<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 13, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
AFLAC INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
GEORGIA 6321 58-1167100
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER)
</TABLE>
1932 WYNNTON ROAD
COLUMBUS, GEORGIA 31999
(706) 323-3431
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
JOEY LOUDERMILK, ESQ.
SENIOR VICE PRESIDENT,
GENERAL COUNSEL AND SECRETARY
AFLAC INCORPORATED
1932 WYNNTON ROAD
COLUMBUS, GEORGIA 31999
(706) 323-3431
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA
CODE, OF AGENT FOR SERVICE)
------------------------
Copies to:
STEPHEN W. HAMILTON, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
1440 NEW YORK AVENUE, N.W.
WASHINGTON, D.C. 20005
(202) 371-7000
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register securities for an offering pursuant to
Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ______
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ______
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CALCULATION OF REGISTRATION FEE
================================================================================================================================
PROPOSED
PROPOSED MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER SHARE (1) OFFERING PRICE (1) REGISTRATION FEE (1)
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6 1/2% Senior Notes Due 2009 $450,000,000 100% $450,000,000 $125,100
================================================================================================================================
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(f) under the Securities Act.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY
DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS PERMITTED.
SUBJECT TO COMPLETION-DATED MAY 13, 1999
OFFER TO EXCHANGE ALL
6 1/2% SENIOR NOTES DUE 2009 FOR
6 1/2% SENIOR NOTES DUE 2009
WHICH HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OF
AFLAC INCORPORATED
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.
NEW YORK CITY TIME, ON , 1999, UNLESS EXTENDED.
- --------------------------------------------------------------------------------
Terms of the exchange offer:
- - We are offering a total of $450,000,000 of new notes, which are registered
with the Securities and Exchange Commission, to all holders of old notes.
- - We will exchange all old notes that are validly tendered and not validly
withdrawn.
- - You may withdraw tenders of old notes at any time before the exchange offer
expires.
- - We will not receive any proceeds from the exchange offer.
- - The exchange of notes will not be a taxable exchange for U.S. federal income
tax purposes.
- - The economic terms of the new notes are substantially identical to those of
the old notes.
CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 9.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE NOTES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Each broker-dealer that receives new notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver this prospectus in
connection with any resale of those new notes.
THE DATE OF THIS PROSPECTUS IS , 1999
<PAGE> 3
TABLE OF CONTENTS
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PAGE
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Summary..................................................... 4
Risk Factors................................................ 9
Forward-Looking Statements.................................. 12
Use of Proceeds............................................. 12
Capitalization.............................................. 13
Ratio of Earnings to Fixed Charges.......................... 13
Selected Historical Consolidated Financial Information...... 14
The Exchange Offer.......................................... 16
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 23
Business.................................................... 52
Description of Certain Indebtedness......................... 55
Description of the Senior Notes............................. 59
United States Federal Tax Considerations.................... 80
Plan of Distribution........................................ 83
Legal Matters............................................... 84
Experts..................................................... 84
Documents Incorporated by Reference......................... 84
Where You Can Find More Information......................... 85
Index to Financial Statements............................... F-1
</TABLE>
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Unless the context indicates otherwise, all references in this offering
memorandum to:
- "AFLAC Incorporated," "we," "our," "ours" and "us" refer to AFLAC
Incorporated and its consolidated subsidiaries;
- "AFLAC" refer to American Family Life Assurance Company of Columbus;
- "AFLAC U.S." refer to the operations of AFLAC in the United States;
- "AFLAC Japan" refer to the operations of AFLAC in Japan;
- "initial purchasers" refer collectively to Merrill Lynch, Pierce, Fenner
& Smith Incorporated, Donaldson, Lufkin & Jenrette, First Union Capital
Markets Corp., NationsBanc Montgomery Securities LLC and Salomon Smith
Barney Inc.;
- "dollars" or "$" refer to United States dollars; and
- "yen" or "Y" refer to Japanese yen.
3
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SUMMARY
This summary highlights selected information from this prospectus and may
not contain all the information that may be important to you. You should read
the entire prospectus, including the financial data and related notes, before
deciding whether to exchange your old notes for new notes.
SUMMARY OF THE EXCHANGE OFFER
On April 21, 1999, we completed the private offering of our 6 1/2% Senior
Notes due 2009. We entered into a registration rights agreement with the initial
purchasers in the private offering in which we agreed to deliver to you this
prospectus and to complete the exchange offer. Additional interest will accrue
on the old notes if the exchange offer registration statement is not filed with
the SEC on or before July 20, 1999, the exchange offer registration statement is
not declared effective on or before October 18, 1999, or the exchange offer is
not consummated and a shelf registration statement is not declared effective on
or before November 17, 1999. This additional interest will continue to accrue
until we complete each of these three tasks. See "The Exchange Offer --
Registration Rights." You should read the discussion under the headings "--
Summary Description of the New Notes" and "Description of the Senior Notes" for
more information about the new notes.
We believe that the notes issued in the exchange offer may be resold by you
without compliance with the registration and prospectus delivery provisions of
the Securities Act, unless you are an affiliate of AFLAC or an underwriter or a
broker-dealer. You should read the discussion under the heading "The Exchange
Offer" for further information regarding the exchange offer and resale of the
notes.
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Registration rights agreement................ This agreement entitles holders of old notes
to exchange their notes for registered notes
with identical economic terms. The exchange
offer will satisfy those rights. After the
exchange offer is complete, you will no
longer be entitled to any exchange or
registration rights with respect to your
notes.
The exchange offer........................... We are offering to exchange up to
$450,000,000 of the new notes for up to
$450,000,000 of the old notes. Old notes may
be exchanged only in $1,000 increments.
Tenders; expiration date; withdrawal......... The exchange offer will expire at 5:00 p.m.,
New York City time, on , 1999,
unless we extend it. If you decide to
exchange your old notes for new notes, you
must acknowledge that you are not engaging
in, and do not intend to engage in, a
distribution of the new notes. You may
withdraw your tender of old notes at any time
before , 1999. If we decide for any
reason not to accept your notes for exchange,
we will return them to you promptly and
without expense after the exchange offer
expires or terminates.
Conditions to the exchange offer............. We are not required to accept any old notes
in ex-change for new notes. We may terminate
or amend the exchange offer if we determine
that the exchange offer violates applicable
law or any applicable interpretation of the
SEC.
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4
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Federal tax considerations................... The exchange of old notes for new notes under
the exchange offer will not result in any
gain or loss to you for federal income tax
purposes.
Use of proceeds.............................. We will receive no proceeds from the exchange
offer.
Exchange agent............................... The Bank of New York is the exchange agent
for the exchange offer. The address and
telephone number of the exchange agent are
set forth under the heading "The Exchange
Offer -- Exchange Agent."
</TABLE>
SUMMARY DESCRIPTION OF THE NEW NOTES
The following is a brief summary of material terms of the new notes. For a
more complete description of the senior notes, see "Description of the Senior
Notes" in this prospectus.
The terms of the new notes and the old notes are identical in all material
respects but two:
- the transfer restrictions and registration rights relating to the old
notes do not apply to the new notes; and
- Additional interest will accrue on the old notes if the exchange offer
registration statement is not filed with the SEC on or before July 20,
1999, the exchange offer registration statement is not declared effective
on or before October 18, 1999, or the exchange offer is not consummated
and a shelf registration statement is not declared effective on or before
November 17, 1999. This additional interest will continue to accrue until
we complete each of these three tasks. See "The Exchange Offer --
Registration Rights."
Issuer..................... AFLAC Incorporated.
Senior Notes Offered....... $450,000,000 aggregate principal amount of 6 1/2%
Senior Notes due 2009, which have been registered
under the Securities Act.
Maturity Date.............. April 15, 2009.
Interest Payment Dates..... April 15 and October 15, beginning October 15,
1999.
Ranking.................... The senior notes are unsecured senior obligations
and rank equal to all our existing and future
senior indebtedness and senior to all our existing
and future subordinated indebtedness. The senior
notes effectively rank junior to all liabilities of
our subsidiaries and also rank junior to any
existing or future secured indebtedness as to the
assets securing such indebtedness.
As of March 31, 1999, after giving pro forma effect
to the offering of old notes and our use of the net
proceeds from that offering,
- we would have had outstanding approximately $1.0
billion of senior indebtedness; and
- our subsidiaries would have had approximately $18
million of indebtedness.
Optional Redemption........ We may redeem all or a portion of the senior notes
at our option and at any time at a redemption price
equal to the sum of (1) the principal amount of the
senior notes being redeemed, plus any
5
<PAGE> 6
accrued and unpaid interest up to but not including
the redemption date and (2) a make-whole amount, if
any.
Certain Covenants.......... The indenture governing the senior notes contains
covenants that limit our ability and, in certain
instances, the ability of our subsidiaries to:
- create liens; or
- consolidate, merge or transfer all or
substantially all our assets and the assets of
our subsidiaries on a consolidated basis.
These covenants are subject to important
exceptions, which are described under the heading
"Description of the Senior Notes" in this
prospectus.
Sinking Fund............... None.
Risk Factors............... You should carefully consider all of the
information contained in this prospectus prior to
exchanging your old notes for the new notes. In
particular, we urge you to carefully consider the
factors set forth under "Risk Factors" beginning on
page 9 of this prospectus.
BUSINESS
AFLAC U.S. is a leading provider of supplemental insurance at the worksite
and a top seller of accident insurance in the United States. AFLAC Japan is the
largest foreign insurer in Japan in terms of premium and profits and the second
largest life insurer in terms of policies in force.
We were incorporated in 1973 under the laws of the State of Georgia. We are
a general business holding company and act as a management company overseeing
the operations of our subsidiaries by providing management services and making
capital available. Our supplemental health insurance business is marketed and
administered primarily through AFLAC. Most of our policies are individually
underwritten and marketed at the worksite, with premiums paid by the employee.
Our products are designed for people who already have major medical or
other primary insurance coverage and are intended to cover medical and
nonmedical costs that are not reimbursed by other forms of health insurance
coverage. We pay benefits regardless of reimbursements from other insurers. In
recent years, we have diversified our product offerings to include other types
of supplemental health products in both the United States and Japan. We
guarantee that our supplemental health insurance plans will be renewable for the
lifetime of the policyholder. We cannot cancel guaranteed-renewable coverage.
However, we can increase premium rates on existing and future policies in the
United States by class of policy if we experience claims higher than originally
expected (subject to federal and state loss-ratio guidelines) on a uniform,
nondiscriminatory basis. All premium rate increases are subject to state
regulatory approval.
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SUMMARY HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The summary consolidated financial information presented below as of and
for the years ended December 31, 1994, 1995, 1996, 1997 and 1998 has been
derived from our consolidated financial statements and the related notes
included in this prospectus. The summary consolidated financial information
presented below for, and as of, each of the three-month periods ended March 31,
1998 and 1999 was derived from our unaudited consolidated financial statements.
The summary consolidated financial information set forth below is qualified in
its entirety by, and should be read in conjunction with, the report of KPMG LLP,
our consolidated financial statements and the related notes and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
--------------------- ---------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
--------- --------- --------- --------- --------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
EARNINGS DATA:
Revenues:
Premiums, principally
supplemental health
insurance..................... $1,728 $1,472 $5,943 $5,874 $5,910 $6,071 $5,181
Net investment income........... 320 279 1,138 1,078 1,022 1,025 839
Realized investment gains
(losses)...................... (5) -- (2) (5) 2 -- --
Gain on sale of television
business...................... -- -- -- 267 60 -- --
Other income.................... 5 6 25 37 106 95 91
--------- --------- --------- --------- --------- --------- ---------
Total revenues................ 2,048 1,757 7,104 7,251 7,100 7,191 6,111
--------- --------- --------- --------- --------- --------- ---------
Benefits and expenses:
Benefits and claims............. 1,400 1,214 4,877 4,833 4,896 5,034 4,257
Expenses........................ 445 490 1,676 1,553 1,554 1,556 1,350
--------- --------- --------- --------- --------- --------- ---------
Total benefits and expenses... 1,845 1,704 6,553 6,386 6,450 6,590 5,607
--------- --------- --------- --------- --------- --------- ---------
Pretax earnings............... 203 53 551 865 650 601 504
Income taxes...................... 7 (107) 64 280 256 252 211
--------- --------- --------- --------- --------- --------- ---------
Net earnings.................. $196(1) $160(2) $487(3) $585(4) $394(5) $349 $293
========= ========= ========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, AT DECEMBER 31,
--------------------- ---------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
--------- --------- --------- --------- --------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Assets:
Investments and cash............ $27,217 $22,971 $26,994 $22,880 $20,744 $20,045 $15,994
Other........................... 4,132 4,557 4,189 6,574 4,276 5,172 4,293
--------- --------- --------- --------- --------- --------- ---------
Total assets.............. $31,349 $27,528 $31,183 $29,454 $25,020 $25,217 $20,287
========= ========= ========= ========= ========= ========= =========
Liabilities and shareholders'
equity:
Policy liabilities.............. 23,976 20,184 $24,034 $19,885 $20,234 $19,514 $16,007
Notes payable................... 573 511 596 523 354 327 185
Income taxes.................... 1,733 1,694 1,865 1,827 1,181 1,398 1,392
Other liabilities............... 1,208 1,685 918 3,789 1,125 1,844 951
Shareholders' equity............ 3,859 3,454 3,770 3,430 2,126 2,134 1,752
--------- --------- --------- --------- --------- --------- ---------
Total liabilities and
shareholders' equity.... $31,349 $27,528 $31,183 $29,454 $25,020 $25,217 $20,287
========= ========= ========= ========= ========= ========= =========
</TABLE>
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(1) Includes gain of $67 ($.25 per basic share, $.24 per diluted share) due to a
reduction in the deferred income tax liabilities from a tax rate cut in
Japan.
(2) Includes gain of $121 ($.45 per basic share, $.44 per diluted share) due to
a reduction in the deferred income tax liabilities from a tax rate cut in
Japan and a charge of $65 ($.24 per basic and diluted share) for a mandated
policyholder protection fund in Japan in 1998.
(3) Includes gain of $121 ($.46 per basic share, $.44 per diluted share) due to
a reduction in deferred income tax liabilities from a tax rate cut in Japan
and a charge of $65 ($.24 per basic and diluted share) for a mandated
policyholder protection fund in Japan in 1998.
(4) Includes gain of $211 ($.77 per basic share, $.75 per diluted share) from
the sale of the television business in 1997.
(5) Includes gain of $48 ($.17 per basic share, $.16 per diluted share) from the
sale of the television business in 1996.
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<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEARS ENDED DECEMBER 31,
------------------- ----------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
-------- -------- -------- -------- -------- -------- --------
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SUPPLEMENTAL DATA:
Operating earnings (in millions)(6).... $132 $104 $429 $374 $347 $349 $293
Ratio of earnings to fixed
charges(7)........................... 56.7 x 16.8 x 41.8 x 43.6 x 36.1 x 37.7 x 42.1 x
Ratio of debt to capitalization(8)..... 18.0 % 18.5 % 19.6 % 19.6 % 16.1 % 16.5 % 10.8 %
Ratio of debt to capitalization........ 12.9 % 12.9 % 13.6 % 13.2 % 14.3 % 13.3 % 9.5 %
Pretax profit margin(9)................ 10.1 % 9.4 % 9.3 % 8.6 % 8.4 % 8.4 % 8.3 %
After-tax profit margin(9)............. 6.4 % 5.9 % 6.0 % 5.4 % 4.9 % 4.8 % 4.8 %
Operating return on equity(10)......... 20.9 % 18.9 % 18.7 % 18.8 % 19.9 % 22.0 % 20.4 %
Yen/dollar exchange rate at period
end.................................. Y120.55 Y132.10 Y115.70 Y130.10 Y116.10 Y102.95 Y99.85
Average yen/dollar exchange rate....... 116.58 128.09 130.89 121.07 108.84 94.10 102.26
</TABLE>
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(6) Excludes realized investment gains/losses and, in 1996 and 1997, the gains
from the sale of the television business.
Excludes the charge for the policyholder protection fund in 1998 and the
benefit of the tax rate reductions in 1998 and 1999.
(7) "Earnings" consists of operating earnings before income taxes and fixed
charges. "Fixed charges" consists of interest on indebtedness (including
capitalized interest) and a share of rental expenses deemed to be
representative of interest.
(8) Excludes unrealized gains on investment securities.
(9) Operating basis.
(10) Based on operating earnings and excluding unrealized gains on investment
securities, net.
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RISK FACTORS
You should carefully consider the information below in addition to all
other information provided to you in this prospectus in deciding whether to
exchange your old notes for the new notes. There may be additional risks and
uncertainties not presently known to us or that we currently do not believe are
material that may also impair our business operations. Except for the first risk
factor described below, the risk factors generally apply to the old notes as
well as to the new notes.
If any of the following risks actually occur, our business, financial
condition or results of operations could be materially adversely affected. In
such case, the trading price of the senior notes could decline and you may lose
all or part of your investment.
IF YOU DO NOT EXCHANGE YOUR NOTES PURSUANT TO THIS EXCHANGE, YOU MIGHT NOT BE
ABLE TO EVER SELL YOUR NOTES.
It may be difficult for you to sell old notes that are not exchanged in the
exchange offer. Those notes may not be offered or sold unless they are
registered or there are exemptions from the registration requirements under the
Securities Act and applicable state securities laws.
If you do not tender your old notes or if we do not accept some of your old
notes, those notes will continue to be subject to the transfer and exchange
restrictions in:
- the indenture;
- the legend on the old notes; and
- the offering circular relating to the old notes.
The restrictions on transfer of your old notes arise because we issued the
old notes pursuant to an exemption from the registration requirements of the
Securities Act and applicable state securities laws. In general, you may only
offer or sell the old notes if they are registered under the Securities Act and
applicable state securities laws, or offered and sold pursuant to an exemption
from such requirements. We do not intend to register the old notes under the
Securities Act. To the extent old notes are tendered and accepted in the
exchange offer, the trading market, if any, for the old notes would be adversely
affected.
YOU CANNOT BE SURE THAT AN ACTIVE TRADING MARKET WILL DEVELOP FOR THESE NOTES.
The new notes are being offered to the holders of the old notes only. There
is no public market for the new notes. The initial purchasers have informed us
that they currently intend to make a market in the new notes. However, the
initial purchasers may cease their market making at any time. The new notes
could trade at prices that may be higher or lower than the initial offering
price of the old notes. The liquidity of the trading market in these notes, and
the market price quoted for these notes, may be adversely affected by changes in
the overall market for similar securities, existing interest rates, and by our
operating results.
OUR CONCENTRATION OF BUSINESS IN JAPAN IMPOSES RISKS TO OUR OPERATIONS AND MAY
IMPAIR OUR ABILITY TO MAKE PAYMENTS ON THE SENIOR NOTES.
Continued weakness of Japan's economy could materially adversely affect our
business and our ability to make payments on the senior notes. Our operations in
Japan accounted for 80%, 79% and 82%, of our total revenues for 1998, 1997 and
1996, respectively, and 86% and 87% of our total assets at December 31, 1998 and
1997, respectively. Japan's economy has been weak for several years. The
financial strength of many Japanese financial institutions has deteriorated, and
some have experienced bankruptcy. The economic downturn has spread to several
other Asian countries since mid-1997. The weak economy in Japan has resulted in
a difficult marketing environment for AFLAC Japan, declining available
investment yields for new investments and decreased consumer confidence.
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Although the Japanese government has developed various economic stimulus
packages, the time required for the Japanese economy to recover remains
uncertain.
UNAVAILABILITY OF LONGER TERM YEN-DENOMINATED INVESTMENTS COULD ADVERSELY AFFECT
OUR PROFITS AND ABILITY TO REPAY THE NOTES.
We attempt to match the duration of our assets with the duration of our
liabilities. For AFLAC Japan, the duration of policy benefit liabilities is
longer than that of the related invested assets due to the unavailability of
acceptable yen-denominated long-duration securities. Therefore, there is a risk
that the reinvestment of the proceeds at the maturity of such investments will
be at a yield below that of the interest required for the accretion of policy
liabilities. At December 31, 1998, for AFLAC Japan the average duration of
policy liabilities was approximately 13 years and the average duration of
yen-denominated debt securities was approximately nine years. When our debt
securities mature, there is a risk that the proceeds will be reinvested at a
yield below that of the interest required for the accretion of policy
liabilities. If this occurs, AFLAC Japan would be adversely affected, which
could impair our ability to make payments on the senior notes. Over the next
five years, 14.8% of AFLAC Japan's yen-denominated debt securities are scheduled
to mature.
ACTIONS BY JAPANESE REGULATORS COULD HARM OUR BUSINESS AND MAY IMPAIR OUR
ABILITY TO MAKE PAYMENTS ON THE SENIOR NOTES.
An agreement between the governments of the United States and Japan calls
for the gradual liberalization of the insurance industry in Japan through the
year 2001. However, this agreement contains provisions to avoid "radical change"
in the third sector of the insurance industry. The third sector includes the
supplemental insurance products which constitutes our primary operations. One of
the measures for avoiding radical change in the third sector is the prohibition
of new entrants into the cancer or medical insurance businesses until January 1,
2001. If the process for deregulation in Japan is significantly altered or
accelerated to permit numerous new competitors to enter the supplemental
insurance products market prior to 2001, our business could be materially
adversely affected and our ability to make payments on the senior notes could be
impaired. In addition, the ultimate impact of insurance deregulation on our
business cannot be determined.
JAPANESE CURRENCY EXCHANGE RATE RISK COULD HARM OUR BUSINESS AND OPERATING
RESULTS AND MAY IMPAIR OUR ABILITY TO MAKE PAYMENTS ON THE SENIOR NOTES.
All of our premiums and most of our investment income in Japan is received
in yen, and our claims and expenses are paid in yen. In addition, the majority
of our invested assets in Japan are denominated in yen. Therefore, our economic
condition in Japan is not materially affected by currency fluctuations. However,
we must translate yen into dollars for financial reporting purposes. The
fluctuations in the yen/dollar exchange rate may have a significant effect on
our balance sheets and income statements as reported in dollars. The yen has
weakened since mid-1995, which has caused fewer dollars to be reported. In
addition, with a weaker yen we receive fewer dollars when converting yen into
dollars for repatriation of profits from AFLAC Japan to AFLAC U.S.
OUR OPERATING SUBSIDIARIES PROVIDE OUR CASH FLOW BUT THEY ARE NOT OBLIGATED TO
PAY OR GUARANTEE THE SENIOR NOTES, WHICH EFFECTIVELY SUBORDINATES THE SENIOR
NOTES TO INDEBTEDNESS OF OUR SUBSIDIARIES.
We are a holding company and have no direct operations and no significant
assets other than the stock of our subsidiaries. Because we conduct our
operations through our operating subsidiaries, we depend on those entities for
dividends and other payments to generate the funds necessary to meet our
financial obligations, including the payment of principal and interest on the
senior notes. In addition, there is no assurance that the earnings from, or
other available assets of, our operating subsidiaries will be sufficient to make
distributions to us to enable us to pay interest on the senior
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notes when due or principal of the senior notes at maturity. Our subsidiaries
have no direct obligation to pay amounts due on the senior notes and do not
guarantee the senior notes. As a result, the senior notes have the effect of
being subordinated to existing and future unsecured third party indebtedness and
other liabilities of the subsidiaries, including policyholder claims and trade
payables. If a subsidiary liquidates or reorganizes, the subsidiary's creditors,
including policyholders and trade creditors, will generally have preferential
rights to satisfy their claims from the subsidiary's remaining assets before
AFLAC Incorporated and its creditors, including the holders of the senior notes,
may satisfy their claims from the subsidiary's assets.
INSURANCE REGULATIONS LIMIT THE ABILITY OF OUR SUBSIDIARIES TO MAKE PAYMENTS TO
US AND MAY IMPAIR OUR ABILITY TO MAKE PAYMENTS ON THE SENIOR NOTES.
Insurance regulations limit the ability of our insurance subsidiaries to
make payments to us and may impair our ability to make payments on the senior
notes. Dividends, management fees and other payments to us by our insurance
subsidiaries are subject to various regulatory restrictions and approvals
related to safeguarding the interests of insurance policyholders. For example,
dividend payments by AFLAC to us in 1999 in excess of $213 million would require
prior regulatory approval.
FAILURE TO BE YEAR 2000 COMPLIANT COULD DISRUPT OUR OPERATIONS, ADVERSELY AFFECT
OUR BUSINESS AND IMPAIR OUR ABILITY TO MAKE PAYMENTS ON THE SENIOR NOTES.
Our business is significantly dependent upon accurate and efficient
operation of our computer systems. We also rely on a widely distributed customer
base in the United States and Japan for continued payment of premiums. Many of
the systems utilized by our group accounts are automated and date dependent. If
a large number of our customers are unable to submit premium payments or policy
and claim data in a timely or accurate manner due to year 2000 issues, the
resulting delays could have a material adverse effect on our financial condition
or results of operations. Although we have taken steps to address the year 2000
issue, we are not currently able to predict the probability of any delays
occurring or the extent of such delays.
Due to the uncertainty inherent in year 2000 issues, particularly with
regard to Japanese customers' year 2000 readiness and the various governmental
functions, public utilities, financial infrastructures and similar outside
facilities on which we depend in both the United States and Japan, we are unable
to determine at this time whether the consequences of external year 2000
failures will have a material impact on our financial condition or results of
operations. Although a year 2000 failure with respect to any single internal or
external system may not have a material adverse effect on us, the failure of
multiple systems may cause a material disruption to our business. A material
disruption in our business could materially affect our ability to make payments
on the senior notes.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for a discussion of the actions we have taken and
expenses we have incurred and intend to incur in connection with the year 2000
issue.
11
<PAGE> 12
FORWARD-LOOKING STATEMENTS
This prospectus and the documents incorporated herein by reference contain
forward-looking statements. In addition, from time to time, we or our
representatives may make forward-looking statements orally or in writing. We
base these forward-looking statements on our expectations and projections about
future events, which we derive from the information currently available to us.
Such forward-looking statements relate to future events or our future
performance, including:
- our financial performance;
- our growth in net sales and earnings;
- our cash flows from operations;
- our capital expenditures;
- our ability to refinance indebtedness; and
- sales of our assets.
In some cases, you can identify forward-looking statements by terms such as
"may," "will," "should," "expects," "plans," "contemplates," "anticipates,"
"believes," "estimates," "projected," "predicts," "potential" or "continue" or
the negative of these or similar terms. In evaluating these statements, you
should consider various factors, including the risk factors described in this
prospectus. Such factors may cause our actual results to differ materially from
any forward-looking statement.
Forward-looking statements are only predictions. The forward-looking events
discussed in this prospectus may not occur and actual events and results may
differ materially and are subject to risks, uncertainties and assumptions about
us. We are not obligated to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
In light of these risks, uncertainties and assumptions, the forward-looking
events discussed in this prospectus might not occur.
USE OF PROCEEDS
We will not receive any proceeds from the exchange offer. Our net proceeds
from the sale of old notes were approximately $445 million, after deducting
discounts and offering expenses. We currently intend that those net proceeds
will be used primarily for the repurchase of shares of our common stock.
Remaining net proceeds may be used to repay our indebtedness or for general
corporate purposes. We have temporarily invested the net proceeds in investment
grade securities.
12
<PAGE> 13
CAPITALIZATION
The following table sets forth our unaudited consolidated capitalization as
of March 31, 1999 and as adjusted (1) to give effect to the sale of the senior
notes, but without giving effect to the payment of expenses, and (2) to give
effect to the stock repurchase. This table should be read in conjunction with
the consolidated financial statements and the related notes, "Selected
Historical Consolidated Financial Information" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this prospectus.
<TABLE>
<CAPTION>
AT MARCH 31, 1999
--------------------------
Long-term debt: ACTUAL AS ADJUSTED
------ ------
(IN MILLIONS,
Due to banks (yen-denominated): EXCEPT FOR SHARE AMOUNTS)
<S> <C> <C>
2.29% due annually through July 2001.............. $ 282 $ 282
1.24% due November 2002........................... 129 129
Variable interest rate due annually through July
2001............................................ 32 32
Variable interest rate due November 2002.......... 112 112
Senior notes subject to this exchange offer............ -- 450
Capitalized leases..................................... 18 18
------ ------
Total long-term debt.............................. 573 1,023
------ ------
Equity:
Common stock, $.10 par value; 400,000,000 shares
authorized; 318,570,482 shares issued................. 32 32
Additional paid-in capital............................. 241 241
Retained earnings...................................... 3,040 3,040
Accumulated other comprehensive income:
Unrealized foreign currency translation gains..... 214 214
Unrealized gains on investment securities......... 1,243 1,243
Treasury stock......................................... (910) (1,360)
Notes receivable for stock purchases................... (1) (1)
------ ------
Total equity...................................... 3,859 3,409
------ ------
Total capitalization.............................. $4,432 $4,432
====== ======
Ratio of debt to capitalization*....................... 18.0% 32.1%
Ratio of debt to capitalization........................ 12.9% 23.1%
</TABLE>
- ---------------
* Excludes unrealized gains on investment securities.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of earnings to fixed charges of
AFLAC Incorporated for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEARS ENDED DECEMBER 31,
----------------- -----------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed
charges*................. 56.7x 16.8x 41.8x 43.6x 36.1x 37.7x 42.1x
</TABLE>
- ---------------
* "Earnings" consists of operating earnings before income taxes and fixed
charges. "Fixed charges" consists of interest on indebtedness (including
capitalized interest) and a share of rental expenses deemed to be
representative of interest.
13
<PAGE> 14
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The selected historical consolidated financial information presented below
for, and as of, each of the years ended December 31, 1994, 1995, 1996, 1997, and
1998 were derived from our audited consolidated financial statements, which have
been audited by KPMG LLP, independent certified public accountants. The selected
historical consolidated financial data for, and as of, each of the three-month
periods ended March 31, 1998 and 1999 were derived from our unaudited
consolidated financial statements which, in the opinion of management, have been
prepared on the same basis as our audited consolidated financial statements and
include all adjustments, necessary for a fair and consistent presentation of our
results of operations and financial position for such periods and as of such
dates. The results for the three months ended March 31, 1999 are not necessarily
indicative of results to be expected for the full fiscal year. The following
financial information should be read in conjunction with the report of KPMG LLP,
our consolidated financial statements and the related notes and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
------------------- ----------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
-------- -------- -------- -------- -------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF EARNINGS DATA:
Revenues:
Premiums, principally supplemental health
insurance.................................. $1,728 $1,472 $5,943 $5,874 $5,910 $6,071 $5,181
Net investment income........................ 320 279 1,138 1,078 1,022 1,025 839
Realized investment gains (losses)........... (5) -- (2) (5) 2 -- --
Gain on sale of television business.......... -- -- -- 267 60 -- --
Other income................................. 5 6 25 37 106 95 91
-------- -------- -------- -------- -------- -------- --------
Total revenues......................... 2,048 1,757 7,104 7,251 7,100 7,191 6,111
-------- -------- -------- -------- -------- -------- --------
Benefits and expenses:
Benefits and claims.......................... 1,400 1,214 4,877 4,833 4,896 5,034 4,257
Expenses..................................... 445 490 1,676 1,553 1,554 1,556 1,350
-------- -------- -------- -------- -------- -------- --------
Total benefits and expenses............ 1,845 1,704 6,553 6,386 6,450 6,590 5,607
-------- -------- -------- -------- -------- -------- --------
Pretax earnings........................ 203 53 551 865 650 601 504
Income taxes................................... 7 (107) 64 280 256 252 211
-------- -------- -------- -------- -------- -------- --------
Net earnings........................... $196(1) $160(2) $487(3) $585(4) $394(5) $349 $293
======== ======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, AT DECEMBER 31,
------------------- ----------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
-------- -------- -------- -------- -------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Assets:
Investments and cash......................... $27,217 $22,971 $26,994 $22,880 $20,744 $20,045 $15,994
Other........................................ 4,132 4,557 4,189 6,574 4,276 5,172 4,293
-------- -------- -------- -------- -------- -------- --------
Total assets........................... $31,349 $27,528 $31,183 $29,454 $25,020 $25,217 $20,287
======== ======== ======== ======== ======== ======== ========
Liabilities and shareholders' equity:
Policy liabilities........................... $23,976 $20,184 $24,034 $19,885 $20,234 $19,514 $16,007
Notes payable................................ 573 511 596 523 354 327 185
Income taxes................................. 1,733 1,694 1,865 1,827 1,181 1,398 1,392
Other liabilities............................ 1,208 1,685 918 3,789 1,125 1,844 951
Shareholders' equity......................... 3,859 3,454 3,770 3,430 2,126 2,134 1,752
-------- -------- -------- -------- -------- -------- --------
Total liabilities and
shareholders' equity................. $31,349 $27,528 $31,183 $29,454 $25,020 $25,217 $20,287
======== ======== ======== ======== ======== ======== ========
</TABLE>
- ---------------
(1) Includes gain of $67 ($.25 per basic share, $.24 per diluted share) due to a
reduction in the deferred income tax liabilities from a tax rate cut in
Japan.
(2) Includes gain of $121 ($.45 per basic share, $.44 per diluted share) due to
a reduction in the deferred income tax liabilities from a tax rate cut in
Japan and a charge of $65 ($.24 per basic and diluted share) for a mandated
policyholder protection fund in Japan in 1998.
(3) Includes gain of $121 ($.46 per basic share, $.44 per diluted share) due to
a reduction in deferred income tax liabilities from a tax rate cut in Japan
and a charge of $65 ($.24 per basic and diluted share) for a mandated
policyholder protection fund in Japan in 1998.
(4) Includes gain of $211 ($.77 per basic share, $.75 per diluted share) from
the sale of the television business in 1997.
(5) Includes gain of $48 ($.17 per basic share, $.16 per diluted share) from the
sale of the television business in 1996.
14
<PAGE> 15
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
------------------- ----------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
SUPPLEMENTAL DATA:
Operating earnings (in
millions)(6)............... $132 $104 $429 $374 $347 $349 $293
Ratio of earnings to fixed
charges(7)................. 56.7 x 16.8 x 41.8 x 43.6 x 36.1 x 37.7 x 42.1 x
Ratio of debt to
capitalization(8).......... 18.0 % 18.5 % 19.6 % 19.6 % 16.1 % 16.5 % 10.8 %
Ratio of debt to
capitalization............. 12.9 % 12.9 % 13.6 % 13.2 % 14.3 % 13.3 % 9.5 %
Pretax profit margin(9)...... 10.1 % 9.4 % 9.3 % 8.6 % 8.4 % 8.4 % 8.3 %
After-tax profit margin(9)... 6.4 % 5.9 % 6.0 % 5.4 % 4.9 % 4.8 % 4.8 %
Operating return on
equity(10)................. 20.9 % 18.9 % 18.7 % 18.8 % 19.9 % 22.0 % 20.4 %
Yen/dollar exchange rate at
period end................. Y120.55 Y132.10 Y115.70 Y130.10 Y116.10 Y102.95 Y 99.85
Average yen/dollar exchange
rate....................... 116.58 128.09 130.89 121.07 108.84 94.10 102.26
</TABLE>
- ---------------
(6) Excludes realized investment gains/losses and in 1996 and 1997, the gains
from the sale of the television business. Excludes the charge for the
policyholder protection fund in 1998 and the benefit of the tax rate
reductions in 1998 and 1999.
(7) "Earnings" consists of operating earnings before income taxes and fixed
charges. "Fixed charges" consists of interest on indebtedness (including
capitalized interest) and a share of rental expenses deemed to be
representative of interest.
(8) Excludes unrealized gains on investment securities.
(9) Operating basis.
(10) Based on operating earnings and excluding unrealized gains on investment
securities, net.
15
<PAGE> 16
THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD NOTES
Subject to the terms and conditions set forth in this prospectus and in the
accompanying letter of transmittal, we will accept for exchange old notes that
are properly tendered on or before the Expiration Date and not withdrawn as
permitted below. As used in this prospectus, the term "Expiration Date" means
5:00 p.m., New York City time, on , 1999, or such later date
and time to which we, in our sole discretion, extend the exchange offer.
The form and terms of the new notes being issued in the exchange offer are
the same as the form and terms of the old notes except that:
- the new notes being issued in the exchange offer will have been
registered under the Securities Act and thus will not bear restrictive
legends restricting their transfer pursuant to the Securities Act, and
- the new notes being issued in the exchange offer will not contain the
registration rights contained in the old notes.
As of the date of this prospectus, there is $450,000,000 in total principal
amount of old notes outstanding. This prospectus and the letter of transmittal
are first being sent on or about , 1999, to all holders of old notes
known to us. Our obligation to accept old notes for exchange pursuant to the
exchange offer is subject to the conditions set forth below under "-- Conditions
to the Exchange Offer."
Notes tendered in the exchange offer must be in denominations of principal
amount of $1,000 and any integral multiple thereof.
We expressly reserve the right, at any time or from time to time, to extend
the period of time during which the exchange offer is open, and thereby delay
acceptance for exchange of any old notes, by giving oral or written notice of
such extension to the holders of old notes as described below. During any such
extension, all old notes previously tendered will remain subject to the exchange
offer and may be accepted for exchange by us. We will return, at no expense to
the holder, any old notes not accepted for exchange as promptly as practicable
after the expiration or termination of the exchange offer.
If any of the events specified in "-- Conditions to the Exchange Offer"
should occur, we may amend or terminate the exchange offer, and not accept for
exchange any old notes not previously accepted for exchange. We will give oral
or written notice of any extension, amendment, non-acceptance or termination to
holders of old notes as promptly as practicable. In the case of an extension, we
will issue a press release or other public announcement no later than 9:00 a.m.,
New York City time, on the next business day after the previously scheduled
Expiration Date.
Following consummation of the exchange offer, we may commence one or more
additional exchange offers to those holders of old notes who did not exchange
their old notes for new notes on terms which may differ from those contained in
the registration rights agreement. We may use this prospectus, as amended or
supplemented from time to time, in connection with additional exchange offers.
PROCEDURES FOR TENDERING OLD NOTES
The tendering by a holder of old notes, and our mutual acceptance of the
old notes, will constitute a binding agreement between us and the holder on the
terms and subject to the conditions set forth in this prospectus and in the
accompanying letter of transmittal. Except as set forth below,
16
<PAGE> 17
to tender in the exchange offer, a holder must transmit to The Bank of New York,
the exchange agent, at the address set forth under "--Exchange Agent" on or
before the Expiration Date either:
- a properly completed and duly executed letter of transmittal, including
all other documents required by such letter of transmittal, or
- if the old notes are tendered pursuant to the book-entry procedures set
forth below, an agent's message instead of a letter of transmittal.
In addition, on or prior to the Expiration Date, either:
- the exchange agent must receive the certificates for the old notes along
with the letter of transmittal; or
- the exchange agent must receive a timely confirmation of a book-entry
transfer of such old notes into the exchange agent's account at The
Depository Trust Company ("DTC") according to the procedure for
book-entry transfer described below, along with a letter of transmittal
or an agent's message instead of a letter of transmittal; or
- the holder must comply with the guaranteed delivery procedures described
below.
The term "agent's message" means a message, transmitted by DTC and received by
the exchange agent and forming a part of the book-entry confirmation, which
states that DTC has received an express acknowledgment from the tendering holder
that such holder has received and agrees to be bound by the letter of
transmittal and that we may enforce the letter of transmittal against the
holder.
THE METHOD OF DELIVERY OF OLD NOTES, LETTERS OF TRANSMITTAL OR AGENT'S
MESSAGES AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE
HOLDERS. IF DELIVERY IS BY MAIL, WE RECOMMEND REGISTERED MAIL, PROPERLY INSURED,
WITH RETURN RECEIPT REQUESTED. IN ALL CASES, YOU SHOULD ALLOW SUFFICIENT TIME TO
GUARANTEE TIMELY DELIVERY. DO NOT SEND LETTERS OF TRANSMITTAL, AGENT'S MESSAGES
OR NOTES TO US.
Signature Requirements
Signatures on a letter of transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the notes surrendered for exchange are
tendered:
- by a registered holder of old notes who has not completed the box
entitled "Special Issuance Instructions" or "Special Delivery
Instructions" on the letter of transmittal, or
- for the account of an eligible institution.
An "eligible institution" is a member of a registered national securities
exchange or a member of the National Association of Securities Dealers, Inc. or
a commercial bank or trust company having an office or correspondent in the
United States that is a participant in the Securities Transfer Agents Medallion
Program, the New York Stock Exchange Medallion Signature Program or the Stock
Exchanges Medallion program.
If signatures on a letter of transmittal or a notice of withdrawal are
required to be guaranteed, the guarantor must be an eligible institution. If old
notes are registered in the name of a person other than a signer of the letter
of transmittal, the old notes surrendered for exchange must be endorsed by, or
be accompanied by a written instrument or instruments of transfer or exchange,
in satisfactory form as determined by us in our sole discretion, duly executed
by the registered holder with the holder's signature guaranteed by an eligible
institution.
If a person or persons other than the registered holder or holders of old
notes signs the letter of transmittal, such old notes must be endorsed or
accompanied by appropriate powers of attorney, in
17
<PAGE> 18
either case signed exactly as the name or names of the registered holder or
holders that appear on the old notes.
If trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity sign the letter of transmittal or any old notes or powers of attorney,
those persons should so indicate when signing, and must submit proper evidence
satisfactory to us of their authority to sign unless we waive this requirement.
Our Interpretations are Binding on You
We will determine all questions as to the validity, form, eligibility,
including time of receipt, and acceptance of old notes tendered for exchange in
our sole discretion. Our determination will be final and binding. We reserve the
absolute right to:
- reject any and all tenders of any old note not properly tendered;
- refuse acceptance of any old note if, in our judgment or the judgment of
our counsel, acceptance of the old note might be unlawful; and
- waive any defects or irregularities or conditions of the exchange offer
as to any old note either before or after the Expiration Date. This
includes the right to waive the ineligibility of any holder who seeks to
tender old notes in the exchange offer.
Our interpretation of the terms and conditions of the exchange offer as to
any particular old notes either before or after the Expiration Date, including
the letter of transmittal and the instructions to it, will be final and binding
on all parties. Holders must cure any defects or irregularities in connection
with tenders of old notes for exchange within such reasonable period of time as
we will determine, unless we waive such defects or irregularities. Neither we,
the exchange agent, nor any other person shall have a duty to notify anyone of
any defect or irregularity regarding any tender of old notes for exchange, nor
shall any of us incur any liability for failing to notify any person.
Representation You Make by Tendering
By tendering your old notes, you represent to us that, among other things:
- the person receiving the new notes in the exchange offer is obtaining
them in the ordinary course of its business, whether or not such person
is the holder;
- neither you nor such other person receiving the new notes has any
arrangement or understanding with any person to participate in the
distribution of the new notes issued in the exchange offer; and
- if you are not a broker-dealer, that you are not engaged in, or intend to
be engaged in, a distribution of new notes.
If you or any person receiving the new notes is an "affiliate," as defined under
Rule 405 of the Securities Act, of AFLAC Incorporated, or is engaged in or
intends to engage in or has an arrangement or understanding with any person to
participate in a distribution of the new notes to be acquired pursuant to the
exchange offer, you or any such other person receiving the notes may not rely on
the applicable interpretations of the staff of the SEC, and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction.
Each broker-dealer that receives new notes for its own account in exchange
for old notes, where such old notes were acquired by it as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of the new notes. See
"Plan of Distribution." The letter of transmittal states that, by so
acknowledging and by delivering a
18
<PAGE> 19
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" under the Securities Act.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to the exchange offer,
we will accept, promptly after the Expiration Date, all old notes properly
tendered and will issue the new notes promptly after acceptance of the old
notes. See "-- Conditions to the Exchange Offer." For purposes of the exchange
offer, we will be deemed to have accepted properly tendered old notes for
exchange when, as and if we have given oral or written notice to the exchange
agent, with written confirmation of any oral notice to be given promptly
thereafter.
For each old note accepted for exchange, the old note holder will receive a
new note having a principal amount of maturity equal to that of the surrendered
note. Interest on the new notes will accrue from April 21, 1999, the original
issue date of the old notes.
In all cases, we will issue new notes in the exchange offer for old notes
that are accepted for exchange only after the exchange agent timely receives
either:
- certificates for such old notes or a timely book-entry confirmation of
such old notes into the exchange agent's account at DTC, and
- a properly completed and duly executed letter of transmittal or, in the
case of a book-entry confirmation, an agent's message, and all other
required documents.
If tendered old notes are not accepted for any reason set forth in the
terms and conditions of the exchange offer or if a holder submits old notes for
a greater principal amount than the holder desired to exchange, we will return
such unaccepted or non-exchanged old notes without expense to the tendering
holder as promptly as practicable after the expiration or termination of the
exchange offer. In the case of old notes tendered by book-entry transfer into
the exchange agent's account at DTC, such unaccepted or non-exchanged old notes
will be credited to an account maintained with DTC as promptly as practicable
after the expiration or termination of the exchange offer.
BOOK-ENTRY TRANSFER
The exchange agent will request to establish an account for the old notes
at DTC for the exchange offer within two business days after the date of this
prospectus. Any financial institution that is a participant in DTC's systems may
make book-entry delivery of old notes by causing DTC to transfer such old notes
into the exchange agent's account at DTC in accordance with DTC's procedures for
transfer. However, although delivery of old notes may be effected through
book-entry transfer at DTC, the letter of transmittal or facsimile thereof, with
any required signature guarantees, or an agent's message in lieu of such letter
of transmittal, and any other required documents, must, in any case, be
transmitted to and received by the exchange agent at one of the addresses set
forth below under "-- Exchange Agent" on or prior to the Expiration Date or the
guaranteed delivery procedures described below must be complied with.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of the old notes desires to tender such old notes
and the old notes are not immediately available, or time will not permit such
holder's old notes or other required documents to
19
<PAGE> 20
reach the exchange agent before the Expiration Date, or the procedure for
book-entry transfer cannot be completed on a timely basis, a tender may be
effected if:
- the tender is made through an eligible institution;
- before the Expiration Date, the exchange agent receives from such
eligible institution a properly completed and duly executed letter of
transmittal, or a facsimile thereof, and notice of guaranteed delivery,
substantially in the form provided by us, by telegram, telex, facsimile
transmission, mail or hand delivery, setting forth the name and address
of the holder of old notes and the amount of old notes tendered, stating
that the tender is being made thereby and guaranteeing that within three
New York Stock Exchange trading days after the date of execution of the
notice of guaranteed delivery, the certificates for all physically
tendered old notes, in proper form for transfer, or a book-entry
confirmation, as the case may be, and any other documents required by the
letter of transmittal will be deposited by the eligible institution with
the exchange agent; and
- the exchange agent receives the certificates for all physically tendered
old notes, in proper form for transfer, or a book-entry confirmation, as
the case may be, and all other documents required by the letter of
transmittal, within three New York Stock Exchange trading days after the
date of execution of the notice of guaranteed delivery.
