment residuals to a foreign jurisdiction, low income housing credits, non-taxable income and a reduction in Maritime's deferred tax liability to reflect decreased Canadian tax rates. General Account Investments On the effective date of the Plan of Reorganization, the Company's invested assets were allocated between the closed block and operations outside the closed block. In view of the similar asset quality characteristics of the major asset categories in the two portfolios, the invested assets in the closed block have been combined with the Company's invested assets outside the closed block for purposes of the following discussion and analysis. Overall Composition of the General Account Invested assets, excluding separate accounts, totaled $56.9 billion and $52.2 billion as of September 30, 2001 and December 31, 2000, respectively. The portfolio composition has not significantly changed at September 30, 2001 as compared to December 31, 2000. The following table shows the composition of investments in our general account portfolio.
As of September 30, As of December 31, 2001 2000 ----------------------------------------------------- Carrying % of Carrying % of Value Total Value Total ----------------------------------------------------- (in millions) (in millions) Fixed maturity securities (1)..... $39,842.1 70.0% $32,573.4 62.4% Mortgage loans (2)................ 10,678.3 18.8 10,900.0 20.9 Real estate....................... 481.7 0.8 519.0 1.0 Policy loans (3).................. 1,994.9 3.5 1,969.2 3.8 Equity securities................. 1,135.3 2.0 1,372.3 2.6 Other invested assets............. 1,315.8 2.3 1,393.7 2.6 Short-term investments............ 159.2 0.3 214.0 0.4 Cash and cash equivalents (4)..... 1,338.9 2.3 3,280.0 6.3 ----------------------------------------------------- Total invested assets (5)...... $56,946.2 100.0% $52,221.6 100.0% =====================================================
(1) In addition to bonds, the fixed maturity security portfolio contains redeemable preferred stock with a carrying value of $746.0 million and $735.3 million as of September 30, 2001 and December 31, 2000, respectively. Carrying value is composed of investments categorized as held-to-maturity, which are carried at amortized cost, and investments categorized as available-for-sale, which are carried at fair value. The total fair value of our fixed maturity security portfolio was $39,827.9 million and $32,393.5 million, at September 30, 2001 and December 31, 2000, respectively. (2) The fair value of the mortgage loan portfolio was $11,469.3 million and $11,359.6 million as of September 30, 2001 and December 31, 2000, respectively. (3) Policy loans are secured by the cash value of the underlying life insurance policies and do not mature in a conventional sense, but expire in conjunction with the related policy liabilities. (4) Cash and cash equivalents are included in total invested assets for the purposes of calculating yields on the income producing assets for the Company. (5) Total Investments on the Company's Consolidated Balance Sheet excludes amounts for cash and cash equivalents of $1,338.9 million and $3,280.0 million as of September 30, 2001 and December 31, 2000 and closed block total investments of $8,874.3 million and $8,203.2 million as of September 30, 2001 and December 31, 2000, respectively. Consistent with the nature of the Company's product liabilities, assets are heavily oriented toward fixed maturity securities. The Company determines the allocation of assets primarily on the basis of cash flow and return requirements of its products and by the level of investment risk. 40 JOHN HANCOCK FINANCIAL SERVICES, INC. Fixed Maturity Securities. The fixed maturity securities portfolio is predominantly comprised of low risk, investment grade, publicly and privately traded corporate bonds and senior tranches of asset-backed securities (ABS) and mortgage-backed securities (MBS), with the balance invested in government bonds. The fixed maturity securities portfolio also includes redeemable preferred stock. As of September 30, 2001, fixed maturity securities represented 70.0% of general account investment assets with a carrying value of $39.8 billion, roughly comprised of 55% public securities and 45% private securities. Each year the Company directs the majority of net cash inflows into investment grade fixed maturity securities. Typically between 5% and 15% of funds allocated to fixed maturity securities are invested in below-investment-grade bonds, while maintaining a policy to limit the overall level of these bonds to no more than 10% of invested assets and the majority of that balance in the BB category. Allocations are based on an assessment of relative value and the likelihood of enhancing risk-adjusted portfolio returns. While the Company has profited from the below-investment-grade asset class in the past, care is taken to manage its growth strategically by limiting its size relative to the Company's total assets. The following table shows the composition by issuer of the fixed maturity securities portfolio. Fixed Maturity Securities -- By Issuer
As of September 30, As of December 31, 2001 2000 ----------------------------------------------------- Carrying % of Carrying % of Value Total Value Total ----------------------------------------------------- (in millions) (in millions) Corporate securities.............. $31,638.2 79.4% $25,193.6 77.4% MBS/ABS........................... 6,460.7 16.2 5,483.5 16.8 U.S. Treasury securities and obligations of U.S. government agencies....................... 217.4 0.5 205.8 0.6 Debt securities issued by foreign Governments.................... 1,386.2 3.5 1,549.9 4.8 Obligations of states and political Subdivisions................... 139.6 0.4 140.6 0.4 ----------------------------------------------------- Total........................ $39,842.1 100.0% $32,573.4 100.0% =====================================================
In keeping with the investment philosophy of tightly managing interest rate risk, the Company's MBS & ABS holdings are heavily concentrated in commercial MBS where the underlying loans are largely call protected, which means they are not pre-payable without penalty prior to maturity at the option of the issuer. By investing in MBS and ABS securities with relatively predictable repayments, the Company adds high quality, liquid assets to the portfolios without incurring the risk of cash flow variability. The Company believes the portion of the MBS/ABS portfolio subject to prepayment risk as of September 30, 2001 and December 31, 2000 was limited to 10.0% and 3.3% of total MBS/ABS portfolio and 1.6% and 0.6% of total fixed maturity securities holdings, respectively. The increase is due to a $500 million portfolio in a new duration neutral strategy used in the corporate investment segment as a liquid alternative to a cash portfolio. The Securities Valuation Office (SVO) of the National Association of Insurance Commissioners evaluates all public and private bonds purchased as investments by insurance companies. The SVO assigns one of nine investment categories to each security it reviews. Category 1 is the highest quality rating, and Category 6 is the lowest. Categories 1 and 2 are the equivalent of investment grade debt as defined by rating agencies such as Standard & Poor's (S&P) and Moody's (i.e., BBB-/Baa3 or higher), while Categories 3-6 are the equivalent of below-investment grade securities. SVO ratings are reviewed and may be revised at least once a year. The following table sets forth the SVO ratings for our bond portfolio along with an equivalent S&P rating agency designation. The majority of the bonds are investment grade, with 87.8% invested in Category 1 and 2 securities as of September 30, 2001. Below investment grade bonds were 8.4% of total invested assets as of September 30, 2001. This allocation reflects the Company strategy of avoiding the unpredictability of interest rate risk in favor of relying on the Company's bond analysts' ability to better predict credit or default risk. The bond analysts operate in an industry-based, team-oriented structure that permits the evaluation of a wide range of below investment grade offerings in a variety of industries resulting in a well-diversified high yield portfolio. A majority 61.2% of below investment grade bonds are in category 3, the highest quality below investment grade. Category 6 bonds, those in or near default, represent securities that were originally acquired as long-term investments, but subsequently became 41 JOHN HANCOCK FINANCIAL SERVICES, INC. distressed. The carrying value of bonds in or near default was $246.0 million and $216.7 million as of September 30, 2001 and December 31, 2000, respectively. As of September 30, 2001 and December 31, 2000, $1.6 million and $2.6 million, respectively, of interest on bonds near default was included in accrued investment income. It is the Company's policy to reverse any accrued investment income and cease accruing interest income on bonds in default and accrue interest income on bonds near default that the Company expects to collect. Fixed Maturity Securities -- By Quality
As of September 30, As of December 31, --------------------------------------------------------------------------------- 2001 2000 --------------------------------------------------------------------------------- SVO S&P Equivalent Carrying % of Carrying % of Rating (1) Designation (2) Value (3) Total Value (3) Total - ----------------------------------------------------------------------------------------------------------------- (in millions) (in millions) 1 AAA/AA/A............. $17,727.0 45.4% $14,614.2 45.9% 2 BBB.................. 16,576.9 42.4 12,877.8 40.5 3 BB................... 2,932.2 7.5 2,793.3 8.8 4 B.................... 1,109.2 2.8 1,066.4 3.3 5 CCC and lower........ 504.8 1.3 269.7 0.8 6 In or near default... 246.0 0.6 216.7 0.7 --------------------------------------------------------------------------------- Total................ $39,096.1 100.0% $31,838.1 100.0% =================================================================================
(1) With respect to securities that are awaiting an SVO rating, the Company has assigned a rating based on an analysis that it believes is equivalent to that used by the SVO. (2) Comparisons between SVO and S&P ratings are published by the National Association of Insurance Commissioners. (3) Does not include redeemable preferred stock with a carrying value of $746.0 million and $735.3 million as of September 30, 2001 and December 31, 2000, respectively. Mortgage Loans. As of September 30, 2001 and December 31, 2000, the Company held mortgage loans with a carrying value of $10.7 billion and $10.9 billion, respectively, including $2.4 billion and $2.5 billion, respectively at each period end of agricultural loans, and $1.3 billion and $1.2 billion, respectively, of loans managed by our majority-owned Canadian subsidiary, Maritime Life Assurance Company, of which $0.6 billion at each period end were government-insured by the Canada Mortgage and Housing Corporation (CMHC). 42 JOHN HANCOCK FINANCIAL SERVICES, INC. Investment Results The following table summarizes the Company's investment results for the periods indicated. Overall, the yield, net of investment expenses, on the general account portfolio decreased from the three months ended and the nine months ended September 30, 2000. The lower yield was impacted by floating rate instruments which reflect a decrease in the three-month LIBOR of 420 basis points, and the result of scheduled maturities rolling over into new investments with less favorable interest rates and narrower acquisition spreads than those present in our 2000 fixed maturity portfolio. The inflow of new cash was invested at rates that were less than the overall portfolio earnings rate during the first nine months of 2000. Indicative of this environment, between September 2000 and September 2001, the 10-year U.S. Treasury rate fell by 132 basis points, while Moody's seasoned BAA spreads decreased 9 basis points.
Three Months Ended Nine Months Ended As of As of As of As of September 30, 2001 September 30, 2000 September 30, 2001 September 30, 2000 ------------------------------------------------------------------------------------ Yield Amount Yield Amount(2) Yield Amount Yield Amount(2) ------------------------------------------------------------------------------------ (in millions) (in millions) (in millions) (in millions) General account assets-excluding policy loans Gross income 7.51% $ 1,016.5 8.20% $ 992.2 7.75% $ 3,058.8 8.31% $ 2,962.6 Ending assets-excluding policy loans 54,951.3 48,268.2 54,951.3 48,268.2 Policy loans Gross income 5.99% 29.8 5.73% 27.9 6.19% 92.0 6.03% 87.9 Ending assets 1,994.9 1,950.1 1,994.9 1,950.1 Total gross income 7.46% 1,046.3 8.11% 1,020.1 7.70% 3,150.8 8.22% 3,050.5 Less: investment expenses (53.5) (68.3) (181.1) (206.2) -------------- -------------- ------------- ------------ Net investment Income (1) 7.08% $ 992.8 7.57% $ 951.8 7.25% $ 2,969.7 7.67% $ 2,844.3 ============== ============== ============= ============
(1) Total Company's net investment income as shown on the Unaudited Consolidated Statements of Income excludes amounts for the closed block of $167.5 million and $155.8 million for the three months ended September 30, 2001 and September 30, 2000, and $500.0 million and $423.1 million for the nine months ended September 30, 2001 and the period from February 1, 2000 through September 30, 2000, respectively. (2) Prior period results have been restated to conform to the 2001 presentation due to a reclassification of investment returns related to equity indexed universal life insurance policies sold through Maritime, a majority-owned subsidiary of the Company, to benefits to policyholders. Liquidity and Capital Resources Liquidity describes the ability of a company to generate sufficient cash flows to meet the cash requirements of its business operations. The assets of the Company consist of the outstanding capital stock of the Life Company, and investments in international subsidiaries. The Company's cash flow consists of dividends from its subsidiaries offset by expenses and stock repurchases. As a holding company, the Company's ability to meet its cash requirements, pay interest on any debt, pay expenses related to its affairs and pay dividends on its common stock substantially depends upon dividends from its subsidiaries. State insurance laws generally restrict the ability of insurance companies to pay cash dividends in excess of prescribed limitations without prior approval. The Life Company's limit is the greater of 10% of the prior year-end statutory surplus or the prior calendar year's statutory net gain from operations of the Life Company. The ability of the Life Company, the Company's primary operating subsidiary, to pay shareholder dividends is and will continue to be subject to restrictions set forth in the insurance laws and regulations of Massachusetts, its domiciliary state. The Massachusetts insurance law limits how and when the Life Company can pay shareholder dividends. The Life Company, in the future, could also be viewed as being commercially domiciled in New York. If so, dividend payments may also be subject to New York's holding company act as well as Massachusetts' law. The Company currently does not expect such regulatory requirements to impair its ability to meet its liquidity and capital needs. However, the Company can give no assurance it will declare or pay dividends on a regular basis. The Company did not declare or pay a dividend to shareholders in the nine months ended September 30, 2001 or 2000. On November 5, 2001 the Company announced that its Board of Directors has declared an annual dividend to shareholders of 43 JOHN HANCOCK FINANCIAL SERVICES, INC. $0.31 per common share payable on December 13, 2001 to shareholders of record on November 16, 2001. In the fourth quarter of 2000, the Company announced that its Board of Directors declared an annual dividend to shareholders of $0.30 per common share payable on December 14, 2000 to shareholders of record on November 20, 2000. In March 2001, in accordance with a filing made with the Commissioner of Insurance for the Commonwealth of Massachusetts, the Life Company paid a dividend to the Company in the amount of $250.0 million. None of this dividend was classified as extraordinary by state regulators. The funds from these dividends, together with the net proceeds of the IPO, were principally designated to repurchase common stock of the Company. In the fourth quarter of 2001, the Life Company will dividend ownership of Direct Foreign Operations (DFO) and its remaining 55% ownership of John Hancock Canadian Holdings to the Company. In addition, in the fourth quarter of 2001, the Life Company will pay a cash dividend of approximately $11.0 million to the Company. In the nine months ended September 30, 2000, the Life Company declared $466.0 million and paid $200.0 million in dividends to the Company. None of this dividend was classified as extraordinary by state regulators. The funds from these dividends in 2000, together with the net proceeds of the IPO, were principally designated to repurchase common stock of the Company and fund the December 2000 dividend to shareholders. Sources of cash for the Company's insurance subsidiaries are from premiums, deposits and charges on policies and contracts, investment income, maturing investments, and proceeds from sales of investment assets. In addition to the need for cash flow to meet operating expenses, our liquidity requirements relate principally to the liabilities associated with various life insurance, annuity, long term care, and structured investment products, and to the funding of investments in new products, processes, and technologies. Product liabilities include the payment of benefits under life insurance, annuity, long term care, and structured investment products and the payment of policy surrenders, withdrawals and policy loans. The Company periodically adjusts its investment policy to respond to changes in short-term and long-term cash requirements and provide adequate funds to pay benefits without forced sales of investments. The liquidity of our insurance operations is also related to the overall quality of our investments. As of September 30, 2001, $34,303.9 million, or 87.8% of the fixed maturity securities held by us and rated by Standard & Poor's Ratings Services, a division of the McGraw-Hill Companies, Inc. (S&P) or the National Association of Insurance Commissioners were rated investment grade (BBB or higher by S&P or 1 or 2 by the National Association of Insurance Commissioners). The remaining $4,792.2 million, or 12.2%, of fixed maturity investments, and 8.4% of invested assets, were rated non-investment grade. For additional discussion of our investment portfolio see the General Account Investments section above in this Management's Discussion and Analysis of Financial Condition and Results of Segment Operations. We employ an asset/liability management approach tailored to the specific requirements of each of our product lines. Each product line has an investment strategy based on the specific characteristics of the liabilities in the product line. As part of this approach, we develop investment policies and operating guidelines for each portfolio based upon the return objectives, risk tolerance, liquidity, and tax and regulatory requirements of the underlying products and business segments. Net cash provided by operating activities was $1,553.6 million and $815.8 million for the nine months ended September 30, 2001 and 2000, respectively. The increase in 2001 compared to 2000 was primarily due to a smaller net other asset and other liability increase. This smaller increase was largely a result of a derivative accounting change in reporting affecting non-cash items. In addition, there was an a initial cash transfer to the closed block of $158.6 million during the first nine months of 2000, which did not recur in the current period. Net cash used in investing activities was $5,312.2 million and $1,070.5 million for the nine months ended September 30, 2001 and 2000, respectively. The increase in cash used in 2001 as compared to 2000 resulted from approximately $7,329.7 million of acquisitions of fixed maturity securities in excess of sales of fixed maturity securities during the nine months ended September 30, 2001, compared to approximately $3,200.4 million in the prior year period. Net cash provided by financing activities was $1,948.3 million and $473.9 million, for the nine months ended September 30, 2001 and 2000, respectively. The increase in 2001 as compared to 2000 resulted from approximately $3,006.6 million increase in deposits on universal life insurance and investment type contracts, partially offset by approximately $706.8 million increase in cash payments made on withdrawals of universal life insurance and investment-type contracts. This activity was partially offset by non-recurring cash activity related to the IPO in the 44 JOHN HANCOCK FINANCIAL SERVICES, INC. first quarter of 2000. In addition, the Company used $492.2 million in cash to acquire treasury stock during the nine months ended September 30, 2001, with no activity for the nine months ended September 30, 2000. On June 7, 2001 President Bush signed into law The Economic Growth and Tax Relief Act of 2000 (HR 1836). Among its many provisions the law creates three distinct periods of estate law during the next 20 years. First, during tax years 2002 through 2009, it provides a lengthy phase-in period of estate tax rate reductions and estate transfer exemption increases. Second, in 2010, the bill provides a brief repeal period, eliminating the estate tax for one year. Third, and lastly, commencing in 2011, the estate tax law reverts back to present law, as if HR 1836 had never existed. The Company' expects that this law will impact the sales of survivorship products used in estate planning. The Company expects to mitigate this effect through the sale of single life and corporate-owned life insurance (COLI) products, as well as through ongoing collaboration with its producers to increase the sale of life insurance products to meet consumers' protection and asset accumulation needs. On October 26, 2000, the Company announced that its Board of Directors authorized a stock repurchase program, with no termination date, under which the Company will purchase up to $500 million of its outstanding common stock. On August 6, 2001, the Company's board of directors authorized a $500 million increase to the stock repurchase program, bringing the total amount authorized to be used to repurchase Company stock to $1.0 billion. Under the stock repurchase program, purchases will be made from time to time, depending on market conditions, business opportunities and other factors, in the open market or through privately negotiated transactions, and which may be, if deemed appropriate, through a systematic program. During the nine months ended September 30, 2001, the Company repurchased 13.1 million shares with a total cost of $492.2 million. Since the inception of the Program through September 30, 2001, the Company has repurchased 16.1 million shares with a total cost of $584.0 million. Cash flow requirements also are supported by a committed line of credit of $1.0 billion. The line of credit agreement provides for two facilities: one for $500 million pursuant to a 364-day commitment (renewable on August 3, 2002) and a second for $500 million pursuant to a five-year facility (renewable on August 3, 2005). The line of credit is available for general corporate purposes. The line of credit agreement contains various covenants, among these being that shareholders' equity meet certain requirements. To date, we have not borrowed any amounts under the line of credit. As of September 30, 2001, we had $1,166.8 million of debt outstanding consisting of $451.0 million of debt classified as short term and $715.8 million classified as long term, including $447.3 million of surplus notes. The commercial paper program established at the Company has replaced the commercial paper program at its indirect subsidiary, John Hancock Capital Corporation. During the nine months ended September 30, 2001, $1,985.0 million in commercial paper was issued by the Company and $362.0 million was outstanding at September 30, 2001. The Company has an effective shelf registration statement which provides for the possible issuance, from time to time, of up to $1.0 billion of the Company's debt and equity securities. To date, no debt or equity securities have been issued under the shelf registration. The risk-based capital standards for life insurance companies, as prescribed by the National Association of Insurance Commissioners, establish a risk-based capital ratio comparing adjusted surplus to required surplus for each of our United States domiciled insurance subsidiaries. If the risk-based capital ratio falls outside of acceptable ranges, regulatory action may be taken ranging from increased information requirements to mandatory control by the domiciliary insurance department. The risk-based capital ratios of all our insurance subsidiaries as of year end were above the ranges that would require regulatory action. We maintain reinsurance programs designed to protect against large or unusual losses. Based on our review of our reinsurers' financial statements and reputations in the reinsurance marketplace, we believe that our reinsurers are financially sound, and, therefore, that we have no significant exposure to uncollectable reinsurance in excess of uncollectable amounts already recognized in our unaudited consolidated financial statements. Given the historical cash flow of our subsidiaries and current financial results, management believes that the cash flow from the operating activities over the next year will provide sufficient liquidity for our operations, as well as to satisfy debt service obligations and to pay other operating expenses. Although we anticipate that we will be able to meet our cash requirements, we can give no assurances in this regard. 45 JOHN HANCOCK FINANCIAL SERVICES, INC. Important Factors that May Affect Future Results The statements, analyses, and other information contained herein relating to trends in the Company's operations and financial results, the markets for the Company's products, the future development of the Company's business, and the contingencies and uncertainties to which the Company may be subject, as well as other statements including words such as "anticipate," "believe," "plan," "estimate," "expect," "intend," "will," "should," "may," and other similar expressions, are "forward-looking statements" under the Private Securities Litigation Reform Act of 1995. Such statements are made based upon management's current expectations and beliefs concerning future events and their effects on the Company, which may not be those anticipated by management. The Company's actual results may differ materially from the results anticipated in these forward-looking statements. These forward-looking statements are subject to risks and uncertainties including, but not limited to, the following: (1) a significant downgrade in our ratings for claims-paying ability and financial strength may lead to policy and contract withdrawals and materially harm our ability to market our products; (2) elimination of Federal tax benefits for our products and other changes in laws and regulations that could adversely affect sales of our insurance and investment advisory products; (3) as a holding company, we depend on dividends from our subsidiaries and the Massachusetts insurance law may restrict the ability of the Life Company to pay dividends to us; (4) we face increasing competition in our retail and institutional businesses from mutual fund companies, banks and investment management firms as well as from other insurance companies; (5) a decline or increased volatility in the securities markets, and other changes in general economic conditions, may adversely affect our business, particularly our variable life insurance, mutual fund, variable annuity and investment business; (6) our life insurance sales are highly dependent on a third party distribution relationship; (7) customers may not be responsive to new or existing products or distribution channels, (8) interest rate volatility may adversely affect our profitability; (9) our net income and revenues will suffer if customers surrender annuities and variable and universal life insurance policies or redeem shares of our open-end mutual funds; (10) the independent directors of our variable series trusts and of our mutual funds could reduce the compensation paid to us or could terminate our contracts to manage the funds; (11) under our Plan of Reorganization, we were required to establish the closed block, a special arrangement for the benefit of a group of our policyholders, and we may have to fund deficiencies in our closed block, and any overfunding of the closed block will benefit only the holders of policies included in the closed block, not our stockholders; (12) there are a number of provisions in our Plan of Reorganization, our Restated Certificate of Incorporation and by-laws, laws applicable to us, agreements that we have entered into with our senior management, and our stockholder rights plan, that will prevent or discourage takeovers and business combinations that our stockholders might otherwise consider to be in their best interests; (13) we will face losses if the claims on our insurance products, or reductions in rates of mortality on our annuity products, are greater than we projected; (14) we face risks relating to our investment portfolio; (15) the market price of our common stock may decline if persons who received common stock as compensation in the reorganization sell their stock in the public market; (16) we may experience volatility in net income due to changes in standards for accounting for derivatives and other changes; (17) our United States insurance companies are subject to risk-based capital requirements and possible guaranty fund assessments; (18) the National Association of Insurance Commissioners' codification of statutory accounting practices adversely affected the statutory surplus of the Life Company; (19) we may be unable to retain personnel who are key to our business; (20) we face risks from assumed reinsurance business in respect of personal accident insurance and the occupational accident component of workers compensation insurance; (21) litigation and regulatory proceedings may result in financial losses, harm our reputation and divert management resources, and (22) we face unforeseen liabilities arising from our acquisitions and dispositions of businesses. Readers are also directed to other risks and uncertainties discussed, as well as to further discussion of the risks described above, in other documents filed by the Company with the United States Securities and Exchange Commission. The Company specifically disclaims any obligation to update or revise any forward-looking information, whether as a result of new information, future developments, or otherwise. 46 JOHN HANCOCK FINANCIAL SERVICES, INC. ITEM 3. QUANTITATIVE and QUALITATIVE DISCLOSURES ABOUT MARKET RISK Capital Markets Risk Management The Company maintains a disciplined, comprehensive approach to managing capital market risks inherent in its business operations. To mitigate these risks, and effectively support Company objectives, investment operations are organized and staffed to focus investment management expertise on specific classes of investments, with particular emphasis placed on private placement markets. In addition, a dedicated unit of asset / liability risk management (ALM) professionals centralizes the implementation of its interest rate risk management program. As an integral component of its ALM program, derivative instruments are used in accordance with risk reduction techniques established through Company policy and with formal approval granted from the New York Insurance Department. The Company's use of derivative instruments is monitored on a regular basis by senior management and reviewed quarterly with the Company's Committee of Finance. The Company's principal capital market exposures are credit and interest rate risk, although we have certain exposures to changes in equity prices and foreign currency exchange rates. Credit risk pertains to the uncertainty associated with the ability of an obligor or counterparty to continue to make timely and complete payments of contractual principal and/or interest. Interest rate risk pertains to the market value fluctuations that occur within fixed maturity securities or liabilities as market interest rates move. Equity and foreign currency risk pertain to price fluctuations, associated with the Company's ownership of equity investments or non-US dollar denominated investments, driven by dynamic market environments. Credit Risk The Company manages the credit risk inherent in its fixed maturity securities by applying strict credit and underwriting standards, with specific limits regarding the proportion of permissible below investment grade holdings. We also diversify our fixed maturity securities with respect to investment quality, issuer, industry, geographical, and property-type concentrations. Where possible, consideration of external measures of creditworthiness, such as ratings assigned by nationally recognized rating agencies, supplement our internal credit analysis. The Company uses simulation models to examine the probability distribution of credit losses to ensure that it can readily withstand feasible adverse scenarios. In addition, the Company periodically examines, on various levels of aggregation, its actual default loss experience on significant asset classes to determine if the losses are consistent with the levels assumed in product pricing and rating agencies' quality-specific cohort default data. These tests have generally found the Company's aggregate experience to be favorable relative to these external benchmarks and consistent with priced for levels. As of September 30, 2001, the Company's fixed maturity portfolio was comprised of 87.8% investment grade securities and 12.2% below-investment-grade securities. These percentages are consistent with recent experience and indicative of the Company's long-standing investment philosophy of pursuing moderate amounts of credit risk in return for higher expected returns. We believe that credit risk can be successfully managed given our proprietary credit evaluation models and experienced personnel. Interest Rate Risk The Company maintains a tightly controlled approach to managing its potential interest rate risk. Interest rate risk arises from many of our primary activities, as we invest substantial funds in interest-sensitive assets to support the issuance of our various interest-sensitive liabilities, primarily within our Protection, Asset Gathering and Guaranteed & Structured Financial Products Segments. The Company manages interest rate sensitive segments of the business, and the supporting investments, under one of two broadly defined risk management methods designed to provide an appropriate matching of assets and liabilities. For guaranteed rate products, where contractual liability cash flows are highly predictable (e.g., GICs or immediate annuities) sophisticated duration-matching techniques are utilized to manage the segment's exposure to both parallel and non-parallel yield curve movements. Typically this type of management is expressed as a duration tolerance of only +/- .05 years, with other measures used for limiting exposure to non-parallel risk. For non-guaranteed rate products, such as whole life insurance or single premium deferred annuities, liability cash flows are less predictable. Therefore, a conventional duration-matching strategy is less effective at managing the inherent risk. For these products, we manage interest rate risk based on scenario-based portfolio modeling that seeks to identify 47 JOHN HANCOCK FINANCIAL SERVICES, INC. the most appropriate investment strategy given probable policyholder behavior and liability crediting needs under a wide range of interest rate environments. As of September 30, 2001, there have been no material changes to the interest rate exposures as reported in the Company's 2000 Form 10-K. Derivative Instruments The Company uses a variety of derivative financial instruments, including swaps, caps, floors, and exchange traded futures contracts, in accordance with Company policy. Permissible derivative applications include the reduction of economic risk (i.e., hedging) related to changes in yields, price, cash flows, and currency exchange rates. In addition, certain limited applications of "income generation" are allowed. Examples of this type of use include the purchase of call options to offset the sale of embedded options in Company liability issuance or the purchase of swaptions to offset the purchase of embedded put options in certain investments. The Company does not make a market or trade derivatives for the purpose of speculation. The Company's Investment Compliance Unit monitors all derivatives activity for consistency with internal policies and guidelines. All derivatives trading activity is reported monthly to the Company's Committee of Finance for review, with a comprehensive governance report provided jointly each quarter by the Company's Derivatives Supervisory Officer and Chief Investment Compliance Officer. The table below reflects the Company's derivative positions that are managing interest rate risk as of September 30, 2001. The notional amounts in the table represent the basis on which pay or receive amounts are calculated and are not reflective of credit risk. These exposures represent only a point in time and will be subject to change as a result of ongoing portfolio and risk management activities.
As of September 30, 2001 ------------------------------------------------------------------------------- Fair Value ----------------------------------------------- Weighted +100 Basis Notional Average Term -100 Basis Point As of Point Amount (Years) Change 9/30/01 Change ------------------------------------------------------------------------------- (in millions, except for Weighted Average Term) Interest rate swaps.............. $13,058.4 7.8 $(754.7) $(518.7) $(284.9) CMT swaps........................ 393.0 1.2 6.4 6.4 6.4 Futures contracts................ 811.8 8.5 (33.2) (0.7) 31.1 Interest rate caps............... 337.0 5.0 0.9 2.1 4.2 Interest rate floors............. 8,328.0 8.7 189.0 82.0 36.8 Swaptions........................ 30.0 23.7 (3.5) (1.5) (0.6) ------------------ ----------------------------------------------- Totals...................... $22,958.2 8.0 $(595.1) $(430.4) $(207.0) ================== ===============================================
Our non-exchange-traded derivatives are exposed to the possibility of loss from a counterparty failing to perform its obligations under terms of the derivative contract. We believe the risk of incurring losses due to nonperformance by our counterparties is remote. To manage this risk, Company procedures include the (a) on-going evaluation of each counterparty's credit ratings, (b) the application of credit limits and monitoring procedures based on an internally developed, scenario-based, risk assessment system, (c) monthly reporting of each counterparty's "potential exposure", (d) master netting agreements and, where appropriate, (e) collateral agreements. Futures contracts trade on organized exchanges and, therefore, have effectively no credit risk. 48 JOHN HANCOCK FINANCIAL SERVICES, INC. PART II OTHER INFORMATION ITEM 6. EXHIBITS and REPORTS on FORM 8-K (a) Exhibits Exhibit Number Description - ------ ----------- 10.25 Employment Continuation Agreement between John Hancock Life Insurance Company, John Hancock Financial Services, Inc. and Michael A, Bell (+) 10.26 Second Amended and Restated Employment Continuation Agreement between John Hancock Life Insurance Company, John Hancock Financial Services, Inc. and Thomas E. Moloney.(+) 10.27 Second Amended and Restated Employment Continuation Agreement between John Hancock Life Insurance Company, John Hancock Financial Services, Inc. and David F. D'Alessandro.(+) 10.28 Second Amended and Restated Employment Continuation Agreement between John Hancock Life Insurance Company, John Hancock Financial Services, Inc. and Derek Chilvers.(+) 10.29 Second Amended and Restated Employment Continuation Agreement between John Hancock Life Insurance Company, John Hancock Financial Services, Inc. and Maureen Ford.(+) 10.30 Second Amended and Restated Employment Continuation Agreement between John Hancock Life Insurance Company, John Hancock Financial Services, Inc. and Robert Walters.(+) 10.31 Second Amended and Restated Employment Continuation Agreement between John Hancock Life Insurance Company, John Hancock Financial Services, Inc. and John M. DeCiccio.(+) 10.32 Amended and Restated Employment Continuation Agreement between John Hancock Life Insurance Company, John Hancock Financial Services, Inc. and Wayne A. Budd.(+) - ---------------- (+) Management Contract or Compensatory Plan or Arrangement. (b) Reports on Form 8-K. On August 3, 2001, the Company filed a Current Report on Form 8-K, dated August 3, 2001, reporting under Item 5 thereof the Company's operating results for the second quarter of 2001. On September 17, 2001, the Company filed a Current Report on Form 8-K, dated September 17, 2001, reporting under Item 5 thereof the non-material impact of the terrorist acts of September 11, 2001 on the Company's financial strength. 49 JOHN HANCOCK FINANCIAL SERVICES, INC. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized. JOHN HANCOCK FINANCIAL SERVICES, INC. Date: November 13, 2001 By: /s/ THOMAS E. MOLONEY --------------------- Thomas E. Moloney Senior Executive Vice President and Chief Financial Officer 50 EXHIBITS INDEX Exhibit Number Description - ------ ----------- 10.25 Employment Continuation Agreement between John Hancock Life Insurance Company, John Hancock Financial Services, Inc. and Michael A, Bell (+) 10.26 Second Amended and Restated Employment Continuation Agreement between John Hancock Life Insurance Company, John Hancock Financial Services, Inc. and Thomas E. Moloney.(+) 10.27 Second Amended and Restated Employment Continuation Agreement between John Hancock Life Insurance Company, John Hancock Financial Services, Inc. and David F. D'Alessandro.(+) 10.28 Second Amended and Restated Employment Continuation Agreement between John Hancock Life Insurance Company, John Hancock Financial Services, Inc. and Derek Chilvers.(+) 10.29 Second Amended and Restated Employment Continuation Agreement between John Hancock Life Insurance Company, John Hancock Financial Services, Inc. and Maureen Ford.(+) 10.30 Second Amended and Restated Employment Continuation Agreement between John Hancock Life Insurance Company, John Hancock Financial Services, Inc. and Robert Walters.(+) 10.31 Second Amended and Restated Employment Continuation Agreement between John Hancock Life Insurance Company, John Hancock Financial Services, Inc. and John M. DeCiccio.(+) 10.32 Amended and Restated Employment Continuation Agreement between John Hancock Life Insurance Company, John Hancock Financial Services, Inc. and Wayne A. Budd.(+) - ---------------- (+) Management Contract or Compensatory Plan or Arrangement. 51 EX-10.25 3 ex10-25.txt Exhibit 10.25 EMPLOYMENT CONTINUATION AGREEMENT THIS AGREEMENT by and among John Hancock Life Insurance Company, a Massachusetts corporation (the "Company"), John Hancock Financial Services, Inc., a Delaware corporation ("JHFS") and Michael A. Bell (the "Executive"), dated as of the 15th day of October, 2001. W I T N E S S E T H : WHEREAS, the Executive has been employed as an officer of the Company and/or JHFS, and it has been determined that the Executive holds an important position with the Company and/or JHFS; WHEREAS, the Company and JHFS believe that, in the event of a situation that could result in a change in ownership or control of the Company or JHFS, continuity of management will be essential to their ability to evaluate and respond to such a situation in the best interests of shareholders; WHEREAS, the Company and JHFS understand that any such situation will present significant concerns for the Executive with respect to his/her financial and job security; WHEREAS, to assure themselves of the Executive's services during the period in which they are confronting such a situation, and to provide the Executive certain financial assurances to enable the Executive to perform the responsibilities of his/her position without undue distraction and to exercise his/her judgment without bias due to his/her personal circumstances, the Company, JHFS and the Executive, wish to enter into this Agreement to provide the Executive with certain rights and obligations upon the occurrence of a Change of Control or Potential Change of Control (as each such term is defined in Section 2 hereof); NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, it is hereby agreed among the Company, JHFS and the Executive as follows: 1. Operation of Agreement. (a) Effective Date. The effective date of this Agreement shall be the date on which a Change of Control occurs (the "Effective Date"), provided that, except as provided in Section 1(b), if the Executive is not employed by the Company, JHFS or an Affiliate on the Effective Date, this Agreement shall be void and without effect. (b) Termination of Employment Following a Potential Change of Control. Notwithstanding Section 1(a), if (i) the Executive's employment with the Company, JHFS or an Affiliate is terminated without Cause (as defined in Section 6(c)) after the occurrence of a Potential Change of Control and prior to the occurrence of a Change of Control and (ii) a Change of Control occurs within two years of such termination, the Executive shall be deemed, solely for purposes of determining his/her rights under this Agreement, to have remained employed until the date such Change of Control occurs and to have been terminated by the Company, JHFS or (if applicable) the Affiliate without Cause immediately after this Agreement becomes effective, with any amounts payable hereunder reduced by the amount of any other severance benefits provided to him in connection with such termination. 2. Definitions. (a) "Affiliate" shall mean any corporation, partnership, limited liability company, trust or other entity which directly, or indirectly through one or more intermediaries, controls, or is controlled by, the Company, or JHFS. (b) "Board" shall mean the Board of Directors of the Company. (c) "Company" means John Hancock Life Insurance Company. (d) "Change of Control" shall be deemed to have occurred if: (i) any Person (as defined below) has acquired, "beneficial ownership" (within the meaning of Rule 13d-3, as promulgated under Section 13(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), directly or indirectly, of securities of the Company or JHFS representing 30% or more of the combined Voting Power (as defined below) of the securities of the Company or JHFS; provided, however, that the event described in this paragraph (i) shall not be deemed to be a Change in Control by virtue of an acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company, JHFS or any Affiliate; or (ii) within any 24-month period, the persons who, at the beginning of such period, were members of the Board (the "Incumbent Company Directors") shall cease to constitute at least a majority of the Board or the board of directors of any successor to the Company; provided, however, that any director elected to the Board, or nominated for election to the Board, by at least two-thirds (2/3) of the Incumbent Company Directors then still in office shall be deemed to be an Incumbent Company Director for purposes of this subclause (ii); provided, however, that no individual initially elected or nominated for election to the Board as a result of an actual or threatened election contest with respect to directors or as a result of any other actual or threatened solicitation of proxies by or on behalf of any Person other than the Board shall be deemed to be an Incumbent Company Director; or (iii) within any 24-month period, the persons who, at the beginning of such period, were members of the JHFS Board (the "Incumbent JHFS Directors") shall cease to constitute at least a majority of the JHFS Board or the board of directors of any successor to JHFS; provided, however, that any director elected to the JHFS Board, or nominated for election to the JHFS Board, by at least two-thirds (2/3) of the Incumbent JHFS Directors then still in office shall be deemed to be an Incumbent JHFS Director for purposes of this subclause (iii); provided, however, that no individual initially elected or nominated for election to the JHFS Board as a result of an actual or threatened election contest with respect to directors or as a result of any other actual or threatened solicitation of proxies by or on behalf of any Person other than the JHFS Board shall be deemed to be an Incumbent JHFS Director; or 2 (iv) upon the consummation of a merger, consolidation, share exchange, division, sale or other disposition of all or substantially all of the assets of the Company (a "Company Corporate Event") and immediately following the consummation of which the stockholders of the Company, immediately prior to such Company Corporate Event do not hold, directly or indirectly, a majority of the Voting Power of (A) in the case of a merger or consolidation, the surviving or resulting corporation, (B) in the case of a statutory share exchange, the acquiring corporation, (C) in the case of a division or a sale or other disposition of assets, each surviving, resulting or acquiring corporation which, immediately following the relevant Company Corporate Event, holds more than 25% of the consolidated assets of the Company immediately prior to such Company Corporate Event, provided that no Change of Control shall be deemed to have occurred if the Executive is employed, immediately following such Company Corporate Event, by any entity in which the stockholders of the Company immediately prior to such Company Corporate Event hold, directly or indirectly, a majority of the Voting Power; Provided that in each case such majority of the Voting Power is represented by securities of the Company that were outstanding immediately prior to such Company Corporate Event (or, if applicable, is represented by shares into which such securities of the Company were converted pursuant to such Company Corporate Event); or (v) upon the consummation of a merger, consolidation, share exchange, division, sale or other disposition of all or substantially all of the assets of JHFS which has been approved by the stockholders of JHFS (a "JHFS Corporate Event"), and immediately following the consummation of which the stockholders of JHFS immediately prior to such JHFS Corporate Event do not hold, directly or indirectly, a majority of the Voting Power of (A) in the case of a merger or consolidation, the surviving or resulting corporation, (B) in the case of a statutory share exchange, the acquiring corporation, or (C) in the case of a division or a sale or other disposition of assets, each surviving, resulting or acquiring corporation which, immediately following the relevant JHFS Corporate Event, holds more than 25% of the consolidated assets of JHFS immediately prior to such JHFS Corporate Event, provided that no Change of Control shall be deemed to have occurred if the Executive is employed, immediately following such JHFS Corporate Event, by any entity in which the stockholders of JHFS immediately prior to such JHFS Corporate Event hold, directly or indirectly, a majority of the Voting Power; 3 Provided that in each case such majority of the Voting Power is represented by securities of JHFS that were outstanding immediately prior to such JHFS Corporate Event (or, if applicable, is represented by shares into which such securities of JHFS were converted pursuant to such JHFS Corporate Event); or (vi) any other event occurs which the Board or the JHFS Board declares to be a Change of Control. (e) "JHFS" means John Hancock Financial Services, Inc. (f) "JHFS Board" means the Board of Directors of JHFS and, after a Change in Control that constitutes a Company Corporate Event or a JHFS Corporate Event, the Board Directors of the Parent. (g) "Parent" shall mean any corporation, partnership, limited liability company, business trust or other entity which owns, directly or indirectly, more than 50% of the Voting Power in the Company or JHFS. (h) "Person" shall have the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act, as supplemented by Section 13(d)(3) of the Exchange Act; provided, however, that Person shall not include (i) the Company, JHFS, or any Affiliate or (ii) any employee benefit plan sponsored by the entities described in clause (i) of this definition. (i) "Potential Change of Control" shall be deemed to have occurred if: (i) a Person commences a tender offer (with adequate financing) for securities representing at least 10% of the Voting Power of the JHFS's securities; (ii) the Company or JHFS enters into an agreement the consummation of which would constitute a Change of Control; (iii) proxies for the election of directors of JHFS are solicited by anyone other than JHFS; or (iv) any other event occurs which is deemed to be a Potential Change of Control by the JHFS Board. (j) "Voting Power" shall mean such number of the Voting Securities as shall enable the holders thereof to cast such percentage of all the votes which could be cast in an annual election of directors. (k) "Voting Securities" shall mean all securities of a company entitling the holders thereof to vote in an annual election of directors. 3. Employment Period. Subject to Section 6 of this Agreement, the Company (or if applicable, JHFS) agrees to continue the Executive in its employ, and the Executive agrees to 4 remain in the employ of the Company or, if applicable, JHFS for the period (the "Employment Period") commencing on the Effective Date and ending on the third anniversary of the Effective Date. Notwithstanding the foregoing, if, prior to the Effective Date, the Executive is demoted to a lower position than the position held on the date first set forth above, the Board (or if applicable, the JHFS Board) may declare that this Agreement shall be without force and effect by written notice delivered to the Executive (i) within 30 days following such demotion and (ii) prior to the occurrence of a Potential Change of Control or a Change of Control. 4. Position and Duties. (a) No Reduction in Position. During the Employment Period, the Executive's position (including titles), authority and responsibilities with the Company, JHFS and each of the Affiliates shall be, both individually and in the aggregate, at least commensurate with those held, exercised and assigned immediately prior to the Effective Date. It is understood that, for purposes of this Agreement, such position, authority and responsibilities shall not be regarded as not commensurate merely by virtue of the fact that a successor shall have acquired all or substantially all of the business and/or assets of the Company as contemplated by Section 13(b) of this Agreement. The Executive's services shall be performed at the location where the Executive was employed immediately preceding the Effective Date. (b) Business Time. From and after the Effective Date, the Executive agrees to devote substantially all of his/her attention during normal business hours to the business and affairs of the Company, JHFS and the Affiliates and to use his/her reasonable best efforts to perform the responsibilities assigned to him hereunder, to the extent necessary to discharge such responsibilities, except for (i) time spent in managing his/her personal, financial and legal affairs and serving on corporate, civic or charitable boards or committees, in each case only if and to the extent not substantially interfering with the performance of such responsibilities, and (ii) periods of vacation and sick leave to which he/she is entitled. It is expressly understood and agreed that the Executive's continuing to serve on any boards and committees on which he/she is serving or with which he/she is otherwise associated immediately preceding the Effective Date shall not be deemed to interfere with the performance of the Executive's services for the Company, JHFS or the Affiliates. 