WITHDRAWAL RIGHTS
You may withdraw tenders of old notes at any time before the Expiration
Date.
For a withdrawal to be effective, you must send a written notice of
withdrawal to the exchange agent at one of the addresses set forth below under
"-- Exchange Agent." Any such notice of withdrawal must:
- specify the name of the person having tendered the old notes to be
withdrawn,
- identify the old notes to be withdrawn, including the principal amount of
such old notes, and
- if you have transmitted certificates for old notes, specify the name in
which such old notes are registered, if different from that of the
withdrawing holder.
If certificates for old notes have been delivered or otherwise identified
to the exchange agent, then, before the release of such certificates, the
withdrawing holder must also submit the serial numbers of the particular
certificates to be withdrawn and a signed notice of withdrawal with signatures
guaranteed by an eligible institution unless such holder is an eligible
institution.
If old notes have been tendered pursuant to the procedure for book-entry
transfer described above, any notice of withdrawal must specify the name and
number of the account at DTC to be credited with the withdrawn old notes and
otherwise comply with the procedures of such facility.
We will determine all questions as to the validity, form and eligibility,
including time of receipt, of such notices. Our determination will be final and
binding on all parties.
Any old notes so withdrawn will be deemed not to have been validly tendered
for exchange for purposes of the exchange offer. Any old notes which have been
tendered for exchange but which are not exchanged for any reason will be
returned to the holder without cost to such holder. In the case of old notes
tendered by book-entry transfer into the exchange agent's account at DTC
pursuant to the book-entry transfer procedures described above, such old notes
will be credited to an account maintained with DTC for the old notes. Any return
or credit will occur as soon as practicable after withdrawal, rejection of
tender or termination of the exchange offer. Properly withdrawn old notes may be
retendered by following one of the procedures described under "-- Procedures for
Tendering Old Notes" above at any time on or before the Expiration Date.
20
<PAGE> 21
CONDITIONS TO THE EXCHANGE OFFER
We are not required to accept for exchange, or to issue new notes in
exchange for, any old notes. We may terminate or amend the exchange offer if, at
any time before the acceptance of such old notes for exchange or the exchange of
the new notes for such old notes, we determine in our sole and absolute
discretion, that the exchange offer violates applicable law or any applicable
interpretation of the staff of the SEC.
EXCHANGE AGENT
The Bank of New York has been appointed as the exchange agent for the
exchange offer. All executed letters of transmittal should be directed to the
exchange agent at one of the addresses set forth below. Questions and requests
for assistance, requests for additional copies of this prospectus or of the
letter of transmittal and requests for notices of guaranteed delivery should be
directed to the exchange agent addressed as follows:
Delivery to: The Bank of New York, Exchange Agent
<TABLE>
<S> <C>
By Registered or Certified Mail: By Hand or Overnight Delivery:
THE BANK OF NEW YORK THE BANK OF NEW YORK
101 Barclay Street, (7 East) 101 Barclay Street
New York, New York 10286 Corporate Trust Services Window
Attention: Ground Level
Reorganization Section New York, New York 10286
Attention:
Reorganization Section
</TABLE>
By Facsimile for Eligible Institutions:
(212) 815-6339
Confirm by Telephone:
(212) 815-
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE IS NOT VALID DELIVERY OF SUCH LETTER OF TRANSMITTAL.
FEES AND EXPENSES
We will not pay any brokers, dealers or others soliciting acceptances of
the exchange offer.
We will pay the estimated cash expenses to be incurred in connection with
the exchange offer, which are estimated to total $ .
TRANSFER TAXES
Holders who tender their old notes for exchange will not be obligated to
pay any transfer taxes in connection with the exchange. However, holders who
instruct us to register new notes in the name of, or request that old notes not
tendered or not accepted in the exchange offer be returned to, a person other
than the registered tendering holder will be responsible for the paying of any
applicable transfer tax.
21
<PAGE> 22
HOLDERS, OTHER THAN AFFILIATES, MAY OFFER OR SELL THE NEW NOTES
Based on interpretations by the SEC staff, as set forth in no-action
letters issued to third parties, we believe that new notes issued in the
exchange offer for old notes may be offered for resale, resold or otherwise
transferred by the holders of such new notes, other than any such holder that is
an "affiliate" of AFLAC Incorporated within the meaning of Rule 405 under the
Securities Act. Such new notes may be offered for resale, resold or otherwise
transferred without compliance with the registration and prospectus delivery
requirements of the Securities Act, if:
- such new notes issued in the exchange offer are acquired in the ordinary
course of such holder's business, and
- such holders have no arrangement or understanding with any person to
participate in the distribution of such new notes issued in the exchange
offer.
Each holder, other than a broker-dealer, must acknowledge that it is not
engaged in, and does not intend to engage in, a distribution of new notes and
has no arrangement or understanding to participate in a distribution of new
notes.
However, we do not intend to request the SEC to consider, and the SEC has
not considered, the exchange offer in the context of a no-action letter. We
cannot guarantee that the SEC staff would make a similar determination with
respect to the exchange offer as in other circumstances.
If any holder is an "affiliate" of ours, as defined in Rule 405 under the
Securities Act, is engaged in or intends to engage in or has any arrangement or
understanding with respect to the distribution of the new notes to be acquired
pursuant to the exchange offer, such holder:
- could not rely on the applicable interpretations of the SEC staff, and
- must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any resale transaction.
Each broker-dealer that receives new notes for its own account in exchange
for old notes, where such old notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities, must acknowledge
that it will deliver a prospectus in connection with any resale of such new
notes. See "Plan of Distribution."
In addition, to comply with state securities laws, the new notes may not be
offered or sold in any state unless they have been registered or qualified for
sale in such state or an exemption from registration or qualification is
available and is complied with. The offer and sale of the new notes to
"qualified institutional buyers," as that term is defined under Rule 144A of the
Securities Act, is generally exempt from registration or qualification under the
state securities laws. We currently do not intend to register or qualify the
sale of the new notes in any state where an exemption from registration or
qualification is required and not available.
22
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following analysis should be read in conjunction with the consolidated
financial statements of AFLAC Incorporated and the notes thereto and the other
financial data appearing elsewhere in this prospectus. The discussion and
analysis (1) for the quarter ended March 31, 1999 is extracted from our
Quarterly Report on Form 10-Q for the quarter ended March 31, 1999 and (2) for
the three year period ended December 31, 1998, is extracted from our Annual
Report on Form 10-K for the year ended December 31, 1998. In each case this
analysis does not give effect to subsequent events.
AFLAC Incorporated is the parent company of AFLAC. Our principal business
is supplemental health insurance, which is marketed and administered through
AFLAC. Most of AFLAC's policies are individually underwritten and marketed at
worksites through independent agents, with premiums paid by the employee. Our
operations in Japan and the United States service the two markets for our
insurance operations.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 COMPARED WITH THREE MONTHS ENDED MARCH
31, 1998.
Due to a corporate income tax rate reduction in Japan during 1999, the
statutory tax rate for AFLAC Japan declined from 41.7% to 36.2%. This tax rate
decline resulted in a reduction in our deferred income tax liability as of March
31, 1999, which increased net earnings by $67 million ($.25 per basic share and
$.24 per diluted share) in 1999. For additional information on the income tax
reduction, see Note 4 of the notes to the consolidated financial statements at
March 31, 1999.
Also, due to a corporate income tax rate reduction in Japan during 1998,
the statutory tax rate for AFLAC Japan declined from 45.3% to 41.7%. This tax
rate decline resulted in a reduction in our deferred income tax liability as of
March 31, 1998, which increased net earnings by $121 million ($.45 per basic
share and $.44 per diluted share) in 1998. For additional information on the
income tax reduction, see Note 4 of the notes to the consolidated financial
statements at March 31, 1999.
Another factor affecting net earnings was a policyholder protection fund
system mandated by the Japanese government during the first quarter of 1998. The
pretax charge for our obligation to the protection fund was $111 million ($65
million after tax, or $.24 per both basic and diluted shares). For further
information regarding this policyholder protection fund, see Note 5 of the notes
to the consolidated financial statements at March 31, 1999.
23
<PAGE> 24
The following table sets forth the results of operations by business
segment for the periods shown.
SUMMARY OF OPERATING RESULTS BY BUSINESS SEGMENT
<TABLE>
<CAPTION>
THREE MONTHS
PERCENTAGE CHANGE ENDED MARCH 31,
OVER PREVIOUS ---------------------
PERIOD 1999 1998
----------------- ------ ------
(IN MILLIONS, EXCEPT
FOR PER-SHARE
AMOUNTS)
<S> <C> <C> <C>
Operating earnings:
AFLAC Japan........................................... 26.2% $158 $125
AFLAC U.S............................................. 11.4 63 56
All other business segments........................... 1 --
---- ----
Total business segments....................... 22.3 222 181
Interest expense, non-insurance operations............ 2.4 (3) (3)
Corporate and eliminations............................ 16.5 (12) (13)
---- ----
Pretax operating earnings..................... 26.0 207 165
Income taxes.......................................... 23.8 75 61
---- ----
Operating earnings............................ 27.3 132 104
Non-operating items:
Deferred tax benefit from Japan tax rate reduction.... 67 121
Provision for the Japanese mandated policyholder
protection fund, net of tax........................ -- (65)
Realized investment gains (losses), net of tax........ (3) --
---- ----
Net earnings.................................. 21.9% $196 $160
==== ==== ====
Operating earnings per basic share...................... 28.2% $.50 $.39
Operating earnings per diluted share.................... 26.3 .48 .38
Net earnings per basic share............................ 23.3 .74 .60
Net earnings per diluted share.......................... 22.4 .71 .58
</TABLE>
The following discussion of earnings comparisons focuses on operating
earnings and excludes realized investment gains/losses, the charge for the
mandated policyholder protection fund, and the deferred income tax benefit from
the Japanese tax rate reductions. Operating earnings per share referred to in
the following discussion are based on the diluted number of average outstanding
shares.
Foreign Currency Translation. Due to the relative size of AFLAC Japan,
fluctuations in the yen/dollar exchange rate can have a significant effect on
our reported results. In years when the yen weakens, translating yen into
dollars causes fewer dollars to be reported. When the yen strengthens,
translating yen into dollars causes more dollars to be reported.
24
<PAGE> 25
The following table illustrates the effect of foreign currency translation
on our reported results by comparing those results as if foreign currency rates
had remained unchanged from the comparable period in the prior year.
SELECTED PERCENTAGE CHANGES FOR SUPPLEMENTAL CONSOLIDATED DATA*
THREE MONTHS ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
INCLUDING EXCLUDING
CURRENCY CURRENCY
CHANGES CHANGES**
--------- ---------
<S> <C> <C>
Premium income.............................................. 17.4% 8.8%
Net investment income....................................... 14.8 8.1
Operating revenues.......................................... 16.8 8.6
Total benefits and expenses................................. 15.9 7.4
Operating earnings.......................................... 27.3 22.2
Operating earnings per share................................ 26.3 21.1
</TABLE>
- ---------------
* The numbers in this table are presented on an operating basis and therefore
exclude: the deferred income tax benefit from the tax rate reductions, the
charge for a mandated policyholder protection fund, and realized investment
gains and losses.
** Amounts excluding foreign currency changes were determined using the same
yen/dollar exchange rate for the current period as the comparable period in
the prior year.
The yen began to strengthen in relation to the dollar at the end of 1998
after several years of weakening. The average yen-to-dollar exchange rates were
116.58 and 128.09 for the three months ended March 31, 1999 and 1998,
respectively. The 9.9% strengthening of the yen in 1999 increased operating
earnings by approximately $.02 per share for the three months ended March 31,
1999. Operating earnings per share increased 26.3% to $.48 for the three-month
period ended March 31, 1999 compared with the same period in 1998.
Our primary financial objective is the growth of operating earnings per
share before the effect of foreign currency fluctuations. In 1996, we set this
objective at an annual growth rate of 15% to 17% through the year 2000. In 1998,
we raised our 1999 objective for growth in operating earnings per share to 20%
before the effect of currency translation.
If that objective is achieved, the following table shows the likely results
for operating earnings per share for the year 1999 when the estimated impact
from various foreign currency translations are included.
<TABLE>
<CAPTION>
ANNUAL
AVERAGE YEN ANNUAL OPERATING % GROWTH YEN IMPACT
EXCHANGE RATE DILUTED EPS OVER 1998 ON EPS
- --------------- ---------------- --------- ----------
<S> <C> <C> <C>
1999 @ 115.00 $2.00 28.2% $ .13
1999 @ 120.00 1.95 25.0 .08
1999 @ 125.00 1.91 22.4 .04
1999 @ 130.89* 1.87 19.9 --
1999 @ 135.00 1.84 17.9 (.03)
1999 @ 140.00 1.82 16.7 (.05)
1999 @ 145.00 1.79 14.7 (.08)
</TABLE>
- ---------------
* Actual exchange rate for the year ended December 31, 1998.
If the exchange rate as of March 31, 1999, would remain constant for the
remainder of 1999, the cumulative average rate would be approximately 119.56 and
the annual operating diluted earnings per share would approximate $1.96,
assuming our earnings objective is met.
25
<PAGE> 26
Profit Repatriation. AFLAC Japan repatriated profits to AFLAC U.S. of $154
million in 1998 and $347 million in 1997. The profit transfer in 1997 included
$125 million of a non-recurring nature. Since the first repatriation in 1989,
AFLAC Japan has repatriated $1.2 billion, which has enhanced our flexibility and
profitability. We expect to repatriate approximately 19 billion yen ($160
million using the March 31, 1999 exchange rate) from AFLAC Japan to AFLAC U.S.
in July 1999.
Share Repurchase Program. During the first quarter of 1999, we purchased
150,000 shares of our common stock. At the end of the first quarter of 1999, we
had approximately 7.2 million shares still available for purchase under current
repurchase authorizations. We have purchased 57.5 million shares (through March
31, 1999) since the inception of the share repurchase program. The difference in
percentage increases in net earnings and net earnings per share primarily
reflects the impact of the share repurchase program.
Income Taxes. Our combined U.S. and Japanese effective income tax rates on
operating earnings for the three months ended March 31, 1999 and 1998 were 36.4%
and 37.0%, respectively. Japanese income taxes on AFLAC Japan's operating
results, which were taxed at Japan's corporate income tax rate of 45.3% through
April 30, 1998, and 41.7% thereafter, accounted for most of our income tax
expense. The decline in the effective tax rate in 1999 resulted primarily from
the 1998 Japanese tax rate reduction.
Income tax expense for the first quarter of 1999 also includes
approximately $2 million of additional taxes from our recent income tax audit in
Japan. Excluding that amount the effective income tax rate on operating earnings
for the first quarter was 35.4%, the same as the rate for the full year 1998.
The 1999 reduction in the statutory tax rate in Japan, which is effective
April 1, 1999, will not significantly change our combined U.S./Japan effective
tax rate as it will largely shift income tax expense from Japan operations to
U.S. operations due to the U.S. foreign tax credit provisions. We expect our
effective income tax rate for financial statement purposes will be in the range
of 35% to 36% for the full year 1999.
Insurance Operations, AFLAC Japan
AFLAC Japan, a branch of AFLAC and the principal contributor to our
earnings, ranks number one in terms of premium income and profits among all
foreign life and non-life insurance companies operating in Japan. Among all life
insurance companies operating in Japan, AFLAC Japan ranks second in terms of
individual policies in force and 16th in assets.
26
<PAGE> 27
The following table presents a summary of AFLAC Japan's operating results.
AFLAC JAPAN
SUMMARY OF OPERATING RESULTS
<TABLE>
<CAPTION>
THREE-MONTH PERIOD
ENDED MARCH 31,
-------------------
1999 1998
------ ------
(IN MILLIONS)
<S> <C> <C>
Premium income.............................................. $1,398 $1,181
Investment income........................................... 262 226
Other income................................................ -- 1
------ ------
Total revenues.................................... 1,660 1,408
------ ------
Benefits and claims......................................... 1,196 1,029
Operating expenses.......................................... 306 254
------ ------
Total benefits and expenses....................... 1,502 1,283
------ ------
Pretax operating earnings......................... $ 158 $ 125
====== ======
Percentage changes in dollars over previous period:
Premium income............................................ 18.4% .4%
Investment income......................................... 15.8 5.1
Total revenues............................................ 17.9 1.1
Pretax operating earnings................................. 26.2 (1.5)
Percentage changes in yen over previous period:
Premium income............................................ 7.8% 6.0%
Investment income......................................... 5.5 10.9
Total revenues............................................ 7.3 6.8
Pretax operating earnings................................. 15.0 3.9
Ratios to total revenues:
Benefits and claims....................................... 72.0% 73.1%
Operating expenses........................................ 18.5 18.0
Pretax operating earnings................................. 9.5 8.9
</TABLE>
AFLAC Japan Sales. The increase in premium income in yen was due to sales
of new policies and excellent policy persistency.
AFLAC Japan's new annualized premium sales were up sharply in the quarter,
rising 22.3% to 18.8 billion yen, or $161 million. These strong sales resulted
from the popularity of our latest product offering, Rider MAX, which has
broadened the appeal of our founding product, cancer life insurance. During the
quarter, we sold nearly 282,000 of these riders and about 50% of our cancer life
sales were with Rider MAX. Rider MAX accounted for approximately 40% of sales
during the first quarter.
New sales also benefitted from the timing of sales campaigns in advance of
a scheduled mid-year premium rate increase on new policy issues. All life
insurance companies are raising premium rates in 1999 to compensate for the low
level of investment yields. We anticipate that many of our insurance agencies
will aggressively market our policies before the new rates become effective.
Therefore, sales increases will likely be greater in the first half of the year
than in the second half of the year when the new premium rates take effect.
However, our new pricing assumptions will have virtually no impact on the cost
of Rider MAX and term life plans, and the premium increases to other lines of
business will be less than in previous years. As a result, we believe that the
rate increase in July of this year should be less disruptive to our future sales
results than previous rate increases.
27
<PAGE> 28
We continue to make strides toward increasing the breadth of our
distribution system. We are adding more individual agencies to complement our
large network of corporate agencies. The individual agencies will give us better
access to Japan's substantial market of small businesses and individual
customers. During the first quarter, we recruited about 360 new agencies. Our
objective is to recruit 3,000 new agencies for the full year and we expect our
recruiting to increase in the second quarter.
Although Japan's economy remains weak, we continue to believe it is one of
the best insurance markets in the world and one of great opportunities for
growth. We have set an objective for AFLAC Japan's sales to increase
approximately 10% to 15% for the year 1999 compared with 1998.
AFLAC Japan Investments. Over the last several years, Japan's weak economy
has produced an extremely challenging investment environment. Investment yields
available to us in the first quarter improved over the fourth quarter of last
year. However, they still remain at historically depressed levels. For instance,
the yield on a composite index of 20-year Japanese government bonds averaged
2.52% during the first quarter, compared with 4.10% in the first quarter of
1995. By purchasing reverse dual-currency bonds (bonds with yen principal and a
dollar coupon), we were able to invest in yen-denominated securities at an
average yield of 4.36% during the quarter. Including dollar-denominated
investments, our blended new money yield was 4.49% for the quarter. As of April
16, we had invested or committed to invest approximately 60% of our expected
1999 cash flow at an average yield of 4.69%. Not only do these yields compare
very favorably with the yield of Japanese government bonds, they also provide a
significant spread over our reserving assumptions for new business.
At the end of the first quarter, the yield on AFLAC Japan's debt securities
portfolio was 5.22%, compared with 5.24% at the end of 1998. The return on
average invested assets, net of investment expenses, was 5.01% for the quarter,
compared with 5.30% a year ago.
Investment income in yen increased 5.5% in 1999 compared with 10.9% in
1998. This is due to the effect of translating dollar-denominated investment
income into yen. The yen/dollar exchange rate was 128.09 yen to one U.S. dollar
for the first three months of 1998 compared with 116.58 for the first three
months of 1999.
AFLAC Japan -- Other. The operating expense ratio has increased slightly
due to investments in additional marketing programs including advertising and
direct response efforts. The benefits ratio has declined due to the mix of
business shifting to newer products that have a lower loss ratio than the
traditional cancer life insurance and also due to favorable claims experience on
cancer life insurance. Pretax operating earnings in yen increased 15.0% for the
three months ended March 31, 1999. This increase was largely due to the lower
loss ratio during the quarter.
28
<PAGE> 29
Insurance Operations, AFLAC U.S.
The following table presents a summary of AFLAC U.S. operating results.
AFLAC U.S.
SUMMARY OF OPERATING RESULTS
<TABLE>
<CAPTION>
THREE-MONTH
PERIOD ENDED
MARCH 31,
---------------
1999 1998
---- ----
(IN MILLIONS)
<S> <C> <C>
Premium income.............................................. $330 $289
Investment income........................................... 58 51
Other income................................................ -- 3
---- ----
Total revenues.................................... 388 343
---- ----
Benefits and claims......................................... 205 183
Operating expenses.......................................... 120 104
---- ----
Total benefits and expenses....................... 325 287
---- ----
Pretax operating earnings......................... $ 63 $ 56
==== ====
Percentage increases over previous period:
Premium income............................................ 13.9% 12.7%
Investment income......................................... 12.8 44.1
Total revenues............................................ 13.3 17.1
Pretax operating earnings................................. 11.4 50.3
Ratios to total revenues:
Benefits and claims....................................... 52.8% 53.4%
Operating expenses........................................ 31.1 30.2
Pretax operating earnings................................. 16.1 16.4
</TABLE>
AFLAC U.S. Sales. New annualized premium sales in the United States
continued to grow at a rapid pace. New sales topped $100 million for the seventh
consecutive quarter, rising 15.8% to $125 million. Accident/disability insurance
was once again our best selling product. However, sales of our founding product,
cancer expense insurance, were extremely robust. Cancer expense sales rose 28.5%
for the quarter.
In addition to strong sales growth, we continue to see increased use of our
electronic sales system, SmartApp. In the first quarter, we processed more than
60% of our new business electronically. With savings from innovative work
processes like SmartApp, we have increased our commitment to our national
television advertising. We believe that growing name recognition through
advertising is one of the factors that has contributed to our strong sales
growth and expanding distribution system. We have set an objective for AFLAC
U.S. sales to increase by 12% to 15% for the year 1999.
AFLAC U.S. Investments. Investment income increased 12.8% in the first
three months of 1999 compared with 44.1% in the same period of 1998. The large
increase in 1998 is the result of investment income received from investment of
the proceeds from the sale of the television business in the second quarter of
1997 and from investment of profit repatriation funds of $347 million in 1997
which included $125 million of a non-recurring nature. During the first quarter
of 1999, available cash flow was invested at an average yield-to-maturity of
8.08% compared with 7.47% during the first quarter of 1998. The overall return
on average invested assets, net of investment expenses, was 7.52% for the first
three months of 1999 compared with 7.37% for the first quarter of 1998.
29
<PAGE> 30
AFLAC U.S. Other. Management expects the operating expense ratio,
including discretionary television advertising expenses, to remain approximately
level in the future. By improving administrative systems and controlling other
costs, we have been able to redirect funds to national television advertising
programs without significantly affecting the operating expense ratio.
The aggregate benefit ratio has tended to decline slightly. The mix of
business has shifted toward accident and hospital indemnity policies, which have
lower benefit ratios than other products. We expect future benefit ratios for
some of our supplemental products to increase slightly due to our ongoing
efforts to improve policy persistency and enhance policyholder benefits.
Management expects the pretax operating profit margin, which was 16.2% for the
year 1998, to remain approximately the same in 1999.
Financial Accounting Standards Board Statements
For information regarding new Statements of Financial Accounting Standards
see Note 2 of the notes to the consolidated financial statements at March 31,
1999.
YEAR ENDED DECEMBER 31, 1998 COMPARED WITH YEARS ENDED DECEMBER 31, 1997
AND DECEMBER 31, 1996.
We paid a two-for-one stock split on June 8, 1998. All share and per-share
amounts in this report have been restated for this split.
Three significant items affected our net earnings during the three-year
period ended December 31, 1998.
First, due to a corporate income tax rate reduction in Japan during 1998,
the statutory tax rate for AFLAC Japan declined from 45.3% to 41.7%. This tax
rate decline resulted in a reduction in our deferred income tax liability as of
March 31, 1998, which increased net earnings by $121 million ($.46 per basic
share and $.44 per diluted share) in 1998. For additional information on the
income tax reduction, see Note 8 of the notes to the consolidated financial
statements at December 31, 1998.
The second factor affecting net earnings was a policyholder protection fund
system mandated by the Japanese government during the first quarter of 1998. The
pretax charge for our obligation to the new protection fund was $111 million
($65 million after tax, or $.24 per both basic and diluted shares). For further
information regarding this policyholder protection fund, see Note 2 of the notes
to the consolidated financial statements at December 31, 1998.
Also affecting net earnings was the sale of our television business, which
consisted of seven network-affiliated stations. The total pretax gain from the
sale was $327 million. The sale of one station closed on December 31, 1996. The
pretax and after-tax gains recognized in 1996 on this sale were $60 million and
$48 million, respectively. The effect of the after-tax gain on 1996 basic and
diluted net earnings per share was $.17 and $.16, respectively. The pretax and
after-tax gains recognized during the second quarter of 1997 on the closing of
the six remaining stations were $267 million and $211 million, respectively. The
effect of the after-tax gain on 1997 basic and diluted net earnings per share
was $.77 and $.75, respectively. For further information, see Note 2 of the
notes to the consolidated financial statements at December 31, 1998.
30
<PAGE> 31
The results of operations by business segment for the three-year period
ended December 31, 1998, were as follows:
SUMMARY OF OPERATING RESULTS BY BUSINESS SEGMENT
<TABLE>
<CAPTION>
PERCENTAGE
CHANGE OVER YEARS ENDED
PREVIOUS YEAR DECEMBER 31,
------------- -----------------------------
1998 1997 1998 1997 1996
----- ---- ------- ------- -------
(IN MILLIONS, EXCEPT FOR PER
SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Operating earnings:
AFLAC Japan.................................... (.4)% (5.4)% $ 502 $ 504 $ 533
AFLAC U.S...................................... 24.9 43.4 230 184 129
Television operations.......................... -- 4 26
All other business segments.................... 2 (2) (8)
----- ----- -----
Total business segments................... 6.3 1.4 734 690 680
Interest expense, non-insurance operations..... 1.2 16.7 (10) (10) (13)
Corporate and eliminations..................... 23.4 4.9 (60) (77) (79)
----- ----- -----
Pretax operating earnings................. 10.1 2.6 664 603 588
Income taxes................................... 2.8 (4.9) 235 229 241
----- ----- -----
Operating earnings........................ 14.6 7.8 429 374 347
Non-operating items:
Deferred tax benefit from Japanese tax rate
reduction.................................... 121 -- --
Provision for the Japanese mandated
policyholder protection fund, net of tax..... (65) -- --
Gain on sale of television business, net of
tax.......................................... -- 211 48
Realized investment gains (losses), net of
tax.......................................... 2 -- (1)
----- ----- -----
Net earnings.............................. (16.8)% 48.3% $ 487 $ 585 $ 394
===== ==== ===== ===== =====
Operating earnings per basic share.................. 16.7% 11.3% $1.61 $1.38 $1.24
Operating earnings per diluted share................ 17.3 10.8 1.56 1.33 1.20
Net earnings per basic share........................ (14.9) 52.5 1.83 2.15 1.41
Net earnings per diluted share...................... (15.4) 52.9 1.76 2.08 1.36
</TABLE>
The following discussion of earnings comparisons focuses on pretax
operating earnings and excludes realized investment gains/losses, the charge for
the mandated policyholder protection fund, the benefit of the Japanese tax rate
reduction and the gains from the sale of the television business. Operating
earnings per share referred to in the following discussion are based on the
diluted number of average outstanding shares.
Foreign Currency Translation. Due to the relative size of AFLAC Japan,
fluctuations in the yen/dollar exchange rate can have a significant effect on
our reported results. In years when the yen weakens, translating yen into
dollars causes fewer dollars to be reported. When the yen strengthens,
translating yen into dollars causes more dollars to be reported.
Throughout 1996, 1997 and most of 1998, the yen weakened in relation to the
dollar. The average yen-to-dollar exchange rates were 130.89 in 1998, 121.07 in
1997 and 108.84 in 1996. The weakening of the yen during the three-year period
lowered operating earnings by $.05 per share in 1998 compared with 1997, $.09
per share in 1997 compared with 1996 and $.15 per share in 1996 compared with
1995. Despite the weakening of the yen, operating earnings per share increased
17.3% to $1.56 in 1998, 10.8% to $1.33 in 1997 and 2.6% to $1.20 in 1996.
31
<PAGE> 32
The following table illustrates the effect of foreign currency translation
by comparing our reported results with pro forma results as if foreign currency
rates had remained unchanged from the previous year.
SELECTED PERCENTAGE CHANGES FOR SUPPLEMENTAL CONSOLIDATED DATA*
<TABLE>
<CAPTION>
INCLUDING FOREIGN EXCLUDING FOREIGN
CURRENCY CHANGES CURRENCY CHANGES**
-------------------- --------------------
YEARS ENDED YEARS ENDED
DECEMBER 31, DECEMBER 31,
-------------------- --------------------
1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Premium income...................... 1.2% (.6)% (2.6)% 7.7% 8.5% 10.1%
Net investment income............... 5.6 5.5 (.3) 11.1 14.0 11.9
Total revenues...................... 1.7 (.7) (2.1) 8.0 8.2 10.4
Total benefits and expenses......... .9 (1.0) (2.1) 7.4 8.0 10.5
Operating earnings.................. 14.6 7.8 (.4) 18.6 15.2 11.5
Operating earnings per share........ 17.3 10.8 2.6 21.1 18.3 15.4
</TABLE>
- ---------------
* The amounts in this table are presented on an operating basis.
** Amounts excluding foreign currency changes were determined using the same
yen/dollar exchange rate for the current year as each respective prior year.
The increases in operating earnings per share reflected earnings
contributions in the functional currencies of our core insurance operations in
Japan and the United States, our share repurchase program and in 1998 lower
income tax expense due to the tax rate reduction in Japan.
Our primary financial objective is the growth of operating earnings per
share before the effect of foreign currency translations. In 1996, we set this
objective at an annual growth rate of 15% to 17% through the year 2000. In early
1998, we increased our goal for 1998 to 20% growth, which we exceeded. Excluding
the effect of currency fluctuations, operating earnings per share increased
21.1% in 1998, 18.3% in 1997 and 15.4% in 1996.
In April 1998, we raised our 1999 objective for growth in operating
earnings per share to 20% excluding the impact of currency translation. If that
objective is achieved, the following table shows the likely results for
operating earnings per share in 1999 when the impact from various foreign
currency translations is included.
<TABLE>
<CAPTION>
ANNUAL
ANNUAL AVERAGE YEN OPERATING % GROWTH YEN IMPACT
EXCHANGE RATE DILUTED EPS OVER 1998 ON EPS
- ------------------ ----------- --------- ----------
<S> <C> <C> <C>
1999 @ 115.00 $1.98 26.9% $ .11
1999 @ 120.00 1.94 24.4 .07
1999 @ 125.00 1.91 22.4 .04
1999 @ 130.89* 1.87 19.9 --
1999 @ 135.00 1.85 18.6 (.02)
1999 @ 140.00 1.82 16.7 (.05)
1999 @ 145.00 1.80 15.4 (.07)
</TABLE>
- ---------------
* Actual 1998 average exchange rate.
Profit Repatriation. Repatriated profits represent a portion of the
after-tax earnings reported to the Japanese Financial Supervisory Agency ("FSA")
as of March 31 each year. Such regulatory basis earnings are determined using
accounting principles that differ materially from U.S. generally accepted
accounting principles. The differences relate primarily to the valuation of
investments, policy benefit and claim reserves, acquisition costs and deferred
income taxes. Japanese regulatory earnings
32
<PAGE> 33
and related profit repatriations may therefore vary materially from year to year
because of these differences.
AFLAC Japan repatriated profits to AFLAC U.S. of $154 million in 1998, $347
million in 1997 and $217 million in 1996. The profit transfer in 1997 included
$125 million of a non-recurring nature. Since the first repatriation in 1989,
AFLAC Japan has repatriated $1.2 billion, which has enhanced our flexibility and
profitability. We estimate that cumulative profit transfers from 1992 through
1998 have benefited consolidated net earnings by $57 million in 1998, $41
million in 1997 and $26 million in 1996.
We expect that the 1999 profit repatriation will be approximately 20
billion yen ($171 million using the December 31, 1998 exchange rate). In 1999, a
substantial portion of profit repatriation will be used for debt service.
Share Repurchase Program. The shares purchased under the share repurchase
program were financed with bank borrowings and available cash. Interest expense
related to the share repurchase program was $10 million in 1998 and $9 million
in both 1997 and 1996. Consolidated interest expense, including interest expense
from insurance operations, was $13 million in 1998, $14 million in 1997 and $16
million in 1996.
The difference between the percentage changes in net earnings and net
earnings per share primarily reflects the impact of the share repurchase
program. As of December 31, 1998, we had approximately 7.4 million shares still
available for purchase under current repurchase authorizations from the board of
directors.
Income Taxes. Effective January 1, 1998, the Japanese government changed
the income tax provisions for foreign companies operating in Japan, increasing
income taxes on investment income and realized gains/losses from securities
issued by entities located in their home country. This change increased Japanese
income taxes on the income from most of AFLAC Japan's dollar-denominated
securities. In addition, in March 1998, the Japanese government enacted a
reduction in the Japanese corporate income tax rate. The statutory rate for
AFLAC Japan declined from 45.3% to 41.7% beginning May 1, 1998. The net effect
of these two Japanese tax changes increased income tax expense on consolidated
operating earnings by approximately $10 million for the year ended December 31,
1998 (an increase of approximately $22 million from increased taxes on AFLAC
Japan's dollar-denominated investment income, less approximately $12 million
from the benefit of the statutory tax rate reduction).
Our combined U.S. and Japanese effective income tax rates on operating
earnings were 35.4% in 1998, 37.9% in 1997 and 40.9% in 1996. Japanese income
taxes on AFLAC Japan's operating results, which were taxed at Japan's corporate
income tax rate of 45.3% through April 30, 1998, and 41.7% thereafter, accounted
for most of our income tax expense. The decline in the effective tax rates in
1998 and 1997 resulted primarily from: the weakening of the yen; increased
contributions in earnings from the U.S. business segment; and, in 1998, the
Japanese tax rate reduction less the effect of increased taxes on AFLAC Japan's
dollar-denominated investment income.
The most recent Japanese economic stimulus package announced in late 1998,
but not yet enacted, included proposals to further reduce the Japanese statutory
corporate income tax rate. Under the proposals being discussed, AFLAC Japan's
statutory income tax rate would be reduced to 36.2% effective April 1, 1999. We
expect the proposals to be finalized in early 1999. If the Japanese income tax
rate decreases, we expect our combined effective income tax rate to remain
relatively unchanged in 1999. For further information on the Japanese corporate
income tax rate, see Note 8 of the notes to the consolidated financial
statements at December 31, 1998.
33
<PAGE> 34
Insurance Operations, AFLAC Japan
AFLAC Japan is a branch of AFLAC and the principal contributor to our
earnings. AFLAC Japan ranks number one in terms of premium income and profits
among all foreign life and non-life insurance companies operating in Japan.
AFLAC Japan ranks second in terms of individual policies in force and 16th in
assets among all life insurance companies operating in Japan.
The transfer of profits from AFLAC Japan to AFLAC U.S. can distort
comparisons of operating results between years. Therefore, the following AFLAC
Japan summary of operations table presents investment income, total revenues and
pretax operating earnings calculated on a pro forma basis in order to improve
comparability between years. The pro forma adjustment represents cumulative
investment income foregone by AFLAC Japan on funds transferred to AFLAC U.S.
during 1992 through 1998.
AFLAC JAPAN
SUMMARY OF OPERATING RESULTS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1998 1997 1996
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Premium income........................................... $4,738 $4,803 $4,952
Investment income, as adjusted*.......................... 966 929 920
Other income............................................. 1 1 2
------ ------ ------
Total revenues, as adjusted*........................ 5,705 5,733 5,874
------ ------ ------
Benefits and claims...................................... 4,119 4,156 4,294
Operating expenses....................................... 1,035 1,037 1,022
------ ------ ------
Total benefits and expenses......................... 5,154 5,193 5,316
------ ------ ------
Pretax operating earnings, as adjusted*............. 551 540 558
Investment income applicable to profit repatriations..... (49) (36) (25)
------ ------ ------
Pretax operating earnings........................... $ 502 $ 504 $ 533
====== ====== ======
Percentage changes in dollars over previous year:
Premium income...................................... (1.4)% (3.0)% (4.7)%
Investment income*.................................. 4.0 .9 (2.2)
Total revenues*..................................... (.5) (2.4) (4.3)
Pretax operating earnings*.......................... 2.0 (3.2) (4.2)
Pretax operating earnings........................... (.4) (5.4) (5.1)
Percentage changes in yen over previous year:
Premium income...................................... 6.6 7.9 10.2
Investment income*.................................. 12.4 12.3 13.1
Total revenues*..................................... 7.6 8.6 10.7
Pretax operating earnings*.......................... 10.2 7.8 10.9
Pretax operating earnings........................... 7.6 5.4 9.8
Ratios to total revenues, as adjusted:*
Benefits and claims................................. 72.2 72.5 73.1
Operating expenses.................................. 18.1 18.1 17.4
Pretax operating earnings........................... 9.7 9.4 9.5
Ratio of pretax operating earnings to total reported
revenues............................................... 8.9 8.9 9.1
</TABLE>
- ---------------
* Adjusted investment income, total revenues and pretax operating earnings
include estimates of additional investment income of $49 million in 1998, $36
million in 1997 and $25 million in 1996 foregone due to profit repatriations.
Japanese Economy. Japan's economy has been weak for several years. The
economic downturn has spread to several Asian countries since mid-1997. The
financial strength of many Japanese financial institutions has deteriorated and
some have experienced bankruptcy. As we have indicated in the past, the weak
economy in Japan has resulted in a difficult marketing environment for AFLAC
Japan, declining available investment yields for new investments and decreased
consumer confidence.
34
<PAGE> 35
Although the Japanese government has developed various economic stimulus
packages, the time required for the Japanese economy to recover remains
uncertain.
AFLAC Japan Sales. AFLAC Japan produced strong sales results in 1998,
despite the weak Japanese economy. New annualized premiums from sales were: $575
million in 1998, up 11.5%; $515 million in 1997, down 28.5%; and $721 million in
1996, down 4.8%. New annualized premiums from sales in yen were: 74.9 billion
yen in 1998, up 20.1%; 62.4 billion yen in 1997, down 20.4%; and 78.4 billion
yen in 1996, up 10.0%.
AFLAC Japan's new policy sales in yen during 1998 approached their 1996
level. In 1997, new policy sales were adversely affected by a premium rate
increase that AFLAC and the insurance industry implemented in the fourth quarter
of 1996 as well as the decline of consumer confidence in the life insurance
industry following the April 1997 collapse of Nissan Mutual Life Insurance
Company.
We have taken several actions to help mitigate the impact of the weak sales
environment in Japan. Our newest product, "Rider MAX," has become one of our
most successful in a very short period of time. This product provides accident
and medical/sickness benefits as a rider to our cancer life policy. We also
introduced a new economy cancer life policy in January 1997. This plan, which
has lower premium rates and benefit levels, was developed to combat the impact
of increased premium rates for new issues. In addition, AFLAC Japan increased
the use of direct-mail marketing for its products as a supplemental distribution
method.
In 1998, we purchased a small Japanese insurance agency. Its main functions
will be policyholder-related services and direct marketing programs for AFLAC
Japan.
We continue to invest in marketing to improve sales. The incentive pay
system for AFLAC Japan's employed sales managers was revised in 1997 to better
reward them for improved sales performance. We made additional expenditures in
late 1997 and during 1998 for expanded sales promotion efforts in Japan. In
addition, we will continue our popular television advertising program. We have
also publicized our financial strength ratings in Japan and are recruiting more
individual agencies. In 1998, we recruited approximately 2,200 new agencies,
most of which are individual agencies, compared with fewer than 700 in 1997. Our
goal is to recruit 3,000 new agencies in 1999.
AFLAC Japan's sales mix is changing, although cancer life still accounts
for the majority of insurance in force. Cancer life sales accounted for 49.4% of
total new sales in yen in 1998, 52.5% in 1997 and 46.7% in 1996. We sold more
than 948,000 riders of Rider MAX in 1998, which was its first year of
availability. This product accounted for 33.2% of our sales for the year, and
39.9% of our cancer life policies were sold with Rider MAX. The rider we
introduced in the fourth quarter of 1995, living benefit life, accounted for
7.2% of total new sales in 1998, 28.3% in 1997 and 39.5% in 1996. Care product
sales represented 3.7% of total new sales in 1998, 6.8% in 1997 and 10.6% in
1996.
In September 1997, the Japanese government increased the copayments for the
employer-sponsored health care program from 10% to 20% for the primary insured,
thereby increasing the portion of the costs the insured must pay. Given the
increase in copayments, we believe our products and riders that provide
supplemental medical benefits will be especially appealing to consumers.
Our objectives for 1999 are to increase sales in yen by 10% to 15% compared
with 1998 and to improve the profit margin. We also expect revenues in yen to
increase 6% to 6.5% and our strong policy persistency to continue.
AFLAC Japan Investments. Investment income is affected by available cash
flow from operations, investment yields achievable on new investments and
foreign currency exchange rates. Investment income in dollars in 1998 and 1997
was affected by the weaker yen. Despite a general
35
<PAGE> 36
decline in available investment yields, investment income in yen increased 11.0%
in both 1998 and 1997. Funds available for investment during the three-year
period 1996 through 1998 were reduced by the annual profit repatriations
previously discussed. Rates of return on debt securities in Japan remained low
in 1998. For instance, the yield on 20-year Japanese government bonds, as
measured by a composite index, fluctuated to a low of 1.16% in October 1998 and
closed 1998 at a high of 2.97%.
AFLAC Japan's new money rates for investments in debt securities (including
dollar-denominated) were 4.19% for 1998, 5.20% for 1997 and 4.07% for 1996. The
improvement in AFLAC Japan's new money yield in 1997 resulted from restructuring
portions of the existing dollar-denominated investment portfolio and a greater
allocation of cash flow to private placement securities, which included
dual-currency securities (yen-denominated bonds with a dollar coupon) and
perpetual debentures. However, the overall rate of return (net of investment
expenses) on AFLAC Japan's average investments and cash at amortized cost has
declined. These returns, which were 5.26% in 1998, 5.37% in 1997 and 5.55% in
1996, reflect the cumulative effect of lower investment yields available in
Japan since the early 1990's.
By concentrating on selected sectors of the bond market, AFLAC Japan has
secured higher yields than 20-year Japanese government bonds would have provided
while still adhering to conservative standards for credit quality. We believe
that we can invest new money in the near term at an adequate spread over policy
premium pricing assumptions for new business and assumed interest rates for
policy liabilities. The premium rate increases recently implemented have a
positive impact on investment margins and therefore should contribute to
stability in the pretax operating profit margin.
Insurance Deregulation in Japan. In December 1996, the governments of the
United States and Japan reached an agreement on deregulation of the Japanese
insurance industry. The agreement calls for the gradual liberalization of the
industry through the year 2001 and includes provisions to avoid "radical change"
in the third sector of the insurance industry, which includes our supplemental
insurance products. AFLAC and other foreign-owned insurers, as well as some
small to medium-sized Japanese insurers, operate primarily in the third sector.
One of the measures for avoiding radical change in the third sector is the
prohibition of additional Japanese life and non-life insurance companies from
selling cancer or medical insurance until January 1, 2001. AFLAC has inherent
competitive advantages through its distribution, products, administrative
efficiency and financial soundness that should enable it to grow even in a more
competitive environment. However, the ultimate impact of deregulation isn't
known.
AFLAC Japan -- Other. The percentage increases in premium income reflect
the growth of premiums in force. The increases in annualized premiums in force
in yen of 7.2% in 1998, 5.2% in 1997 and 12.2% in 1996 reflect the high
persistency of AFLAC Japan's business and the sales of new policies. Annualized
premiums in force were: 640.8 billion yen ($5.5 billion) at December 31, 1998;
597.8 billion yen ($4.6 billion) at December 31, 1997; and 568.1 billion yen
($4.9 billion) at December 31, 1996.
The slight decline of the benefit ratio during the three-year period ended
December 31, 1998, is primarily attributable to newer products that have
somewhat lower loss ratios than the cancer life plan. Annual claims experience
and persistency studies continue to support the current reserving assumptions.
Even with Japan's depressed economic conditions, we believe the market for
supplemental insurance remains bright. The need for our products in Japan has
continued, and we remain optimistic about increasing penetration within existing
groups, selling new products, opening new accounts and developing additional
supplemental products for the Japanese market.
36
<PAGE> 37
Insurance Operations, AFLAC U.S.
AFLAC U.S. pretax operating earnings continued to benefit from additional
investment income earned on profit transfers received from AFLAC Japan.
Estimated investment income earned from profits transferred to and retained by
AFLAC U.S. from 1992 through 1998, along with estimated investment income earned
from the sales proceeds of the television business, have been reclassified in
the following presentation in order to improve comparability between years.
AFLAC U.S.
SUMMARY OF OPERATING RESULTS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1998 1997 1996
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Premium income........................................... $1,198 $1,062 $ 946
Investment income, as adjusted*.......................... 112 104 86
Other income............................................. 4 1 2
------ ------ ------
Total revenues, as adjusted*........................ 1,314 1,167 1,034
------ ------ ------
Benefits and claims...................................... 749 667 591
Operating expenses....................................... 439 392 347
------ ------ ------
Total benefits and expenses......................... 1,188 1,059 938
------ ------ ------
Pretax operating earnings, as adjusted*............. 126 108 96
Investment income applicable to profit repatriations and
proceeds from the sale of the television business...... 104 76 33
------ ------ ------
Pretax operating earnings........................... $ 230 $ 184 $ 129
====== ====== ======
Percentage increases over previous year:
Premium income...................................... 12.8% 12.2% 10.0%
Investment income*.................................. 7.8 20.3 10.2
Total revenues*..................................... 12.6 12.9 10.0
Pretax operating earnings*.......................... 16.1 13.2 15.0
Pretax operating earnings........................... 24.9 43.4 23.0
Ratios to total revenues, as adjusted:*
Benefits and claims................................. 57.0 57.1 57.1
Operating expenses.................................. 33.4 33.6 33.6
Pretax operating earnings........................... 9.6 9.3 9.3
Ratio of pretax operating earnings to total reported
revenues............................................... 16.2 14.8 12.1
</TABLE>
- ---------------
* Excludes estimated investment income of $104 million in 1998 and $76 million
in 1997 related to investment of profit repatriation funds retained by AFLAC
U.S. and investment of the proceeds from the sale of the television business,
and $33 million in 1996 related to investment of profit repatriation funds
retained by AFLAC U.S.
AFLAC U.S. Sales. The percentage increases in premium income reflect the
growth of premiums in force. The increases in annualized premiums in force of
14.6% in 1998, 14.7% in 1997 and 11.1% in 1996 were favorably affected by
increased sales at the worksite primarily through cafeteria plans (Internal
Revenue Code Section 125) and an improvement in the persistency of several
products. Annualized premiums in force were: $1.4 billion at December 31, 1998;
$1.2 billion at December 31, 1997; and $1.1 billion at December 31, 1996.
New annualized premiums from sales and policy conversions were: $482
million in 1998, up 20.3%; $401 million in 1997, up 22.7%; and $327 million in
1996, up 17.0%. Accident/disability coverage was the best-selling product for
the fifth year in a row, accounting for more than 56% of new sales in 1998, 54%
of new sales in 1997 and 48% of new sales in 1996. Cancer expense insurance
37
<PAGE> 38
accounted for more than 25% of new sales in 1998, 24% of new sales in 1997 and
27% of new sales in 1996.
AFLAC U.S. -- Other. We expect the operating expense ratio, excluding
discretionary advertising expenses, to decline in the future due to continued
improvements in operating efficiencies. State-of-the-art technology is one way
we can control expense growth, and SmartApp is a good example. SmartApp is a
laptop-based, point-of-sale system we developed in the early 1990s. Our sales
associates use this system to input customer information, capture the customer's
signature and electronically transmit the application to headquarters. In some
cases, the policy can be "jet-issued," which requires no human intervention. In
1998, we processed approximately 58% of our business with SmartApp, and about
44% of those policies were jet-issued. Our goal for 1999 is to produce 70% of
our business via SmartApp. By improving administrative systems and controlling
other costs, we have been able to redirect funds to national advertising
programs without significantly affecting the operating expense ratio.
The aggregate benefit ratio has been relatively stable. The mix of business
has shifted towards accident and hospital indemnity policies, which have lower
benefit ratios than other products. We expect future benefit ratios for some of
our supplemental products to increase slightly due to our ongoing efforts to
improve policy persistency and enhance policyholder benefits.
We expect the pretax operating profit margin to remain approximately the
same in 1999.
We continue to believe that there are significant opportunities to market
high-quality, affordable supplemental insurance products in the U.S.
marketplace.
Other Operations
Corporate operating expenses consist primarily of overhead expenses such as
salary costs, provisions for retirement and litigation expenses and professional
fees. Corporate expenses have fluctuated in recent years primarily due to
changes in the legal environment in certain states and to enhanced benefits,
early retirements and revisions in actuarial assumptions for retirement
accruals.
On December 31, 1998, we sold our insurance operation in Taiwan, resulting
in a nominal gain.
Financial Accounting Standards Board Statements
For information regarding new Statements of Financial Accounting Standards,
see Note 1 of the notes to the consolidated financial statements at December 31,
1998.
ANALYSIS OF FINANCIAL CONDITION
THREE MONTHS ENDED MARCH 31, 1999.
Since December 31, 1998, our financial condition has remained strong in the
functional currencies of our operations. The investment portfolios of AFLAC
Japan and AFLAC U.S. have continued to grow and primarily consist of investment
grade securities.
Due to the significance of yen-denominated items in the balance sheet,
changes in the yen/dollar exchange rate can have a significant effect on our
financial statements. The yen/dollar exchange rate at the end of each period is
used to translate yen-denominated balance sheet items to U.S. dollars for
reporting purposes. The exchange rate at March 31, 1999, was 120.55 yen to one
U.S. dollar, 4.0% weaker than the exchange rate of 115.70 as of December 31,
1998. Management estimates that the weaker yen rate decreased reported
investments and cash by $932 million, total assets by $1.1 billion, and total
liabilities by $1.0 billion compared with the amounts that would have been
reported for 1999 if the exchange rate had remained unchanged from year-end
1998.
38
<PAGE> 39
Investments and Cash. The continued growth in investments and cash
reflects the substantial cash flows in the functional currencies of our
operations. Net unrealized gains of $1.7 billion on investment securities at
March 31, 1999, consisted of $2.5 billion in gross unrealized gains and $818
million in gross unrealized losses.
AFLAC invests primarily within the Japanese, U.S. and Euroyen
fixed-maturity markets. We use specific criteria to judge the credit quality and
liquidity of our investments and use a variety of credit rating services to
monitor these criteria. Applying those various credit ratings to a standardized
rating system based on the categories of a nationally recognized rating service,
the percentages of our debt securities, at amortized cost, were as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
--------- ------------
<S> <C> <C>
AAA................................................ 36.3% 38.1%
AA................................................. 18.3 17.6
A.................................................. 30.8 31.2
BBB................................................ 12.8 13.1
BB................................................. 1.8 --
----- -----
100.0% 100.0%
===== =====
</TABLE>
As of December 31, 1998, we held no debt securities rated below "BBB."
However, in January 1999, the credit ratings of several major Japanese financial
institutions were downgraded. We owned debt securities issued by a major
Japanese bank in the amount of $436 million, or 1.8% of total debt securities at
March 31, 1999. Following the downgrade, these securities were rated "Ba1" by
Moody's and "BB+" by Standard & Poor's.
Private placement investments accounted for 46.5% and 43.9% of our total
debt securities as of March 31, 1999 and December 31, 1998, respectively. AFLAC
Japan has made investments in the private placement market to secure higher
yields than those available from Japanese government bonds. At the same time, we
have adhered to historically conservative standards for credit quality. We
require that all private placement issuers have an initial rating of Class 1 or
2 as determined by the Securities Valuation Office of the National Association
of Insurance Commissioners ("NAIC"). Most of AFLAC's private placement issues
are issued under medium-term note programs and have standard covenants
commensurate with credit rankings, except when internal credit analysis
indicates that additional protective and/or event-risk covenants are required.
During the fourth quarter of 1998, we revised our investment management
policy regarding the holding-period intent for certain of our private placement
debt securities. Our past practice was to hold these securities to their
contractual or economic maturity dates. We have now made this our formal policy.
Accordingly, debt securities carried at a fair value of $6.4 billion were
reclassified as of October 1, 1998, from the category "available of sale" to
"held to maturity." The related unrealized gains of $1.1 billion as of October
1, 1998, on these securities are being amortized over the remaining term of the
securities. Securities that are available for sale are reported in the balance
sheet at fair value and securities that are held to maturity are reported at
amortized cost.
39
<PAGE> 40
The following table shows an analysis of investment securities (at cost or
amortized cost):
<TABLE>
<CAPTION>
AFLAC JAPAN AFLAC U.S.
------------------------ ------------------------
MARCH 31, DECEMBER 31, MARCH 31, DECEMBER 31,
1999 1998 1999 1998
--------- ------------ --------- ------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Available for sale:
Fixed-maturity securities...................... $12,950 $12,886 $2,829 $2,772
Perpetual debentures........................... 1,710 1,344 116 111
Equity securities.............................. 28 22 74 79
------- ------- ------ ------
Total available for sale............... 14,688 14,252 3,019 2,962
------- ------- ------ ------
Held to maturity:
Fixed-maturity securities...................... 3,803 3,947 -- --
Perpetual debentures........................... 3,344 3,494 -- --
------- ------- ------ ------
Total held to maturity................. 7,147 7,441 -- --
------- ------- ------ ------
Total.................................. $21,835 $21,693 $3,019 $2,962
======= ======= ====== ======
</TABLE>
Policy Liabilities. Policy liabilities decreased $58 million, or .2%,
during the first three months of 1999. AFLAC Japan decreased $126 million, or
.6% (3.6% increase in yen), and AFLAC U.S. increased $68 million, or 3.2%.
Changes in policy liabilities were primarily due to the addition of new
business, the aging of policies in force, the weaker yen and the effect of the
market value adjustment for securities available for sale (see Note 7 of the
notes to the consolidated financial statements at March 31, 1999). The weaker
yen at March 31, 1999 compared with December 31, 1998 decreased reported policy
liabilities by $915 million.
Debt. On April 21, 1999, we issued $450 million of senior notes with a
6.50% coupon, paid semiannually, due April 15, 2009. The notes are redeemable at
our option and at any time at a redemption price equal to the principal amount
of the notes being redeemed plus a make-whole amount.
We received net proceeds of $445 million. We intend to use the proceeds
primarily to purchase shares of our common stock. Any remaining proceeds may be
used to repay indebtedness or for general corporate purposes. We intend to swap
the dollar-denominated principal and interest to be yen-denominated.
See Note 6 of the notes to the consolidated financial statements at March
31, 1999 for information on other debt outstanding at March 31, 1999.
Our ratio of debt to total capitalization (debt plus shareholders' equity,
excluding the unrealized gains on investment securities) was 18.0% and 19.6% as
of March 31, 1999 and December 31, 1998, respectively.
Security Lending. AFLAC Japan uses short-term security lending
arrangements to increase investment income with minimal risk. This program
increased AFLAC Japan's investment income by approximately $.3 million for the
three months ended March 31, 1999 and by approximately $1 million for the year
1998. For further information regarding such arrangements, see Note 8 of the
notes to the consolidated financial statements at March 31, 1999.
Policyholder Guaranty Funds. Under insurance guaranty fund laws in most
U.S. states, insurance companies doing business in those states can be assessed
for policyholder losses up to prescribed limits that are incurred by insolvent
companies with similar lines of business. Such assessments have not been
material to us in the past. We believe that future assessments relating to
companies in the U.S. currently involved in insolvency proceedings will not
materially impact the consolidated financial statements.
40
<PAGE> 41
The Life Insurance Association of Japan, an industry organization,
implemented a voluntary policyholder protection fund in 1996 to provide capital
support to insolvent life insurers. AFLAC Japan pledged investment securities to
the Life Insurance Association of Japan for this program. During the first
quarter of 1998, the Japanese government enacted a mandatory policyholder
protection fund system. The life insurance industry is making contributions to
these funds over a 10-year period. We have recorded a liability for our share of
these obligations.
Shareholders' Equity. Our insurance operations continue to provide the
primary sources of liquidity. Capital needs can also be supplemented by borrowed
funds. The principal sources of cash from insurance operations are premiums and
investment income. Primary uses of cash in the insurance operations are policy
claims, commissions, operating expenses, income taxes and payments to AFLAC
Incorporated for management fees and dividends. Both the sources and uses of
cash are reasonably predictable. Our investment objectives provide for liquidity
through the ownership of high-quality investment securities. AFLAC insurance
policies are generally not interest-sensitive and therefore are not subject to
unexpected policyholder redemptions due to investment yield changes. Also, the
majority of AFLAC policies provide indemnity benefits rather than reimbursement
for actual medical costs and therefore are not subject to the risks of medical
cost inflation.
The achievement of continued long-term growth will require growth in
AFLAC's statutory capital and surplus. We may secure additional statutory
capital through various sources, such as internally generated statutory earnings
or equity contributions by AFLAC Incorporated from funds generated through debt
or equity offerings. In April 1999 we received net proceeds of $445 million from
the issuance of $450 million of the senior notes which increased our capital
resources. We believe outside sources for additional debt and equity capital, if
needed, will continue to be available for capital expenditures, business
expansion, and the funding of our share repurchase program.
AFLAC Incorporated capital resources are largely dependent upon the ability
of AFLAC to pay management fees and dividends. The Georgia Insurance Department
imposes certain limitations and restrictions on payments of dividends,
management fees, loans and advances by AFLAC to AFLAC Incorporated. In addition
to restrictions by U.S. insurance regulators, the Japanese Financial Supervisory
Agency ("FSA") may impose restrictions on transfers of funds from AFLAC Japan.
Payments are made from AFLAC Japan to AFLAC Incorporated for management fees,
and to AFLAC U.S. for allocated expenses and remittances of earnings. Total
funds received from AFLAC Japan were $11 million in the first quarter of 1999
and $192 million and $386 million in the full years 1998 and 1997, respectively.
Profit repatriations have been remitted annually from AFLAC Japan to AFLAC U.S.
in July. The FSA maintains solvency standards, a version of risk-based capital
requirements. AFLAC Japan's solvency margin remains high and reflects a strong
capital and surplus position. For additional information on regulatory
restrictions on dividends, profit transfers and other remittances, see Note 10
of the notes to the consolidated financial statements at December 31, 1998.
Currently, prescribed or permitted statutory accounting principles ("SAP")
used by insurers for financial reporting to state insurance regulators may vary
between states and between companies. The National Association of Insurance
Commissioners ("NAIC") has recodified SAP to promote standardization throughout
the industry. These new accounting principles are presently planned by the NAIC
to be effective for 2001. The most significant change to AFLAC is the
requirement that insurance companies establish a deferred income tax liability
for statutory accounting purposes. We estimate AFLAC's deferred tax liability
would be approximately $142 million at March 31, 1999 under the provisions of
the recodified SAP. AFLAC's capital and surplus, as determined on the present
U.S. statutory accounting basis, was $1.7 billion at March 31, 1999.
41
<PAGE> 42
Year 2000. The term "year 2000 issue" generally refers to incorrect date
calculations that might occur in computer software and hardware as the year 2000
approaches. The use of computer programs that rely on two-digit date fields to
perform computations and decision-making functions may cause systems to
malfunction when processing information involving dates after 1999. For example,
any computer software that has date-sensitive coding might recognize a code of
"00" as the year 1900 rather than the year 2000.
Our efforts to address year 2000 issues began in 1997. We established a
Year 2000 Executive Steering Committee, made up of senior management and
representatives of our information technology, financial, legal, internal audit
and various operational areas to identify and address year 2000 issues
throughout our U.S. and Japanese operations. We also established a Year 2000
Project Office consisting of department coordinators from Information
Technology, Worldwide Headquarters business operations and AFLAC Japan. The
Project Office established both domestic and Japanese plans to address year 2000
readiness and minimize the risk of business disruption caused by year 2000
issues. We also engaged third party consultants to assist AFLAC U.S. and AFLAC
Japan with their year 2000 efforts.
The plans contain five phases: (1) the assessment phase, which includes
creating awareness of the issue throughout the company and assessment of all
systems, significant business processes, facilities and third party
dependencies; (2) the remediation phase, which includes updating or modifying
systems which are identified as critical to our efforts to become year 2000
ready; (3) the testing phase, which includes the testing of systems that have
been updated or modified; (4) the implementation phase, which includes placing
systems into the production environment, as well as additional comprehensive
testing to identify and resolve any remaining year 2000 issues; and (5)
contingency planning.
We have remediated substantially all of our critical production systems in
both the United States and Japan. Verification that the critical production
systems have been correctly remediated will continue through the third quarter
of 1999 in a year 2000 test environment. The additional testing may raise new
issues that require further remediation and implementation activities, all of
which are scheduled to be completed in the third quarter of 1999. Testing and
any further remediation and implementation activities required for non-critical
systems will continue through the end of 1999.
Currently, we are in the process of developing and refining contingency
plans for our business systems and processes. These plans will be periodically
updated throughout 1999 based on currently available information and the
perceived business risk.
We rely on a widely distributed customer base in the United States and
Japan for continued payment of premiums. Many of the systems utilized by our
group accounts are automated and date dependent. We randomly surveyed group
accounts in the United States to determine their year 2000 readiness. AFLAC
Japan depends heavily on substantial premium payments that are electronically
transmitted by third party payment agents from employers of the insured. We have
surveyed our more significant customers in Japan to determine whether such
customers expect their ability to pay premiums or transmit policy and claims
data in this fashion to be impacted by year 2000 issues. We will be conducting
tests with our key external customers and suppliers during the second quarter of
1999. Any adverse results from this testing will be incorporated into our
ongoing contingency planning process. If a large number of customers (in the
U.S. and/or Japan) are unable to submit premium payments in a timely or accurate
manner due to year 2000 issues, the resulting delays could have a material
adverse effect on our financial condition or results of operations. It is not
currently possible to predict the probability of any delays occurring or the
extent of such delays.
42
<PAGE> 43
AFLAC owns publicly traded and privately placed fixed-maturity and equity
securities in the U.S. and Japan, and other foreign countries. If a material
portion of such securities are adversely impacted by year 2000 issues, our
investment portfolio may also be adversely impacted.
Since the inception of the year 2000 project, we had incurred costs of
approximately $25 million for system upgrades or modifications through March 31,
1999. Of this amount, approximately $10 million was capitalized. The remaining
cost to complete the various projects is currently estimated to be $7 million,
of which $1 million is expected to be capitalized. We may determine that
additional expenditures are necessary as testing continues. Company personnel
have spent considerable time and effort on the project, and we intend to
continue to devote additional internal resources and personnel to work on the
project. However, we believe that any deferral of information technology
projects due to the year 2000 effort will not have a material adverse effect on
our operations or financial condition.
Due to the uncertainty inherent in year 2000 issues, particularly with
regard to Japanese customers' year 2000 readiness and the various governmental
functions, public utilities, financial infrastructures and similar outside
facilities on which we depend in both the United States and Japan, we are unable
to determine at this time whether the consequences of external year 2000
failures will have a material impact on our financial condition or results of
operations. Although a year 2000 failure with respect to any single internal or
external system may not have a material adverse effect on AFLAC, the failure of
multiple systems may cause a material disruption to our business which may have
a material adverse effect on our operations or financial condition.
All statements made herein regarding our year 2000 efforts are "Year 2000
Readiness Disclosures" made pursuant to the Year 2000 Information and Readiness
Disclosure Act, and to the extent applicable, are entitled to the protections of
such act.
Other. In April 1999, Standard & Poor's announced that AFLAC Incorporated
will be added to the Standard & Poor's 500 index.
On May 3, 1999, the board of directors approved an increase in the
quarterly cash dividend from $.065 to $.075 per share. The increase is effective
with the second quarter dividend, which is payable on June 1, 1999, to
shareholders of record at the close of business on May 20, 1999.
YEAR ENDED DECEMBER 31, 1998.
Balance Sheet
During the last two years, our financial condition has remained strong in
the functional currencies of our operations. The investment portfolios of AFLAC
Japan and AFLAC U.S. have continued to grow and consist of investment-grade
securities.
The yen/dollar exchange rate at the end of each period is used to translate
yen-denominated balance sheet items to U.S. dollars for reporting purposes. The
exchange rate at December 31, 1998, was 115.70 yen to one U.S. dollar, 12.4%
stronger than the December 31, 1997 exchange rate of 130.10. The stronger yen
rate increased reported investments and cash by $2.4 billion, total assets by
$2.8 billion and total liabilities by $2.7 billion compared with the amounts
that would have been reported for 1998 if the exchange rate had remained
unchanged from year-end 1997. For additional information on exchange rates, see
Note 2 of the notes to the consolidated financial statements at December 31,
1998.
Market Risks of Financial Instruments. Our financial instruments are
exposed primarily to three types of market risks: interest rate, equity price
and foreign currency exchange rate.
43
<PAGE> 44
Interest Rate Risk. Our primary interest rate exposure is a result of the
effect of changes in interest rates on the fair value of our investments in debt
securities. We use modified duration analysis, which provides a measure of price
percentage volatility, to estimate the amount of sensitivity to interest rate
changes in our debt securities. For example, if the current duration of a debt
security is five, then the market value of that security will increase by
approximately 5% if market interest rates decrease by 100 basis points.
Likewise, the value of the debt security will decrease by approximately 5% if
market interest rates increase by 100 basis points.
The estimated effect of potential increases in interest rates on the fair
values of our debt security investments and notes payable follows:
SENSITIVITY OF FAIR VALUES OF FINANCIAL INSTRUMENTS
TO INTEREST RATE CHANGES
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------------
1998 1997
----------------- -----------------
+100 +100
MARKET BASIS MARKET BASIS
VALUE POINTS VALUE POINTS
------- ------- ------- -------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Debt securities:
Fixed-maturity securities:
Yen-denominated....................... $16,748 $15,317 $14,906 $13,634
Dollar-denominated.................... 4,603 4,272 4,101 3,807
Perpetual debentures:
Yen-denominated....................... 4,250 3,816 3,286 2,943
Dollar-denominated.................... 204 192 145 136
------- ------- ------- -------
Total............................ $25,805 $23,597 $22,438 $20,520
======= ======= ======= =======
Notes payable*.................................. $ 578 $ 587 $ 505 $ 520
======= ======= ======= =======
</TABLE>
- ---------------
* Excludes capitalized leases.
Should significant amounts of unrealized losses occur because of increases
in market yields, we would not expect to realize significant losses because we
have the ability to hold such securities to maturity.
The unrealized gains and losses on debt securities, less amounts applicable
to policy liabilities and deferred income taxes, are reported in accumulated
other comprehensive income. The portion of unrealized gains credited to policy
liabilities represents gains that would not inure to the benefit of the
shareholders if such gains were actually realized. For further information, see
Note 3 of the notes to the consolidated financial statements at December 31,
1998.
44
<PAGE> 45
The following is a comparison of the actuarially assumed interest rates for
policy reserves and investment yields (after investment expenses).
COMPARISON OF INTEREST RATES FOR POLICY RESERVES
AND INVESTMENT YIELDS
(NET OF INVESTMENT EXPENSES)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------
1998 1997 1996
-------------- -------------- --------------
U.S. JAPAN* U.S. JAPAN* U.S. JAPAN*
---- ------ ---- ------ ---- ------
<S> <C> <C> <C> <C> <C> <C>
Policies issued during year:
Required interest on policy reserves... 6.81% 3.50% 6.80% 3.50% 6.81% 4.28%
New money yield on investments......... 7.62 3.76 7.53 4.29 7.31 3.83
Policies in force at end of year:
Required interest on policy reserves... 6.41 5.38 6.40 5.46 6.38 5.53
Investment yield....................... 7.44 5.17 7.61 5.34 7.31 5.58
</TABLE>
- ---------------
* Represents yen-denominated investments for Japan.
We attempt to match the duration of our assets with the duration of our
liabilities. For AFLAC Japan, the duration of policy benefit liabilities is
longer than that of the related invested assets due to the unavailability of
acceptable yen-denominated long-duration securities. At December 31, 1998, the
average duration of policy liabilities was approximately 13 years, unchanged
from 1997. The average duration of the yen-denominated debt securities was
approximately nine years in 1998 and 1997. When our debt securities mature,
there is a risk that the proceeds will be reinvested at a yield below that of
the interest required for the accretion of policy liabilities. Over the next
five years, $3.0 billion at amortized cost, or 14.8%, of AFLAC Japan's
yen-denominated debt securities are scheduled to mature.
We have outstanding interest rate swaps on 49.6 billion yen ($428 million)
of our variable-interest-rate yen-denominated bank borrowings. These swaps
reduce the impact of fluctuations in interest rates on our borrowing costs and
effectively change our interest rates from variable to fixed. Therefore,
movements in market interest rates should have no material effect on earnings.
At December 31, 1998, we also had yen-denominated bank borrowings in the
amount of 17.3 billion yen ($150 million) with a variable interest rate of .87%.
The effect on net earnings in 1998 due to changes in market interest rates was
immaterial. For further information on our notes payable, see Note 7 of the
notes to the consolidated financial statements at December 31, 1998.
45
<PAGE> 46
Equity Price Risk. Equity securities at December 31, 1998, totaled $177
million, or .7% of total investments and cash on a consolidated basis. We use
beta analysis to measure the sensitivity of our equity securities portfolio to
fluctuations in the broad market. The beta of our equity securities portfolio is
1.02. For example, if the overall stock market value changed by 10%, the value
of AFLAC's equity securities would be expected to change by approximately 10.2%,
or $18 million.
Currency Risk. Most of AFLAC Japan's investments and cash are denominated
in yen. When the yen-denominated financial instruments mature or are sold, the
proceeds are generally reinvested in yen-denominated securities and are held to
fund yen-denominated policy obligations rather than converted into dollars.
Therefore, there is no significant foreign currency transaction risk.
In addition to the yen-denominated financial instruments held by AFLAC
Japan, AFLAC Incorporated has yen-denominated borrowings that have been
designated as a hedge of our investment in AFLAC Japan. The unrealized foreign
currency translation gains and losses related to these borrowings are reported
in accumulated other comprehensive income.
We attempt to match our yen-denominated assets to our yen-denominated
liabilities on a consolidated basis in order to minimize the exposure of our
shareholders' equity to foreign currency translation fluctuations.
The following table compares the dollar values of our yen-denominated
assets and liabilities at various exchange rates.
DOLLAR VALUE OF YEN-DENOMINATED ASSETS AND LIABILITIES
AT SELECTED EXCHANGE RATES
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------------------------------------------------
1998 1997
------------------------------ ------------------------------
100.70 115.70* 130.70 115.10 130.10* 145.10
YEN YEN YEN YEN YEN YEN
-------- -------- -------- -------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Yen-denominated financial
instruments:
Assets:
Securities available for
sale:
Fixed maturities......... $ 15,001 $ 13,057 $ 11,558 $ 16,849 $ 14,906 $ 13,365
Perpetual debentures..... 1,286 1,119 991 3,712 3,286 2,945
Equity securities........ 26 23 20 9 7 7
Securities held to
maturity:
Fixed maturities......... 4,534 3,947 3,494 -- -- --
Perpetual debentures..... 4,014 3,494 3,093 -- -- --
Cash and cash
equivalents.............. 351 306 270 185 164 147
Securities held as
collateral**............. -- -- -- 3,430 3,034 2,721
Other financial
instruments.............. 12 8 8 10 8 8
-------- -------- -------- -------- -------- --------
Total................. 25,224 21,954 19,434 24,195 21,405 19,193
-------- -------- -------- -------- -------- --------
Liabilities:
Payables for return of
collateral**............. -- -- -- 3,430 3,034 2,721
Notes payable.............. 664 578 511 563 498 447
-------- -------- -------- -------- -------- --------
Total................. 664 578 511 3,993 3,532 3,168
-------- -------- -------- -------- -------- --------
Net yen-denominated financial
instruments................... 24,560 21,376 18,923 20,202 17,873 16,025
Other yen-denominated assets.... 3,600 3,133 2,774 2,964 2,622 2,351
Other yen-denominated
liabilities................... (27,767) (24,167) (21,395) (22,614) (20,007) (17,938)
-------- -------- -------- -------- -------- --------
Total yen-denominated
net assets subject
to foreign currency
fluctuation......... $ 393 $ 342 $ 302 $ 552 $ 488 $ 438
======== ======== ======== ======== ======== ========
</TABLE>
- ---------------
* Actual year-end rate.
** Off-balance sheet financial instruments in 1998.
46
<PAGE> 47
For information regarding the effect of foreign currency translation on
operating earnings per share, see "-- Results of Operations" and Note 2 of the
notes to the consolidated financial statements at December 31, 1998.
Investments and Cash. The continued growth in investments and cash
reflects substantial cash flows from operations. Net unrealized gains of $1.3
billion on investment securities at December 31, 1998, consisted of $2.4 billion
in gross unrealized gains and $1.1 billion in gross unrealized losses.
AFLAC invests primarily within the Japanese, U.S. and Euroyen
fixed-maturity markets. We use specific criteria to judge the credit quality and
liquidity of our investments and use a variety of credit rating services to
monitor these criteria. Applying those various credit ratings to a standardized
rating system based on the categories of a nationally recognized rating service,
the percentages of our debt securities, at amortized cost, were as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------
1998 1997
----- -----
<S> <C> <C>
AAA................................................ 38.1% 44.9%
AA................................................. 17.6 18.1
A.................................................. 31.2 29.7
BBB................................................ 13.1 7.3
----- -----
100.0% 100.0%
===== =====
</TABLE>
As of December 31, 1998, we held no debt securities rated below "BBB."
However, in January 1999, the credit ratings of several major Japanese financial
institutions were downgraded. We owned debt securities issued by a Japanese bank
in the amount of $454 million, or 1.8% of total debt securities at December 31,
1998. Following the downgrade, these securities were rated "Ba1" by Moody's
Investors Services, Inc. and "BB+" by Standard & Poor's Ratings Services.
Private placement investments accounted for 43.9% and 36.3% of our total
debt securities as of December 31, 1998 and 1997, respectively. AFLAC Japan has
made investments in the private placement market to secure higher yields than
those available from Japanese government bonds. At the same time, we have
adhered to historically conservative standards for credit quality. We require
that all private placement issuers have an initial rating of Class 1 or 2 as
determined by the Securities Valuation Office of the National Association of
Insurance Commissioners ("NAIC"). Most of AFLAC's private placement issues are
issued under medium-term note programs and have standard covenants commensurate
with credit rankings, except when internal credit analysis indicates that
additional protective and/or event-risk covenants are required.
During the fourth quarter of 1998, we revised our investment management
policy regarding the holding-period intent for certain of our private placement
debt securities. Our past practice was to hold these securities to their
contractual or economic maturity dates. We have now made this our formal policy.
Accordingly, debt securities carried at a fair value of $6.4 billion were
reclassified as of October 1, 1998, from the category "available for sale" to
"held to maturity." The related unrealized gain of $1.1 billion as of October 1,
1998 on these securities is being amortized over the remaining term of the
securities. Securities that are available for sale are reported in the balance
sheet at fair value and securities that are held to maturity are reported at
amortized cost.
47
<PAGE> 48
The following table shows an analysis of investment securities (at cost or
amortized cost):
<TABLE>
<CAPTION>
AFLAC JAPAN AFLAC U.S.
----------------- ---------------
AT DECEMBER 31, AT DECEMBER 31,
----------------- ---------------
1998 1997 1998 1997
------- ------- ------ ------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Available for sale:
Fixed-maturity securities.................... $12,886 $13,527 $2,772 $2,546
Perpetual debentures......................... 1,344 3,011 111 37
Equity securities............................ 22 7 79 73
------- ------- ------ ------
Total available for sale................ 14,252 16,545 2,962 2,656
------- ------- ------ ------
Held to maturity:
Fixed-maturity securities.................... 3,947 -- -- --
Perpetual debentures......................... 3,494 -- -- --
------- ------- ------ ------
Total held to maturity.................. 7,441 -- -- --
------- ------- ------ ------
Total.............................. $21,693 $16,545 $2,962 $2,656
======= ======= ====== ======
</TABLE>
Mortgage loans on real estate and other long-term investments remained
immaterial at both December 31, 1998 and 1997. Cash, cash equivalents and
short-term investments totaled $384 million, or 1.4% of total investments and
cash, as of December 31, 1998, compared with $279 million, or 1.2% of total
investments and cash, at December 31, 1997.
For additional information concerning investments and fair values, see
Notes 3 and 4 of the notes to the consolidated financial statements at December
31, 1998.
Policy Liabilities. Policy liabilities increased $4.1 billion, or 20.9%,
during 1998. AFLAC Japan policy liabilities increased $4.0 billion, or 22.2%,
and AFLAC U.S. policy liabilities increased $205 million, or 10.9%. Changes in
policy liabilities were primarily due to the addition of new business, the aging
of policies in force, the stronger yen and the effect of the market value
adjustment for securities available for sale (see Note 3 of the notes to the
consolidated financial statements at December 31, 1998). The stronger yen at
year-end 1998 compared with 1997 increased reported policy liabilities by $2.4
billion. The weaker yen at year-end 1997 compared with 1996 decreased reported
policy liabilities by $2.2 billion in 1997.
Debt. AFLAC Incorporated has an unsecured reducing revolving credit
agreement that provides for bank borrowings through July 2001 in either U.S.
dollars or Japanese yen. At December 31, 1998, 38.1 billion yen ($329 million)
were outstanding under this agreement.
AFLAC Incorporated also has an unsecured revolving credit agreement that
provides for bank borrowings through November 2002 in either U.S. dollars or
Japanese yen. At December 31, 1998, 28.8 billion yen ($249 million) were
outstanding.
The proceeds from these loans were used to fund our share repurchase
program. When any portion of these loans is denominated in yen, the principal
amounts of the loans in dollars will fluctuate due to changes in the yen/dollar
exchange rate.
We have entered into interest rate swaps that effectively change the
interest rates on a portion of these loans from variable to fixed. The variable
rate on the 34.1 billion yen ($294 million) loan is .95%, and the fixed rate is
2.29% after the effect of the swaps (including loan costs of 25 basis points).
The variable rate on the 15.5 billion yen ($134 million) loan is .90%, and the
fixed rate is 1.24% after the effect of the swaps (including loan costs of 20
basis points). We make interest payments to the bank based on variable interest
rates, and we either pay to or receive from the swap
48
<PAGE> 49
counterparty an amount necessary to equal the fixed rate. The variable interest
rate at December 31, 1998, was based on the three-month Tokyo Interbank Offered
Rate of .75%, plus loan costs.
We have designated these yen-denominated borrowings as a hedge of our net
investment in AFLAC Japan. Foreign currency translation gains/losses on the
borrowings are included in accumulated other comprehensive income. Outstanding
principal and related accrued interest payable on the yen-denominated borrowings
are translated into dollars at end-of-period exchange rates.
Our ratio of debt to total capitalization (debt plus shareholders' equity,
excluding the net unrealized gains on investment securities) was 19.6% as of
December 31, 1998 and 1997. For further information concerning notes payable,
see Note 7 of the notes to the consolidated financial statements at December 31,
1998.
Security Lending. AFLAC Japan uses short-term security lending
arrangements to increase investment income with minimal risk. This program
increased AFLAC Japan's investment income by approximately $1 million in both
1998 and 1997. For further information regarding such arrangements, see Note 4
of the notes to the consolidated financial statements at December 31, 1998.
Policyholder Guaranty Funds. Under insurance guaranty fund laws in most
U.S. states, insurance companies doing business in those states can be assessed
for policyholder losses up to prescribed limits that are incurred by insolvent
companies with similar lines of business. Such assessments have not been
material to us in the past. We believe that future assessments relating to
companies in the United States currently involved in insolvency proceedings will
not materially impact the consolidated financial statements.
The Life Insurance Association of Japan, an industry organization,
implemented a policyholder protection fund in 1996 to provide capital support to
insolvent life insurers. AFLAC Japan pledged investment securities to the Life
Insurance Association of Japan under this program. During the first quarter of
1998, the Japanese government enacted a mandatory policyholder protection fund
system. The life insurance industry will contribute $6.0 billion over a 10-year
period for these two funds. We have recorded a liability for our share of these
obligations. See Note 2 of the notes to the consolidated financial statements at
December 31, 1998.
Shareholders' Equity. Our insurance operations continue to provide the
primary sources of liquidity. Capital needs can also be supplemented by borrowed
funds. The principal sources of cash from insurance operations are premiums and
investment income. Primary uses of cash in the insurance operations are policy
claims, commissions, operating expenses, income taxes and payments to AFLAC
Incorporated for management fees and dividends. Both the sources and uses of
cash are reasonably predictable. Our investment objectives provide for liquidity
through the ownership of high-quality investment securities. AFLAC insurance
policies are generally not interest-sensitive and therefore are not subject to
unexpected policyholder redemptions due to investment yield changes. Also, the
majority of our policies provide indemnity benefits rather than reimbursement
for actual medical costs and thus are not subject to the risks of medical-cost
inflation.
The achievement of continued long-term growth will require growth in
AFLAC's statutory capital and surplus. We may secure additional statutory
capital through various sources, such as internally-generated statutory earnings
or equity contributions by AFLAC Incorporated from funds generated through debt
or equity offerings. The disposition of the television business increased our
capital resources. We believe outside sources for additional debt and equity
capital, if needed, will continue to be available for capital expenditures,
business expansion and the funding of our share repurchase program.
49
<PAGE> 50
AFLAC Incorporated's capital resources are largely dependent upon the
ability of AFLAC to pay management fees and dividends. The Georgia Insurance
Department imposes certain limitations and restrictions on payments of
dividends, management fees, loans and advances by AFLAC to AFLAC Incorporated.
The Georgia Insurance Statutes require prior approval for dividend distributions
that exceed the greater of the statutory net gain from operations for the
previous year or 10% of statutory capital and surplus as of the previous
year-end. In addition, the Georgia Insurance Department must approve service
arrangements and other transactions within the affiliated group. These
regulatory limitations are not expected to affect the level of management fees
or dividends paid by AFLAC to AFLAC Incorporated. A life insurance company's
statutory capital and surplus is computed according to rules prescribed by the
NAIC, as modified by the insurance company's state of domicile. Statutory
accounting rules are different from generally accepted accounting principles and
are intended to emphasize policyholder protection and company solvency.
Currently, prescribed or permitted statutory accounting principles ("SAP")
used by insurers for financial reporting to state insurance regulators may vary
between states and between companies. The NAIC has recodified SAP to promote
standardization throughout the industry. These new accounting principles are
presently planned by the NAIC to be effective for 2001. The most significant
change to AFLAC is the requirement that insurance companies establish a deferred
income tax liability for statutory accounting purposes. We estimate AFLAC's
deferred tax liability would be approximately $165 million at December 31, 1998,
under the provisions of the recodified SAP. AFLAC's capital and surplus, as
determined on the present U.S. statutory accounting basis, was $1.6 billion at
December 31, 1998.
The NAIC uses a risk-based capital formula relating to insurance risk,
business risk, asset risk and interest rate risk to facilitate identification by
insurance regulators of inadequately capitalized insurance companies based upon
the types and mixtures of risks inherent in the insurer's operations. AFLAC's
NAIC risk-based capital ratio remains high and reflects a very strong capital
and surplus position. Also, there are various ongoing regulatory initiatives by
the NAIC relating to investments, reinsurance, limited-benefit insurance
policies, revisions to the risk-based capital formula and other related matters.
In addition to restrictions by U.S. insurance regulators, the Japanese FSA
may impose restrictions on transfers of funds from AFLAC Japan. Payments are
made from AFLAC Japan to AFLAC Incorporated for management fees and to AFLAC
U.S. for allocated expenses and remittances of earnings. Total funds received
from AFLAC Japan were $192 million in 1998, $386 million in 1997 and $254
million in 1996. The FSA may not allow transfers of funds if the payment would
cause AFLAC Japan to lack sufficient financial strength for the protection of
policyholders. The FSA maintains solvency standards, a version of risk-based
capital requirements. AFLAC Japan's solvency margin remains high and reflects a
strong capital and surplus position. For additional information on regulatory
restrictions on dividends, profit transfers and other remittances, see Note 10
of the notes to the consolidated financial statements at December 31, 1998.
Rating Agencies. AFLAC is rated "AA" by Standard & Poor's Ratings Services
and "Aa3" by Moody's Investors Service, Inc. for financial strength. Duff &
Phelps Credit Rating Co. rates AFLAC "AA" in claims-paying ability. A.M. Best,
an independent rating service that analyzes the financial condition and
operating performance of insurance companies, gives AFLAC an "A+" or superior
rating.
Other. For information regarding pending litigation, see Note 12 of the
notes to the consolidated financial statements at December 31, 1998.
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Cash Flow
Operating cash flows for AFLAC Japan are translated using average monthly
exchange rates for the year. In years when the yen weakens, translating yen into
dollars causes fewer dollars to be reported. When the yen strengthens,
translating yen into dollars causes more dollars to be reported.
For additional information, see the Consolidated Statements of Cash Flows
on page F-16.
Operating Activities. In 1998, consolidated cash flow from operations
decreased 4.2% to $2.5 billion, compared with $2.6 billion in 1997 and $2.7
billion in 1996. Net cash flow from operations for AFLAC Japan decreased 5.8%
(increased .3% in yen) to $2.2 billion in 1998, compared with $2.3 billion in
1997 and $2.5 billion in 1996. AFLAC Japan represented 89% of the consolidated
net cash flow from operations in 1998 and 91% in both 1997 and 1996. The
decrease in cash flow from operations in 1998 and 1997 was due to the weaker
yen.
Investing Activities. Consolidated cash flow used by investing activities
decreased 7.8% to $2.2 billion in 1998, compared with $2.4 billion in 1997 and
$2.5 billion in 1996. The sale of the television business generated cash flow of
$351 million in 1997 and $99 million in 1996. AFLAC Japan accounted for 86% of
the consolidated net cash used by investing activities in 1998, compared with
81% in 1997 and 93% in 1996.
Operating cash flow is primarily used to purchase debt securities. When
market opportunities arise, we dispose of selected debt securities available for
sale to improve future investment yields or lengthen maturities. Therefore,
dispositions before maturity can vary significantly from year to year.
Dispositions before maturity ranged between 4% and 9% of the annual average
investment portfolio of debt securities available for sale during the three
years ended December 31, 1998.
Financing Activities. In 1998, net cash used by financing activities was
$141 million, compared with $121 million in 1997 and $157 million in 1996.
Treasury stock purchases of $125 million in 1998 and $314 million in 1997 were
funded by proceeds from new borrowings. In 1996, treasury stock purchases of
$204 million were funded by proceeds from new borrowings of $136 million and
available cash. Debt repayments of $108 million in 1998, $55 million in 1997 and
$36 million in 1996 on yen-denominated loans were made from annual profit
repatriations from Japan. In addition to issuing treasury shares for AFLAC Japan
stock options, we have sold treasury shares to our dividend reinvestment plan
and to the AFLAC Associate Stock Bonus Plan. These dispositions generated
proceeds in the amounts of $44 million, $40 million and $35 million for the
years 1998, 1997 and 1996, respectively. Cash dividends paid to shareholders
amounted to $67 million in 1998, an increase of 10.7% over 1997. Cash dividends
paid to shareholders in 1997 were $61 million, an increase of 11.7% over the
1996 cash dividends of $54 million. The 1998 cash dividend of $.253 per share
increased 12.9% over 1997. The 1997 cash dividend of $.224 per share represented
an increase of 15.5% over the 1996 cash dividend of $.194 per share.
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BUSINESS
THE COMPANY
AFLAC U.S. is a leading provider of supplemental insurance at the worksite
and a top seller of accident insurance in the United States. AFLAC Japan is the
largest foreign insurer in Japan in terms of premium and profits and the second
largest life insurer in terms of policies in force.
We were incorporated in 1973 under the laws of the State of Georgia. We are
a general business holding company and act as a management company overseeing
the operations of our subsidiaries by providing management services and making
capital available. Our supplemental health insurance business is marketed and
administered primarily through AFLAC. Most of our policies are individually
underwritten and marketed at the worksite, with premiums paid by the employee.
Our products are designed for people who already have major medical or
other primary insurance coverage and are intended to cover medical and
nonmedical costs that are not reimbursed by other forms of health insurance
coverage. We pay benefits regardless of reimbursements from other insurers. In
recent years, we have diversified our product offerings to include other types
of supplemental health products in both the United States and Japan. We
guarantee that our supplemental health insurance plans will be renewable for the
lifetime of the policyholder. We cannot cancel guaranteed-renewable coverage.
However, we can increase premium rates on existing and future policies in the
United States by class of policy if we experience claims higher than originally
expected (subject to federal and state loss-ratio guidelines) on a uniform,
nondiscriminatory basis. All premium rate increases are subject to state
regulatory approval.
PRODUCTS
Our insurance products can be classified into three general
groups -- cancer insurance, accident and disability insurance and other
supplemental health insurance.
Cancer Insurance. We currently offer a series of three different cancer
plans in the United States that vary by benefit amount. All three plans provide
a first occurrence benefit that pays an initial amount when internal cancer is
first diagnosed, a fixed amount for each day an insured is hospitalized for
cancer treatment, and benefits for medical, radiation, chemotherapy and surgery
and a "wellness" benefit applicable toward certain diagnostic tests such as
mammograms, pap smears, prostate exams and flexible sigmoidoscopy. These plans
also contain benefits that reimburse the insured for nursing services, home
health care, extended care facilities, hospice, second surgical opinion,
experimental treatment, evaluation/consultation from the National Cancer
Institute, bone marrow and stem cell transplant, family lodging, ambulance,
transportation, anesthesia, prosthesis, blood and plasma expenses related to
cancer treatments. We also issue several riders, including one that increases
the amount of the first occurrence benefit on each anniversary date until the
covered person reaches age 65 or until internal cancer is diagnosed. AFLAC
periodically introduces new forms of coverage, revising benefits and related
premiums based upon the anticipated needs of our policyholders and our claim
experience.
AFLAC Japan offers cancer life insurance plans with a fixed daily indemnity
benefit for hospitalization and outpatient services related to cancer and a
lump-sum benefit upon initial diagnosis of internal cancer. The plans differ
from the AFLAC U.S. cancer plans because Japanese policies also provide death
benefits and cash surrender values. We estimate that approximately 32% of
premiums earned from all cancer life plans are associated with these benefits.