5. Compensation. (a) Base Salary. During the Employment Period, the Executive shall receive a base salary at a monthly rate at least equal to the monthly salary paid to the Executive by the Company, JHFS and any Affiliate immediately prior to the Effective Date. The base salary shall be reviewed at least once each year after the Effective Date, and may be increased (but not decreased) at any time and from time to time by action of the Board or JHFS Board, as the case may be, or any committee thereof or any individual having authority to take such action in accordance with the Company's (or if applicable, JHFS's) regular practices. The Executive's base salary, as it may be increased from time to time, shall hereafter be referred to as "Base Salary". Neither the Base Salary nor any increase in Base Salary after the Effective Date shall serve to limit or reduce any other obligation of the Company or JHFS hereunder. (b) Annual Bonus. During the Employment Period, in addition to the Base Salary, for each fiscal year of the Company ending during the Employment Period, the Executive shall be afforded the opportunity to receive an annual bonus on terms and conditions no less favorable to the Executive (taking into account reasonable changes in the applicable corporate goals and objectives and taking into account actual performance) than the annual bonus opportunity that 5 had been made available to the Executive for the fiscal year ended immediately prior to the Effective Date (the "Annual Bonus Opportunity"). Any amount payable in respect of the Annual Bonus Opportunity shall be paid as soon as practicable following the year for which the amount (or prorated portion) is earned or awarded, unless electively deferred by the Executive pursuant to any deferral programs or arrangements that the Company, JHFS or any of its Affiliates may make available to the Executive. (c) Long-term Incentive Compensation Programs. During the Employment Period, the Executive shall participate in all long-term incentive compensation programs (including, without limitation, programs providing for the grant of stock options and other equity-based awards) for key executives at a level that is commensurate with the Executive's participation in such plans immediately prior to the Effective Date, or, if more favorable to the Executive, at the level made available to the Executive or other similarly situated officers at any time thereafter. (d) Benefit Plans. During the Employment Period, the Company shall provide to the Executive (and to the extent applicable, his/her dependents) pension, retirement, deferred compensation, savings, medical, dental, health, disability, life and accidental death coverages, both individual and group, at a level that is commensurate with the coverage to which the Executive was entitled under plans sponsored by the Company, JHFS or any affiliate immediately prior to the Effective Date, or, if more favorable to the Executive, at the level made available to the Executive or other similarly situated officers at any time thereafter. The Executive shall be entitled to such benefits subject to the same terms and conditions (including, without limitation, any requirement that the Executive make contributions toward the cost of such coverage) that applied immediately prior to the Effective Date, or, if more favorable to the Executive, as are made applicable to the Executive or other similarly situated officers at any time thereafter. To the extent such benefits cannot be provided under the terms of a benefit plan, policy or program sponsored by the Company, JHFS or any affiliate, as the case may be, the Company shall provide a comparable benefit under another plan or from the Company's general assets. (e) Expenses. During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the policies and procedures of the Company as in effect immediately prior to the Effective Date. Notwithstanding the foregoing, the Company may apply the policies and procedures in effect after the Effective Date to the Executive, if such policies and procedures are not less favorable to the Executive than those in effect immediately prior to the Effective Date. (f) Vacation and Fringe Benefits. During the Employment Period, the Executive shall be entitled to paid vacation and fringe benefits (including, without limitation, any split-dollar life insurance arrangements) at a level that is commensurate with the paid vacation and fringe benefits available to the Executive immediately prior to the Effective Date, or, if more favorable to the Executive, at the level made available from time to time to the Executive or other similarly situated officers at any time thereafter. (g) Indemnification. During and after the Employment Period, the Company and JHFS shall indemnify the Executive and hold the Executive harmless from and against any claim, loss or cause of action arising from or out of the Executive's performance as an officer, director 6 or employee of JHFS, the Company or any of their Affiliates or in any other capacity, including any fiduciary capacity, in which the Executive serves at the request of the Company to the maximum extent permitted by applicable law and the Certificate of Incorporation and By-Laws of JHFS or the Company, as the case may be (the "Governing Documents"), provided that in no event shall the protection afforded to the Executive hereunder be less than that afforded under the Governing Documents as in effect immediately prior to the Effective Date. (h) Office and Support Staff. The Executive shall be entitled to an office with furnishings and other appointments, and to secretarial and other assistance, at a level that is at least commensurate with the foregoing provided to the Executive immediately prior to the Change of Control. 6. Termination. (a) Death, Disability or Retirement. Subject to the provisions of Section 1 hereof, this Agreement shall terminate automatically upon the Executive's death, termination due to "Disability" (as defined below) or voluntary retirement under any of the retirement plans of the Company or JHFS (or, if applicable, an Affiliate) has in effect from time to time. For purposes of this Agreement, Disability shall mean the Executive has met the conditions to qualify for long-term disability benefits under the long term disability plan or policy the Company or JHFS (or, if applicable, an Affiliate), has in effect immediately prior to the Effective Date. (b) Voluntary Termination. Notwithstanding anything in this Agreement to the contrary, following a Change of Control the Executive may, upon not less than 60 days' written notice to the Company (or, if applicable, JHFS), voluntarily terminate employment for any reason (including early retirement under the terms of any retirement plans maintained by the Company, JHFS or an Affiliate, as in effect from time to time), provided that any termination by the Executive pursuant to Section 6(d) on account of Good Reason (as defined therein) shall not be treated as a voluntary termination under this Section 6(b). (c) Cause. The Company, JHFS or an Affiliate that employs the Executive may terminate the Executive's employment for Cause. For purposes of this Agreement, "Cause" means (i) the Executive's conviction or plea of nolo contendere to a felony related to fraud or dishonesty; (ii) an act or acts of dishonesty or gross misconduct on the Executive's part which result or are intended to result in material damage to the Company's, JHFS's or an Affiliate's business or reputation; or (iii) repeated material violations by the Executive of his/her obligations under Section 4 of this Agreement, which violations are demonstrably willful and deliberate on the Executive's part and which result in material damage to the Company's, JHFS's or an Affiliate's business or reputation. Cause shall not exist unless and until JHFS has delivered to Executive a copy of a resolution duly adopted by three-quarters (3/4) of the entire JHFS Board (excluding the Executive if the Executive is a JHFS Board member) at a meeting of the JHFS Board called and held for such purpose (after reasonable notice to the Executive and an opportunity for the Executive, together with counsel, to be heard before the JHFS Board), finding that in the good faith opinion of the JHFS Board an event set forth in subclauses (i), (ii), or (iii) has occurred and specifying the particulars thereof in detail. The Company, JHFS or an Affiliate must notify the Executive of any event that it alleges constitutes Cause within ten (10) business days following the Company's, JHFS's or an Affiliate's knowledge, as the case may be, 7 of its existence, and notify the Executive at least ten (10) business days prior to the board proceedings described above, or such event shall not constitute Cause under this Agreement. (d) Good Reason. Following the occurrence of a Change of Control, the Executive may terminate his/her employment for Good Reason. For purposes of this Agreement, "Good Reason" means the occurrence of any of the following, without the express written consent of the Executive, after the occurrence of a Change of Control: (i) the assignment to the Executive of any duties inconsistent in any material adverse respect with the Executive's position, authority or responsibilities, as contemplated by Section 4 of this Agreement, or any other material adverse change in position, titles, reporting lines, authority or responsibilities, including and without limiting the generality of the foregoing, the elimination or substantial reduction of the Executive's duties with the Company, JHFS or any Affiliate resulting in a significant reduction in his position, titles, authority or responsibilities as in effect prior to the Change of Control; (ii) any failure by the Company or JHFS to comply with any of the provisions of Section 5 of this Agreement, other than an insubstantial or inadvertent failure remedied by the Company or JHFS promptly after receipt of notice thereof given by the Executive; (iii) any requirement that the Executive (A) be based at any office or location more than 35 miles (or any such shorter distance as shall be set forth in the Company's (or if applicable, JHFS's) relocation policy as in effect on the Effective Date) from that location at which he/she performed his/her services specified under the provisions of Section 4 immediately prior to the Change of Control, except for travel reasonably required in the performance of the Executive's responsibilities or (B) travel on business on behalf of the Company, JHFS or any Affiliate, as the case may be, to an extent substantially greater than the travel obligations of the Executive immediately prior to the Change in Control; (iv) any failure by the Company or JHFS to obtain the assumption and agreement to perform this Agreement by a successor as contemplated by Section 13(b). In no event shall the mere occurrence of a Change of Control, absent any further impact on the Executive, be deemed to constitute Good Reason. Notwithstanding anything herein to the contrary, termination of employment by the Executive for any reason during the 30-day period commencing one hundred and eighty (180) days after the date of a Change in Control shall be deemed to constitute Good Reason. (e) Notice of Termination. Any termination by the Company, JHFS or an Affiliate for Cause or by the Executive for Good Reason shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 14(e). 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) sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under 8 the provision so indicated, and (iii) if the termination date is other than the date of receipt of such notice, specifies the termination date of this Agreement (which date shall be not more than 15 days after the giving of such notice). In the case of a termination for Good Reason, the Notice of Termination shall be given within 180 days of the Executive's having actual knowledge of the events giving rise to such termination which actual knowledge shall in no event be deemed to have occurred any earlier than the Effective Date. The failure by the Executive to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason shall not waive any right of the Executive hereunder or preclude the Executive from asserting such fact or circumstance in enforcing his/her rights hereunder. (f) Date of Termination. For the purpose of this Agreement, the term "Date of Termination" means (i) in the case of a termination for which a Notice of Termination is required, the date of receipt of such Notice of Termination or, if later, the date specified therein, as the case may be, and (ii) in all other cases, the actual date on which the Executive's employment terminates during the Employment Period. 7. Obligations of the Company upon Termination. (a) Death or Disability. If the Executive's employment is terminated during the Employment Period by reason of the Executive's death or Disability, this Agreement shall terminate without further obligations to the Executive or the Executive's legal representatives under this Agreement other than those obligations accrued hereunder at the Date of Termination, and the Company shall pay to the Executive (or his/her beneficiary or estate) (i) the Executive's full Base Salary through the Date of Termination (the "Earned Salary"), (ii) any vested amounts or benefits owing to the Executive under the otherwise applicable employee benefit plans and programs of the Company, JHFS and the Affiliates, including any compensation previously deferred by the Executive (together with any accrued earnings thereon) and not yet paid by the Company, JHFS or an Affiliate and any accrued vacation pay not yet paid by the Company, JHFS or an Affiliate (the "Accrued Obligations"), and (iii) any other benefits payable due to the Executive's death or Disability under the plans, policies or programs of the Company, JHFS and the Affiliates (the "Additional Benefits"). The Earned Salary shall be paid in cash in a single lump sum as soon as practicable, but in no event more than 10 days (or at such earlier date required by law), following the Date of Termination. Accrued Obligations and Additional Benefits shall be paid in accordance with the terms of the applicable plan, program or arrangement. (b-1) Cause and Voluntary Termination. If, during the Employment Period, the Executive's employment shall be terminated for Cause or voluntarily terminated by the Executive (other than on account of Good Reason following a Change of Control), the Company shall pay the Executive (i) the Earned Salary in cash in a single lump sum as soon as practicable, but in no event more than 10 days, following the Date of Termination, and (ii) the Accrued Obligations in accordance with the terms of the applicable plan, program or arrangement. (b-2) Retirement Payments Upon termination. If the Executive's employment is terminated for any reason, notwithstanding anything else contained in this Agreement to the contrary, the following provisions shall apply: The Executive shall, in addition to other payments made to the Executive under this Agreement, be entitled to a monthly payment from 9 the Company or JHFS which equals $33,333.00 per month for the Executive's life (half this amount per month for the life of his surviving spouse). The Company or JHFS, as the case may be, may reduce such monthly payments by an amount equal to the monthly income that is expected to be provided by the Executive's balance in the cash balance pension account (qualified and non-qualified) amortized over the life of the Executive or his spouse, as the case may be, using generally accepted actuarially conservative assumptions. In addition, notwithstanding any plan or anything else in this Agreement to the contrary, upon termination, the Executive will be entitled to receive retiree medical benefits at a level equal to the most generous retiree medical benefits available to any executives of the Company or JHFS in the year prior to the Change of Control. (c) Termination by the Company other than for Cause. If, during the Employment Period, the Company or JHFS, terminates the Executive's employment other than for Cause, the Company shall provide the Executive with the following benefits: (i) Severance and Other Termination Payments. The Company shall pay the Executive the following: (A) the Executive's Earned Salary; and (B) notwithstanding any plan provisions to the contrary, an amount (the "Pro-Rated Annual Incentive") equal to the target annual bonus applicable to the Executive for the fiscal year in which the Date of Termination occurs, multiplied by a fraction, the numerator of which is the number of completed months in such fiscal year which have elapsed on or before (and including) the Date of Termination and the denominator of which is 12; and (C) the Accrued Obligations; and (D) a cash amount (the "Severance Amount") equal to three times the sum of (1) the Executive's annual Base Salary; and (2) an amount equal to the target annual bonus applicable to the Executive for the fiscal year in which the Change of Control occurs; and (3) notwithstanding anything in this Agreement or any plan to the contrary, a long term incentive award equivalent amount that is equal to two times the Executive's annual Base Salary. The Earned Salary, Pro-Rated Annual Incentive, Pro-Rated Long Term Incentives, Retention Bonus and Severance Amount shall be paid in cash in a single lump sum as soon as practicable, but in no event more than 10 days (or at such earlier date required by law), following the Date of Termination. Accrued Obligations shall be paid in accordance with the terms of the applicable plan, program or arrangement. 10 (ii) Continuation of Benefits. If, during the Employment Period, the Executive's employment is terminated other than for Cause, the Executive (and, to the extent applicable, his/her dependents) shall be entitled, after the Date of Termination until the earlier of (A) the third anniversary of the Date of Termination (the "End Date") and (B) the date the Executive becomes eligible for comparable benefits under a similar plan, policy or program of a subsequent employer, to continue participation in all of the individual and group health (including without limitation medical, dental and disability) and life employee benefits plans maintained by the Company, JHFS or an Affiliate and in which the Executive had been participating prior to the Date of Termination (the "Benefit Plans"). In addition, to the extent that, prior to the Date of Termination, the Company had been paying the premiums on any split-dollar life insurance policy with respect to the Executive, the Company shall, as to any such policy, continue the payment of such premiums until the later of the End Date or the date through which the Company otherwise would have paid premiums on such policy in the absence of a Change of Control. To the extent any such benefits cannot be provided under the terms of the applicable plan, policy or program, the Company shall provide a comparable benefit under another plan or from the Company's general assets. The Executive's participation in the Benefit Plans will be on the same terms and conditions (including, without limitation, any condition that the Executive make contributions toward the cost of such coverage on the same terms and conditions generally applicable to similarly situated employees) that would have applied had the Executive continued to be employed by the Company through the End Date. (iii) Retirement Payments. The Executive shall be entitled to the retirement payments described in Section 7(b-2). (iv) Payment of Mandatorily Deferred Incentive Compensation Payments. To the extent not earlier paid in accordance with the terms and conditions of the governing plan documents, all amounts, if any, that had been determined to be payable to the Executive under any long term incentive compensation program, but the payment of which was mandatorily deferred under the terms and conditions of such governing documents, shall be paid (plus all earnings credited with respect thereto) in a single lump sum payment, as soon as practicable after the next succeeding valuation date under the applicable plans, but in no event later than the first March 15 following the Executive's Date of Termination. (v) Outplacement Services. The Executive shall be provided at the Company's expense with outplacement services customary for executives at his/her level (including, without limitation, office space and telephone support services) provided by a qualified and experienced third party provider selected by the Company. (d) Termination by the Executive for Good Reason. If, during the Employment Period, the Executive terminates his/her employment for Good Reason, the Company shall pay to the Executive the same amounts as would be payable to the Executive under Section 7(c) if such termination were a termination by the Company or JHFS without Cause. 11 (e) Discharge of the Company's and JHFS's Obligations. Except as expressly provided in the last sentence of this Section 7(e), the amounts payable to the Executive pursuant to this Section 7 following termination of his/her employment shall be in full and complete satisfaction of the Executive's rights under this Agreement and any other claims he/she may have in respect of his/her employment by the Company, JHFS or the Affiliates. Such amounts shall constitute liquidated damages with respect to any and all such rights and claims and, upon the Executive's receipt of such amounts, the Company, JHFS and each of their Affiliates shall be released and discharged from any and all liability to the Executive in connection with this Agreement or otherwise in connection with the Executive's employment with the Company, JHFS and their Affiliates. Nothing in this Section 7(e) shall be construed to release the Company or JHFS, as applicable, from its commitment to indemnify the Executive and hold the Executive harmless from and against any claim, loss or cause of action arising from or out of the Executive's performance as an officer, director or employee of the Company, JHFS or any of their Affiliates or in any other capacity, including any fiduciary capacity, in which the Executive served at the request of the Company or JHFS to the maximum extent permitted by applicable law and the Governing Documents. (f) Certain Further Payments by the Company. (i) In the event that any amount or benefit paid or distributed to the Executive pursuant to this Agreement and/or any amounts or benefits otherwise paid or distributed (whether or not paid or distributed pursuant to a plan or program maintained by the Company or JHFS) to the Executive by the Company, JHFS or any Affiliate, including without limitation, the present value of any amounts or benefits that otherwise become payable to the Executive by the Company, JHFS or any Affiliate or otherwise become nonforfeitable because of the lapse or termination of any restrictions thereon as a result of a Change of Control (collectively, the "Covered Payments"), are or become subject to the tax (the "Excise Tax") imposed under Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), or any similar tax that may hereafter be imposed, the Company shall pay to the Executive at the time specified in Section 7(f)(v) below an additional amount ("Tax Reimbursement Payment") such that the net amount retained by the Executive with respect to such Covered Payments, after deduction of any Excise Tax on the Covered Payments and any Federal, state and local income or employment tax and Excise Tax on the Tax Reimbursement Payment provided for by this Section 7(f), but before deduction for any Federal, state or local income or employment tax withholding on such Covered Payments, shall be equal to the amount of the Covered Payments. (ii) For purposes of determining whether any of the Covered Payments will be subject to the Excise Tax and the amount of such Excise Tax, (A) such Covered Payments will be treated as "parachute payments" within the meaning of Section 280G of the Code, and all "parachute payments" in excess of the "base amount" (as defined under Section 280G(b)(3) of the Code) shall be treated as subject to the Excise Tax, unless, and except to the extent that, in the good faith judgment of the Company's independent certified public accountants appointed prior to the Change of Control Date or tax counsel selected by such accountants (the "Accountants"), the 12 Company has a reasonable basis to conclude that such Covered Payments (in whole or in part) either do not constitute "parachute payments" or represent reasonable compensation for personal services actually rendered (within the meaning of Section 280G(b)(4)(B) of the Code) in excess of the "base amount," or such "parachute payments" are otherwise not subject to such Excise Tax, and (B) the value of any non-cash benefits or any deferred payment or benefit shall be determined by the Accountants in accordance with the principles of Section 280G of the Code. (iii) For purposes of determining the amount of the Tax Reimbursement Payment, the Executive shall be deemed to pay: (A) Federal income taxes at the highest applicable marginal rate of Federal income taxation for the calendar year in which the Tax Reimbursement Payment is to be made, and (B) any applicable state and local income taxes at the highest applicable marginal rate of taxation for the calendar year in which the Tax Reimbursement Payment is to be made, net of the maximum reduction in Federal income taxes which could be obtained from the deduction of such state or local taxes if paid in such year. (iv) In the event that the Excise Tax is subsequently determined by the Accountants or pursuant to any proceeding or negotiations with the Internal Revenue Service to be less than the amount taken into account hereunder in calculating the Tax Reimbursement Payment made, the Executive shall repay to the Company, at the time that the amount of such reduction in the Excise Tax is finally determined, the portion of such prior Tax Reimbursement Payment that would not have been paid if such Excise Tax had been applied in initially calculating such Tax Reimbursement Payment, plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. Notwithstanding the foregoing, in the event any portion of the Tax Reimbursement Payment to be refunded to the Company has been paid to any Federal, state or local tax authority, repayment thereof shall not be required until actual refund or credit of such portion has been made to the Executive, and interest payable to the Company shall not exceed interest received or credited to the Executive by such tax authority for the period it held such portion. The Executive and the Company shall mutually agree upon the course of action to be pursued (and the method of allocating the expenses thereof) if the Executive's good faith claim for refund or credit is denied. In the event that the Excise Tax is later determined by the Accountants or pursuant to any proceeding or negotiations with the Internal Revenue Service to exceed the amount taken into account hereunder at the time the Tax Reimbursement Payment is made (including, but not limited to, by reason of any payment the existence or amount of which cannot be determined at the time of the Tax Reimbursement Payment), the Company shall make an additional Tax Reimbursement Payment in respect of such 13 excess (plus any interest or penalty payable with respect to such excess) at the time that the amount of such excess is finally determined. (v) Any Tax Reimbursement Payment (or portion thereof) payable in accordance with Section 7(f)(i) above shall be paid to the Executive as of the date of the payment (or acceleration of vesting or lapse of restrictions as a result of a Change of Control, as the case may be) of the Covered Payments; provided, however, that if the amount of such Tax Reimbursement Payment (or portion thereof) cannot be finally determined on or before the date on which payment is due, the Company shall pay to the Executive by such date an amount estimated in good faith by the Accountants to be the minimum amount of such Tax Reimbursement Payment and shall pay the remainder of such Tax Reimbursement Payment (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined, but in no event later than 45 calendar days after payment of the related Covered Payment. In the event that the amount of the estimated Tax Reimbursement Payment exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to the Executive, payable on the fifth business day after written demand by the Company for payment (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code). 8. Non-exclusivity of Rights. Except as expressly provided herein, nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any benefit, bonus, incentive or other plan or program provided by the Company, JHFS or any of its Affiliates and for which the Executive may qualify, nor shall anything herein limit or otherwise prejudice such rights as the Executive may have under any other agreements with the Company, JHFS or any of its Affiliates, including employment agreements or stock option agreements. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan or program of the Company, JHFS or any of its Affiliates at or subsequent to the Date of Termination shall be payable in accordance with such plan or program. 9. No Offset. The Company's or JHFS's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any circumstances, including, without limitation, any set-off, counterclaim, recoupment, defense or other right which the Company, JHFS or any of their Affiliates may have against the Executive or others whether by reason of the Executive's breach of this Agreement, subsequent employment of the Executive, or otherwise. 10. Legal Fees and Expenses. If the Executive asserts any claim in any contest (whether initiated by the Executive or by the Company) as to the validity, enforceability or interpretation of any provision of this Agreement, the Company shall pay the Executive's legal expenses (or cause such expenses to be paid) including, without limitation, his/her reasonable attorney's fees, on a quarterly basis, upon presentation of proof of such expenses, provided that the Executive shall reimburse the Company for such amounts, plus simple interest thereon at the 90-day United States Treasury Bill rate as in effect from time to time, compounded annually, if the arbitrator referred to in Section 14(b) or a court of competent jurisdiction shall find that the Executive did not have a good faith and reasonable basis to believe that he/she would prevail as to at least one material issue presented to such arbitrator or court. 14 11. Confidential Information; Company Property. By and in consideration of the salary and benefits to be provided by the Company, JHFS or an Affiliate hereunder, including the severance arrangements set forth herein, the Executive agrees that: (a) Confidential Information. The Executive shall hold in a fiduciary capacity for the benefit of the Company, JHFS and the Affiliates, all secret or confidential information, knowledge or data relating to the Company, JHFS or the Affiliates, and their respective businesses, (i) obtained by the Executive during his/her employment by the Company, JHFS or the Affiliates and (ii) not otherwise public knowledge (other than by reason of an unauthorized act by the Executive). After termination of the Executive's employment, the Executive shall not, without the prior written consent of the Company, unless compelled pursuant to an order of a court or other body having jurisdiction over such matter, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. (b) Nonsolicitation of Employees. The Executive agrees that for two years after the Date of Termination, he/she will not attempt, directly or indirectly, to induce any employee of the Company, JHFS or an Affiliate to be employed or perform services elsewhere or otherwise to cease providing services to the Company, JHFS or the Affiliates. (c) Return of Property. Except as expressly provided herein, promptly following the Executive's termination of employment, the Executive shall return to the Company, JHFS and the Affiliates all property of the Company, JHFS and the Affiliates (as the case may be) and all copies thereof in the Executive's possession or under his/her control. (d) Injunctive Relief and Other Remedies with Respect to Covenants. The Executive acknowledges and agrees that the covenants and obligations of the Executive with respect to confidentiality and the return of property relate to special, unique and extraordinary matters and that a violation of any of the terms of such covenants and obligations will cause the Company, JHFS and/or their Affiliates irreparable injury for which adequate remedies are not available at law. Therefore, the Executive agrees that the Company, JHFS and the Affiliates shall be entitled to an injunction, restraining order or such other equitable relief (without the requirement to post bond) restraining Executive from committing any violation of the covenants and obligations contained in this Section 11. These remedies are cumulative and are in addition to any other rights and remedies the Company, JHFS and/or the Affiliates may have at law or in equity. In no event shall an asserted violation of the provisions of this Section 11 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. 12. Obligations of the Company and JHFS. The obligations of the Company and JHFS are intended to be joint and several. If for any reason, either the Company or JHFS does not, or is unable to, honor its obligations under this Agreement, the other party shall satisfy all obligations not honored by the other party. 13. Successors. (a) This Agreement is personal to the Executive and, without the prior written consent of the Company and JHFS, 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. 15 (b) This Agreement shall inure to the benefit of and be binding upon JHFS, the Company and each of its successors. The Company and JHFS, as applicable, shall require any successor to all or substantially all of the business and/or assets of the Company or JHFS, whether direct or indirect, by purchase, merger, consolidation, acquisition of stock, or otherwise, by an agreement in form and substance satisfactory to the Executive, expressly to assume and agree to perform this Agreement in the same manner and to the same extent as the Company and JHFS would be required to perform if no such succession had taken place. 14. Miscellaneous. (a) Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the States of Delaware, applied without reference to principles of conflict of laws. (b) Arbitration. Except to the extent provided in Section 11(d), any dispute or controversy arising under or in connection with this Agreement shall be resolved by binding arbitration. The arbitration shall be held in the city of Boston, Massachusetts and, except to the extent inconsistent with this Agreement, shall be conducted in accordance with the Expedited Employment Arbitration Rules of the American Arbitration Association then in effect at the time of the arbitration (or such other rules as the parties may agree to in writing), and otherwise in accordance with principles which would be applied by a court of law or equity. The arbitrator shall be acceptable to all of the Company, JHFS and the Executive. If the parties cannot agree on an acceptable arbitrator, the dispute shall be heard by a panel of three arbitrators, one appointed by the Company and JHFS, one appointed by the Executive, and the third appointed by the other two arbitrators. (c) Amendments. 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. (d) Entire Agreement. Subject to Section 8 herein, this Agreement constitutes the entire agreement between the parties hereto with respect to the matters referred to herein. No other agreement relating to the terms of the Executive's employment by the Company, JHFS or any Affiliate, oral or otherwise, shall be binding among the parties unless it is in writing and signed by the party against whom enforcement is sought. There are no promises, representations, inducements or statements among the parties other than those that are expressly contained herein. The Executive acknowledges that he/she is entering into this Agreement of his/her own free will and accord, and with no duress, that he/she has read this Agreement and that he/she understands it and its legal consequences. (e) Notices. All notices and other communications hereunder shall be in writing and shall be given by hand-delivery to the other parties or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: at the home address of the Executive noted on the records of the Company If to the Company: 200 Clarendon Street Boston, Massachusetts Attn.: Secretary 16 If to JHFS: 200 Clarendon Street Boston, Massachusetts Attn.: Secretary or to such other address as any party shall have furnished to the others in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (f) Tax Withholding. The Company shall withhold from any amounts payable under this Agreement such Federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. (g) Severability; Reformation. In the event that one or more of the provisions of this Agreement shall become invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not be affected thereby. In the event that any of the provisions of Section 11(a) are not enforceable in accordance with its terms, the Executive and the Company and JHFS agree that such Section shall be reformed to make such Section enforceable in a manner which provides the Company and JHFS the maximum rights permitted at law. (h) Waiver. Waiver by any party hereto of any breach or default by any party of any of the terms of this Agreement shall not operate as a waiver of any other breach or default, whether similar to or different from the breach or default waived. No waiver of any provision of this Agreement shall be implied from any course of dealing among the parties hereto or from any failure by any party hereto to assert its or his/her rights hereunder on any occasion or series of occasions. (i) Survival. The provisions of Section 5(g), 7(b-2), 7(c), 7(d), 7(f), 12 and 13 shall survive the termination of the Employment Period hereunder and shall be binding upon and enforceable against the Company and JHFS in accordance with their terms. The dispute resolutions provisions contained in Section 14(b) and the legal fees provision contained in Section 10 shall also survive the end of the Employment Period and shall be applied as though the dispute arose within the Employment Period. (j) Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. (k) Captions. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. 17 IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and the Company and JHFS have caused this Agreement to be executed in their respective names and on their behalf, all as of the day and year first above written. JOHN HANCOCK LIFE INSURANCE COMPANY By: ________________________________ Name: David F. D'Alessandro Title: Chairman, President and Chief Executive Officer JOHN HANCOCK FINANCIAL SERVICES, INC. By: ________________________________ Name: David F. D'Alessandro Title: Chairman, President and Chief Executive Officer EXECUTIVE: ____________________________________ 18 EX-10.26 4 ex10-26.txt Exhibit 10.26 SECOND AMENDED AND RESTATED EMPLOYMENT CONTINUATION AGREEMENT THIS SECOND AMENDED AND RESTATED AGREEMENT by and among John Hancock Life Insurance Company, a Massachusetts corporation (the "Company"), John Hancock Financial Services, Inc., a Delaware corporation ("JHFS") and Thomas E. Moloney (the "Executive"), dated as of the 15th day of October, 2001. W I T N E S S E T H : WHEREAS, the Executive has been employed as an officer of the Company and/or JHFS, and it has been determined that the Executive holds an important position with the Company and/or JHFS; WHEREAS, the Company and JHFS believe that, in the event of a situation that could result in a change in ownership or control of the Company or JHFS, continuity of management will be essential to their ability to evaluate and respond to such a situation in the best interests of shareholders; WHEREAS, the Company and JHFS understand that any such situation will present significant concerns for the Executive with respect to his/her financial and job security; WHEREAS, to assure themselves of the Executive's services during the period in which they are confronting such a situation, and to provide the Executive certain financial assurances to enable the Executive to perform the responsibilities of his/her position without undue distraction and to exercise his/her judgment without bias due to his/her personal circumstances, the Company, JHFS and the Executive previously entered into this Agreement to provide the Executive with certain rights and obligations upon the occurrence of a Change of Control or Potential Change of Control (as each such term is defined in Section 2 hereof); WHEREAS, the Executive, the Company and JHFS have determined that the Agreement should be amended and restated to further clarify and refine benefits and protections provided to the Executive in the event of a Change of Control or Potential Change of Control; NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, it is hereby agreed among the Company, JHFS and the Executive as follows: 1. Operation of Agreement. (a) Effective Date. The effective date of this Agreement shall be the date on which a Change of Control occurs (the "Effective Date"), provided that, except as provided in Section 1(b), if the Executive is not employed by the Company, JHFS or an Affiliate on the Effective Date, this Agreement shall be void and without effect. (b) Termination of Employment Following a Potential Change of Control. Notwithstanding Section 1(a), if (i) the Executive's employment with the Company, JHFS or an Affiliate is terminated without Cause (as defined in Section 6(c)) after the occurrence of a Potential Change of Control and prior to the occurrence of a Change of Control and (ii) a Change of Control occurs within two years of such termination, the Executive shall be deemed, solely for purposes of determining his/her rights under this Agreement, to have remained employed until the date such Change of Control occurs and to have been terminated by the Company, JHFS or (if applicable) the Affiliate without Cause immediately after this Agreement becomes effective, with any amounts payable hereunder reduced by the amount of any other severance benefits provided to him in connection with such termination. 2. Definitions. (a) "Affiliate" shall mean any corporation, partnership, limited liability company, trust or other entity which directly, or indirectly through one or more intermediaries, controls, or is controlled by, the Company, or JHFS. (b) "Board" shall mean the Board of Directors of the Company. (c) "Company" means John Hancock Life Insurance Company. (d) "Change of Control" shall be deemed to have occurred if: (i) any Person (as defined below) has acquired, "beneficial ownership" (within the meaning of Rule 13d-3, as promulgated under Section 13(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), directly or indirectly, of securities of the Company or JHFS representing 30% or more of the combined Voting Power (as defined below) of the securities of the Company or JHFS; provided, however, that the event described in this paragraph (i) shall not be deemed to be a Change in Control by virtue of an acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company, JHFS or any Affiliate; or (ii) within any 24-month period, the persons who, at the beginning of such period, were members of the Board (the "Incumbent Company Directors") shall cease to constitute at least a majority of the Board or the board of directors of any successor to the Company; provided, however, that any director elected to the Board, or nominated for election to the Board, by at least two-thirds (2/3) of the Incumbent Company Directors then still in office shall be deemed to be an Incumbent Company Director for purposes of this subclause (ii); provided, however, that no individual initially elected or nominated for election to the Board as a result of an actual or threatened election contest with respect to directors or as a result of any other actual or threatened solicitation of proxies by or on behalf of 2 any Person other than the Board shall be deemed to be an Incumbent Company Director; or (iii) within any 24-month period, the persons who, at the beginning of such period, were members of the JHFS Board (the "Incumbent JHFS Directors") shall cease to constitute at least a majority of the JHFS Board or the board of directors of any successor to JHFS; provided, however, that any director elected to the JHFS Board, or nominated for election to the JHFS Board, by at least two-thirds (2/3) of the Incumbent JHFS Directors then still in office shall be deemed to be an Incumbent JHFS Director for purposes of this subclause (iii); provided, however, that no individual initially elected or nominated for election to the JHFS Board as a result of an actual or threatened election contest with respect to directors or as a result of any other actual or threatened solicitation of proxies by or on behalf of any Person other than the JHFS Board shall be deemed to be an Incumbent JHFS Director; or (iv) upon the consummation of a merger, consolidation, share exchange, division, sale or other disposition of all or substantially all of the assets of the Company (a "Company Corporate Event") and immediately following the consummation of which the stockholders of the Company, immediately prior to such Company Corporate Event do not hold, directly or indirectly, a majority of the Voting Power of (A) in the case of a merger or consolidation, the surviving or resulting corporation, (B) in the case of a statutory share exchange, the acquiring corporation, (C) in the case of a division or a sale or other disposition of assets, each surviving, resulting or acquiring corporation which, immediately following the relevant Company Corporate Event, holds more than 25% of the consolidated assets of the Company immediately prior to such Company Corporate Event, provided that no Change of Control shall be deemed to have occurred if the Executive is employed, immediately following such Company Corporate Event, by any entity in which the stockholders of the Company, immediately prior to such Company Corporate Event hold, directly or indirectly, a majority of the Voting Power; Provided that in each case such majority of the Voting Power is represented by securities of the Company that were outstanding immediately prior to such Company Corporate Event (or, if applicable, is represented by shares into which such securities of the Company were converted pursuant to such Company Corporate Event); or 3 (v) upon the consummation of a merger, consolidation, share exchange, division, sale or other disposition of all or substantially all of the assets of JHFS which has been approved by the stockholders of JHFS (a "JHFS Corporate Event"), and immediately following the consummation of which the stockholders of JHFS immediately prior to such JHFS Corporate Event do not hold, directly or indirectly, a majority of the Voting Power of (A) in the case of a merger or consolidation, the surviving or resulting corporation, (B) in the case of a statutory share exchange, the acquiring corporation, or (C) in the case of a division or a sale or other disposition of assets, each surviving, resulting or acquiring corporation which, immediately following the relevant JHFS Corporate Event, holds more than 25% of the consolidated assets of JHFS immediately prior to such JHFS Corporate Event, provided that no Change of Control shall be deemed to have occurred if the Executive is employed, immediately following such JHFS Corporate Event, by any entity in which the stockholders of JHFS immediately prior to such JHFS Corporate Event hold, directly or indirectly, a majority of the Voting Power; or Provided that in each case such majority of the Voting Power is represented by securities of JHFS that were outstanding immediately prior to such JHFS Corporate Event (or, if applicable, is represented by shares into which such securities of JHFS were converted pursuant to such JHFS Corporate Event); or (vi) any other event occurs which the Board or the JHFS Board declares to be a Change of Control. (e) "JHFS" means John Hancock Financial Services, Inc. (f) "JHFS Board" means the Board of Directors of JHFS and, after a Change in Control that constitutes a Company Corporate Event or a JHFS Corporate Event, the Board Directors of the Parent. (g) "Parent" shall mean any corporation, partnership, limited liability company, business trust or other entity which owns, directly or indirectly, more than 50% of the Voting Power in the Company or JHFS. (h) "Person" shall have the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act, as supplemented by Section 13(d)(3) of the Exchange Act; provided, however, that Person shall not include (i) the Company, JHFS, or any Affiliate or (ii) any employee benefit plan sponsored by the entities described in clause (i) of this definition. 4 (i) "Potential Change of Control" shall be deemed to have occurred if: (i) a Person commences a tender offer (with adequate financing) for securities representing at least 10% of the Voting Power of the JHFS's securities; (ii) the Company or JHFS enters into an agreement the consummation of which would constitute a Change of Control; (iii) proxies for the election of directors of JHFS are solicited by anyone other than JHFS; or (iv) any other event occurs which is deemed to be a Potential Change of Control by the JHFS Board. (j) "Voting Power" shall mean such number of the Voting Securities as shall enable the holders thereof to cast such percentage of all the votes which could be cast in an annual election of directors. (k) "Voting Securities" shall mean all securities of a company entitling the holders thereof to vote in an annual election of directors. 3. Employment Period. Subject to Section 6 of this Agreement, the Company (or if applicable, JHFS) agrees to continue the Executive in its employ, and the Executive agrees to remain in the employ of the Company or, if applicable, JHFS for the period (the "Employment Period") commencing on the Effective Date and ending on the third anniversary of the Effective Date. Notwithstanding the foregoing, if, prior to the Effective Date, the Executive is demoted to a lower position than the position held on the date first set forth above, the Board (or if applicable, the JHFS Board) may declare that this Agreement shall be without force and effect by written notice delivered to the Executive (i) within 30 days following such demotion and (ii) prior to the occurrence of a Potential Change of Control or a Change of Control. 4. Position and Duties. (a) No Reduction in Position. During the Employment Period, the Executive's position (including titles), authority and responsibilities with the Company, JHFS and each of the Affiliates shall be, both individually and in the aggregate, at least commensurate with those held, exercised and assigned immediately prior to the Effective Date. It is understood that, for purposes of this Agreement, such position, authority and responsibilities shall not be regarded as not commensurate merely by virtue of the fact that a successor shall have acquired all or substantially all of the business and/or assets of the Company as contemplated by Section 13(b) of this Agreement. The Executive's services shall be performed at the location where the Executive was employed immediately preceding the Effective Date. (b) Business Time. From and after the Effective Date, the Executive agrees to devote substantially all of his/her attention during normal business hours to the business and affairs of the Company, JHFS and the Affiliates and to use his/her reasonable best efforts to perform the responsibilities assigned to him hereunder, to the extent necessary to discharge such responsibilities, except for (i) time spent in managing his/her personal, 5 financial and legal affairs and serving on corporate, civic or charitable boards or committees, in each case only if and to the extent not substantially interfering with the performance of such responsibilities, and (ii) periods of vacation and sick leave to which he/she is entitled. It is expressly understood and agreed that the Executive's continuing to serve on any boards and committees on which he/she is serving or with which he/she is otherwise associated immediately preceding the Effective Date shall not be deemed to interfere with the performance of the Executive's services for the Company, JHFS or the Affiliates. 5. Compensation. (a) Base Salary. During the Employment Period, the Executive shall receive a base salary at a monthly rate at least equal to the monthly salary paid to the Executive by the Company, JHFS and any Affiliate immediately prior to the Effective Date. The base salary shall be reviewed at least once each year after the Effective Date, and may be increased (but not decreased) at any time and from time to time by action of the Board or JHFS Board, as the case may be, or any committee thereof or any individual having authority to take such action in accordance with the Company's (or if applicable, JHFS's) regular practices. The Executive's base salary, as it may be increased from time to time, shall hereafter be referred to as "Base Salary". Neither the Base Salary nor any increase in Base Salary after the Effective Date shall serve to limit or reduce any other obligation of the Company or JHFS hereunder. (b) Annual Bonus. During the Employment Period, in addition to the Base Salary, for each fiscal year of the Company ending during the Employment Period, the Executive shall be afforded the opportunity to receive an annual bonus on terms and conditions no less favorable to the Executive (taking into account reasonable changes in the applicable corporate goals and objectives and taking into account actual performance) than the annual bonus opportunity that had been made available to the Executive for the fiscal year ended immediately prior to the Effective Date (the "Annual Bonus Opportunity"). Any amount payable in respect of the Annual Bonus Opportunity shall be paid as soon as practicable following the year for which the amount (or prorated portion) is earned or awarded, unless electively deferred by the Executive pursuant to any deferral programs or arrangements that the Company, JHFS or any of its Affiliates may make available to the Executive. (c) Long-term Incentive Compensation Programs. During the Employment Period, the Executive shall participate in all long-term incentive compensation programs (including, without limitation, programs providing for the grant of stock options and other equity-based awards) for key executives at a level that is commensurate with the Executive's participation in such plans immediately prior to the Effective Date, or, if more favorable to the Executive, at the level made available to the Executive or other similarly situated officers at any time thereafter. (d) Benefit Plans. During the Employment Period, the Company shall provide to the Executive (and to the extent applicable, his/her dependents) pension, retirement, deferred compensation, savings, medical, dental, health, disability, life and accidental death coverages, both individual and group, at a level that is commensurate with the coverage to which the Executive was entitled under plans sponsored by the Company, JHFS or any affiliate immediately prior to the Effective Date, or, if more favorable to the Executive, at the level made available to the Executive or other similarly situated officers 6 at any time thereafter. The Executive shall be entitled to such benefits subject to the same terms and conditions (including, without limitation, any requirement that the Executive make contributions toward the cost of such coverage) that applied immediately prior to the Effective Date, or, if more favorable to the Executive, as are made applicable to the Executive or other similarly situated officers at any time thereafter. To the extent such benefits cannot be provided under the terms of a benefit plan, policy or program sponsored by the Company, JHFS or any affiliate, as the case may be, the Company shall provide a comparable benefit under another plan or from the Company's general assets. (e) Expenses. During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the policies and procedures of the Company as in effect immediately prior to the Effective Date. Notwithstanding the foregoing, the Company may apply the policies and procedures in effect after the Effective Date to the Executive, if such policies and procedures are not less favorable to the Executive than those in effect immediately prior to the Effective Date. (f) Vacation and Fringe Benefits. During the Employment Period, the Executive shall be entitled to paid vacation and fringe benefits (including, without limitation, any split-dollar life insurance arrangements) at a level that is commensurate with the paid vacation and fringe benefits available to the Executive immediately prior to the Effective Date, or, if more favorable to the Executive, at the level made available from time to time to the Executive or other similarly situated officers at any time thereafter. (g) Indemnification. During and after the Employment Period, the Company and JHFS shall indemnify the Executive and hold the Executive harmless from and against any claim, loss or cause of action arising from or out of the Executive's performance as an officer, director or employee of JHFS, the Company or any of their Affiliates or in any other capacity, including any fiduciary capacity, in which the Executive serves at the request of the Company to the maximum extent permitted by applicable law and the Certificate of Incorporation and By-Laws of JHFS or the Company, as the case may be (the "Governing Documents"), provided that in no event shall the protection afforded to the Executive hereunder be less than that afforded under the Governing Documents as in effect immediately prior to the Effective Date. (h) Office and Support Staff. The Executive shall be entitled to an office with furnishings and other appointments, and to secretarial and other assistance, at a level that is at least commensurate with the foregoing provided to the Executive immediately prior to the Change of Control. 