In January 1997, AFLAC Japan introduced a new economy cancer life policy with
lower premium rates and benefit levels. This plan was developed to mitigate the
effect of premium rate increases due to low investment yields available in
Japan. Moreover, in December 1997, AFLAC Japan received approval from Japanese
regulators to sell three new riders to our popular cancer life policy. The
riders add
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cancer surgical benefits, supplemental accident coverage and supplemental
medical benefits for general hospitalization. AFLAC Japan has combined the
accident and supplemental medical benefits riders into a new product
offering -- Rider MAX. Rider MAX has become one of our most successful new
products in a short period of time and accounted for 33% of 1998 new premium
sales.
Accident and Disability Insurance. We also offer in the United States an
accident and disability policy to protect against losses resulting from
accidents. The accident portion of the policy includes lump-sum benefits for
accidental death, dismemberment and specific injuries. We also provide fixed
benefits for hospital confinement, emergency treatment, follow-up treatments,
ambulance, transportation, family lodging, wellness, prosthesis, medical
appliances and physical therapy. Optional disability riders are available to the
primary insured and include choices of a sickness disability rider, on-the-job
disability rider and off-the-job disability rider. We pay these benefits up to a
maximum benefit period of one year and for one disability at a time.
Other Supplemental Health Insurance. We also issue other supplemental
health insurance in the United States, such as intensive care, which is a
low-premium policy that provides protection against the high cost of intensive
care facilities during hospital confinement, regardless of reimbursements from
other insurers. In addition, we issue qualified and non-qualified long-term care
plans, short-term disability and a hospital confinement indemnity policy. AFLAC
Japan also sells care plans, supplemental general medical expense plans and a
living benefit life plan. Care insurance provides periodic benefits to those who
become bedridden, demented or seriously disabled due to illness or accident.
AFLAC Japan's medical expense plans are similar to hospital indemnity insurance
products in the United States and provide cash benefits to policyholders when
they are hospitalized. Our policy offers a maximum hospitalization benefit of
1,000 days which, as of the date of the issuance of the old notes was the
longest period offered in the industry. AFLAC's living benefit life plan
provides lump-sum benefits when policyholders experience a heart attack, cancer
or a stroke. We are offering this product in two forms -- as a stand-alone
policy or as a rider to the cancer life plan. The rider adds heart attack and
stroke benefits to the cancer life policy.
MARKETING AND DISTRIBUTION
Our United States sales force is comprised of independent sales agents who
are licensed to sell accident and health insurance. Many are also licensed to
sell life insurance. Most agents' efforts are directed toward selling
supplemental health insurance at the worksite. Agents' activities are
principally limited to sales. We pay commissions on first-year and renewal
premiums from the agents' sales of health and life insurance products. The
state, regional and district sales coordinators, who are also independent
contractors, are compensated by override commissions.
The corresponding primary sales force in Japan are affiliated "corporate
agencies" formed when companies establish subsidiary businesses to sell our
products to their employees, suppliers and customers. These agencies help us
reach the employees of almost all of Japan's large corporations. We have no
significant ownership interest in these corporate agencies. Our products also
are sold through independent corporate agencies and individual agencies that are
not affiliated with large companies. Agents' activities are principally limited
to insurance sales, with policyholder service functions handled by the main
office in Tokyo and 60 offices located throughout Japan.
In the United States and Japan, we focus our marketing efforts at the
worksite. Consequently, we offer policies through common media such as
employment, trade and other associations. This marketing strategy is distinct
from "group" insurance sales in that each insured is contacted directly by the
sales associate. Policies are individually underwritten and premiums are
generally paid by the employee. Additionally, AFLAC's supplemental policies are
portable because individuals may retain their full insurance coverage upon
separation from employment or such affiliation, generally at the same premium.
Marketing at the worksite not only enables our agents to reach a greater number
of
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prospective policyholders than through individual solicitation, but also lowers
distribution costs. In 1997, the Japanese government increased copayments for
the employer-sponsored health care program from 10% to 20% for the primary
insured, thereby increasing the portion of the costs the insured must pay. Given
the increase in copayments, we believe AFLAC's products and riders that provide
supplemental medical benefits will be especially appealing to consumers.
OTHER
We are authorized to conduct insurance business in all 50 states, the
District of Columbia and several United States territories and foreign
countries. Our only significant foreign operation is AFLAC Japan, which
accounted for 80%, 79% and 82% of our total revenues for 1998, 1997 and 1996,
respectively, and 86% and 87% of total assets at December 31, 1998 and 1997,
respectively. Insurance premiums and investment income from insurance operations
constitute our major source of revenues. Our consolidated premium income was
$5.9 billion for each of the years in the three-year period ended December 31,
1998.
We invest in the international financial markets with emphasis on United
States dollar- and Japanese yen-denominated securities. We maintain a strong
portfolio by investing in investment grade securities that provide a predictable
source of investment income. Debt securities represented 96.7% of AFLAC U.S.'s
total investments and cash (at amortized cost) at the end of 1998. AFLAC Japan
invested 91% of its funds available for investment in 1998 in yen-denominated
debt securities at an average yield of 3.84%.
We require that all private placement issuers have an initial rating of
class 1 or 2 as determined by the Securities Valuation Office of the National
Association of Insurance Commissioners. Most of our private placement issues are
issued under medium-term note programs and have standard covenants commensurate
with credit rankings, except when internal credit analysis indicates that
additional protective and/or event risk covenants are required.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
The following summary highlights selected information from our outstanding
credit agreements and is qualified in its entirety by reference to such
agreements, each of which is available from us upon request. Capitalized terms
used in this section but not defined have the meanings specified in the
respective agreements.
REDUCING REVOLVING CREDIT AGREEMENT
We entered into a Reducing Revolving Credit Agreement, dated as of January
31, 1996, among us, The Dai-Ichi Kangyo Bank, Limited, as Agent, and other
commercial lending institutions (the "Reducing Revolving Credit Agreement"),
which provides us with an unsecured reducing revolving credit facility (the
"Reducing Revolving Credit Facility"). Under this agreement and subject to
certain conditions:
(1) We may borrow up to $500 million in either United States dollars or
Japanese yen with this amount reducing over time (the "Reducing
Commitment"). The current Reducing Commitment is $325 million.
(2) The Reducing Commitment will be reduced each year on July 15th as
follows:
- 1999, reduced to $250 million;
- 2000, reduced to $125 million; and
- 2001, reduced to $0 when the Reducing Revolving Credit Agreement
terminates in 2001, unless extended.
(3) We must pay any principal amounts outstanding in excess of the Reducing
Commitment on each reduction date.
(4) All amounts drawn under the Reducing Revolving Credit Facility will
bear interest at our option at either the:
- Base Rate, which equals the greater of (A) the Prime Rate or (B) the
Federal Funds Rate plus two percent;
- Euroyen Rate, which equals the Tokyo Inter-Bank Offered ("TIBO") Rate
plus .25%; or
- Eurodollar Rate, which equals the London Inter-Bank Offered ("LIBO")
Rate plus .25%.
Moreover, if at four days prior to the last day of the Interest Period of
every maturing Advance or on the date of a request for any new Advance the sum
of the Dollar Loan plus the Dollar Equivalent of the Yen Loan exceeds the
Reducing Commitment, we are required to repay a portion of the Loan in an amount
sufficient to cause the sum of the Dollar Loan plus the Dollar Equivalent of the
Yen Loan to equal the Reducing Commitment.
REVOLVING CREDIT AGREEMENT
We also entered into a Revolving Credit Agreement, dated as of October 31,
1997, among us, The Dai-Ichi Kangyo Bank, Limited, as Agent, The Bank of
Tokyo-Mitsubishi, Ltd., as Co-Agent, and other commercial lending institutions
(the "Revolving Credit Agreement"), which provides us with an unsecured
revolving credit facility (the "Revolving Credit Facility"). Under this
agreement and subject to certain conditions:
(1) We may borrow up to $250 million in either U.S. dollars or Japanese yen
(the "$250 Million Commitment").
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(2) The Revolving Credit Facility terminates on the earlier of November 3,
2002, or at such time as the $250 Million Commitment is terminated or
reduced to $0 pursuant to its terms.
(3) We are obligated to pay a facility fee of .065% on the $250 Million
Commitment.
(4) All amounts drawn under the Revolving Credit Facility will bear
interest at our option at either the:
- Base Rate, which equals the greater of (A) the Prime Rate or (B) the
Federal Funds Rate plus two percent;
- Euroyen Rate, which equals the TIBO Rate plus .135%; or
- Eurodollar Rate, which equals the LIBO Rate plus .135%.
Moreover, if at four days prior to the last day of the Interest Period of
every maturing Advance or on the date of a request for any new Advance the sum
of the Dollar Loan plus the Dollar Equivalent of the Yen Loan exceeds the $250
Million Commitment, we are required to repay a portion of the Loan in an amount
sufficient to cause the sum of the Dollar Loan plus the Dollar Equivalent of the
Yen Loan to equal the $250 Million Commitment.
COVENANTS AND FINANCIAL REQUIREMENTS FOR THE CREDIT AGREEMENTS
Both the Reducing Revolving Credit Agreement and the Revolving Credit
Agreement (together, the "Credit Agreements") contain negative covenants
limiting, among other things, our ability to:
(1) incur debt;
(2) create liens;
(3) sell substantially all of our assets;
(4) engage in mergers and acquisitions; and
(5) assume or make guarantees.
The Credit Agreements also contain affirmative covenants requiring us to:
(1) comply with laws;
(2) maintain our corporate existence;
(3) pay taxes;
(4) perform other material obligations; and
(5) deliver financial and other information to the respective banks.
The Credit Agreements require us to comply with certain financial tests and
to maintain certain financial ratios on a consolidated basis including:
(1) maintaining a consolidated net worth of not less than $1 billion,
excluding the effect of Statement of Financial Accounting Standards
Board Statement No. 115; and
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(2) on the last day of each calendar quarter, maintaining a ratio of not
less than 2.00 to 1.00 of:
- our consolidated earnings before interest and taxes, plus the current
portion of our consolidated long-term debt repaid, excluding voluntary
prepayments, for the immediately preceding four calendar quarters to
- our consolidated interest expense, plus the current portion of our
consolidated long-term debt repaid, excluding voluntary prepayments,
for the immediately preceding four calendar quarters.
Certain Definitions used above are:
- "consolidated earnings before interest and taxes" which includes any
consolidated earnings before interest and taxes during such fiscal
period of any person (an "acquired person") that became a subsidiary
of ours during such period or was merged into or consolidated with us
or any subsidiary or where such person's assets were acquired during
such period;
- "consolidated interest expense" which includes any consolidated
interest expense during such fiscal period for such acquired person;
and
- "long-term debt repaid" which includes repayments of long-term debt by
such acquired person during such period, excluding voluntary
prepayments which includes prepayments required by the acquisition of
such acquired person by us or any subsidiary.
EVENTS OF DEFAULT UNDER THE CREDIT AGREEMENTS
Our Credit Agreements contain customary default provisions, which include,
but are not limited to:
(1) failure to satisfy any of the financial covenants discussed above;
(2) cross-default to other indebtedness;
(3) material undischarged judgments; and
(4) bankruptcy.
Upon default or upon a "change of control," we are required to prepay
immediately all advances and all accrued interest. A "change of control" occurs
when:
(1) a person or group acquires beneficial ownership representing 51% or
more of our combined voting power for all securities entitled to
vote; and
(2) within 12 months thereafter, a majority of our Board of Directors
were not either:
(A) directors as of the date of such acquisition,
(B) selected to become directors by the Board of which a majority
consisted of individuals described in (A), or
(C) selected to become directors by the Board of which a majority
consisted of individuals described in (A) or (B).
OUTSTANDING BALANCES
At March 31, 1999, 37.9 billion yen ($314 million) was outstanding under
the Reducing Revolving Credit Agreement and 29.0 billion yen ($241 million) was
outstanding under the Revolving Credit Agreement.
We also have outstanding interest rate swaps on a portion of our
variable-interest-rate yen-denominated borrowings (49.6 billion yen or $411
million at March 31, 1999). These swaps reduce the impact of changes in interest
rates on our borrowing costs and effectively change our interest rate from
variable to fixed. The interest rate swaps have notional principal amounts that
equal the
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anticipated unpaid principal amounts. Under these agreements, we make fixed-rate
payments at 2.29% on one loan and 1.24% on another loan and receive
floating-rate payments (.19% at March 31, 1999 plus loan costs of 25 or 20 basis
points, respectively) based on the three-month TIBO Rate.
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DESCRIPTION OF THE SENIOR NOTES
We issued the old notes, and will issue the new notes, under an indenture,
dated April 21, 1999, between us and The Bank of New York, as trustee. Upon the
issuance of the new notes, the indenture will be subject to and governed by the
Trust Indenture Act of 1939. We have summarized portions of the indenture below.
You should read the entire indenture for provisions that are important to you.
We have filed a copy of the indenture as an exhibit to the registration
statement, which includes this prospectus. The indenture and not this summary
defines your rights as holders of the senior notes. Capitalized terms used in
this summary have the meanings specified in the indenture. You can find the
definitions for certain terms used in this summary under the subheading
"-- Definitions."
GENERAL
The old notes were, and the new notes will be, issued under an indenture,
dated April 21, 1999, between us and The Bank of New York, as trustee. The terms
of the senior notes include those stated in the indenture and those made part of
the indenture by reference to the Trust Indenture Act. The senior notes are
subject to all such terms, and holders of senior notes are referred to the
indenture and the Trust Indenture Act for a statement thereof.
The old notes are, and the new notes will be, senior unsecured obligations
that rank senior in right of payment to all our existing and future subordinated
indebtedness and equally in right of payment to all our existing and future
senior indebtedness. The old notes are, and the new notes will be, effectively
subordinated to all our future secured indebtedness to the extent of the value
of the assets securing such indebtedness and, because we are a holding company,
effectively subordinated to indebtedness and other liabilities of our
subsidiaries. As of March 31, 1999, on a pro forma basis after giving effect to
the sale of the old notes and the use of the net proceeds therefrom, we would
have had approximately $1.0 billion of senior indebtedness and our subsidiaries
would have had approximately $18 million of indebtedness.
Restrictions in the indenture on our ability to enter into mergers,
consolidations or sales of all or substantially all our assets may make it more
difficult to encourage or discourage a takeover, whether favored or opposed by
our management. The indenture may not afford holders protection in all
circumstances from the adverse aspects of a leveraged transaction,
reorganization, restructuring, merger or similar transaction.
PRINCIPAL, MATURITY AND INTEREST
The trustee authenticated and delivered old notes for original issue in an
aggregate principal amount of $450 million. The new notes will be treated as a
continuation of the old notes, which will mature on April 15, 2009. Interest on
the senior notes accrues at the rate of 6 1/2% per annum and is payable
semi-annually in arrears in cash on each April 15 and October 15, commencing
October 15, 1999, to holders of record on the immediately preceding April 1 and
October 1, respectively. Interest is to be computed on the basis of a 360-day
year of twelve 30-day months.
The old notes were, and the new notes will be, issued only in fully
registered form, without coupons, in denominations of $1,000 of principal amount
at maturity and any integral multiples thereof. See "--Book-Entry; Delivery and
Form." No service charge will be made for any registration of transfer or
exchange of senior notes, but we may require payment of a sum sufficient to
cover transfer tax or other similar governmental charges.
OPTIONAL REDEMPTION
We have the right to redeem the senior notes, in whole or in part, at any
time and from time to time, subject to the receipt of any consent required under
the terms of any of our indebtedness which
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may be outstanding from time to time, upon not less than 30 nor more than 60
days notice, at a redemption price equal to the sum of (1) 100% of the principal
amount of the senior notes being redeemed, plus accrued and unpaid interest and
Additional Interest, if any, thereon to the redemption date, and (2) the
Make-Whole Amount, if any, with respect to such senior notes.
The term "Make-Whole Amount" means, in connection with any optional
redemption of any senior notes, the excess, if any, of (1) the sum, as
determined by a Quotation Agent of the present values of the principal amount of
such senior notes, together with scheduled payments of interest from the
redemption date to the stated maturity of the senior notes, in each case
discounted to the redemption date on a semi-annual basis, which assumes a
360-day year consisting of twelve 30-day months, at the Adjusted Treasury Rate
over (2) 100% of the principal amount of the senior notes to be redeemed.
The term "Adjusted Treasury Rate" means, with respect to any redemption
date, the rate per annum equal to the semi-annual equivalent yield to maturity
of the Comparable Treasury Issue, calculated using a price for the Comparable
Treasury Issue, which is expressed as a percentage of its principal amount,
equal to the Comparable Treasury Price for such redemption date, calculated on
the third business day preceding the redemption date, plus in each case 25 basis
points.
The term "Comparable Treasury Issue" means the United States Treasury
security selected by the quotation agent as having a maturity comparable to the
remaining term from the redemption date to the stated maturity of the senior
notes that would be utilized, at the time of selection and in accordance with
customary financial practice, in pricing new issues of corporate debt securities
of comparable maturity to the remaining term of the senior notes.
The term "Quotation Agent" means the Reference Treasury Dealer appointed by
us.
The term "Reference Treasury Dealer" means: (1) Merrill Lynch, Pierce,
Fenner & Smith Incorporated and its respective successors and two additional
Primary Treasury Dealers selected by us; provided, however, that if any of the
foregoing shall cease to be a primary U.S. Government securities dealer in New
York City (a "Primary Treasury Dealer"), we shall substitute therefor another
Primary Treasury Dealer; and (2) any other Primary Treasury Dealer selected by
the trustee after consultation with us.
The term "Comparable Treasury Price" means, with respect to any redemption
date, (1) the average of the bid and asked prices for the Comparable Treasury
Issue, which is expressed in each case as a percentage of its principal amount,
on the third business day preceding such redemption date, as set forth in the
daily statistical release, or any successor release, published by the Federal
Reserve Bank of New York and designated "Composite 3:30 p.m. Quotations for U.S.
Government Securities" or (2) if such release is not published or does not
contain such prices on such business day, (A) the average of the Reference
Treasury Dealer Quotations for such redemption date, after excluding the highest
and lowest such Reference Treasury Dealer Quotations, or (B) if the Quotation
Agent obtains fewer than three such Reference Treasury Dealer Quotations, the
average of all such quotations.
The term "Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any redemption date, the average, as determined by
the Quotation Agent, of the bid and asked prices for the Comparable Treasury
Issue, which is expressed in each case as a percentage of its principal amount,
quoted in writing to the trustee by such quotation agent at 5:00 p.m., New York
City time, on the third business day preceding such redemption date.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each holder of senior notes to be redeemed
at its registered address. Unless we
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default in payment of the redemption price, on and after the redemption date
interest will cease to accrue on the senior notes called for redemption.
In the case of any partial redemption, selection of senior notes for
redemption will be made by the trustee in compliance with the requirements of
the principal national securities exchange, if any, on which the senior notes
are listed or, if not listed, on a pro rata basis, by lot or by such other
method as the trustee in its sole discretion shall deem fair and appropriate.
However, the senior notes to be redeemed shall be equal to at least $1,000 or
any multiple thereof. If any senior note is to be redeemed in part, the notice
of redemption relating to the senior note shall state the portion of the
principal amount to be redeemed. A new senior note in principal amount equal to
the unredeemed portion will be issued in the name of the holder upon
cancellation of the original senior note.
SINKING FUND
The senior notes will not have the benefit of a sinking fund.
CERTAIN COVENANTS
Merger, Consolidation or Sale of Assets. We will not consolidate with or
merge with or into any other entity or, directly or indirectly, sell, assign,
convey, transfer, lease or otherwise dispose of all or substantially all of our
assets in one or more related transactions to any entity or group of affiliated
entities unless, at the time and after giving effect thereto:
(1) (A) We shall be the continuing corporation, or (B) the entity, if
other than us, formed by such consolidation, or into which we are merged,
or the entity that acquires by sale, assignment, transfer, lease,
conveyance or other disposition our assets, substantially as an entirety,
is a corporation duly organized and validly existing under the laws of the
United States or any other jurisdiction that is not materially adverse to
the holders of the senior notes and shall, in the case of clause (B),
expressly assume, by supplemental indenture, executed and delivered to the
trustee, in form reasonably satisfactory to the trustee, all of our
obligations under the indenture;
(2) immediately before and after such transaction, giving effect to
such transaction, no Default or Event of Default shall have occurred and be
continuing;
(3) immediately after giving effect to such transaction on a pro forma
basis, the successor entity's Consolidated Net Worth, after giving pro
forma effect to such transaction but not including the effect to any
purchase accounting adjustments or the accrual of deferred tax liabilities
resulting from the transaction, is at least equal to our Consolidated Net
Worth immediately before such transaction;
(4) if any of our property or assets would thereupon become subject to
any Lien, the outstanding senior notes shall be secured equally and ratably
with, or prior to, the obligation or liability secured by such Lien, unless
we could create such Lien without equally and ratably securing the senior
notes; and
(5) we have delivered to the trustee an officers' certificate and an
opinion of counsel, each stating that such consolidation, merger, transfer
or lease and the supplemental indenture, if one is required, comply with
the provisions described herein and that all conditions precedent provided
for in the indenture relating to such transaction have been complied with.
Upon any consolidation or merger or any sale, assignment, transfer, lease
or conveyance or other disposition of all or substantially all of our assets in
accordance with the provisions described above, the successor entity formed by
such consolidation or into which we are merged or to which such sale,
assignment, transfer, lease, conveyance or other disposition is made shall
succeed to, and be
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substituted for, and may exercise every right and power of, us under the
indenture with the same effect as if such successor entity had been named as the
issuer therein. When a successor assumes all the obligations of its predecessor
under the indenture and the senior notes, the predecessor will be released from
those obligations; provided that in the case of a transfer by lease, the
predecessor corporation shall not be released from the payment of principal of,
premium and Additional Interest, if any, and interest on the senior notes.
Liens. We will not, and will not permit any of our subsidiaries to,
directly or indirectly, create, incur, assume or suffer to exist any Lien
securing Indebtedness, other than Permitted Liens, on any property or asset now
owned or hereafter acquired, or on any income or profits therefrom or assign or
convey any right to receive income therefrom, unless all payments due under the
indenture and the senior notes are secured on an equal and ratable basis with,
or prior to in the case of Liens with respect to subordinated obligations, the
obligations so secured until such time as such obligations are no longer secured
by a Lien.
EVENTS OF DEFAULT AND REMEDIES
Each of the following constitutes an Event of Default, whether or not it
shall be voluntary or involuntary or be effected by the operation of law or
pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body:
(1) default in the payment of interest on or Additional Interest with
respect to any senior note when the same becomes due and payable and the
continuance of such default for a period of 30 days; or
(2) default in the payment of the principal of and any premium on any
senior note when the same becomes due and payable at its Maturity upon
acceleration, optional redemption or otherwise; or
(3) default in the performance, or breach, of any covenant or
agreement of ours under the indenture, other than a default in the
performance, or breach, of a covenant or agreement that is specifically
dealt with in clauses (1), (2) and (8) of this subsection, and continuance
of such default or breach for a period of 60 days after there has been
given, by registered or certified mail, to us by the trustee or to us and
the trustee by the holders of at least 25% in principal amount of the
outstanding senior notes, a written notice specifying such default or
breach and stating that such notice is a "Notice of Default"; or
(4) (A) an event of default shall have occurred under any mortgage,
bond, indenture, loan agreement or other document evidencing any issue of
Indebtedness of us or any of our subsidiaries for money borrowed, or the
payment of which is guaranteed by us or any of our subsidiaries, which
issue has an aggregate outstanding principal amount of not less than $25
million, and such default shall have resulted in such Indebtedness
becoming, whether by declaration or otherwise, due and payable prior to the
date on which it would otherwise become due and payable, or (B) a default
in any payment when due at final Stated Maturity of any such Indebtedness
outstanding in an aggregate principal amount of not less than $25 million
and, in each case, ten business days shall have elapsed after such event
during which period such event shall not have been cured or rescinded or
such Indebtedness shall not have been satisfied; or
(5) final judgments or orders are rendered against us or any of our
subsidiaries by a court or regulatory agency of competent jurisdiction
which require the payment in money, either individually or in an aggregate
amount, that is more than $25 million, other than any judgment to the
extent a reputable non-affiliated insurance company has accepted liability,
and such judgment or order shall not be discharged and either (A) any
creditor shall have commenced an enforcement proceeding upon such judgment
or order, which enforcement proceeding shall have
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remained unstayed for a period of ten days, or (B) a period of 60 days
during which a stay of enforcement shall not be in effect shall have
elapsed following the date on which any period for appeal has expired; or
(6) a decree or order is entered by a court having jurisdiction (A)
for relief in respect of us or any Principal Subsidiary in an involuntary
case or other bankruptcy proceeding under the applicable federal or state
bankruptcy, insolvency, reorganization or similar law, or (B) adjudging us
or any Principal Subsidiary bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment or composition of or in respect of
us or any Principal Subsidiary under the applicable federal or state law,
or appointing a custodian, receiver, liquidator, assignee, trustee,
sequestrator, or other similar official, of us or any Principal Subsidiary
or of any substantial part of any of our or their properties, or ordering
the winding up or liquidation of any of our or their affairs, and any such
decree or order remains unstayed and in effect for a period of 60
consecutive days; or
(7) we or any Principal Subsidiary institute a voluntary case or
proceeding under the applicable federal or state law or any other case or
proceedings to be adjudicated bankrupt or insolvent, or we or any Principal
Subsidiary consent to the entry of a decree or order for relief in respect
of us or any Principal Subsidiary in any involuntary case or proceeding
under the applicable federal or state law or the initiation of bankruptcy
or insolvency proceedings against us or any Principal Subsidiary, or we or
any Principal Subsidiary file a petition or answer or consent seeking
reorganization or relief under the applicable federal or state law, or
consent to the filing of any such petition or to the appointment of or
taking possession by a custodian, receiver, liquidator, assignee, trustee
or sequestrator, or other similar official, of any of us or any Principal
Subsidiary or of any substantial part of our or its property, or make an
assignment for the benefit of creditors, or admit in writing our or its
inability to pay our or its debts generally as they become due or take
corporate action in furtherance of any such action; or
(8) default in the performance or breach of the provisions described
under "-- Certain Covenants -- Merger, Consolidation or Sale of Assets."
If any Event of Default, other than an Event of Default described in
clauses (6) or (7) above, occurs and is continuing, the trustee or the holders
of at least 25% in principal amount of the outstanding senior notes, by written
notice to us, and to the trustee if such notice is given by the holders, may,
and the trustee at the request of such holders shall, declare all unpaid
principal of, premium and Additional Interest, if any, and accrued interest on,
all the senior notes to be due and payable immediately. Notwithstanding the
foregoing, in the case of an Event of Default described in clauses (6) or (7)
above, the amounts described above shall by such fact itself become and be
immediately due and payable without any declaration or other act on the part of
the trustee or any holder.
After a declaration of acceleration, but before a judgment or decree for
payment of the money due has been obtained by the trustee, the holders of at
least a majority in aggregate principal amount of the outstanding senior notes,
by written notice to us and the trustee, may annul such declaration if:
(1) We have paid or deposited with the trustee a sum sufficient to pay
(A) all sums paid or advanced by the trustee under the indenture and the
reasonable compensation, expenses, disbursements and advances of the
trustee, its agents and counsel, (B) all overdue interest on all senior
notes, (C) the principal of, premium and Additional Interest, if any, on
any senior notes which have become due otherwise than by such declaration
of acceleration and interest thereon at the rate borne by the senior notes,
and (D) to the extent that payment of such interest is lawful, interest
upon overdue interest at the rate borne by the senior notes; and
(2) all Events of Default, other than the non-payment of principal of
the senior notes which have become due solely by such declaration of
acceleration, have been waived as provided
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in the indenture or cured. No such rescission shall affect any subsequent
default or impair any right consequent thereon.
Notwithstanding the preceding paragraph, in the event that a declaration of
acceleration in respect of the senior notes because of an Event of Default
specified in clause (4) above shall have occurred and be continuing, such
declaration of acceleration shall be automatically rescinded and annulled if the
Indebtedness that is the subject of such Event of Default has been discharged or
the holders thereof have rescinded their declaration of acceleration in respect
of such Indebtedness, and written notice of such discharge or rescission, as the
case may be, shall have been given to the trustee by us and countersigned by the
holders of such Indebtedness or a trustee, fiduciary or agent for such holders,
within 60 days after such declaration of acceleration in respect of the senior
notes, and no other Event of Default has occurred during such 60-day period
which has not been cured or waived during such period.
The holders of not less than a majority in aggregate principal amount of
the outstanding senior notes by notice to the trustee may on the behalf of all
holders waive any existing or past Default or Event of Default and its
consequences under the indenture, except a Default or Event of Default:
(1) in the payment of the principal of, premium or Additional
Interest, if any, or interest on any senior note when the same becomes due
and payable,
(2) in respect of a covenant or provision in the indenture which
cannot be modified or amended without the consent of a holder of each
outstanding senior note affected, or
(3) in respect of a covenant or provision of the indenture which
cannot be modified or amended without the consent of the holders of a
greater percentage in principal amount of, or all of, the outstanding
senior notes.
The holders of not less than a majority in principal amount of the
outstanding senior notes shall have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the trustee, or
exercising any trust or power conferred on the trustee; provided that:
(1) such direction shall not be in conflict with any rule of law or
with the indenture or expose the trustee to personal liability, and
(2) subject to the provisions of the Trust Indenture Act, the trustee
may take any other action deemed proper by the trustee which is not
inconsistent with such direction.
No holder of senior notes shall have any right to institute any proceeding,
judicial or otherwise, with respect to the indenture or the senior notes, or for
the appointment of a receiver or trustee, or for any other remedy under the
indenture, unless:
(1) such holder has previously given written notice to the trustee of
a continuing Event of Default;
(2) the holders of not less than 25% in principal amount of the
outstanding senior notes shall have made written request to the trustee to
institute proceedings in respect of such Event of Default in the trustee's
own name;
(3) such holder or holders of senior notes have offered to the trustee
reasonable indemnity against the costs, expenses and liabilities to be
incurred in compliance with such request;
(4) the trustee for 60 days after its receipt of such notice, request
and offer of indemnity has failed to institute any such proceeding; and
(5) no direction inconsistent with such written request has been given
to the trustee during such 60-day period by the holders of a majority in
principal amount of the outstanding senior notes;
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it being understood and intended that no one or more holders of senior notes
shall have any right in any manner whatever by virtue of, or by availing of, any
provision of the indenture to affect, disturb or prejudice the rights of any
other holders, or to obtain or to seek to obtain priority or preference over any
other holders or to enforce any right under the indenture except in the manner
provided in the indenture and for the equal and ratable benefit of all the
holders of senior notes.
We will deliver to the trustee, within 120 days after the end of each
fiscal year, an officers' certificate stating that we are in compliance with all
covenants and conditions to be complied with by us under the indenture. We will
also be obligated to notify the trustee of any default under the indenture
within five business days of its occurrence.
DEFEASANCE AND COVENANT DEFEASANCE
Upon compliance with certain conditions, we may, at our option and at any
time, elect to have our obligations discharged with respect to all outstanding
senior notes ("defeasance"). Such defeasance means that we shall be deemed to
have paid and discharged the entire indebtedness represented by the outstanding
senior notes and to have satisfied all other obligations under such senior notes
and the indenture, except for:
(1) the rights of holders of outstanding senior notes to receive
payments in respect of the principal of, premium and Additional Interest,
if any, and interest on such senior notes when such payments are due, or on
the redemption date, as the case may be;
(2) our obligations with respect to the senior notes concerning
transferring senior notes, issuing temporary senior notes, registering
senior notes, replacing mutilated, destroyed, lost or stolen senior notes
and maintaining an office or agency for payment and money for senior note
payments held in trust;
(3) the rights, powers, trusts, duties and immunities of the trustee
and our obligations in connection therewith; and
(4) the defeasance provisions of the indenture.
In addition, upon compliance with certain conditions, we may, at our option
and at any time, elect to have our obligations released with respect to certain
covenants that are described in the indenture with respect to the outstanding
senior notes ("covenant defeasance") and thereafter any omission to comply with
such obligations shall not constitute a Default or an Event of Default with
respect to the senior notes.
In order to exercise either defeasance or covenant defeasance:
(1) we shall irrevocably deposit or cause to be deposited with the
trustee as trust funds in trust for the purpose of making the following
payments, specifically pledged as security for, and dedicated solely to,
for the benefit of the holders of the senior notes, (A) cash in U.S.
dollars in an amount, (B) U.S. Government Obligations which through the
scheduled payment of principal and interest thereof in accordance with
their terms provide, not later than one day before the due date of any
payment, cash in U.S. dollars in an amount, or (C), a combination thereof,
in such amounts as will be sufficient, in the opinion of a nationally
recognized firm of independent public accountants expressed in a written
certification thereof to the trustee, or other qualifying trustee, to pay
and discharge the principal of, premium and Additional Interest, if any,
and interest on the outstanding senior notes on the Stated Maturity or on
the applicable optional redemption date, as the case may be, of such
principal or installment of principal of, premium and Additional Interest,
if any, and interest on the senior notes, and we shall instruct the trustee
in writing to apply such money or the proceeds of such U.S. Government
Obligations to said payments with respect to the senior notes;
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(2) in the case of defeasance, we shall have delivered to the trustee
an opinion of counsel in the United States reasonably satisfactory to the
trustee confirming that: (A) we have received from, or there has been
published by, the IRS a ruling; or (B) since the date of the indenture,
there has been a change in the applicable federal income tax law, in either
case to the effect that, and based thereon such opinion shall confirm that,
the holders of the outstanding senior notes will not recognize income, gain
or loss for federal income tax purposes as a result of such defeasance and
will be subject to federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such defeasance
had not occurred;
(3) in the case of covenant defeasance, we shall have delivered to the
trustee an opinion of counsel in the United States reasonably satisfactory
to the trustee confirming that the holders of the outstanding senior notes
will not recognize income, gain or loss for federal income tax purposes as
a result of such covenant defeasance and will be subject to federal income
tax on the same amounts, in the same manner and at the same times as would
have been the case if such covenant defeasance had not occurred;
(4) no Default or Event of Default with respect to the senior notes
shall have occurred and be continuing on the date of such deposit or,
insofar as Events of Default from bankruptcy or insolvency events are
concerned, at any time in the period ending on the 91st day after the date
of such deposit;
(5) such defeasance or covenant defeasance shall not result in a
breach or violation of, or constitute a default under, the indenture or any
other material agreement or instrument to which we are a party or by which
we are bound;
(6) we shall have delivered to the trustee an opinion of counsel to
the effect that after the 91st day following the deposit, the trust funds
will not be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally;
(7) we shall have delivered to the trustee an officers' certificate
stating that the deposit of money described in clause (1) above was not
made by us with the intent of preferring the holders of senior notes over
our other creditors or with the intent of defeating, hindering, delaying or
defrauding our creditors or others; and
(8) we shall have delivered to the trustee an officers' certificate
and an opinion of counsel in the United States, each stating that all
conditions precedent provided for relating to either the defeasance or the
covenant defeasance, as the case may be, have been complied with.
AMENDMENT, SUPPLEMENT AND WAIVER
With the consent of the holders of not less than a majority in principal
amount of the outstanding senior notes, including consents obtained in
connection with a tender offer or exchange offer for the senior notes, by act of
such holders delivered to us and the trustee, we, when authorized by a board
resolution, and the trustee may enter into one or more supplemental indentures
for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of the indenture or of waiving or modifying in
any manner the rights of the holders under the indenture; provided, however,
that no such supplemental indenture, amendment or waiver shall without the
consent of the holder of each outstanding senior note affected thereby:
(1) change the Stated Maturity or the principal of, or any installment
of interest on, or change our obligation to pay any Additional Interest
with respect to, any senior note or reduce the principal amount thereof or
the rate of interest thereon or any provisions relating to the redemption
price of the senior notes or the periods during which redemption may be
effected, or change the coin or currency in which the principal of any
senior note or premium or Additional Interest, if any, or the interest
thereon is payable, or impair the right to institute suit for the
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enforcement of any such payment after the Stated Maturity thereof, or, in
the case of redemption, on or after the redemption date; or
(2) reduce the percentage in principal amount of the outstanding
senior notes, the consent of whose holders is required for any such
supplemental indenture or the consent of whose holders is required for any
waiver of compliance with certain provisions of the indenture or certain
defaults and their consequences provided for in the indenture; or
(3) modify any of the provisions of the indenture relating to
amendments or waivers of payment or covenant defaults, except to increase
any such percentage or to provide that certain other provisions of the
indenture cannot be modified or waived without the consent of the holder of
each senior note affected thereby.
Notwithstanding the foregoing, without the consent of any holder of senior
notes, we, when authorized by a board resolution, and the trustee, at any time
and from time to time, may enter into one or more supplemental indentures in
form satisfactory to the trustee, for any of the following purposes:
(1) to cure any ambiguity or to correct any provision in the indenture
which may be defective or inconsistent with any other provision therein; or
(2) to provide for the assumption of our obligations to holders of the
senior notes in the case of a merger or consolidation; or
(3) to secure the senior notes pursuant to the requirements of the
provisions described under "-- Certain Covenants -- Merger, Consolidation
or Sale of Assets" or "-- Certain Covenants -- Liens," or otherwise; or
(4) to comply with the requirements of the SEC in order to effect or
maintain the qualification of the indenture under the Trust Indenture Act,
as contemplated by the indenture or otherwise; or
(5) to evidence and provide the acceptance of the appointment of a
successor trustee under the indenture; or
(6) to make any other change that would provide any additional rights
or benefits to the holders of the senior notes or that does not adversely
affect the legal rights of any holder under the indenture or the senior
notes.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee or stockholder, as such, of AFLAC
Incorporated or any of our subsidiaries shall have any liability for any payment
of the principal of, premium or Additional Interest, if any, or interest on, any
of the senior notes or for any obligation, covenant or agreement made by AFLAC
Incorporated in the indenture. Each holder of old notes by accepting any of the
old notes waived and released all such liability and each holder of new notes by
accepting any of the new notes waives and releases all such liability. The
waiver and release are part of the consideration for issuance of the senior
notes.
GOVERNING LAW
The indenture and the senior notes shall be governed by and construed in
accordance with the laws of the State of New York.
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CURRENCY INDEMNITY
U.S. dollars are the sole currency of account and payment for all sums
payable by us under or in connection with the senior notes, including damages.
Any amount received or recovered in a currency other than dollars (whether as a
result of, or of the enforcement of, a judgment or order of a court of any
jurisdiction, in our winding-up or dissolution or otherwise) by any holder of
senior notes in respect of any sum expressed to be due to it from us shall only
constitute a discharge to us to the extent of the dollar amount which the
recipient is able to purchase with the amount so received or recovered in that
other currency on the date of that receipt or recovery (or, if it is not
practicable to make that purchase on that date, on the first date on which it is
practicable to do so). If that dollar amount is less than the dollar amount
expressed to be due to the recipient under any senior note, we shall indemnify
the recipient against any loss sustained by it as a result. In any event, we
shall indemnify the recipient against the cost of making any such purchase. For
the purposes of this provision of the indenture, it will be sufficient for the
holder to certify in a satisfactory manner (indicating the sources of
information used) that it would have suffered a loss had an actual purchase of
dollars been made with the amount so received in that other currency on the date
of receipt or recovery (or, if a purchase of dollars on such date had not been
practicable, on the first date on which it would have been practicable, it being
required that the need for a change of date be certified in the manner mentioned
above). These indemnities constitute a separate and independent obligation from
our other obligations, shall give rise to a separate and independent cause of
action, shall apply irrespective of any indulgence granted by any holder and
shall continue in full force and effect despite any other judgment, order, claim
or proof for a liquidated amount in respect of any sum due under any senior
note.
CONCERNING THE TRUSTEE
The indenture contains certain limitations on the rights of the trustee,
should it become our creditor, to obtain payment of claims in certain cases or
to realize on certain property received in respect of any such claim as security
or otherwise. The trustee is permitted to engage in other transactions; however,
if the trustee acquires any conflicting interest, it must eliminate such
conflict within 90 days, apply to the SEC for permission to continue or resign.
The holders of a majority in principal amount of the outstanding senior
notes will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the trustee, subject to
certain exceptions. The indenture provides that in case an Event of Default
shall occur, which shall not be cured, the trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the conduct
of his own affairs. Subject to such provisions, the trustee will be under no
obligation to exercise any of its rights or powers under the indenture at the
request of any holder of senior notes, unless such holder shall have offered to
the trustee security and indemnity satisfactory to it against any loss,
liability or expense.
DEFINITIONS
Set forth below are certain defined terms used in the indenture. Reference
is made to the indenture for a full disclosure of all such terms, as well as
certain other terms used herein for which no definition is provided.
The term "Capital Lease Obligation" means, as to any entity, any obligation
of such entity and its subsidiaries on a consolidated basis under any capital
lease of real or personal property which, in accordance with GAAP, has been
recorded as a capitalized lease obligation.
The term "Capital Stock" of any entity means any and all shares, interests,
participation or other equivalent, however designated, of such entity's capital
stock and any rights, other than debt securities
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convertible into or exchangeable for capital stock, warrants or options to
purchase the foregoing whether now outstanding or issued after the date hereof.
The term "Consolidated Net Worth" of any entity means the consolidated
stockholders' equity of such entity and its subsidiaries as determined in
accordance with GAAP.
The term "Currency Agreement" means any currency swap agreements, forward
exchange rate agreements, foreign currency futures or options, exchange rate
collar agreements, exchange rate insurance or other similar agreements or
arrangements, or combinations thereof, principally designed to protect an entity
or any of its subsidiaries against fluctuations in currency values. A Currency
Agreement may also include an Interest Swap Obligation.
The term "Default" means any event which is, or after notice or passage of
time or both would be, an Event of Default.
The term "Fair Market Value" means, with respect to any asset or property,
the sale value that would be obtained in an arm's-length transaction between an
informed and willing seller under no compulsion to sell and an informed and
willing buyer under no compulsion to buy.
The term "GAAP" means generally accepted accounting principles in the
United States, set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants
("AICPA") and statements and pronouncements of the Financial Accounting
Standards Board ("FASB") or in such other statements by such other entity as may
be approved by a significant segment of the accounting profession, consistently
applied except for accounting changes required by the AICPA, FASB or the SEC, as
in effect from time to time.
The term "Guaranteed Debt" of any entity means, without duplication, all
Indebtedness of any other entity guaranteed directly or indirectly in any manner
by such entity, or in effect guaranteed directly or indirectly by such entity
through an agreement:
(1) to pay or purchase such Indebtedness or to advance or supply funds
for the payment or purchase of such Indebtedness;
(2) to purchase, sell or lease property, as lessee or lessor, or to
purchase or sell services, primarily for the purpose of enabling such other
entity to make payment of such Indebtedness or to assure the holder of such
Indebtedness against loss;
(3) to supply funds to, or in any other manner invest in, such other
entity, including any agreement to pay for property or services to be
acquired by such other entity irrespective of whether such property is
received or such services are rendered;
(4) to maintain working capital or equity capital of such other
entity, or otherwise to maintain the net worth, solvency or other financial
condition of the debtor; or
(5) otherwise to assure a creditor of such other entity against loss;
provided that the term "guarantee" shall not include endorsements for collection
or deposit, in either case in the ordinary course of business, or any obligation
or liability of such other entity in respect of leasehold interests assigned by
such other entity to any other entity.
The term "Indebtedness" means, with respect to any entity, without
duplication:
(1) all obligations of such entity for borrowed money or for the
deferred purchase price of property or services, excluding any trade
payables and other accrued current liabilities incurred in the ordinary
course of business, if, and to the extent, any of the foregoing would
appear as a liability upon a balance sheet of such entity prepared in
accordance with GAAP;
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(2) all obligations of such entity evidenced by bonds, notes,
debentures or other similar instruments, if, and to the extent, any of the
foregoing would appear as a liability upon a balance sheet of such entity
prepared in accordance with GAAP;
(3) all obligations created or arising under any conditional sale or
other title retention agreement with respect to property acquired by such
entity, even if the rights and remedies of the seller or lender under such
agreement in the event of default are limited to repossession or sale of
such property, but excluding trade accounts payable arising in the ordinary
course of business;
(4) all Capital Lease Obligations of such entity;
(5) all obligations referred to in, but not excluded from, clause (1),
(2), (3) or (4) above of other entities and all dividends of other
entities, the payment of which is secured by, or for which the holder of
such obligations has an existing right, contingent or otherwise, to be
secured by, any Lien, upon or in property, including, without limitation,
accounts and contract rights, owned by such entity, even though such entity
has not assumed or become liable for the payment of such obligations;
(6) all Guaranteed Debt of such entity;
(7) all Redeemable Capital Stock issued by such entity valued at the
greater of its voluntary or involuntary maximum fixed repurchase price plus
accrued and unpaid dividends;
(8) all obligations under Currency Agreements or Interest Swap
Obligations of such entity;
(9) all obligations for the reimbursement of any obligor on any letter
of credit, banker's acceptance or similar credit transaction, other than
obligations with respect to letters of credit securing insurance
obligations entered into in the ordinary course of business of such entity
to the extent that such letters of credit are not drawn upon, or if and to
the extent drawn upon, such drawing is reimbursed not later than the 30th
business day following a demand for reimbursement following payment on the
letter of credit; and
(10) any amendment, supplement, modification, deferral, renewal,
extension or refunding of any liability of the types referred to in clauses
(1) through (9) above.
Indebtedness shall not include obligations under insurance, reinsurance or
retrocession contracts entered into in the ordinary course of business. For
purposes hereof the "maximum fixed repurchase price" of any Redeemable Capital
Stock which does not have a fixed repurchase price shall be calculated in
accordance with the terms of such Redeemable Capital Stock as if such Redeemable
Capital Stock were purchased on any date on which Indebtedness shall be required
to be determined pursuant to the indenture, and if such price is based upon, or
measured by, the Fair Market Value of such Redeemable Capital Stock, such Fair
Market Value shall be determined in good faith by the board of directors of the
issuer of such Redeemable Capital Stock.
The term "Interest Swap Obligations" means the obligations of any entity
pursuant to any interest rate swap agreement, interest rate cap agreement,
interest rate collar agreement or other similar agreement or arrangement
principally designed to protect such entity or any of its subsidiaries against
fluctuations in interest rates.
The term "Lien" means any mortgage, charge, pledge, security interest, lien
or other encumbrance of any kind.
The term "Maturity" when used with respect to any senior note means the
date on which the principal of, premium and Additional Interest, if any, and
interest on such senior note becomes due
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and payable as therein provided, whether at Stated Maturity or redemption date
and whether by declaration of acceleration, call for redemption or otherwise.
The term "Permitted Liens" means:
(1) Liens securing Indebtedness pursuant to any senior credit
agreement or senior credit facility of ours or any of our subsidiaries
existing on the date of the indenture as such agreement may be
supplemented, extended, renewed, replaced or otherwise modified from time
to time, and any refinancing, replacement or substitution thereof;
(2) Liens in favor of us or any of our subsidiaries;
(3) Liens on property of an entity existing at the time such entity is
merged into or consolidated with us or any of our subsidiaries; provided
that such Liens were not incurred in connection with, or in contemplation
of, such merger or consolidation and such Liens do not extend to any assets
of ours or any of our subsidiaries other than the assets of the entity so
merged into or consolidated with us or such subsidiaries;
(4) Liens on property existing at the time of acquisition thereof by
us or any of our subsidiaries; provided that such Liens were not incurred
in connection with, or in contemplation of, such acquisition and do not
extend to any assets of ours or any of our subsidiaries other than the
property so acquired;
(5) Liens incurred or deposits required to secure the performance of
U.S. or foreign statutory obligations (including insurance regulations),
tenders, surety or appeal bonds or performance or return of money bonds or
similar obligations, or landlords', carriers', warehousemen's, mechanics',
suppliers', materialmen's or other like Liens, in any case incurred in the
ordinary course of business;
(6) Liens required by any U.S., state or foreign authority pursuant to
applicable insurance regulations;
(7) Liens existing on the date of the indenture;
(8) Liens for taxes, assessments or governmental charges or claims
that are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded;
provided that any reserve or other appropriate provision as shall be
required in conformity with GAAP shall have been made therefor;
(9) Liens to secure Capital Lease Obligations or operating leases;
(10) judgment and attachment Liens not giving rise to an Event of
Default;
(11) Liens with respect to obligations under Currency Agreements or
Interest Swap Obligations of ours or any of our subsidiaries;
(12) Liens incurred in the ordinary course of business of us or any of
our subsidiaries other than in connection with Indebtedness for borrowed
money;
(13) purchase money Liens to finance property or assets of ours or any
of our subsidiaries acquired in the ordinary course of business; provided,
however, that (A) the related purchase money Indebtedness shall not be
secured by any property or assets of ours or any of our subsidiaries other
than the property and assets so acquired, and (B) the Lien securing such
Indebtedness shall be created within 90 days of such acquisition;
(14) Liens on assets of our subsidiaries to secure obligations of such
subsidiaries to us;
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(15) Liens in favor of collecting or payor banks having a right of
setoff, revocation, refund or chargeback with respect to money or
instruments of ours or any of our subsidiaries on deposit with or in
possession of such bank;
(16) Liens attributable to sale and leaseback transactions that
collectively do not exceed 30% of our total assets;
(17) easements, covenants, zoning restrictions, rights-of-way or other
similar changes or encumbrances not interfering in any material respect
with the ordinary conduct of our business or the business of any of our
subsidiaries;
(18) Liens securing reimbursement obligations with respect to
commercial letters of credit which encumber documents and other property
relating to such letters of credit;
(19) Liens encumbering deposits made to secure obligations arising
from statutory, regulatory, contractual, or warranty requirements of ours
or any of our subsidiaries, including rights of offset and set-off;
(20) leases or subleases granted to others that do not materially
interfere with the ordinary course of business of us and our subsidiaries;
and
(21) any Lien extending, renewing or replacing, in whole or in part,
any Permitted Lien; provided that any such Lien is limited to all or part
of the same property or assets (plus improvements, accessions, proceeds or
dividends or distributions in respect thereof) that secured (or, under the
written arrangements under which the original Lien arose, could secure) the
Indebtedness being refinanced or is in respect of property that is the
security for a Permitted Lien.
The term "Principal Subsidiary" means: (1) our insurance company
subsidiaries in existence on the issue date; (2) any other of our insurance
company subsidiaries that becomes a "significant subsidiary" as defined in
Regulation S-X, as promulgated by the SEC; and (3) any other of our insurance
company subsidiaries that may succeed, by merger, consolidation or otherwise, to
all or substantially all of the business of one or more of such entities as
specified in (1) and (2) above.
The term "Redeemable Capital Stock" means any Capital Stock that, either by
its terms, by the terms of any security into which it is convertible or
exchangeable or otherwise, is, or upon the happening of an event or passage of
time would be required to be, redeemed on or prior to the final Stated Maturity
of the senior notes or is redeemable at the option of the holder thereof at any
time prior to such final Stated Maturity, or is convertible into or exchangeable
for debt securities at any time prior to such final Stated Maturity.
The term "Stated Maturity" means, when used with respect to any
Indebtedness or any installment of principal or of interest thereon, the date
specified in such Indebtedness as the fixed date on which the principal of such
Indebtedness or such installment of principal or of interest is due and payable.
The term "U.S. Government Obligations" means securities that are (1) direct
obligations of the United States for the timely payment of which its full faith
and credit is pledged or (2) obligations of an entity controlled or supervised
by and acting as an agency or instrumentality of the United States, the timely
payment of which is unconditionally guaranteed as a full faith and credit
obligation by the United States, which, in either case, are not callable or
redeemable at the option of the issuer thereof, and shall also include a
depository receipt issued by a bank, as defined in Section 3(a)(2) of the
Securities Act, as custodian with respect to any such U.S. Government Obligation
or a specific payment of principal of or interest on any such U.S. Government
Obligation held by such custodian for the account of the holder of such
depository receipt; provided that, except as required by law, such custodian is
not authorized to make any deduction from the amount payable to the holder of
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such depository receipt from any amount received by the custodian in respect of
the U.S. Government Obligation or the specific payment of principal of or
interest on the U.S. Government Obligation evidenced by such depository receipt.
The term "Voting Stock" means stock of the class or classes pursuant to
which the holders thereof have the general voting power under ordinary
circumstances to elect at least a majority of the board of directors, managers
or trustees of a corporation, irrespective of whether or not at the time stock
of any other class or classes shall have or might have voting power by reason of
the happening of any contingency.
BOOK-ENTRY; DELIVERY AND FORM
The new notes to be exchanged for old notes that were sold to qualified
institutional buyers under Rule 144A in the United States initially will be in
the form of one or more registered global notes without interest coupons
(collectively, the "U.S. global senior note"). Upon issuance, the U.S. global
senior note will be deposited with the trustee, as custodian for DTC, in New
York, New York, and registered in the name of DTC or its nominee, in each case
for credit to the accounts of DTC's participating organizations ("direct
participants") and other entities that clear through or maintain a direct or
indirect relationship with a direct participant ("indirect participants").
The new notes to be exchanged for old notes that were sold in offshore
transactions in reliance on Regulation S, if any, initially will be in the form
of one or more registered, global notes without interest coupons (collectively,
the "Reg S global senior note"). The Reg S global senior note will be deposited
with the trustee, as custodian for DTC, in New York, New York, and registered in
the name of a nominee of DTC for credit to the accounts of indirect participants
at the Euroclear System ("Euroclear") and Cedel Bank, societe anonyme ("CEDEL").
The U.S. global senior note and the Reg S global senior note are referred
to herein collectively as "global senior notes."
Transfer of beneficial interests in any global senior notes will be subject
to the applicable rules and procedures of DTC and its direct or indirect
participants which may change from time to time.
Beneficial interests in the global senior notes may be exchanged for senior
notes in certificated form in certain limited circumstances. See "--Transfers of
Interests in Global Senior Notes for Certificated Senior Notes."
Initially, the trustee will act as paying agent and registrar under the
indenture. The senior notes may be presented for registration of transfer and
exchange at the offices of the registrar.
DEPOSITARY PROCEDURES
DTC has advised us that DTC is a limited-purpose trust company created to
hold securities for direct participants and to facilitate the clearance and
settlement of transactions in those securities between direct participants
through electronic book-entry changes in accounts of direct participants. The
direct participants include securities brokers and dealers, including the
initial purchasers, banks, trust companies, clearing corporations and certain
other organizations, including Euroclear and CEDEL. Access to DTC's system is
also available to indirect participants. DTC may hold securities beneficially
owned by other persons only through the direct participants or indirect
participants and such other persons' ownership interest and transfer of
ownership interest will be recorded only on the records of the direct
participant and/or indirect participant, and not on the records maintained by
DTC.
DTC has also advised us that, pursuant to DTC's procedures, DTC will
maintain records of the ownership interests of direct participants in the global
senior notes and the transfer of ownership
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interests by and between direct participants. DTC will not maintain records of
the ownership interests of, or the transfer of ownership interests by and
between, indirect participants or other owners of beneficial interests in the
global senior notes. Direct participants and indirect participants must maintain
their own records of the ownership interests of, and the transfer of ownership
interests by and between, indirect participants and other owners of beneficial
interests in the global senior notes.
Investors in the U.S. global senior note may hold their interests therein
directly through DTC if they are direct participants in DTC or indirectly
through organizations that are direct participants in DTC. Investors in the Reg
S global senior note may hold their interests therein directly through Euroclear
or CEDEL or indirectly through organizations that are participants in Euroclear
or CEDEL. Investors may also hold interests in the Reg S global senior note
through organizations other than Euroclear and CEDEL that are direct
participants in the DTC system. Morgan Guaranty Trust Company of New York,
Brussels office, is the operator and depository of Euroclear and Citibank, N.A.
is the operator and depository of CEDEL (each a "nominee" of Euroclear and
CEDEL, respectively). Therefore, they will each be recorded on DTC's records as
the holders of all ownership interests held by them on behalf of Euroclear and
CEDEL, respectively. Euroclear and CEDEL will maintain on their records the
ownership interests, and transfers of ownership interests by and between, their
own customers' securities accounts. DTC will not maintain records of the
ownership interests of, or the transfer of ownership interests by and between,
customers of Euroclear or CEDEL. All ownership interests in any global senior
note, including those of customers' securities accounts held through Euroclear
or CEDEL, may be subject to the procedures and requirements of DTC.
The laws of some states require that certain persons take physical delivery
in definitive, certificated form of securities that they own. This may limit or
curtail the ability to transfer beneficial interests in a global senior note to
such persons. Because DTC can act only on behalf of direct participants, which
in turn act on behalf of indirect participants and others, the ability of a
person having a beneficial interest in a global senior note to pledge such
interest to persons or entities that are not direct participants in DTC, or to
otherwise take actions in respect of such interests, may be affected by the lack
of physical certificates evidencing such interests. For certain other
restrictions on the transferability of the senior notes, see "-- Transfers of
Interests in Global Senior Notes for Certificated Senior Notes."
EXCEPT AS DESCRIBED IN "-- TRANSFERS OF INTERESTS IN GLOBAL SENIOR NOTES
FOR CERTIFICATED SENIOR NOTES," OWNERS OF BENEFICIAL INTERESTS IN THE GLOBAL
SENIOR NOTES WILL NOT HAVE SENIOR NOTES REGISTERED IN THEIR NAMES, WILL NOT
RECEIVE PHYSICAL DELIVERY OF SENIOR NOTES IN CERTIFICATED FORM AND WILL NOT BE
CONSIDERED THE REGISTERED OWNERS OR HOLDERS THEREOF UNDER THE INDENTURE FOR ANY
PURPOSE.
Under the terms of the indenture, we and the trustee will treat the persons
in whose names the senior notes are registered, including senior notes
represented by global senior notes, as the owners thereof for the purpose of
receiving payments and for any and all other purposes whatsoever under the
indenture. Payments in respect of the principal of, Additional Interest, if any,
and interest on global senior notes registered in the name of DTC or its nominee
will be payable by the trustee to DTC or its nominee as the registered holder
under the indenture. Consequently, neither we, the trustee nor any agent of ours
or the trustee has or will have any responsibility or liability for:
(1) any aspect of DTC's records or any direct participant's or
indirect participant's records relating to or payments made on account of
beneficial ownership interests in the global senior notes or for
maintaining, supervising or reviewing any of DTC's records or any direct
participant's or indirect participant's records relating to the beneficial
ownership interests in any global senior notes; or
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(2) any other matter relating to the actions and practices of DTC or
any of its direct participants or indirect participants.
DTC has advised us that its current payment practice for payments of
principal, interest and the like with respect to securities such as the senior
notes is to credit the accounts of the relevant direct participants with such
payment on the payment date in amounts proportionate to such direct
participant's respective ownership interests in the global senior notes as shown
on DTC's records. Payments by direct participants and indirect participants to
the beneficial owners of the senior notes will be governed by standing
instructions and customary practices between them and will not be the
responsibility of DTC, the trustee or us. Neither we nor the trustee will be
liable for any delay by DTC or its direct participants or indirect participants
in identifying the beneficial owners of the senior notes, and we and the trustee
may conclusively rely on and will be protected in relying on instructions from
DTC or its nominee as the registered owner of the senior notes for all purposes.
The global senior notes will trade in DTC's Same-Day Funds Settlement
System and, therefore, transfers between direct participants in DTC will be
effected in accordance with DTC's procedures, and will be settled in immediately
available funds. Transfers between indirect participants, other than indirect
participants who hold an interest in the senior notes through Euroclear or
CEDEL, who hold an interest through a direct participant will be effected in
accordance with the procedures of such direct participant but generally will
settle in immediately available funds. Transfers between and among indirect
participants who hold interests in the senior notes through Euroclear and CEDEL
will be effected in the ordinary way in accordance with their respective rules
and operating procedures.
Subject to compliance with the transfer restrictions applicable to the
senior notes described herein, cross market transfers between direct
participants in DTC, on the one hand, and indirect participants who hold
interests in the senior notes through Euroclear or CEDEL, on the other hand,
will be effected by Euroclear's or CEDEL's respective nominee through DTC in
accordance with DTC's rules on behalf of Euroclear or CEDEL; provided, however,
delivery of instructions relating to cross market transactions must be made
directly to Euroclear or CEDEL, as the case may be, by the counterparty in
accordance with the rules and procedures of Euroclear or CEDEL and within their
established deadlines. Indirect participants who hold interests in the senior
notes through Euroclear and CEDEL may not deliver instructions directly to
Euroclear's or CEDEL's nominee. Euroclear or CEDEL will, if the transaction
meets its settlement requirements, deliver instructions to its respective
nominee to deliver or receive interests on Euroclear's or CEDEL's behalf in the
relevant global senior note in DTC, and make or receive payment in accordance
with normal procedures for same-day fund settlement applicable to DTC.
Because of time zone differences, the securities accounts of an indirect
participant who holds an interest in the senior notes through Euroclear or CEDEL
purchasing an interest in a global senior note from a direct participant in DTC
will be credited, and any such crediting will be reported to Euroclear or CEDEL,
during the European business day immediately following the settlement date of
DTC in New York. Although recorded in DTC's accounting records as of DTC's
settlement date in New York, Euroclear and CEDEL customers will not have access
to the cash amount credited to their accounts as a result of a sale of an
interest in a Reg S global senior note to a DTC participant until the European
business day for Euroclear or CEDEL immediately following DTC's settlement date.
DTC has advised us that it will take any action permitted to be taken by a
holder of senior notes only at the direction of one or more direct participants
to whose account interests in the global senior notes are credited and only in
respect of such portion of the aggregate principal amount of the senior notes as
to which such direct participant or direct participants has or have given
direction. However, if there is an Event of Default under the senior notes, DTC
reserves the right to exchange global senior notes without the direction of one
or more of its direct participants for legended senior notes in
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certificated form, and to distribute such certificated forms of senior notes to
its direct participants. See "-- Transfers of Interests in Global Senior Notes
for Certificated Senior Notes."
DTC has further advised us that its management is aware that some computer
applications, systems, and the like for processing data ("Systems") that are
dependent upon calendar dates, including dates before, on, and after January 1,
2000, may encounter "year 2000 problems." DTC has informed its participants and
other members of the financial community (the "Industry") that it has developed
and is implementing a program so that its Systems, as the same relate to the
timely payment of distributions (including principal and income payments) to
securityholders, book-entry deliveries and settlement of trades within DTC ("DTC
Services"), continue to function appropriately. This program includes a
technical assessment and a remediation plan, each of which is complete.
Additionally, DTC's plan includes a testing phase, which is expected to be
completed within appropriate time frames. However, DTC's ability to perform
properly its services is also dependent upon other parties, including but not
limited to issuers and their agents, as well as third party vendors from whom
DTC licenses software and hardware and third party vendors on whom DTC relies
for information or the provision of services, including telecommunication and
electrical utility service providers, among others. DTC has informed the
Industry that it is contacting (and will continue to contact) third party
vendors from whom DTC acquires services to: (1) impress upon them the importance
of such services being year 2000 compliant; and (2) determine the extent of
their efforts for year 2000 remediation (and, as appropriate, testing) of their
services. In addition, DTC is in the process of developing such contingency
plans as it deems appropriate. According to DTC, the information contained in
this paragraph with respect to DTC has been provided to the Industry for
informational purposes only and is not intended to serve as a representation,
warranty or contract modification of any kind.
Although DTC, Euroclear and CEDEL have agreed to the foregoing procedures
to facilitate transfers of interests in the Reg S global senior note and in the
U.S. global senior note among direct participants, Euroclear and CEDEL, they are
under no obligation to perform or to continue to perform such procedures, and
such procedures may be discontinued at any time. None of us, the initial
purchasers or the trustee will have any responsibility for the performance by
DTC, Euroclear or CEDEL or their respective direct and indirect participants of
their respective obligations under the rules and procedures governing any of
their operations.
The information in this section concerning DTC, Euroclear and CEDEL and
their book-entry systems has been obtained from sources that we believe to be
reliable, but we take no responsibility for the accuracy thereof.
TRANSFERS OF INTERESTS IN ONE GLOBAL SENIOR NOTE FOR INTERESTS IN ANOTHER GLOBAL
SENIOR NOTE
Transfers involving an exchange of a beneficial interest in the Reg S
global senior note for a beneficial interest in the U.S. global senior note or
vice versa will be effected by DTC by means of an instruction originated by the
trustee through DTC/Deposit Withdraw at Custodian system. Accordingly, in
connection with such transfer, appropriate adjustments will be made to reflect a
decrease in the principal amount of the one global senior note and a
corresponding increase in the principal amount of the other global senior note,
as applicable. Any beneficial interest in the one global senior note that is
transferred to a person who takes delivery in the form of the other global
senior note will, upon transfer, cease to be an interest in such first global
senior note and become an interest in such other global senior note and,
accordingly, will thereafter be subject to all procedures applicable to
beneficial interests in such other global senior note for as long as it remains
such an interest.
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TRANSFERS OF INTERESTS IN GLOBAL SENIOR NOTES FOR CERTIFICATED SENIOR NOTES
An entire global senior note may be exchanged for certificated senior notes
in registered form without interest coupons if:
(1) DTC (A) notifies us that it is unwilling or unable to continue as
depositary for the global senior notes and we thereupon fail to appoint a
successor depositary within 90 days or (B) has ceased to be a clearing
agency registered under the Exchange Act;
(2) we, at our option, notify the trustee in writing that we elect to
cause the issuance of certificated senior notes; or
(3) there shall have occurred and be continuing a Default or an Event
of Default with respect to the senior notes.
In any such case, we will notify the trustee in writing that, upon surrender by
the direct and indirect participants of their interest in such global senior
note, certificated senior notes will be issued to each person that such direct
participants and indirect participants and DTC identify as being the beneficial
owner of the related senior notes.
Beneficial interests in global senior notes held by any direct participant
or indirect participant may be exchanged for certificated senior notes upon
request to DTC, by such direct participant, for itself or on behalf of an
indirect participant, by the trustee in accordance with customary DTC
procedures. Certificated senior notes delivered in exchange for any beneficial
interest in any global senior note will be registered in the names, and issued
in any approved denominations, requested by DTC on behalf of such direct
participant or indirect participant, in accordance with DTC's customary
procedures.
Neither we nor the trustee will be liable for any delay by the holder of
any global senior note or DTC in identifying the beneficial owners of senior
notes, and we and the trustee may conclusively rely on, and will be protected in
relying on, instructions from the holder of the global senior note or DTC for
all purposes.
SAME DAY SETTLEMENT AND PAYMENT
Payments in respect of the senior notes represented by the global senior
notes, including principal, premium and Additional Interest, if any, and
interest must be made by wire transfer of immediately available same day funds
to the accounts specified by the holder of interests in such global senior
notes. With respect to certificated senior notes, we will make all payments of
principal, premium and Additional Interest, if any, and interest by wire
transfer of immediately available same day funds to the accounts specified by
the holders thereof in writing to the trustee by the record date for such
payment or, if no such account is specified, by mailing a check to each such
holder's registered address. We expect that secondary trading in the
certificated senior notes will also be settled in immediately available funds.
REGISTRATION RIGHTS
We entered into the registration rights agreement with the initial
purchasers for the benefit of the holders of old notes. Under this agreement, we
agreed to use our best efforts, at our cost, to file and cause to become
effective a registration statement with respect to a registered offer to
exchange the old notes for new notes with terms identical to the old notes,
except that the new notes will not bear legends restricting the transfer
thereof.
The registration statement, of which this prospectus is a part, constitutes
the registration statement for purposes of the registration rights agreement.
Upon the registration statement being declared effective, we shall offer the new
notes in return for surrender of the old notes. The exchange
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offer will remain open for not less than 30 days after the date notice of the
exchange offer is mailed to holders of the old notes, or longer if required by
applicable law. For each old note you surrender to us under the exchange offer,
you will receive a new note of equal principal amount. Interest on each new note
shall accrue from the last Interest Payment Date on which interest was paid on
the old notes so surrendered or, if no interest has been paid on such old notes,
from April 21, 1999. If the applicable interpretations of the staff of the SEC
do not permit us to effect the exchange offer, or under certain other
circumstances, we will, at our cost, use our best efforts:
- to cause to become effective a shelf registration statement with respect
to resales of the old notes, and
- to keep such shelf registration statement effective until the earlier of
(1) two years after the shelf registration statement is declared
effective; (2) the date when all old notes covered by the shelf
registration statement have been sold pursuant to the shelf registration
statement; or (3) one year after the effective date of the shelf
registration statement if it is filed at the request of one of the
initial purchasers of old notes.
We will, in the event of such a shelf registration, provide to each holder
copies of the prospectus, notify each holder of old notes when the shelf
registration statement for the old notes has become effective and take certain
other actions as are required to permit resales of the old notes. A holder that
sells its old notes pursuant to the shelf registration statement generally:
- will be required to be named as a selling security holder in the related
prospectus and to deliver a prospectus to purchasers,
- will be subject to certain of the civil liability provisions under the
Securities Act in connection with such sales and
- will be bound by the provisions of the registration rights agreement that
are applicable to such a holder, including certain indemnification and
contribution obligations.
Additional interest will accrue on the old notes if:
(1) the exchange offer registration statement is not filed with the SEC on
or before July 20, 1999;
(2) the exchange offer registration statement is not declared effective on
or before October 18, 1999; or
(3) the exchange offer is not consummated and a shelf registration
statement is not declared effective on or before November 17, 1999.
This additional interest will be payable in cash semiannually in arrears each
April 15 and October 15, at a rate per year equal to 0.25% of the principal
amount of the old notes, for each event described in (1), (2) and (3) above, up
to an aggregate maximum of 0.75% per year. Upon the filing of the exchange offer
registration statement, the effectiveness of the exchange offer registration
statement, the consummation of the exchange offer or the effectiveness of a
shelf registration statement, as the case may be, after the corresponding date
listed above, the additional interest payable on the old notes from the date of
such filing, effectiveness or consummation, as the case may be, will cease to
accrue and all accrued and unpaid additional interest as of such occurrence
shall be paid to the holders of the senior notes.
If we effect the exchange offer, we will be entitled to close the exchange
offer 30 days after the commencement thereof, or such longer period required by
applicable law, provided that we have accepted all old notes previously validly
surrendered in accordance with the terms of the exchange offer. Old notes not
tendered in the exchange offer shall bear interest at 6 1/2% per annum and be
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subject to all of the terms and conditions specified in the indenture and to the
transfer restrictions set forth in the legend on the certificate for such old
notes.
This summary of certain provisions of the registration rights agreement
does not restate the agreement in its entirety. We urge you to read the
registration rights agreement, a copy of which is filed as an exhibit to the
registration statement of which this prospectus is a part.
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UNITED STATES FEDERAL TAX CONSIDERATIONS
The following is a summary of U.S. federal income tax considerations for
beneficial owners of the senior notes.
Under the Code a "U.S. Person" means a person that is any of the following:
- a citizen or resident of the United States;
- a corporation or partnership created or organized in or under the laws of
the United States or any political subdivision thereof;
- an estate the income of which is subject to U.S. federal income taxation
regardless of its source; or
- a trust which is either subject to the supervision of a court within the
United States and the control of one or more U.S. persons or has a valid
election in effect under applicable U.S. Treasury regulations to be
treated as a U.S. person.
A "non-U.S. Person" means a person that is not a "U.S. Person."
This summary is based on current law which is subject to change (perhaps
retroactively), is for general purposes only and should not be considered tax
advice. This summary does not represent a detailed description of the federal
income tax consequences to you in light of your particular circumstances. In
addition, it does not represent a detailed description of the U.S. federal
income tax consequences applicable to you if you are subject to special
treatment under the U.S. federal income tax laws (including if you are a
"controlled foreign corporation," "passive foreign investment company" or
"foreign personal holding company"). We cannot assure you that a change in law
will not alter significantly the tax considerations that we describe in this
summary.
YOU SHOULD CONSULT YOUR OWN TAX ADVISOR CONCERNING THE PARTICULAR U.S.
FEDERAL INCOME TAX CONSEQUENCES TO YOU OF THE OWNERSHIP OF THE SENIOR NOTES, AS
WELL AS THE CONSEQUENCES TO YOU ARISING UNDER THE LAWS OF ANY OTHER TAXING
JURISDICTION.
U.S. PERSONS AND NON-U.S. PERSONS
There will be no United States federal income tax consequences to anyone
exchanging an old note for a new note pursuant to the exchange offer. Such
holder will have the same adjusted basis and holding period in the new note as
it had in the old note immediately before the exchange.
U.S. PERSONS
STATED INTEREST ON SENIOR NOTES
Stated interest on a senior note generally will be taxable to a U.S. Person
as ordinary income at the time it accrues or is received in accordance with the
U.S. Person's method of accounting for U.S. federal income tax purposes.
SALE, EXCHANGE OR RETIREMENT OF SENIOR NOTES
Upon the sale, exchange, redemption, retirement or other disposition of a
senior note, a U.S. Person generally will recognize gain or loss equal to the
difference between the amount realized upon the sale, exchange, redemption,
retirement or other disposition and such holder's adjusted tax basis in the
senior note. However, the amount attributable to accrued but unpaid interest
will be taxable as such. A U.S. Person's adjusted tax basis in a senior note
will, in general, be the U.S. Person's cost for that senior note. This gain or
loss will be capital gain or loss, and net capital gain (i.e., generally capital
gain in excess of capital loss) recognized by an individual U.S. Person upon the
disposition of
80
<PAGE> 81
a senior note that has been held for more than one year generally will be
subject to tax at a maximum rate of 20%. A note that has been held for one year
or less will be taxed at ordinary income tax rates. The deductibility of capital
losses is subject to limitations.
MARKET DISCOUNT
U.S. Persons other than original purchasers of the old senior notes in the
offering, should be aware that the sale of the new senior notes may be affected
by the market discount provisions of the Code. The market discount rules
generally provide that if a U.S. Person:
- purchased the senior note, after the original offering, at a "market
discount" (i.e., at an amount less than the adjusted issue price of the
senior note as determined on the date of such purchase) exceeding a
statutorily-defined de minimis amount, and
- thereafter recognizes gain upon a disposition, including a partial
redemption, of the new senior note received in exchange for an old senior
note,
the lesser of such gain or the portion of the market discount that accrued while
the old senior note and new senior note were held by such U.S. Person will be
treated as ordinary interest income at the time of disposition. The rules also
provide that a U.S. Person who acquires a senior note at a market discount may
be required to defer a portion of any interest expense that may otherwise be
deductible on any indebtedness incurred or maintained to purchase or carry the
senior note until the U.S. Person disposes of such senior note in a taxable
transaction. If a holder of a senior note elects to include market discount in
income currently, both of the foregoing rules would not apply.
NON-U.S. PERSONS
U.S. FEDERAL WITHHOLDING TAX
The 30% U.S. federal withholding tax will not apply to any payment of
principal or interest on a particular series of senior notes provided that:
- you do not actually (or constructively) own 10% or more of the total
combined voting power of all classes of our voting stock within the
meaning of the Code and the U.S. Treasury Regulations;
- you are not a controlled foreign corporation that is related to us
through stock ownership;
- you are not a bank whose receipt of interest on the senior notes is
described in the Code; and
- either (a) you provide your name and address on an IRS Form W-8, and
certify, under penalty of perjury, that you are not a U.S. person or (b)
a financial institution holding the senior notes on your behalf
certifies, under penalty of perjury, that it has received an IRS Form W-8
from the beneficial owner and provides us with a copy.
If you cannot satisfy the requirements described above, payments of
premium, and interest made to you will be subject to the 30% U.S. federal
withholding tax, unless you provide us with a properly executed (1) IRS Form
1001 claiming an exemption from (or reduction in) withholding under the benefit
of a tax treaty, or (2) IRS Form 4224 stating that interest paid on the senior
notes is not subject to withholding tax because it is effectively connected with
your conduct of a trade or business in the United States.
U.S. FEDERAL ESTATE TAX
Your estate will not be subject to U.S. federal estate tax on senior notes
of a series beneficially owned by you at the time of your death, provided that
(1) you do not own 10% or more of the total combined voting power of all classes
of our voting stock (within the meaning of the Code and the
81
<PAGE> 82
U.S. Treasury Regulations), and (2) interest on the senior notes would not have
been, if received at the time of your death, effectively connected with the
conduct by you of a trade or business in the United States.
U.S. FEDERAL INCOME TAX
If you are engaged in a trade or business in the United States and interest
on the senior notes is effectively connected with the conduct of that trade or
business (although exempt from the 30% withholding tax), you will be subject to
U.S. federal income tax on that interest on a net income basis in the same
manner as if you were a U.S. person as defined under the Code. In addition, if
you are a foreign corporation, you may be subject to a branch profits tax equal
to 30% (or lower applicable treaty rate) of your earnings and profits for the
taxable year, subject to adjustments that are effectively connected with the
conduct by you of a trade or business in the United States. For this purpose,
interest on senior notes will be included in earnings and profits.
Any gain or income realized on the disposition of a senior note generally
will not be subject to U.S. federal income tax unless (1) that gain or income is
effectively connected with the conduct of a trade or business in the United
States by you, or (2) you are an individual who is present in the United States
for 183 days or more in the taxable year of that disposition, and certain other
conditions are met.
INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, information reporting and backup withholding will not be
required regarding payments that we make to you provided that we do not have
actual knowledge that you are a U.S. person and we have received from you the
statement described above under "U.S. federal withholding tax," or you otherwise
establish an exemption.
In addition, you will not be required to pay backup withholding and provide
information reporting regarding the proceeds of the sale of a senior note within
the United States or conducted through certain U.S.-related financial
intermediaries, if the payor receives the statement described above and does not
have actual knowledge that you are a U.S. person, as defined under the Code, or
you otherwise establish an exemption.
U.S. Treasury Regulations were recently issued that generally modify the
information reporting and backup withholding rules applicable to certain
payments made after December 31, 1999. In general, the new U.S. Treasury
Regulations would not significantly alter the present rules discussed above,
except in certain special situations.
Any amounts withheld under the backup withholding rules will be allowed as
a refund or a credit against your U.S. federal income tax liability provided the
required information is furnished to the IRS.
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<PAGE> 83
PLAN OF DISTRIBUTION
Each broker-dealer that receives new notes for its own account pursuant to
the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of such new notes. This prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of new notes received in exchange for old notes where
such old notes were acquired as a result of market-making activities or other
trading activities. We have agreed that starting on the Expiration Date and
ending on the close of business on the 90th day following the Expiration Date,
we will make this prospectus, as amended or supplemented, available to any
broker-dealer for use in connection with any such resale. In addition, until
, 1999, all dealers effecting transactions in the new notes may be
required to deliver a prospectus.
We will not receive any proceeds from any sale of new notes by
broker-dealers. New notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time:
- in one or more transactions in the over-the-counter market,
- in negotiated transactions,
- through the writing of options on the new notes, or
- a combination of such methods of resale.
Such notes may be sold:
- at market prices prevailing at the time of resale,
- at prices related to such prevailing market prices, or
- at negotiated prices.
Any such resale may be made directly to purchasers or to or through brokers or
dealers who may receive compensation in the form of commissions or concessions
from any such broker-dealer or the purchasers of any such new notes.
Any broker-dealer that resells new notes that were received by it for its
own account pursuant to the exchange offer and any broker or dealer that
participates in a distribution of such new notes may be deemed to be an
"underwriter" within the meaning of the Securities Act. Any profit on any such
resale of new notes and any commissions or concessions received by any of them
may be deemed to be underwriting compensation under the Securities Act. The
letter of transmittal states that by acknowledging that it will deliver and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.
For a period of 90 days after the Expiration Date, we will promptly send
additional copies of the prospectus and any amendment or supplement to the
prospectus to any broker-dealer requesting these copies in the letter of
transmittal. We have agreed to pay all expenses incident to the exchange offer,
including the expenses of one counsel for the holders of the old notes other
than commissions or concessions of any brokers or dealers and will indemnify the
holders of the notes, including any broker-dealers, against various liabilities,
including liabilities under the Securities Act.
Following consummation of the exchange offer, we may, in our sole
discretion, commence one or more additional exchange offers to holders of old
notes who did not exchange their old notes for new notes in the exchange offer
on terms which may differ from those contained in the registration rights
agreement. We may use this prospectus, as it may be amended or supplemented from
time to time, in connection with any such additional exchange offers.
83
<PAGE> 84
LEGAL MATTERS
Certain legal matters in connection with the new notes will be passed upon
for AFLAC Incorporated by Skadden, Arps, Slate, Meagher & Flom LLP, 1440 New
York Avenue, N.W., Washington, D.C. 20005 and by Joey M. Loudermilk, Senior Vice
President and General Counsel of AFLAC Incorporated.
EXPERTS
The consolidated financial statements of AFLAC Incorporated included in
this prospectus have been audited by KPMG LLP, independent certified public
accountants, to the extent and for the periods indicated in their report
thereon. Such financial statements have been included in reliance upon the
report of KPMG LLP given upon their authority as experts in accounting and
auditing.
DOCUMENTS INCORPORATED BY REFERENCE
The SEC allows us to "incorporate by reference" certain documents, which
means that we can disclose important information to you by referring you to
those documents. The information in the documents incorporated by reference is
considered to be part of this prospectus, and information in documents that we
file later with the SEC will automatically update and supersede this
information. We incorporate by reference the documents listed below and any
future filings we will make with the SEC under Sections 13(a), 13(c), 14 and
15(d) of the Exchange Act:
- Annual Report on Form 10-K for the fiscal year ended December 31,
1998.
- Quarterly Report on Form 10-Q for the quarter ended March 31, 1999.
We will provide a copy of the documents we incorporate by reference, at no
cost, to any person who receives this prospectus. To request a copy of any or
all of these documents, you should write or telephone us at the following
address and telephone number:
AFLAC Incorporated
1932 Wynnton Road
Columbus, Georgia 31999
Attention: Investor Relations Department
Telephone: (706) 323-3431
TO OBTAIN TIMELY DELIVERY, YOU MUST REQUEST THIS INFORMATION NO LATER THAN
FIVE DAYS BEFORE YOU MUST MAKE YOUR INVESTMENT DECISION. FIVE DAYS BEFORE THE
CLOSE OF THE EXCHANGE OFFER IS , 1999, UNLESS EXTENDED.
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<PAGE> 85
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC under the Exchange Act. The Exchange Act file number
for our SEC filings is 1-7434. You may read and copy any document we file at the
following SEC public reference rooms:
<TABLE>
<S> <C> <C>
Judiciary Plaza 500 West Madison Street 7 World Trade Center
450 Fifth Street, N.W. 14th Floor Suite 1300
Room 1024 Chicago, Illinois 60661 New York, New York 10048
Washington, D.C. 20549
</TABLE>
You may obtain information on the operation of the public reference room in
Washington, D.C. by calling the SEC at 1-800-SEC-0330.
We file information electronically with the SEC. Our SEC filings also are
available from the SEC's Internet site at http://www.sec.gov, which contains
reports, proxy and information statements and other information regarding
issuers that file electronically. Our common stock is listed on the New York
Stock Exchange. You may also read and copy our SEC filings and other information
at the offices of the New York Stock Exchange, Inc., 20 Broad Street, New York,
New York 10005.
Whether or not we are required to do so by law, for so long as any of the
senior notes remain outstanding, we will furnish you as a holder of the senior
notes and will, if permitted, file with the SEC the following:
(1) all quarterly and annual financial information that would be
required to be contained in a filing with the SEC on Forms 10-Q and 10-K if
we were required to file such forms;
(2) with respect to annual information only, a report thereon by our
independent certified public accountants; and
(3) all reports that would be required to be filed with the SEC on
Form 8-K if we were required to file such reports.
For so long as any of the senior notes remain outstanding, we have agreed
to make available to any prospective purchaser of the senior notes or beneficial
owner of the senior notes in connection with any sale of those notes the
information required by Rule 144A(d)(4) under the Securities Act.
------------------------
85
<PAGE> 86
AFLAC INCORPORATED
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Statements of Earnings for the Three Months
Ended March 31, 1999 and 1998 Unaudited................... F-2
Consolidated Balance Sheets, at March 31, 1999 and 1998
Unaudited................................................. F-3
Consolidated Statements of Shareholders' Equity for the
Three Months Ended March 31, 1999 and 1998 Unaudited...... F-4
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 1999 and 1998 Unaudited................... F-5
Consolidated Statements of Comprehensive Income for the
Three Months Ended March 31, 1999 and 1998 Unaudited...... F-6
Notes to the Consolidated Financial Statements at March 31,
1999 Unaudited............................................ F-7
Independent Auditors' Report................................ F-12
Consolidated Statements of Earnings, for each of the years
in the three-year period ended December 31, 1998.......... F-13
Consolidated Balance Sheets, at December 31, 1998 and
1997...................................................... F-14
Consolidated Statements of Shareholders' Equity, for each of
the years in the three-year period ended December 31,
1998...................................................... F-15
Consolidated Statements of Cash Flows, for each of the years
in the three-year period ended December 31, 1998.......... F-16
Consolidated Statements of Comprehensive Income, for each of
the years in the three-year period ended December 31,
1998...................................................... F-17
Notes to the Consolidated Financial Statements at December
31, 1998.................................................. F-18
</TABLE>
F-1
<PAGE> 87
AFLAC INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
1999 1998
--------- ---------
(IN MILLIONS, EXCEPT FOR
SHARE AND PER-SHARE
AMOUNTS -- UNAUDITED)
<S> <C> <C>
Revenues:
Premiums, principally supplemental health insurance....... $ 1,728 $ 1,472
Net investment income..................................... 320 279
Realized investment gains (losses)........................ (5) --
Other income.............................................. 5 6
-------- --------
Total revenues.................................... 2,048 1,757
-------- --------
Benefits and expenses:
Benefits and claims....................................... 1,400 1,214
Acquisition and operating expenses:
Amortization of deferred policy acquisition costs...... 57 47
Insurance commissions.................................. 226 192
Insurance expenses..................................... 142 118
Provision for mandated policyholder protection fund.... -- 111
Interest expense....................................... 4 3
Other operating expenses............................... 16 19
-------- --------
Total acquisition and operating expenses.......... 445 490
-------- --------
Total benefits and expenses....................... 1,845 1,704
-------- --------
Earnings before income taxes...................... 203 53
Income tax expense (benefit):
Operations................................................ 74 14
Deferred tax benefit from Japanese tax rate reductions.... (67) (121)
-------- --------
Total income taxes................................ 7 (107)
-------- --------
Net earnings...................................... $ 196 $ 160
======== ========
Net earnings per share:
Basic..................................................... $ .74 $ .60
Diluted................................................... .71 .58
======== ========
Shares used in computing earnings per share (In thousands):
Basic..................................................... 266,115 266,831
Diluted................................................... 276,769 276,294
======== ========
Cash dividends per share.................................... $ .065 $ .058
======== ========
</TABLE>
See the accompanying Notes to Consolidated Financial Statements.
F-2
<PAGE> 88
AFLAC INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
1999 1998
-------- --------
(IN MILLIONS, EXCEPT FOR
PER-SHARE AMOUNTS --
UNAUDITED)
<S> <C> <C>
ASSETS:
Investments and cash:
Securities available for sale, at fair value:
Fixed maturities (amortized cost, $15,779 in 1999 and
$16,028 in 1998).................................... $17,873 $18,917
Perpetual debentures (amortized cost, $1,826 in 1999
and $3,323 in 1998)................................. 1,730 3,681
Equity securities (cost, $102 in 1999 and $85 in
1998)............................................... 180 167
Securities held to maturity, at amortized cost:
Fixed maturities (fair value, $3,686 in 1999)........ 3,803 --
Perpetual debentures (fair value, $3,091 in 1999).... 3,344 --
Mortgage loans and other............................... 9 16
Short-term investments................................. 9 45
Cash and cash equivalents.............................. 269 145
------- -------
Total investments and cash........................ 27,217 22,971
Receivables, primarily premiums........................ 230 213
Receivables for security transactions.................. 25 1
Accrued investment income.............................. 279 236
Deferred policy acquisition costs...................... 3,040 2,604
Property and equipment, at cost less accumulated
depreciation.......................................... 450 381
Securities held as collateral for loaned securities.... -- 1,028
Other.................................................. 108 94
------- -------
Total assets...................................... $31,349 $27,528
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY:
Liabilities:
Policy liabilities:
Future policy benefits............................... $22,119 $18,655
Unpaid policy claims................................. 1,305 1,052
Unearned premiums.................................... 306 278
Other policyholders' funds........................... 246 199
------- -------
Total policy liabilities.......................... 23,976 20,184
Notes payable.......................................... 573 511
Income taxes........................................... 1,733 1,694
Payables for return of collateral on loaned
securities............................................ -- 1,028
Payables for security transactions..................... 437 10
Other.................................................. 771 647
------- -------
Total liabilities................................. 27,490 24,074
------- -------
Shareholders' equity:
Common stock of $.10 par value. In thousands:
authorized 400,000 shares; issued 318,570 shares in
1999 and 317,097 shares in 1998....................... 32 16
Additional paid-in capital............................. 241 232
Retained earnings...................................... 3,040 2,588
Accumulated other comprehensive income:
Unrealized foreign currency translation gains........ 214 230
Unrealized gains on investment securities............ 1,243 1,202
Treasury stock, at average cost........................ (910) (812)
Notes receivable for stock purchases................... (1) (2)
------- -------
Total shareholders' equity........................ 3,859 3,454
------- -------
Total liabilities and shareholders' equity........ $31,349 $27,528
======= =======
Shareholders' equity per share.................... $ 14.47 $ 12.92
======= =======
</TABLE>
See the accompanying Notes to Consolidated Financial Statements.
F-3
<PAGE> 89
AFLAC INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------
1999 1998
------ ------
(IN MILLIONS, EXCEPT FOR
PER-SHARE AMOUNTS --
UNAUDITED)
<S> <C> <C>
Common Stock:
Balance at beginning and end of period.................... $ 32 $ 16
------ ------
Additional paid-in capital:
Balance at beginning of year.............................. 235 227
Exercise of stock options................................. 3 3
Gain on treasury stock reissued........................... 3 2
------ ------
Balance at end of period.................................. 241 232
------ ------
Retained earnings:
Balance at beginning of year.............................. 2,862 2,442
Net earnings.............................................. 196 160
Cash dividends ($.065 per share in 1999 and $.058 in
1998).................................................. (18) (14)
------ ------
Balance at end of period.................................. 3,040 2,588
------ ------
Accumulated other comprehensive income:
Balance at beginning of year.............................. 1,551 1,559
Change in unrealized foreign currency translation gains
during period, net of income taxes..................... (5) (44)
Unrealized gains (losses) on investment securities during
period, net of income taxes and reclassification
adjustments............................................ (89) (83)
------ ------
Balance at end of period.................................. 1,457 1,432
------ ------
Treasury stock:
Balance at beginning of year.............................. (910) (813)
Purchases of treasury stock............................... (11) (7)
Cost of shares issued..................................... 11 8
------ ------
Balance at end of period.................................. (910) (812)
------ ------
Notes receivable for stock purchases........................ (1) (2)
------ ------
Total shareholders' equity................................ $3,859 $3,454
====== ======
</TABLE>
See the accompanying Notes to Consolidated Financial Statements.