6. Termination. (a) Death, Disability or Retirement. Subject to the provisions of Section 1 hereof, this Agreement shall terminate automatically upon the Executive's death, termination due to "Disability" (as defined below) or voluntary retirement under any of the retirement plans of the Company or JHFS (or, if applicable, an Affiliates) has in effect from time to time. For purposes of this Agreement, Disability shall mean the Executive has met the conditions to qualify for long-term disability benefits under the long term disability plan or policy the Company or JHFS (or, if applicable, an Affiliate), has in effect immediately prior to the Effective Date. 7 (b) Voluntary Termination. Notwithstanding anything in this Agreement to the contrary, following a Change of Control the Executive may, upon not less than 60 days' written notice to the Company (or, if applicable, JHFS), voluntarily terminate employment for any reason (including early retirement under the terms of any retirement plans maintained by the Company, JHFS or an Affiliate, as in effect from time to time), provided that any termination by the Executive pursuant to Section 6(d) on account of Good Reason (as defined therein) shall not be treated as a voluntary termination under this Section 6(b). (c) Cause. The Company, JHFS or an Affiliate that employs the Executive may terminate the Executive's employment for Cause. For purposes of this Agreement, "Cause" means (i) the Executive's conviction or plea of nolo contendere to a felony related to fraud or dishonesty; (ii) an act or acts of dishonesty or gross misconduct on the Executive's part which result or are intended to result in material damage to the Company's, JHFS's or an Affiliate's business or reputation; or (iii) repeated material violations by the Executive of his/her obligations under Section 4 of this Agreement, which violations are demonstrably willful and deliberate on the Executive's part and which result in material damage to the Company's, JHFS's or an Affiliate's business or reputation. Cause shall not exist unless and until JHFS has delivered to Executive a copy of a resolution duly adopted by three-quarters (3/4) of the entire JHFS Board (excluding the Executive if the Executive is a JHFS Board member) at a meeting of the JHFS Board called and held for such purpose (after reasonable notice to the Executive and an opportunity for the Executive, together with counsel, to be heard before the JHFS Board), finding that in the good faith opinion of the JHFS Board an event set forth in subclauses (i), (ii), or (iii) has occurred and specifying the particulars thereof in detail. The Company, JHFS or an Affiliate must notify the Executive of any event that it alleges constitutes Cause within ten (10) business days following the Company's, JHFS's or an Affiliate's knowledge, as the case may be, of its existence, and notify the Executive at least ten (10) business days prior to the board proceedings described above, or such event shall not constitute Cause under this Agreement. (d) Good Reason. Following the occurrence of a Change of Control, the Executive may terminate his/her employment for Good Reason. For purposes of this Agreement, "Good Reason" means the occurrence of any of the following, without the express written consent of the Executive, after the occurrence of a Change of Control: (i) the assignment to the Executive of any duties inconsistent in any material adverse respect with the Executive's position, authority or responsibilities, as contemplated by Section 4 of this Agreement, or any other material adverse change in position, titles, authority or responsibilities, including and without limiting the generality of the foregoing, the elimination or substantial reduction of the Executive's duties with the Company, JHFS or any Affiliate resulting in a significant reduction in his position, titles, authority or responsibilities as in effect prior to the Change of Control; (ii) any failure by the Company or JHFS to comply with any of the provisions of Section 5 of this Agreement, other than an insubstantial or inadvertent 8 failure remedied by the Company or JHFS promptly after receipt of notice thereof given by the Executive; (iii) any requirement that the Executive (A) be based at any office or location more than 35 miles (or any such shorter distance as shall be set forth in the Company's (or if applicable, JHFS's) relocation policy as in effect on the Effective Date) from that location at which he/she performed his/her services specified under the provisions of Section 4 immediately prior to the Change of Control, except for travel reasonably required in the performance of the Executive's responsibilities or (B) travel on business on behalf of the Company, JHFS or any Affiliate, as the case may be, to an extent substantially greater than the travel obligations of the Executive immediately prior to the Change in Control; (iv) any failure by the Company or JHFS to obtain the assumption and agreement to perform this Agreement by a successor as contemplated by Section 13(b). In no event shall the mere occurrence of a Change of Control, absent any further impact on the Executive, be deemed to constitute Good Reason. Notwithstanding anything herein to the contrary, termination of employment by the Executive for any reason during the 30-day period commencing one hundred and eighty (180) days after the date of a Change in Control shall be deemed to constitute Good Reason. (e) Notice of Termination. Any termination by the Company, JHFS or an Affiliate for Cause or by the Executive for Good Reason shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 14(e). 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) sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated, and (iii) if the termination date is other than the date of receipt of such notice, specifies the termination date of this Agreement (which date shall be not more than 15 days after the giving of such notice). In the case of a termination for Good Reason, the Notice of Termination shall be given within 180 days of the Executive's having actual knowledge of the events giving rise to such termination which actual knowledge shall in no event be deemed to have occurred any earlier than the Effective Date. The failure by the Executive to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason shall not waive any right of the Executive hereunder or preclude the Executive from asserting such fact or circumstance in enforcing his/her rights hereunder. (f) Date of Termination. For the purpose of this Agreement, the term "Date of Termination" means (i) in the case of a termination for which a Notice of Termination is required, the date of receipt of such Notice of Termination or, if later, the date specified therein, as the case may be, and (ii) in all other cases, the actual date on which the Executive's employment terminates during the Employment Period. 9 7. Obligations of the Company upon Termination. (a) Death or Disability. If the Executive's employment is terminated during the Employment Period by reason of the Executive's death or Disability, this Agreement shall terminate without further obligations to the Executive or the Executive's legal representatives under this Agreement other than those obligations accrued hereunder at the Date of Termination, and the Company shall pay to the Executive (or his/her beneficiary or estate) (i) the Executive's full Base Salary through the Date of Termination (the "Earned Salary"), (ii) any vested amounts or benefits owing to the Executive under the otherwise applicable employee benefit plans and programs of the Company, JHFS and the Affiliates, including any compensation previously deferred by the Executive (together with any accrued earnings thereon) and not yet paid by the Company, JHFS or an Affiliate and any accrued vacation pay not yet paid by the Company, JHFS or an Affiliate (the "Accrued Obligations"), and (iii) any other benefits payable due to the Executive's death or Disability under the plans, policies or programs of the Company, JHFS and the Affiliates (the "Additional Benefits"). The Earned Salary shall be paid in cash in a single lump sum as soon as practicable, but in no event more than 10 days (or at such earlier date required by law), following the Date of Termination. Accrued Obligations and Additional Benefits shall be paid in accordance with the terms of the applicable plan, program or arrangement. (b) Cause and Voluntary Termination. If, during the Employment Period, the Executive's employment shall be terminated for Cause or voluntarily terminated by the Executive (other than on account of Good Reason following a Change of Control), the Company shall pay the Executive (i) the Earned Salary in cash in a single lump sum as soon as practicable, but in no event more than 10 days, following the Date of Termination, and (ii) the Accrued Obligations in accordance with the terms of the applicable plan, program or arrangement. (c) Termination by the Company other than for Cause. If, during the Employment Period, the Company or JHFS, terminates the Executive's employment other than for Cause, the Company shall provide the Executive with the following benefits: (i) Severance and Other Termination Payments. The Company shall pay the Executive the following: (A) the Executive's Earned Salary; and (B) notwithstanding any plan provisions to the contrary, an amount (the "Pro-Rated Annual Incentive") equal to the target annual bonus applicable to the Executive for the fiscal year in which the Date of Termination occurs, multiplied by a fraction, the numerator of which is the number of completed months in such fiscal year which have elapsed on or before (and including) the Date of Termination and the denominator of which is 12; and (C) notwithstanding any plan provisions to the contrary, an aggregate amount (the "Pro-Rated Long Term Incentives") equal to the sum of the amounts awarded to the Executive in respect of each 10 performance cycle, whether or not vested, then in progress (i.e., each performance cycle, which includes as part of the performance period the fiscal year in which the Date of Termination occurs), as accrued on the books of the Company as of the end of the month preceding the Date of Termination; and (D) the Accrued Obligations; and (E) a cash amount (the "Severance Amount") equal to three times the sum of (1) the Executive's annual Base Salary; and (2) an amount equal to the target annual bonus applicable to the Executive for the fiscal year in which the Change of Control occurs; (3) an amount equal to the long term incentive award granted to the Executive with respect to the performance period commencing in the calendar year 2000. For purposes of this Section 7(c)(i)(E)(3), if the Executive was a member of the Policy Committee at the time of the grant of such long term incentive award, such award shall be measured by the equity rights awarded to the Executive for such performance period under the terms of the Long-Term Incentive Plan for Senior Executives; otherwise, the grant of the long term incentive award referred to above shall be measured by the aggregate value of (a) the equity rights granted to such Executive for such performance cycle under the terms of the Long-Term Incentive Plan for Senior Executives and (b) the stock options granted to such Executive in March, 2000 under the terms of the John Hancock Financial Services, Inc. 1999 Long-Term Stock Incentive Plan. The Earned Salary, Pro-Rated Annual Incentive, Pro-Rated Long Term Incentives, Retention Bonus and Severance Amount shall be paid in cash in a single lump sum as soon as practicable, but in no event more than 10 days (or at such earlier date required by law), following the Date of Termination. Accrued Obligations shall be paid in accordance with the terms of the applicable plan, program or arrangement. (ii) Continuation of Benefits. If, during the Employment Period, the Executive's employment is terminated other than for Cause, the Executive (and, to the extent applicable, his/her dependents) shall be entitled, after the Date of Termination until the earlier of (A) the third anniversary of the Date of Termination (the "End Date") and (B) the date the Executive becomes eligible for comparable benefits under a similar plan, policy or program of a subsequent employer, to continue participation in all of the individual and group health (including without limitation medical, dental and disability) and life employee benefits plans 11 maintained by the Company, JHFS or an Affiliate and in which the Executive had been participating prior to the Date of Termination (the "Benefit Plans"). In addition, to the extent that, prior to the Date of Termination, the Company had been paying the premiums on any split-dollar life insurance policy with respect to the Executive, the Company shall, as to any such policy, continue the payment of such premiums until the later of the End Date or the date through which the Company otherwise would have paid premiums on such policy in the absence of a Change of Control. To the extent any such benefits cannot be provided under the terms of the applicable plan, policy or program, the Company shall provide a comparable benefit under another plan or from the Company's general assets. The Executive's participation in the Benefit Plans will be on the same terms and conditions (including, without limitation, any condition that the Executive make contributions toward the cost of such coverage on the same terms and conditions generally applicable to similarly situated employees) that would have applied had the Executive continued to be employed by the Company through the End Date. (iii) Enhanced Retirement Benefits. In determining the defined benefit retirement benefits made available to the Executive, the Executive shall be entitled to receive the additional benefits that would have been payable or available to the Executive under any employee benefit plan based on (x) the service (but not the age) the Executive would have attained or completed had the Executive continued in the Company's employ until the End Date and, (y) where compensation is a relevant factor, his/her pensionable compensation at the Date of Termination. Notwithstanding the foregoing, the Executive shall not receive any service credit for any period after the Executive has attained age 65. (iv) Payment of Mandatorily Deferred Incentive Compensation Payments. To the extent not earlier paid in accordance with the terms and conditions of the governing plan documents, all amounts, if any, that had been determined to be payable to the Executive under any long term incentive compensation program, but the payment of which was mandatorily deferred under the terms and conditions of such governing documents, shall be paid (plus all earnings credited with respect thereto) in a single lump sum payment, as soon as practicable after the next succeeding valuation date under the applicable plans, but in no event later than the first March 15 following the Executive's Date of Termination. (v) Outplacement Services. The Executive shall be provided at the Company's expense with outplacement services customary for executives at his/her level (including, without limitation, office space and telephone support services) provided by a qualified and experienced third party provider selected by the Company. (d) Termination by the Executive for Good Reason. If, during the Employment Period, the Executive terminates his/her employment for Good Reason, the Company shall pay to the Executive the same amounts as would be payable to the Executive under Section 7(c) if such termination were a termination by the Company or JHFS without Cause. 12 (e) Discharge of the Company's and JHFS's Obligations. Except as expressly provided in the last sentence of this Section 7(e), the amounts payable to the Executive pursuant to this Section 7 following termination of his/her employment shall be in full and complete satisfaction of the Executive's rights under this Agreement and any other claims he/she may have in respect of his/her employment by the Company, JHFS or the Affiliates. Such amounts shall constitute liquidated damages with respect to any and all such rights and claims and, upon the Executive's receipt of such amounts, the Company, JHFS and each of their Affiliates shall be released and discharged from any and all liability to the Executive in connection with this Agreement or otherwise in connection with the Executive's employment with the Company, JHFS and their Affiliates. Nothing in this Section 7(e) shall be construed to release the Company or JHFS, as applicable, from its commitment to indemnify the Executive and hold the Executive harmless from and against any claim, loss or cause of action arising from or out of the Executive's performance as an officer, director or employee of the Company, JHFS or any of their Affiliates or in any other capacity, including any fiduciary capacity, in which the Executive served at the request of the Company or JHFS to the maximum extent permitted by applicable law and the Governing Documents. (f) Certain Further Payments by the Company. (i) In the event that any amount or benefit paid or distributed to the Executive pursuant to this Agreement and/or any amounts or benefits otherwise paid or distributed (whether or not paid or distributed pursuant to a plan or program maintained by the Company or JHFS) to the Executive by the Company, JHFS or any Affiliate, including without limitation, the present value of any amounts or benefits that otherwise become payable to the Executive by the Company, JHFS or any Affiliate or otherwise become nonforfeitable because of the lapse or termination of any restrictions thereon as a result of a Change of Control (collectively, the "Covered Payments"), are or become subject to the tax (the "Excise Tax") imposed under Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), or any similar tax that may hereafter be imposed, the Company shall pay to the Executive at the time specified in Section 7(f)(v) below an additional amount ("Tax Reimbursement Payment") such that the net amount retained by the Executive with respect to such Covered Payments, after deduction of any Excise Tax on the Covered Payments and any Federal, state and local income or employment tax and Excise Tax on the Tax Reimbursement Payment provided for by this Section 7(f), but before deduction for any Federal, state or local income or employment tax withholding on such Covered Payments, shall be equal to the amount of the Covered Payments. (ii) For purposes of determining whether any of the Covered Payments will be subject to the Excise Tax and the amount of such Excise Tax, (A) such Covered Payments will be treated as "parachute payments" within the meaning of Section 280G of the Code, and all "parachute payments" in excess of the "base amount" (as defined under Section 280G(b)(3) of the Code) shall be treated as subject to the Excise Tax, unless, and except to the extent that, in the good faith judgment 13 of the Company's independent certified public accountants appointed prior to the Change of Control Date or tax counsel selected by such accountants (the "Accountants"), the Company has a reasonable basis to conclude that such Covered Payments (in whole or in part) either do not constitute "parachute payments" or represent reasonable compensation for personal services actually rendered (within the meaning of Section 280G(b)(4)(B) of the Code) in excess of the "base amount," or such "parachute payments" are otherwise not subject to such Excise Tax, and (B) the value of any non-cash benefits or any deferred payment or benefit shall be determined by the Accountants in accordance with the principles of Section 280G of the Code. (iii) For purposes of determining the amount of the Tax Reimbursement Payment, the Executive shall be deemed to pay: (A) Federal income taxes at the highest applicable marginal rate of Federal income taxation for the calendar year in which the Tax Reimbursement Payment is to be made, and (B) any applicable state and local income taxes at the highest applicable marginal rate of taxation for the calendar year in which the Tax Reimbursement Payment is to be made, net of the maximum reduction in Federal income taxes which could be obtained from the deduction of such state or local taxes if paid in such year. (iv) In the event that the Excise Tax is subsequently determined by the Accountants or pursuant to any proceeding or negotiations with the Internal Revenue Service to be less than the amount taken into account hereunder in calculating the Tax Reimbursement Payment made, the Executive shall repay to the Company, at the time that the amount of such reduction in the Excise Tax is finally determined, the portion of such prior Tax Reimbursement Payment that would not have been paid if such Excise Tax had been applied in initially calculating such Tax Reimbursement Payment, plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. Notwithstanding the foregoing, in the event any portion of the Tax Reimbursement Payment to be refunded to the Company has been paid to any Federal, state or local tax authority, repayment thereof shall not be required until actual refund or credit of such portion has been made to the Executive, and interest payable to the Company shall not exceed interest received or credited to the Executive by such tax authority for the period it held such portion. The Executive and the Company shall mutually agree upon the course of action to be pursued (and the method of allocating the expenses thereof) if the Executive's good faith claim for refund or credit is denied. In the event that the Excise Tax is later determined by the Accountants or pursuant to any proceeding or negotiations with the Internal Revenue Service to exceed the amount taken into account hereunder at the time the Tax 14 Reimbursement Payment is made (including, but not limited to, by reason of any payment the existence or amount of which cannot be determined at the time of the Tax Reimbursement Payment), the Company shall make an additional Tax Reimbursement Payment in respect of such excess (plus any interest or penalty payable with respect to such excess) at the time that the amount of such excess is finally determined. (v) Any Tax Reimbursement Payment (or portion thereof) payable in accordance with Section 7(f)(i) above shall be paid to the Executive as of the date of the payment (or acceleration of vesting or lapse of restrictions as a result of a Change of Control, as the case may be) of the Covered Payments; provided, however, that if the amount of such Tax Reimbursement Payment (or portion thereof) cannot be finally determined on or before the date on which payment is due, the Company shall pay to the Executive by such date an amount estimated in good faith by the Accountants to be the minimum amount of such Tax Reimbursement Payment and shall pay the remainder of such Tax Reimbursement Payment (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined, but in no event later than 45 calendar days after payment of the related Covered Payment. In the event that the amount of the estimated Tax Reimbursement Payment exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to the Executive, payable on the fifth business day after written demand by the Company for payment (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code). 8. Non-exclusivity of Rights. Except as expressly provided herein, nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any benefit, bonus, incentive or other plan or program provided by the Company, JHFS or any of its Affiliates and for which the Executive may qualify, nor shall anything herein limit or otherwise prejudice such rights as the Executive may have under any other agreements with the Company, JHFS or any of its Affiliates, including employment agreements or stock option agreements. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan or program of the Company, JHFS or any of its Affiliates at or subsequent to the Date of Termination shall be payable in accordance with such plan or program. 9. No Offset. The Company's or JHFS's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any circumstances, including, without limitation, any set-off, counterclaim, recoupment, defense or other right which the Company, JHFS or any of their Affiliates may have against the Executive or others whether by reason of the Executive's breach of this Agreement, subsequent employment of the Executive, or otherwise. 10. Legal Fees and Expenses. If the Executive asserts any claim in any contest (whether initiated by the Executive or by the Company) as to the validity, enforceability or interpretation of any provision of this Agreement, the Company shall pay the Executive's legal expenses (or cause such expenses to be paid) including, without limitation, his/her reasonable attorney's fees, on a quarterly basis, upon presentation of proof of such 15 expenses, provided that the Executive shall reimburse the Company for such amounts, plus simple interest thereon at the 90-day United States Treasury Bill rate as in effect from time to time, compounded annually, if the arbitrator referred to in Section 14(b) or a court of competent jurisdiction shall find that the Executive did not have a good faith and reasonable basis to believe that he/she would prevail as to at least one material issue presented to such arbitrator or court. 11. Confidential Information; Company Property. By and in consideration of the salary and benefits to be provided by the Company, JHFS or an Affiliate hereunder, including the severance arrangements set forth herein, the Executive agrees that: (a) Confidential Information. The Executive shall hold in a fiduciary capacity for the benefit of the Company, JHFS and the Affiliates, all secret or confidential information, knowledge or data relating to the Company, JHFS or the Affiliates, and their respective businesses, (i) obtained by the Executive during his/her employment by the Company, JHFS or the Affiliates and (ii) not otherwise public knowledge (other than by reason of an unauthorized act by the Executive). After termination of the Executive's employment, the Executive shall not, without the prior written consent of the Company, unless compelled pursuant to an order of a court or other body having jurisdiction over such matter, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. (b) Nonsolicitation of Employees. The Executive agrees that for two years after the Date of Termination, he/she will not attempt, directly or indirectly, to induce any employee of the Company, JHFS or an Affiliate to be employed or perform services elsewhere or otherwise to cease providing services to the Company, JHFS or the Affiliates. (c) Return of Property. Except as expressly provided herein, promptly following the Executive's termination of employment, the Executive shall return to the Company, JHFS and the Affiliates all property of the Company, JHFS and the Affiliates (as the case may be) and all copies thereof in the Executive's possession or under his/her control. (d) Injunctive Relief and Other Remedies with Respect to Covenants. The Executive acknowledges and agrees that the covenants and obligations of the Executive with respect to confidentiality and the return of property relate to special, unique and extraordinary matters and that a violation of any of the terms of such covenants and obligations will cause the Company, JHFS and/or their Affiliates irreparable injury for which adequate remedies are not available at law. Therefore, the Executive agrees that the Company, JHFS and the Affiliates shall be entitled to an injunction, restraining order or such other equitable relief (without the requirement to post bond) restraining Executive from committing any violation of the covenants and obligations contained in this Section 11. These remedies are cumulative and are in addition to any other rights and remedies the Company, JHFS and/or the Affiliates may have at law or in equity. In no event shall an asserted violation of the provisions of this Section 11 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. 12. Obligations of the Company and JHFS. The obligations of the Company and JHFS are intended to be joint and several. If for any reason, either the Company or JHFS 16 does not, or is unable to, honor its obligations under this Agreement, the other party shall satisfy all obligations not honored by the other party. 13. Successors. (a) This Agreement is personal to the Executive and, without the prior written consent of the Company and JHFS, 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 JHFS, the Company and each of its successors. The Company and JHFS, as applicable, shall require any successor to all or substantially all of the business and/or assets of the Company or JHFS, whether direct or indirect, by purchase, merger, consolidation, acquisition of stock, or otherwise, by an agreement in form and substance satisfactory to the Executive, expressly to assume and agree to perform this Agreement in the same manner and to the same extent as the Company and JHFS would be required to perform if no such succession had taken place. 14. Miscellaneous. (a) Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the States of Delaware, applied without reference to principles of conflict of laws. (b) Arbitration. Except to the extent provided in Section 11(d), any dispute or controversy arising under or in connection with this Agreement shall be resolved by binding arbitration. The arbitration shall be held in the city of Boston, Massachusetts and, except to the extent inconsistent with this Agreement, shall be conducted in accordance with the Expedited Employment Arbitration Rules of the American Arbitration Association then in effect at the time of the arbitration (or such other rules as the parties may agree to in writing), and otherwise in accordance with principles which would be applied by a court of law or equity. The arbitrator shall be acceptable to all of the Company, JHFS and the Executive. If the parties cannot agree on an acceptable arbitrator, the dispute shall be heard by a panel of three arbitrators, one appointed by the Company and JHFS, one appointed by the Executive, and the third appointed by the other two arbitrators. (c) Amendments. 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. (d) Entire Agreement. Subject to Section 8 herein, this Agreement constitutes the entire agreement between the parties hereto with respect to the matters referred to herein. No other agreement relating to the terms of the Executive's employment by the Company, JHFS or any Affiliate, oral or otherwise, shall be binding among the parties unless it is in writing and signed by the party against whom enforcement is sought. There are no promises, representations, inducements or statements among the parties other than those that are expressly contained herein. The Executive acknowledges that he/she is entering into this Agreement of his/her own free will and accord, and with no duress, that he/she has read this Agreement and that he/she understands it and its legal consequences. 17 (e) Notices. All notices and other communications hereunder shall be in writing and shall be given by hand-delivery to the other parties or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: at the home address of the Executive noted on the records of the Company If to the Company: 200 Clarendon Street Boston, Massachusetts Attn.: Secretary If to JHFS: 200 Clarendon Street Boston, Massachusetts Attn.: Secretary or to such other address as any party shall have furnished to the others in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (f) Tax Withholding. The Company shall withhold from any amounts payable under this Agreement such Federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. (g) Severability; Reformation. In the event that one or more of the provisions of this Agreement shall become invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not be affected thereby. In the event that any of the provisions of Section 11(a) are not enforceable in accordance with its terms, the Executive and the Company and JHFS agree that such Section shall be reformed to make such Section enforceable in a manner which provides the Company and JHFS the maximum rights permitted at law. (h) Waiver. Waiver by any party hereto of any breach or default by any party of any of the terms of this Agreement shall not operate as a waiver of any other breach or default, whether similar to or different from the breach or default waived. No waiver of any provision of this Agreement shall be implied from any course of dealing among the parties hereto or from any failure by any party hereto to assert its or his/her rights hereunder on any occasion or series of occasions. (i) Survival. The provisions of Section 5(g), 7(c), 7(d), 7(f), 12 and 13 shall survive the termination of the Employment Period hereunder and shall be binding upon and enforceable against the Company and JHFS in accordance with their terms. The dispute resolutions provisions contained in Section 14(b) and the legal fees provision contained in Section 10 shall also survive the end of the Employment Period and shall be applied as though the dispute arose within the Employment Period. 18 (j) Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. (k) Captions. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and the Company and JHFS have caused this Agreement to be executed in their respective names and on their behalf, all as of the day and year first above written. JOHN HANCOCK LIFE INSURANCE COMPANY By: ________________________________ Name: David F. D'Alessandro Title: Chairman, President and Chief Executive Officer JOHN HANCOCK FINANCIAL SERVICES, INC. By: ________________________________ Name: David F. D'Alessandro Title: Chairman, President and Chief Executive Officer EXECUTIVE: ____________________________________ 19 EX-10.27 5 ex10-27.txt Exhibit 10.27 SECOND AMENDED AND RESTATED EMPLOYMENT CONTINUATION AGREEMENT THIS SECOND AMENDED AND RESTATED AGREEMENT by and among John Hancock Life Insurance Company, a Massachusetts corporation (the "Company"), John Hancock Financial Services, Inc., a Delaware corporation ("JHFS") and David F. D'Alessandro (the "Executive"), dated as of the 15th day of October, 2001. W I T N E S S E T H : WHEREAS, the Executive has been employed as an officer of the Company and/or JHFS, and it has been determined that the Executive holds an important position with the Company and/or JHFS; WHEREAS, the Company and JHFS believe that, in the event of a situation that could result in a change in ownership or control of the Company or JHFS, continuity of management will be essential to their ability to evaluate and respond to such a situation in the best interests of shareholders; WHEREAS, the Company and JHFS understand that any such situation will present significant concerns for the Executive with respect to his/her financial and job security; WHEREAS, to assure themselves of the Executive's services during the period in which they are confronting such a situation, and to provide the Executive certain financial assurances to enable the Executive to perform the responsibilities of his/her position without undue distraction and to exercise his/her judgment without bias due to his/her personal circumstances, the Company, JHFS and the Executive previously entered into this Agreement to provide the Executive with certain rights and obligations upon the occurrence of a Change of Control or Potential Change of Control (as each such term is defined in Section 2 hereof); WHEREAS, the Executive, the Company and JHFS have determined that the Agreement should be amended and restated to further clarify and refine benefits and protections provided to the Executive in the event of a Change of Control or Potential Change of Control; NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, it is hereby agreed among the Company, JHFS and the Executive as follows: 1. Operation of Agreement. (a) Effective Date. The effective date of this Agreement shall be the date on which a Change of Control occurs (the "Effective Date"), provided that, except as provided in Section 1(b), if the Executive is not employed by the Company, JHFS or an Affiliate on the Effective Date, this Agreement shall be void and without effect. (b) Termination of Employment Following a Potential Change of Control. Notwithstanding Section 1(a), if (i) the Executive's employment with the Company, JHFS or an Affiliate is terminated without Cause (as defined in Section 6(c)) after the occurrence of a Potential Change of Control and prior to the occurrence of a Change of Control and (ii) a Change of Control occurs within two years of such termination, the Executive shall be deemed, solely for purposes of determining his/her rights under this Agreement, to have remained employed until the date such Change of Control occurs and to have been terminated by the Company, JHFS or (if applicable) the Affiliate without Cause immediately after this Agreement becomes effective, with any amounts payable hereunder reduced by the amount of any other severance benefits provided to him in connection with such termination. 2. Definitions. (a) "Affiliate" shall mean any corporation, partnership, limited liability company, trust or other entity which directly, or indirectly through one or more intermediaries, controls, or is controlled by, the Company, or JHFS. (b) "Board" shall mean the Board of Directors of the Company. (c) "Company" means John Hancock Life Insurance Company. (d) "Change of Control" shall be deemed to have occurred if: (i) any Person (as defined below) has acquired, "beneficial ownership" (within the meaning of Rule 13d-3, as promulgated under Section 13(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), directly or indirectly, of securities of the Company or JHFS representing 30% or more of the combined Voting Power (as defined below) of the securities of the Company or JHFS; provided, however, that the event described in this paragraph (i) shall not be deemed to be a Change in Control by virtue of an acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company, JHFS or any Affiliate; or (ii) within any 24-month period, the persons who, at the beginning of such period, were members of the Board (the "Incumbent Company Directors") shall cease to constitute at least a majority of the Board or the board of directors of any successor to the Company; provided, however, that any director elected to the Board, or nominated for election to the Board, by at least two-thirds (2/3) of the Incumbent Company Directors then still in office shall be deemed to be an Incumbent Company Director for purposes of this subclause (ii); provided, however, that no individual initially elected or nominated for election to the Board as a result of an actual or threatened election contest with respect to directors or as a result of any other actual or threatened solicitation of proxies by or on behalf of 2 any Person other than the Board shall be deemed to be an Incumbent Company Director; or (iii) within any 24-month period, the persons who, at the beginning of such period, were members of the JHFS Board (the "Incumbent JHFS Directors") shall cease to constitute at least a majority of the JHFS Board or the board of directors of any successor to JHFS; provided, however, that any director elected to the JHFS Board, or nominated for election to the JHFS Board, by at least two-thirds (2/3) of the Incumbent JHFS Directors then still in office shall be deemed to be an Incumbent JHFS Director for purposes of this subclause (iii); provided, however, that no individual initially elected or nominated for election to the JHFS Board as a result of an actual or threatened election contest with respect to directors or as a result of any other actual or threatened solicitation of proxies by or on behalf of any Person other than the JHFS Board shall be deemed to be an Incumbent JHFS Director; or (iv) upon the consummation of a merger, consolidation, share exchange, division, sale or other disposition of all or substantially all of the assets of the Company (a "Company Corporate Event") and immediately following the consummation of which the stockholders of the Company, immediately prior to such Company Corporate Event do not hold, directly or indirectly, a majority of the Voting Power of (A) in the case of a merger or consolidation, the surviving or resulting corporation, (B) in the case of a statutory share exchange, the acquiring corporation, (C) in the case of a division or a sale or other disposition of assets, each surviving, resulting or acquiring corporation which, immediately following the relevant Company Corporate Event, holds more than 25% of the consolidated assets of the Company immediately prior to such Company Corporate Event, provided that no Change of Control shall be deemed to have occurred if the Executive is employed, immediately following such Company Corporate Event, by any entity in which the stockholders of the Company immediately prior to such Company Corporate Event hold, directly or indirectly, a majority of the Voting Power; Provided that in each case such majority of the Voting Power is represented by securities of the Company that were outstanding immediately prior to such Company Corporate Event (or, if applicable, is represented by shares into which such securities of the Company were converted pursuant to such Company Corporate Event); or 3 (v) upon the consummation of a merger, consolidation, share exchange, division, sale or other disposition of all or substantially all of the assets of JHFS which has been approved by the stockholders of JHFS (a "JHFS Corporate Event"), and immediately following the consummation of which the stockholders of JHFS immediately prior to such JHFS Corporate Event do not hold, directly or indirectly, a majority of the Voting Power of (A) in the case of a merger or consolidation, the surviving or resulting corporation, (B) in the case of a statutory share exchange, the acquiring corporation, or (C) in the case of a division or a sale or other disposition of assets, each surviving, resulting or acquiring corporation which, immediately following the relevant JHFS Corporate Event, holds more than 25% of the consolidated assets of JHFS immediately prior to such JHFS Corporate Event, provided that no Change of Control shall be deemed to have occurred if the Executive is employed, immediately following such JHFS Corporate Event, by any entity in which the stockholders of JHFS immediately prior to such JHFS Corporate Event hold, directly or indirectly, a majority of the Voting Power; Provided that in each case such majority of the Voting Power is represented by securities of JHFS that were outstanding immediately prior to such JHFS Corporate Event (or, if applicable, is represented by shares into which such securities of JHFS were converted pursuant to such JHFS Corporate Event); or (vi) any other event occurs which the Board or the JHFS Board declares to be a Change of Control. (e) "JHFS" means John Hancock Financial Services, Inc. (f) "JHFS Board" means the Board of Directors of JHFS and, after a Change in Control that constitutes a Company Corporate Event or a JHFS Corporate Event, the Board Directors of the Parent. (g) "Parent" shall mean any corporation, partnership, limited liability company, business trust or other entity which owns, directly or indirectly, more than 50% of the Voting Power in the Company or JHFS. (h) "Person" shall have the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act, as supplemented by Section 13(d)(3) of the Exchange Act; provided, however, that Person shall not include (i) the Company, JHFS, or any Affiliate or (ii) any employee benefit plan sponsored by the entities described in clause (i) of this definition. 4 (i) "Potential Change of Control" shall be deemed to have occurred if: (i) a Person commences a tender offer (with adequate financing) for securities representing at least 10% of the Voting Power of the JHFS's securities; (ii) the Company or JHFS enters into an agreement the consummation of which would constitute a Change of Control; (iii) proxies for the election of directors of JHFS are solicited by anyone other than JHFS; or (iv) any other event occurs which is deemed to be a Potential Change of Control by the JHFS Board. (j) "Voting Power" shall mean such number of the Voting Securities as shall enable the holders thereof to cast such percentage of all the votes which could be cast in an annual election of directors. (k) "Voting Securities" shall mean all securities of a company entitling the holders thereof to vote in an annual election of directors. 3. Employment Period. Subject to Section 6 of this Agreement, the Company (or if applicable, JHFS) agrees to continue the Executive in its employ, and the Executive agrees to remain in the employ of the Company or, if applicable, JHFS for the period (the "Employment Period") commencing on the Effective Date and ending on the third anniversary of the Effective Date. Notwithstanding the foregoing, if, prior to the Effective Date, the Executive is demoted to a lower position than the position held on the date first set forth above, the Board (or if applicable, the JHFS Board) may declare that this Agreement shall be without force and effect by written notice delivered to the Executive (i) within 30 days following such demotion and (ii) prior to the occurrence of a Potential Change of Control or a Change of Control. 4. Position and Duties. (a) No Reduction in Position. During the Employment Period, the Executive's position (including titles), authority and responsibilities with the Company, JHFS and each of the Affiliates shall be, both individually and in the aggregate, at least commensurate with those held, exercised and assigned immediately prior to the Effective Date. The Executive shall not be required to report to any person other than the Board or the JHFS Board (for purposes of clarity, it is the intent of this provision that, after a Change of Control, the Executive shall not be required to report to any person other than the board of directors of the entity that is the successor to all or substantially all of the business and/or assets of the Company or JHFS, as the case may be, or the board of directors of the ultimate parent entity resulting from a Company Corporate Event or a JHFS Corporate Event, as the case may be. It is understood that, for purposes of this Agreement, such position, authority and responsibilities shall not be regarded as not commensurate merely by virtue of the fact that a successor shall have acquired all or substantially all of the business and/or assets of the Company as contemplated by Section 13(b) of this Agreement. The Executive's services shall be performed at the location where the Executive was employed immediately preceding the Effective Date. 5 (b) Business Time. From and after the Effective Date, the Executive agrees to devote substantially all of his/her attention during normal business hours to the business and affairs of the Company, JHFS and the Affiliates and to use his/her reasonable best efforts to perform the responsibilities assigned to him hereunder, to the extent necessary to discharge such responsibilities, except for (i) time spent in managing his/her personal, financial and legal affairs and serving on corporate, civic or charitable boards or committees, in each case only if and to the extent not substantially interfering with the performance of such responsibilities, and (ii) periods of vacation and sick leave to which he/she is entitled. It is expressly understood and agreed that the Executive's continuing to serve on any boards and committees on which he/she is serving or with which he/she is otherwise associated immediately preceding the Effective Date shall not be deemed to interfere with the performance of the Executive's services for the Company, JHFS or the Affiliates. 5. Compensation. (a) Base Salary. During the Employment Period, the Executive shall receive a base salary at a monthly rate at least equal to the monthly salary paid to the Executive by the Company, JHFS and any Affiliate immediately prior to the Effective Date. The base salary shall be reviewed at least once each year after the Effective Date, and may be increased (but not decreased) at any time and from time to time by action of the Board or JHFS Board, as the case may be, or any committee thereof or any individual having authority to take such action in accordance with the Company's (or if applicable, JHFS's) regular practices. The Executive's base salary, as it may be increased from time to time, shall hereafter be referred to as "Base Salary". Neither the Base Salary nor any increase in Base Salary after the Effective Date shall serve to limit or reduce any other obligation of the Company or JHFS hereunder. (b) Annual Bonus. During the Employment Period, in addition to the Base Salary, for each fiscal year of the Company ending during the Employment Period, the Executive shall be afforded the opportunity to receive an annual bonus on terms and conditions no less favorable to the Executive (taking into account reasonable changes in the applicable corporate goals and objectives and taking into account actual performance) than the annual bonus opportunity that had been made available to the Executive for the fiscal year ended immediately prior to the Effective Date (the "Annual Bonus Opportunity"). Any amount payable in respect of the Annual Bonus Opportunity shall be paid as soon as practicable following the year for which the amount (or prorated portion) is earned or awarded, unless electively deferred by the Executive pursuant to any deferral programs or arrangements that the Company, JHFS or any of its Affiliates may make available to the Executive. (c) Long-term Incentive Compensation Programs. During the Employment Period, the Executive shall participate in all long-term incentive compensation programs (including, without limitation, programs providing for the grant of stock options and other equity-based awards) for key executives at a level that is commensurate with the Executive's participation in such plans immediately prior to the Effective Date, or, if more favorable to the Executive, at the level made available to the Executive or other similarly situated officers at any time thereafter. 6 (d) Retention Bonus. During such time period as set forth in the Board Vote of August 11, 1997, the Executive shall also be entitled to a special Retention Bonus as set forth therein. (e) Benefit Plans. During the Employment Period, the Company shall provide to the Executive (and to the extent applicable, his/her dependents) pension, retirement, deferred compensation, savings, medical, dental, health, disability, life and accidental death coverages, both individual and group, at a level that is commensurate with the coverage to which the Executive was entitled under plans sponsored by the Company, JHFS or any affiliate immediately prior to the Effective Date, or, if more favorable to the Executive, at the level made available to the Executive or other similarly situated officers at any time thereafter. The Executive shall be entitled to such benefits subject to the same terms and conditions (including, without limitation, any requirement that the Executive make contributions toward the cost of such coverage) that applied immediately prior to the Effective Date, or, if more favorable to the Executive, as are made applicable to the Executive or other similarly situated officers at any time thereafter. To the extent such benefits cannot be provided under the terms of a benefit plan, policy or program sponsored by the Company, JHFS or any affiliate, as the case may be, the Company shall provide a comparable benefit under another plan or from the Company's general assets. (f) Expenses. During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the policies and procedures of the Company as in effect immediately prior to the Effective Date. Notwithstanding the foregoing, the Company may apply the policies and procedures in effect after the Effective Date to the Executive, if such policies and procedures are not less favorable to the Executive than those in effect immediately prior to the Effective Date. (g) Vacation and Fringe Benefits. During the Employment Period, the Executive shall be entitled to paid vacation and fringe benefits (including, without limitation, any split-dollar life insurance arrangements) at a level that is commensurate with the paid vacation and fringe benefits available to the Executive immediately prior to the Effective Date, or, if more favorable to the Executive, at the level made available from time to time to the Executive or other similarly situated officers at any time thereafter. (h) Indemnification. During and after the Employment Period, the Company and JHFS shall indemnify the Executive and hold the Executive harmless from and against any claim, loss or cause of action arising from or out of the Executive's performance as an officer, director or employee of JHFS, the Company or any of their Affiliates or in any other capacity, including any fiduciary capacity, in which the Executive serves at the request of the Company to the maximum extent permitted by applicable law and the Certificate of Incorporation and By-Laws of JHFS or the Company, as the case may be (the "Governing Documents"), provided that in no event shall the protection afforded to the Executive hereunder be less than that afforded under the Governing Documents as in effect immediately prior to the Effective Date. (i) Office and Support Staff. The Executive shall be entitled to an office with furnishings and other appointments, and to secretarial and other assistance, at a level that is 7 at least commensurate with the foregoing provided to the Executive immediately prior to the Change of Control. 6. Termination. (a) Death, Disability or Retirement. Subject to the provisions of Section 1 hereof, this Agreement shall terminate automatically upon the Executive's death, termination due to "Disability" (as defined below) or voluntary retirement under any of the retirement plans of the Company or JHFS (or, if applicable, an Affiliate) has in effect from time to time. For purposes of this Agreement, Disability shall mean the Executive has met the conditions to qualify for long-term disability benefits under the long term disability plan or policy the Company or JHFS (or, if applicable, an Affiliate), has in effect immediately prior to the Effective Date. (b) Voluntary Termination. Notwithstanding anything in this Agreement to the contrary, following a Change of Control the Executive may, upon not less than 60 days' written notice to the Company (or, if applicable, JHFS), voluntarily terminate employment for any reason (including early retirement under the terms of any retirement plans maintained by the Company, JHFS or an Affiliate, as in effect from time to time), provided that any termination by the Executive pursuant to Section 6(d) on account of Good Reason (as defined therein) shall not be treated as a voluntary termination under this Section 6(b). (c) Cause. The Company, JHFS or an Affiliate that employs the Executive may terminate the Executive's employment for Cause. For purposes of this Agreement, "Cause" means (i) the Executive's conviction or plea of nolo contendere to a felony related to fraud or dishonesty; (ii) an act or acts of dishonesty or gross misconduct on the Executive's part which result or are intended to result in material damage to the Company's, JHFS's or an Affiliate's business or reputation; or (iii) repeated material violations by the Executive of his/her obligations under Section 4 of this Agreement, which violations are demonstrably willful and deliberate on the Executive's part and which result in material damage to the Company's, JHFS's or an Affiliate's business or reputation. Cause shall not exist unless and until JHFS has delivered to Executive a copy of a resolution duly adopted by three-quarters (3/4) of the entire JHFS Board (excluding the Executive if the Executive is a JHFS Board member) at a meeting of the JHFS Board called and held for such purpose (after reasonable notice to the Executive and an opportunity for the Executive, together with counsel, to be heard before the JHFS Board), finding that in the good faith opinion of the JHFS Board an event set forth in subclauses (i), (ii), or (iii) has occurred and specifying the particulars thereof in detail. The Company, JHFS or an Affiliate must notify the Executive of any event that it alleges constitutes Cause within ten (10) business days following the Company's, JHFS's or an Affiliate's knowledge, as the case may be, of its existence, and notify the Executive at least ten (10) business days prior to the board proceedings described above, or such event shall not constitute Cause under this Agreement. (d) Good Reason. Following the occurrence of a Change of Control, the Executive may terminate his/her employment for Good Reason. For purposes of this Agreement, "Good Reason" means the occurrence of any of the following, without the express written consent of the Executive, after the occurrence of a Change of Control: 8 (i) the assignment to the Executive of any duties inconsistent in any material adverse respect with the Executive's position, authority or responsibilities, as contemplated by Section 4 of this Agreement, or any other material adverse change in position, titles, reporting lines, authority or responsibilities, including and without limiting the generality of the foregoing, the elimination or substantial reduction of the Executive's duties with the Company, JHFS or any Affiliate resulting in a significant reduction in his position, titles, authority or responsibilities as in effect prior to the Change of Control; (ii) any failure by the Company or JHFS to comply with any of the provisions of Section 5 of this Agreement, other than an insubstantial or inadvertent failure remedied by the Company or JHFS promptly after receipt of notice thereof given by the Executive; (iii) any requirement that the Executive (A) be based at any office or location more than 35 miles (or any such shorter distance as shall be set forth in the Company's (or if applicable, JHFS's) relocation policy as in effect on the Effective Date) from that location at which he/she performed his/her services specified under the provisions of Section 4 immediately prior to the Change of Control, except for travel reasonably required in the performance of the Executive's responsibilities or (B) travel on business on behalf of the Company, JHFS or any Affiliate, as the case may be, to an extent substantially greater than the travel obligations of the Executive immediately prior to the Change in Control; (iv) any failure by the Company or JHFS to obtain the assumption and agreement to perform this Agreement by a successor as contemplated by Section 13(b). In no event shall the mere occurrence of a Change of Control, absent any further impact on the Executive, be deemed to constitute Good Reason. Notwithstanding anything herein to the contrary, termination of employment by the Executive for any reason during the 30-day period commencing ninety (90) days after the date of a Change in Control shall be deemed to constitute Good Reason. (e) Notice of Termination. Any termination by the Company, JHFS or an Affiliate for Cause or by the Executive for Good Reason shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 14(e). 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) sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated, and (iii) if the termination date is other than the date of receipt of such notice, specifies the termination date of this Agreement (which date shall be not more than 15 days after the giving of such notice). In the case of a termination for Good Reason, the Notice of Termination shall be given within 180 days of the Executive's having actual knowledge of the events giving rise to such termination which actual knowledge shall in no event be deemed to have occurred any earlier than the Effective Date. The failure by the Executive to set forth in the Notice of 9 Termination any fact or circumstance which contributes to a showing of Good Reason shall not waive any right of the Executive hereunder or preclude the Executive from asserting such fact or circumstance in enforcing his/her rights hereunder. (f) Date of Termination. For the purpose of this Agreement, the term "Date of Termination" means (i) in the case of a termination for which a Notice of Termination is required, the date of receipt of such Notice of Termination or, if later, the date specified therein, as the case may be, and (ii) in all other cases, the actual date on which the Executive's employment terminates during the Employment Period. 