F-4
<PAGE> 90
AFLAC INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------
1999 1998
----- -----
(IN MILLIONS --
UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net earnings.............................................. $ 196 $ 160
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Increase in policy liabilities.......................... 620 570
Deferred income taxes................................... (41) (161)
Change in income taxes payable.......................... (73) (47)
Increase in deferred policy acquisition costs........... (69) (53)
Change in receivables and advance premiums.............. 2 5
Depreciation and amortization expense................... 7 7
Provision for mandated policyholder protection fund..... -- 111
Other, net.............................................. 53 29
----- -----
Net cash provided by operating activities............. 695 621
----- -----
Cash flows from investing activities:
Proceeds from investments sold or matured:
Securities available for sale:
Fixed-maturity securities sold........................ 279 302
Fixed-maturity securities matured..................... 63 162
Equity securities..................................... 16 10
Securities held to maturity:
Fixed-maturity securities matured..................... 9 --
Mortgage loans and other investments, net............... -- 1
Short-term investments, net............................. 1 --
Costs of investments acquired:
Securities available for sale:
Fixed-maturity securities............................. (648) (869)
Perpetual debentures.................................. (434) (278)
Equity securities..................................... (19) (17)
Securities held to maturity:
Fixed-maturity securities............................. (42) --
Short-term investments, net............................. -- (2)
Additions to property and equipment, net.................. (3) (6)
----- -----
Net cash used by investing activities................. (778) (697)
----- -----
Cash flows from financing activities:
Principal payments under debt obligations................. (3) (5)
Dividends paid to shareholders............................ (18) (14)
Purchases of treasury stock............................... (11) (7)
Treasury stock reissued................................... 14 10
Other, net................................................ 5 1
----- -----
Net cash used by financing activities................... (13) (15)
----- -----
Effect of exchange rate changes on cash and cash
equivalents............................................... (9) --
----- -----
Net change in cash and cash equivalents................. (105) (91)
Cash and cash equivalents, beginning of year................ 374 236
----- -----
Cash and cash equivalents, end of period.................... $ 269 $ 145
===== =====
Supplemental disclosures of cash flow information:
Cash payments during the period for:
Interest on debt obligations............................ $ 3 $ 3
Income taxes............................................ 139 103
</TABLE>
See the accompanying Notes to Consolidated Financial Statements.
F-5
<PAGE> 91
AFLAC INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------
1999 1998
------ ------
(IN MILLIONS -- UNAUDITED)
<S> <C> <C>
Net earnings................................................ $196 $160
---- ----
Other comprehensive income, before income taxes:
Foreign currency translation adjustments:
Change in unrealized foreign currency translation gains
during the period..................................... 24 7
Unrealized gains (losses) on investment securities:
Unrealized holding gains (losses) arising during the
period................................................ (95) (48)
Reclassification adjustment for realized (gains) losses
included in net earnings.............................. 4 (1)
---- ----
Total other comprehensive income, before income
taxes........................................... (67) (42)
Income tax expense related to items of other comprehensive
income.................................................... 27 85
---- ----
Other comprehensive income, net of income taxes........... (94) (127)
---- ----
Total comprehensive income........................ $102 $ 33
==== ====
</TABLE>
See the accompanying Notes to Consolidated Financial Statements.
F-6
<PAGE> 92
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited consolidated
financial statements of AFLAC Incorporated and subsidiaries (the "Company")
contain all adjustments necessary to fairly present the financial position as of
March 31, 1999, and the results of operations and statements of cash flows,
shareholders' equity and comprehensive income for the three months ended March
31, 1999 and 1998. Results of operations for interim periods are not necessarily
indicative of results for the entire year.
We prepare our financial statements in accordance with generally accepted
accounting principles (GAAP). These principles are established primarily by the
Financial Accounting Standards Board (FASB) and the American Institute of
Certified Public Accountants. The preparation of financial statements in
conformity with GAAP requires us to make estimates when recording transactions
resulting from business operations, based on information currently available.
The most significant items on our balance sheet that involve a greater extent of
accounting and actuarial estimates subject to changes in the future are:
deferred policy acquisition costs, liabilities for future policy benefits and
unpaid policy claims, accrued liabilities for unfunded retirement plans and
contingent liabilities. As additional information becomes available (or actual
amounts are determinable), the recorded estimates may be revised and reflected
in operating results. Although some variability is inherent in these estimates,
we believe the amounts provided are adequate.
The financial statements should be read in conjunction with the financial
statements included in our annual report to shareholders for the year ended
December 31, 1998.
(2) ACCOUNTING PRONOUNCEMENTS
We adopted SFAS No. 131, Disclosures about Segments of an Enterprise and
Related Information in 1998. This Statement requires that companies disclose
segment data on the basis that is used internally by management for evaluating
segment performance and allocating resources to segments. This Statement
requires that a company report a measure of segment profit or loss, certain
specific revenue and expense items, and segment assets. It also requires various
reconciliations of total segment information to amounts in the consolidated
financial statements. SFAS No. 131 was effective for financial statements issued
for annual periods beginning in 1998 and for interim periods beginning in 1999.
The required interim period information is presented in Note 3.
On January 1, 1999, we adopted Statement of Position (SOP) 97-3, Accounting
by Insurance and Other Enterprises for Insurance Related Assessments. This SOP
provides guidance for determining when an entity should recognize a liability
for guaranty fund and other insurance related assessments. It also provides
guidance on how to measure the liability. There was no effect on net earnings or
shareholders' equity due to our adoption of this SOP since our previous
accounting method for guaranty fund and other insurance related assessments
conformed to the requirements of this SOP.
We also adopted SOP 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use, on January 1, 1999. This SOP provides
guidance for determining whether costs of software developed or obtained for
internal use should be capitalized or expensed as incurred. In the past, we have
expensed all such costs as they were incurred. The adoption of this SOP had no
material effect on net earnings for the three months ended March 31, 1999.
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities,
was issued in June 1998. This Statement establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in investment securities and other contracts, and
F-7
<PAGE> 93
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
for hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the balance sheet and measure those instruments
at fair value. The accounting for changes in the fair value of a derivative will
be included in either earnings or other comprehensive income depending on the
intended use of the derivative instrument. We are currently evaluating this
standard, which is effective for AFLAC January 1, 2000.
(3) SEGMENT INFORMATION
Information regarding components of operations for the three months ended
March 31 follows:
<TABLE>
<CAPTION>
1999 1998
------ ------
(IN MILLIONS)
<S> <C> <C>
Total revenues:
AFLAC Japan:
Earned premiums........................................ $1,398 $1,181
Net investment income.................................. 262 226
Other income........................................... -- 1
------ ------
Total AFLAC Japan revenues........................ 1,660 1,408
------ ------
AFLAC U.S.:
Earned premiums........................................ 330 289
Net investment income.................................. 58 51
Other income........................................... -- 3
------ ------
Total AFLAC U.S. revenues......................... 388 343
------ ------
All other business segments............................... 7 7
------ ------
Total business segments........................... 2,055 1,758
Realized investment gains (losses)........................ (5) --
Corporate................................................. 7 8
Intercompany eliminations................................. (9) (9)
------ ------
Total............................................. $2,048 $1,757
====== ======
Earnings before income taxes:
AFLAC Japan............................................... $ 158 $ 125
AFLAC U.S. ............................................... 63 56
All other business segments............................... 1 --
------ ------
Total business segments........................... 222 181
Provision for the Japanese mandated policyholder
protection fund........................................ -- (111)
Realized investment gains (losses)........................ (5) --
Interest expense, non-insurance operations................ (3) (3)
Corporate................................................. (11) (14)
------ ------
Total............................................. $ 203 $ 53
====== ======
</TABLE>
(4) JAPANESE INCOME TAXES
At the end of March 1999, the Japanese government reduced the Japanese
corporate income tax rate from 41.7% to 36.2%, which increased net earnings for
the first quarter of 1999 by $67 million ($.25 per basic share, $.24 per diluted
share) from the reduction of our consolidated deferred income tax liability as
of March 31, 1999. This was the net effect of recalculating Japanese deferred
income taxes at the new 36.2% rate on the temporary differences between the
financial reporting basis of
F-8
<PAGE> 94
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
AFLAC Japan's assets and liabilities reduced by the limitations in the U.S.
foreign tax credit provisions.
At the end of March 1998, the Japanese government reduced the Japanese
corporate income tax rate from 45.3% to 41.7% which increased net earnings for
the first quarter of 1998 by $121 million ($.45 per basic share, $.44 per
diluted share) from the reduction of AFLAC Japan's deferred income tax
liability. The deferred tax reduction represented the effect of recalculating
Japanese deferred income taxes at the 41.7% rate on the temporary differences
between the financial reporting basis and the Japanese income tax basis of AFLAC
Japan's assets and liabilities.
The 1998 rate reduction for AFLAC Japan was effective May 1, 1998 for
purposes of calculating income tax expense on operating earnings and the 1999
rate reduction is effective April 1, 1999.
(5) POLICYHOLDER PROTECTION FUND
During the first quarter of 1998, the Japanese government enacted a
mandatory policyholder protection fund system. The life insurance industry is
required to contribute $4.1 billion to this fund over a 10-year period. The
total charge for our share of the contribution obligation was recognized in the
first quarter of 1998 and decreased pretax earnings by $111 million for the
three months ended March 31, 1998. The after-tax charge was $65 million, or $.24
per basic and diluted share.
(6) NOTES PAYABLE
A summary of notes payable is as follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
--------- ------------
(IN MILLIONS)
<S> <C> <C>
Unsecured, yen-denominated notes payable to banks:
Reducing, revolving credit agreement, due annually through
July 2001:
2.29% fixed interest rate.............................. $282 $294
Variable interest rate (.93% at March 31, 1999)........ 32 35
Revolving credit agreement due November 2002:
1.24% fixed interest rate.............................. 129 134
Variable interest rate (.95% at March 31, 1999)........ 112 115
Obligations under capitalized leases, due monthly through
2003, secured by computer equipment in Japan.............. 18 18
---- ----
Total notes payable............................... $573 $596
==== ====
</TABLE>
We have a reducing, revolving credit agreement that provides for bank
borrowings through July 2001 in either U.S. dollars or Japanese yen. The current
borrowing limit is $325 million. Under the terms of the agreement, the borrowing
limit will reduce to $250 million on July 15, 1999, and $125 million on July 15,
2000. At March 31, 1999, 34.1 billion yen ($282 million) was outstanding at a
fixed interest rate and 3.8 billion yen ($32 million) was outstanding at a
variable interest rate under this agreement.
We also have an unsecured revolving credit agreement that provides for bank
borrowings through November 2002 with a borrowing limit of $250 million, payable
in either U.S. dollars or Japanese yen. At March 31, 1999, 15.5 billion yen
($129 million) was outstanding at a fixed interest rate and 13.5 billion yen
($112 million) was outstanding at a variable interest rate under this agreement.
F-9
<PAGE> 95
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
We have outstanding interest rate swaps on a portion of our variable
interest rate yen-denominated borrowings (49.6 billion yen). These swaps reduce
the impact of changes in interest rates on our borrowing costs and effectively
change our interest rate from variable to fixed. The interest rate swaps have
notional principal amounts that equal the anticipated unpaid principal amounts.
Under these agreements, we make fixed rate payments at 2.29% on one loan and
1.24% on another loan and receive floating rate payments (.19% at March 31, 1999
plus loan costs of 25 or 20 basis points, respectively) based on the three-month
Tokyo Interbank Offered Rate.
We have designated our yen-denominated borrowings as a hedge of our net
investment in AFLAC Japan. Foreign currency translation gains/losses are
included in accumulated other comprehensive income. Outstanding principal and
related accrued interest payable on the yen-denominated borrowings were
translated into dollars at end-of-period exchange rates. Interest expense was
translated at average exchange rates for the period the interest expense was
incurred.
On April 21, 1999, we issued $450 million of senior notes with a 6.50%
coupon, paid semiannually. The notes are redeemable at our option and at any
time at a redemption price equal to the principal amount of the notes being
redeemed plus a make-whole amount.
We received net proceeds of $445 million. We intend to use the proceeds
primarily to purchase shares of our common stock. Any remaining proceeds may be
used to repay indebtedness or for general corporate purposes. We intend to swap
the dollar-denominated principal and interest to be yen-denominated.
(7) UNREALIZED GAINS ON INVESTMENT SECURITIES
On October 1, 1998, we reclassified certain debt securities from "available
for sale" to "held to maturity." The related net unrealized gains and losses at
the date of transfer on these securities are being amortized over the remaining
term of the securities. These unamortized net unrealized gains and losses, plus
the net unrealized gains and losses on securities available for sale, less
amounts applicable to policy liabilities and deferred income taxes, are reported
in accumulated other comprehensive income. The portion of unrealized gains
credited to policy liabilities represents gains that would not inure to the
benefit of shareholders if such gains were actually realized. These amounts
relate to policy reserve interest requirements and reflect the difference
between market investment yields and estimated minimum required interest rates.
The net effect on shareholders' equity of unrealized gains and losses from
investment securities at the following dates was:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
--------- ------------
(IN MILLIONS)
<S> <C> <C>
Unrealized gains on securities available for sale........... $2,076 $1,946
Unamortized unrealized gains on securities transferred to
held to maturity.......................................... 1,149 1,224
Less:
Policy liabilities........................................ 1,032 885
Deferred income taxes..................................... 950 953
------ ------
Shareholders' equity, net unrealized gains on investment
securities................................................ $1,243 $1,332
====== ======
</TABLE>
(8) SECURITY LENDING
AFLAC Japan uses short-term security lending arrangements to increase
investment income with minimal risk. At March 31, 1999 and December 31, 1998 we
had security loans outstanding in the
F-10
<PAGE> 96
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
amounts of $543 million and $3.0 billion at fair value, respectively. At March
31, 1999, and December 31, 1998, we held Japanese government bonds as collateral
for loaned securities in the amounts of $547 million and $3.1 billion, at fair
value. Our security lending policy requires that the fair value of the
securities received as collateral be 105% or more of the fair value of the
loaned securities as of the date the securities are loaned and not less than
100% thereafter.
(9) COMMON STOCK
The following is a reconciliation of the number of shares of our common
stock for the three months ended March 31:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
(IN THOUSANDS OF SHARES)
<S> <C> <C>
Common stock -- issued:
Balance at beginning of year.............................. 317,971 316,380
Exercise of stock options................................. 599 717
------- -------
Balance at end of period.................................. 318,570 317,097
------- -------
Treasury stock:
Balance at beginning of year.............................. 52,287 49,944
Purchases of treasury stock:
Open market............................................ 150 114
Received from employees for taxes on stock option
exercises............................................. 98 139
Shares issued to sales associates stock bonus plan and
dividend reinvestment plan............................. (191) (280)
Exercise of stock options................................. (429) (201)
------- -------
Balance at end of period.................................. 51,915 49,716
------- -------
Shares outstanding at end of period......................... 266,655 267,381
======= =======
</TABLE>
(10) LITIGATION
We are a defendant in various litigation considered to be in the normal
course of business. Some of this litigation is pending in Alabama, where large
punitive damages bearing little relation to the actual damages sustained by
plaintiffs have been awarded against other companies, including insurers, in
recent years. Although the final results of any litigation cannot be predicted
with certainty, we believe the outcome of pending litigation will not have a
material adverse effect on our financial position.
F-11
<PAGE> 97
INDEPENDENT AUDITORS' REPORT
The Shareholders and Board of Directors
AFLAC Incorporated:
We have audited the accompanying consolidated balance sheets of AFLAC
Incorporated and subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of earnings, shareholders' equity, cash flows and
comprehensive income for each of the years in the three-year period ended
December 31, 1998. These consolidated financial statements are the
responsibility of the company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of AFLAC
Incorporated and subsidiaries at December 31, 1998 and 1997, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1998, in conformity with generally accepted accounting
principles.
KPMG LLP
Atlanta, Georgia
January 28, 1999
F-12
<PAGE> 98
AFLAC INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1998 1997 1996
------- ------- -------
(IN MILLIONS, EXCEPT FOR SHARE
AND PER-SHARE AMOUNTS)
<S> <C> <C> <C>
Revenues:
Premiums, principally supplemental health insurance...... $ 5,943 $ 5,874 $ 5,910
Net investment income.................................... 1,138 1,078 1,022
Realized investment gains (losses)....................... (2) (5) 2
Gain on sale of television business...................... -- 267 60
Other income............................................. 25 37 106
------- ------- -------
Total revenues................................... 7,104 7,251 7,100
------- ------- -------
Benefits and expenses:
Benefits and claims...................................... 4,877 4,833 4,896
Acquisition and operating expenses:
Amortization of deferred policy acquisition costs..... 201 180 162
Insurance commissions................................. 773 773 778
Insurance expenses.................................... 504 479 437
Provision for mandated policyholder protection fund... 111 -- --
Interest expense...................................... 13 14 16
Other operating expenses.............................. 74 107 161
------- ------- -------
Total acquisition and operating expenses......... 1,676 1,553 1,554
------- ------- -------
Total benefits and expenses...................... 6,553 6,386 6,450
------- ------- -------
Earnings before income taxes..................... 551 865 650
Income tax expense (benefit):
Current.................................................. 277 292 240
Deferred -- operations................................... (92) (12) 16
Deferred tax benefit from Japanese tax rate reduction.... (121) -- --
------- ------- -------
Total income taxes............................... 64 280 256
------- ------- -------
Net earnings..................................... $ 487 $ 585 $ 394
======= ======= =======
Net earnings per share:
Basic.................................................... $ 1.83 $ 2.15 $ 1.41
Diluted.................................................. 1.76 2.08 1.36
Common shares used in computing earnings per share
(In thousands):
Basic.................................................... 266,305 272,110 280,352
Diluted.................................................. 275,872 281,596 288,922
</TABLE>
Share and per-share amounts reflect the 2-for-1 stock split paid on June 8,
1998.
See the accompanying Notes to the Consolidated Financial Statements.
F-13
<PAGE> 99
AFLAC INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1997
-------- --------
(IN MILLIONS, EXCEPT
FOR SHARE AMOUNTS)
<S> <C> <C>
ASSETS:
Investments and cash:
Securities available for sale, at fair value:
Fixed maturities (amortized cost $15,699 in 1998
and $16,073 in 1997).............................. $17,660 $19,007
Perpetual debentures (amortized cost $1,414 in 1998
and $3,048 in 1997)............................... 1,323 3,431
Equity securities (cost $101 in 1998 and $80 in
1997)............................................. 177 146
Securities held to maturity, at amortized cost:
Fixed maturities (fair value $3,691)............... 3,947 --
Perpetual debentures (fair value $3,131)........... 3,494 --
Mortgage loans and other................................ 9 17
Short-term investments.................................. 10 43
Cash and cash equivalents............................... 374 236
------- -------
Total investments and cash..................... 26,994 22,880
Receivables, primarily premiums............................. 229 213
Receivables for security transactions....................... 43 3
Accrued investment income................................... 316 265
Deferred policy acquisition costs........................... 3,067 2,582
Property and equipment, at cost less accumulated
depreciation.............................................. 427 386
Securities held as collateral for loaned securities......... -- 3,034
Other....................................................... 107 91
------- -------
Total assets................................... $31,183 $29,454
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY:
Liabilities:
Policy liabilities:
Future policy benefits............................. $22,218 $18,399
Unpaid policy claims............................... 1,263 1,011
Unearned premiums.................................. 309 277
Other policyholders' funds......................... 244 198
------- -------
Total policy liabilities....................... 24,034 19,885
Notes payable........................................... 596 523
Income taxes............................................ 1,865 1,827
Payables for return of collateral on loaned
securities............................................. -- 3,034
Payables for security transactions...................... 173 216
Other................................................... 745 539
Commitments and contingencies (Notes 11 and 12)
------- -------
Total liabilities.............................. 27,413 26,024
------- -------
Shareholders' equity:
Common stock of $.10 par value. In thousands: authorized
400,000 shares; issued 317,971 shares in 1998 and
316,380 shares in 1997................................. 32 16
Additional paid-in capital.............................. 235 227
Retained earnings....................................... 2,862 2,442
Accumulated other comprehensive income:
Unrealized foreign currency translation gains...... 219 274
Unrealized gains on investment securities.......... 1,332 1,285
Treasury stock, at average cost......................... (910) (813)
Notes receivable for stock purchases.................... -- (1)
------- -------
Total shareholders' equity..................... 3,770 3,430
------- -------
Total liabilities and shareholders' equity..... $31,183 $29,454
======= =======
</TABLE>
Share and per-share amounts reflect the 2-for-1 stock split paid on June 8,
1998.
See the accompanying Notes to the Consolidated Financial Statements.
F-14
<PAGE> 100
AFLAC INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1998 1997 1996
------ ------ ------
(IN MILLIONS, EXCEPT FOR
PER-SHARE AMOUNTS)
<S> <C> <C> <C>
Common stock:
Balance at beginning of year.............................. $ 16 $ 16 $ 16
Two-for-one stock split................................... 16 -- --
------ ------ ------
Balance at end of year.................................... 32 16 16
------ ------ ------
Additional paid-in capital:
Balance at beginning of year.............................. 227 209 197
Exercise of stock options................................. 8 6 6
Gain on treasury stock reissued........................... 16 12 6
Two-for-one stock split................................... (16) -- --
------ ------ ------
Balance at end of year.................................... 235 227 209
------ ------ ------
Retained earnings:
Balance at beginning of year.............................. 2,442 1,918 1,578
Net earnings.............................................. 487 585 394
Cash dividends ($.253 per share in 1998, $.224 in 1997 and
$.194 in 1996)......................................... (67) (61) (54)
------ ------ ------
Balance at end of year.................................... 2,862 2,442 1,918
------ ------ ------
Accumulated other comprehensive income:
Balance at beginning of year.............................. 1,559 510 696
Change in unrealized foreign currency translation gains
during year, net of income taxes....................... (55) 44 16
Unrealized gains (losses) on investment securities during
year, net of income taxes and reclassification
adjustments............................................ 47 1,005 (202)
------ ------ ------
Balance at end of year.................................... 1,551 1,559 510
------ ------ ------
Treasury stock:
Balance at beginning of year.............................. (813) (527) (352)
Purchases of treasury stock............................... (125) (314) (204)
Cost of shares issued..................................... 28 28 29
------ ------ ------
Balance at end of year.................................... (910) (813) (527)
------ ------ ------
Notes receivable for stock purchases........................ -- (1) --
------ ------ ------
Total shareholders' equity........................ $3,770 $3,430 $2,126
====== ====== ======
</TABLE>
Per-share amounts reflect the 2-for-1 stock split paid on June 8, 1998.
See the accompanying Notes to the Consolidated Financial Statements.
F-15
<PAGE> 101
AFLAC INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1998 1997 1996
------- ------- -------
(IN MILLIONS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings.............................................. $487 $ 585 $ 394
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Increase in policy liabilities.......................... 2,173 2,310 2,483
Deferred income taxes................................... (213) (12) 16
Change in income taxes payable.......................... 16 68 15
Increase in deferred policy acquisition costs........... (226) (227) (265)
Change in receivables and advance premiums.............. 4 8 (32)
Depreciation and amortization expense................... 43 45 48
Gain on sale of television business..................... -- (267) (60)
Provision for mandated policyholder protection fund..... 111 -- --
Other, net.............................................. 95 88 95
------- ------- -------
Net cash provided by operating activities.......... 2,490 2,598 2,694
------- ------- -------
Cash flows from investing activities:
Proceeds from investments sold or matured:
Securities available for sale:
Fixed-maturity securities sold....................... 941 1,722 1,708
Fixed-maturity securities matured.................... 698 422 560
Equity securities.................................... 57 64 17
Securities held to maturity:
Fixed-maturity securities matured.................... 8 -- --
Mortgage loans and other investments, net............... 8 4 4
Short-term investments, net............................. 34 6 (6)
Proceeds from sale of television business................. -- 351 99
Costs of investments acquired:
Securities available for sale:
Fixed-maturity securities............................ (2,966) (4,141) (3,942)
Perpetual debentures................................. (917) (798) (912)
Equity securities.................................... (60) (55) (23)
Additions to property and equipment, net.................. (40) (9) (10)
Purchase of subsidiary.................................... (8) -- --
------- ------- -------
Net cash used by investing activities.............. (2,245) (2,434) (2,505)
------- ------- -------
Cash flows from financing activities:
Proceeds from borrowings.................................. 124 409 136
Principal payments under debt obligations................. (125) (203) (76)
Dividends paid to shareholders............................ (67) (61) (54)
Purchases of treasury stock............................... (125) (314) (204)
Treasury stock reissued................................... 44 40 35
Other, net................................................ 8 8 6
------- ------- -------
Net cash used by financing activities.............. (141) (121) (157)
------- ------- -------
Effect of exchange rate changes on cash and cash
equivalents............................................... 34 (16) (13)
------- ------- -------
Net change in cash and cash equivalents............ 138 27 19
Cash and cash equivalents, beginning of year................ 236 209 190
------- ------- -------
Cash and cash equivalents, end of year...................... $ 374 $ 236 $ 209
======= ======= =======
Supplemental disclosures of cash flow information:
Cash payments during the year for:
Interest on debt obligations............................ $ 12 $ 12 $ 14
Income taxes............................................ 210 222 224
</TABLE>
Non-cash financing activities included capital lease obligations incurred for
computer equipment totaling $7 in 1998, $6 in 1997 and $9 in 1996.
See the accompanying Notes to the Consolidated Financial Statements.
F-16
<PAGE> 102
AFLAC INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1998 1997 1996
---- ------ -----
(IN MILLIONS)
<S> <C> <C> <C>
Net Earnings................................................ $487 $ 585 $ 394
---- ------ -----
Other comprehensive income, before income taxes:
Foreign currency translation adjustments:
Change in unrealized foreign currency translation
gains during year............................. (84) 43 16
Reclassification adjustment for realized currency
loss on sale of subsidiary included in net
earnings...................................... -- 1 --
Unrealized gains (losses) on investment securities:
Unrealized holding gains (losses) arising during
year.......................................... 171 1,693 (314)
Reclassification adjustment for realized (gains)
losses included in net earnings............... 3 4 (5)
---- ------ -----
Total other comprehensive income, before
income taxes............................. 90 1,741 (303)
Income tax expense (benefit) related to items of other
comprehensive income.................................. 98 692 (117)
---- ------ -----
Other comprehensive income, net of income taxes... (8) 1,049 (186)
---- ------ -----
Total comprehensive income................... $479 $1,634 $ 208
==== ====== =====
</TABLE>
See the accompanying Notes to the Consolidated Financial Statements.
F-17
<PAGE> 103
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business: AFLAC Incorporated (the Parent Company) and its
subsidiaries (the Company) primarily sell supplemental health insurance in Japan
and the United States. The Company's insurance operations are conducted through
American Family Life Assurance Company of Columbus (AFLAC), which operates in
the United States (AFLAC U.S.) and as a branch in Japan (AFLAC Japan). Most of
our insurance policies are individually underwritten and marketed through
independent agents at the worksite, with premiums paid by the employee. AFLAC
Japan, which conducts its insurance operations in Japanese yen, accounted for
80%, 79% and 82% of the Company's total revenues for 1998, 1997 and 1996,
respectively, and 86% and 87% of total assets at December 31, 1998 and 1997,
respectively.
Basis of Presentation: We prepare our financial statements in accordance
with generally accepted accounting principles (GAAP). These principles are
established primarily by the Financial Accounting Standards Board (FASB) and the
American Institute of Certified Public Accountants. The preparation of financial
statements in conformity with GAAP requires us to make estimates when recording
transactions resulting from business operations, based on information currently
available. The most significant items on our balance sheet that involve a
greater extent of accounting estimates and actuarial determinations subject to
changes in the future are: deferred policy acquisition costs, liabilities for
future policy benefits and unpaid policy claims, accrued liabilities for
unfunded retirement plans and contingent liabilities. As additional information
becomes available (or actual amounts are determinable), the recorded estimates
may be revised and reflected in operating results. Although some variability is
inherent in these estimates, we believe the amounts provided are adequate.
Translation of Foreign Currencies: The functional currency of AFLAC
Japan's insurance operations is the Japanese yen. We translate financial
statement accounts that are maintained in foreign currencies into U.S. dollars
as follows. Assets and liabilities denominated in foreign currencies are
translated at end-of-period exchange rates. Realized gains and losses on
security transactions are translated at the exchange rate on the trade dates of
the transactions. Other revenues, expenses and cash flows are translated from
foreign currencies into U.S. dollars using average exchange rates for the year.
The resulting currency translation adjustments are reported in accumulated other
comprehensive income. We include realized currency exchange gains and losses
resulting from foreign currency transactions in earnings. Realized currency
exchange gains and losses were immaterial during the three-year period 1996
through 1998.
AFLAC Japan maintains an investment portfolio of dollar-denominated
securities on behalf of AFLAC U.S. The functional currency is the dollar for
these investments, the related investment income and realized/unrealized
investment gains and losses.
We have designated the yen-denominated notes payable (Note 7) held by the
Parent Company as a hedge of our net investment in AFLAC Japan. Outstanding
principal and related accrued interest payable on the yen-denominated borrowings
are translated into dollars at end-of-period exchange rates. Currency
translation adjustments are reported in accumulated other comprehensive income.
Insurance Revenue and Expense Recognition: The supplemental health
insurance policies we issue are classified as long-duration contracts. The
contract provisions generally cannot be changed or canceled during the contract
period; however, we may adjust premiums for policies issued in the United States
within prescribed guidelines and with the approval of state insurance regulatory
authorities.
F-18
<PAGE> 104
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Insurance premiums for health policies are recognized as earned income
ratably over the terms of the policies. When revenues are recorded, the related
amounts of benefits and expenses are charged against such revenues, so as to
result in recognition of profits in proportion to premium revenues during the
period the policies are expected to remain in force. This association is
accomplished by means of annual additions to the liability for future policy
benefits and the deferral and subsequent amortization of policy acquisition
costs.
The calculation of deferred policy acquisition costs and the liability for
future policy benefits requires the use of estimates consistent with sound
actuarial valuation techniques. For new policy issues, we review our actuarial
assumptions and deferrable acquisition costs each year and revise them when
necessary to more closely reflect recent experience and studies of actual
acquisition costs. For policies in force, we evaluate deferred policy
acquisition costs to determine that they are recoverable from future revenues
and charge against earnings costs that are not recoverable.
Cash and Cash Equivalents: Cash and cash equivalents include cash on hand,
money market instruments and other debt instruments with a maturity of 90 days
or less when purchased.
Investments: Our fixed-maturity securities and perpetual debentures (debt
securities) are classified as either held to maturity or available for sale.
Securities classified as held to maturity are securities that we have the
ability and intent to hold to maturity or redemption, and are carried at
amortized cost. All other debt securities and our equity securities are
classified as available for sale and are carried at fair value. If the fair
value is higher than the amortized cost for debt securities or the purchase cost
for equity securities, the excess is an unrealized gain; and if lower than cost,
the difference is an unrealized loss.
In 1998, we reclassified certain debt securities from "available for sale"
to "held to maturity." The related unrealized gains and losses at the date of
transfer on these securities are being amortized over the remaining term of the
securities. These unamortized unrealized gains and losses, plus the net
unrealized gains and losses on securities available for sale, less amounts
applicable to policy liabilities and deferred income taxes, are reported in
accumulated other comprehensive income. The portion of unrealized gains credited
to policy liabilities represents gains that would not inure to the benefit of
shareholders if such gains were actually realized. These amounts relate to
policy reserve interest requirements and reflect the difference between market
investment yields and estimated minimum required interest rates.
Amortized cost of debt securities is based on the purchase price adjusted
for accrual of discount or amortization of premium. The amortized cost of debt
securities purchased at a discount will equal the face or par value at maturity.
Debt securities purchased at a premium will have an amortized cost equal to face
or par value at the earlier of a call date or maturity.
Interest is recorded as income when earned and is adjusted for amortization
of any premium or discount. Dividends on equity securities are recorded as
income on the ex-dividend dates.
For the collateralized mortgage obligations portion of the fixed-maturity
securities portfolio, we recognize income using a constant effective yield based
on anticipated prepayments and the estimated economic life of the securities.
When estimates of prepayments change, the effective yield is recalculated to
reflect actual payments to date and anticipated future payments. The net
investment in the securities is adjusted to the amount that would have existed
had the new effective yield been applied at the time of acquisition. This
adjustment is reflected in net investment income.
We identify the cost of each individual investment so that when we sell any
of them, we are able to record the gain or loss on that transaction in our
Consolidated Statements of Earnings. Effective January 1, 1997, we changed our
method of determining the costs of investment securities sold from
F-19
<PAGE> 105
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the first-in, first-out (FIFO) method to the specific identification method.
This accounting change had no material effect on net earnings for the years
ended December 31, 1997 and 1998.
We continually monitor the difference between the cost and estimated fair
value of our investments. If any of our investments experience a decline in
value that is other than temporary, we establish a valuation allowance for the
decline and record a realized loss in the Consolidated Statements of Earnings.
We loan fixed-maturity securities to financial institutions in short-term
security lending transactions. These securities continue to be carried as
investment assets on our balance sheet during the term of the loans and are not
recorded as sales. We receive other securities as collateral for such loans.
Beginning in 1998, the collateral was not recorded as either an asset or
liability on our balance sheet due to a required change in accounting standards.
In prior years, the collateral was carried as an asset, and a liability was
recorded for the return of the collateral.
Deferred Policy Acquisition Costs: The costs of acquiring new business and
converting existing policies are deferred and amortized, with interest, over the
premium payment periods in proportion to the ratio of annual premium income to
total anticipated premium income. Anticipated premium income is estimated by
using the same mortality and withdrawal assumptions used in computing
liabilities for future policy benefits. In this manner, the related acquisition
expenses are matched with revenues. Costs deferred include first-year
commissions in excess of renewal commissions and certain direct and allocated
policy issue, underwriting and marketing expenses, all of which vary with and
are primarily related to the production of new business. Policy acquisition
costs deferred were $436 million in 1998, $408 million in 1997 and $427 million
in 1996. Of the policy acquisition costs deferred, commissions represented 69%
in 1998, 70% in 1997 and 67% in 1996.
Insurance Liabilities: The liabilities for future policy benefits are
computed by a net level premium method using estimated future investment yields,
withdrawals and recognized morbidity and mortality tables modified to reflect
our experience, with reasonable provision for possible future adverse deviations
in experience.
Unpaid policy claims are estimates computed on an undiscounted basis using
statistical analyses of historical claim experience adjusted for current trends
and changed conditions. The ultimate liability may vary significantly from such
estimates. We regularly adjust these estimates as new experience data emerges
and reflect the changes in operating results in the year such adjustments are
made.
Income Taxes: Different rules are used in computing the U.S. and Japanese
income tax expenses presented in the accompanying financial statements from
those used in preparing the Company's income tax returns. Deferred income taxes
are recognized for temporary differences between the financial reporting basis
and income tax basis of assets and liabilities, based on enacted tax laws and
statutory tax rates applicable to the periods in which the temporary differences
are expected to reverse.
Derivatives: We have only limited activity with derivative financial
instruments. We do not use them for trading purposes nor do we engage in
leveraged derivative transactions. In addition, we do not use derivatives to
hedge the foreign-currency-denominated net assets of our foreign insurance
operations, except for short-term hedges of our annual profit repatriations. We
currently use two types of derivatives -- interest rate swaps and foreign
currency forward contracts.
We use the accrual method to account for the interest rate swaps in
connection with our bank borrowings. The difference between amounts paid and
received under such agreements is reported in interest expense in the
Consolidated Statements of Earnings. Changes in the fair value of the swap
F-20
<PAGE> 106
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
agreements are not recognized in the financial statements. These swaps reduce
the impact of changes in interest rates on our borrowing costs and effectively
change our related interest exposure from variable to fixed.
We use short-term foreign currency forward contracts (usually five months
or less) in connection with annual profit transfers from AFLAC Japan. These
contracts are designated at inception as hedges of our investment in AFLAC Japan
and are accounted for using the deferral method. We record the gains and losses
during the period that the contracts are outstanding and at termination of the
contracts as unrealized foreign currency translation gains in accumulated other
comprehensive income.
Employee Stock Options: We use the intrinsic value method to value
employee stock options. Under this method, compensation cost is recognized only
for the excess, if any, of the market price of the stock at the grant date over
the amount an employee must pay upon exercise to acquire the stock. Our stock
option plan requires that the exercise price be equal to 100% of the fair market
value at the date of grant; therefore, no compensation expense is recognized.
Treasury Shares: We record treasury shares purchased at cost, which is the
market value at the time of the transaction, and as a reduction of shareholders'
equity. We use the weighted-average purchase cost to determine the cost of
treasury shares that are reissued. We record realized gains or losses in
additional paid-in capital when treasury shares are reissued.
Stock Split: We paid a two-for-one stock split on June 8, 1998. All share
and per-share amounts in the accompanying financial statements have been
restated for this split.
Earnings Per Share: We are required to present two earnings per share
(EPS) calculations -- basic EPS and diluted EPS -- in the Consolidated
Statements of Earnings. Basic EPS is computed by dividing net earnings by the
weighted-average number of shares outstanding for the period. Diluted EPS is
computed by dividing net earnings by the weighted-average number of shares
outstanding for the period plus the shares representing the dilutive effect of
stock options and other common stock equivalents.
The components of the weighted-average shares used in the EPS calculations
are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
(IN THOUSANDS OF SHARES)
<S> <C> <C> <C>
Average outstanding shares used for calculating basic
EPS.................................................... 266,305 272,110 280,352
Effect of stock options.................................. 9,567 9,486 8,570
------- ------- -------
Average outstanding shares used for calculating diluted
EPS.................................................... 275,872 281,596 288,922
======= ======= =======
</TABLE>
Accounting Changes Adopted: We adopted Statement of Financial Accounting
Standards (SFAS) No. 125, Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities, on January 1, 1997. This Statement
established criteria for determining whether transfers of financial assets are
sales or secured borrowings and established reporting requirements for those
transactions involving secured obligations and collateral. Beginning in 1998, as
required by this standard, we no longer recognize securities held as collateral
as an asset, nor the related liability for the return of such collateral for
security lending agreements entered into after December 31, 1997. The adoption
of SFAS No. 125 had no effect on our net earnings or shareholders' equity.
As required, we adopted SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information, in 1998. This Statement requires that
companies disclose business segment data on the basis that is used internally by
management for evaluating segment performance and allocating
F-21
<PAGE> 107
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
resources to segments. This Statement requires that a company report a measure
of segment profit or loss, certain specific revenue and expense items, and
segment assets. It also requires various reconciliations of total segment
information to amounts in the consolidated financial statements. This
information is presented in Note 2.
We also adopted SFAS No. 132, Employer's Disclosures about Pensions and
Other Postretirement Benefits, in 1998. This Statement revises disclosures about
pension and other postretirement benefit plans, but does not change the
measurement or financial statement recognition of these plans. This information
is presented in Note 11.
As required, we adopted SFAS No. 128, Earnings per Share, in 1997 as
described above in this Note under the caption, "Earnings Per Share."
Accounting Pronouncements Not Yet Adopted: SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, was issued in June 1998. This
Statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in investment
securities and other contracts, and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the balance
sheet and measure those instruments at fair value. The accounting for changes in
the fair value of a derivative will be included in either earnings or other
comprehensive income depending on the intended use of the derivative instrument.
We are currently evaluating this standard, which is effective January 1, 2000.
The Accounting Standards Executive Committee issued Statement of Position
(SOP) 97-3, Accounting by Insurance and Other Enterprises for Insurance-Related
Assessments, in December 1997. This SOP provides guidance for determining when
an entity should recognize a liability for guaranty fund and other
insurance-related assessments. It also provides guidance on how to measure the
liability. This SOP is effective for 1999. Our present accounting method for
guaranty fund and other insurance-related assessments substantially conforms to
the requirements of this SOP.
In March 1998, SOP 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use, was issued. This SOP provides guidance
for determining whether costs of software developed or obtained for internal use
should be capitalized or expensed as incurred. In the past, we have expensed all
such costs when incurred. This SOP is effective beginning in 1999.
Reclassifications: Certain prior-year amounts have been reclassified to
conform to the current year presentation.
(2) FOREIGN INFORMATION AND BUSINESS SEGMENT INFORMATION
The Company consists of three reportable business segments: AFLAC Japan
insurance; AFLAC U.S. insurance; and prior to April 15, 1997, AFLAC Broadcast
Division (the Company's television business in the United States). We primarily
sell supplemental health insurance through the AFLAC Japan and AFLAC U.S.
operations. Most of our policies are individually underwritten and marketed
through independent agents at the worksite, with premiums paid by the employee.
These operations also offer various life insurance policies. We completed the
sale of our television operations in early 1997, as discussed in this Note.
Operating business segments that are not individually reportable are
included in the "All other" category, which includes minor insurance operations
in foreign countries other than Japan and our printing subsidiary.
We evaluate our business segments based on GAAP pretax operating earnings.
We do not allocate corporate overhead expenses to business segments.
F-22
<PAGE> 108
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Information regarding components of operations and lines of business for
the years ended December 31 follows:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Total revenues:
AFLAC Japan:
Earned premiums:
Cancer life.................................. $3,839 $4,011 $4,315
Other accident and health.................... 413 336 318
Life insurance............................... 486 456 319
Net investment income............................. 917 893 896
Other income...................................... 2 1 1
------ ------ ------
Total AFLAC Japan revenues.............. 5,657 5,697 5,849
------ ------ ------
AFLAC U.S.:
Earned premiums:
Cancer....................................... 489 456 429
Other accident and health.................... 686 586 501
Life insurance............................... 23 20 16
Net investment income............................. 216 180 119
Other income...................................... 4 1 1
------ ------ ------
Total AFLAC U.S. revenues............... 1,418 1,243 1,066
------ ------ ------
Television operations -- U.S........................... -- 16 92
All other business segments............................ 39 34 36
------ ------ ------
Total business segments................. 7,114 6,990 7,043
Realized investment gains (losses)..................... (2) (5) 2
Gain on sale of television business.................... -- 267 60
Corporate.............................................. 30 40 34
Intercompany eliminations.............................. (38) (41) (39)
------ ------ ------
Total................................... $7,104 $7,251 $7,100
====== ====== ======
Earnings before income taxes:
AFLAC Japan............................................ $ 502 $ 504 $ 533
AFLAC U.S.............................................. 230 184 129
Television operations -- U.S........................... -- 4 26
All other business segments............................ 2 (2) (8)
------ ------ ------
Total business segments........................... 734 690 680
Provision for the Japanese mandated policyholder
protection fund....................................... (111) -- --
Realized investment gains (losses)..................... (2) (5) 2
Gain on sale of television business.................... -- 267 60
Interest expense, non-insurance operations............. (10) (10) (13)
Corporate.............................................. (60) (77) (79)
------ ------ ------
Total............................................. $ 551 $ 865 $ 650
====== ====== ======
Advertising expense:
AFLAC Japan............................................ $ 22 $ 24 $ 14
AFLAC U.S.............................................. 34 23 22
------ ------ ------
Total............................................. $ 56 $ 47 $ 36
====== ====== ======
</TABLE>
F-23
<PAGE> 109
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Total assets at December 31 were as follows:
<TABLE>
<CAPTION>
1998 1997
------- -------
(IN MILLIONS)
<S> <C> <C>
Total assets:
AFLAC Japan............................................ $26,912 $25,589
AFLAC U.S.............................................. 4,212 3,763
All other business segments............................ 59 75
------- -------
Total business segments........................... 31,183 29,427
Corporate.............................................. 4,674 4,249
Intercompany eliminations.............................. (4,674) (4,222)
------- -------
Total............................................. $31,183 $29,454
======= =======
</TABLE>
Total depreciation and amortization expense was $45 million in 1998, $41
million in 1997 and $50 million in 1996. AFLAC Japan accounted for $33 million
in 1998, $28 million in 1997 and $26 million in 1996.
Total expenditures for long-lived assets were $47 million in 1998, $11
million in 1997 and $18 million in 1996. The increase in 1998 primarily relates
to the construction of an administrative office building for AFLAC U.S.
Receivables consisted primarily of monthly insurance premiums due from
individual policyholders or their employers for payroll deduction of premiums.
At December 31, 1998, $139 million, or 60.5% of total receivables were related
to AFLAC Japan's operations ($120 million at December 31, 1997).
Sale of Television Business: In 1997, we completed the sale of our
television business, which consisted of seven network-affiliated television
stations. The total pretax gain from the sale of our television business was
$327 million. Cash sales proceeds received, after applicable selling expenses,
were $449 million. Total sales proceeds also included advertising credits to be
used by the Company over a five-year period with a fair value of $6 million. We
also received cash for various current assets and liabilities.
The sale of one station closed on December 31, 1996. The pretax and
after-tax gains recognized on this sale in the fourth quarter of 1996 were $60
million and $48 million, respectively. The after-tax gain was $.17 per basic
share and $.16 per diluted share in 1996. The sale of the remaining six stations
closed on April 15, 1997. The pretax and after-tax gains recognized in the
second quarter of 1997 were $267 million and $211 million, respectively. The
1997 after-tax gain was $.77 per basic share and $.75 per diluted share.
Policyholder Protection Fund: During the first quarter of 1998, the
Japanese government enacted a mandatory policyholder protection fund system. The
life insurance industry is required to contribute $4.2 billion to this fund over
a 10-year period. The total charge for our share of the contribution obligation
was recognized in the first quarter of 1998 and decreased pretax earnings by
$111 million for the year ended December 31, 1998. The after-tax charge was $65
million, or $.24 per basic and diluted share.
During the second quarter of 1997, Nissan Mutual Life Insurance Company, a
Japanese insurer, was declared insolvent. All life insurers doing business in
Japan had previously agreed to contribute to a voluntary policyholder protection
fund that would be used to help offset insurer insolvencies. During the second
quarter of 1997, AFLAC Japan recognized a pretax charge of 3.0 billion yen ($25
million) for its obligation to this policyholder protection fund. The after-tax
charge was
F-24
<PAGE> 110
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$14 million ($.05 per basic and diluted share). This assessment is payable
semiannually over 10 years beginning in 1998.
Yen-Translation Effects: AFLAC Japan owns U.S. dollar-denominated
securities, which we have designated as an economic currency hedge of a portion
of our investment in AFLAC Japan. In addition, we have designated the Parent
Company's yen-denominated bank borrowings (Note 7) as a hedge of our net
investment in AFLAC Japan. The dollar values of our yen-denominated net assets
subject to foreign currency translation fluctuations for financial reporting
purposes were as follows at December 31 (translated at end-of-year exchange
rates):
<TABLE>
<CAPTION>
1998 1997
------ ------
(IN MILLIONS)
<S> <C> <C>
AFLAC Japan net assets...................................... $2,726 $2,541
Less:
AFLAC Japan dollar-denominated net assets.............. 1,805 1,555
Parent Company yen-denominated net liabilities......... 579 498
------ ------
Total yen-denominated net assets subject to foreign currency
translation fluctuations.................................. $ 342 $ 488
====== ======
</TABLE>
The following table shows the yen/dollar exchange rates used for the
three-year period ended December 31, 1998, and their effect on selected
financial data.