7. Obligations of the Company upon Termination. (a) Death or Disability. If the Executive's employment is terminated during the Employment Period by reason of the Executive's death or Disability, this Agreement shall terminate without further obligations to the Executive or the Executive's legal representatives under this Agreement other than those obligations accrued hereunder at the Date of Termination, and the Company shall pay to the Executive (or his/her beneficiary or estate) (i) the Executive's full Base Salary through the Date of Termination (the "Earned Salary"), (ii) any vested amounts or benefits owing to the Executive under the otherwise applicable employee benefit plans and programs of the Company, JHFS and the Affiliates, including any compensation previously deferred by the Executive (together with any accrued earnings thereon) and not yet paid by the Company, JHFS or an Affiliate and any accrued vacation pay not yet paid by the Company, JHFS or an Affiliate (the "Accrued Obligations"), and (iii) any other benefits payable due to the Executive's death or Disability under the plans, policies or programs of the Company, JHFS and the Affiliates (the "Additional Benefits"). The Earned Salary shall be paid in cash in a single lump sum as soon as practicable, but in no event more than 10 days (or at such earlier date required by law), following the Date of Termination. Accrued Obligations and Additional Benefits shall be paid in accordance with the terms of the applicable plan, program or arrangement. (b) Cause and Voluntary Termination. If, during the Employment Period, the Executive's employment shall be terminated for Cause or voluntarily terminated by the Executive (other than on account of Good Reason following a Change of Control), the Company shall pay the Executive (i) the Earned Salary in cash in a single lump sum as soon as practicable, but in no event more than 10 days, following the Date of Termination, and (ii) the Accrued Obligations in accordance with the terms of the applicable plan, program or arrangement. (c) Termination by the Company other than for Cause. If, during the Employment Period, the Company or JHFS, terminates the Executive's employment other than for Cause, the Company shall provide the Executive with the following benefits: (i) Severance and Other Termination Payments. The Company shall pay the Executive the following: (A) the Executive's Earned Salary; and 10 (B) notwithstanding any plan provisions to the contrary, an amount (the "Pro-Rated Annual Incentive") equal to the target annual bonus applicable to the Executive for the fiscal year in which the Date of Termination occurs, multiplied by a fraction, the numerator of which is the number of completed months in such fiscal year which have elapsed on or before (and including) the Date of Termination and the denominator of which is 12; and (C) notwithstanding any plan provisions to the contrary, an aggregate amount (the "Pro-Rated Long Term Incentives") equal to the sum of the amounts awarded to the Executive in respect of each performance cycle, whether or not vested, then in progress (i.e., each performance cycle, which includes as part of the performance period the fiscal year in which the Date of Termination occurs), as accrued on the books of the Company as of the end of the month preceding the Date of Termination; and (D) the Accrued Obligations; and (E) unless previously paid, an amount (the "Retention Bonus") equal to the retention bonus and all other payments that would have otherwise been payable to the Executive under his special retention arrangement (as established by the Board on August 11, 1997) had he remained employed by the Company as of December 31, 2002; and (F) a cash amount (the "Severance Amount") equal to three times the sum of (1) the Executive's annual Base Salary; and (2) an amount equal to the target annual bonus applicable to the Executive for the fiscal year in which the Change of Control occurs; (3) an amount equal to the long term incentive award granted to the Executive with respect to the performance period commencing in the calendar year 2000. For purposes of this Section 7(c)(i)(F)(3), such award shall be measured by the equity rights awarded to the Executive for such performance period under the terms of the Long-Term Incentive Plan for Senior Executives. The Earned Salary, Pro-Rated Annual Incentive, Pro-Rated Long Term Incentives, Retention Bonus and Severance Amount shall be paid in cash in a single lump sum as soon as practicable, but in no event more than 10 days (or at such earlier date required by law), following the Date of Termination. Accrued Obligations shall be paid in accordance with the terms of the applicable plan, program or arrangement. 11 (ii) Continuation of Benefits. If, during the Employment Period, the Executive's employment is terminated other than for Cause, the Executive (and, to the extent applicable, his/her dependents) shall be entitled, after the Date of Termination until the earlier of (A) the third anniversary of the Date of Termination (the "End Date") and (B) the date the Executive becomes eligible for comparable benefits under a similar plan, policy or program of a subsequent employer, to continue participation in all of the individual and group health (including without limitation medical, dental and disability) and life employee benefits plans maintained by the Company, JHFS or an Affiliate and in which the Executive had been participating prior to the Date of Termination (the "Benefit Plans"). In addition, to the extent that, prior to the Date of Termination, the Company had been paying the premiums on any split-dollar life insurance policy with respect to the Executive, the Company shall, as to any such policy, continue the payment of such premiums until the later of the End Date or the date through which the Company otherwise would have paid premiums on such policy in the absence of a Change of Control. To the extent any such benefits cannot be provided under the terms of the applicable plan, policy or program, the Company shall provide a comparable benefit under another plan or from the Company's general assets. The Executive's participation in the Benefit Plans will be on the same terms and conditions (including, without limitation, any condition that the Executive make contributions toward the cost of such coverage on the same terms and conditions generally applicable to similarly situated employees) that would have applied had the Executive continued to be employed by the Company through the End Date. (iii) Enhanced Retirement Benefits. Regardless of the Executive's age or completed service with the Company on his Date of Termination, the Executive shall (for all purposes in determining the amount of any defined benefit retirement benefits payable, and the retiree medical and retiree life benefits made available, to the Executive and the time at which such benefits may commence to be paid) be deemed to be age 58 1/2 with 25 years of service and shall, upon such Date of Termination, immediately begin receiving his defined benefit retirement benefits without any actuarial reduction for early commencement. In addition, the Executive shall, upon Date of Termination, be entitled to receive from the Company all of the perquisites customarily provided to retired Chief Executive Officers of the Company. The pension payable to the Executive shall, notwithstanding anything to the contrary in any plan that is less favorable to the Executive, be determined based upon the higher of (i) the Executive's compensation (consisting of Base Salary plus incentive compensation) during the 36 month period ending on June 30, 2009 or (ii) the Executive's highest 3 consecutive calendar years of compensation (consisting of Base Salary plus incentive compensation) during the 10 year period ending June 30, 2009; provided that in making these determinations, for the period beginning with the Date of Termination and ending on December 31, 2009, the Executive shall be deemed to have received his Base Salary plus incentive compensation based upon achieving target performance goals. Notwithstanding anything else contained in this Agreement to the contrary, the benefit described in this Section 7(c)(iii) shall be made available to the Executive upon any termination of employment, regardless of 12 whether occurring within the Employment Period, of a nature that would have constituted a termination by the Company without Cause or by the Executive for Good Reason if it had occurred during the Employment Period (i.e., the Executive shall be entitled to receive this benefit due to a qualifying termination even if occurring more than three years after the Effective Date). Notwithstanding the foregoing, the Executive shall not receive any service credit for any period after the Executive has attained age 65. (iv) Payment of Mandatorily Deferred Incentive Compensation Payments. To the extent not earlier paid in accordance with the terms and conditions of the governing plan documents, all amounts, if any, that had been determined to be payable to the Executive under any long term incentive compensation program, but the payment of which was mandatorily deferred under the terms and conditions of such governing documents, shall be paid (plus all earnings credited with respect thereto) in a single lump sum payment, as soon as practicable after the next succeeding valuation date under the applicable plans, but in no event later than the first March 15 following the Executive's Date of Termination. (v) Outplacement Services. The Executive shall be provided at the Company's expense with outplacement services customary for executives at his/her level (including, without limitation, office space and telephone support services) provided by a qualified and experienced third party provider selected by the Company. (d) Termination by the Executive for Good Reason. If, during the Employment Period, the Executive terminates his/her employment for Good Reason, the Company shall pay to the Executive the same amounts as would be payable to the Executive under Section 7(c) if such termination were a termination by the Company or JHFS without Cause. (e) Discharge of the Company's and JHFS's Obligations. Except as expressly provided in the last sentence of this Section 7(e), the amounts payable to the Executive pursuant to this Section 7 following termination of his/her employment shall be in full and complete satisfaction of the Executive's rights under this Agreement and any other claims he/she may have in respect of his/her employment by the Company, JHFS or the Affiliates. Such amounts shall constitute liquidated damages with respect to any and all such rights and claims and, upon the Executive's receipt of such amounts, the Company, JHFS and each of their Affiliates shall be released and discharged from any and all liability to the Executive in connection with this Agreement or otherwise in connection with the Executive's employment with the Company, JHFS and their Affiliates. Nothing in this Section 7(e) shall be construed to release the Company or JHFS, as applicable, from its commitment to indemnify the Executive and hold the Executive harmless from and against any claim, loss or cause of action arising from or out of the Executive's performance as an officer, director or employee of the Company, JHFS or any of their Affiliates or in any other capacity, including any fiduciary capacity, in which the Executive served at the request of the Company or JHFS to the maximum extent permitted by applicable law and the Governing Documents. 13 (f) Certain Further Payments by the Company. (i) In the event that any amount or benefit paid or distributed to the Executive pursuant to this Agreement and/or any amounts or benefits otherwise paid or distributed (whether or not paid or distributed pursuant to a plan or program maintained by the Company or JHFS) to the Executive by the Company, JHFS or any Affiliate, including without limitation, the present value of any amounts or benefits that otherwise become payable to the Executive by the Company, JHFS or any Affiliate or otherwise become nonforfeitable because of the lapse or termination of any restrictions thereon as a result of a Change of Control (collectively, the "Covered Payments"), are or become subject to the tax (the "Excise Tax") imposed under Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), or any similar tax that may hereafter be imposed, the Company shall pay to the Executive at the time specified in Section 7(f)(v) below an additional amount ("Tax Reimbursement Payment") such that the net amount retained by the Executive with respect to such Covered Payments, after deduction of any Excise Tax on the Covered Payments and any Federal, state and local income or employment tax and Excise Tax on the Tax Reimbursement Payment provided for by this Section 7(f), but before deduction for any Federal, state or local income or employment tax withholding on such Covered Payments, shall be equal to the amount of the Covered Payments. (ii) For purposes of determining whether any of the Covered Payments will be subject to the Excise Tax and the amount of such Excise Tax, (A) such Covered Payments will be treated as "parachute payments" within the meaning of Section 280G of the Code, and all "parachute payments" in excess of the "base amount" (as defined under Section 280G(b)(3) of the Code) shall be treated as subject to the Excise Tax, unless, and except to the extent that, in the good faith judgment of the Company's independent certified public accountants appointed prior to the Change of Control Date or tax counsel selected by such accountants (the "Accountants"), the Company has a reasonable basis to conclude that such Covered Payments (in whole or in part) either do not constitute "parachute payments" or represent reasonable compensation for personal services actually rendered (within the meaning of Section 280G(b)(4)(B) of the Code) in excess of the "base amount," or such "parachute payments" are otherwise not subject to such Excise Tax, and (B) the value of any non-cash benefits or any deferred payment or benefit shall be determined by the Accountants in accordance with the principles of Section 280G of the Code. (iii) For purposes of determining the amount of the Tax Reimbursement Payment, the Executive shall be deemed to pay: 14 (A) Federal income taxes at the highest applicable marginal rate of Federal income taxation for the calendar year in which the Tax Reimbursement Payment is to be made, and (B) any applicable state and local income taxes at the highest applicable marginal rate of taxation for the calendar year in which the Tax Reimbursement Payment is to be made, net of the maximum reduction in Federal income taxes which could be obtained from the deduction of such state or local taxes if paid in such year. (iv) In the event that the Excise Tax is subsequently determined by the Accountants or pursuant to any proceeding or negotiations with the Internal Revenue Service to be less than the amount taken into account hereunder in calculating the Tax Reimbursement Payment made, the Executive shall repay to the Company, at the time that the amount of such reduction in the Excise Tax is finally determined, the portion of such prior Tax Reimbursement Payment that would not have been paid if such Excise Tax had been applied in initially calculating such Tax Reimbursement Payment, plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. Notwithstanding the foregoing, in the event any portion of the Tax Reimbursement Payment to be refunded to the Company has been paid to any Federal, state or local tax authority, repayment thereof shall not be required until actual refund or credit of such portion has been made to the Executive, and interest payable to the Company shall not exceed interest received or credited to the Executive by such tax authority for the period it held such portion. The Executive and the Company shall mutually agree upon the course of action to be pursued (and the method of allocating the expenses thereof) if the Executive's good faith claim for refund or credit is denied. In the event that the Excise Tax is later determined by the Accountants or pursuant to any proceeding or negotiations with the Internal Revenue Service to exceed the amount taken into account hereunder at the time the Tax Reimbursement Payment is made (including, but not limited to, by reason of any payment the existence or amount of which cannot be determined at the time of the Tax Reimbursement Payment), the Company shall make an additional Tax Reimbursement Payment in respect of such excess (plus any interest or penalty payable with respect to such excess) at the time that the amount of such excess is finally determined. (v) Any Tax Reimbursement Payment (or portion thereof) payable in accordance with Section 7(f)(i) above shall be paid to the Executive as of the date of the payment (or acceleration of vesting or lapse of restrictions as a result of a Change of Control, as the case may be) of the Covered Payments; provided, however, that if the amount of such Tax Reimbursement Payment (or portion thereof) cannot be finally determined on or before the date on which payment is due, the Company shall pay to the Executive by such date an amount estimated in good faith by the Accountants to be the minimum amount of such Tax Reimbursement Payment and shall pay the remainder of such Tax Reimbursement Payment (together with interest at the rate provided in Section 1274(b)(2)(B) of the 15 Code) as soon as the amount thereof can be determined, but in no event later than 45 calendar days after payment of the related Covered Payment. In the event that the amount of the estimated Tax Reimbursement Payment exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to the Executive, payable on the fifth business day after written demand by the Company for payment (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code). 8. Non-exclusivity of Rights. Except as expressly provided herein, nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any benefit, bonus, incentive or other plan or program provided by the Company, JHFS or any of its Affiliates and for which the Executive may qualify, nor shall anything herein limit or otherwise prejudice such rights as the Executive may have under any other agreements with the Company, JHFS or any of its Affiliates, including employment agreements or stock option agreements. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan or program of the Company, JHFS or any of its Affiliates at or subsequent to the Date of Termination shall be payable in accordance with such plan or program. 9. No Offset. The Company's or JHFS's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any circumstances, including, without limitation, any set-off, counterclaim, recoupment, defense or other right which the Company, JHFS or any of their Affiliates may have against the Executive or others whether by reason of the Executive's breach of this Agreement, subsequent employment of the Executive, or otherwise. 10. Legal Fees and Expenses. If the Executive asserts any claim in any contest (whether initiated by the Executive or by the Company) as to the validity, enforceability or interpretation of any provision of this Agreement, the Company shall pay the Executive's legal expenses (or cause such expenses to be paid) including, without limitation, his/her reasonable attorney's fees, on a quarterly basis, upon presentation of proof of such expenses, provided that the Executive shall reimburse the Company for such amounts, plus simple interest thereon at the 90-day United States Treasury Bill rate as in effect from time to time, compounded annually, if the arbitrator referred to in Section 14(b) or a court of competent jurisdiction shall find that the Executive did not have a good faith and reasonable basis to believe that he/she would prevail as to at least one material issue presented to such arbitrator or court. 11. Confidential Information; Company Property. By and in consideration of the salary and benefits to be provided by the Company, JHFS or an Affiliate hereunder, including the severance arrangements set forth herein, the Executive agrees that: (a) Confidential Information. The Executive shall hold in a fiduciary capacity for the benefit of the Company, JHFS and the Affiliates, all secret or confidential information, knowledge or data relating to the Company, JHFS or the Affiliates, and their respective businesses, (i) obtained by the Executive during his/her employment by the Company, JHFS or the Affiliates and (ii) not otherwise public knowledge (other than by reason of an unauthorized act by the Executive). After termination of the Executive's employment, the 16 Executive shall not, without the prior written consent of the Company, unless compelled pursuant to an order of a court or other body having jurisdiction over such matter, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. (b) Nonsolicitation of Employees. The Executive agrees that for two years after the Date of Termination, he/she will not attempt, directly or indirectly, to induce any employee of the Company, JHFS or an Affiliate to be employed or perform services elsewhere or otherwise to cease providing services to the Company, JHFS or the Affiliates. (c) Return of Property. Except as expressly provided herein, promptly following the Executive's termination of employment, the Executive shall return to the Company, JHFS and the Affiliates all property of the Company, JHFS and the Affiliates (as the case may be) and all copies thereof in the Executive's possession or under his/her control. (d) Injunctive Relief and Other Remedies with Respect to Covenants. The Executive acknowledges and agrees that the covenants and obligations of the Executive with respect to confidentiality and the return of property relate to special, unique and extraordinary matters and that a violation of any of the terms of such covenants and obligations will cause the Company, JHFS and/or their Affiliates irreparable injury for which adequate remedies are not available at law. Therefore, the Executive agrees that the Company, JHFS and the Affiliates shall be entitled to an injunction, restraining order or such other equitable relief (without the requirement to post bond) restraining Executive from committing any violation of the covenants and obligations contained in this Section 11. These remedies are cumulative and are in addition to any other rights and remedies the Company, JHFS and/or the Affiliates may have at law or in equity. In no event shall an asserted violation of the provisions of this Section 11 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. 12. Obligations of the Company and JHFS. The obligations of the Company and JHFS are intended to be joint and several. If for any reason, either the Company or JHFS does not, or is unable to, honor its obligations under this Agreement, the other party shall satisfy all obligations not honored by the other party. 13. Successors. (a) This Agreement is personal to the Executive and, without the prior written consent of the Company and JHFS, 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 JHFS, the Company and each of its successors. The Company and JHFS, as applicable, shall require any successor to all or substantially all of the business and/or assets of the Company or JHFS, whether direct or indirect, by purchase, merger, consolidation, acquisition of stock, or otherwise, by an agreement in form and substance satisfactory to the Executive, expressly to assume and agree to perform this Agreement in the same manner and to the same extent as the Company and JHFS would be required to perform if no such succession had taken place. 17 14. Miscellaneous. (a) Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the States of Delaware, applied without reference to principles of conflict of laws. (b) Arbitration. Except to the extent provided in Section 11(d), any dispute or controversy arising under or in connection with this Agreement shall be resolved by binding arbitration. The arbitration shall be held in the city of Boston, Massachusetts and, except to the extent inconsistent with this Agreement, shall be conducted in accordance with the Expedited Employment Arbitration Rules of the American Arbitration Association then in effect at the time of the arbitration (or such other rules as the parties may agree to in writing), and otherwise in accordance with principles which would be applied by a court of law or equity. The arbitrator shall be acceptable to all of the Company, JHFS and the Executive. If the parties cannot agree on an acceptable arbitrator, the dispute shall be heard by a panel of three arbitrators, one appointed by the Company and JHFS, one appointed by the Executive, and the third appointed by the other two arbitrators. (c) Amendments. 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. (d) Entire Agreement. Subject to Section 8 herein, this Agreement constitutes the entire agreement between the parties hereto with respect to the matters referred to herein. No other agreement relating to the terms of the Executive's employment by the Company, JHFS or any Affiliate, oral or otherwise, shall be binding among the parties unless it is in writing and signed by the party against whom enforcement is sought. There are no promises, representations, inducements or statements among the parties other than those that are expressly contained herein. The Executive acknowledges that he/she is entering into this Agreement of his/her own free will and accord, and with no duress, that he/she has read this Agreement and that he/she understands it and its legal consequences. (e) Notices. All notices and other communications hereunder shall be in writing and shall be given by hand-delivery to the other parties or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: at the home address of the Executive noted on the records of the Company If to the Company: 200 Clarendon Street Boston, Massachusetts Attn.: Secretary If to JHFS: 200 Clarendon Street Boston, Massachusetts Attn.: Secretary 18 or to such other address as any party shall have furnished to the others in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (f) Tax Withholding. The Company shall withhold from any amounts payable under this Agreement such Federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. (g) Severability; Reformation. In the event that one or more of the provisions of this Agreement shall become invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not be affected thereby. In the event that any of the provisions of Section 11(a) are not enforceable in accordance with its terms, the Executive and the Company and JHFS agree that such Section shall be reformed to make such Section enforceable in a manner which provides the Company and JHFS the maximum rights permitted at law. (h) Waiver. Waiver by any party hereto of any breach or default by any party of any of the terms of this Agreement shall not operate as a waiver of any other breach or default, whether similar to or different from the breach or default waived. No waiver of any provision of this Agreement shall be implied from any course of dealing among the parties hereto or from any failure by any party hereto to assert its or his/her rights hereunder on any occasion or series of occasions. (i) Survival. The provisions of Section 5(h), 7(c), 7(d), 7(f), 12 and 13 shall survive the termination of the Employment Period hereunder and shall be binding upon and enforceable against the Company and JHFS in accordance with their terms. The dispute resolutions provisions contained in Section 14(b) and the legal fees provision contained in Section 10 shall also survive the end of the Employment Period and shall be applied as though the dispute arose within the Employment Period. (j) Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. (k) Captions. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. 19 IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and the Company and JHFS have caused this Agreement to be executed in their respective names and on their behalf, all as of the day and year first above written. JOHN HANCOCK LIFE INSURANCE COMPANY By: ________________________________ Name: Wayne A. Budd Title: Executive Vice President JOHN HANCOCK FINANCIAL SERVICES, INC. By: ________________________________ Name: Wayne A. Budd Title: Executive Vice President EXECUTIVE: ____________________________________ 20 EX-10.28 6 ex10-28.txt Exhibit 10.28 SECOND AMENDED AND RESTATED EMPLOYMENT CONTINUATION AGREEMENT THIS SECOND AMENDED AND RESTATED AGREEMENT by and among John Hancock Life Insurance Company, a Massachusetts corporation (the "Company"), John Hancock Financial Services, Inc., a Delaware corporation ("JHFS") and Derek Chilvers (the "Executive"), dated as of the 15th day of October, 2001. W I T N E S S E T H : WHEREAS, the Executive has been employed as an officer of the Company and/or JHFS, and it has been determined that the Executive holds an important position with the Company and/or JHFS; WHEREAS, the Company and JHFS believe that, in the event of a situation that could result in a change in ownership or control of the Company or JHFS, continuity of management will be essential to their ability to evaluate and respond to such a situation in the best interests of shareholders; WHEREAS, the Company and JHFS understand that any such situation will present significant concerns for the Executive with respect to his/her financial and job security; WHEREAS, to assure themselves of the Executive's services during the period in which they are confronting such a situation, and to provide the Executive certain financial assurances to enable the Executive to perform the responsibilities of his/her position without undue distraction and to exercise his/her judgment without bias due to his/her personal circumstances, the Company, JHFS and the Executive previously entered into this Agreement to provide the Executive with certain rights and obligations upon the occurrence of a Change of Control or Potential Change of Control (as each such term is defined in Section 2 hereof); WHEREAS, the Executive, the Company and JHFS have determined that the Agreement should be amended and restated to further clarify and refine benefits and protections provided to the Executive in the event of a Change of Control or Potential Change of Control; NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, it is hereby agreed among the Company, JHFS and the Executive as follows: 1. Operation of Agreement. (a) Effective Date. The effective date of this Agreement shall be the date on which a Change of Control occurs (the "Effective Date"), provided that, except as provided in Section 1(b), if the Executive is not employed by the Company, JHFS or an Affiliate on the Effective Date, this Agreement shall be void and without effect. (b) Termination of Employment Following a Potential Change of Control. Notwithstanding Section 1(a), if (i) the Executive's employment with the Company, JHFS or an Affiliate is terminated without Cause (as defined in Section 6(c)) after the occurrence of a Potential Change of Control and prior to the occurrence of a Change of Control and (ii) a Change of Control occurs within two years of such termination, the Executive shall be deemed, solely for purposes of determining his/her rights under this Agreement, to have remained employed until the date such Change of Control occurs and to have been terminated by the Company, JHFS or (if applicable) the Affiliate without Cause immediately after this Agreement becomes effective, with any amounts payable hereunder reduced by the amount of any other severance benefits provided to him in connection with such termination. 2. Definitions. (a) "Affiliate" shall mean any corporation, partnership, limited liability company, trust or other entity which directly, or indirectly through one or more intermediaries, controls, or is controlled by, the Company, or JHFS. (b) "Board" shall mean the Board of Directors of the Company. (c) "Company" means John Hancock Life Insurance Company. (d) "Change of Control" shall be deemed to have occurred if: (i) any Person (as defined below) has acquired, "beneficial ownership" (within the meaning of Rule 13d-3, as promulgated under Section 13(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), directly or indirectly, of securities of the Company or JHFS representing 30% or more of the combined Voting Power (as defined below) of the securities of the Company or JHFS; provided, however, that the event described in this paragraph (i) shall not be deemed to be a Change in Control by virtue of an acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company, JHFS or any Affiliate; or (ii) within any 24-month period, the persons who, at the beginning of such period, were members of the Board (the "Incumbent Company Directors") shall cease to constitute at least a majority of the Board or the board of directors of any successor to the Company; provided, however, that any director elected to the Board, or nominated for election to the Board, by at least two-thirds (2/3) of the Incumbent Company Directors then still in office shall be deemed to be an Incumbent Company Director for purposes of this subclause (ii); provided, however, that no individual initially elected or nominated for election to the Board as a result of an actual or threatened election contest with respect to directors or as a result of any other actual or threatened solicitation of proxies by or on behalf of any Person other than the Board shall be deemed to be an Incumbent Company Director; or (iii) within any 24-month period, the persons who, at the beginning of such period, were members of the JHFS Board (the "Incumbent JHFS Directors") 2 shall cease to constitute at least a majority of the JHFS Board or the board of directors of any successor to JHFS; provided, however, that any director elected to the JHFS Board, or nominated for election to the JHFS Board, by at least two-thirds (2/3) a majority of the Incumbent JHFS Directors then still in office shall be deemed to be an Incumbent JHFS Director for purposes of this subclause (iii); provided, however, that no individual initially elected or nominated for election to the JHFS Board as a result of an actual or threatened election contest with respect to directors or as a result of any other actual or threatened solicitation of proxies by or on behalf of any Person other than the JHFS Board shall be deemed to be an Incumbent JHFS Director; or (iv) upon the consummation of a merger, consolidation, share exchange, division, sale or other disposition of all or substantially all of the assets of the Company (a "Company Corporate Event") and immediately following the consummation of which the stockholders of the Company, immediately prior to such Company Corporate Event do not hold, directly or indirectly, a majority of the Voting Power of (A) in the case of a merger or consolidation, the surviving or resulting corporation, (B) in the case of a statutory share exchange, the acquiring corporation, (C) in the case of a division or a sale or other disposition of assets, each surviving, resulting or acquiring corporation which, immediately following the relevant Company Corporate Event, holds more than 25% of the consolidated assets of the Company immediately prior to such Company Corporate Event, provided that no Change of Control shall be deemed to have occurred if the Executive is employed, immediately following such Company Corporate Event, by any entity in which the stockholders of the Company immediately prior to such Company Corporate Event hold, directly or indirectly, a majority of the Voting Power; Provided that in each case such majority of the Voting Power is represented by securities of the Company that were outstanding immediately prior to such Company Corporate Event (or, if applicable, is represented by shares into which such securities of the Company were converted pursuant to such Company Corporate Event); or (v) upon the consummation of a merger, consolidation, share exchange, division, sale or other disposition of all or substantially all of the assets of JHFS which has been approved by the stockholders of JHFS (a "JHFS Corporate Event"), and immediately following the consummation of which the stockholders of JHFS immediately prior to such JHFS Corporate Event do not hold, directly or indirectly, a majority of the Voting Power of 3 (A) in the case of a merger or consolidation, the surviving or resulting corporation, (B) in the case of a statutory share exchange, the acquiring corporation, or (C) in the case of a division or a sale or other disposition of assets, each surviving, resulting or acquiring corporation which, immediately following the relevant JHFS Corporate Event, holds more than 25% of the consolidated assets of JHFS immediately prior to such JHFS Corporate Event, provided that no Change of Control shall be deemed to have occurred if the Executive is employed, immediately following such JHFS Corporate Event, by any entity in which the stockholders of JHFS immediately prior to such JHFS Corporate Event hold, directly or indirectly, a majority of the Voting Power; Provided that in each case such majority of the Voting Power is represented by securities of JHFS that were outstanding immediately prior to such JHFS Corporate Event (or, if applicable, is represented by shares into which such securities of JHFS were converted pursuant to such JHFS Corporate Event); or (vi) any other event occurs which the Board or the JHFS Board declares to be a Change of Control. (e) "JHFS" means John Hancock Financial Services, Inc. (f) "JHFS Board" means the Board of Directors of JHFS and, after a Change in Control that constitutes a Company Corporate Event or a JHFS Corporate Event, the Board Directors of the Parent. (g) "Parent" shall mean any corporation, partnership, limited liability company, business trust or other entity which owns, directly or indirectly, more than 50% of the Voting Power in the Company or JHFS. (h) "Person" shall have the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act, as supplemented by Section 13(d)(3) of the Exchange Act; provided, however, that Person shall not include (i) the Company, JHFS, or any Affiliate or (ii) any employee benefit plan sponsored by the entities described in clause (i) of this definition. (i) "Potential Change of Control" shall be deemed to have occurred if: (i) a Person commences a tender offer (with adequate financing) for securities representing at least 10% of the Voting Power of the JHFS's securities; (ii) the Company or JHFS enters into an agreement the consummation of which would constitute a Change of Control; 4 (iii) proxies for the election of directors of JHFS are solicited by anyone other than JHFS; or (iv) any other event occurs which is deemed to be a Potential Change of Control by the JHFS Board. (j) "Voting Power" shall mean such number of the Voting Securities as shall enable the holders thereof to cast such percentage of all the votes which could be cast in an annual election of directors. (k) "Voting Securities" shall mean all securities of a company entitling the holders thereof to vote in an annual election of directors. 3. Employment Period. Subject to Section 6 of this Agreement, the Company (or if applicable, JHFS) agrees to continue the Executive in its employ, and the Executive agrees to remain in the employ of the Company or, if applicable, JHFS for the period (the "Employment Period") commencing on the Effective Date and ending on the third anniversary of the Effective Date. Notwithstanding the foregoing, if, prior to the Effective Date, the Executive is demoted to a lower position than the position held on the date first set forth above, the Board (or if applicable, the JHFS Board) may declare that this Agreement shall be without force and effect by written notice delivered to the Executive (i) within 30 days following such demotion and (ii) prior to the occurrence of a Potential Change of Control or a Change of Control. 4. Position and Duties. (a) No Reduction in Position. During the Employment Period, the Executive's position (including titles), authority and responsibilities with the Company, JHFS and each of the Affiliates shall be, both individually and in the aggregate, at least commensurate with those held, exercised and assigned immediately prior to the Effective Date. It is understood that, for purposes of this Agreement, such position, authority and responsibilities shall not be regarded as not commensurate merely by virtue of the fact that a successor shall have acquired all or substantially all of the business and/or assets of the Company as contemplated by Section 13(b) of this Agreement. The Executive's services shall be performed at the location where the Executive was employed immediately preceding the Effective Date. (b) Business Time. From and after the Effective Date, the Executive agrees to devote substantially all of his/her attention during normal business hours to the business and affairs of the Company, JHFS and the Affiliates and to use his/her reasonable best efforts to perform the responsibilities assigned to him hereunder, to the extent necessary to discharge such responsibilities, except for (i) time spent in managing his/her personal, financial and legal affairs and serving on corporate, civic or charitable boards or committees, in each case only if and to the extent not substantially interfering with the performance of such responsibilities, and (ii) periods of vacation and sick leave to which he/she is entitled. It is expressly understood and agreed that the Executive's continuing to serve on any boards and committees on which he/she is serving or with which he/she is otherwise associated immediately preceding the Effective Date shall not be deemed to 5 interfere with the performance of the Executive's services for the Company, JHFS or the Affiliates. 5. Compensation. (a) Base Salary. During the Employment Period, the Executive shall receive a base salary at a monthly rate at least equal to the monthly salary paid to the Executive by the Company, JHFS and any Affiliate immediately prior to the Effective Date. The base salary shall be reviewed at least once each year after the Effective Date, and may be increased (but not decreased) at any time and from time to time by action of the Board or JHFS Board, as the case may be, or any committee thereof or any individual having authority to take such action in accordance with the Company's (or if applicable, JHFS's) regular practices. The Executive's base salary, as it may be increased from time to time, shall hereafter be referred to as "Base Salary". Neither the Base Salary nor any increase in Base Salary after the Effective Date shall serve to limit or reduce any other obligation of the Company or JHFS hereunder. (b) Annual Bonus. During the Employment Period, in addition to the Base Salary, for each fiscal year of the Company ending during the Employment Period, the Executive shall be afforded the opportunity to receive an annual bonus on terms and conditions no less favorable to the Executive (taking into account reasonable changes in the applicable corporate goals and objectives and taking into account actual performance) than the annual bonus opportunity that had been made available to the Executive for the fiscal year ended immediately prior to the Effective Date (the "Annual Bonus Opportunity"). Any amount payable in respect of the Annual Bonus Opportunity shall be paid as soon as practicable following the year for which the amount (or prorated portion) is earned or awarded, unless electively deferred by the Executive pursuant to any deferral programs or arrangements that the Company, JHFS or any of its Affiliates may make available to the Executive. (c) Long-term Incentive Compensation Programs. During the Employment Period, the Executive shall participate in all long-term incentive compensation programs (including, without limitation, programs providing for the grant of stock options and other equity-based awards) for key executives at a level that is commensurate with the Executive's participation in such plans immediately prior to the Effective Date, or, if more favorable to the Executive, at the level made available to the Executive or other similarly situated officers at any time thereafter. (d) Benefit Plans. During the Employment Period, the Company shall provide to the Executive (and to the extent applicable, his/her dependents) pension, retirement, deferred compensation, savings, medical, dental, health, disability, life and accidental death coverages, both individual and group, at a level that is commensurate with the coverage to which the Executive was entitled under plans sponsored by the Company, JHFS or any affiliate immediately prior to the Effective Date, or, if more favorable to the Executive, at the level made available to the Executive or other similarly situated officers at any time thereafter. The Executive shall be entitled to such benefits subject to the same terms and conditions (including, without limitation, any requirement that the Executive make contributions toward the cost of such coverage) that applied immediately prior to the Effective Date, or, if more favorable to the Executive, as are made applicable to the Executive or other similarly situated officers at any time thereafter. To the extent such benefits cannot be provided under the terms of a benefit plan, policy or program sponsored 6 by the Company, JHFS or any affiliate, as the case may be, the Company shall provide a comparable benefit under another plan or from the Company's general assets. (e) Expenses. During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the policies and procedures of the Company as in effect immediately prior to the Effective Date. Notwithstanding the foregoing, the Company may apply the policies and procedures in effect after the Effective Date to the Executive, if such policies and procedures are not less favorable to the Executive than those in effect immediately prior to the Effective Date. (f) Vacation and Fringe Benefits. During the Employment Period, the Executive shall be entitled to paid vacation and fringe benefits (including, without limitation, any split-dollar life insurance arrangements) at a level that is commensurate with the paid vacation and fringe benefits available to the Executive immediately prior to the Effective Date, or, if more favorable to the Executive, at the level made available from time to time to the Executive or other similarly situated officers at any time thereafter. (g) Indemnification. During and after the Employment Period, the Company and JHFS shall indemnify the Executive and hold the Executive harmless from and against any claim, loss or cause of action arising from or out of the Executive's performance as an officer, director or employee of JHFS, the Company or any of their Affiliates or in any other capacity, including any fiduciary capacity, in which the Executive serves at the request of the Company to the maximum extent permitted by applicable law and the Certificate of Incorporation and By-Laws of JHFS or the Company, as the case may be (the "Governing Documents"), provided that in no event shall the protection afforded to the Executive hereunder be less than that afforded under the Governing Documents as in effect immediately prior to the Effective Date. (h) Office and Support Staff. The Executive shall be entitled to an office with furnishings and other appointments, and to secretarial and other assistance, at a level that is at least commensurate with the foregoing provided to the Executive immediately prior to the Change of Control. 6. Termination. (a) Death, Disability or Retirement. Subject to the provisions of Section 1 hereof, this Agreement shall terminate automatically upon the Executive's death, termination due to "Disability" (as defined below) or voluntary retirement under any of the retirement plans of the Company or JHFS (or, if applicable, an Affiliates) has in effect from time to time. For purposes of this Agreement, Disability shall mean the Executive has met the conditions to qualify for long-term disability benefits under the long term disability plan or policy the Company or JHFS (or, if applicable, an Affiliate), has in effect immediately prior to the Effective Date. (b) Voluntary Termination. Notwithstanding anything in this Agreement to the contrary, following a Change of Control the Executive may, upon not less than 60 days' written notice to the Company (or, if applicable, JHFS), voluntarily terminate employment for any reason (including early retirement under the terms of any retirement plans maintained by the Company, JHFS or an Affiliate, as in effect from time to time), provided 7 that any termination by the Executive pursuant to Section 6(d) on account of Good Reason (as defined therein) shall not be treated as a voluntary termination under this Section 6(b). (c) Cause. The Company, JHFS or an Affiliate that employs the Executive may terminate the Executive's employment for Cause. For purposes of this Agreement, "Cause" means (i) the Executive's conviction or plea of nolo contendere to a felony related to fraud or dishonesty; (ii) an act or acts of dishonesty or gross misconduct on the Executive's part which result or are intended to result in material damage to the Company's, JHFS's or an Affiliate's business or reputation; or (iii) repeated material violations by the Executive of his/her obligations under Section 4 of this Agreement, which violations are demonstrably willful and deliberate on the Executive's part and which result in material damage to the Company's, JHFS's or an Affiliate's business or reputation. Cause shall not exist unless and until JHFS has delivered to Executive a copy of a resolution duly adopted by three-quarters (3/4) of the entire JHFS Board (excluding the Executive if the Executive is a JHFS Board member) at a meeting of the JHFS Board called and held for such purpose (after reasonable notice to the Executive and an opportunity for the Executive, together with counsel, to be heard before the JHFS Board), finding that in the good faith opinion of the JHFS Board an event set forth in subclauses (i), (ii), or (iii) has occurred and specifying the particulars thereof in detail. The Company, JHFS or an Affiliate must notify the Executive of any event that it alleges constitutes Cause within ten (10) business days following the Company's, JHFS's or an Affiliate's knowledge, as the case may be, of its existence, and notify the Executive at least ten (10) business days prior to the board proceedings described above, or such event shall not constitute Cause under this Agreement. (d) Good Reason. Following the occurrence of a Change of Control, the Executive may terminate his/her employment for Good Reason. For purposes of this Agreement, "Good Reason" means the occurrence of any of the following, without the express written consent of the Executive, after the occurrence of a Change of Control: (i) the assignment to the Executive of any duties inconsistent in any material adverse respect with the Executive's position, authority or responsibilities, as contemplated by Section 4 of this Agreement, or any other material adverse change in position, titles, authority or responsibilities, including and without limiting the generality of the foregoing, the elimination or substantial reduction of the Executive's duties with the Company, JHFS or any Affiliate resulting in a significant reduction in his position, titles, authority or responsibilities as in effect prior to the Change of Control; (ii) any failure by the Company or JHFS to comply with any of the provisions of Section 5 of this Agreement, other than an insubstantial or inadvertent failure remedied by the Company or JHFS promptly after receipt of notice thereof given by the Executive; 8 (iii) any requirement that the Executive (A) be based at any office or location more than 35 miles (or any such shorter distance as shall be set forth in the Company's (or if applicable, JHFS's) relocation policy as in effect on the Effective Date) from that location at which he/she performed his/her services specified under the provisions of Section 4 immediately prior to the Change of Control, except for travel reasonably required in the performance of the Executive's responsibilities or (B) travel on business on behalf of the Company, JHFS or any Affiliate, as the case may be, to an extent substantially greater than the travel obligations of the Executive immediately prior to the Change in Control; (iv) any failure by the Company or JHFS to obtain the assumption and agreement to perform this Agreement by a successor as contemplated by Section 13(b). In no event shall the mere occurrence of a Change of Control, absent any further impact on the Executive, be deemed to constitute Good Reason. (e) Notice of Termination. Any termination by the Company, JHFS or an Affiliate for Cause or by the Executive for Good Reason shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 14(e). 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) sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated, and (iii) if the termination date is other than the date of receipt of such notice, specifies the termination date of this Agreement (which date shall be not more than 15 days after the giving of such notice). In the case of a termination for Good Reason, the Notice of Termination shall be given within 180 days of the Executive's having actual knowledge of the events giving rise to such termination which actual knowledge shall in no event be deemed to have occurred any earlier than the Effective Date. The failure by the Executive to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason shall not waive any right of the Executive hereunder or preclude the Executive from asserting such fact or circumstance in enforcing his/her rights hereunder. (f) Date of Termination. For the purpose of this Agreement, the term "Date of Termination" means (i) in the case of a termination for which a Notice of Termination is required, the date of receipt of such Notice of Termination or, if later, the date specified therein, as the case may be, and (ii) in all other cases, the actual date on which the Executive's employment terminates during the Employment Period. 7. Obligations of the Company upon Termination. (a) Death or Disability. If the Executive's employment is terminated during the Employment Period by reason of the Executive's death or Disability, this Agreement shall terminate without further obligations to the Executive or the Executive's legal representatives under this Agreement other than those obligations accrued hereunder at the Date of Termination, and the Company shall pay to the Executive (or his/her beneficiary or estate) (i) the Executive's full Base Salary through the Date of Termination (the "Earned Salary"), (ii) any vested amounts or benefits owing to the Executive under the otherwise applicable employee benefit plans and 9 programs of the Company, JHFS and the Affiliates, including any compensation previously deferred by the Executive (together with any accrued earnings thereon) and not yet paid by the Company, JHFS or an Affiliate and any accrued vacation pay not yet paid by the Company, JHFS or an Affiliate (the "Accrued Obligations"), and (iii) any other benefits payable due to the Executive's death or Disability under the plans, policies or programs of the Company, JHFS and the Affiliates (the "Additional Benefits"). The Earned Salary shall be paid in cash in a single lump sum as soon as practicable, but in no event more than 10 days (or at such earlier date required by law), following the Date of Termination. Accrued Obligations and Additional Benefits shall be paid in accordance with the terms of the applicable plan, program or arrangement. (b) Cause and Voluntary Termination. If, during the Employment Period, the Executive's employment shall be terminated for Cause or voluntarily terminated by the Executive (other than on account of Good Reason following a Change of Control), the Company shall pay the Executive (i) the Earned Salary in cash in a single lump sum as soon as practicable, but in no event more than 10 days, following the Date of Termination, and (ii) the Accrued Obligations in accordance with the terms of the applicable plan, program or arrangement. (c) Termination by the Company other than for Cause. If, during the Employment Period, the Company or JHFS, terminates the Executive's employment other than for Cause, the Company shall provide the Executive with the following benefits: (i) Severance and Other Termination Payments. The Company shall pay the Executive the following: (A) the Executive's Earned Salary; and (B) notwithstanding any plan provisions to the contrary, an amount (the "Pro-Rated Annual Incentive") equal to the target annual bonus applicable to the Executive for the fiscal year in which the Date of Termination occurs, multiplied by a fraction, the numerator of which is the number of completed months in such fiscal year which have elapsed on or before (and including) the Date of Termination and the denominator of which is 12; and (C) notwithstanding any plan provisions to the contrary, an aggregate amount (the "Pro-Rated Long Term Incentives") equal to the sum of the amounts awarded to the Executive in respect of each performance cycle, whether or not vested, then in progress (i.e., each performance cycle, which includes as part of the performance period the fiscal year in which the Date of Termination occurs), as accrued on the books of the Company as of the end of the month preceding the Date of Termination; and (D) the Accrued Obligations; and 10 (E) a cash amount (the "Severance Amount") equal to three times the sum of (1) the Executive's annual Base Salary; and (2) an amount equal to the target annual bonus applicable to the Executive for the fiscal year in which the Change of Control occurs; (3) an amount equal to the long term incentive award granted to the Executive with respect to the performance period commencing in the calendar year 2000. For purposes of this Section 7(c)(i)(E)(3), if the Executive was a member of the Policy Committee at the time of the grant of such long term incentive award, such award shall be measured by the equity rights awarded to the Executive for such performance period under the terms of the Long-Term Incentive Plan for Senior Executives; otherwise, the grant of the long term incentive award referred to above shall be measured by the aggregate value of (a) the equity rights granted to such Executive for such performance cycle under the terms of the Long-Term Incentive Plan for Senior Executives and (b) the stock options granted to such Executive in March, 2000 under the terms of the John Hancock Financial Services, Inc. 1999 Long-Term Stock Incentive Plan. The Earned Salary, Pro-Rated Annual Incentive, Pro-Rated Long Term Incentives, Retention Bonus and Severance Amount shall be paid in cash in a single lump sum as soon as practicable, but in no event more than 10 days (or at such earlier date required by law), following the Date of Termination. Accrued Obligations shall be paid in accordance with the terms of the applicable plan, program or arrangement. (ii) Continuation of Benefits. If, during the Employment Period, the Executive's employment is terminated other than for Cause, the Executive (and, to the extent applicable, his/her dependents) shall be entitled, after the Date of Termination until the earlier of (A) the third anniversary of the Date of Termination (the "End Date") and (B) the date the Executive becomes eligible for comparable benefits under a similar plan, policy or program of a subsequent employer, to continue participation in all of the individual and group health (including without limitation medical, dental and disability) and life employee benefits plans maintained by the Company, JHFS or an Affiliate and in which the Executive had been participating prior to the Date of Termination (the "Benefit Plans"). In addition, to the extent that, prior to the Date of Termination, the Company had been paying the premiums on any split-dollar life insurance policy with respect to the Executive, the Company shall, as to any such policy, continue the payment of such premiums until the later of the End Date or the date through which the Company otherwise would have paid premiums on such policy in the absence of a Change of Control. To the extent any such benefits cannot be provided under the terms of the 11 applicable plan, policy or program, the Company shall provide a comparable benefit under another plan or from the Company's general assets. The Executive's participation in the Benefit Plans will be on the same terms and conditions (including, without limitation, any condition that the Executive make contributions toward the cost of such coverage on the same terms and conditions generally applicable to similarly situated employees) that would have applied had the Executive continued to be employed by the Company through the End Date. (iii) Enhanced Retirement Benefits. In determining the defined benefit retirement benefits made available to the Executive, the Executive shall be entitled to receive the additional benefits that would have been payable or available to the Executive under any employee benefit plan based on (x) the service (but not the age) the Executive would have attained or completed had the Executive continued in the Company's employ until the End Date and, (y) where compensation is a relevant factor, his/her pensionable compensation at the Date of Termination. Notwithstanding the foregoing, the Executive shall not receive any service credit for any period after the Executive has attained 65. (iv) Payment of Mandatorily Deferred Incentive Compensation Payments. To the extent not earlier paid in accordance with the terms and conditions of the governing plan documents, all amounts, if any, that had been determined to be payable to the Executive under any long term incentive compensation program, but the payment of which was mandatorily deferred under the terms and conditions of such governing documents, shall be paid (plus all earnings credited with respect thereto) in a single lump sum payment, as soon as practicable after the next succeeding valuation date under the applicable plans, but in no event later than the first March 15 following the Executive's Date of Termination. (v) Outplacement Services. The Executive shall be provided at the Company's expense with outplacement services customary for executives at his/her level (including, without limitation, office space and telephone support services) provided by a qualified and experienced third party provider selected by the Company. (d) Termination by the Executive for Good Reason. If, during the Employment Period, the Executive terminates his/her employment for Good Reason, the Company shall pay to the Executive the same amounts as would be payable to the Executive under Section 7(c) if such termination were a termination by the Company or JHFS without Cause. (e) Discharge of the Company's and JHFS's Obligations. Except as expressly provided in the last sentence of this Section 7(e), the amounts payable to the Executive pursuant to this Section 7 following termination of his/her employment shall be in full and complete satisfaction of the Executive's rights under this Agreement and any other claims he/she may have in respect of his/her employment by the Company, JHFS or he Affiliates. Such amounts shall constitute liquidated damages with respect to any and all such rights and claims and, upon the Executive's receipt of such amounts, the Company, JHFS and each of their Affiliates shall be released and discharged from any and all liability to the 12 Executive in connection with this Agreement or otherwise in connection with the Executive's employment with the Company , JHFS and their Affiliates. Nothing in this Section 7(e) shall be construed to release the Company or JHFS, as applicable, from its commitment to indemnify the Executive and hold the Executive harmless from and against any claim, loss or cause of action arising from or out of the Executive's performance as an officer, director or employee of the Company, JHFS or any of their Affiliates or in any other capacity, including any fiduciary capacity, in which the Executive served at the request of the Company or JHFS to the maximum extent permitted by applicable law and the Governing Documents. (f) Certain Further Payments by the Company. (i) In the event that any amount or benefit paid or distributed to the Executive pursuant to this Agreement and/or any amounts or benefits otherwise paid or distributed (whether or not paid or distributed pursuant to a plan or program maintained by the Company or JHFS) to the Executive by the Company, JHFS or any Affiliate, including without limitation, the present value of any amounts or benefits that otherwise become payable to the Executive by the Company, JHFS or any Affiliate or otherwise become nonforfeitable because of the lapse or termination of any restrictions thereon as a result of a Change of Control (collectively, the "Covered Payments"), are or become subject to the tax (the "Excise Tax") imposed under Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), or any similar tax that may hereafter be imposed, the Company shall pay to the Executive at the time specified in Section 7(f)(v) below an additional amount ("Tax Reimbursement Payment") such that the net amount retained by the Executive with respect to such Covered Payments, after deduction of any Excise Tax on the Covered Payments and any Federal, state and local income or employment tax and Excise Tax on the Tax Reimbursement Payment provided for by this Section 7(f), but before deduction for any Federal, state or local income or employment tax withholding on such Covered Payments, shall be equal to the amount of the Covered Payments. (ii) For purposes of determining whether any of the Covered Payments will be subject to the Excise Tax and the amount of such Excise Tax, (A) such Covered Payments will be treated as "parachute payments" within the meaning of Section 280G of the Code, and all "parachute payments" in excess of the "base amount" (as defined under Section 280G(b)(3) of the Code) shall be treated as subject to the Excise Tax, unless, and except to the extent that, in the good faith judgment of the Company's independent certified public accountants appointed prior to the Change of Control Date or tax counsel selected by such accountants (the "Accountants"), the Company has a reasonable basis to conclude that such Covered Payments (in whole or in part) either do not constitute "parachute payments" or represent reasonable compensation for personal services actually rendered (within the meaning of Section 280G(b)(4)(B) of the Code) 13 in excess of the "base amount," or such "parachute payments" are otherwise not subject to such Excise Tax, and (B) the value of any non-cash benefits or any deferred payment or benefit shall be determined by the Accountants in accordance with the principles of Section 280G of the Code. (iii) For purposes of determining the amount of the Tax Reimbursement Payment, the Executive shall be deemed to pay: (A) Federal income taxes at the highest applicable marginal rate of Federal income taxation for the calendar year in which the Tax Reimbursement Payment is to be made, and (B) any applicable state and local income taxes at the highest applicable marginal rate of taxation for the calendar year in which the Tax Reimbursement Payment is to be made, net of the maximum reduction in Federal income taxes which could be obtained from the deduction of such state or local taxes if paid in such year. (iv) In the event that the Excise Tax is subsequently determined by the Accountants or pursuant to any proceeding or negotiations with the Internal Revenue Service to be less than the amount taken into account hereunder in calculating the Tax Reimbursement Payment made, the Executive shall repay to the Company, at the time that the amount of such reduction in the Excise Tax is finally determined, the portion of such prior Tax Reimbursement Payment that would not have been paid if such Excise Tax had been applied in initially calculating such Tax Reimbursement Payment, plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. Notwithstanding the foregoing, in the event any portion of the Tax Reimbursement Payment to be refunded to the Company has been paid to any Federal, state or local tax authority, repayment thereof shall not be required until actual refund or credit of such portion has been made to the Executive, and interest payable to the Company shall not exceed interest received or credited to the Executive by such tax authority for the period it held such portion. The Executive and the Company shall mutually agree upon the course of action to be pursued (and the method of allocating the expenses thereof) if the Executive's good faith claim for refund or credit is denied. In the event that the Excise Tax is later determined by the Accountants or pursuant to any proceeding or negotiations with the Internal Revenue Service to exceed the amount taken into account hereunder at the time the Tax Reimbursement Payment is made (including, but not limited to, by reason of any payment the existence or amount of which cannot be determined at the time of the Tax Reimbursement Payment), the Company shall make an additional Tax Reimbursement Payment in respect of such excess (plus any interest or penalty payable with respect to such excess) at the time that the amount of such excess is finally determined. 14 (v) Any Tax Reimbursement Payment (or portion thereof) payable in accordance with Section 7(f)(i) above shall be paid to the Executive as of the date of the payment (or acceleration of vesting or lapse of restrictions as a result of a Change of Control, as the case may be) of the Covered Payments; provided, however, that if the amount of such Tax Reimbursement Payment (or portion thereof) cannot be finally determined on or before the date on which payment is due, the Company shall pay to the Executive by such date an amount estimated in good faith by the Accountants to be the minimum amount of such Tax Reimbursement Payment and shall pay the remainder of such Tax Reimbursement Payment (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined, but in no event later than 45 calendar days after payment of the related Covered Payment. In the event that the amount of the estimated Tax Reimbursement Payment exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to the Executive, payable on the fifth business day after written demand by the Company for payment (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code). 8. Non-exclusivity of Rights. Except as expressly provided herein, nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any benefit, bonus, incentive or other plan or program provided by the Company, JHFS or any of its Affiliates and for which the Executive may qualify, nor shall anything herein limit or otherwise prejudice such rights as the Executive may have under any other agreements with the Company, JHFS or any of its Affiliates, including employment agreements or stock option agreements. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan or program of the Company, JHFS or any of its Affiliates at or subsequent to the Date of Termination shall be payable in accordance with such plan or program. 9. No Offset. The Company's or JHFS's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any circumstances, including, without limitation, any set-off, counterclaim, recoupment, defense or other right which the Company, JHFS or any of their Affiliates may have against the Executive or others whether by reason of the Executive's breach of this Agreement, subsequent employment of the Executive, or otherwise. 10. Legal Fees and Expenses. If the Executive asserts any claim in any contest (whether initiated by the Executive or by the Company) as to the validity, enforceability or interpretation of any provision of this Agreement, the Company shall pay the Executive's legal expenses (or cause such expenses to be paid) including, without limitation, his/her reasonable attorney's fees, on a quarterly basis, upon presentation of proof of such expenses, provided that the Executive shall reimburse the Company for such amounts, plus simple interest thereon at the 90-day United States Treasury Bill rate as in effect from time to time, compounded annually, if the arbitrator referred to in Section 14(b) or a court of competent jurisdiction shall find that the Executive did not have a good faith and reasonable basis to believe that he/she would prevail as to at least one material issue presented to such arbitrator or court. 15 11. Confidential Information; Company Property. By and in consideration of the salary and benefits to be provided by the Company, JHFS or an Affiliate hereunder, including the severance arrangements set forth herein, the Executive agrees that: (a) Confidential Information. The Executive shall hold in a fiduciary capacity for the benefit of the Company, JHFS and the Affiliates, all secret or confidential information, knowledge or data relating to the Company, JHFS or the Affiliates, and their respective businesses, (i) obtained by the Executive during his/her employment by the Company, JHFS or the Affiliates and (ii) not otherwise public knowledge (other than by reason of an unauthorized act by the Executive). After termination of the Executive's employment, the Executive shall not, without the prior written consent of the Company, unless compelled pursuant to an order of a court or other body having jurisdiction over such matter, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. (b) Nonsolicitation of Employees. The Executive agrees that for two years after the Date of Termination, he/she will not attempt, directly or indirectly, to induce any employee of the Company, JHFS or an Affiliate to be employed or perform services elsewhere or otherwise to cease providing services to the Company, JHFS or the Affiliates. (c) Return of Property. Except as expressly provided herein, promptly following the Executive's termination of employment, the Executive shall return to the Company, JHFS and the Affiliates all property of the Company, JHFS and the Affiliates (as the case may be) and all copies thereof in the Executive's possession or under his/her control. (d) Injunctive Relief and Other Remedies with Respect to Covenants. The Executive acknowledges and agrees that the covenants and obligations of the Executive with respect to confidentiality and the return of property relate to special, unique and extraordinary matters and that a violation of any of the terms of such covenants and obligations will cause the Company, JHFS and/or their Affiliates irreparable injury for which adequate remedies are not available at law. Therefore, the Executive agrees that the Company, JHFS and the Affiliates shall be entitled to an injunction, restraining order or such other equitable relief (without the requirement to post bond) restraining Executive from committing any violation of the covenants and obligations contained in this Section 11. These remedies are cumulative and are in addition to any other rights and remedies the Company, JHFS and/or the Affiliates may have at law or in equity. In no event shall an asserted violation of the provisions of this Section 11 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. 12. Obligations of the Company and JHFS. The obligations of the Company and JHFS are intended to be joint and several. If for any reason, either the Company or JHFS does not, or is unable to, honor its obligations under this Agreement, the other party shall satisfy all obligations not honored by the other party. 13. Successors. (a) This Agreement is personal to the Executive and, without the prior written consent of the Company and JHFS, 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. 16 (b) This Agreement shall inure to the benefit of and be binding upon JHFS, the Company and each of its successors. The Company and JHFS, as applicable, shall require any successor to all or substantially all of the business and/or assets of the Company or JHFS, whether direct or indirect, by purchase, merger, consolidation, acquisition of stock, or otherwise, by an agreement in form and substance satisfactory to the Executive, expressly to assume and agree to perform this Agreement in the same manner and to the same extent as the Company and JHFS would be required to perform if no such succession had taken place. 14. Miscellaneous. (a) Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the States of Delaware, applied without reference to principles of conflict of laws. (b) Arbitration. Except to the extent provided in Section 11(d), any dispute or controversy arising under or in connection with this Agreement shall be resolved by binding arbitration. The arbitration shall be held in the city of Boston, Massachusetts and, except to the extent inconsistent with this Agreement, shall be conducted in accordance with the Expedited Employment Arbitration Rules of the American Arbitration Association then in effect at the time of the arbitration (or such other rules as the parties may agree to in writing), and otherwise in accordance with principles which would be applied by a court of law or equity. The arbitrator shall be acceptable to all of the Company, JHFS and the Executive. If the parties cannot agree on an acceptable arbitrator, the dispute shall be heard by a panel of three arbitrators, one appointed by the Company and JHFS, one appointed by the Executive, and the third appointed by the other two arbitrators. (c) Amendments. 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. (d) Entire Agreement. Subject to Section 8 herein, this Agreement constitutes the entire agreement between the parties hereto with respect to the matters referred to herein. No other agreement relating to the terms of the Executive's employment by the Company, JHFS or any Affiliate, oral or otherwise, shall be binding among the parties unless it is in writing and signed by the party against whom enforcement is sought. There are no promises, representations, inducements or statements among the parties other than those that are expressly contained herein. The Executive acknowledges that he/she is entering into this Agreement of his/her own free will and accord, and with no duress, that he/she has read this Agreement and that he/she understands it and its legal consequences. (e) Notices. All notices and other communications hereunder shall be in writing and shall be given by hand-delivery to the other parties or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: at the home address of the Executive noted on the records of the Company 17 If to the Company: 200 Clarendon Street Boston, Massachusetts Attn.: Secretary If to JHFS: 200 Clarendon Street Boston, Massachusetts Attn.: Secretary or to such other address as any party shall have furnished to the others in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (f) Tax Withholding. The Company shall withhold from any amounts payable under this Agreement such Federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. (g) Severability; Reformation. In the event that one or more of the provisions of this Agreement shall become invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not be affected thereby. In the event that any of the provisions of Section 11(a) are not enforceable in accordance with its terms, the Executive and the Company and JHFS agree that such Section shall be reformed to make such Section enforceable in a manner which provides the Company and JHFS the maximum rights permitted at law. (h) Waiver. Waiver by any party hereto of any breach or default by any party of any of the terms of this Agreement shall not operate as a waiver of any other breach or default, whether similar to or different from the breach or default waived. No waiver of any provision of this Agreement shall be implied from any course of dealing among the parties hereto or from any failure by any party hereto to assert its or his/her rights hereunder on any occasion or series of occasions. (i) Survival. The provisions of Section 5(g), 7(c), 7(d), 7(f), 12 and 13 shall survive the termination of the Employment Period hereunder and shall be binding upon and enforceable against the Company and JHFS in accordance with their terms. The dispute resolutions provisions contained in Section 14(b) and the legal fees provision contained in Section 10 shall also survive the end of the Employment Period and shall be applied as though the dispute arose within the Employment Period. (j) Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. (k) Captions. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. 18 IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and the Company and JHFS have caused this Agreement to be executed in their respective names and on their behalf, all as of the day and year first above written. JOHN HANCOCK LIFE INSURANCE COMPANY By: ________________________________ Name: David F. D'Alessandro Title: Chairman, President and Chief Executive Officer JOHN HANCOCK FINANCIAL SERVICES, INC. By: ________________________________ Name: David F. D'Alessandro Title: Chairman, President and Chief Executive Officer EXECUTIVE: ____________________________________ 19 EX-10.29 7 ex10-29.txt Exhibit 10.29 SECOND AMENDED AND RESTATED EMPLOYMENT CONTINUATION AGREEMENT THIS SECOND AMENDED AND RESTATED AGREEMENT by and among John Hancock Life Insurance Company, a Massachusetts corporation (the "Company"), John Hancock Financial Services, Inc., a Delaware corporation ("JHFS") and Maureen Ford (the "Executive"), dated as of the 15th of October, 2001. W I T N E S S E T H : WHEREAS, the Executive has been employed as an officer of the Company and/or JHFS, and it has been determined that the Executive holds an important position with the Company and/or JHFS; WHEREAS, the Company and JHFS believe that, in the event of a situation that could result in a change in ownership or control of the Company or JHFS, continuity of management will be essential to their ability to evaluate and respond to such a situation in the best interests of shareholders; WHEREAS, the Company and JHFS understand that any such situation will present significant concerns for the Executive with respect to his/her financial and job security; WHEREAS, to assure themselves of the Executive's services during the period in which they are confronting such a situation, and to provide the Executive certain financial assurances to enable the Executive to perform the responsibilities of his/her position without undue distraction and to exercise his/her judgment without bias due to his/her personal circumstances, the Company, JHFS and the Executive previously entered into this Agreement to provide the Executive with certain rights and obligations upon the occurrence of a Change of Control or Potential Change of Control (as each such term is defined in Section 2 hereof); WHEREAS, the Executive, the Company and JHFS have determined that the Agreement should be amended and restated to further clarify and refine benefits and protections provided to the Executive in the event of a Change of Control or Potential Change of Control; NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, it is hereby agreed among the Company, JHFS and the Executive as follows: 1. Operation of Agreement. (a) Effective Date. The effective date of this Agreement shall be the date on which a Change of Control occurs (the "Effective Date"), provided that, except as provided in Section 1(b), if the Executive is not employed by the Company, JHFS or an Affiliate on the Effective Date, this Agreement shall be void and without effect. (b) Termination of Employment Following a Potential Change of Control. Notwithstanding Section 1(a), if (i) the Executive's employment with the Company, JHFS or an Affiliate is terminated without Cause (as defined in Section 6(c)) after the occurrence of a Potential Change of Control and prior to the occurrence of a Change of Control and (ii) a Change of Control occurs within two years of such termination, the Executive shall be deemed, solely for purposes of determining his/her rights under this Agreement, to have remained employed until the date such Change of Control occurs and to have been terminated by the Company, JHFS or (if applicable) the Affiliate without Cause immediately after this Agreement becomes effective, with any amounts payable hereunder reduced by the amount of any other severance benefits provided to him in connection with such termination. 2. Definitions. (a) "Affiliate" shall mean any corporation, partnership, limited liability company, trust or other entity which directly, or indirectly through one or more intermediaries, controls, or is controlled by, the Company, or JHFS. (b) "Board" shall mean the Board of Directors of the Company. (c) "Company" means John Hancock Life Insurance Company. (d) "Change of Control" shall be deemed to have occurred if: (i) any Person (as defined below) has acquired, "beneficial ownership" (within the meaning of Rule 13d-3, as promulgated under Section 13(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), directly or indirectly, of securities of the Company or JHFS representing 30% or more of the combined Voting Power (as defined below) of the securities of the Company or JHFS; provided, however, that the event described in this paragraph (i) shall not be deemed to be a Change in Control by virtue of an acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company, JHFS or any Affiliate; or (ii) within any 24-month period, the persons who, at the beginning of such period, were members of the Board (the "Incumbent Company Directors") shall cease to constitute at least a majority of the Board or the board of directors of any successor to the Company; provided, however, that any director elected to the Board, or nominated for election to the Board, by at least two-thirds (2/3) of the Incumbent Company Directors then still in office shall be deemed to be an Incumbent Company Director for purposes of this subclause (ii); provided, however, that no individual initially elected or nominated for election to the Board as a result of an actual or threatened election contest with respect to directors or as a result of any other actual or threatened solicitation of proxies by or on behalf of any Person other than the Board shall be deemed to be an Incumbent Company Director; or 2 (iii) within any 24-month period, the persons who, at the beginning of such period, were members of the JHFS Board (the "Incumbent JHFS Directors") shall cease to constitute at least a majority of the JHFS Board or the board of directors of any successor to JHFS; provided, however, that any director elected to the JHFS Board, or nominated for election to the JHFS Board, by at least two-thirds (2/3) of the Incumbent JHFS Directors then still in office shall be deemed to be an Incumbent JHFS Director for purposes of this subclause (iii); provided, however, that no individual initially elected or nominated for election to the JHFS Board as a result of an actual or threatened election contest with respect to directors or as a result of any other actual or threatened solicitation of proxies by or on behalf of any Person other than the JHFS Board shall be deemed to be an Incumbent JHFS Director; or (iv) upon the consummation of a merger, consolidation, share exchange, division, sale or other disposition of all or substantially all of the assets of the Company (a "Company Corporate Event") and immediately following the consummation of which the stockholders of the Company, immediately prior to such Company Corporate Event do not hold, directly or indirectly, a majority of the Voting Power of (A) in the case of a merger or consolidation, the surviving or resulting corporation, (B) in the case of a statutory share exchange, the acquiring corporation, (C) in the case of a division or a sale or other disposition of assets, each surviving, resulting or acquiring corporation which, immediately following the relevant Company Corporate Event, holds more than 25% of the consolidated assets of the Company immediately prior to such Company Corporate Event, provided that no Change of Control shall be deemed to have occurred if the Executive is employed, immediately following such Company Corporate Event, by any entity in which the stockholders of the Company immediately prior to such Company Corporate Event hold, directly or indirectly, a majority of the Voting Power; Provided that in each case such majority of the Voting Power is represented by securities of the Company that were outstanding immediately prior to such Company Corporate Event (or, if applicable, is represented by shares into which such securities of the Company were converted pursuant to such Company Corporate Event); or (v) upon the consummation of a merger, consolidation, share exchange, division, sale or other disposition of all or substantially all of the assets of JHFS which has been approved by the stockholders of JHFS (a "JHFS Corporate Event"), and immediately following the consummation of which the stockholders of JHFS 3 immediately prior to such JHFS Corporate Event do not hold, directly or indirectly, a majority of the Voting Power of (A) in the case of a merger or consolidation, the surviving or resulting corporation, (B) in the case of a statutory share exchange, the acquiring corporation, or (C) in the case of a division or a sale or other disposition of assets, each surviving, resulting or acquiring corporation which, immediately following the relevant JHFS Corporate Event, holds more than 25% of the consolidated assets of JHFS immediately prior to such JHFS Corporate Event, provided that no Change of Control shall be deemed to have occurred if the Executive is employed, immediately following such JHFS Corporate Event, by any entity in which the stockholders of JHFS immediately prior to such JHFS Corporate Event hold, directly or indirectly, a majority of the Voting Power; or Provided that in each case such majority of the Voting Power is represented by securities of JHFS that were outstanding immediately prior to such JHFS Corporate Event (or, if applicable, is represented by shares into which such securities of JHFS were converted pursuant to such JHFS Corporate Event); or (vi) any other event occurs which the Board or the JHFS Board declares to be a Change of Control. (e) "JHFS" means John Hancock Financial Services, Inc. (f) "JHFS Board" means the Board of Directors of JHFS and, after a Change in Control that constitutes a Company Corporate Event or a JHFS Corporate Event, the Board Directors of the Parent. (g) "Parent" shall mean any corporation, partnership, limited liability company, business trust or other entity which owns, directly or indirectly, more than 50% of the Voting Power in the Company or JHFS. (h) "Person" shall have the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act, as supplemented by Section 13(d)(3) of the Exchange Act; provided, however, that Person shall not include (i) the Company, JHFS, or any Affiliate or (ii) any employee benefit plan sponsored by the entities described in clause (i) of this definition. (i) "Potential Change of Control" shall be deemed to have occurred if: (i) a Person commences a tender offer (with adequate financing) for securities representing at least 10% of the Voting Power of the JHFS's securities; 4 (ii) the Company or JHFS enters into an agreement the consummation of which would constitute a Change of Control; (iii) proxies for the election of directors of JHFS are solicited by anyone other than JHFS; or (iv) any other event occurs which is deemed to be a Potential Change of Control by the JHFS Board. (j) "Voting Power" shall mean such number of the Voting Securities as shall enable the holders thereof to cast such percentage of all the votes which could be cast in an annual election of directors. (k) "Voting Securities" shall mean all securities of a company entitling the holders thereof to vote in an annual election of directors. 3. Employment Period. Subject to Section 6 of this Agreement, the Company (or if applicable, JHFS) agrees to continue the Executive in its employ, and the Executive agrees to remain in the employ of the Company or, if applicable, JHFS for the period (the "Employment Period") commencing on the Effective Date and ending on the third anniversary of the Effective Date. Notwithstanding the foregoing, if, prior to the Effective Date, the Executive is demoted to a lower position than the position held on the date first set forth above, the Board (or if applicable, the JHFS Board) may declare that this Agreement shall be without force and effect by written notice delivered to the Executive (i) within 30 days following such demotion and (ii) prior to the occurrence of a Potential Change of Control or a Change of Control. 4. Position and Duties. (a) No Reduction in Position. During the Employment Period, the Executive's position (including titles), authority and responsibilities with the Company, JHFS and each of the Affiliates shall be, both individually and in the aggregate, at least commensurate with those held, exercised and assigned immediately prior to the Effective Date. It is understood that, for purposes of this Agreement, such position, authority and responsibilities shall not be regarded as not commensurate merely by virtue of the fact that a successor shall have acquired all or substantially all of the business and/or assets of the Company as contemplated by Section 13(b) of this Agreement. The Executive's services shall be performed at the location where the Executive was employed immediately preceding the Effective Date. (b) Business Time. From and after the Effective Date, the Executive agrees to devote substantially all of his/her attention during normal business hours to the business and affairs of the Company, JHFS and the Affiliates and to use his/her reasonable best efforts to perform the responsibilities assigned to him hereunder, to the extent necessary to discharge such responsibilities, except for (i) time spent in managing his/her personal, financial and legal affairs and serving on corporate, civic or charitable boards or committees, in each case only if and to the extent not substantially interfering with the performance of such responsibilities, and (ii) periods of vacation and sick leave to which he/she is entitled. It is expressly understood and agreed that the Executive's continuing to serve on any boards and committees on which he/she is serving or with which he/she is 5 otherwise associated immediately preceding the Effective Date shall not be deemed to interfere with the performance of the Executive's services for the Company, JHFS or the Affiliates. 5. Compensation. (a) Base Salary. During the Employment Period, the Executive shall receive a base salary at a monthly rate at least equal to the monthly salary paid to the Executive by the Company, JHFS and any Affiliate immediately prior to the Effective Date. The base salary shall be reviewed at least once each year after the Effective Date, and may be increased (but not decreased) at any time and from time to time by action of the Board or JHFS Board, as the case may be, or any committee thereof or any individual having authority to take such action in accordance with the Company's (or if applicable, JHFS's) regular practices. The Executive's base salary, as it may be increased from time to time, shall hereafter be referred to as "Base Salary". Neither the Base Salary nor any increase in Base Salary after the Effective Date shall serve to limit or reduce any other obligation of the Company or JHFS hereunder. (b) Annual Bonus. During the Employment Period, in addition to the Base Salary, for each fiscal year of the Company ending during the Employment Period, the Executive shall be afforded the opportunity to receive an annual bonus on terms and conditions no less favorable to the Executive (taking into account reasonable changes in the applicable corporate goals and objectives and taking into account actual performance) than the annual bonus opportunity that had been made available to the Executive for the fiscal year ended immediately prior to the Effective Date (the "Annual Bonus Opportunity"). Any amount payable in respect of the Annual Bonus Opportunity shall be paid as soon as practicable following the year for which the amount (or prorated portion) is earned or awarded, unless electively deferred by the Executive pursuant to any deferral programs or arrangements that the Company, JHFS or any of its Affiliates may make available to the Executive. (c) Long-term Incentive Compensation Programs. During the Employment Period, the Executive shall participate in all long-term incentive compensation programs (including, without limitation, programs providing for the grant of stock options and other equity-based awards) for key executives at a level that is commensurate with the Executive's participation in such plans immediately prior to the Effective Date, or, if more favorable to the Executive, at the level made available to the Executive or other similarly situated officers at any time thereafter. (d) Benefit Plans. During the Employment Period, the Company shall provide to the Executive (and to the extent applicable, his/her dependents) pension, retirement, deferred compensation, savings, medical, dental, health, disability, life and accidental death coverages, both individual and group, at a level that is commensurate with the coverage to which the Executive was entitled under plans sponsored by the Company, JHFS or any affiliate immediately prior to the Effective Date, or, if more favorable to the Executive, at the level made available to the Executive or other similarly situated officers at any time thereafter. The Executive shall be entitled to such benefits subject to the same terms and conditions (including, without limitation, any requirement that the Executive make contributions toward the cost of such coverage) that applied immediately prior to the Effective Date, or, if more favorable to the Executive, as are made applicable to the Executive or other similarly situated officers at any time thereafter. To the extent such 6 benefits cannot be provided under the terms of a benefit plan, policy or program sponsored by the Company, JHFS or any affiliate, as the case may be, the Company shall provide a comparable benefit under another plan or from the Company's general assets. (e) Expenses. During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the policies and procedures of the Company as in effect immediately prior to the Effective Date. Notwithstanding the foregoing, the Company may apply the policies and procedures in effect after the Effective Date to the Executive, if such policies and procedures are not less favorable to the Executive than those in effect immediately prior to the Effective Date. (f) Vacation and Fringe Benefits. During the Employment Period, the Executive shall be entitled to paid vacation and fringe benefits (including, without limitation, any split-dollar life insurance arrangements) at a level that is commensurate with the paid vacation and fringe benefits available to the Executive immediately prior to the Effective Date, or, if more favorable to the Executive, at the level made available from time to time to the Executive or other similarly situated officers at any time thereafter. (g) Indemnification. During and after the Employment Period, the Company and JHFS shall indemnify the Executive and hold the Executive harmless from and against any claim, loss or cause of action arising from or out of the Executive's performance as an officer, director or employee of JHFS, the Company or any of their Affiliates or in any other capacity, including any fiduciary capacity, in which the Executive serves at the request of the Company to the maximum extent permitted by applicable law and the Certificate of Incorporation and By-Laws of JHFS or the Company, as the case may be (the "Governing Documents"), provided that in no event shall the protection afforded to the Executive hereunder be less than that afforded under the Governing Documents as in effect immediately prior to the Effective Date. (h) Office and Support Staff. The Executive shall be entitled to an office with furnishings and other appointments, and to secretarial and other assistance, at a level that is at least commensurate with the foregoing provided to the Executive immediately prior to the Change of Control. 6. Termination. (a) Death, Disability or Retirement. Subject to the provisions of Section 1 hereof, this Agreement shall terminate automatically upon the Executive's death, termination due to "Disability" (as defined below) or voluntary retirement under any of the retirement plans of the Company or JHFS (or, if applicable, an Affiliates) has in effect from time to time. For purposes of this Agreement, Disability shall mean the Executive has met the conditions to qualify for long-term disability benefits under the long term disability plan or policy the Company or JHFS (or, if applicable, an Affiliate), has in effect immediately prior to the Effective Date. (b) Voluntary Termination. Notwithstanding anything in this Agreement to the contrary, following a Change of Control the Executive may, upon not less than 60 days' written notice to the Company (or, if applicable, JHFS), voluntarily terminate employment for any reason (including early retirement under the terms of any retirement plans 7 maintained by the Company, JHFS or an Affiliate, as in effect from time to time), provided that any termination by the Executive pursuant to Section 6(d) on account of Good Reason (as defined therein) shall not be treated as a voluntary termination under this Section 6(b). (c) Cause. The Company, JHFS or an Affiliate that employs the Executive may terminate the Executive's employment for Cause. For purposes of this Agreement, "Cause" means (i) the Executive's conviction or plea of nolo contendere to a felony related to fraud or dishonesty; (ii) an act or acts of dishonesty or gross misconduct on the Executive's part which result or are intended to result in material damage to the Company's, JHFS's or an Affiliate's business or reputation; or (iii) repeated material violations by the Executive of his/her obligations under Section 4 of this Agreement, which violations are demonstrably willful and deliberate on the Executive's part and which result in material damage to the Company's, JHFS's or an Affiliate's business or reputation. Cause shall not exist unless and until JHFS has delivered to Executive a copy of a resolution duly adopted by three-quarters (3/4) of the entire JHFS Board (excluding the Executive if the Executive is a JHFS Board member) at a meeting of the JHFS Board called and held for such purpose (after reasonable notice to the Executive and an opportunity for the Executive, together with counsel, to be heard before the JHFS Board), finding that in the good faith opinion of the JHFS Board an event set forth in subclauses (i), (ii), or (iii) has occurred and specifying the particulars thereof in detail. The Company, JHFS or an Affiliate must notify the Executive of any event that it alleges constitutes Cause within ten (10) business days following the Company's, JHFS's or an Affiliate's knowledge, as the case may be, of its existence, and notify the Executive at least ten (10) business days prior to the board proceedings described above, or such event shall not constitute Cause under this Agreement. (d) Good Reason. Following the occurrence of a Change of Control, the Executive may terminate his/her employment for Good Reason. For purposes of this Agreement, "Good Reason" means the occurrence of any of the following, without the express written consent of the Executive, after the occurrence of a Change of Control: (i) the assignment to the Executive of any duties inconsistent in any material adverse respect with the Executive's position, authority or responsibilities, as contemplated by Section 4 of this Agreement, or any other material adverse change in position, titles, authority or responsibilities, including and without limiting the generality of the foregoing, the elimination or substantial reduction of the Executive's duties with the Company, JHFS or any Affiliate resulting in a significant reduction in her position, titles, authority or responsibilities as in effect prior to the Change of Control; (ii) any failure by the Company or JHFS to comply with any of the provisions of Section 5 of this Agreement, other than an insubstantial or inadvertent failure remedied by the Company, or JHFS promptly after receipt of notice thereof given by the Executive; (iii) any requirement that the Executive (A) be based at any office or location more than 35 miles (or any such shorter distance as shall be set forth in the 8 Company's (or if applicable, JHFS's) relocation policy as in effect on the Effective Date) from that location at which he/she performed his/her services specified under the provisions of Section 4 immediately prior to the Change of Control, except for travel reasonably required in the performance of the Executive's responsibilities or (B) travel on business on behalf of the Company, JHFS or any Affiliate, as the case may be, to an extent substantially greater than the travel obligations of the Executive immediately prior to the Change in Control; (iv) any failure by the Company or JHFS to obtain the assumption and agreement to perform this Agreement by a successor as contemplated by Section 13(b). In no event shall the mere occurrence of a Change of Control, absent any further impact on the Executive, be deemed to constitute Good Reason. (e) Notice of Termination. Any termination by the Company, JHFS or an Affiliate for Cause or by the Executive for Good Reason shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 14(e). 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) sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated, and (iii) if the termination date is other than the date of receipt of such notice, specifies the termination date of this Agreement (which date shall be not more than 15 days after the giving of such notice). In the case of a termination for Good Reason, the Notice of Termination shall be given within 180 days of the Executive's having actual knowledge of the events giving rise to such termination which actual knowledge shall in no event be deemed to have occurred any earlier than the Effective Date. The failure by the Executive to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason shall not waive any right of the Executive hereunder or preclude the Executive from asserting such fact or circumstance in enforcing his/her rights hereunder. (f) Date of Termination. For the purpose of this Agreement, the term "Date of Termination" means (i) in the case of a termination for which a Notice of Termination is required, the date of receipt of such Notice of Termination or, if later, the date specified therein, as the case may be, and (ii) in all other cases, the actual date on which the Executive's employment terminates during the Employment Period. 7. Obligations of the Company upon Termination. (a) Death or Disability. If the Executive's employment is terminated during the Employment Period by reason of the Executive's death or Disability, this Agreement shall terminate without further obligations to the Executive or the Executive's legal representatives under this Agreement other than those obligations accrued hereunder at the Date of Termination, and the Company shall pay to the Executive (or his/her beneficiary or estate) (i) the Executive's full Base Salary through the Date of Termination (the "Earned Salary"), (ii) any vested amounts or benefits owing to the Executive under the otherwise applicable employee benefit plans and programs of the Company, JHFS and the Affiliates, including any compensation previously deferred by the Executive (together with any accrued earnings thereon) and not yet paid by the Company, JHFS or an Affiliate and any accrued vacation pay not 9 yet paid by the Company, JHFS or an Affiliate (the "Accrued Obligations"), and (iii) any other benefits payable due to the Executive's death or Disability under the plans, policies or programs of the Company, JHFS and the Affiliates (the "Additional Benefits"). The Earned Salary shall be paid in cash in a single lump sum as soon as practicable, but in no event more than 10 days (or at such earlier date required by law), following the Date of Termination. Accrued Obligations and Additional Benefits shall be paid in accordance with the terms of the applicable plan, program or arrangement. (b) Cause and Voluntary Termination. If, during the Employment Period, the Executive's employment shall be terminated for Cause or voluntarily terminated by the Executive (other than on account of Good Reason following a Change of Control), the Company shall pay the Executive (i) the Earned Salary in cash in a single lump sum as soon as practicable, but in no event more than 10 days, following the Date of Termination, and (ii) the Accrued Obligations in accordance with the terms of the applicable plan, program or arrangement. (c) Termination by the Company other than for Cause. If, during the Employment Period, the Company or JHFS, terminates the Executive's employment other than for Cause, the Company shall provide the Executive with the following benefits: (i) Severance and Other Termination Payments. The Company shall pay the Executive the following: (A) the Executive's Earned Salary; and (B) notwithstanding any plan provisions to the contrary, an amount (the "Pro-Rated Annual Incentive") equal to the target annual bonus applicable to the Executive for the fiscal year in which the Date of Termination occurs, multiplied by a fraction, the numerator of which is the number of completed months in such fiscal year which have elapsed on or before (and including) the Date of Termination and the denominator of which is 12; and (C) notwithstanding any plan provisions to the contrary, an aggregate amount (the "Pro-Rated Long Term Incentives") equal to the sum of the amounts awarded to the Executive in respect of each performance cycle, whether or not vested, then in progress (i.e., each performance cycle, which includes as part of the performance period the fiscal year in which the Date of Termination occurs), as accrued on the books of the Company as of the end of the month preceding the Date of Termination; and (D) the Accrued Obligations; and (E) a cash amount (the "Severance Amount") equal to three times the sum of 10 (1) the Executive's annual Base Salary; and (2) an amount equal to the target annual bonus applicable to the Executive for the fiscal year in which the Change of Control occurs; (3) an amount equal to the long term incentive award granted to the Executive with respect to the performance period commencing in the calendar year 2000. For purposes of this Section 7(c)(i)(E)(3), if the Executive was a member of the Policy Committee at the time of the grant of such long term incentive award, such award shall be measured by the equity rights awarded to the Executive for such performance period under the terms of the Long-Term Incentive Plan for Senior Executives; otherwise, the grant of the long term incentive award referred to above shall be measured by the aggregate value of (a) the equity rights granted to such Executive for such performance cycle under the terms of the Long-Term Incentive Plan for Senior Executives and (b) the stock options granted to such Executive in March, 2000 under the terms of the John Hancock Financial Services, Inc. 1999 Long-Term Stock Incentive Plan. The Earned Salary, Pro-Rated Annual Incentive, Pro-Rated Long Term Incentives, Retention Bonus and Severance Amount shall be paid in cash in a single lump sum as soon as practicable, but in no event more than 10 days (or at such earlier date required by law), following the Date of Termination. Accrued Obligations shall be paid in accordance with the terms of the applicable plan, program or arrangement. (ii) Continuation of Benefits. If, during the Employment Period, the Executive's employment is terminated other than for Cause, the Executive (and, to the extent applicable, his/her dependents) shall be entitled, after the Date of Termination until the earlier of (A) the third anniversary of the Date of Termination (the "End Date") and (B) the date the Executive becomes eligible for comparable benefits under a similar plan, policy or program of a subsequent employer, to continue participation in all of the individual and group health (including without limitation medical, dental and disability) and life employee benefits plans maintained by the Company, JHFS or an Affiliate and in which the Executive had been participating prior to the Date of Termination (the "Benefit Plans"). In addition, to the extent that, prior to the Date of Termination, the Company had been paying the premiums on any split-dollar life insurance policy with respect to the Executive, the Company shall, as to any such policy, continue the payment of such premiums until the later of the End Date or the date through which the Company otherwise would have paid premiums on such policy in the absence of a Change of Control. To the extent any such benefits cannot be provided under the terms of the applicable plan, policy or program, the Company shall provide a comparable benefit under another plan or from the Company's general assets. The Executive's participation in the Benefit Plans will be on the same terms and conditions 11 (including, without limitation, any condition that the Executive make contributions toward the cost of such coverage on the same terms and conditions generally applicable to similarly situated employees) that would have applied had the Executive continued to be employed by the Company through the End Date. (iii) Enhanced Retirement Benefits. In determining the defined benefit retirement benefits made available to the Executive, the Executive shall be entitled to receive the additional benefits that would have been payable or available to the Executive under any employee benefit plan based on (x) the service the Executive would have attained or completed had the Executive continued in the Company's employ until the End Date and, (y) where compensation is a relevant factor, his/her pensionable compensation at the Date of Termination. Notwithstanding the foregoing, the Executive shall not receive any service credit for any period after the Executive has attained 65. (iv) Payment of Mandatorily Deferred Incentive Compensation Payments. To the extent not earlier paid in accordance with the terms and conditions of the governing plan documents, all amounts, if any, that had been determined to be payable to the Executive under any long term incentive compensation program, but the payment of which was mandatorily deferred under the terms and conditions of such governing documents, shall be paid (plus all earnings credited with respect thereto) in a single lump sum payment, as soon as practicable after the next succeeding valuation date under the applicable plans, but in no event later than the first March 15 following the Executive's Date of Termination. (v) Outplacement Services. The Executive shall be provided at the Company's expense with outplacement services customary for executives at his/her level (including, without limitation, office space and telephone support services) provided by a qualified and experienced third party provider selected by the Company. (d) Termination by the Executive for Good Reason. If, during the Employment Period, the Executive terminates his/her employment for Good Reason, the Company shall pay to the Executive the same amounts as would be payable to the Executive under Section 7(c) if such termination were a termination by the Company or JHFS without Cause. (e) Discharge of the Company's and JHFS's Obligations. Except as expressly provided in the last sentence of this Section 7(e), the amounts payable to the Executive pursuant to this Section 7 following termination of his/her employment shall be in full and complete satisfaction of the Executive's rights under this Agreement and any other claims he/she may have in respect of his/her employment by the Company, JHFS or the Affiliates. Such amounts shall constitute liquidated damages with respect to any and all such rights and claims and, upon the Executive's receipt of such amounts, the Company, JHFS and each of their Affiliates shall be released and discharged from any and all liability to the Executive in connection with this Agreement or otherwise in connection with the Executive's employment with the Company, JHFS and their Affiliates. Nothing in this Section 7(e) shall be construed to release the Company or JHFS, as applicable, from its 12 commitment to indemnify the Executive and hold the Executive harmless from and against any claim, loss or cause of action arising from or out of the Executive's performance as an officer, director or employee of the Company, JHFS or any of their Affiliates or in any other capacity, including any fiduciary capacity, in which the Executive served at the request of the Company or JHFS to the maximum extent permitted by applicable law and the Governing Documents. (f) Certain Further Payments by the Company. (i) In the event that any amount or benefit paid or distributed to the Executive pursuant to this Agreement and/or any amounts or benefits otherwise paid or distributed (whether or not paid or distributed pursuant to a plan or program maintained by the Company or JHFS) to the Executive by the Company, JHFS or any Affiliate, including without limitation, the present value of any amounts or benefits that otherwise become payable to the Executive by the Company, JHFS or any Affiliate or otherwise become nonforfeitable because of the lapse or termination of any restrictions thereon as a result of a Change of Control (collectively, the "Covered Payments"), are or become subject to the tax (the "Excise Tax") imposed under Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), or any similar tax that may hereafter be imposed, the Company shall pay to the Executive at the time specified in Section 7(f)(v) below an additional amount ("Tax Reimbursement Payment") such that the net amount retained by the Executive with respect to such Covered Payments, after deduction of any Excise Tax on the Covered Payments and any Federal, state and local income or employment tax and Excise Tax on the Tax Reimbursement Payment provided for by this Section 7(f), but before deduction for any Federal, state or local income or employment tax withholding on such Covered Payments, shall be equal to the amount of the Covered Payments. (ii) For purposes of determining whether any of the Covered Payments will be subject to the Excise Tax and the amount of such Excise Tax, (A) such Covered Payments will be treated as "parachute payments" within the meaning of Section 280G of the Code, and all "parachute payments" in excess of the "base amount" (as defined under Section 280G(b)(3) of the Code) shall be treated as subject to the Excise Tax, unless, and except to the extent that, in the good faith judgment of the Company's independent certified public accountants appointed prior to the Change of Control Date or tax counsel selected by such accountants (the "Accountants"), the Company has a reasonable basis to conclude that such Covered Payments (in whole or in part) either do not constitute "parachute payments" or represent reasonable compensation for personal services actually rendered (within the meaning of Section 280G(b)(4)(B) of the Code) in excess of the "base amount," or such "parachute payments" are otherwise not subject to such Excise Tax, and 13 (B) the value of any non-cash benefits or any deferred payment or benefit shall be determined by the Accountants in accordance with the principles of Section 280G of the Code. (iii) For purposes of determining the amount of the Tax Reimbursement Payment, the Executive shall be deemed to pay: (A) Federal income taxes at the highest applicable marginal rate of Federal income taxation for the calendar year in which the Tax Reimbursement Payment is to be made, and (B) any applicable state and local income taxes at the highest applicable marginal rate of taxation for the calendar year in which the Tax Reimbursement Payment is to be made, net of the maximum reduction in Federal income taxes which could be obtained from the deduction of such state or local taxes if paid in such year. (iv) In the event that the Excise Tax is subsequently determined by the Accountants or pursuant to any proceeding or negotiations with the Internal Revenue Service to be less than the amount taken into account hereunder in calculating the Tax Reimbursement Payment made, the Executive shall repay to the Company, at the time that the amount of such reduction in the Excise Tax is finally determined, the portion of such prior Tax Reimbursement Payment that would not have been paid if such Excise Tax had been applied in initially calculating such Tax Reimbursement Payment, plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. Notwithstanding the foregoing, in the event any portion of the Tax Reimbursement Payment to be refunded to the Company has been paid to any Federal, state or local tax authority, repayment thereof shall not be required until actual refund or credit of such portion has been made to the Executive, and interest payable to the Company shall not exceed interest received or credited to the Executive by such tax authority for the period it held such portion. The Executive and the Company shall mutually agree upon the course of action to be pursued (and the method of allocating the expenses thereof) if the Executive's good faith claim for refund or credit is denied. In the event that the Excise Tax is later determined by the Accountants or pursuant to any proceeding or negotiations with the Internal Revenue Service to exceed the amount taken into account hereunder at the time the Tax Reimbursement Payment is made (including, but not limited to, by reason of any payment the existence or amount of which cannot be determined at the time of the Tax Reimbursement Payment), the Company shall make an additional Tax Reimbursement Payment in respect of such excess (plus any interest or penalty payable with respect to such excess) at the time that the amount of such excess is finally determined. (v) Any Tax Reimbursement Payment (or portion thereof) payable in accordance with Section 7(f)(i) above shall be paid to the Executive as of the date of the payment (or acceleration of vesting or lapse of restrictions as a result of a 14 Change of Control, as the case may be) of the Covered Payments; provided, however, that if the amount of such Tax Reimbursement Payment (or portion thereof) cannot be finally determined on or before the date on which payment is due, the Company shall pay to the Executive by such date an amount estimated in good faith by the Accountants to be the minimum amount of such Tax Reimbursement Payment and shall pay the remainder of such Tax Reimbursement Payment (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined, but in no event later than 45 calendar days after payment of the related Covered Payment. In the event that the amount of the estimated Tax Reimbursement Payment exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to the Executive, payable on the fifth business day after written demand by the Company for payment (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code). 