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Balance Sheets:
Yen/dollar exchange rate at December 31................ 115.70 130.10 116.10
Yen percent weakening (strengthening).................. (12.4)% 10.8% 11.3%
Exchange effect on total assets (billions)............. $ 2.8 $ (2.9) $ (2.6)
Exchange effect on total liabilities (billions)........ $ 2.7 $ (2.8) $ (2.6)
Statements of Earnings:
Average exchange rate for the year..................... 130.89 121.07 108.84
Yen percent weakening.................................. 7.5% 10.1% 13.5%
Exchange effect on net earnings (millions)............. $ (20) $ (24) $ (43)
Exchange effect on diluted EPS......................... $ (.07) $ (.08) $ (.15)
</TABLE>
Other: Payments are made from AFLAC Japan to the Parent Company for
management fees and to AFLAC U.S. for allocated expenses and remittances of
earnings. These payments totaled $192 million in 1998, $386 million in 1997 and
$254 million in 1996. See Note 10 for information concerning restrictions on
remittances from AFLAC Japan.
(3) INVESTMENTS
During the fourth quarter of 1998, we revised our investment management
policy regarding the holding-period intent for certain of our private placement
debt securities. Our past practice was to hold these securities to their
contractual or economic maturity dates. We have now made this our formal policy.
Accordingly, debt securities carried at a fair value of $6.4 billion were
reclassified as of October 1, 1998, from the category "available for sale" to
"held to maturity." The related unrealized gain of $1.1 billion as of October 1,
1998, on these securities is being amortized over the remaining term of the
securities.
F-25
<PAGE> 111
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The amortized cost for debt securities, cost for equity securities and the
fair values of these investments at December 31 are shown in the following
tables:
<TABLE>
<CAPTION>
DECEMBER 31, 1998
---------------------------------------------
COST OR GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- -------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Available for sale, carried at fair value:
Fixed-maturity securities:
Yen-denominated:
Government and guaranteed...... $ 6,018 $1,515 $ 17 $ 7,516
Municipalities................. 541 55 -- 596
Public utilities............... 2,884 336 104 3,116
Banks/financial institutions... 1,447 30 140 1,337
Other corporate................ 518 11 37 492
------- ------ ---- -------
Total yen-denominated..... 11,408 1,947 298 13,057
------- ------ ---- -------
U.S. dollar-denominated:
U.S. government................ 221 14 -- 235
Municipalities................. 10 1 -- 11
Mortgage-backed securities..... 95 4 -- 99
Sovereign and Supranational.... 161 14 -- 175
Banks/financial institutions... 1,922 159 3 2,078
Other corporate................ 1,882 145 22 2,005
------- ------ ---- -------
Total
dollar-denominated...... 4,291 337 25 4,603
------- ------ ---- -------
Total fixed-maturity
securities.............. 15,699 2,284 323 17,660
------- ------ ---- -------
Perpetual debentures:
Yen-denominated:
Banks/financial institutions... 1,216 1 98 1,119
Dollar-denominated:
Banks/financial institutions... 198 6 -- 204
------- ------ ---- -------
Total perpetual
debentures.............. 1,414 7 98 1,323
------- ------ ---- -------
Equity securities........................ 101 82 6 177
------- ------ ---- -------
Total securities available
for sale................ $17,214 $2,373 $427 $19,160
======= ====== ==== =======
Held to maturity, carried at amortized cost:
Fixed-maturity securities:
Yen-denominated:
Government..................... $ 769 $-- $ 51 $ 718
Municipalities................. 334 -- 24 310
Public utilities............... 598 -- 62 536
Banks/financial institutions... 1,148 2 66 1,084
Other corporate................ 1,098 7 62 1,043
------- ------ ---- -------
Total fixed-maturity
securities.............. 3,947 9 265 3,691
------- ------ ---- -------
Perpetual debentures:
Yen-denominated:
Banks/financial institutions... 3,494 12 375 3,131
------- ------ ---- -------
Total perpetual
debentures.............. 3,494 12 375 3,131
------- ------ ---- -------
Total securities held to
maturity................ $ 7,441 $ 21 $640 $ 6,822
======= ====== ==== =======
</TABLE>
F-26
<PAGE> 112
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1997
---------------------------------------------
COST OR GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- -------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Available for sale, carried at fair value:
Fixed-maturity securities:
Yen-denominated:
Government and guaranteed...... $ 6,031 $1,696 $ 3 $ 7,724
Municipalities................. 759 124 -- 883
Public utilities............... 2,538 469 -- 3,007
Banks/financial institutions... 1,941 248 5 2,184
Other corporate................ 962 146 -- 1,108
------- ------ --- -------
Total yen-denominated..... 12,231 2,683 8 14,906
------- ------ --- -------
U.S. dollar-denominated:
U.S. government................ 314 16 -- 330
Municipalities................. 13 1 -- 14
Mortgage-backed securities..... 312 11 -- 323
Sovereign and Supranational.... 150 11 -- 161
Banks/financial institutions... 1,505 115 -- 1,620
Other corporate................ 1,548 112 7 1,653
------- ------ --- -------
Total
dollar-denominated...... 3,842 266 7 4,101
------- ------ --- -------
Total fixed-maturity
securities.............. 16,073 2,949 15 19,007
------- ------ --- -------
Perpetual debentures:
Yen-denominated:
Banks/financial institutions... 2,911 376 1 3,286
Dollar-denominated:
Banks/financial institutions... 137 8 -- 145
------- ------ --- -------
Total perpetual
debentures.............. 3,048 384 1 3,431
------- ------ --- -------
Equity securities........................ 80 68 2 146
------- ------ --- -------
Total securities available
for sale................ $19,201 $3,401 $18 $22,584
======= ====== === =======
</TABLE>
Fair values for debt securities were provided by outside securities
consultants using market quotations, prices provided by market makers or
estimates of fair values obtained from yield data relating to investment
securities with similar characteristics. The fair values for equity securities
were determined using market quotations on the principal public exchange
markets.
F-27
<PAGE> 113
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The amortized cost and fair values of our investments in fixed-maturity
securities at December 31, 1998, by contractual maturity are shown below:
<TABLE>
<CAPTION>
AFLAC JAPAN AFLAC U.S.
------------------- ------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
--------- ------- --------- ------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Available for sale:
Due in one year or less.................... $ 197 $ 202 $ 63 $ 63
Due after one year through five years...... 2,265 2,578 221 234
Due after five years through 10 years...... 1,532 1,761 238 256
Due after 10 years......................... 8,824 10,043 2,264 2,424
U.S. mortgage-backed securities............ 69 73 26 26
------- ------- ------ ------
Total fixed-maturity securities
available for sale.................. $12,887 $14,657 $2,812 $3,003
======= ======= ====== ======
Held to maturity:
Due in one year or less.................... $ 23 $ 23 $ -- $ --
Due after one year through five years...... 417 413 -- --
Due after five years through 10 years...... 399 385 -- --
Due after 10 years......................... 3,108 2,870 -- --
------- ------- ------ ------
Total fixed-maturity securities held
to maturity......................... $ 3,947 $ 3,691 $ -- $ --
======= ======= ====== ======
</TABLE>
Expected maturities may differ from contractual maturities because some
issuers have the right to call or prepay obligations with or without call or
prepayment penalties.
In recent years, AFLAC Japan has purchased subordinated perpetual debenture
securities issued primarily by European and Japanese banks. These securities are
subordinated to other debt obligations of the issuer, but rank higher than
equity securities. Although these securities have no contractual maturity, the
issue-date fixed-rate interest coupons subsequently increase to a market-
interest rate plus 150 to 300 basis points and change to a variable-interest
rate basis, generally by the 25th year after issuance, creating an economic
maturity date. The economic maturities of the perpetual debentures owned at
December 31, 1998, were as follows:
<TABLE>
<CAPTION>
AFLAC JAPAN AFLAC U.S.
------------------ -----------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
--------- ------ --------- -----
(IN MILLIONS)
<S> <C> <C> <C> <C>
Available for sale:
Due after five years through 10 years........ $ 160 $ 162 $ 70 $ 73
Due after 15 years........................... 1,184 1,088 -- --
------ ------ ---- ----
Total perpetual debentures available for
sale.................................. $1,344 $1,250 $ 70 $ 73
====== ====== ==== ====
Held to maturity:
Due after one year through five years........ $ 160 $ 155 $-- $--
Due after five years through 10 years........ 578 548 -- --
Due after 10 years through 15 years.......... 1,117 1,033 -- --
Due after 15 years........................... 1,639 1,395 -- --
------ ------ ---- ----
Total perpetual debentures held to
maturity.............................. $3,494 $3,131 $-- $--
====== ====== ==== ====
</TABLE>
For AFLAC Japan, the duration of policy benefit liabilities is longer than
that of the related investment assets. Therefore, there is a risk that the
reinvestment of the proceeds at the maturity of
F-28
<PAGE> 114
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
such investments will be at a yield below that of the interest required for the
accretion of policy liabilities. At December 31, 1998, the average duration of
the yen-denominated policy liabilities was approximately 13 years, unchanged
from 1997. The average duration of the yen-denominated debt securities was
approximately nine years at both December 31, 1998 and 1997. The
weighted-average period to maturity of debt securities of AFLAC Japan at
December 31, 1998, was 13.9 years, compared with 13.5 years at December 31,
1997.
Realized and unrealized gains and losses from investments for the years
ended December 31 were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
(IN MILLIONS)
<S> <C> <C> <C>
Realized gains (losses) on sale or redemption of
securities available for sale:
Debt securities:
Gross gains from sales......................... $ 16 $ 24 $ 21
Gross losses from sales........................ (35) (32) (17)
Net gains from redemptions..................... 1 -- --
------- ------- -------
(18) (8) 4
Equity securities:
Gross gains from sales......................... 20 16 2
Gross losses from sales........................ (5) (12) (1)
Other long-term assets, net......................... 1 (1) (3)
------- ------- -------
Net realized gains (losses).................... $ (2) $ (5) $ 2
======= ======= =======
Changes in unrealized gains (losses):
Debt securities:
Available for sale............................. $(1,447) $ 930 $ (184)
Unamortized unrealized gains on securities
transferred to held to maturity.............. 1,224 -- --
Equity securities................................... 10 16 23
------- ------- -------
Net unrealized gains (losses).................. $ (213) $ 946 $ (161)
======= ======= =======
</TABLE>
The net effect on shareholders' equity of unrealized gains and losses from
investment securities at December 31 was:
<TABLE>
<CAPTION>
1998 1997
------ ------
(IN MILLIONS)
<S> <C> <C>
Unrealized gains on securities available for sale........... $1,946 $3,383
Unamortized unrealized gains on securities transferred to
held to maturity.......................................... 1,224 --
Less:
Policy liabilities..................................... 885 1,272
Deferred income taxes.................................. 953 826
------ ------
Shareholders' equity, net unrealized gains on investment
securities................................................ $1,332 $1,285
====== ======
</TABLE>
F-29
<PAGE> 115
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following debt securities individually exceeded 10% of shareholders'
equity at December 31:
<TABLE>
<CAPTION>
1998 1997
------------------ ------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
--------- ------ --------- ------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Japan National Government........................ $5,675 $7,157 $5,178 $6,715
The Tokyo Electric Power Co., Inc................ 811 927 742 885
Chubu Electric Power Co., Inc.................... 698 714 444 518
Dai-Ichi Kangyo Bank............................. 454 420 * *
Sumitomo Bank.................................... 404 348 * *
Credit Suisse First Boston....................... 393 394 * *
</TABLE>
- ---------------
* Less than 10%
AFLAC Japan's investments in Japanese government bonds (at amortized cost)
constituted 23.9% and 28.3% of total debt securities at December 31, 1998 and
1997, respectively. Private placement investments held by AFLAC Japan at
amortized cost accounted for 41.2% and 34.2% of total debt securities at
December 31, 1998 and 1997, respectively. Most of the securities classified as
held to maturity and perpetual debentures classified as available for sale
constitute private placement investments.
In January 1999, the credit ratings of several major Japanese financial
institutions were downgraded. We owned debt securities issued by a Japanese bank
in the amount of $454 million, or 1.8% of total debt securities at December 31,
1998. Following the downgrade, these securities were rated "Ba1" by Moody's and
"BB+" by Standard & Poor's.
The components of net investment income for the years ended December 31
were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Fixed-maturity securities................................... $ 985 $ 942 $ 918
Perpetual debentures........................................ 158 134 109
Equity securities........................................... 2 2 2
Mortgage loans and other.................................... 1 2 2
Short-term investments and cash equivalents................. 8 15 9
------ ------ ------
Gross investment income................................ 1,154 1,095 1,040
Less investment expenses.................................... 16 17 18
------ ------ ------
Net investment income.................................. $1,138 $1,078 $1,022
====== ====== ======
</TABLE>
At December 31, 1998, debt securities with a fair value of $12 million were
on deposit with regulatory authorities. As of December 31, 1998, $54 million, at
fair value, of AFLAC Japan's investment securities had been pledged to the Japan
policyholder protection fund. The Company retains ownership of all securities on
deposit and receives the related investment income.
(4) FINANCIAL INSTRUMENTS
Nonderivatives: The carrying amounts for cash and cash equivalents,
receivables, accrued investment income, accounts payable and payables for
security transactions approximated their fair values due to the short-term
nature of these instruments. Consequently, such instruments are not included in
the table presented in this note.
F-30
<PAGE> 116
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The methods of determining the fair values of our investments in debt and
equity securities are described in Note 3. The fair values for mortgage loans
and notes payable with fixed interest rates were estimated using discounted cash
flow analyses based on current rates for similar loans and borrowings.
We use short-term security lending arrangements in AFLAC Japan to increase
investment income with minimal risk. At December 31, 1998 and 1997, AFLAC Japan
had security loans outstanding of $3.0 billion at fair value. At December 31,
1998 and 1997, we held Japanese government bonds as collateral for these loaned
securities. Prior to 1998, securities received as collateral for such loans were
reported separately in assets, at fair value, with a corresponding liability of
the same amount for the return of such collateral at termination of the loans.
Beginning in 1998, such collateral assets and the related liability are no
longer included on the balance sheet under the accounting provisions of SFAS No.
125 (Note 1). The Company's security lending policy requires that the fair value
of the securities received as collateral be 105% or more of the fair value of
the loaned securities as of the date the securities are loaned and not less than
100% thereafter.
Derivatives: We have only limited activity with derivative financial
instruments and do not use them for trading purposes nor engage in leveraged
derivative transactions. In addition, we do not use derivatives to hedge the
foreign-currency-denominated net assets of our foreign insurance operations,
except for short-term hedges of annual profit repatriations (none were
outstanding at December 31, 1998 or 1997). See Note 1 for a description of our
accounting policies for derivative financial instruments. See Note 2 for
additional information on our yen-denominated net assets.
We have outstanding interest rate swaps on 49.6 billion yen ($428 million)
of our variable-interest-rate yen-denominated borrowings (Note 7). These swaps
reduce the impact of changes in interest rates on our borrowing costs and
effectively change our interest rate from variable to fixed. The interest rate
swaps have notional principal amounts that equal the anticipated unpaid
principal amounts on a portion of these loans. Under these agreements, the
Company makes fixed-rate payments at 2.29% on one loan and 1.24% on another loan
and receives floating-rate payments (.75% at December 31, 1998, plus loan costs
of 25 or 20 basis points, respectively) based on the three-month Tokyo Interbank
Offered Rate.
The fair value of interest rate swaps is the estimated amount that we would
receive or pay to terminate the swap agreements at the reporting date. We are
exposed to nominal credit risk in the event of nonperformance by counterparties
to these interest rate swap agreements. The counterparties are primarily
Japanese banks with the following credit ratings as of December 31, 1998.
<TABLE>
<CAPTION>
COUNTERPARTY
CREDIT RATING NOTIONAL AMOUNT
------------- ---------------
(IN MILLIONS)
<S> <C>
AA...................................... $ 39
A....................................... 106
BBB..................................... 283
----
Total......................... $428
====
</TABLE>
F-31
<PAGE> 117
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The carrying values and estimated fair values of the Company's financial
instruments as of December 31 were as follows:
<TABLE>
<CAPTION>
1998 1997
------------------ ------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------- -------- -------
(IN MILLIONS)
<S> <C> <C> <C> <C>
ASSETS:
Fixed-maturity securities.......................... $21,607 $21,351 $19,007 $19,007
Perpetual debentures............................... 4,817 4,454 3,431 3,431
Equity securities.................................. 177 177 146 146
Mortgage loans..................................... 6 8 14 17
Policy loans....................................... 1 1 1 1
Securities held as collateral for loaned
securities....................................... * 3,101 3,034 3,034
LIABILITIES:
Notes payable (excluding capitalized leases)....... 578 578 505 505
Derivatives -- interest rate swaps................. * 7 * 8
Payables for return of collateral on loaned
securities....................................... * 3,101 3,034 3,034
</TABLE>
- ---------------
* Off-balance sheet financial instrument
(5) PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31:
<TABLE>
<CAPTION>
1998 1997
---- ----
(IN MILLIONS)
<S> <C> <C>
Land..................................................... $131 $111
Buildings................................................ 335 290
Equipment................................................ 159 147
---- ----
625 548
Less accumulated depreciation............................ 198 162
---- ----
Net property and equipment.......................... $427 $386
==== ====
</TABLE>
F-32
<PAGE> 118
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(6) POLICY LIABILITIES
The liability for future policy benefits at December 31 consisted of the
following:
<TABLE>
<CAPTION>
LIABILITY AMOUNTS INTEREST RATES
-------------------- ----------------------
POLICY YEAR
ISSUE OF IN 20
YEAR 1998 1997 ISSUE YEARS
------- ------- ------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Health insurance:
Japan........................ 1997-98 $ 409 $ 97 3.5% 3.5%
1995-96 111 67 4.0 4.0
1994-96 1,763 1,226 4.5 4.5
1990-94 9,392 7,595 5.5 5.5
1988-91 711 597 5.25 5.25
1987-88 1,238 1,043 5.5 5.5
1985-86 1,051 893 6.75 5.5
1978-84 2,757 2,391 6.5 5.5
1974-79 698 616 7.0 5.0
U.S.......................... 1988-98 705 590 8.0 6.0
1986-98 542 489 6.0 6.0
1985-86 26 26 6.5 6.5
1981-86 258 261 7.0 5.5
Other 156 158
Other foreign................ -- 41
Life insurance:
Japan........................ 1997-98 114 28 3.5 3.5
1994-96 373 215 4.0 4.0
1988-93 652 489 5.25 5.25
1987-88 136 104 5.5 5.5
1985-87 210 172 5.65 5.65
U.S.......................... 1956-98 31 29 4.0-6.0 4.0-6.0
Adjustment for unrealized gains on
investments (Note 3)............ 885 1,272
------- -------
Total................... $22,218 $18,399
======= =======
</TABLE>
The weighted-average interest rates reflected in the Consolidated
Statements of Earnings for future policy benefits for Japanese policies were
5.4% in 1998, and 5.5% in both 1997 and 1996; and for U.S. policies, 6.4% for
each year in the three-year period ended December 31, 1998.
Changes in the liability for unpaid policy claims are summarized as follows
for the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Unpaid supplemental health claims -- beginning of year...... $ 987 $1,025 $1,011
------ ------ ------
Add claims incurred during the year related to:
Current year............................................ 2,460 2,346 2,366
Prior years............................................. (136) (159) (156)
------ ------ ------
Total incurred..................................... 2,324 2,187 2,210
------ ------ ------
Less claims paid during the year:
On claims incurred during current year.................. 1,579 1,507 1,471
On claims incurred during prior years................... 617 626 617
------ ------ ------
Total paid......................................... 2,196 2,133 2,088
------ ------ ------
Effect of foreign exchange rate changes on unpaid claims.... 107 (92) (108)
------ ------ ------
Unpaid supplemental health claims -- end of year............ 1,222 987 1,025
Unpaid life claims -- end of year........................... 41 24 14
------ ------ ------
Total liability for unpaid policy claims........... $1,263 $1,011 $1,039
====== ====== ======
</TABLE>
F-33
<PAGE> 119
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Amounts shown for prior-year claims incurred during the year primarily
result from actual claim settlements at less than the original estimates.
(7) NOTES PAYABLE
A summary of notes payable at December 31 follows:
<TABLE>
<CAPTION>
1998 1997
----- -----
(IN MILLIONS)
<S> <C> <C>
Unsecured, yen-denominated notes payable to banks:
Reducing, revolving credit agreement, due annually
through July 2001:
2.29% fixed interest rate......................... $294 $349
Variable interest rate (.95% at December 31,
1998)........................................... 35 --
Revolving credit agreement due November 2002:
1.24% fixed interest rate......................... 134 149
Variable interest rate (.90% at December 31,
1998)........................................... 115 --
Obligations under capitalized leases, due monthly through
2003, secured by computer equipment in Japan.............. 18 18
Other....................................................... -- 7
---- ----
Total notes payable............................... $596 $523
==== ====
</TABLE>
The Company has a reducing revolving credit agreement that provides for
bank borrowings through July 2001 in either U.S. dollars or Japanese yen. The
current borrowing limit is $325 million. Under the terms of the agreement, the
borrowing limit will reduce to $250 million on July 15, 1999, and $125 million
on July 15, 2000. At December 31, 1998, 34.1 billion yen ($294 million) was
outstanding at a fixed interest rate and 4.0 billion yen ($35 million) was
outstanding at a variable interest rate under this agreement.
We also have an unsecured revolving credit agreement that provides for bank
borrowings through November 2002 with a borrowing limit of $250 million, payable
in either Japanese yen or U.S. dollars. At December 31, 1998, 15.5 billion yen
($134 million) was outstanding at a fixed interest rate and 13.3 billion yen
($115 million) was outstanding at a variable interest rate under this agreement.
The principal amount of the loans at any date will fluctuate due to changes
in the yen-to-dollar foreign currency exchange rate.
Since most of these loans are with Japanese banks, we also incur the
premium that Japanese banks are charged for short-term money, commonly referred
to as the "Japan premium." Interest rate swaps related to the 2.29% and 1.24%
(fixed rates after swaps) loans are described in Note 4.
The aggregate contractual maturities of notes payable during each of the
years after December 31, 1998, are: 1999, $86 million; 2000, $130 million; 2001,
$128 million; and 2002, $252 million.
We were in compliance with all of the covenants of the credit agreements at
December 31, 1998.
F-34
<PAGE> 120
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(8) INCOME TAXES
The income tax effects of the temporary differences that give rise to
deferred income tax assets and liabilities as of December 31 were as follows:
<TABLE>
<CAPTION>
1998 1997
------ ------
(IN MILLIONS)
<S> <C> <C>
Deferred income tax liabilities:
Deferred acquisition costs............................. $1,023 $ 975
Unrealized gains on investment securities.............. 461 1,332
Other basis differences in investment securities....... 792 --
Difference in tax basis of investment in AFLAC Japan... -- 86
Premiums receivable.................................... 67 73
------ ------
Total deferred income tax liabilities............. 2,343 2,466
------ ------
Deferred income tax assets:
Other basis differences in investment securities....... -- 153
Difference in tax basis of investment in AFLAC Japan... 61 --
Foreign tax credit carryforwards....................... -- 64
Policy benefit reserves................................ 440 498
Policyholder protection fund........................... 49 18
Unfunded retirement benefits........................... 71 72
Other accrued expenses................................. 33 63
Other.................................................. 223 119
------ ------
Total gross deferred tax assets................... 877 987
Less valuation allowance............................... 79 123
------ ------
Total deferred income tax assets.................. 798 864
------ ------
Net deferred income tax liability............ 1,545 1,602
Current income tax liability................. 320 225
------ ------
Total income tax liability................... $1,865 $1,827
====== ======
</TABLE>
A valuation allowance is provided when it is more likely than not that
deferred tax assets will not be realized. We have established valuation
allowances primarily for foreign tax credit and non-insurance loss carryforwards
that exceed projected future offsets. Only 35% of non-insurance losses can be
offset against life insurance taxable income each year. During 1998, the
valuation allowance for deferred tax assets decreased by $44 million (decreased
by $40 million in 1997) due to changes in carryforwards of foreign tax credits
and non-insurance losses for U.S. federal income tax purposes. No foreign tax
credit carryforwards remained at December 31, 1998. Alternative minimum tax
credit carryforwards of approximately $10 million are available at December 31,
1998.
F-35
<PAGE> 121
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of income tax expense (benefit) applicable to pretax
earnings for the years ended December 31 were as follows:
<TABLE>
<CAPTION>
JAPAN U.S. TOTAL
----- ----- -----
(IN MILLIONS)
<S> <C> <C> <C>
1998:
Current................................................ $ 252 $ 25 $ 277
Deferred -- operations................................. (88) (4) (92)
Deferred tax benefit from Japanese tax rate
reduction............................................ (121) -- (121)
----- ----- -----
Total............................................. $ 43 $ 21 $ 64
===== ===== =====
1997:
Current................................................ $ 203 $ 89 $ 292
Deferred -- operations................................. (6) (6) (12)
----- ----- -----
Total............................................. $ 197 $ 83 $ 280
===== ===== =====
1996:
Current................................................ $ 207 $ 33 $ 240
Deferred -- operations................................. 14 2 16
----- ----- -----
Total............................................. $ 221 $ 35 $ 256
===== ===== =====
</TABLE>
Income tax expense in the accompanying consolidated financial statements
varies from the amount computed by applying the expected U.S. tax rate of 35% to
pretax earnings. The principal reasons for the differences and the related tax
effects for the years ended December 31 are summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
(IN MILLIONS)
<S> <C> <C> <C>
Income taxes based on U.S statutory rates................... $ 193 $ 303 $ 228
Deferred tax benefit from Japanese tax rate reduction....... (121) -- --
U.S. alternative minimum tax................................ 12 50 26
Utilization of foreign tax credits.......................... (47) (91) (11)
Non-insurance losses generating no current tax benefit...... 9 -- 12
Other, net.................................................. 18 18 1
----- ----- -----
Income tax expense..................................... $ 64 $ 280 $ 256
===== ===== =====
</TABLE>
Income taxes are recorded in the Statements of Earnings and directly in
certain shareholders' equity accounts. Income tax expense (benefit) for the
years ended December 31 was allocated as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
(IN MILLIONS)
<S> <C> <C> <C>
Statements of Earnings...................................... $ 64 $ 280 $ 256
----- ----- -----
Other comprehensive income:
Change in unrealized foreign currency translation gains
on AFLAC Japan's dollar-denominated securities....... (29) -- --
Unrealized gains on investment securities:
Unrealized holding gains (losses) arising during
the year........................................ 129 688 (113)
Reclassification adjustment for realized (gains)
losses included in net earnings................. (2) 4 (4)
----- ----- -----
Total income taxes allocated to other
comprehensive income....................... 98 692 (117)
----- ----- -----
Additional paid-in capital (exercise of stock options)...... (1) (1) --
----- ----- -----
Total income taxes........................... $ 161 $ 971 $ 139
===== ===== =====
</TABLE>
F-36
<PAGE> 122
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Effective January 1, 1998, the Japanese government changed the income tax
provisions for foreign companies operating in Japan, increasing income taxes on
investment income and realized gains/losses from securities issued by entities
located in their home country. This change increases Japanese income taxes on
the income from most of AFLAC Japan's dollar-denominated securities. In
addition, in March 1998, the Japanese government enacted a reduction in the
Japanese corporate income tax rate. The statutory rate for AFLAC Japan declined
from 45.3% to 41.7% beginning May 1, 1998. The net effect of these two Japanese
tax changes increased income tax expense on consolidated operating earnings by
approximately $10 million for the year ended December 31, 1998 (an increase of
approximately $22 million from increased taxes on AFLAC Japan's dollar-
denominated investment income, less approximately $12 million from the benefit
of the statutory tax rate reduction).
The Japanese tax rate reduction also increased 1998 net earnings by $121
million ($.46 per basic share, $.44 per diluted share) from the reduction of
AFLAC Japan's deferred tax liability as of March 31, 1998, the date of enactment
of the reduced tax rate. The deferred tax reduction represented the effect of
recalculating Japanese deferred income taxes at the new 41.7% rate on the
temporary differences between the financial reporting basis and the Japanese
income tax basis of AFLAC Japan's assets and liabilities.
The Japanese income tax change in 1998, relating to the income on AFLAC
Japan's dollar-denominated securities issued by U.S. entities, also impacted
income tax expense for the two other-comprehensive-income components for the
year ended December 31, 1998. Deferred income tax expense on unrealized gains
(losses) for 1998 on debt securities includes $76 million for AFLAC Japan's
dollar-denominated securities, of which $59 million related to accumulated
unrealized gains existing as of January 1, 1998, the effective date of the tax
law change. The deferred income tax benefits of $29 million on changes in
unrealized foreign currency translation gains for 1998 represents Japanese
income taxes on currency translation gains that arise for Japanese tax purposes
from conversion of AFLAC Japan's dollar-denominated investments into yen. This
tax benefit is net of a deferred income tax expense of $51 million on
accumulated currency translation gains existing as of January 1, 1998.
In late 1998, the Japanese government proposed a further reduction in the
Japanese income tax rate. The proposal would reduce AFLAC Japan's income tax
rate from 41.7% to 36.2% effective April 1, 1999. The proposal is expected to be
finalized in early 1999. Such tax rate reduction is not expected to reduce
AFLAC's future consolidated income tax expense. Instead, it will largely result
in a shift of income tax expense from Japan to the United States as a result of
the U.S. foreign tax credit provisions.
(9) SHAREHOLDERS' EQUITY
On May 4, 1998, the board of directors declared a two-for-one stock split.
This split was payable to shareholders of record as of May 22, 1998, and the
additional shares were issued on June 8, 1998. All share and per-share amounts
in the accompanying financial statements have been restated for this split.
F-37
<PAGE> 123
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is a reconciliation of the number of shares of the Company's
common stock for the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
(IN THOUSANDS OF SHARES)
<S> <C> <C> <C>
Common stock -- issued:
Balance at beginning of year........................ 316,380 314,478 312,716
Exercise of stock options........................... 1,591 1,902 1,762
------- ------- -------
Balance at end of year.............................. 317,971 316,380 314,478
------- ------- -------
Treasury stock:
Balance at beginning of year........................ 49,944 38,708 28,767
Purchases of treasury stock:
Open market.................................... 3,806 12,737 11,849
Received from employees for taxes on stock
option exercises............................. 212 390 280
Shares issued to sales associates stock bonus plan
and dividend reinvestment plan.................... (1,218) (1,526) (1,874)
Exercise of stock options........................... (457) (365) (314)
------- ------- -------
Balance at end of year.............................. 52,287 49,944 38,708
------- ------- -------
Shares outstanding at end of year........................ 265,684 266,436 275,770
======= ======= =======
</TABLE>
Share Repurchase Program: Since the inception of the share repurchase
program in February 1994, we have purchased 57.4 million shares. Approximately
7.4 million shares are still available for purchase under current
authorizations.
Stock Options: The Company's stock option plan allows grants for both
incentive stock options (ISO) and non-qualifying stock options (NQSO) to
employees and NQSO to members of the board of directors. The option period runs
for a maximum of 10 years. The exercise price must be equal to 100% of the fair
market value at the date of grant; therefore, no compensation expense is
recognized. The options are exercisable immediately unless they are placed under
a vesting schedule that is determined by the compensation committee of the board
of directors at the time of the grant. At December 31, 1998, 10.6 million shares
were available for future grants.
F-38
<PAGE> 124
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes stock option activity:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
OPTION EXERCISE PRICE
SHARES PER SHARE
------ ----------------
(IN THOUSANDS OF SHARES)
<S> <C> <C>
Outstanding at December 31, 1995............................ 16,403 $ 7.31
Granted................................................ 3,660 16.40
Canceled............................................... (128) 12.60
Exercised.............................................. (2,333) 5.28
------
Outstanding at December 31, 1996............................ 17,602 9.43
Granted................................................ 1,451 26.73
Canceled............................................... (40) 15.44
Exercised.............................................. (2,542) 5.78
------
Outstanding at December 31, 1997............................ 16,471 11.50
Granted................................................ 1,953 30.18
Canceled............................................... (31) 23.74
Exercised.............................................. (2,148) 6.92
------
Outstanding at December 31, 1998............................ 16,245 14.33
======
</TABLE>
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
(IN THOUSANDS OF SHARES)
<S> <C> <C> <C>
Shares exercisable at end of year........................... 12,946 13,256 13,551
====== ====== ======
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------- -----------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE (YRS) PRICE EXERCISABLE PRICE
- --------------- ----------- ----------- --------- ----------- ---------
(IN THOUSANDS OF SHARES)
<S> <C> <C> <C> <C> <C>
$ 1.87 - $ 3.67 912 1.3 $ 2.21 912 $ 2.21
3.73 - 8.07 1,823 2.1 5.34 1,823 5.34
9.42 5,188 4.5 9.42 5,188 9.42
9.60 - 14.10 1,518 5.9 12.57 1,512 12.56
15.83 2,586 7.1 15.83 1,691 15.83
16.97 - 27.69 2,280 8.3 23.54 1,532 23.53
30.09 - 38.00 1,938 9.5 30.18 288 30.12
------ ------
1.87 - 38.00 16,245 5.7 14.33 12,946 11.67
====== ======
</TABLE>
As permitted by SFAS No. 123, we do not recognize compensation cost in the
Consolidated Statements of Earnings for employee stock options. Had compensation
cost for stock options granted after 1994 been determined using the
fair-value-based method, as described in SFAS No. 123, the
F-39
<PAGE> 125
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
effect on our net earnings and net earnings per share would approximate the
following pro forma amounts:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Decrease to:
Net earnings (in millions)........................... $ 13 $ 12 $ 8
Net earnings per share -- basic...................... .05 .04 .03
Net earnings per share -- diluted.................... .05 .04 .03
</TABLE>
The fair value of each option granted after 1994 was estimated on the date
of grant using the Black-Scholes multiple option approach with the following
assumptions for options granted during the three-year period ended December 31,
1998:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Expected life from vesting date (years)........... 3.5-4.4 3.4-6.1 3.7-6.1
Dividend yield.................................... .6% 1.0% 1.0%
Expected volatility............................... 27.3% 20.2% 19.3%
Risk-free interest rate........................... 5.5% 6.0% 7.0%
</TABLE>
The pro forma information presented above is not indicative of future
amounts. The provisions of SFAS No. 123 were applicable prospectively, and the
above pro forma disclosures therefore do not include amortization of the fair
value of awards prior to 1995. Also, we expect that additional options will be
granted in future years.
Voting Rights: In accordance with the Parent Company's Articles of
Incorporation, shares of common stock are generally entitled to one vote per
share until they have been held by the same beneficial owner for a continuous
period of 48 months, at which time they become entitled to 10 votes per share.
(10) STATUTORY ACCOUNTING AND DIVIDEND RESTRICTIONS
Net assets of the insurance subsidiaries aggregated $4.6 billion at
December 31, 1998, on a GAAP basis. AFLAC Japan accounted for $2.7 billion, or
59.4%, of these net assets.
Our insurance subsidiaries are required to report their results of
operations and financial position to state insurance regulatory authorities, and
in the case of AFLAC Japan, to the Japanese Financial Supervisory Agency, on the
basis of statutory accounting practices prescribed or permitted by such
authorities. As determined on a U.S. statutory accounting basis, AFLAC's net
income was $231 million in 1998, $335 million in 1997 and $257 million in 1996,
and capital and surplus was $1.6 billion and $1.8 billion at December 31, 1998
and 1997, respectively.
F-40
<PAGE> 126
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Reconciliations of AFLAC's net assets on a GAAP basis to net assets
determined on a U.S. statutory accounting basis as of December 31 were as
follows:
<TABLE>
<CAPTION>
1998 1997
------ ------
(IN MILLIONS)
<S> <C> <C>
Net assets on GAAP basis.................................... $4,591 $4,175
Adjustment of debt securities from fair value to amortized
cost...................................................... (3,094) (3,316)
Elimination of deferred policy acquisition costs............ (3,059) (2,577)
Adjustment to policy liabilities............................ 1,788 2,111
Elimination of deferred income taxes........................ 1,578 1,642
Reduction in premiums receivable............................ (77) (84)
Establishment of asset valuation reserve.................... (147) (117)
Elimination of statutory non-admitted assets................ (110) (84)
Difference in foreign currency translation adjustment....... (73) 68
Difference in accrued expenses.............................. 139 24
Other, net.................................................. 112 (71)
------ ------
Net assets on U.S. statutory accounting basis.......... $1,648 $1,771
====== ======
</TABLE>
The Parent Company depends on its subsidiaries for cash flow, primarily in
the form of dividends and management fees. Consolidated retained earnings in the
accompanying financial statements largely represent undistributed earnings of
the insurance subsidiaries. Dividends, management fees (see Note 2) and other
payments to the Parent Company by its insurance subsidiary are subject to
various regulatory restrictions and approvals related to safeguarding the
interests of insurance policyholders. One of the primary considerations is that
the insurance subsidiary must maintain adequate risk-based capital. Also, the
maximum amount of dividends that can be paid to shareholders by insurance
companies domiciled in the State of Georgia without prior approval of the
Commissioner of Insurance is the greater of the net gain from operations for the
previous year determined under statutory accounting principles or 10% of
statutory equity as of the previous year-end. Dividend payments by AFLAC during
1999 in excess of $213 million would require such approval. Dividends paid by
AFLAC during 1998 were $172 million.
A portion of AFLAC Japan annual earnings, as determined on a Japanese
statutory accounting basis, can be remitted each year to AFLAC U.S. after
complying with risk-based capital provisions and satisfying various conditions
imposed by Japanese regulatory authorities for protecting policyholders. Profit
remittances to the United States can fluctuate due to changes in the amounts of
Japanese regulatory earnings. Among other items, factors affecting regulatory
earnings include Japanese regulatory accounting practices and fluctuations in
currency translations of AFLAC Japan's U.S. dollar-denominated investments into
yen. Earnings were remitted from AFLAC Japan to AFLAC U.S. in the amount of $154
million in 1998, $347 million in 1997 and $217 million in 1996.
Net assets (unaudited) of AFLAC Japan, based on Japanese statutory
accounting practices, aggregated $397 million and $400 million at December 31,
1998 and 1997, respectively. Japanese statutory accounting practices differ in
many respects from U.S. GAAP. Under Japanese statutory accounting practices,
policy acquisition costs are charged off immediately, policy benefit and claim
reserving methods are different, deferred income tax liabilities are not
recognized, and investment securities are carried at cost less certain market
value adjustments.
F-41
<PAGE> 127
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(11) BENEFIT PLANS
Reconciliations of the funded status of the basic employee defined benefit
pension plans with amounts recognized in the accompanying consolidated balance
sheets as of December 31 were as follows:
<TABLE>
<CAPTION>
1998 1997
------------------- -----------------
JAPAN U.S. JAPAN U.S.
-------- -------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Projected benefit obligation:
Benefit obligation at beginning of
year................................... $ 25,627 $ 50,465 $24,651 $45,492
Service cost............................. 2,188 2,362 2,224 2,450
Interest cost............................ 973 3,491 982 3,132
Actuarial loss........................... 10,190 5,559 1,233 3,652
Benefits paid............................ (439) (1,457) (540) (800)
Effect of foreign exchange rate
changes................................ 4,884 -- (2,923) --
Other: termination of subsidiary plan.... -- -- -- (3,461)
-------- -------- ------- -------
Benefit obligation at end of year... 43,423 60,420 25,627 50,465
-------- -------- ------- -------
Plan assets:
Fair value of plan assets at beginning of
year................................... 18,547 45,530 18,445 37,574
Actual return on plan assets............. 465 2,878 301 7,166
Employer contribution.................... 2,260 1,590 2,480 1,590
Benefits paid............................ (439) (1,457) (540) (800)
Effect of foreign exchange rate
changes................................ 2,608 -- (2,139) --
-------- -------- ------- -------
Fair value of plan assets at end of
year.............................. 23,441 48,541 18,547 45,530
-------- -------- ------- -------
Funded status....................... (19,982) (11,879) (7,080) (4,935)
Unrecognized net actuarial loss............... 12,144 10,308 1,160 3,539
Unrecognized transition obligation (asset).... 502 (840) 523 (961)
Unrecognized prior service cost............... 972 165 932 182
-------- -------- ------- -------
(Accrued) prepaid benefit cost...... $ (6,364) $ (2,246) $(4,465) $(2,175)
======== ======== ======= =======
</TABLE>
The components of retirement expense and actuarial assumptions for the
years ended December 31 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------------- --------------- ---------------
JAPAN U.S. JAPAN U.S. JAPAN U.S.
------ ------ ------ ------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Components of net periodic benefit
cost:
Service cost................... $2,188 $2,362 $2,224 $2,450 $2,169 $2,591
Interest cost.................. 973 3,491 982 3,132 1,031 3,142
Expected return on plan
assets....................... (450) (4,086) (429) (3,366) (587) (2,911)
Recognized net actuarial
loss......................... -- -- -- 405 -- 491
Amortization of transition
obligation (asset)........... 77 (122) 83 (122) 92 (122)
Amortization of prior service
cost......................... 67 16 72 (26) 80 (26)
Net curtailment gain........... -- -- -- (377) -- --
------ ------ ------ ------ ------ ------
Net periodic benefit cost...... $2,855 $1,661 $2,932 $2,096 $2,785 $3,165
====== ====== ====== ====== ====== ======
Weighted-average actuarial
assumptions as of fiscal year-end:
Discount rate-net periodic
benefit cost................. 4.0% 7.0% 4.0% 7.0% 4.0% 7.0%
Discount rate-benefit
obligations.................. 3.0 6.5 4.0 7.0 4.0 7.0
Expected return on plan
assets....................... 2.5 9.0 2.5 9.0 2.5 9.0
Rate of compensation
increase..................... 3.5 4.0 3.5 4.0 3.5 5.0
</TABLE>
F-42
<PAGE> 128
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In addition to the benefit obligations for funded employee plans, we also
maintain unfunded supplemental retirement plans for certain officers and
beneficiaries. The expense recognized for these plans was $31 million in 1998,
$29 million in 1997 and $37 million in 1996. The accrued retirement liability
for the unfunded supplemental retirement plans at December 31, 1998 and 1997,
was $223 million and $195 million, respectively. The actuarial present value of
projected benefit obligations was $226 million and $199 million at December 31,
1998 and 1997, respectively. The discount rates used were the same as for the
funded plans. Such supplemental retirement plans include a lifetime obligation
to the surviving spouse of the Company's former chairman of the board. Benefits
are payable at .5% of the Company's pretax earnings, as defined in the
agreement, for the previous year.
Reconciliation of the benefit obligation of the unfunded retiree medical
program and other postretirement benefits with amounts recognized in the
accompanying consolidated balance sheets as of December 31 were as follows:
<TABLE>
<CAPTION>
1998 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Benefit obligation:
Benefit obligation at beginning of year................ $10,062 $ 9,353
Service cost........................................... 320 313
Interest cost.......................................... 684 674
Actuarial loss......................................... 95 275
Benefits paid.......................................... (339) (553)
------- -------
Unfunded benefit obligation at end of year.................. 10,822 10,062
Unrecognized net actuarial gain............................. 1,032 1,157
------- -------
Accrued (prepaid) benefit cost......................... $11,854 $11,219
======= =======
</TABLE>
The components of expenses for the retiree medical program and actuarial
assumptions are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost................................................ $ 320 $ 313 $ 296
Interest cost............................................... 684 674 630
Recognized net actuarial loss (gain)........................ (30) (34) (41)
----- ----- -----
Net periodic benefit cost.............................. $ 974 $ 953 $ 885
===== ===== =====
Discount rate:
Net periodic cost...................................... 7.0% 7.0% 7.0%
Benefit obligations.................................... 6.5 7.0 7.0
Effect of 1-percentage point increase in health care cost
trend rate:
On total of service and interest cost components....... $ 102 $ 93 $ 86
On postretirement benefit obligation................... 791 704 466
Effect of 1-percentage point decrease in health care cost
trend rate:
On total of service and interest cost components....... (97) (80) (75)
On postretirement benefit obligation................... (743) (650) (425)
</TABLE>
The projected health care cost trend rate used in 1998 was 10%, graded to
7% over three years.
F-43
<PAGE> 129
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Stock Bonus Plan: AFLAC U.S. maintains a stock bonus plan for eligible
U.S. sales associates. Contributions to the plan, which are determined based on
sales of insurance policies, are made by AFLAC U.S. to a trust and are used to
purchase the Parent Company's common stock for later distribution to the
participants. The vesting requirements are based on years of service. Any shares
forfeited reduce future contributions of AFLAC U.S. The net costs of this plan,
which are included in deferred policy acquisition costs, amounted to $10 million
in both 1998 and 1997, and $9 million in 1996.
(12) COMMITMENTS AND CONTINGENCIES
Litigation: We are a defendant in various litigation considered to be in
the normal course of business. Some of this litigation is pending in Alabama,
where large punitive damages bearing little relation to the actual damages
sustained by plaintiffs have been awarded against other companies, including
insurers, in recent years. Although the final results of any litigation cannot
be predicted with certainty, we believe the outcome of the litigation still
pending will not have a material adverse effect on our financial position.
F-44
<PAGE> 130
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$450,000,000
[AFIAC LOGO]
EXCHANGE OFFER
6 1/2% SENIOR NOTES DUE 2009
------------------------------------------------
PROSPECTUS
------------------------------------------------
__________, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNTIL , 1999, ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE> 131
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Sections 14-2-850 through 14-2-859 of the Official Code of Georgia
Annotated (the "OCGA") contain detailed provisions concerning the
indemnification of directors, officers, employees, and agents against judgments,
penalties, fines and amounts paid in settlement of litigation that they may
incur in their capacity as such. Sections 14-2-850 through 14-2-859 of the OCGA,
which are filed as Exhibit 99.1 to this Registration Statement, are incorporated
herein by reference.