8. Non-exclusivity of Rights. Except as expressly provided herein, nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any benefit, bonus, incentive or other plan or program provided by the Company, JHFS or any of its Affiliates and for which the Executive may qualify, nor shall anything herein limit or otherwise prejudice such rights as the Executive may have under any other agreements with the Company, JHFS or any of its Affiliates, including employment agreements or stock option agreements. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan or program of the Company, JHFS or any of its Affiliates at or subsequent to the Date of Termination shall be payable in accordance with such plan or program. 9. No Offset. The Company's or JHFS's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any circumstances, including, without limitation, any set-off, counterclaim, recoupment, defense or other right which the Company, JHFS or any of their Affiliates may have against the Executive or others whether by reason of the Executive's breach of this Agreement, subsequent employment of the Executive or otherwise. 10. Legal Fees and Expenses. If the Executive asserts any claim in any contest (whether initiated by the Executive or by the Company) as to the validity, enforceability or interpretation of any provision of this Agreement, the Company shall pay the Executive's legal expenses (or cause such expenses to be paid) including, without limitation, his/her reasonable attorney's fees, on a quarterly basis, upon presentation of proof of such expenses, provided that the Executive shall reimburse the Company for such amounts, plus simple interest thereon at the 90-day United States Treasury Bill rate as in effect from time to time, compounded annually, if the arbitrator referred to in Section 14(b) or a court of competent jurisdiction shall find that the Executive did not have a good faith and reasonable basis to believe that he/she would prevail as to at least one material issue presented to such arbitrator or court. 11. Confidential Information; Company Property. By and in consideration of the salary and benefits to be provided by the Company, JHFS or an Affiliate hereunder, including the severance arrangements set forth herein, the Executive agrees that: 15 (a) Confidential Information. The Executive shall hold in a fiduciary capacity for the benefit of the Company, JHFS and the Affiliates, all secret or confidential information, knowledge or data relating to the Company, JHFS or the Affiliates, and their respective businesses, (i) obtained by the Executive during his/her employment by the Company, JHFS or the Affiliates and (ii) not otherwise public knowledge (other than by reason of an unauthorized act by the Executive). After termination of the Executive's employment, the Executive shall not, without the prior written consent of the Company, unless compelled pursuant to an order of a court or other body having jurisdiction over such matter, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. (b) Nonsolicitation of Employees. The Executive agrees that for two years after the Date of Termination, he/she will not attempt, directly or indirectly, to induce any employee of the Company, JHFS or an Affiliate to be employed or perform services elsewhere or otherwise to cease providing services to the Company, JHFS or the Affiliates. (c) Return of Property. Except as expressly provided herein, promptly following the Executive's termination of employment, the Executive shall return to the Company, JHFS and the Affiliates all property of the Company, JHFS and the Affiliates (as the case may be) and all copies thereof in the Executive's possession or under his/her control. (d) Injunctive Relief and Other Remedies with Respect to Covenants. The Executive acknowledges and agrees that the covenants and obligations of the Executive with respect to confidentiality and the return of property relate to special, unique and extraordinary matters and that a violation of any of the terms of such covenants and obligations will cause the Company, JHFS and/or their Affiliates irreparable injury for which adequate remedies are not available at law. Therefore, the Executive agrees that the Company, JHFS and the Affiliates shall be entitled to an injunction, restraining order or such other equitable relief (without the requirement to post bond) restraining Executive from committing any violation of the covenants and obligations contained in this Section 11. These remedies are cumulative and are in addition to any other rights and remedies the Company, JHFS and/or the Affiliates may have at law or in equity. In no event shall an asserted violation of the provisions of this Section 11 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. 12. Obligations of the Company and JHFS. The obligations of the Company and JHFS are intended to be joint and several. If for any reason, either the Company or JHFS does not, or is unable to, honor its obligations under this Agreement, the other party shall satisfy all obligations not honored by the other party. 13. Successors. (a) This Agreement is personal to the Executive and, without the prior written consent of the Company and JHFS, 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 JHFS, the Company and each of its successors. The Company and JHFS, as applicable, shall require any successor to all or substantially all of the business and/or assets of the Company or 16 JHFS, whether direct or indirect, by purchase, merger, consolidation, acquisition of stock, or otherwise, by an agreement in form and substance satisfactory to the Executive, expressly to assume and agree to perform this Agreement in the same manner and to the same extent as the Company would be required to perform if no such succession had taken place. 14. Miscellaneous. (a) Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the States of Delaware, applied without reference to principles of conflict of laws. (b) Arbitration. Except to the extent provided in Section 11(d), any dispute or controversy arising under or in connection with this Agreement shall be resolved by binding arbitration. The arbitration shall be held in the city of Boston, Massachusetts and, except to the extent inconsistent with this Agreement, shall be conducted in accordance with the Expedited Employment Arbitration Rules of the American Arbitration Association then in effect at the time of the arbitration (or such other rules as the parties may agree to in writing), and otherwise in accordance with principles which would be applied by a court of law or equity. The arbitrator shall be acceptable to all of the Company, JHFS and the Executive. If the parties cannot agree on an acceptable arbitrator, the dispute shall be heard by a panel of three arbitrators, one appointed by the Company and JHFS, one appointed by the Executive, and the third appointed by the other two arbitrators. (c) Amendments. 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. (d) Entire Agreement. Subject to Section 8 herein, this Agreement constitutes the entire agreement between the parties hereto with respect to the matters referred to herein. No other agreement relating to the terms of the Executive's employment by the Company, JHFS or any Affiliate, oral or otherwise, shall be binding among the parties unless it is in writing and signed by the party against whom enforcement is sought. There are no promises, representations, inducements or statements among the parties other than those that are expressly contained herein. The Executive acknowledges that he/she is entering into this Agreement of his/her own free will and accord, and with no duress, that he/she has read this Agreement and that he/she understands it and its legal consequences. (e) Notices. All notices and other communications hereunder shall be in writing and shall be given by hand-delivery to the other parties or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: at the home address of the Executive noted on the records of the Company If to the Company: 200 Clarendon Street Boston, Massachusetts Attn.: Secretary 17 If to JHFS: 200 Clarendon Street Boston, Massachusetts Attn.: Secretary or to such other address as any party shall have furnished to the others in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (f) Tax Withholding. The Company shall withhold from any amounts payable under this Agreement such Federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. (g) Severability; Reformation. In the event that one or more of the provisions of this Agreement shall become invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not be affected thereby. In the event that any of the provisions of Section 11(a) are not enforceable in accordance with its terms, the Executive and the Company and JHFS agree that such Section shall be reformed to make such Section enforceable in a manner which provides the Company and JHFS the maximum rights permitted at law. (h) Waiver. Waiver by any party hereto of any breach or default by any party of any of the terms of this Agreement shall not operate as a waiver of any other breach or default, whether similar to or different from the breach or default waived. No waiver of any provision of this Agreement shall be implied from any course of dealing among the parties hereto or from any failure by any party hereto to assert its or his/her rights hereunder on any occasion or series of occasions. (i) Survival. The provisions of Section 5(g), 7(c), 7(d), 7(f), 12 and 13 shall survive the termination of the Employment Period hereunder and shall be binding upon and enforceable against the Company and JHFS in accordance with their terms. The dispute resolutions provisions contained in Section 14(b) and the legal fees provision contained in Section 10 shall also survive the end of the Employment Period and shall be applied as though the dispute arose within the Employment Period. (j) Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. (k) Captions. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. 18 IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and the Company and JHFS have caused this Agreement to be executed in their respective names and on their behalf, all as of the day and year first above written. JOHN HANCOCK LIFE INSURANCE COMPANY By: ________________________________ Name: David F. D'Alessandro Title: Chairman, President and Chief Executive Officer JOHN HANCOCK FINANCIAL SERVICES, INC. By: ________________________________ Name: David F. D'Alessandro Title: Chairman, President and Chief Executive Officer EXECUTIVE: ____________________________________ 19 EX-10.30 8 ex10-30.txt Exhibit 10.30 SECOND AMENDED AND RESTATED EMPLOYMENT CONTINUATION AGREEMENT THIS SECOND AMENDED AND RESTATED AGREEMENT by and among John Hancock Life Insurance Company, a Massachusetts corporation (the "Company"), John Hancock Financial Services, Inc., a Delaware corporation ("JHFS") and Robert Walters (the "Executive"), dated as of the15th day of October, 2001. W I T N E S S E T H : WHEREAS, the Executive has been employed as an officer of the Company and/or JHFS, and it has been determined that the Executive holds an important position with the Company and/or JHFS; WHEREAS, the Company and JHFS believe that, in the event of a situation that could result in a change in ownership or control of the Company or JHFS, continuity of management will be essential to their ability to evaluate and respond to such a situation in the best interests of shareholders; WHEREAS, the Company and JHFS understand that any such situation will present significant concerns for the Executive with respect to his/her financial and job security; WHEREAS, to assure themselves of the Executive's services during the period in which they are confronting such a situation, and to provide the Executive certain financial assurances to enable the Executive to perform the responsibilities of his/her position without undue distraction and to exercise his/her judgment without bias due to his/her personal circumstances, the Company, JHFS and the Executive previously entered into this Agreement to provide the Executive with certain rights and obligations upon the occurrence of a Change of Control or Potential Change of Control (as each such term is defined in Section 2 hereof); WHEREAS, the Executive, the Company and JHFS have determined that the Agreement should be amended and restated to further clarify and refine benefits and protections provided to the Executive in the event of a Change of Control or Potential Change of Control; NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, it is hereby agreed among the Company, JHFS and the Executive as follows: 1. Operation of Agreement. (a) Effective Date. The effective date of this Agreement shall be the date on which a Change of Control occurs (the "Effective Date"), provided that, except as provided in Section 1(b), if the Executive is not employed by the Company, JHFS or an Affiliate on the Effective Date, this Agreement shall be void and without effect. (b) Termination of Employment Following a Potential Change of Control. Notwithstanding Section 1(a), if (i) the Executive's employment with the Company, JHFS or an Affiliate is terminated without Cause (as defined in Section 6(c)) after the occurrence of a Potential Change of Control and prior to the occurrence of a Change of Control and (ii) a Change of Control occurs within two years of such termination, the Executive shall be deemed, solely for purposes of determining his/her rights under this Agreement, to have remained employed until the date such Change of Control occurs and to have been terminated by the Company, JHFS or (if applicable) the Affiliate without Cause immediately after this Agreement becomes effective, with any amounts payable hereunder reduced by the amount of any other severance benefits provided to him in connection with such termination. 2. Definitions. (a) "Affiliate" shall mean any corporation, partnership, limited liability company, trust or other entity which directly, or indirectly through one or more intermediaries, controls, or is controlled by, the Company, or JHFS. (b) "Board" shall mean the Board of Directors of the Company. (c) "Company" means John Hancock Life Insurance Company. (d) "Change of Control" shall be deemed to have occurred if: (i) any Person (as defined below) has acquired, "beneficial ownership" (within the meaning of Rule 13d-3, as promulgated under Section 13(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), directly or indirectly, of securities of the Company or JHFS representing 30% or more of the combined Voting Power (as defined below) of the securities of the Company or JHFS; provided, however, that the event described in this paragraph (i) shall not be deemed to be a Change in Control by virtue of an acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company, JHFS or any Affiliate; or (ii) within any 24-month period, the persons who, at the beginning of such period, were members of the Board (the "Incumbent Company Directors") shall cease to constitute at least a majority of the Board or the board of directors of any successor to the Company; provided, however, that any director elected to the Board, or nominated for election to the Board, by at least two-thirds (2/3) of the Incumbent Company Directors then still in office shall be deemed to be an Incumbent Company Director for purposes of this subclause (ii); provided, however, that no individual initially elected or nominated for election to the Board as a result of an actual or threatened election contest with respect to directors or as a result of any other actual or threatened solicitation of proxies by or on behalf of any Person other than the Board shall be deemed to be an Incumbent Company Director; or 2 (iii) within any 24-month period, the persons who, at the beginning of such period, were members of the JHFS Board (the "Incumbent JHFS Directors") shall cease to constitute at least a majority of the JHFS Board or the board of directors of any successor to JHFS; provided, however, that any director elected to the JHFS Board, or nominated for election to the JHFS Board, by at least two-thirds (2/3) of the Incumbent JHFS Directors then still in office shall be deemed to be an Incumbent JHFS Director for purposes of this subclause (iii); provided, however, that no individual initially elected or nominated for election to the JHFS Board as a result of an actual or threatened election contest with respect to directors or as a result of any other actual or threatened solicitation of proxies by or on behalf of any Person other than the JHFS Board shall be deemed to be an Incumbent JHFS Director; or (iv) upon the consummation of a merger, consolidation, share exchange, division, sale or other disposition of all or substantially all of the assets of the Company (a "Company Corporate Event") and immediately following the consummation of which the stockholders of the Company, immediately prior to such Company Corporate Event do not hold, directly or indirectly, a majority of the Voting Power of (A) in the case of a merger or consolidation, the surviving or resulting corporation, (B) in the case of a statutory share exchange, the acquiring corporation, (C) in the case of a division or a sale or other disposition of assets, each surviving, resulting or acquiring corporation which, immediately following the relevant Company Corporate Event, holds more than 25% of the consolidated assets of the Company immediately prior to such Company Corporate Event, provided that no Change of Control shall be deemed to have occurred if the Executive is employed, immediately following such Company Corporate Event, by any entity in which the stockholders of the Company immediately prior to such Company Corporate Event hold, directly or indirectly, a majority of the Voting Power; Provided that in each case such majority of the Voting Power is represented by securities of the Company that were outstanding immediately prior to such Company Corporate Event (or, if applicable, is represented by shares into which such securities of the Company were converted pursuant to such Company Corporate Event); or (v) upon the consummation of a merger, consolidation, share exchange, division, sale or other disposition of all or substantially all of the assets of JHFS which has been approved by the stockholders of JHFS (a "JHFS Corporate Event"), and immediately following the consummation of which the stockholders of JHFS 3 immediately prior to such JHFS Corporate Event do not hold, directly or indirectly, a majority of the Voting Power of (A) in the case of a merger or consolidation, the surviving or resulting corporation, (B) in the case of a statutory share exchange, the acquiring corporation, or (C) in the case of a division or a sale or other disposition of assets, each surviving, resulting or acquiring corporation which, immediately following the relevant JHFS Corporate Event, holds more than 25% of the consolidated assets of JHFS immediately prior to such JHFS Corporate Event, provided that no Change of Control shall be deemed to have occurred if the Executive is employed, immediately following such JHFS Corporate Event, by any entity in which the stockholders of JHFS immediately prior to such JHFS Corporate Event hold, directly or indirectly, a majority of the Voting Power; Provided that in each case such majority of the Voting Power is represented by securities of JHFS that were outstanding immediately prior to such JHFS Corporate Event (or, if applicable, is represented by shares into which such securities of JHFS were converted pursuant to such JHFS Corporate Event); or (vi) any other event occurs which the Board or the JHFS Board declares to be a Change of Control. (e) "JHFS" means John Hancock Financial Services, Inc. (f) "JHFS Board" means the Board of Directors of JHFS and, after a Change in Control that constitutes a Company Corporate Event or a JHFS Corporate Event, the Board Directors of the Parent. (g) "Parent" shall mean any corporation, partnership, limited liability company, business trust or other entity which owns, directly or indirectly, more than 50% of the Voting Power in the Company or JHFS. (h) "Person" shall have the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act, as supplemented by Section 13(d)(3) of the Exchange Act; provided, however, that Person shall not include (i) the Company, JHFS, or any Affiliate or (ii) any employee benefit plan sponsored by the entities described in clause (i) of this definition. (i) "Potential Change of Control" shall be deemed to have occurred if: (i) a Person commences a tender offer (with adequate financing) for securities representing at least 10% of the Voting Power of the JHFS's securities; 4 (ii) the Company or JHFS enters into an agreement the consummation of which would constitute a Change of Control; (iii) proxies for the election of directors of JHFS are solicited by anyone other than JHFS; or (iv) any other event occurs which is deemed to be a Potential Change of Control by the JHFS Board. (j) "Voting Power" shall mean such number of the Voting Securities as shall enable the holders thereof to cast such percentage of all the votes which could be cast in an annual election of directors. (k) "Voting Securities" shall mean all securities of a company entitling the holders thereof to vote in an annual election of directors. 3. Employment Period. Subject to Section 6 of this Agreement, the Company (or if applicable, JHFS) agrees to continue the Executive in its employ, and the Executive agrees to remain in the employ of the Company or, if applicable, JHFS for the period (the "Employment Period") commencing on the Effective Date and ending on the third anniversary of the Effective Date. Notwithstanding the foregoing, if, prior to the Effective Date, the Executive is demoted to a lower position than the position held on the date first set forth above, the Board (or if applicable, the JHFS Board) may declare that this Agreement shall be without force and effect by written notice delivered to the Executive (i) within 30 days following such demotion and (ii) prior to the occurrence of a Potential Change of Control or a Change of Control. 4. Position and Duties. (a) No Reduction in Position. During the Employment Period, the Executive's position (including titles), authority and responsibilities with the Company, JHFS and each of the Affiliates shall be, both individually and in the aggregate, at least commensurate with those held, exercised and assigned immediately prior to the Effective Date. It is understood that, for purposes of this Agreement, such position, authority and responsibilities shall not be regarded as not commensurate merely by virtue of the fact that a successor shall have acquired all or substantially all of the business and/or assets of the Company as contemplated by Section 13(b) of this Agreement. The Executive's services shall be performed at the location where the Executive was employed immediately preceding the Effective Date. (b) Business Time. From and after the Effective Date, the Executive agrees to devote substantially all of his/her attention during normal business hours to the business and affairs of the Company, JHFS and the Affiliates and to use his/her reasonable best efforts to perform the responsibilities assigned to him hereunder, to the extent necessary to discharge such responsibilities, except for (i) time spent in managing his/her personal, financial and legal affairs and serving on corporate, civic or charitable boards or committees, in each case only if and to the extent not substantially interfering with the performance of such responsibilities, and (ii) periods of vacation and sick leave to which he/she is entitled. It is expressly understood and agreed that the Executive's continuing to serve on any boards and committees on which he/she is serving or with which he/she is 5 otherwise associated immediately preceding the Effective Date shall not be deemed to interfere with the performance of the Executive's services for the Company, JHFS or the Affiliates. 5. Compensation. (a) Base Salary. During the Employment Period, the Executive shall receive a base salary at a monthly rate at least equal to the monthly salary paid to the Executive by the Company, JHFS and any Affiliate immediately prior to the Effective Date. The base salary shall be reviewed at least once each year after the Effective Date, and may be increased (but not decreased) at any time and from time to time by action of the Board or JHFS Board, as the case may be, or any committee thereof or any individual having authority to take such action in accordance with the Company's (or if applicable, JHFS's) regular practices. The Executive's base salary, as it may be increased from time to time, shall hereafter be referred to as "Base Salary". Neither the Base Salary nor any increase in Base Salary after the Effective Date shall serve to limit or reduce any other obligation of the Company or JHFS hereunder. (b) Annual Bonus. During the Employment Period, in addition to the Base Salary, for each fiscal year of the Company ending during the Employment Period, the Executive shall be afforded the opportunity to receive an annual bonus on terms and conditions no less favorable to the Executive (taking into account reasonable changes in the applicable corporate goals and objectives and taking into account actual performance) than the annual bonus opportunity that had been made available to the Executive for the fiscal year ended immediately prior to the Effective Date (the "Annual Bonus Opportunity"). Any amount payable in respect of the Annual Bonus Opportunity shall be paid as soon as practicable following the year for which the amount (or prorated portion) is earned or awarded, unless electively deferred by the Executive pursuant to any deferral programs or arrangements that the Company, JHFS or any of its Affiliates may make available to the Executive. (c) Long-term Incentive Compensation Programs. During the Employment Period, the Executive shall participate in all long-term incentive compensation programs (including, without limitation, programs providing for the grant of stock options and other equity-based awards) for key executives at a level that is commensurate with the Executive's participation in such plans immediately prior to the Effective Date, or, if more favorable to the Executive, at the level made available to the Executive or other similarly situated officers at any time thereafter. (d) Benefit Plans. During the Employment Period, the Company shall provide to the Executive (and to the extent applicable, his/her dependents) pension, retirement, deferred compensation, savings, medical, dental, health, disability, life and accidental death coverages, both individual and group, at a level that is commensurate with the coverage to which the Executive was entitled under plans sponsored by the Company, JHFS or any affiliate immediately prior to the Effective Date, or, if more favorable to the Executive, at the level made available to the Executive or other similarly situated officers at any time thereafter. The Executive shall be entitled to such benefits subject to the same terms and conditions (including, without limitation, any requirement that the Executive make contributions toward the cost of such coverage) that applied immediately prior to the Effective Date, or, if more favorable to the Executive, as are made applicable to the Executive or other similarly situated officers at any time thereafter. To the extent such 6 benefits cannot be provided under the terms of a benefit plan, policy or program sponsored by the Company, JHFS or any affiliate, as the case may be, the Company shall provide a comparable benefit under another plan or from the Company's general assets. (e) Expenses. During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the policies and procedures of the Company as in effect immediately prior to the Effective Date. Notwithstanding the foregoing, the Company may apply the policies and procedures in effect after the Effective Date to the Executive, if such policies and procedures are not less favorable to the Executive than those in effect immediately prior to the Effective Date. (f) Vacation and Fringe Benefits. During the Employment Period, the Executive shall be entitled to paid vacation and fringe benefits (including, without limitation, any split-dollar life insurance arrangements) at a level that is commensurate with the paid vacation and fringe benefits available to the Executive immediately prior to the Effective Date, or, if more favorable to the Executive, at the level made available from time to time to the Executive or other similarly situated officers at any time thereafter. (g) Indemnification. During and after the Employment Period, the Company and JHFS shall indemnify the Executive and hold the Executive harmless from and against any claim, loss or cause of action arising from or out of the Executive's performance as an officer, director or employee of JHFS, the Company or any of their Affiliates or in any other capacity, including any fiduciary capacity, in which the Executive serves at the request of the Company to the maximum extent permitted by applicable law and the Certificate of Incorporation and By-Laws of JHFS or the Company, as the case may be (the "Governing Documents"), provided that in no event shall the protection afforded to the Executive hereunder be less than that afforded under the Governing Documents as in effect immediately prior to the Effective Date. (h) Office and Support Staff. The Executive shall be entitled to an office with furnishings and other appointments, and to secretarial and other assistance, at a level that is at least commensurate with the foregoing provided to the Executive immediately prior to the Change of Control. 6. Termination. (a) Death, Disability or Retirement. Subject to the provisions of Section 1 hereof, this Agreement shall terminate automatically upon the Executive's death, termination due to "Disability" (as defined below) or voluntary retirement under any of the retirement plans of the Company or JHFS (or, if applicable, an Affiliates) has in effect from time to time. For purposes of this Agreement, Disability shall mean the Executive has met the conditions to qualify for long-term disability benefits under the long term disability plan or policy the Company or JHFS (or, if applicable, an Affiliate), has in effect immediately prior to the Effective Date. (b) Voluntary Termination. Notwithstanding anything in this Agreement to the contrary, following a Change of Control the Executive may, upon not less than 60 days' written notice to the Company (or, if applicable, JHFS), voluntarily terminate employment for any reason (including early retirement under the terms of any retirement plans 7 maintained by the Company, JHFS or an Affiliate, as in effect from time to time), provided that any termination by the Executive pursuant to Section 6(d) on account of Good Reason (as defined therein) shall not be treated as a voluntary termination under this Section 6(b). (c) Cause. The Company, JHFS or an Affiliate that employs the Executive may terminate the Executive's employment for Cause. For purposes of this Agreement, "Cause" means (i) the Executive's conviction or plea of nolo contendere to a felony related to fraud or dishonesty; (ii) an act or acts of dishonesty or gross misconduct on the Executive's part which result or are intended to result in material damage to the Company's, JHFS's or an Affiliate's business or reputation; or (iii) repeated material violations by the Executive of his/her obligations under Section 4 of this Agreement, which violations are demonstrably willful and deliberate on the Executive's part and which result in material damage to the Company's, JHFS's or an Affiliate's business or reputation. Cause shall not exist unless and until JHFS has delivered to Executive a copy of a resolution duly adopted by three-quarters (3/4) of the entire JHFS Board (excluding the Executive if the Executive is a JHFS Board member) at a meeting of the JHFS Board called and held for such purpose (after reasonable notice to the Executive and an opportunity for the Executive, together with counsel, to be heard before the JHFS Board), finding that in the good faith opinion of the JHFS Board an event set forth in subclauses (i), (ii), or (iii) has occurred and specifying the particulars thereof in detail. The Company, JHFS or an Affiliate must notify the Executive of any event that it alleges constitutes Cause within ten (10) business days following the Company's, JHFS's or an Affiliate's knowledge, as the case may be, of its existence, and notify the Executive at least ten (10) business days prior to the board proceedings described above, or such event shall not constitute Cause under this Agreement. (d) Good Reason. Following the occurrence of a Change of Control, the Executive may terminate his/her employment for Good Reason. For purposes of this Agreement, "Good Reason" means the occurrence of any of the following, without the express written consent of the Executive, after the occurrence of a Change of Control: (i) the assignment to the Executive of any duties inconsistent in any material adverse respect with the Executive's position, authority or responsibilities, as contemplated by Section 4 of this Agreement, or any other material adverse change in position, titles, authority or responsibilities, including and without limiting the generality of the foregoing, the elimination or substantial reduction of the Executive's duties with the Company, JHFS or any Affiliate resulting in a significant reduction in his position, titles, authority or responsibilities as in effect prior to the Change of Control; (ii) any failure by the Company or JHFS to comply with any of the provisions of Section 5 of this Agreement, other than an insubstantial or inadvertent failure remedied by the Company or JHFS promptly after receipt of notice thereof given by the Executive; (iii) any requirement that the Executive (A) be based at any office or location more than 35 miles (or any such shorter distance as shall be set forth in the 8 Company's (or if applicable, JHFS's) relocation policy as in effect on the Effective Date) from that location at which he/she performed his/her services specified under the provisions of Section 4 immediately prior to the Change of Control, except for travel reasonably required in the performance of the Executive's responsibilities or (B) travel on business on behalf of the Company, JHFS or any Affiliate, as the case may be, to an extent substantially greater than the travel obligations of the Executive immediately prior to the Change in Control; (iv) any failure by the Company or JHFS to obtain the assumption and agreement to perform this Agreement by a successor as contemplated by Section 13(b). In no event shall the mere occurrence of a Change of Control, absent any further impact on the Executive, be deemed to constitute Good Reason. (e) Notice of Termination. Any termination by the Company, JHFS or an Affiliate for Cause or by the Executive for Good Reason shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 14(e). 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) sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated, and (iii) if the termination date is other than the date of receipt of such notice, specifies the termination date of this Agreement (which date shall be not more than 15 days after the giving of such notice). In the case of a termination for Good Reason, the Notice of Termination shall be given within 180 days of the Executive's having actual knowledge of the events giving rise to such termination which actual knowledge shall in no event be deemed to have occurred any earlier than the Effective Date. The failure by the Executive to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason shall not waive any right of the Executive hereunder or preclude the Executive from asserting such fact or circumstance in enforcing his/her rights hereunder. (f) Date of Termination. For the purpose of this Agreement, the term "Date of Termination" means (i) in the case of a termination for which a Notice of Termination is required, the date of receipt of such Notice of Termination or, if later, the date specified therein, as the case may be, and (ii) in all other cases, the actual date on which the Executive's employment terminates during the Employment Period. 7. Obligations of the Company upon Termination. (a) Death or Disability. If the Executive's employment is terminated during the Employment Period by reason of the Executive's death or Disability, this Agreement shall terminate without further obligations to the Executive or the Executive's legal representatives under this Agreement other than those obligations accrued hereunder at the Date of Termination, and the Company shall pay to the Executive (or his/her beneficiary or estate) (i) the Executive's full Base Salary through the Date of Termination (the "Earned Salary"), (ii) any vested amounts or benefits owing to the Executive under the otherwise applicable employee benefit plans and programs of the Company, JHFS and the Affiliates, including any compensation previously deferred by the Executive (together with any accrued earnings thereon) and not 9 yet paid by the Company, JHFS or an Affiliate and any accrued vacation pay not yet paid by the Company, JHFS or an Affiliate (the "Accrued Obligations"), and (iii) any other benefits payable due to the Executive's death or Disability under the plans, policies or programs of the Company, JHFS and the Affiliates (the "Additional Benefits"). The Earned Salary shall be paid in cash in a single lump sum as soon as practicable, but in no event more than 10 days (or at such earlier date required by law), following the Date of Termination. Accrued Obligations and Additional Benefits shall be paid in accordance with the terms of the applicable plan, program or arrangement. (b) Cause and Voluntary Termination. If, during the Employment Period, the Executive's employment shall be terminated for Cause or voluntarily terminated by the Executive (other than on account of Good Reason following a Change of Control), the Company shall pay the Executive (i) the Earned Salary in cash in a single lump sum as soon as practicable, but in no event more than 10 days, following the Date of Termination, and (ii) the Accrued Obligations in accordance with the terms of the applicable plan, program or arrangement. (c) Termination by the Company other than for Cause. If, during the Employment Period, the Company or JHFS, terminates the Executive's employment other than for Cause, the Company shall provide the Executive with the following benefits: (i) Severance and Other Termination Payments. The Company shall pay the Executive the following: (A) the Executive's Earned Salary; and (B) notwithstanding any plan provisions to the contrary, an amount (the "Pro-Rated Annual Incentive") equal to the target annual bonus applicable to the Executive for the fiscal year in which the Date of Termination occurs, multiplied by a fraction, the numerator of which is the number of completed months in such fiscal year which have elapsed on or before (and including) the Date of Termination and the denominator of which is 12; and (C) notwithstanding any plan provisions to the contrary, an aggregate amount (the "Pro-Rated Long Term Incentives") equal to the sum of the amounts awarded to the Executive in respect of each performance cycle, whether or not vested, then in progress (i.e., each performance cycle, which includes as part of the performance period the fiscal year in which the Date of Termination occurs), as accrued on the books of the Company as of the end of the month preceding the Date of Termination; and (D) the Accrued Obligations; and (E) a cash amount (the "Severance Amount") equal to three times the sum of 10 (1) the Executive's annual Base Salary; and (2) an amount equal to the target annual bonus applicable to the Executive for the fiscal year in which the Change of Control occurs; (3) an amount equal to the long term incentive award granted to the Executive with respect to the performance period commencing in the calendar year 2000. For purposes of this Section 7(c)(i)(E)(3), if the Executive was a member of the Policy Committee at the time of the grant of such long term incentive award, such award shall be measured by the equity rights awarded to the Executive for such performance period under the terms of the Long-Term Incentive Plan for Senior Executives; otherwise, the grant of the long term incentive award referred to above shall be measured by the aggregate value of (a) the equity rights granted to such Executive for such performance cycle under the terms of the Long-Term Incentive Plan for Senior Executives and (b) the stock options granted to such Executive in March, 2000 under the terms of the John Hancock Financial Services, Inc. 1999 Long-Term Stock Incentive Plan. The Earned Salary, Pro-Rated Annual Incentive, Pro-Rated Long Term Incentives, Retention Bonus and Severance Amount shall be paid in cash in a single lump sum as soon as practicable, but in no event more than 10 days (or at such earlier date required by law), following the Date of Termination. Accrued Obligations shall be paid in accordance with the terms of the applicable plan, program or arrangement. (ii) Continuation of Benefits. If, during the Employment Period, the Executive's employment is terminated other than for Cause, the Executive (and, to the extent applicable, his/her dependents) shall be entitled, after the Date of Termination until the earlier of (A) the third anniversary of the Date of Termination (the "End Date") and (B) the date the Executive becomes eligible for comparable benefits under a similar plan, policy or program of a subsequent employer, to continue participation in all of the individual and group health (including without limitation medical, dental and disability) and life employee benefits plans maintained by the Company, JHFS or an Affiliate and in which the Executive had been participating prior to the Date of Termination (the "Benefit Plans"). In addition, to the extent that, prior to the Date of Termination, the Company had been paying the premiums on any split-dollar life insurance policy with respect to the Executive, the Company shall, as to any such policy, continue the payment of such premiums until the later of the End Date or the date through which the Company otherwise would have paid premiums on such policy in the absence of a Change of Control. To the extent any such benefits cannot be provided under the terms of the applicable plan, policy or program, the Company shall provide a comparable benefit under another plan or from the Company's general assets. The Executive's participation in the Benefit Plans will be on the same terms and conditions 11 (including, without limitation, any condition that the Executive make contributions toward the cost of such coverage on the same terms and conditions generally applicable to similarly situated employees) that would have applied had the Executive continued to be employed by the Company through the End Date. (iii) Enhanced Retirement Benefits. In determining the defined benefit retirement benefits made available to the Executive, the Executive shall be entitled to receive the additional benefits that would have been payable or available to the Executive under any employee benefit plan based on (x) the service the Executive would have attained or completed had the Executive continued in the Company's employ until the End Date and, (y) where compensation is a relevant factor, his/her pensionable compensation at the Date of Termination. Notwithstanding the foregoing, the Executive shall not receive any service credit for any period after the Executive has attained 65. (iv) Payment of Mandatorily Deferred Incentive Compensation Payments. To the extent not earlier paid in accordance with the terms and conditions of the governing plan documents, all amounts, if any, that had been determined to be payable to the Executive under any long term incentive compensation program, but the payment of which was mandatorily deferred under the terms and conditions of such governing documents, shall be paid (plus all earnings credited with respect thereto) in a single lump sum payment, as soon as practicable after the next succeeding valuation date under the applicable plans, but in no event later than the first March 15 following the Executive's Date of Termination. (v) Outplacement Services. The Executive shall be provided at the Company's expense with outplacement services customary for executives at his/her level (including, without limitation, office space and telephone support services) provided by a qualified and experienced third party provider selected by the Company. (d) Termination by the Executive for Good Reason. If, during the Employment Period, the Executive terminates his/her employment for Good Reason, the Company shall pay to the Executive the same amounts as would be payable to the Executive under Section 7(c) if such termination were a termination by the Company or JHFS without Cause. (e) Discharge of the Company's and JHFS's Obligations. Except as expressly provided in the last sentence of this Section 7(e), the amounts payable to the Executive pursuant to this Section 7 following termination of his/her employment shall be in full and complete satisfaction of the Executive's rights under this Agreement and any other claims he/she may have in respect of his/her employment by the Company, JHFS or the Affiliates. Such amounts shall constitute liquidated damages with respect to any and all such rights and claims and, upon the Executive's receipt of such amounts, the Company, JHFS and each of their Affiliates shall be released and discharged from any and all liability to the Executive in connection with this Agreement or otherwise in connection with the Executive's employment with the Company, JHFS and their Affiliates. Nothing in this Section 7(e) shall be construed to release the Company or JHFS, as applicable, from its 12 commitment to indemnify the Executive and hold the Executive harmless from and against any claim, loss or cause of action arising from or out of the Executive's performance as an officer, director or employee of the Company, JHFS or any of their Affiliates or in any other capacity, including any fiduciary capacity, in which the Executive served at the request of the Company or JHFS to the maximum extent permitted by applicable law and the Governing Documents. (f) Certain Further Payments by the Company. (i) In the event that any amount or benefit paid or distributed to the Executive pursuant to this Agreement and/or any amounts or benefits otherwise paid or distributed (whether or not paid or distributed pursuant to a plan or program maintained by the Company or JHFS) to the Executive by the Company, JHFS or any Affiliate, including without limitation, the present value of any amounts or benefits that otherwise become payable to the Executive by the Company, JHFS or any Affiliate or otherwise become nonforfeitable because of the lapse or termination of any restrictions thereon as a result of a Change of Control (collectively, the "Covered Payments"), are or become subject to the tax (the "Excise Tax") imposed under Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), or any similar tax that may hereafter be imposed, the Company shall pay to the Executive at the time specified in Section 7(f)(v) below an additional amount ("Tax Reimbursement Payment") such that the net amount retained by the Executive with respect to such Covered Payments, after deduction of any Excise Tax on the Covered Payments and any Federal, state and local income or employment tax and Excise Tax on the Tax Reimbursement Payment provided for by this Section 7(f), but before deduction for any Federal, state or local income or employment tax withholding on such Covered Payments, shall be equal to the amount of the Covered Payments. (ii) For purposes of determining whether any of the Covered Payments will be subject to the Excise Tax and the amount of such Excise Tax, (A) such Covered Payments will be treated as "parachute payments" within the meaning of Section 280G of the Code, and all "parachute payments" in excess of the "base amount" (as defined under Section 280G(b)(3) of the Code) shall be treated as subject to the Excise Tax, unless, and except to the extent that, in the good faith judgment of the Company's independent certified public accountants appointed prior to the Change of Control Date or tax counsel selected by such accountants (the "Accountants"), the Company has a reasonable basis to conclude that such Covered Payments (in whole or in part) either do not constitute "parachute payments" or represent reasonable compensation for personal services actually rendered (within the meaning of Section 280G(b)(4)(B) of the Code) in excess of the "base amount," or such "parachute payments" are otherwise not subject to such Excise Tax, and 13 (B) the value of any non-cash benefits or any deferred payment or benefit shall be determined by the Accountants in accordance with the principles of Section 280G of the Code. (iii) For purposes of determining the amount of the Tax Reimbursement Payment, the Executive shall be deemed to pay: (A) Federal income taxes at the highest applicable marginal rate of Federal income taxation for the calendar year in which the Tax Reimbursement Payment is to be made, and (B) any applicable state and local income taxes at the highest applicable marginal rate of taxation for the calendar year in which the Tax Reimbursement Payment is to be made, net of the maximum reduction in Federal income taxes which could be obtained from the deduction of such state or local taxes if paid in such year. (iv) In the event that the Excise Tax is subsequently determined by the Accountants or pursuant to any proceeding or negotiations with the Internal Revenue Service to be less than the amount taken into account hereunder in calculating the Tax Reimbursement Payment made, the Executive shall repay to the Company, at the time that the amount of such reduction in the Excise Tax is finally determined, the portion of such prior Tax Reimbursement Payment that would not have been paid if such Excise Tax had been applied in initially calculating such Tax Reimbursement Payment, plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. Notwithstanding the foregoing, in the event any portion of the Tax Reimbursement Payment to be refunded to the Company has been paid to any Federal, state or local tax authority, repayment thereof shall not be required until actual refund or credit of such portion has been made to the Executive, and interest payable to the Company shall not exceed interest received or credited to the Executive by such tax authority for the period it held such portion. The Executive and the Company shall mutually agree upon the course of action to be pursued (and the method of allocating the expenses thereof) if the Executive's good faith claim for refund or credit is denied. In the event that the Excise Tax is later determined by the Accountants or pursuant to any proceeding or negotiations with the Internal Revenue Service to exceed the amount taken into account hereunder at the time the Tax Reimbursement Payment is made (including, but not limited to, by reason of any payment the existence or amount of which cannot be determined at the time of the Tax Reimbursement Payment), the Company shall make an additional Tax Reimbursement Payment in respect of such excess (plus any interest or penalty payable with respect to such excess) at the time that the amount of such excess is finally determined. (v) Any Tax Reimbursement Payment (or portion thereof) payable in accordance with Section 7(f)(i) above shall be paid to the Executive as of the date of the payment (or acceleration of vesting or lapse of restrictions as a result of a 14 Change of Control, as the case may be) of the Covered Payments; provided, however, that if the amount of such Tax Reimbursement Payment (or portion thereof) cannot be finally determined on or before the date on which payment is due, the Company shall pay to the Executive by such date an amount estimated in good faith by the Accountants to be the minimum amount of such Tax Reimbursement Payment and shall pay the remainder of such Tax Reimbursement Payment (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined, but in no event later than 45 calendar days after payment of the related Covered Payment. In the event that the amount of the estimated Tax Reimbursement Payment exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to the Executive, payable on the fifth business day after written demand by the Company for payment (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code). 8. Non-exclusivity of Rights. Except as expressly provided herein, nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any benefit, bonus, incentive or other plan or program provided by the Company, JHFS or any of its Affiliates and for which the Executive may qualify, nor shall anything herein limit or otherwise prejudice such rights as the Executive may have under any other agreements with the Company, JHFS or any of its Affiliates, including employment agreements or stock option agreements. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan or program of the Company, JHFS or any of its Affiliates at or subsequent to the Date of Termination shall be payable in accordance with such plan or program. 9. No Offset. The Company's or JHFS's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any circumstances, including, without limitation, any set-off, counterclaim, recoupment, defense or other right which the Company, JHFS or any of their Affiliates may have against the Executive or others whether by reason of Executive's breach of this Agreement, the subsequent employment of the Executive, or otherwise. 10. Legal Fees and Expenses. If the Executive asserts any claim in any contest (whether initiated by the Executive or by the Company) as to the validity, enforceability or interpretation of any provision of this Agreement, the Company shall pay the Executive's legal expenses (or cause such expenses to be paid) including, without limitation, his/her reasonable attorney's fees, on a quarterly basis, upon presentation of proof of such expenses, provided that the Executive shall reimburse the Company for such amounts, plus simple interest thereon at the 90-day United States Treasury Bill rate as in effect from time to time, compounded annually, if the arbitrator referred to in Section 14(b) or a court of competent jurisdiction shall find that the Executive did not have a good faith and reasonable basis to believe that he/she would prevail as to at least one material issue presented to such arbitrator or court. 11. Confidential Information; Company Property. By and in consideration of the salary and benefits to be provided by the Company, JHFS or an Affiliate hereunder, including the severance arrangements set forth herein, the Executive agrees that: 15 (a) Confidential Information. The Executive shall hold in a fiduciary capacity for the benefit of the Company, JHFS and the Affiliates, all secret or confidential information, knowledge or data relating to the Company, JHFS or the Affiliates, and their respective businesses, (i) obtained by the Executive during his/her employment by the Company, JHFS or the Affiliates and (ii) not otherwise public knowledge (other than by reason of an unauthorized act by the Executive). After termination of the Executive's employment, the Executive shall not, without the prior written consent of the Company, unless compelled pursuant to an order of a court or other body having jurisdiction over such matter, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. (b) Nonsolicitation of Employees. The Executive agrees that for two years after the Date of Termination, he/she will not attempt, directly or indirectly, to induce any employee of the Company, JHFS or an Affiliate to be employed or perform services elsewhere or otherwise to cease providing services to the Company, JHFS or the Affiliates. (c) Return of Property. Except as expressly provided herein, promptly following the Executive's termination of employment, the Executive shall return to the Company, JHFS and the Affiliates all property of the Company, JHFS and the Affiliates (as the case may be) and all copies thereof in the Executive's possession or under his/her control. (d) Injunctive Relief and Other Remedies with Respect to Covenants. The Executive acknowledges and agrees that the covenants and obligations of the Executive with respect to confidentiality and the return of property relate to special, unique and extraordinary matters and that a violation of any of the terms of such covenants and obligations will cause the Company, JHFS and/or their Affiliates irreparable injury for which adequate remedies are not available at law. Therefore, the Executive agrees that the Company, JHFS and the Affiliates shall be entitled to an injunction, restraining order or such other equitable relief (without the requirement to post bond) restraining Executive from committing any violation of the covenants and obligations contained in this Section 11. These remedies are cumulative and are in addition to any other rights and remedies the Company, JHFS and/or the Affiliates may have at law or in equity. In no event shall an asserted violation of the provisions of this Section 11 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. 12. Obligations of the Company and JHFS. The obligations of the Company and JHFS are intended to be joint and several. If for any reason, either the Company or JHFS does not, or is unable to, honor its obligations under this Agreement, the other party shall satisfy all obligations not honored by the other party. 13. Successors. (a) This Agreement is personal to the Executive and, without the prior written consent of the Company and JHFS, 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 JHFS, the Company and each of its successors. The Company and JHFS, as applicable, shall require any successor to all or substantially all of the business and/or assets of the Company or 16 JHFS, whether direct or indirect, by purchase, merger, consolidation, acquisition of stock, or otherwise, by an agreement in form and substance satisfactory to the Executive, expressly to assume and agree to perform this Agreement in the same manner and to the same extent as the Company and JHFS would be required to perform if no such succession had taken place. 14. Miscellaneous. (a) Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the States of Delaware, applied without reference to principles of conflict of laws. (b) Arbitration. Except to the extent provided in Section 11(d), any dispute or controversy arising under or in connection with this Agreement shall be resolved by binding arbitration. The arbitration shall be held in the city of Boston, Massachusetts and, except to the extent inconsistent with this Agreement, shall be conducted in accordance with the Expedited Employment Arbitration Rules of the American Arbitration Association then in effect at the time of the arbitration (or such other rules as the parties may agree to in writing), and otherwise in accordance with principles which would be applied by a court of law or equity. The arbitrator shall be acceptable to all of the Company, JHFS and the Executive. If the parties cannot agree on an acceptable arbitrator, the dispute shall be heard by a panel of three arbitrators, one appointed by the Company and JHFS, one appointed by the Executive, and the third appointed by the other two arbitrators. (c) Amendments. 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. (d) Entire Agreement. Subject to Section 8 herein, this Agreement constitutes the entire agreement between the parties hereto with respect to the matters referred to herein. No other agreement relating to the terms of the Executive's employment by the Company, JHFS or any Affiliate, oral or otherwise, shall be binding among the parties unless it is in writing and signed by the party against whom enforcement is sought. There are no promises, representations, inducements or statements among the parties other than those that are expressly contained herein. The Executive acknowledges that he/she is entering into this Agreement of his/her own free will and accord, and with no duress, that he/she has read this Agreement and that he/she understands it and its legal consequences. (e) Notices. All notices and other communications hereunder shall be in writing and shall be given by hand-delivery to the other parties or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: at the home address of the Executive noted on the records of the Company If to the Company: 200 Clarendon Street Boston, Massachusetts Attn.: Secretary 17 If to JHFS: 200 Clarendon Street Boston, Massachusetts Attn.: Secretary or to such other address as any party shall have furnished to the others in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (f) Tax Withholding. The Company shall withhold from any amounts payable under this Agreement such Federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. (g) Severability; Reformation. In the event that one or more of the provisions of this Agreement shall become invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not be affected thereby. In the event that any of the provisions of Section 11(a) are not enforceable in accordance with its terms, the Executive and the Company and JHFS agree that such Section shall be reformed to make such Section enforceable in a manner which provides the Company and JHFS the maximum rights permitted at law. (h) Waiver. Waiver by any party hereto of any breach or default by any party of any of the terms of this Agreement shall not operate as a waiver of any other breach or default, whether similar to or different from the breach or default waived. No waiver of any provision of this Agreement shall be implied from any course of dealing among the parties hereto or from any failure by any party hereto to assert its or his/her rights hereunder on any occasion or series of occasions. (i) Survival. The provisions of Section 5(g), 7(c), 7(d), 7(f), 12 and 13 shall survive the termination of the Employment Period hereunder and shall be binding upon and enforceable against the Company and JHFS in accordance with their terms. The dispute resolutions provisions contained in Section 14(b) and the legal fees provision contained in Section 10 shall also survive the end of the Employment Period and shall be applied as though the dispute arose within the Employment Period. (j) Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. (k) Captions. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. 18 IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and the Company and JHFS have caused this Agreement to be executed in their respective names and on their behalf, all as of the day and year first above written. JOHN HANCOCK LIFE INSURANCE COMPANY By: ________________________________ Name: David F. D'Alessandro Title: Chairman, President and Chief Executive Officer JOHN HANCOCK FINANCIAL SERVICES, INC. By: ________________________________ Name: David F. D'Alessandro Title: Chairman, President and Chief Executive Officer EXECUTIVE: ____________________________________ 19 EX-10.31 9 ex10-31.txt Exhibit 10.31 AMENDED AND RESTATED EMPLOYMENT CONTINUATION AGREEMENT THIS AMENDED AND RESTATED AGREEMENT by and among John Hancock Life Insurance Company, a Massachusetts corporation (the "Company"), John Hancock Financial Services, Inc., a Delaware corporation ("JHFS") and John M. DeCiccio (the "Executive"), dated as of the 15th day of October, 2001. W I T N E S S E T H : WHEREAS, the Executive has been employed as an officer of the Company and/or JHFS, and it has been determined that the Executive holds an important position with the Company and/or JHFS; WHEREAS, the Company and JHFS believe that, in the event of a situation that could result in a change in ownership or control of the Company or JHFS, continuity of management will be essential to their ability to evaluate and respond to such a situation in the best interests of shareholders; WHEREAS, the Company and JHFS understand that any such situation will present significant concerns for the Executive with respect to his/her financial and job security; WHEREAS, to assure themselves of the Executive's services during the period in which they are confronting such a situation, and to provide the Executive certain financial assurances to enable the Executive to perform the responsibilities of his/her position without undue distraction and to exercise his/her judgment without bias due to his/her personal circumstances, the Company, JHFS and the Executive previously entered into this Agreement to provide the Executive with certain rights and obligations upon the occurrence of a Change of Control or Potential Change of Control (as each such term is defined in Section 2 hereof); WHEREAS, the Executive, the Company and JHFS have determined that the Agreement should be amended and restated to further clarify and refine benefits and protections provided to the Executive in the event of a Change of Control or Potential Change of Control; NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, it is hereby agreed among the Company, JHFS and the Executive as follows: 1. Operation of Agreement. (a) Effective Date. The effective date of this Agreement shall be the date on which a Change of Control occurs (the "Effective Date"), provided that, except as provided in Section 1(b), if the Executive is not employed by the Company, JHFS or an Affiliate on the Effective Date, this Agreement shall be void and without effect. (b) Termination of Employment Following a Potential Change of Control. Notwithstanding Section 1(a), if (i) the Executive's employment with the Company, JHFS or an Affiliate is terminated without Cause (as defined in Section 6(c)) after the occurrence of a Potential Change of Control and prior to the occurrence of a Change of Control and (ii) a Change of Control occurs within two years of such termination, the Executive shall be deemed, solely for purposes of determining his/her rights under this Agreement, to have remained employed until the date such Change of Control occurs and to have been terminated by the Company, JHFS or (if applicable) the Affiliate without Cause immediately after this Agreement becomes effective, with any amounts payable hereunder reduced by the amount of any other severance benefits provided to him in connection with such termination. 2. Definitions. (a) "Affiliate" shall mean any corporation, partnership, limited liability company, trust or other entity which directly, or indirectly through one or more intermediaries, controls, or is controlled by, the Company, or JHFS. (b) "Board" shall mean the Board of Directors of the Company. (c) "Company" means John Hancock Life Insurance Company. (d) "Change of Control" shall be deemed to have occurred if: (i) any Person (as defined below) has acquired, "beneficial ownership" (within the meaning of Rule 13d-3, as promulgated under Section 13(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), directly or indirectly, of securities of the Company or JHFS representing 30% or more of the combined Voting Power (as defined below) of the securities of the Company or JHFS; provided, however, that the event described in this paragraph (i) shall not be deemed to be a Change in Control by virtue of an acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company, JHFS or any Affiliate; or (ii) within any 24-month period, the persons who, at the beginning of such period, were members of the Board (the "Incumbent Company Directors") shall cease to constitute at least a majority of the Board or the board of directors of any successor to the Company; provided, however, that any director elected to the Board, or nominated for election to the Board, by at least two-thirds (2/3) of the Incumbent Company Directors then still in office shall be deemed to be an Incumbent Company Director for purposes of this subclause (ii); provided, however, that no individual initially elected or nominated for election to the Board as a result of an actual or threatened election contest with respect to directors or as a result of any other actual or threatened solicitation of proxies by or on behalf of 2 any Person other than the Board shall be deemed to be an Incumbent Company Director; or (iii) within any 24-month period, the persons who, at the beginning of such period, were members of the JHFS Board (the "Incumbent JHFS Directors") shall cease to constitute at least a majority of the JHFS Board or the board of directors of any successor to JHFS; provided, however, that any director elected to the JHFS Board, or nominated for election to the JHFS Board, by at least two-thirds of the Incumbent JHFS Directors then still in office shall be deemed to be an Incumbent JHFS Director for purposes of this subclause (iii); provided, however, that no individual initially elected or nominated for election to the JHFS Board as a result of an actual or threatened election contest with respect to directors or as a result of any other actual or threatened solicitation of proxies by or on behalf of any Person other than the JHFS Board shall be deemed to be an Incumbent JHFS Director; or (iv) upon the consummation of a merger, consolidation, share exchange, division, sale or other disposition of all or substantially all of the assets of the Company (a "Company Corporate Event") and immediately following the consummation of which the stockholders of the Company, immediately prior to such Company Corporate Event do not hold, directly or indirectly, a majority of the Voting Power of (A) in the case of a merger or consolidation, the surviving or resulting corporation, (B) in the case of a statutory share exchange, the acquiring corporation, (C) in the case of a division or a sale or other disposition of assets, each surviving, resulting or acquiring corporation which, immediately following the relevant Company Corporate Event, holds more than 25% of the consolidated assets of the Company immediately prior to such Company Corporate Event, provided that no Change of Control shall be deemed to have occurred if the Executive is employed, immediately following such Company Corporate Event, by any entity in which the stockholders of the Company immediately prior to such Company Corporate Event hold, directly or indirectly, a majority of the Voting Power; Provided that in each case such majority of the Voting Power is represented by securities of the Company that were outstanding immediately prior to such Company Corporate Event (or, if applicable, is represented by shares into which such securities of the Company were converted pursuant to such Company Corporate Event); or 3 (v) upon the consummation of a merger, consolidation, share exchange, division, sale or other disposition of all or substantially all of the assets of JHFS which has been approved by the stockholders of JHFS (a "JHFS Corporate Event"), and immediately following the consummation of which the stockholders of JHFS immediately prior to such JHFS Corporate Event do not hold, directly or indirectly, a majority of the Voting Power of (A) in the case of a merger or consolidation, the surviving or resulting corporation, (B) in the case of a statutory share exchange, the acquiring corporation, or (C) in the case of a division or a sale or other disposition of assets, each surviving, resulting or acquiring corporation which, immediately following the relevant JHFS Corporate Event, holds more than 25% of the consolidated assets of JHFS immediately prior to such JHFS Corporate Event, provided that no Change of Control shall be deemed to have occurred if the Executive is employed, immediately following such JHFS Corporate Event, by any entity in which the stockholders of JHFS immediately prior to such JHFS Corporate Event hold, directly or indirectly, a majority of the Voting Power; Provided that in each case such majority of the Voting Power is represented by securities of JHFS that were outstanding immediately prior to such JHFS Corporate Event (or, if applicable, is represented by shares into which such securities of JHFS were converted pursuant to such JHFS Corporate Event); or (vi) any other event occurs which the Board or the JHFS Board declares to be a Change of Control. (e) "JHFS" means John Hancock Financial Services, Inc. (f) "JHFS Board" means the Board of Directors of JHFS and, after a Change in Control that constitutes a Company Corporate Event or a JHFS Corporate Event, the Board Directors of the Parent. (g) "Parent" shall mean any corporation, partnership, limited liability company, business trust or other entity which owns, directly or indirectly, more than 50% of the Voting Power in the Company or JHFS. (h) "Person" shall have the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act, as supplemented by Section 13(d)(3) of the Exchange Act; provided, however, that Person shall not include (i) the Company, JHFS, or any Affiliate or (ii) any employee benefit plan sponsored by the entities described in clause (i) of this definition. 4 (i) "Potential Change of Control" shall be deemed to have occurred if: (i) a Person commences a tender offer (with adequate financing) for securities representing at least 10% of the Voting Power of the JHFS's securities; (ii) the Company or JHFS enters into an agreement the consummation of which would constitute a Change of Control; (iii) proxies for the election of directors of JHFS are solicited by anyone other than JHFS; or (iv) any other event occurs which is deemed to be a Potential Change of Control by the JHFS Board. (j) "Voting Power" shall mean such number of the Voting Securities as shall enable the holders thereof to cast such percentage of all the votes which could be cast in an annual election of directors. (k) "Voting Securities" shall mean all securities of a company entitling the holders thereof to vote in an annual election of directors. 3. Employment Period. Subject to Section 6 of this Agreement, the Company (or if applicable, JHFS) agrees to continue the Executive in its employ, and the Executive agrees to remain in the employ of the Company or, if applicable, JHFS for the period (the "Employment Period") commencing on the Effective Date and ending on the third anniversary of the Effective Date. Notwithstanding the foregoing, if, prior to the Effective Date, the Executive is demoted to a lower position than the position held on the date first set forth above, the Board (or if applicable, the JHFS Board) may declare that this Agreement shall be without force and effect by written notice delivered to the Executive (i) within 30 days following such demotion and (ii) prior to the occurrence of a Potential Change of Control or a Change of Control. 4. Position and Duties. (a) No Reduction in Position. During the Employment Period, the Executive's position (including titles), authority and responsibilities with the Company, JHFS and each of the Affiliates shall be, both individually and in the aggregate, at least commensurate with those held, exercised and assigned immediately prior to the Effective Date. It is understood that, for purposes of this Agreement, such position, authority and responsibilities shall not be regarded as not commensurate merely by virtue of the fact that a successor shall have acquired all or substantially all of the business and/or assets of the Company as contemplated by Section 13(b) of this Agreement. The Executive's services shall be performed at the location where the Executive was employed immediately preceding the Effective Date. (b) Business Time. From and after the Effective Date, the Executive agrees to devote substantially all of his/her attention during normal business hours to the business and affairs of the Company, JHFS and the Affiliates and to use his/her reasonable best 5 efforts to perform the responsibilities assigned to him hereunder, to the extent necessary to discharge such responsibilities, except for (i) time spent in managing his/her personal, financial and legal affairs and serving on corporate, civic or charitable boards or committees, in each case only if and to the extent not substantially interfering with the performance of such responsibilities, and (ii) periods of vacation and sick leave to which he/she is entitled. It is expressly understood and agreed that the Executive's continuing to serve on any boards and committees on which he/she is serving or with which he/she is otherwise associated immediately preceding the Effective Date shall not be deemed to interfere with the performance of the Executive's services for the Company, JHFS or the Affiliates. 5. Compensation. (a) Base Salary. During the Employment Period, the Executive shall receive a base salary at a monthly rate at least equal to the monthly salary paid to the Executive by the Company, JHFS and any Affiliate immediately prior to the Effective Date. The base salary shall be reviewed at least once each year after the Effective Date, and may be increased (but not decreased) at any time and from time to time by action of the Board or JHFS Board, as the case may be, or any committee thereof or any individual having authority to take such action in accordance with the Company's (or if applicable, JHFS's) regular practices. The Executive's base salary, as it may be increased from time to time, shall hereafter be referred to as "Base Salary". Neither the Base Salary nor any increase in Base Salary after the Effective Date shall serve to limit or reduce any other obligation of the Company or JHFS hereunder. (b) Annual Bonus. During the Employment Period, in addition to the Base Salary, for each fiscal year of the Company ending during the Employment Period, the Executive shall be afforded the opportunity to receive an annual bonus on terms and conditions no less favorable to the Executive (taking into account reasonable changes in the applicable corporate goals and objectives and taking into account actual performance) than the annual bonus opportunity that had been made available to the Executive for the fiscal year ended immediately prior to the Effective Date (the "Annual Bonus Opportunity"). Any amount payable in respect of the Annual Bonus Opportunity shall be paid as soon as practicable following the year for which the amount (or prorated portion) is earned or awarded, unless electively deferred by the Executive pursuant to any deferral programs or arrangements that the Company, JHFS or any of its Affiliates may make available to the Executive. (c) Long-term Incentive Compensation Programs. During the Employment Period, the Executive shall participate in all long-term incentive compensation programs (including, without limitation, programs providing for the grant of stock options and other equity-based awards) for key executives at a level that is commensurate with the Executive's participation in such plans immediately prior to the Effective Date, or, if more favorable to the Executive, at the level made available to the Executive or other similarly situated officers at any time thereafter. (d) Benefit Plans. During the Employment Period, the Company shall provide to the Executive (and to the extent applicable, his/her dependents) pension, retirement, deferred compensation, savings, medical, dental, health, disability, life and accidental death coverages, both individual and group, at a level that is commensurate with the coverage to which the Executive was entitled under plans sponsored by the Company, 6 JHFS or any affiliate immediately prior to the Effective Date, or, if more favorable to the Executive, at the level made available to the Executive or other similarly situated officers at any time thereafter. The Executive shall be entitled to such benefits subject to the same terms and conditions (including, without limitation, any requirement that the Executive make contributions toward the cost of such coverage) that applied immediately prior to the Effective Date, or, if more favorable to the Executive, as are made applicable to the Executive or other similarly situated officers at any time thereafter. To the extent such benefits cannot be provided under the terms of a benefit plan, policy or program sponsored by the Company, JHFS or any affiliate, as the case may be, the Company shall provide a comparable benefit under another plan or from the Company's general assets. (e) Expenses. During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the policies and procedures of the Company as in effect immediately prior to the Effective Date. Notwithstanding the foregoing, the Company may apply the policies and procedures in effect after the Effective Date to the Executive, if such policies and procedures are not less favorable to the Executive than those in effect immediately prior to the Effective Date. (f) Vacation and Fringe Benefits. During the Employment Period, the Executive shall be entitled to paid vacation and fringe benefits (including, without limitation, any split-dollar life insurance arrangements) at a level that is commensurate with the paid vacation and fringe benefits available to the Executive immediately prior to the Effective Date, or, if more favorable to the Executive, at the level made available from time to time to the Executive or other similarly situated officers at any time thereafter. (g) Indemnification. During and after the Employment Period, the Company and JHFS shall indemnify the Executive and hold the Executive harmless from and against any claim, loss or cause of action arising from or out of the Executive's performance as an officer, director or employee of JHFS, the Company or any of their Affiliates or in any other capacity, including any fiduciary capacity, in which the Executive serves at the request of the Company to the maximum extent permitted by applicable law and the Certificate of Incorporation and By-Laws of JHFS or the Company, as the case may be (the "Governing Documents"), provided that in no event shall the protection afforded to the Executive hereunder be less than that afforded under the Governing Documents as in effect immediately prior to the Effective Date. (h) Office and Support Staff. The Executive shall be entitled to an office with furnishings and other appointments, and to secretarial and other assistance, at a level that is at least commensurate with the foregoing provided to the Executive immediately prior to the Change of Control. 6. Termination. (a) Death, Disability or Retirement. Subject to the provisions of Section 1 hereof, this Agreement shall terminate automatically upon the Executive's death, termination due to "Disability" (as defined below) or voluntary retirement under any of the retirement plans of the Company or JHFS (or, if applicable, an Affiliates) has in effect from time to time. For purposes of this Agreement, Disability shall mean the Executive has met the conditions to qualify for long-term disability benefits under the long term 7 disability plan or policy the Company or JHFS (or, if applicable, an Affiliate), has in effect immediately prior to the Effective Date. (b) Voluntary Termination. Notwithstanding anything in this Agreement to the contrary, following a Change of Control the Executive may, upon not less than 60 days' written notice to the Company (or, if applicable, JHFS), voluntarily terminate employment for any reason (including early retirement under the terms of any retirement plans maintained by the Company, JHFS or an Affiliate, as in effect from time to time), provided that any termination by the Executive pursuant to Section 6(d) on account of Good Reason (as defined therein) shall not be treated as a voluntary termination under this Section 6(b). (c) Cause. The Company, JHFS or an Affiliate that employs the Executive may terminate the Executive's employment for Cause. For purposes of this Agreement, "Cause" means (i) the Executive's conviction or plea of nolo contendere to a felony related to fraud or dishonesty; (ii) an act or acts of dishonesty or gross misconduct on the Executive's part which result or are intended to result in material damage to the Company's, JHFS's or an Affiliate's business or reputation; or (iii) repeated material violations by the Executive of his/her obligations under Section 4 of this Agreement, which violations are demonstrably willful and deliberate on the Executive's part and which result in material damage to the Company's, JHFS's or an Affiliate's business or reputation. Cause shall not exist unless and until JHFS has delivered to Executive a copy of a resolution duly adopted by three-quarters (3/4) of the entire JHFS Board (excluding the Executive if the Executive is a JHFS Board member) at a meeting of the JHFS Board called and held for such purpose (after reasonable notice to the Executive and an opportunity for the Executive, together with counsel, to be heard before the JHFS Board), finding that in the good faith opinion of the JHFS Board an event set forth in subclauses (i), (ii), or (iii) has occurred and specifying the particulars thereof in detail. The Company, JHFS or an Affiliate must notify the Executive of any event that it alleges constitutes Cause within ten (10) business days following the Company's, JHFS's or an Affiliate's knowledge, as the case may be, of its existence, and notify the Executive at least ten (10) business days prior to the board proceedings described above, or such event shall not constitute Cause under this Agreement. (d) Good Reason. Following the occurrence of a Change of Control, the Executive may terminate his/her employment for Good Reason. For purposes of this Agreement, "Good Reason" means the occurrence of any of the following, without the express written consent of the Executive, after the occurrence of a Change of Control: (i) the assignment to the Executive of any duties inconsistent in any material adverse respect with the Executive's position, authority or responsibilities, as contemplated by Section 4 of this Agreement, or any other material adverse change in position, titles, authority or responsibilities, including and without limiting the generality of the foregoing, the elimination or substantial reduction of the Executive's duties with the Company, JHFS or any Affiliate resulting in a significant reduction in his position, titles, authority or responsibilities as in effect prior to the Change of Control; 8 (ii) any failure by the Company or JHFS to comply with any of the provisions of Section 5 of this Agreement, other than an insubstantial or inadvertent failure remedied by the Company or JHFS promptly after receipt of notice thereof given by the Executive; (iii) any requirement that the Executive (A) be based at any office or location more than 35 miles (or any such shorter distance as shall be set forth in the Company's (or if applicable, JHFS's) relocation policy as in effect on the Effective Date) from that location at which he/she performed his/her services specified under the provisions of Section 4 immediately prior to the Change of Control, except for travel reasonably required in the performance of the Executive's responsibilities or (B) travel on business on behalf of the Company, JHFS or any Affiliate, as the case may be, to an extent substantially greater than the travel obligations of the Executive immediately prior to the Change in Control; (iv) any failure by the Company or JHFS to obtain the assumption and agreement to perform this Agreement by a successor as contemplated by Section 13(b). In no event shall the mere occurrence of a Change of Control, absent any further impact on the Executive, be deemed to constitute Good Reason. (e) Notice of Termination. Any termination by the Company, JHFS or an Affiliate for Cause or by the Executive for Good Reason shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 14(e). 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) sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated, and (iii) if the termination date is other than the date of receipt of such notice, specifies the termination date of this Agreement (which date shall be not more than 15 days after the giving of such notice). In the case of a termination for Good Reason, the Notice of Termination shall be given within 180 days of the Executive's having actual knowledge of the events giving rise to such termination which actual knowledge shall in no event be deemed to have occurred any earlier than the Effective Date. The failure by the Executive to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason shall not waive any right of the Executive hereunder or preclude the Executive from asserting such fact or circumstance in enforcing his/her rights hereunder. (f) Date of Termination. For the purpose of this Agreement, the term "Date of Termination" means (i) in the case of a termination for which a Notice of Termination is required, the date of receipt of such Notice of Termination or, if later, the date specified therein, as the case may be, and (ii) in all other cases, the actual date on which the Executive's employment terminates during the Employment Period. 7. Obligations of the Company upon Termination. (a) Death or Disability. If the Executive's employment is terminated during the Employment Period by reason of the Executive's death or Disability, this Agreement shall terminate without further obligations 9 to the Executive or the Executive's legal representatives under this Agreement other than those obligations accrued hereunder at the Date of Termination, and the Company shall pay to the Executive (or his/her beneficiary or estate) (i) the Executive's full Base Salary through the Date of Termination (the "Earned Salary"), (ii) any vested amounts or benefits owing to the Executive under the otherwise applicable employee benefit plans and programs of the Company, JHFS and the Affiliates, including any compensation previously deferred by the Executive (together with any accrued earnings thereon) and not yet paid by the Company, JHFS or an Affiliate and any accrued vacation pay not yet paid by the Company, JHFS or an Affiliate (the "Accrued Obligations"), and (iii) any other benefits payable due to the Executive's death or Disability under the plans, policies or programs of the Company, JHFS and the Affiliates (the "Additional Benefits"). The Earned Salary shall be paid in cash in a single lump sum as soon as practicable, but in no event more than 10 days (or at such earlier date required by law), following the Date of Termination. Accrued Obligations and Additional Benefits shall be paid in accordance with the terms of the applicable plan, program or arrangement. (b) Cause and Voluntary Termination. If, during the Employment Period, the Executive's employment shall be terminated for Cause or voluntarily terminated by the Executive (other than on account of Good Reason following a Change of Control), the Company shall pay the Executive (i) the Earned Salary in cash in a single lump sum as soon as practicable, but in no event more than 10 days, following the Date of Termination, and (ii) the Accrued Obligations in accordance with the terms of the applicable plan, program or arrangement. (c) Termination by the Company other than for Cause. If, during the Employment Period, the Company or JHFS, terminates the Executive's employment other than for Cause, the Company shall provide the Executive with the following benefits: (i) Severance and Other Termination Payments. The Company shall pay the Executive the following: (A) the Executive's Earned Salary; and (B) notwithstanding any plan provisions to the contrary, an amount (the "Pro-Rated Annual Incentive") equal to the target annual bonus applicable to the Executive for the fiscal year in which the Date of Termination occurs, multiplied by a fraction, the numerator of which is the number of completed months in such fiscal year which have elapsed on or before (and including) the Date of Termination and the denominator of which is 12; and (C) notwithstanding any plan provisions to the contrary, an aggregate amount (the "Pro-Rated Long Term Incentives") equal to the sum of the amounts awarded to the Executive in respect of each performance cycle, whether or not vested, then in progress (i.e., each performance cycle, which includes as part of the performance period the fiscal year in which the Date of Termination occurs), as accrued 10 on the books of the Company as of the end of the month preceding the Date of Termination; and (D) the Accrued Obligations; and (E) a cash amount (the "Severance Amount") equal to three times the sum of (1) the Executive's annual Base Salary; and (2) an amount equal to the target annual bonus applicable to the Executive for the fiscal year in which the Change of Control occurs; (3) an amount equal to the long term incentive award granted to the Executive with respect to the performance period commencing in the calendar year 2000. For purposes of this Section 7(c)(i)(E)(3), if the Executive was a member of the Policy Committee at the time of the grant of such long term incentive award, such award shall be measured by the equity rights awarded to the Executive for such performance period under the terms of the Long-Term Incentive Plan for Senior Executives; otherwise, the grant of the long term incentive award referred to above shall be measured by the aggregate value of (a) the equity rights granted to such Executive for such performance cycle under the terms of the Long-Term Incentive Plan for Senior Executives and (b) the stock options granted to such Executive in March, 2000 under the terms of the John Hancock Financial Services, Inc. 1999 Long-Term Stock Incentive Plan. The Earned Salary, Pro-Rated Annual Incentive, Pro-Rated Long Term Incentives, Retention Bonus and Severance Amount shall be paid in cash in a single lump sum as soon as practicable, but in no event more than 10 days (or at such earlier date required by law), following the Date of Termination. Accrued Obligations shall be paid in accordance with the terms of the applicable plan, program or arrangement. (ii) Continuation of Benefits. If, during the Employment Period, the Executive's employment is terminated other than for Cause, the Executive (and, to the extent applicable, his/her dependents) shall be entitled, after the Date of Termination until the earlier of (A) the third anniversary of the Date of Termination (the "End Date") and (B) the date the Executive becomes eligible for comparable benefits under a similar plan, policy or program of a subsequent employer, to continue participation in all of the individual and group health (including without limitation medical, dental and disability) and life employee benefits plans maintained by the Company, JHFS or an Affiliate and in which the Executive had been participating prior to the Date of Termination (the "Benefit Plans"). In addition, to the extent that, prior to the Date of Termination, the Company had been 11 paying the premiums on any split-dollar life insurance policy with respect to the Executive, the Company shall, as to any such policy, continue the payment of such premiums until the later of the End Date or the date through which the Company otherwise would have paid premiums on such policy in the absence of a Change of Control. To the extent any such benefits cannot be provided under the terms of the applicable plan, policy or program, the Company shall provide a comparable benefit under another plan or from the Company's general assets. The Executive's participation in the Benefit Plans will be on the same terms and conditions (including, without limitation, any condition that the Executive make contributions toward the cost of such coverage on the same terms and conditions generally applicable to similarly situated employees) that would have applied had the Executive continued to be employed by the Company through the End Date. (iii) Enhanced Retirement Benefits. In determining the defined benefit retirement benefits made available to the Executive, the Executive shall be entitled to receive the additional benefits that would have been payable or available to the Executive under any employee benefit plan based on (x) the service (but not the age) the Executive would have attained or completed had the Executive continued in the Company's employ until the End Date and, (y) where compensation is a relevant factor, his/her pensionable compensation at the Date of Termination. Notwithstanding the foregoing, the Executive shall not receive any service credit for any period after the Executive has attained age 65. (iv) Payment of Mandatorily Deferred Incentive Compensation Payments. To the extent not earlier paid in accordance with the terms and conditions of the governing plan documents, all amounts, if any, that had been determined to be payable to the Executive under any long term incentive compensation program, but the payment of which was mandatorily deferred under the terms and conditions of such governing documents, shall be paid (plus all earnings credited with respect thereto) in a single lump sum payment, as soon as practicable after the next succeeding valuation date under the applicable plans, but in no event later than the first March 15 following the Executive's Date of Termination. (v) Outplacement Services. The Executive shall be provided at the Company's expense with outplacement services customary for executives at his/her level (including, without limitation, office space and telephone support services) provided by a qualified and experienced third party provider selected by the Company. (d) Termination by the Executive for Good Reason. If, during the Employment Period, the Executive terminates his/her employment for Good Reason, the Company shall pay to the Executive the same amounts as would be payable to the Executive under Section 7(c) if such termination were a termination by the Company or JHFS without Cause. (e) Discharge of the Company's and JHFS's Obligations. Except as expressly provided in the last sentence of this Section 7(e), the amounts payable to the Executive pursuant to this Section 7 following termination of his/her employment shall be in full and 12 complete satisfaction of the Executive's rights under this Agreement and any other claims he/she may have in respect of his/her employment by the Company, JHFS or the Affiliates. Such amounts shall constitute liquidated damages with respect to any and all such rights and claims and, upon the Executive's receipt of such amounts, the Company, JHFS and each of their Affiliates shall be released and discharged from any and all liability to the Executive in connection with this Agreement or otherwise in connection with the Executive's employment with the Company, JHFS and their Affiliates. Nothing in this Section 7(e) shall be construed to release the Company or JHFS, as applicable, from its commitment to indemnify the Executive and hold the Executive harmless from and against any claim, loss or cause of action arising from or out of the Executive's performance as an officer, director or employee of the Company, JHFS or any of their Affiliates or in any other capacity, including any fiduciary capacity, in which the Executive served at the request of the Company or JHFS to the maximum extent permitted by applicable law and the Governing Documents. (f) Certain Further Payments by the Company. (i) In the event that any amount or benefit paid or distributed to the Executive pursuant to this Agreement and/or any amounts or benefits otherwise paid or distributed (whether or not paid or distributed pursuant to a plan or program maintained by the Company or JHFS) to the Executive by the Company, JHFS or any Affiliate, including without limitation, the present value of any amounts or benefits that otherwise become payable to the Executive by the Company, JHFS or any Affiliate or otherwise become nonforfeitable because of the lapse or termination of any restrictions thereon as a result of a Change of Control (collectively, the "Covered Payments"), are or become subject to the tax (the "Excise Tax") imposed under Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), or any similar tax that may hereafter be imposed, the Company shall pay to the Executive at the time specified in Section 7(f)(v) below an additional amount ("Tax Reimbursement Payment") such that the net amount retained by the Executive with respect to such Covered Payments, after deduction of any Excise Tax on the Covered Payments and any Federal, state and local income or employment tax and Excise Tax on the Tax Reimbursement Payment provided for by this Section 7(f), but before deduction for any Federal, state or local income or employment tax withholding on such Covered Payments, shall be equal to the amount of the Covered Payments. (ii) For purposes of determining whether any of the Covered Payments will be subject to the Excise Tax and the amount of such Excise Tax, (A) such Covered Payments will be treated as "parachute payments" within the meaning of Section 280G of the Code, and all "parachute payments" in excess of the "base amount" (as defined under Section 280G(b)(3) of the Code) shall be treated as subject to the Excise Tax, unless, and except to the extent that, in the good faith judgment of the Company's independent certified public accountants appointed prior to the Change of Control Date or tax counsel selected by such accountants (the "Accountants"), the Company has 13 a reasonable basis to conclude that such Covered Payments (in whole or in part) either do not constitute "parachute payments" or represent reasonable compensation for personal services actually rendered (within the meaning of Section 280G(b)(4)(B) of the Code) in excess of the "base amount," or such "parachute payments" are otherwise not subject to such Excise Tax, and (B) the value of any non-cash benefits or any deferred payment or benefit shall be determined by the Accountants in accordance with the principles of Section 280G of the Code. (iii) For purposes of determining the amount of the Tax Reimbursement Payment, the Executive shall be deemed to pay: (A) Federal income taxes at the highest applicable marginal rate of Federal income taxation for the calendar year in which the Tax Reimbursement Payment is to be made, and (B) any applicable state and local income taxes at the highest applicable marginal rate of taxation for the calendar year in which the Tax Reimbursement Payment is to be made, net of the maximum reduction in Federal income taxes which could be obtained from the deduction of such state or local taxes if paid in such year. (iv) In the event that the Excise Tax is subsequently determined by the Accountants or pursuant to any proceeding or negotiations with the Internal Revenue Service to be less than the amount taken into account hereunder in calculating the Tax Reimbursement Payment made, the Executive shall repay to the Company, at the time that the amount of such reduction in the Excise Tax is finally determined, the portion of such prior Tax Reimbursement Payment that would not have been paid if such Excise Tax had been applied in initially calculating such Tax Reimbursement Payment, plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. Notwithstanding the foregoing, in the event any portion of the Tax Reimbursement Payment to be refunded to the Company has been paid to any Federal, state or local tax authority, repayment thereof shall not be required until actual refund or credit of such portion has been made to the Executive, and interest payable to the Company shall not exceed interest received or credited to the Executive by such tax authority for the period it held such portion. The Executive and the Company shall mutually agree upon the course of action to be pursued (and the method of allocating the expenses thereof) if the Executive's good faith claim for refund or credit is denied. In the event that the Excise Tax is later determined by the Accountants or pursuant to any proceeding or negotiations with the Internal Revenue Service to exceed the amount taken into account hereunder at the time the Tax Reimbursement Payment is made (including, but not limited to, by reason of any payment the existence or amount of which cannot be determined at the time of the Tax Reimbursement Payment), the Company shall make an additional Tax 14 Reimbursement Payment in respect of such excess (plus any interest or penalty payable with respect to such excess) at the time that the amount of such excess is finally determined. (v) Any Tax Reimbursement Payment (or portion thereof) payable in accordance with Section 7(f)(i) above shall be paid to the Executive as of the date of the payment (or acceleration of vesting or lapse of restrictions as a result of a Change of Control, as the case may be) of the Covered Payments; provided, however, that if the amount of such Tax Reimbursement Payment (or portion thereof) cannot be finally determined on or before the date on which payment is due, the Company shall pay to the Executive by such date an amount estimated in good faith by the Accountants to be the minimum amount of such Tax Reimbursement Payment and shall pay the remainder of such Tax Reimbursement Payment (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined, but in no event later than 45 calendar days after payment of the related Covered Payment. In the event that the amount of the estimated Tax Reimbursement Payment exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to the Executive, payable on the fifth business day after written demand by the Company for payment (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code). 8. Non-exclusivity of Rights. Except as expressly provided herein, nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any benefit, bonus, incentive or other plan or program provided by the Company, JHFS or any of its Affiliates and for which the Executive may qualify, nor shall anything herein limit or otherwise prejudice such rights as the Executive may have under any other agreements with the Company, JHFS or any of its Affiliates, including employment agreements or stock option agreements. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan or program of the Company, JHFS or any of its Affiliates at or subsequent to the Date of Termination shall be payable in accordance with such plan or program. 9. No Offset. The Company's or JHFS's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any circumstances, including, without limitation, any set-off, counterclaim, recoupment, defense or other right which the Company, JHFS or any of their Affiliates may have against the Executive or others whether by reason of the Executive's breach of this Agreement, subsequent employment of the Executive, or otherwise. 10. Legal Fees and Expenses. If the Executive asserts any claim in any contest (whether initiated by the Executive or by the Company) as to the validity, enforceability or interpretation of any provision of this Agreement, the Company shall pay the Executive's legal expenses (or cause such expenses to be paid) including, without limitation, his/her reasonable attorney's fees, on a quarterly basis, upon presentation of proof of such expenses, provided that the Executive shall reimburse the Company for such amounts, plus simple interest thereon at the 90-day United States Treasury Bill rate as in effect from time to time, compounded annually, if the arbitrator referred to in Section 14(b) or a court of 15 competent jurisdiction shall find that the Executive did not have a good faith and reasonable basis to believe that he/she would prevail as to at least one material issue presented to such arbitrator or court. 11. Confidential Information; Company Property. By and in consideration of the salary and benefits to be provided by the Company, JHFS or an Affiliate hereunder, including the severance arrangements set forth herein, the Executive agrees that: (a) Confidential Information. The Executive shall hold in a fiduciary capacity for the benefit of the Company, JHFS and the Affiliates, all secret or confidential information, knowledge or data relating to the Company, JHFS or the Affiliates, and their respective businesses, (i) obtained by the Executive during his/her employment by the Company, JHFS or the Affiliates and (ii) not otherwise public knowledge (other than by reason of an unauthorized act by the Executive). After termination of the Executive's employment, the Executive shall not, without the prior written consent of the Company, unless compelled pursuant to an order of a court or other body having jurisdiction over such matter, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. (b) Nonsolicitation of Employees. The Executive agrees that for two years after the Date of Termination, he/she will not attempt, directly or indirectly, to induce any employee of the Company, JHFS or an Affiliate to be employed or perform services elsewhere or otherwise to cease providing services to the Company, JHFS or the Affiliates. (c) Return of Property. Except as expressly provided herein, promptly following the Executive's termination of employment, the Executive shall return to the Company, JHFS and the Affiliates all property of the Company, JHFS and the Affiliates (as the case may be) and all copies thereof in the Executive's possession or under his/her control. (d) Injunctive Relief and Other Remedies with Respect to Covenants. The Executive acknowledges and agrees that the covenants and obligations of the Executive with respect to confidentiality and the return of property relate to special, unique and extraordinary matters and that a violation of any of the terms of such covenants and obligations will cause the Company, JHFS and/or their Affiliates irreparable injury for which adequate remedies are not available at law. Therefore, the Executive agrees that the Company, JHFS and the Affiliates shall be entitled to an injunction, restraining order or such other equitable relief (without the requirement to post bond) restraining Executive from committing any violation of the covenants and obligations contained in this Section 11. These remedies are cumulative and are in addition to any other rights and remedies the Company, JHFS and/or the Affiliates may have at law or in equity. In no event shall an asserted violation of the provisions of this Section 11 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. 12. Obligations of the Company and JHFS. The obligations of the Company and JHFS are intended to be joint and several. If for any reason, either the Company or JHFS does not, or is unable to, honor its obligations under this Agreement, the other party shall satisfy all obligations not honored by the other party. 16 13. Successors. (a) This Agreement is personal to the Executive and, without the prior written consent of the Company and JHFS, 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 JHFS, the Company and each of its successors. The Company and JHFS, as applicable, shall require any successor to all or substantially all of the business and/or assets of the Company or JHFS, whether direct or indirect, by purchase, merger, consolidation, acquisition of stock, or otherwise, by an agreement in form and substance satisfactory to the Executive, expressly to assume and agree to perform this Agreement in the same manner and to the same extent as the Company and JHFS would be required to perform if no such succession had taken place. 14. Miscellaneous. (a) Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the States of Delaware, applied without reference to principles of conflict of laws. (b) Arbitration. Except to the extent provided in Section 11(d), any dispute or controversy arising under or in connection with this Agreement shall be resolved by binding arbitration. The arbitration shall be held in the city of Boston, Massachusetts and, except to the extent inconsistent with this Agreement, shall be conducted in accordance with the Expedited Employment Arbitration Rules of the American Arbitration Association then in effect at the time of the arbitration (or such other rules as the parties may agree to in writing), and otherwise in accordance with principles which would be applied by a court of law or equity. The arbitrator shall be acceptable to all of the Company, JHFS and the Executive. If the parties cannot agree on an acceptable arbitrator, the dispute shall be heard by a panel of three arbitrators, one appointed by the Company and JHFS, one appointed by the Executive, and the third appointed by the other two arbitrators. (c) Amendments. 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. (d) Entire Agreement. Subject to Section 8 herein, this Agreement constitutes the entire agreement between the parties hereto with respect to the matters referred to herein. No other agreement relating to the terms of the Executive's employment by the Company, JHFS or any Affiliate, oral or otherwise, shall be binding among the parties unless it is in writing and signed by the party against whom enforcement is sought. There are no promises, representations, inducements or statements among the parties other than those that are expressly contained herein. The Executive acknowledges that he/she is entering into this Agreement of his/her own free will and accord, and with no duress, that he/she has read this Agreement and that he/she understands it and its legal consequences. (e) Notices. All notices and other communications hereunder shall be in writing and shall be given by hand-delivery to the other parties or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: 17 If to the Executive: at the home address of the Executive noted on the records of the Company If to the Company: 200 Clarendon Street Boston, Massachusetts Attn.: Secretary If to JHFS: 200 Clarendon Street Boston, Massachusetts Attn.: Secretary or to such other address as any party shall have furnished to the others in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (f) Tax Withholding. The Company shall withhold from any amounts payable under this Agreement such Federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. (g) Severability; Reformation. In the event that one or more of the provisions of this Agreement shall become invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not be affected thereby. In the event that any of the provisions of Section 11(a) are not enforceable in accordance with its terms, the Executive and the Company and JHFS agree that such Section shall be reformed to make such Section enforceable in a manner which provides the Company and JHFS the maximum rights permitted at law. (h) Waiver. Waiver by any party hereto of any breach or default by any party of any of the terms of this Agreement shall not operate as a waiver of any other breach or default, whether similar to or different from the breach or default waived. No waiver of any provision of this Agreement shall be implied from any course of dealing among the parties hereto or from any failure by any party hereto to assert its or his/her rights hereunder on any occasion or series of occasions. (i) Survival. The provisions of Section 5(g), 7(c), 7(d), 7(f), 12 and 13 shall survive the termination of the Employment Period hereunder and shall be binding upon and enforceable against the Company and JHFS in accordance with their terms. The dispute resolutions provisions contained in Section 14(b) and the legal fees provision contained in Section 10 shall also survive the end of the Employment Period and shall be applied as though the dispute arose within the Employment Period. (j) Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. 18 (k) Captions. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and the Company and JHFS have caused this Agreement to be executed in their respective names and on their behalf, all as of the day and year first above written. JOHN HANCOCK LIFE INSURANCE COMPANY By: ________________________________ Name: David F. D'Alessandro Title: Chairman, President and Chief Executive Officer JOHN HANCOCK FINANCIAL SERVICES, INC. By: ________________________________ Name: David F. D'Alessandro Title: Chairman, President and Chief Executive Officer EXECUTIVE: ____________________________________ 19 EX-10.32 10 ex10-32.txt Exhibit 10.32 AMENDED AND RESTATED EMPLOYMENT CONTINUATION AGREEMENT THIS AMENDED AND RESTATED AGREEMENT by and among John Hancock Life Insurance Company, a Massachusetts corporation (the "Company"), John Hancock Financial Services, Inc., a Delaware corporation ("JHFS") and Wayne A. Budd (the "Executive"), dated as of the 15th day of October, 2001. W I T N E S S E T H : WHEREAS, the Executive has been employed as an officer of the Company and/or JHFS, and it has been determined that the Executive holds an important position with the Company and/or JHFS; WHEREAS, the Company and JHFS believe that, in the event of a situation that could result in a change in ownership or control of the Company or JHFS, continuity of management will be essential to their ability to evaluate and respond to such a situation in the best interests of shareholders; WHEREAS, the Company and JHFS understand that any such situation will present significant concerns for the Executive with respect to his/her financial and job security; WHEREAS, to assure themselves of the Executive's services during the period in which they are confronting such a situation, and to provide the Executive certain financial assurances to enable the Executive to perform the responsibilities of his/her position without undue distraction and to exercise his/her judgment without bias due to his/her personal circumstances, the Company, JHFS and the Executive previously entered into this Agreement to provide the Executive with certain rights and obligations upon the occurrence of a Change of Control or Potential Change of Control (as each such term is defined in Section 2 hereof); WHEREAS, the Executive, the Company and JHFS have determined that the Agreement should be amended and restated to further clarify and refine benefits and protections provided to the Executive in the event of a Change of Control or Potential Change of Control; NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, it is hereby agreed by and among the Company, JHFS and the Executive as follows: 1. Operation of Agreement. (a) Effective Date. The effective date of this Agreement shall be the date on which a Change of Control occurs (the "Effective Date"), provided that, except as provided in Section 1(b), if the Executive is not employed by the Company, JHFS or an Affiliate on the Effective Date, this Agreement shall be void and without effect. (b) Termination of Employment Following a Potential Change of Control. Notwithstanding Section 1(a), if (i) the Executive's employment with the Company, JHFS or an Affiliate is terminated without Cause (as defined in Section 6(c)) after the occurrence of a Potential Change of Control and prior to the occurrence of a Change of Control and (ii) a Change of Control occurs within two years of such termination, the Executive shall be deemed, solely for purposes of determining his/her rights under this Agreement, to have remained employed until the date such Change of Control occurs and to have been terminated by the Company, JHFS or (if applicable) the Affiliate without Cause immediately after this Agreement becomes effective, with any amounts payable hereunder reduced by the amount of any other severance benefits provided to him in connection with such termination. 2. Definitions. (a) "Affiliate" shall mean any corporation, partnership, limited liability company, trust or other entity which directly, or indirectly through one or more intermediaries, controls, or is controlled by, the Company, or JHFS. 1 (b) "Board" shall mean the Board of Directors of the Company. (c) "Company" means John Hancock Life Insurance Company. (d) "Change of Control" shall be deemed to have occurred if: (i) any Person (as defined below) has acquired, "beneficial ownership" (within the meaning of Rule 13d-3, as promulgated under Section 13(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), directly or indirectly, of securities of the Company or JHFS representing 30% or more of the combined Voting Power (as defined below) of the securities of the Company or JHFS; provided, however, that the event described in this paragraph (i) shall not be deemed to be a Change in Control by virtue of an acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company, JHFS or any Affiliate; or (ii) within any 24-month period, the persons who, at the beginning of such period, were members of the Board (the "Incumbent Company Directors") shall cease to constitute at least a majority of the Board or the board of directors of any successor to the Company; provided, however, that any director elected to the Board, or nominated for election to the Board, by at least two-thirds (2/3) of the Incumbent Company Directors then still in office shall be deemed to be an Incumbent Company Director for purposes of this subclause (ii); provided, however, that no individual initially elected or nominated for election to the Board as a result of an actual or threatened election contest with respect to directors or as a result of any other actual or threatened solicitation of proxies by or on behalf of any Person other than the Board shall be deemed to be an Incumbent Company Director; or (iii) within any 24-month period, the persons who, at the beginning of such period, were members of the JHFS Board (the "Incumbent JHFS Directors") shall cease to constitute at least a majority of the JHFS Board or the board of directors of any successor to JHFS; provided, however, that any director elected to the JHFS Board, or nominated for election to the JHFS Board, by at least two-thirds of the Incumbent JHFS Directors then still in office shall be deemed to be an Incumbent JHFS Director for purposes of this subclause (iii); provided, however, that no individual initially elected or nominated for election to the JHFS Board as a result of an actual or threatened election contest with respect to directors or as a result of any other actual or threatened solicitation of proxies by or on behalf of any Person other than the JHFS Board shall be deemed to be an Incumbent JHFS Director; or (iv) upon the consummation of a merger, consolidation, share exchange, division, sale or other disposition of all or substantially all of the assets of the Company (a "Company Corporate Event") and immediately following the consummation of which the stockholders of the Company, immediately prior to such Company Corporate Event do not hold, directly or indirectly, a majority of the Voting Power of (A) in the case of a merger or consolidation, the surviving or resulting corporation, (B) in the case of a statutory share exchange, the acquiring corporation, (C) in the case of a division or a sale or other disposition of assets, each surviving, resulting or acquiring corporation which, immediately following the relevant Company Corporate Event, holds more than 25% of the consolidated assets of the Company immediately prior to such Company Corporate Event, provided that no Change of Control shall be deemed to have occurred if the Executive is employed, immediately following such Company Corporate Event, by any entity in which the stockholders of the Company immediately prior to such Company Corporate Event hold, directly or indirectly, a majority of the Voting Power; 2 Provided that in each case such majority of the Voting Power is represented by securities of the Company that were outstanding immediately prior to such Company Corporate Event (or, if applicable, is represented by shares into which such securities of the Company were converted pursuant to such Company Corporate Event); or (v) upon the consummation of a merger, consolidation, share exchange, division, sale or other disposition of all or substantially all of the assets of JHFS which has been approved by the stockholders of JHFS (a "JHFS Corporate Event"), and immediately following the consummation of which the stockholders of JHFS immediately prior to such JHFS Corporate Event do not hold, directly or indirectly, a majority of the Voting Power of (A) in the case of a merger or consolidation, the surviving or resulting corporation, (B) in the case of a statutory share exchange, the acquiring corporation, or (C) in the case of a division or a sale or other disposition of assets, each surviving, resulting or acquiring corporation which, immediately following the relevant JHFS Corporate Event, holds more than 25% of the consolidated assets of JHFS immediately prior to such JHFS Corporate Event, provided that no Change of Control shall be deemed to have occurred if the Executive is employed, immediately following such JHFS Corporate Event, by any entity in which the stockholders of JHFS, immediately prior to such JHFS Corporate Event hold, directly or indirectly, a majority of the Voting Power; or (vi) any other event occurs which the Board or the JHFS Board declares to be a Change of Control. (e) "JHFS" means John Hancock Financial Services, Inc. (f) "JHFS Board" means the Board of Directors of JHFS and, after a Change in Control that constitutes a Company Corporate Event or a JHFS Corporate Event, the Board Directors of the Parent. (g) "Parent" shall mean any corporation, partnership, limited liability company, business trust or other entity which owns, directly or indirectly, more than 50% of the Voting Power in the Company or JHFS. (h) "Person" shall have the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act, as supplemented by Section 13(d)(3) of the Exchange Act; provided, however, that Person shall not include (i) the Company, JHFS, or any Affiliate or (ii) any employee benefit plan sponsored by the entities described in clause (i) of this definition. (i) "Potential Change of Control" shall be deemed to have occurred if: (i) a Person commences a tender offer (with adequate financing) for securities representing at least 10% of the Voting Power of the JHFS's securities; (ii) the Company or JHFS enters into an agreement the consummation of which would constitute a Change of Control; (iii) proxies for the election of directors of JHFS are solicited by anyone other than JHFS; or (iv) any other event occurs which is deemed to be a Potential Change of Control by the JHFS Board. 3 (j) "Voting Power" shall mean such number of the Voting Securities as shall enable the holders thereof to cast such percentage of all the votes which could be cast in an annual election of directors. (k) "Voting Securities" shall mean all securities of a company entitling the holders thereof to vote in an annual election of directors. 3. Employment Period. Subject to Section 6 of this Agreement, the Company (or if applicable, JHFS) agrees to continue the Executive in its employ, and the Executive agrees to remain in the employ of the Company or, if applicable, JHFS for the period (the "Employment Period") commencing on the Effective Date and ending on the third anniversary of the Effective Date. Notwithstanding the foregoing, if, prior to the Effective Date, the Executive is demoted to a lower position than the position held on the date first set forth above, the Board (or if applicable, the JHFS Board) may declare that this Agreement shall be without force and effect by written notice delivered to the Executive (i) within 30 days following such demotion and (ii) prior to the occurrence of a Potential Change of Control or a Change of Control. 4. Position and Duties. (a) No Reduction in Position. During the Employment Period, the Executive's position (including titles), authority and responsibilities with the Company, JHFS and each of the Affiliates shall be, both individually and in the aggregate, at least commensurate with those held, exercised and assigned immediately prior to the Effective Date. It is understood that, for purposes of this Agreement, such position, authority and responsibilities shall not be regarded as not commensurate merely by virtue of the fact that a successor shall have acquired all or substantially all of the business and/or assets of the Company as contemplated by Section 13(b) of this Agreement. The Executive's services shall be performed at the location where the Executive was employed immediately preceding the Effective Date. (b) Business Time. From and after the Effective Date, the Executive agrees to devote substantially all of his/her attention during normal business hours to the business and affairs of the Company, JHFS and the Affiliates and to use his/her reasonable best efforts to perform the responsibilities assigned to him hereunder, to the extent necessary to discharge such responsibilities, except for (i) time spent in managing his/her personal, financial and legal affairs and serving on corporate, civic or charitable boards or committees, in each case only if and to the extent not substantially interfering with the performance of such responsibilities, and (ii) periods of vacation and sick leave to which he/she is entitled. It is expressly understood and agreed that the Executive's continuing to serve on any boards and committees on which he/she is serving or with which he/she is otherwise associated immediately preceding the Effective Date shall not be deemed to interfere with the performance of the Executive's services for the Company, JHFS or the Affiliates. 5. Compensation. (a) Base Salary. During the Employment Period, the Executive shall receive a base salary at a monthly rate at least equal to the monthly salary paid to the Executive by the Company, JHFS and any Affiliate immediately prior to the Effective Date. The base salary shall be reviewed at least once each year after the Effective Date, and may be increased (but not decreased) at any time and from time to time by action of the Board or JHFS Board, as the case may be, or any committee thereof or any individual having authority to take such action in accordance with the Company's (or if applicable, JHFS's) regular practices. The Executive's base salary, as it may be increased from time to time, shall hereafter be referred to as "Base Salary". Neither the Base Salary nor any increase in Base Salary after the Effective Date shall serve to limit or reduce any other obligation of the Company or JHFS hereunder. (b) Annual Bonus. During the Employment Period, in addition to the Base Salary, for each fiscal year of the Company ending during the Employment Period, the Executive shall be afforded the opportunity to receive an annual bonus on terms and conditions no less favorable to the Executive (taking into account reasonable changes in the applicable corporate goals and objectives and taking into account actual performance) than the annual bonus opportunity that had been made available to the Executive for the fiscal year ended immediately prior to the Effective Date (the "Annual Bonus Opportunity"). Any amount payable in respect of the Annual Bonus Opportunity shall be paid as soon as practicable following the year for which the amount (or prorated portion) is earned or awarded, unless electively deferred by the Executive 4 pursuant to any deferral programs or arrangements that the Company, JHFS or any of its Affiliates may make available to the Executive. (c) Long-term Incentive Compensation Programs. During the Employment Period, the Executive shall participate in all long-term incentive compensation programs (including, without limitation, programs providing for the grant of stock options and other equity-based awards) for key executives at a level that is commensurate with the Executive's participation in such plans immediately prior to the Effective Date, or, if more favorable to the Executive, at the level made available to the Executive or other similarly situated officers at any time thereafter. (d) Benefit Plans. During the Employment Period, the Company shall provide to the Executive (and to the extent applicable, his/her dependents) pension, retirement, deferred compensation, savings, medical, dental, health, disability, life and accidental death coverages, both individual and group, at a level that is commensurate with the coverage to which the Executive was entitled under plans sponsored by the Company, JHFS or any affiliate immediately prior to the Effective Date, or, if more favorable to the Executive, at the level made available to the Executive or other similarly situated officers at any time thereafter. The Executive shall be entitled to such benefits subject to the same terms and conditions (including, without limitation, any requirement that the Executive make contributions toward the cost of such coverage) that applied immediately prior to the Effective Date, or, if more favorable to the Executive, as are made applicable to the Executive or other similarly situated officers at any time thereafter. To the extent such benefits cannot be provided under the terms of a benefit plan, policy or program sponsored by the Company, JHFS or any affiliate, as the case may be, the Company shall provide a comparable benefit under another plan or from the Company's general assets. (e) Expenses. During the Employment Period, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the policies and procedures of the Company as in effect immediately prior to the Effective Date. Notwithstanding the foregoing, the Company may apply the policies and procedures in effect after the Effective Date to the Executive, if such policies and procedures are not less favorable to the Executive than those in effect immediately prior to the Effective Date. (f) Vacation and Fringe Benefits. During the Employment Period, the Executive shall be entitled to paid vacation and fringe benefits (including, without limitation, any split-dollar life insurance arrangements) at a level that is commensurate with the paid vacation and fringe benefits available to the Executive immediately prior to the Effective Date, or, if more favorable to the Executive, at the level made available from time to time to the Executive or other similarly situated officers at any time thereafter. (g) Indemnification. During and after the Employment Period, the Company and JHFS shall indemnify the Executive and hold the Executive harmless from and against any claim, loss or cause of action arising from or out of the Executive's performance as an officer, director or employee of JHFS, the Company or any of their Affiliates or in any other capacity, including any fiduciary capacity, in which the Executive serves at the request of the Company to the maximum extent permitted by applicable law and the Certificate of Incorporation and By-Laws of JHFS or the Company, as the case may be (the "Governing Documents"), provided that in no event shall the protection afforded to the Executive hereunder be less than that afforded under the Governing Documents as in effect immediately prior to the Effective Date. (h) Office and Support Staff. The Executive shall be entitled to an office with furnishings and other appointments, and to secretarial and other assistance, at a level that is at least commensurate with the foregoing provided to the Executive immediately prior to the Change of Control. 6. Termination. (a) Death, Disability or Retirement. Subject to the provisions of Section 1 hereof, this Agreement shall terminate automatically upon the Executive's death, termination due to "Disability" (as defined below) or voluntary retirement under any of the retirement plans of the Company or JHFS (or, if applicable, an Affiliates) has in effect from time to time. For purposes of this Agreement, Disability shall mean the Executive has met the conditions to qualify for long-term disability benefits under 5 the long term disability plan or policy the Company or JHFS (or, if applicable, an Affiliate), has in effect immediately prior to the Effective Date. (b) Voluntary Termination. Notwithstanding anything in this Agreement to the contrary, following a Change of Control the Executive may, upon not less than 60 days' written notice to the Company (or, if applicable, JHFS), voluntarily terminate employment for any reason (including early retirement under the terms of any retirement plans maintained by the Company, JHFS or an Affiliate, as in effect from time to time), provided that any termination by the Executive pursuant to Section 6(d) on account of Good Reason (as defined therein) shall not be treated as a voluntary termination under this Section 6(b). (c) Cause. The Company, JHFS or an Affiliate that employs the Executive may terminate the Executive's employment for Cause. For purposes of this Agreement, "Cause" means (i) the Executive's conviction or plea of nolo contendere to a felony related to fraud or dishonesty; (ii) an act or acts of dishonesty or gross misconduct on the Executive's part which result or are intended to result in material damage to the Company's, JHFS's or an Affiliate's business or reputation; or (iii) repeated material violations by the Executive of his/her obligations under Section 4 of this Agreement, which violations are demonstrably willful and deliberate on the Executive's part and which result in material damage to the Company's, JHFS's or an Affiliate's business or reputation. Cause shall not exist unless and until JHFS has delivered to Executive a copy of a resolution duly adopted by three-quarters (3/4) of the entire JHFS Board (excluding the Executive if the Executive is a JHFS Board member) at a meeting of the JHFS Board called and held for such purpose (after reasonable notice to the Executive and an opportunity for the Executive, together with counsel, to be heard before the JHFS Board), finding that in the good faith opinion of the JHFS Board an event set forth in subclauses (i), (ii), or (iii) has occurred and specifying the particulars thereof in detail. The Company, JHFS or an Affiliate must notify the Executive of any event that it alleges constitutes Cause within ten (10) business days following the Company's, JHFS's or an Affiliate's knowledge, as the case may be, of its existence, and notify the Executive at least ten (10) business days prior to the board proceedings described above, or such event shall not constitute Cause under this Agreement. (d) Good Reason. Following the occurrence of a Change of Control, the Executive may terminate his/her employment for Good Reason. For purposes of this Agreement, "Good Reason" means the occurrence of any of the following, without the express written consent of the Executive, after the occurrence of a Change of Control: (i) the assignment to the Executive of any duties inconsistent in any material adverse respect with the Executive's position, authority or responsibilities, as contemplated by Section 4 of this Agreement, or any other material adverse change in position, titles, authority or responsibilities, including and without limiting the generality of the foregoing, the elimination or substantial reduction of the Executive's duties with the Company, JHFS or any Affiliate resulting in a significant reduction in his position, titles, authority or responsibilities as in effect prior to the Change of Control; (ii) any failure by the Company or JHFS to comply with any of the provisions of Section 5 of this Agreement, other than an insubstantial or inadvertent failure remedied by the Company or JHFS promptly after receipt of notice thereof given by the Executive; (iii) any requirement that the Executive (A) be based at any office or location more than 35 miles (or any such shorter distance as shall be set forth in the Company's (or if applicable, JHFS's) relocation policy as in effect on the Effective Date) from that location at which he/she performed his/her services specified under the provisions of Section 4 immediately prior to the Change of Control, except for travel reasonably required in the performance of the Executive's responsibilities or (B) travel on business on behalf of the Company, JHFS or any Affiliate, as the case may be, to an extent substantially greater than the travel obligations of the Executive immediately prior to the Change in Control; 6 (iv) any failure by the Company or JHFS to obtain the assumption and agreement to perform this Agreement by a successor as contemplated by Section 13(b). In no event shall the mere occurrence of a Change of Control, absent any further impact on the Executive, be deemed to constitute Good Reason. Notwithstanding anything herein to the contrary, termination of employment by the Executive for any reason during the 30-day period commencing one hundred and eighty (180) days after the date of a Change in Control shall be deemed to constitute Good Reason. (e) Notice of Termination. Any termination by the Company, JHFS or an Affiliate for Cause or by the Executive for Good Reason shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 14(e). 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) sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated, and (iii) if the termination date is other than the date of receipt of such notice, specifies the termination date of this Agreement (which date shall be not more than 15 days after the giving of such notice). In the case of a termination for Good Reason, the Notice of Termination shall be given within 180 days of the Executive's having actual knowledge of the events giving rise to such termination which actual knowledge shall in no event be deemed to have occurred any earlier than the Effective Date. The failure by the Executive to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason shall not waive any right of the Executive hereunder or preclude the Executive from asserting such fact or circumstance in enforcing his/her rights hereunder. (f) Date of Termination. For the purpose of this Agreement, the term "Date of Termination" means (i) in the case of a termination for which a Notice of Termination is required, the date of receipt of such Notice of Termination or, if later, the date specified therein, as the case may be, and (ii) in all other cases, the actual date on which the Executive's employment terminates during the Employment Period. 7. Obligations of the Company upon Termination. (a) Death or Disability. If the Executive's employment is terminated during the Employment Period by reason of the Executive's death or Disability, this Agreement shall terminate without further obligations to the Executive or the Executive's legal representatives under this Agreement other than those obligations accrued hereunder at the Date of Termination, and the Company shall pay to the Executive (or his/her beneficiary or estate) (i) the Executive's full Base Salary through the Date of Termination (the "Earned Salary"), (ii) any vested amounts or benefits owing to the Executive under the otherwise applicable employee benefit plans and programs of the Company, JHFS and the Affiliates, including any compensation previously deferred by the Executive (together with any accrued earnings thereon) and not yet paid by the Company, JHFS or an Affiliate and any accrued vacation pay not yet paid by the Company, JHFS or an Affiliate (the "Accrued Obligations"), and (iii) any other benefits payable due to the Executive's death or Disability under the plans, policies or programs of the Company, JHFS and the Affiliates (the "Additional Benefits"). The Earned Salary shall be paid in cash in a single lump sum as soon as practicable, but in no event more than 10 days (or at such earlier date required by law), following the Date of Termination. Accrued Obligations and Additional Benefits shall be paid in accordance with the terms of the applicable plan, program or arrangement. (b-1) Cause and Voluntary Termination. If, during the Employment Period, the Executive's employment shall be terminated for Cause or voluntarily terminated by the Executive (other than on account of Good Reason following a Change of Control), the Company shall pay the Executive (i) the Earned Salary in cash in a single lump sum as soon as practicable, but in no event more than 10 days, following the Date of Termination, and (ii) the Accrued Obligations in accordance with the terms of the applicable plan, program or arrangement. 7 (b-2) Retirement Benefits Upon Termination. If the Executive's employment is terminated for any reason other than for Cause or due to death, notwithstanding anything else contained in this Agreement to the contrary, the following provisions shall apply: Regardless of the Executive's age or completed service with the Company on his date of termination, the Executive shall (1) for purposes of retiree medical and retiree life insurance benefits be deemed to have completed 15 years of service on such termination date and commence to receive benefits from the Company or JHFS accordingly and (2) receive from the Company or JHFS a benefit as though a special contribution to his cash balance pension account had been made in an amount equal to (x) the contributions that the Company made to such account in the most recent calendar year, multiplied by (y) a number equal to 15 minus the number of years of service completed by the Executive as of such termination date, and the Executive shall, at his option, have the right to immediately commence receiving pension benefit payments or to withdraw or transfer such amount. Further, the benefits described in this Section 7(b-2) shall be made available to the Executive upon any termination of employment, other than for Cause or due to death, regardless of whether occurring during or after the Employment Period (i.e. the Executive shall be entitled to receive these benefits due to termination, other than for Cause or due to death, even if occurring more than three years after the Effective Date). (c) Termination by the Company other than for Cause. If, during the Employment Period, the Company or JHFS, terminates the Executive's employment other than for Cause, the Company shall provide the Executive with the following benefits: (i) Severance and Other Termination Payments. The Company shall pay the Executive the following: (A) the Executive's Earned Salary; and (B) notwithstanding any plan provisions to the contrary, an amount (the "Pro-Rated Annual Incentive") equal to the target annual bonus applicable to the Executive for the fiscal year in which the Date of Termination occurs, multiplied by a fraction, the numerator of which is the number of completed months in such fiscal year which have elapsed on or before (and including) the Date of Termination and the denominator of which is 12; and (C) notwithstanding any plan provisions to the contrary, an aggregate amount (the "Pro-Rated Long Term Incentives") equal to the sum of the amounts awarded to the Executive in respect of each performance cycle, whether or not vested, then in progress (i.e., each performance cycle, which includes as part of the performance period the fiscal year in which the Date of Termination occurs), as accrued on the books of the Company as of the end of the month preceding the Date of Termination; and (D) the Accrued Obligations; and (E) a cash amount (the "Severance Amount") equal to three times the sum of (1) the Executive's annual Base Salary; and (2) an amount equal to the target annual bonus applicable to the Executive for the fiscal year in which the Change of Control occurs; (3) an amount equal to the long term incentive award granted to the Executive with respect to the performance period commencing in the calendar year 2000. For purposes of this Section 7(c)(i)(E)(3), such award shall be measured by the equity rights awarded to the Executive for such performance period under the Long-Term Incentive Plan for Senior Executives. 8 The Earned Salary, Pro-Rated Annual Incentive, Pro-Rated Long Term Incentives, Retention Bonus and Severance Amount shall be paid in cash in a single lump sum as soon as practicable, but in no event more than 10 days (or at such earlier date required by law), following the Date of Termination. Accrued Obligations shall be paid in accordance with the terms of the applicable plan, program or arrangement. (ii) Continuation of Benefits. If, during the Employment Period, the Executive's employment is terminated other than for Cause, the Executive (and, to the extent applicable, his/her dependents) shall be entitled, after the Date of Termination until the earlier of (A) the third anniversary of the Date of Termination (the "End Date") and (B) the date the Executive becomes eligible for comparable benefits under a similar plan, policy or program of a subsequent employer, to continue participation in all of the individual and group health (including without limitation medical, dental and disability) and life employee benefits plans maintained by the Company, JHFS or an Affiliate and in which the Executive had been participating prior to the Date of Termination (the "Benefit Plans"). In addition, to the extent that, prior to the Date of Termination, the Company had been paying the premiums on any split-dollar life insurance policy with respect to the Executive, the Company shall, as to any such policy, continue the payment of such premiums until the later of the End Date or the date through which the Company otherwise would have paid premiums on such policy in the absence of a Change of Control. To the extent any such benefits cannot be provided under the terms of the applicable plan, policy or program, the Company shall provide a comparable benefit under another plan or from the Company's general assets. The Executive's participation in the Benefit Plans will be on the same terms and conditions (including, without limitation, any condition that the Executive make contributions toward the cost of such coverage on the same terms and conditions generally applicable to similarly situated employees) that would have applied had the Executive continued to be employed by the Company through the End Date. (iii) Retirement Benefits. The Executive shall be entitled to the retirement benefits described in Section 7(b-2). (iv) Payment of Mandatorily Deferred Incentive Compensation Payments. To the extent not earlier paid in accordance with the terms and conditions of the governing plan documents, all amounts, if any, that had been determined to be payable to the Executive under any long term incentive compensation program, but the payment of which was mandatorily deferred under the terms and conditions of such governing documents, shall be paid (plus all earnings credited with respect thereto) in a single lump sum payment, as soon as practicable after the next succeeding valuation date under the applicable plans, but in no event later than the first March 15 following the Executive's Date of Termination. (v) Outplacement Services. The Executive shall be provided at the Company's expense with outplacement services customary for executives at his/her level (including, without limitation, office space and telephone support services) provided by a qualified and experienced third party provider selected by the Company. (d) Termination by the Executive for Good Reason. If, during the Employment Period, the Executive terminates his/her employment for Good Reason, the Company shall pay to the Executive the same amounts as would be payable to the Executive under Section 7(c) if such termination were a termination by the Company or JHFS without Cause. (e) Discharge of the Company's and JHFS's Obligations. Except as expressly provided in the last sentence of this Section 7(e), the amounts payable to the Executive pursuant to this Section 7 following termination of his/her employment shall be in full and complete satisfaction of the Executive's rights under this Agreement and any other claims he/she may have in respect of his/her employment by the Company, JHFS or the Affiliates. Such amounts shall constitute liquidated damages with respect to any and all such rights and claims and, upon the Executive's receipt of such amounts, the Company, JHFS and each of their Affiliates shall be released and discharged from any and all liability to the Executive in connection with this 9 Agreement or otherwise in connection with the Executive's employment with the Company, JHFS and their Affiliates. Nothing in this Section 7(e) shall be construed to release the Company or JHFS, as applicable, from its commitment to indemnify the Executive and hold the Executive harmless from and against any claim, loss or cause of action arising from or out of the Executive's performance as an officer, director or employee of the Company, JHFS or any of their Affiliates or in any other capacity, including any fiduciary capacity, in which the Executive served at the request of the Company or JHFS to the maximum extent permitted by applicable law and the Governing Documents. (f) Certain Further Payments by the Company. (i) In the event that any amount or benefit paid or distributed to the Executive pursuant to this Agreement and/or any amounts or benefits otherwise paid or distributed (whether or not paid or distributed pursuant to a plan or program maintained by the Company or JHFS) to the Executive by the Company, JHFS or any Affiliate, including without limitation, the present value of any amounts or benefits that otherwise become payable to the Executive by the Company, JHFS or any Affiliate or otherwise become nonforfeitable because of the lapse or termination of any restrictions thereon as a result of a Change of Control (collectively, the "Covered Payments"), are or become subject to the tax (the "Excise Tax") imposed under Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), or any similar tax that may hereafter be imposed, the Company shall pay to the Executive at the time specified in Section 7(f)(v) below an additional amount ("Tax Reimbursement Payment") such that the net amount retained by the Executive with respect to such Covered Payments, after deduction of any Excise Tax on the Covered Payments and any Federal, state and local income or employment tax and Excise Tax on the Tax Reimbursement Payment provided for by this Section 7(f), but before deduction for any Federal, state or local income or employment tax withholding on such Covered Payments, shall be equal to the amount of the Covered Payments. (ii) For purposes of determining whether any of the Covered Payments will be subject to the Excise Tax and the amount of such Excise Tax, (A) such Covered Payments will be treated as "parachute payments" within the meaning of Section 280G of the Code, and all "parachute payments" in excess of the "base amount" (as defined under Section 280G(b)(3) of the Code) shall be treated as subject to the Excise Tax, unless, and except to the extent that, in the good faith judgment of the Company's independent certified public accountants appointed prior to the Change of Control Date or tax counsel selected by such accountants (the "Accountants"), the Company has a reasonable basis to conclude that such Covered Payments (in whole or in part) either do not constitute "parachute payments" or represent reasonable compensation for personal services actually rendered (within the meaning of Section 280G(b)(4)(B) of the Code) in excess of the "base amount," or such "parachute payments" are otherwise not subject to such Excise Tax, and (B) the value of any non- cash benefits or any deferred payment or benefit shall be determined by the Accountants in accordance with the principles of Section 280G of the Code. (iii) For purposes of determining the amount of the Tax Reimbursement Payment, the Executive shall be deemed to pay: (A) Federal income taxes at the highest applicable marginal rate of Federal income taxation for the calendar year in which the Tax Reimbursement Payment is to be made, and (B) any applicable state and local income taxes at the highest applicable marginal rate of taxation for the calendar year in which the Tax Reimbursement Payment is to 10 be made, net of the maximum reduction in Federal income taxes which could be obtained from the deduction of such state or local taxes if paid in such year. (iv) In the event that the Excise Tax is subsequently determined by the Accountants or pursuant to any proceeding or negotiations with the Internal Revenue Service to be less than the amount taken into account hereunder in calculating the Tax Reimbursement Payment made, the Executive shall repay to the Company, at the time that the amount of such reduction in the Excise Tax is finally determined, the portion of such prior Tax Reimbursement Payment that would not have been paid if such Excise Tax had been applied in initially calculating such Tax Reimbursement Payment, plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. Notwithstanding the foregoing, in the event any portion of the Tax Reimbursement Payment to be refunded to the Company has been paid to any Federal, state or local tax authority, repayment thereof shall not be required until actual refund or credit of such portion has been made to the Executive, and interest payable to the Company shall not exceed interest received or credited to the Executive by such tax authority for the period it held such portion. The Executive and the Company shall mutually agree upon the course of action to be pursued (and the method of allocating the expenses thereof) if the Executive's good faith claim for refund or credit is denied. In the event that the Excise Tax is later determined by the Accountants or pursuant to any proceeding or negotiations with the Internal Revenue Service to exceed the amount taken into account hereunder at the time the Tax Reimbursement Payment is made (including, but not limited to, by reason of any payment the existence or amount of which cannot be determined at the time of the Tax Reimbursement Payment), the Company shall make an additional Tax Reimbursement Payment in respect of such excess (plus any interest or penalty payable with respect to such excess) at the time that the amount of such excess is finally determined. (v) Any Tax Reimbursement Payment (or portion thereof) payable in accordance with Section 7(f)(i) above shall be paid to the Executive as of the date of the payment (or acceleration of vesting or lapse of restrictions as a result of a Change of Control, as the case may be) of the Covered Payments; provided, however, that if the amount of such Tax Reimbursement Payment (or portion thereof) cannot be finally determined on or before the date on which payment is due, the Company shall pay to the Executive by such date an amount estimated in good faith by the Accountants to be the minimum amount of such Tax Reimbursement Payment and shall pay the remainder of such Tax Reimbursement Payment (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined, but in no event later than 45 calendar days after payment of the related Covered Payment. In the event that the amount of the estimated Tax Reimbursement Payment exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to the Executive, payable on the fifth business day after written demand by the Company for payment (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code). 8. Non-exclusivity of Rights. Except as expressly provided herein, nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any benefit, bonus, incentive or other plan or program provided by the Company, JHFS or any of its Affiliates and for which the Executive may qualify, nor shall anything herein limit or otherwise prejudice such rights as the Executive may have under any other agreements with the Company, JHFS or any of its Affiliates, including employment agreements or stock option agreements. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan or program of the Company, JHFS or any of its Affiliates at or subsequent to the Date of Termination shall be payable in accordance with such plan or program. 9. No Offset. The Company's or JHFS's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any circumstances, including, without limitation, any set-off, counterclaim, recoupment, defense or other right which the Company, JHFS or any of their Affiliates may have against the Executive or others whether by reason of the Executive's breach of this Agreement, subsequent employment of the Executive, or otherwise. 11 10. Legal Fees and Expenses. If the Executive asserts any claim in any contest (whether initiated by the Executive or by the Company) as to the validity, enforceability or interpretation of any provision of this Agreement, the Company shall pay the Executive's legal expenses (or cause such expenses to be paid) including, without limitation, his/her reasonable attorney's fees, on a quarterly basis, upon presentation of proof of such expenses in a form acceptable to the Company, provided that the Executive shall reimburse the Company for such amounts, plus simple interest thereon at the 90-day United States Treasury Bill rate as in effect from time to time, compounded annually, if the arbitrator referred to in Section 14(b) or a court of competent jurisdiction shall find that the Executive did not have a good faith and reasonable basis to believe that he/she would prevail as to at least one material issue presented to such arbitrator or court. 11. Confidential Information; Company Property. By and in consideration of the salary and benefits to be provided by the Company, JHFS or an Affiliate hereunder, including the severance arrangements set forth herein, the Executive agrees that: (a) Confidential Information. The Executive shall hold in a fiduciary capacity for the benefit of the Company, JHFS and the Affiliates, all secret or confidential information, knowledge or data relating to the Company, JHFS or the Affiliates, and their respective businesses, (i) obtained by the Executive during his/her employment by the Company, JHFS or the Affiliates and (ii) not otherwise public knowledge (other than by reason of an unauthorized act by the Executive). After termination of the Executive's employment, the Executive shall not, without the prior written consent of the Company, unless compelled pursuant to an order of a court or other body having jurisdiction over such matter, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. (b) Nonsolicitation of Employees. The Executive agrees that for two years after the Date of Termination, he/she will not attempt, directly or indirectly, to induce any employee of the Company, JHFS or an Affiliate to be employed or perform services elsewhere or otherwise to cease providing services to the Company, JHFS or the Affiliates. (c) Return of Property. Except as expressly provided herein, promptly following the Executive's termination of employment, the Executive shall return to the Company, JHFS and the Affiliates all property of the Company, JHFS and the Affiliates (as the case may be) and all copies thereof in the Executive's possession or under his/her control. (d) Injunctive Relief and Other Remedies with Respect to Covenants. The Executive acknowledges and agrees that the covenants and obligations of the Executive with respect to confidentiality and the return of property relate to special, unique and extraordinary matters and that a violation of any of the terms of such covenants and obligations will cause the Company, JHFS and/or their Affiliates irreparable injury for which adequate remedies are not available at law. Therefore, the Executive agrees that the Company, JHFS and the Affiliates shall be entitled to an injunction, restraining order or such other equitable relief (without the requirement to post bond) restraining Executive from committing any violation of the covenants and obligations contained in this Section 11. These remedies are cumulative and are in addition to any other rights and remedies the Company, JHFS and/or the Affiliates may have at law or in equity. In no event shall an asserted violation of the provisions of this Section 11 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. 12. Obligations of the Company and JHFS. The obligations of the Company and JHFS are intended to be joint and several. If for any reason, either the Company or JHFS does not, or is unable to, honor its obligations under this Agreement, the other party shall satisfy all obligations not honored by the other party. 13. Successors. (a) This Agreement is personal to the Executive and, without the prior written consent of the Company and JHFS, 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. 12 (b) This Agreement shall inure to the benefit of and be binding upon JHFS, the Company and each of its successors. The Company and JHFS, as applicable, shall require any successor to all or substantially all of the business and/or assets of the Company or JHFS, whether direct or indirect, by purchase, merger, consolidation, acquisition of stock, or otherwise, by an agreement in form and substance satisfactory to the Executive, expressly to assume and agree to perform this Agreement in the same manner and to the same extent as the Company and JHFS would be required to perform if no such succession had taken place. 14. Miscellaneous. (a) Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the States of Delaware, applied without reference to principles of conflict of laws. (b) Arbitration. Except to the extent provided in Section 11(d), any dispute or controversy arising under or in connection with this Agreement shall be resolved by binding arbitration. The arbitration shall be held in the city of Boston, Massachusetts and, except to the extent inconsistent with this Agreement, shall be conducted in accordance with the Expedited Employment Arbitration Rules of the American Arbitration Association then in effect at the time of the arbitration (or such other rules as the parties may agree to in writing), and otherwise in accordance with principles which would be applied by a court of law or equity. The arbitrator shall be acceptable to all of the Company, JHFS and the Executive. If the parties cannot agree on an acceptable arbitrator, the dispute shall be heard by a panel of three arbitrators, one appointed by the Company and JHFS, one appointed by the Executive, and the third appointed by the other two arbitrators. (c) Amendments. 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. (d) Entire Agreement. Subject to Section 8 herein, this Agreement constitutes the entire agreement between the parties hereto with respect to the matters referred to herein. No other agreement relating to the terms of the Executive's employment by the Company, JHFS or any Affiliate, oral or otherwise, shall be binding among the parties unless it is in writing and signed by the party against whom enforcement is sought. There are no promises, representations, inducements or statements among the parties other than those that are expressly contained herein. The Executive acknowledges that he/she is entering into this Agreement of his/her own free will and accord, and with no duress, that he/she has read this Agreement and that he/she understands it and its legal consequences. (e) Notices. All notices and other communications hereunder shall be in writing and shall be given by hand-delivery to the other parties or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: at the home address of the Executive noted on the records of the Company If to the Company: 200 Clarendon Street Boston, Massachusetts Attn.: Secretary If to JHFS: 200 Clarendon Street Boston, Massachusetts Attn.: Secretary or to such other address as any party shall have furnished to the others in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. 13 (f) Tax Withholding. The Company shall withhold from any amounts payable under this Agreement such Federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. (g) Severability; Reformation. In the event that one or more of the provisions of this Agreement shall become invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not be affected thereby. In the event that any of the provisions of Section 11(a) are not enforceable in accordance with its terms, the Executive and the Company and JHFS agree that such Section shall be reformed to make such Section enforceable in a manner which provides the Company and JHFS the maximum rights permitted at law. (h) Waiver. Waiver by any party hereto of any breach or default by any party of any of the terms of this Agreement shall not operate as a waiver of any other breach or default, whether similar to or different from the breach or default waived. No waiver of any provision of this Agreement shall be implied from any course of dealing among the parties hereto or from any failure by any party hereto to assert its or his/her rights hereunder on any occasion or series of occasions. (i) Survival. The provisions of Section 5(g), 7(b-2), 7(c), 7(d), 7(f), 12 and 13 shall survive the termination of the Employment Period hereunder and shall be binding upon and enforceable against the Company and JHFS in accordance with their terms. The dispute resolutions provisions contained in Section 14(b) and the legal fees provision contained in Section 10 shall also survive the end of the Employment Period and shall be applied as though the dispute arose within the Employment Period. (j) Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. (k) Captions. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and the Company and JHFS have caused this Agreement to be executed in their respective names and on their behalf, all as of the day and year first above written. JOHN HANCOCK LIFE INSURANCE COMPANY By: ______________________________________ Name: David F. D'Alessandro Title: Chairman, President and Chief Executive Officer JOHN HANCOCK FINANCIAL SERVICES, INC. By:_______________________________________ Name: David F. D'Alessandro Title: Chairman, President and Chief Executive Officer EXECUTIVE: __________________________________________ 14 -----END PRIVACY-ENHANCED MESSAGE-----