Article VII of the Bylaws of the Registrant provides that the Registrant
shall indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding
(including, but not limited to, any action, suit or proceeding by or in the
right of the Registrant), whether civil, criminal, administrative or
investigative, by reason of the fact that he is or was a director, advisory
director, officer, employee or agent of the Registrant as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, and shall advance expenses to such person reasonably incurred
in connection therewith, to the fullest extent permitted by the relevant
provisions of the Georgia Business Corporation Code, as such law presently
exists or hereafter may be amended. Furthermore, the Board of Directors may
authorize the Registrant to purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the Registrant,
or is or was serving at the request of the Registrant as a director, officer,
partner, trustee, employee or agent of another corporation, partnership, joint
venture, trust, employee benefit plan, or other enterprise against liability
asserted against him or incurred by him in any such capacity or arising out of
his status as such whether or not the Registrant would have the power to
indemnify him against such liability under the provisions of Article VII of the
Bylaws or the Georgia Business Corporation Code.
The Articles of Incorporation of the Registrant provide that no director
shall be personally liable to the Registrant or its stockholders for monetary
damages for any breach of duty of care or other duty as a director.
Notwithstanding the foregoing, a director shall be liable to the extent provided
by applicable law: (i) for the appropriation in violation of his duties of any
business opportunity of the Registrant; (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law;
(iii) for any action for which the director could be found liable pursuant to
Section 14-2-154 of the OCGA, or any amendment thereto or successor provision
thereto; and (iv) for any transaction from which the director derived an
improper personal benefit.
The Company maintains a director's and officer's liability insurance policy
that covers its directors and officers for certain claims and actions incurred
in the course of their duties, including, under certain circumstances, alleged
violations of the Securities Act.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
a. Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DOCUMENTS
- ------- ---------
<C> <S>
1.1 Purchase Agreement, dated April 16, 1999, among the
Registrant, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Donaldson, Lufkin & Jenrette, First Union
Capital Markets Corp., NationsBanc Montgomery Securities LLC
and Salomon Smith Barney Inc.
</TABLE>
II-1
<PAGE> 132
<TABLE>
<CAPTION>
EXHIBIT
NO. DOCUMENTS
- ------- ---------
<C> <S>
3.0 Articles of Incorporation, as amended -- incorporated by
reference from Form 10-Q for March 31, 1997, Commission file
number 1-7434, Accession No. 0000004977-97-000011, Exhibit
3.0; and Bylaws of the Company, as amended -- incorporated
by reference from Form 10-Q for June 30, 1996, Commission
file number 1-7434, Accession No. 0000004977-96-000012,
Exhibit 3.0.
4.1 Registration Rights Agreement, dated April 21, 1999, among
the Registrant, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Donaldson, Lufkin & Jenrette, First Union
Capital Markets Corp., NationsBanc Montgomery Securities LLC
and Salomon Smith Barney Inc.
4.2 Indenture, dated April 21, 1999, between the Registrant and
The Bank of New York, as Trustee for the 6 1/2% Senior Notes
due 2009.
5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP.
10.0 American Family Corporation Incentive Stock Option Plan
(1982) -- incorporated by reference from Registration
Statement No. 33-44720 on Form S-8 with respect to the AFLAC
Incorporated (Formerly American Family Corporation)
Incentive Stock Option Plan (1982) and Stock Option Plan
(1985).
10.1 American Family Corporation Stock Option Plan
(1985) -- incorporated by reference from Registration
Statement No. 33-44720 on Form S-8 with respect to the AFLAC
Incorporated (Formerly American Family Corporation)
Incentive Stock Option Plan (1982) and Stock Option Plan
(1985).
10.1.1 AFLAC Incorporated Amended 1985 Stock Option
Plan -- incorporated by reference from 1994 Shareholders'
Proxy Statement, Commission file number 1-7434, Accession
No. 0000004977-94-000003, Exhibit A.
10.1.2 AFLAC Incorporated Amended 1985 Stock Option Plan, as
amended August 8, 1995 -- incorporated by reference from
Form 10-Q for September 30, 1995, Commission file number
1-7434, Accession No. 0000004977-95-000023, Exhibit 10.
10.2 American Family Corporation Retirement Plan for Senior
Officers, as amended and restated October 1,
1989 -- incorporated by reference from 1993 Form 10-K,
Commission file number 1-7434, Accession No.
0000004977-94-000006, Exhibit 10.2.
10.3 AFLAC Incorporated Supplemental Executive Retirement Plan,
as amended, effective January 1, 1998 -- incorporated by
reference from 1998 Form 10-K, Commission file number
1-7434, Accession No. 0000004977-99-000010, Exhibit 10.3.
10.4 AFLAC Incorporated Employment Agreement with Daniel P. Amos,
dated August 1, 1993 -- incorporated by reference from 1993
Form 10-K, Commission file number 1-7434, Accession No.
0000004977-94-000006, Exhibit 10.4.
10.5 American Family Life Assurance Company of Columbus
Employment Agreement with Yoshiki Otake, dated January 1,
1995 -- incorporated by reference from 1994 Form 10-K,
Commission file number 1-7434, Accession No.
0000004977-95-000006, Exhibit 10.5.
10.6 AFLAC Incorporated Employment Agreement with Kriss
Cloninger, III, dated February 14, 1992, and as amended
November 12, 1993 -- incorporated by reference from 1993
Form 10-K, Commission file number 1-7434, Accession No.
0000004977-94-000006, Exhibit 10.6.
10.7 American Family Life Assurance Company of Columbus
Employment Agreement with Hidefumi Matsui, dated January 1,
1995 -- incorporated by reference from 1994 Form 10-K,
Commission file number 1-7434, Accession No.
0000004977-95-000006, Exhibit 10.8.
10.8 American Family Life Assurance Company of Columbus
Employment Agreement with Dr. E. Stephen Purdom, dated
October 25, 1994 -- incorporated by reference from 1994 Form
10-K, Commission file number 1-7434, Accession No.
0000004977-95-000006, Exhibit 10.9.
</TABLE>
II-2
<PAGE> 133
<TABLE>
<CAPTION>
EXHIBIT
NO. DOCUMENTS
- ------- ---------
<C> <S>
10.9 AFLAC Incorporated Employment Agreement with Paul S. Amos,
dated August 1, 1995 -- incorporated by reference from Form
10-Q for September 30, 1995, Commission file number 1-7434,
Accession No. 0000004977-95-000023, Exhibit 10.1.
10.10 AFLAC Incorporated Deferred Compensation Agreement with Paul
S. Amos, dated July 15, 1997 -- incorporated by reference
from 1997 Form 10-K, Commission file number 1-7434,
Accession No. 0000004977-98-000006, Exhibit 10.11.
10.11 AFLAC Incorporated 1997 Stock Option Plan, incorporated by
reference from the 1997 Shareholders' Proxy Statement,
Commission file number 1-7434, Accession No.
0000004977-97-000007, Appendix B.
10.12 AFLAC Incorporated Executive Deferred Compensation Plan,
effective January 1, 1999 -- incorporated by reference from
Form S-8 Registration Statement No. 333-69333, Accession No.
0000004977-98-00024, Exhibit 4.
10.13 AFLAC Incorporated Amended and Restated Management Incentive
Plan, effective January 1, 1999 -- incorporated by reference
from the 1999 Shareholders' Proxy Statement, Commission file
number 1-7434, Accession No. 0000004977-99-000007, Exhibit
A.
12.1 Statement regarding the computation of ratio of earnings to
fixed charges for the Registrant.
21.0 Subsidiaries -- incorporated by reference from 1998 Form
10-K, Commission file number 1-7434, Accession No.
0000004977-99-000010, Exhibit 21.0.
23.1 Consent of KPMG LLP.
23.2 Consent of Skadden, Arps, Slate, Meagher & Flom LLP
(included in Exhibit 5.1).
24.1 Powers of Attorney (included in signature page to
Registration Statement).
25.1 Statement of Eligibility and Qualification of Form T-1 of
The Bank of New York, as Trustee under the Indenture
relating to the Registrant's 6 1/2% Senior Notes due 2009.
99.1 Sections 14-2-850 through 14-2-859 of the Official Code of
Georgia Annotated.
99.2 Form of Letter of Transmittal.
99.3 Form of Notice of Guaranteed Delivery.
99.4 Form of Letter to Brokers.
99.5 Form of Letter to Clients.
99.6 Guidelines for certification of taxpayer identification
number on substitute Form W-9.
</TABLE>
ITEM 22. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 or this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(b) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(c) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 134
(d) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(e) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement.
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration statement
or any material change to such information in the registration statement;
(2) That, for the purposes of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at the time shall be deemed to be initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-4
<PAGE> 135
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF COLUMBUS, STATE OF
GEORGIA, ON MAY 13, 1999.
AFLAC INCORPORATED
By: /s/ PAUL S. AMOS
------------------------------------
Paul S. Amos
Chairman of the Board of Directors
POWER OF ATTORNEY
EACH PERSON WHOSE SIGNATURE APPEARS BELOW ON THIS REGISTRATION STATEMENT
HEREBY CONSTITUTES AND APPOINTS DANIEL P. AMOS AND E. STEPHEN PURDOM, AND EACH
OF THEM, WITH FULL POWER TO ACT WITHOUT THE OTHER, HIS OR HER TRUE AND LAWFUL
ATTORNEY-IN-FACT AND AGENT, WITH FULL POWER OF SUBSTITUTION AND RESUBSTITUTION,
FOR HIM OR HER AND IN HIS OR HER NAME, PLACE AND STEAD, IN ANY AND ALL
CAPACITIES (UNLESS REVOKED IN WRITING) TO SIGN ANY AND ALL AMENDMENTS (INCLUDING
POST-EFFECTIVE AMENDMENTS THERETO) TO THIS REGISTRATION STATEMENT TO WHICH THIS
POWER OF ATTORNEY IS ATTACHED, AND TO FILE THE SAME, WITH ALL EXHIBITS THERETO,
AND OTHER DOCUMENTS IN CONNECTION THEREWITH, WITH THE SECURITIES AND EXCHANGE
COMMISSION, GRANTING TO SUCH ATTORNEYS-IN-FACT AND AGENTS, AND EACH OF THEM,
FULL POWER AND AUTHORITY TO DO AND PERFORM EACH AND EVERY ACT AND THING
REQUISITE AND NECESSARY TO BE DONE IN CONNECTION THEREWITH, AS FULLY AS TO ALL
INTENTS AND PURPOSES AS HE OR SHE MIGHT OR COULD DO IN PERSON, HEREBY RATIFYING
AND CONFIRMING ALL THAT SUCH ATTORNEYS-IN-FACT AND AGENTS OR ANY OF THEM, OR
THEIR OR HIS SUBSTITUTE OR SUBSTITUTES, MAY LAWFULLY DO OR CAUSE TO BE DONE BY
VIRTUE THEREOF.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ DANIEL P. AMOS Chief Executive Officer, President May 13, 1999
- --------------------------------------------------- and Vice Chairman of the
Daniel P. Amos Board of Directors
/s/ KRISS CLONINGER III Executive Vice President, Chief May 13, 1999
- --------------------------------------------------- Financial Officer and Treasurer
Kriss Cloninger III
/s/ NORMAN P. FOSTER Executive Vice President, May 13, 1999
- --------------------------------------------------- Corporate Finance
Norman P. Foster
Director May 13, 1999
- ---------------------------------------------------
J. Shelby Amos, II
/s/ MICHAEL H. ARMACOST Director May 13, 1999
- ---------------------------------------------------
Michael H. Armacost
Director May 13, 1999
- ---------------------------------------------------
M. Delmar Edwards, M.D.
/s/ JOE FRANK HARRIS Director May 13, 1999
- ---------------------------------------------------
Joe Frank Harris
/s/ ELIZABETH J. HUDSON Director May 13, 1999
- ---------------------------------------------------
Elizabeth J. Hudson
</TABLE>
II-5
<PAGE> 136
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ KENNETH S. JANKE, SR. Director May 13, 1999
- ---------------------------------------------------
Kenneth S. Janke, Sr.
/s/ CHARLES B. KNAPP Director May 13, 1999
- ---------------------------------------------------
Charles B. Knapp
/s/ HISAO KOBAYASHI Director May 13, 1999
- ---------------------------------------------------
Hisao Kobayashi
/s/ YOSHIKI OTAKE Director May 13, 1999
- ---------------------------------------------------
Yoshiki Otake
Director May 13, 1999
- ---------------------------------------------------
E. Stephen Purdom
/s/ BARBARA K. RIMER Director May 13, 1999
- ---------------------------------------------------
Barbara K. Rimer
/s/ HENRY C. SCHWOB Director May 13, 1999
- ---------------------------------------------------
Henry C. Schwob
/s/ J. KYLE SPENCER Director May 13, 1999
- ---------------------------------------------------
J. Kyle Spencer
Director May 13, 1999
- ---------------------------------------------------
Glenn Vaughn, Jr.
Director May 13, 1999
- ---------------------------------------------------
Robert L. Wright
</TABLE>
II-6
<PAGE> 137
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DOCUMENTS
- ------- ---------
<C> <S>
1.1 Purchase Agreement, dated April 16, 1999, among the
Registrant, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Donaldson, Lufkin & Jenrette, First Union
Capital Markets Corp., NationsBanc Montgomery Securities LLC
and Salomon Smith Barney Inc.
3.0 Articles of Incorporation, as amended -- incorporated by
reference from Form 10-Q for March 31, 1997, Commission file
number 1-7434, Accession No. 0000004977-97-000011, Exhibit
3.0; and Bylaws of the Company, as amended -- incorporated
by reference from Form 10-Q for June 30, 1996, Commission
file number 1-7434, Accession No. 0000004977-96-000012,
Exhibit 3.0.
4.1 Registration Rights Agreement, dated April 21, 1999, among
the Registrant, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Donaldson, Lufkin & Jenrette, First Union
Capital Markets Corp., NationsBanc Montgomery Securities LLC
and Salomon Smith Barney Inc.
4.2 Indenture, dated April 21, 1999, between the Registrant and
The Bank of New York, as Trustee for the 6 1/2% Senior Notes
due 2009.
5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP.
10.0 American Family Corporation Incentive Stock Option Plan
(1982) -- incorporated by reference from Registration
Statement No. 33-44720 on Form S-8 with respect to the AFLAC
Incorporated (Formerly American Family Corporation)
Incentive Stock Option Plan (1982) and Stock Option Plan
(1985).
10.1 American Family Corporation Stock Option Plan
(1985) -- incorporated by reference from Registration
Statement No. 33-44720 on Form S-8 with respect to the AFLAC
Incorporated (Formerly American Family Corporation)
Incentive Stock Option Plan (1982) and Stock Option Plan
(1985).
10.1.1 AFLAC Incorporated Amended 1985 Stock Option
Plan -- incorporated by reference from 1994 Shareholders'
Proxy Statement, Commission file number 1-7434, Accession
No. 0000004977-94-000003, Exhibit A.
10.1.2 AFLAC Incorporated Amended 1985 Stock Option Plan, as
amended August 8, 1995 -- incorporated by reference from
Form 10-Q for September 30, 1995, Commission file number
1-7434, Accession No. 0000004977-95-000023, Exhibit 10.
10.2 American Family Corporation Retirement Plan for Senior
Officers, as amended and restated October 1,
1989 -- incorporated by reference from 1993 Form 10-K,
Commission file number 1-7434, Accession No.
0000004977-94-000006, Exhibit 10.2.
10.3 AFLAC Incorporated Supplemental Executive Retirement Plan,
as amended, effective January 1, 1998 -- incorporated by
reference from 1998 Form 10-K, Commission file number
1-7434, Accession No. 0000004977-99-000010, Exhibit 10.3.
10.4 AFLAC Incorporated Employment Agreement with Daniel P. Amos,
dated August 1, 1993 -- incorporated by reference from 1993
Form 10-K, Commission file number 1-7434, Accession No.
0000004977-94-000006, Exhibit 10.4.
10.5 American Family Life Assurance Company of Columbus
Employment Agreement with Yoshiki Otake, dated January 1,
1995 -- incorporated by reference from 1994 Form 10-K,
Commission file number 1-7434, Accession No.
0000004977-95-000006, Exhibit 10.5.
10.6 AFLAC Incorporated Employment Agreement with Kriss
Cloninger, III, dated February 14, 1992, and as amended
November 12, 1993 -- incorporated by reference from 1993
Form 10-K, Commission file number 1-7434, Accession No.
0000004977-94-000006, Exhibit 10.6.
10.7 American Family Life Assurance Company of Columbus
Employment Agreement with Hidefumi Matsui, dated January 1,
1995 -- incorporated by reference from 1994 Form 10-K,
Commission file number 1-7434, Accession No.
0000004977-95-000006, Exhibit 10.8.
</TABLE>
<PAGE> 138
<TABLE>
<CAPTION>
EXHIBIT
NO. DOCUMENTS
- ------- ---------
<C> <S>
10.8 American Family Life Assurance Company of Columbus
Employment Agreement with Dr. E. Stephen Purdom, dated
October 25, 1994 -- incorporated by reference from 1994 Form
10-K, Commission file number 1-7434, Accession No.
0000004977-95-000006, Exhibit 10.9.
10.9 AFLAC Incorporated Employment Agreement with Paul S. Amos,
dated August 1, 1995 -- incorporated by reference from Form
10-Q for September 30, 1995, Commission file number 1-7434,
Accession No. 0000004977-95-000023, Exhibit 10.1.
10.10 AFLAC Incorporated Deferred Compensation Agreement with Paul
S. Amos, dated July 15, 1997 -- incorporated by reference
from 1997 Form 10-K, Commission file number 1-7434,
Accession No. 0000004977-98-000006, Exhibit 10.11.
10.11 AFLAC Incorporated 1997 Stock Option Plan, incorporated by
reference from the 1997 Shareholders' Proxy Statement,
Commission file number 1-7434, Accession No.
0000004977-97-000007, Appendix B.
10.12 AFLAC Incorporated Executive Deferred Compensation Plan,
effective January 1, 1999 -- incorporated by reference from
Form S-8 Registration Statement No. 333-69333, Accession No.
0000004977-98-00024, Exhibit 4.
10.13 AFLAC Incorporated Amended and Restated Management Incentive
Plan, effective January 1, 1999 -- incorporated by reference
from the 1999 Shareholders' Proxy Statement, Commission file
number 1-7434, Accession No. 0000004977-99-000007, Exhibit
A.
12.1 Statement regarding the computation of ratio of earnings to
fixed charges for the Registrant.
21.0 Subsidiaries -- incorporated by reference from 1998 Form
10-K, Commission file number 1-7434, Accession No.
0000004977-99-000010, Exhibit 21.0.
23.1 Consent of KPMG LLP.
23.2 Consent of Skadden, Arps, Slate, Meagher & Flom LLP
(included in Exhibit 5.1).
24.1 Powers of Attorney (included in signature page to
Registration Statement).
25.1 Statement of Eligibility and Qualification of Form T-1 of
The Bank of New York, as Trustee under the Indenture
relating to the Registrant's 6 1/2% Senior Notes due 2009.
99.1 Sections 14-2-850 through 14-2-859 of the Official Code of
Georgia Annotated.
99.2 Form of Letter of Transmittal.
99.3 Form of Notice of Guaranteed Delivery.
99.4 Form of Letter to Brokers.
99.5 Form of Letter to Clients.
99.6 Guidelines for certification of taxpayer identification
number on substitute Form W-9.
</TABLE>
<PAGE> 1
EXHIBIT 1.1
$450,000,000
AFLAC INCORPORATED
(a Georgia corporation)
PURCHASE AGREEMENT
April 16, 1999
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
as Representative of the several Initial Purchasers
North Tower
World Financial Center
New York, New York 10281-1209
Ladies and Gentlemen:
AFLAC Incorporated, a Georgia corporation (the "Company") confirms its
agreement with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") and each of the other Initial Purchasers named in
Schedule A hereto (collectively, the "Initial Purchasers," which term shall also
include any initial purchaser substituted as hereinafter provided in Section 11
hereof), for whom Merrill Lynch is acting as representative (in such capacity,
the "Representative"), with respect to the issue and sale by the Company and the
purchase by the Initial Purchasers, acting severally and not jointly, of the
respective principal amounts set forth in said Schedule A of $450,000,000.00
aggregate principal amount of the Company's Senior Notes due 2009 (the
"Securities"). The Securities are to be issued pursuant to an indenture dated as
of April 21, 1999 (the "Indenture") between the Company and The Bank of New
York, as trustee (the "Trustee"). Securities issued in book-entry form will be
issued to Cede & Co. as nominee of The Depository Trust Company ("DTC") pursuant
to a letter agreement, to be dated as of the Closing Time (as defined in Section
2(b)) (the "DTC Agreement"), among the Company, the Trustee and DTC. The Company
and the Initial Purchasers will also enter into a registration rights agreement,
dated as of April 21, 1999 (the "Registration Rights Agreement").
The Company understands that the Initial Purchasers propose to make an
offering of the Securities on the terms and in the manner set forth herein and
agrees that the Initial Purchasers may resell, subject to the conditions set
forth herein, all or a portion of the Securities to purchasers
<PAGE> 2
("Subsequent Purchasers") at any time after the date of this Agreement. The
Securities are to be offered and sold through the Initial Purchasers without
being registered under the Securities Act of 1933, as amended (the "1933 Act"),
in reliance upon exemptions therefrom. Pursuant to the terms of the Securities
and the Indenture, investors that acquire Securities may only resell or
otherwise transfer such Securities if such Securities are hereafter registered
under the 1933 Act or if an exemption from the registration requirements of the
1933 Act is available (including the exemption afforded by Rule 144A ("Rule
144A") or Regulation S ("Regulation S") of the rules and regulations promulgated
under the 1933 Act by the Securities and Exchange Commission (the
"Commission")).
The Company has prepared and delivered to each Initial Purchaser copies
of a preliminary offering memorandum dated April 9, 1999 (the "Preliminary
Offering Memorandum") and has prepared and will deliver to each Initial
Purchaser, on the date hereof or the next succeeding day, copies of a final
offering memorandum dated April 16, 1999 (the "Final Offering Memorandum"), each
for use by such Initial Purchaser in connection with its solicitation of
purchases of, or offering of, the Securities. "Offering Memorandum" means, with
respect to any date or time referred to in this Agreement, the most recent
offering memorandum (whether the Preliminary Offering Memorandum or the Final
Offering Memorandum, or any amendment or supplement to either such document),
including exhibits thereto and any documents incorporated therein by reference,
which has been prepared and delivered by the Company to the Initial Purchasers
in connection with their solicitation of purchases of, or offering of, the
Securities.
All references in this Agreement to financial statements and schedules
and other information which is "contained," "included" or "stated" in the
Offering Memorandum (or other references of like import) shall be deemed to mean
and include all such financial statements and schedules and other information
which are incorporated by reference in the Offering Memorandum; and all
references in this Agreement to amendments or supplements to the Offering
Memorandum shall be deemed to mean and include the filing of any document under
the Securities Exchange Act of 1934, as amended (the "1934 Act"), which is
incorporated by reference in the Offering Memorandum.
SECTION 1. Representations and Warranties.
(a) Representations and Warranties by the Company. The Company represents
and warrants to each Initial Purchaser as of the date hereof and as of the
Closing Time referred to in Section 2(b) hereof, and agrees with each Initial
Purchaser, as follows:
(i) Similar Offerings. The Company has not, directly or
indirectly, solicited any offer to buy or offered to sell, and will not,
directly or indirectly, solicit any offer to buy or offer to sell, in the
United States or to any United States citizen or resident, any security
which is or would be integrated with the sale of the Securities in a
manner that would require the Securities to be registered under the 1933
Act.
(ii) Offering Memorandum. The Offering Memorandum does not, and at
the Closing Time will not, include an untrue statement of a material fact
or omit to state a material fact necessary in order to make the
statements therein, in the light of the
2
<PAGE> 3
circumstances under which they were made, not misleading; provided, that
this representation, warranty and agreement shall not apply to statements
in or omissions from the Offering Memorandum, or any amendment or
supplement thereto, made in reliance upon and in conformity with
information furnished to the Company in writing by any Initial Purchaser
through the Representative expressly for use in the Offering Memorandum.
(iii) Incorporated Documents. The Offering Memorandum as delivered
from time to time shall incorporate by reference the most recent Annual
Report of the Company on Form 10-K filed with the Commission and each
Quarterly Report of the Company on Form 10-Q and each Current Report of
the Company on Form 8-K filed with the Commission since the filing of the
end of the fiscal year to which such Annual Report relates. The documents
incorporated or deemed to be incorporated by reference in the Offering
Memorandum at the time they were or hereafter are filed with the
Commission complied and will comply in all material respects with the
requirements of the 1934 Act and the rules and regulations of the
Commission thereunder (the "1934 Act Regulations"), and, when read
together with the other information in the Offering Memorandum, at the
date of the Offering Memorandum and at the Closing Time, do not and will
not include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they
were made, not misleading.
(iv) Independent Accountants. The accountants who certified the
financial statements and supporting schedules included in the Offering
Memorandum are independent certified public accountants with respect to
the Company and its subsidiaries within the meaning of Regulation S-X
under the 1933 Act.
(v) Financial Statements. The financial statements, together with
the related schedules and notes, included in the Offering Memorandum
present fairly the financial position of the Company and its consolidated
subsidiaries at the dates indicated and the statement of operations,
stockholders' equity and cash flows of the Company and its consolidated
subsidiaries for the periods specified; said financial statements have
been prepared in conformity with generally accepted accounting principles
("GAAP") applied on a consistent basis, except for changes in accounting
methods required by FASB, AICPA or the Commission, throughout the periods
involved. The supporting schedules, if any, included in the Offering
Memorandum present fairly in accordance with GAAP the information
required to be stated therein. The selected financial data and the
summary financial information included in the Offering Memorandum present
fairly, in all material respects, the information shown therein and have
been compiled on a basis consistent with that of the audited financial
statements included in the Offering Memorandum.
(vi) No Material Adverse Change in Business. Since the respective
dates as of which information is given in the Offering Memorandum, except
as otherwise stated therein, (A) there has been no material adverse
change in the condition, financial or otherwise, or in the earnings,
business affairs or business prospects of the Company and its
subsidiaries
3
<PAGE> 4
considered as one enterprise (a "Material Adverse Effect"), whether or
not arising in the ordinary course of business, (B) there have been no
transactions entered into by the Company or any of its subsidiaries,
other than those in the ordinary course of business, which are material
with respect to the Company and its subsidiaries considered as one
enterprise, and (C) except for regular quarterly dividends on the common
stock, par value $.10 per share, of the Company in amounts per share that
are consistent with past practice, there has been no dividend or
distribution of any kind declared, paid or made by the Company on any
class of its capital stock.
(vii) Good Standing of the Company. The Company has been duly
organized and is validly existing as a corporation in good standing under
the laws of the State of Georgia and has corporate power and authority to
own, lease and operate its properties and to conduct its business as
described in the Offering Memorandum and to enter into and perform its
obligations under this Agreement; and the Company is duly qualified as a
foreign corporation to transact business and is in good standing in each
other jurisdiction in which such qualification is required, whether by
reason of the ownership or leasing of property or the conduct of
business, except where the failure so to qualify or to be in good
standing would not result in a Material Adverse Effect.
(viii) Good Standing of Designated Subsidiaries. Each "significant
subsidiary" of the Company (as such term is defined in Rule 1-02 of
Regulation S-X) (each a "Designated Subsidiary" and, collectively, the
"Designated Subsidiaries") has been duly organized and is validly
existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has corporate power and authority to
own, lease and operate its properties and to conduct its business as
described in the Offering Memorandum and is duly qualified as a foreign
corporation to transact business and is in good standing in each
jurisdiction in which such qualification is required, whether by reason
of the ownership or leasing of property or the conduct of business,
except where the failure so to qualify or to be in good standing would
not result in a Material Adverse Effect; except as otherwise disclosed in
the Offering Memorandum, all of the issued and outstanding capital stock
of each Designated Subsidiary has been duly authorized and validly
issued, is fully paid and non-assessable and is owned by the Company,
directly or through subsidiaries, free and clear of any security
interest, mortgage, pledge, lien, encumbrance, claim or equity; none of
the outstanding shares of capital stock of the Designated Subsidiaries
was issued in violation of any preemptive or similar rights arising by
operation of law, or under the charter or by-laws of any Designated
Subsidiary or under any agreement to which the Company or any Designated
Subsidiary is a party. The subsidiaries of the Company other than
Designated Subsidiaries, considered in the aggregate as a single
subsidiary, do not constitute a "significant subsidiary" as defined in
Rule 1-02 of Regulation S-X.
(ix) Capitalization. The authorized, issued and outstanding
capital stock of the Company is as set forth in the Offering Memorandum
in the column entitled "Actual" under the caption "Capitalization"
(except for subsequent issuances, if any, pursuant to this
4
<PAGE> 5
Agreement, pursuant to employee benefit plans referred to in the Offering
Memorandum or pursuant to the exercise of convertible securities or
options referred to in the Offering Memorandum).
(x) Authorization of Agreement. This Agreement has been duly
authorized, executed and delivered by the Company.
(xi) Authorization of the Indenture and the Registration Rights
Agreement. The Indenture and the Registration Rights Agreement have been
duly authorized by the Company and, at the Closing Time, will have been
duly executed and delivered by the Company and will constitute valid and
binding agreements of the Company, enforceable against the Company in
accordance with their respective terms, except as rights to
indemnification and contribution may be limited under applicable law and
except as the enforcement thereof may be limited by bankruptcy,
insolvency (including, without limitation, all laws relating to
fraudulent transfers), reorganization, moratorium or other similar laws
relating to or affecting enforcement of creditors' rights generally, or
by general principles of equity (regardless of whether enforcement is
considered in a proceeding in equity or at law).
(xii) Authorization of the Securities. The Securities have been
duly authorized and, at the Closing Time, will have been duly executed by
the Company and, when authenticated in the manner provided for in the
Indenture and delivered against payment of the purchase price therefor
(and assuming the due authorization, execution and delivery of the
Indenture by the Trustee) will constitute valid and binding obligations
of the Company, enforceable against the Company in accordance with their
terms, except as the enforcement thereof may be limited by bankruptcy,
insolvency (including, without limitation, all laws relating to
fraudulent transfers), reorganization, moratorium or other similar laws
relating to or affecting enforcement of creditors' rights generally, or
by general principles of equity (regardless of whether enforcement is
considered in a proceeding in equity or at law), and will be in the form
contemplated by, and entitled to the benefits of, the Indenture.
(xiii) Description of the Securities, the Indenture and the
Registration Rights Agreement. The Securities, the Indenture and the
Registration Rights Agreement will conform in all material respects to
the respective statements relating thereto contained in the Offering
Memorandum and will be in substantially the respective forms previously
delivered to the Initial Purchasers.
(xiv) Absence of Defaults and Conflicts. Neither the Company nor
any of its subsidiaries is in violation of its charter or by-laws or in
default in the performance or observance of any obligation, agreement,
covenant or condition contained in any contract, indenture, mortgage,
deed of trust, loan or credit agreement, note, lease or other agreement
or instrument to which the Company or any of its subsidiaries is a party
or by which any of them may be bound, or to which any of the property or
assets of the Company or any of its subsidiaries is subject
(collectively, "Agreements and Instruments") except for such defaults
5
<PAGE> 6
that would not result in a Material Adverse Effect; and the execution,
delivery and performance of this Agreement, the Indenture, the
Registration Rights Agreement and the Securities and any other agreement
or instrument entered into or issued or to be entered into or issued by
the Company in connection with the transactions contemplated hereby or
thereby or in the Offering Memorandum and the consummation of the
transactions contemplated herein and in the Offering Memorandum
(including the issuance and sale of the Securities and the use of the
proceeds from the sale of the Securities as described in the Offering
Memorandum under the caption "Use of Proceeds") and compliance by the
Company with its obligations hereunder has been duly authorized by all
necessary corporate action and does not and will not, whether with or
without the giving of notice or passage of time or both, conflict with or
constitute a breach of, or default or a Repayment Event (as defined
below) under, or result in the creation or imposition of any lien, charge
or encumbrance upon any property or assets of the Company or any of its
subsidiaries pursuant to, the Agreements and Instruments except for such
conflicts, breaches or defaults or liens, charges or encumbrances that,
singly or in the aggregate, would not result in a Material Adverse
Effect, nor will such action result in any violation of the provisions of
any applicable law, statute, rule, regulation, judgment, order, writ or
decree of any government, government instrumentality or court, domestic
or foreign, having jurisdiction over the Company or any of its
subsidiaries or any of their assets or properties, except for such
violations that would not result in a Material Adverse Effect, or in any
violation of the charter or by-laws of the Company or any of its
subsidiaries. As used herein, a "Repayment Event" means any event or
condition which gives the holder of any note, debenture or other evidence
of indebtedness (or any person acting on such holder's behalf) the right
to require the repurchase, redemption or repayment of all or a portion of
such indebtedness by the Company or any of its subsidiaries.
(xv) Absence of Proceedings. Except as disclosed in the Offering
Memorandum, there is no action, suit, proceeding, inquiry or
investigation before or by any court or governmental agency or body,
domestic or foreign, now pending, or, to the knowledge of the Company,
threatened, against or affecting the Company or any subsidiary thereof
which might reasonably be expected to result in a Material Adverse
Effect, or which might reasonably be expected to materially and adversely
affect the properties or assets of the Company or any of its subsidiaries
or the consummation of this Agreement or the performance by the Company
of its obligations hereunder.
(xvi) Absence of Further Requirements. No filing with, or
authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or agency
is necessary or required for the performance by the Company of its
obligations hereunder, in connection with the offering, issuance or sale
of the Securities hereunder or the consummation of the transactions
contemplated by this Agreement.
(xvii) Possession of Licenses and Permits. The Company and its
subsidiaries possess such permits, licenses, approvals, consents and
other authorizations (including, without limitation, insurance licenses
from the insurance regulatory agencies of the various states and
6
<PAGE> 7
countries where they conduct insurance-related businesses (collectively,
"Governmental Licenses")) issued by the appropriate federal, state, local
or foreign regulatory agencies or bodies necessary to conduct the
business now operated by them; the Company and its subsidiaries are in
compliance with the terms and conditions of all such Governmental
Licenses, except where the failure so to comply would not, singly or in
the aggregate, have a Material Adverse Effect; all of the Governmental
Licenses are valid and in full force and effect, except when the
invalidity of such Governmental Licenses or the failure of such
Governmental Licenses to be in full force and effect would not have a
Material Adverse Effect; and neither the Company nor any of its
subsidiaries has received any notice of proceedings relating to the
revocation or modification of any such Governmental Licenses which,
singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would result in a Material Adverse Effect; and no
insurance regulatory agency or body has issued any order or decree
impairing, restricting or prohibiting the payment of dividends by the
Company's insurance company subsidiaries to the Company.
(xviii) Title to Property. The Company and its subsidiaries have
good and marketable title to all real property owned by the Company and
its subsidiaries and good title to all other properties owned by them, in
each case, free and clear of all mortgages, pledges, liens, security
interests, claims, restrictions or encumbrances of any kind except such
as (a) are described in the Offering Memorandum or (b) do not, singly or
in the aggregate, materially affect the value of such property and do not
interfere with the use made and proposed to be made of such property by
the Company or any of its subsidiaries; and all of the leases and
subleases material to the business of the Company and its subsidiaries,
considered as one enterprise, and under which the Company or any of its
subsidiaries holds properties described in the Offering Memorandum, are
in full force and effect, and neither the Company nor any of its
subsidiaries has any notice of any material claim of any sort that has
been asserted by anyone adverse to the rights of the Company or any of
its subsidiaries under any of the leases or subleases mentioned above, or
affecting or questioning the rights of the Company or any subsidiary
thereof to the continued possession of the leased or subleased premises
under any such lease or sublease which would have a Material Adverse
Effect.
(xix) Tax Returns. The Company and its subsidiaries have filed all
federal, state, local and foreign tax returns that are required to be
filed or have duly requested extensions thereof and have paid all taxes
required to be paid by any of them and any related assessments, fines or
penalties, except for any such tax, assessment, fine or penalty that is
being contested in good faith and by appropriate proceedings; and
adequate charges, accruals and reserves have been provided for in the
financial statements referred to in Section 1(a)(v) above in respect of
all federal, state, local and foreign taxes for all periods as to which
the tax liability of the Company or any of its subsidiaries has not been
finally determined or remains open to examination by applicable taxing
authorities.
(xx) Environmental Laws. Except as described in the Offering
Memorandum and except such matters as would not, singly or in the
aggregate, result in a Material Adverse
7
<PAGE> 8
Effect, (A) neither the Company nor any of its subsidiaries is in
violation of any federal, state, local or foreign statute, law, rule,
regulation, ordinance, code or rule of common law or any judicial or
administrative interpretation thereof, including any judicial or
administrative order, consent, decree or judgment, relating to pollution
or protection of human health, the environment (including, without
limitation, ambient air, surface water, groundwater, land surface or
subsurface strata) or wildlife, including, without limitation, laws and
regulations relating to the release or threatened release of chemicals,
pollutants, contaminants, wastes, toxic substances, hazardous substances,
petroleum or petroleum products (collectively, "Hazardous Materials") or
to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials (collectively,
"Environmental Laws"), (B) the Company and its subsidiaries have all
permits, authorizations and approvals required under any applicable
Environmental Laws and are each in compliance with their requirements,
(C) there are no pending or, to the knowledge of the Company or any of
its subsidiaries, threatened administrative, regulatory or judicial
actions, suits, demands, demand letters, claims, liens, notices of
noncompliance or violation, investigation or proceedings relating to any
Environmental Law against the Company or any of its subsidiaries, and (D)
there are no events or circumstances of which the Company or any of its
subsidiaries are aware that would form the basis of any liability or
obligation of the Company or any of its subsidiaries, including, without
limitation, any order, decree, plan or agreement requiring clean-up or
remediation, or any action, suit or proceeding by any private party or
governmental body or agency, against or affecting the Company or any of
its subsidiaries relating to Hazardous Materials or Environmental Laws.
(xxi) Investment Company Act. The Company is not, and upon the
issuance and sale of the Securities as herein contemplated and the
application of the net proceeds therefrom as described in the Offering
Memorandum will not be, an "investment company" as such term is defined
in the Investment Company Act of 1940, as amended.
(xxii) Rule 144A Eligibility. The Securities are eligible for
resale pursuant to Rule 144A and will not be, at the Closing Time, of the
same class as securities listed on a national securities exchange
registered under Section 6 of the 1934 Act, or quoted in a U.S. automated
interdealer quotation system.
(xxiii) No General Solicitation. None of the Company, its
affiliates, as such term is defined in Rule 501(b) under the 1933 Act
("Affiliates"), or any person acting on its or any of their behalf (other
than the Initial Purchasers, as to whom the Company makes no
representation) has engaged or will engage, in connection with the
offering of the Securities, in any form of general solicitation or
general advertising within the meaning of Rule 502(c) under the 1933 Act.
(xxiv) No Registration Required. Subject to compliance by the
Initial Purchasers with the representations and warranties set forth in
Section 2 and the procedures set forth in Section 6 hereof, it is not
necessary in connection with the offer, sale and delivery of the
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<PAGE> 9
Securities to the Initial Purchasers by the Company and to each
Subsequent Purchaser by the Initial Purchasers in the manner contemplated
by this Agreement and the Offering Memorandum to register the Securities
under the 1933 Act or to qualify the Indenture under the Trust Indenture
Act of 1939, as amended.
(xxv) No Directed Selling Efforts. With respect to those
Securities sold in reliance on Regulation S, (A) none of the Company, its
Affiliates or any person acting on its or their behalf (other than the
Initial Purchasers, as to whom the Company makes no representation) has
engaged or will engage in any directed selling efforts within the meaning
of Regulation S and (B) each of the Company and its Affiliates and any
person acting on its or their behalf (other than the Initial Purchasers,
as to whom the Company makes no representation) has complied and will
comply with the offering restrictions requirement of Regulation S.
(xxvi) Statutory Financial Statements. The statutory financial
statements of each of the Company's insurance company subsidiaries from
which certain ratios and other statistical data included or incorporated
or deemed to be incorporated by reference in the Offering Memorandum have
been derived and have been prepared for each relevant period in
conformity with accounting practices prescribed or permitted by the
National Association of Insurance Commissioners and the insurance
department of the state of domicile of each such subsidiary in effect at
such time of preparation ("SAP"), except as otherwise stated therein.
(xxvii) Reinsurance Agreements. All ceded reinsurance agreements
to which the Company's insurance company subsidiaries are a party are in
full force and effect and such subsidiaries are not in violation of, or
in default in the performance, observance or fulfillment of, any
obligation, agreement, covenant or condition contained therein, except
for such violations or defaults which could not reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect. Such
subsidiaries have not received any notice from any of the other parties
to such agreements that such other party intends not to perform in any
material respect such agreement, and none of such subsidiaries has any
reason to believe that any of the other parties to such agreements will
be unable to perform such agreements, except to the extent that (i) such
subsidiary has established appropriate reserves on its financial
statements or (ii) such nonperformance could not reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect; and
each of the Company's insurance company subsidiaries is entitled to give
effect in its underwriting results in its most recently filed statutory
financial statements in conformity with SAP for reinsurance ceded
pursuant to such agreements.
(xxviii) Compliance with Insurance Laws. Each insurance company
subsidiary of the Company is in compliance with the requirements of the
insurance laws of the jurisdiction of its incorporation or domicile and
of each other jurisdiction that is applicable to such subsidiary, except
where the failure to comply would not have a Material Adverse Effect.
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<PAGE> 10
(b) Officer's Certificates. Any certificate signed by any officer of
the Company or any of its subsidiaries delivered to the Representative or to
counsel for the Initial Purchasers shall be deemed a representation and warranty
by the Company to each Initial Purchaser as to the matters covered thereby.
SECTION 2. Sale and Delivery to Initial Purchasers; Closing.
(a) Securities. On the basis of the representations and warranties
herein contained and subject to the terms and conditions herein set forth, the
Company agrees to sell to each Initial Purchaser, severally and not jointly, and
each Initial Purchaser, severally and not jointly, agrees to purchase from the
Company, at the price set forth in Schedule B, the aggregate principal amount of
Securities set forth in Schedule A opposite the name of such Initial Purchaser,
plus any additional principal amount of Securities which such Initial Purchaser
may become obligated to purchase pursuant to the provisions of Section 11
hereof.
(b) Payment. Payment of the purchase price for, and delivery of
certificates for, the Securities shall be made at the office of Simpson Thacher
& Bartlett, 425 Lexington Avenue, New York, New York, or at such other place as
shall be agreed upon by the Representative and the Company, at 10:00 A.M. on the
third business day after the date hereof (unless postponed in accordance with
the provisions of Section 11), or such other time not later than ten business
days after such date as shall be agreed upon by the Representative and the
Company (such time and date of payment and delivery being herein called the
"Closing Time").
Payment shall be made to the Company by wire transfer of immediately
available funds to a bank account designated by the Company, against delivery to
the Representative for the respective accounts of the Initial Purchasers of
certificates for the Securities to be purchased by them. It is understood that
each Initial Purchaser has authorized the Representative, for its account, to
accept delivery of, receipt for, and make payment of the purchase price for, the
Securities which it has agreed to purchase. Merrill Lynch, individually and not
as the Representative of the Initial Purchasers, may (but shall not be obligated
to) make payment of the purchase price for the Securities to be purchased by any
Initial Purchaser whose funds have not been received by the Closing Time, but
such payment shall not relieve such Initial Purchaser from its obligations
hereunder. The certificates representing the Securities shall be registered in
the name of Cede & Co. pursuant to the DTC Agreement and shall be made available
for examination and packaging by the Initial Purchasers in the City of New York
not later than 10:00 A.M. on the last business day prior to the Closing Time.
(c) Qualified Institutional Buyer. Each Initial Purchaser severally
and not jointly represents and warrants to, and agrees with, the Company that it
is a "qualified institutional buyer" within the meaning of Rule 144A under the
1933 Act (a "Qualified Institutional Buyer") and an "accredited investor" within
the meaning of Rule 501(a) under the 1933 Act (an "Accredited Investor").
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(d) Denominations; Registration. Certificates for the Securities shall
be in such denominations ($1,000 or integral multiples thereof) and registered
in such names as the Representative may request in writing at least one full
business day before the Closing Time.
SECTION 3. Covenants of the Company. The Company covenants with each
Initial Purchaser as follows:
(a) Offering Memorandum. The Company, as promptly as possible, will
furnish to each Initial Purchaser, without charge, such number of copies of the
Preliminary Offering Memorandum, the Final Offering Memorandum and any
amendments and supplements thereto and documents incorporated by reference
therein as such Initial Purchaser may reasonably request.
(b) Notice and Effect of Material Events. The Company will immediately
notify each Initial Purchaser, and confirm such notice in writing, of (x) any
filing made by the Company of information relating to the offering of the
Securities with any securities exchange or any other regulatory body in the
United States or any other jurisdiction, and (y) prior to the completion of the
placement of the Securities by the Initial Purchasers as evidenced by a notice
in writing from the Initial Purchasers to the Company, any material changes in
or affecting the earnings, business affairs or business prospects of the Company
and its subsidiaries which (i) make any statement in the Offering Memorandum
false or misleading or (ii) are not disclosed in the Offering Memorandum. In
such event or if during such time any event shall occur as a result of which it
is necessary, in the reasonable opinion of the Company, its counsel, the Initial
Purchasers or counsel for the Initial Purchasers, to amend or supplement the
Final Offering Memorandum in order that the Final Offering Memorandum not
include any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein not misleading in the light of
the circumstances then existing, the Company will forthwith amend or supplement
the Final Offering Memorandum by preparing and furnishing to each Initial
Purchaser an amendment or amendments of, or a supplement or supplements to, the
Final Offering Memorandum (in form and substance satisfactory in the reasonable
opinion of counsel for the Initial Purchasers) so that, as so amended or
supplemented, the Final Offering Memorandum will not include an untrue statement
of a material fact or omit to state a material fact necessary in order to make
the statements therein, in the light of the circumstances existing at the time
it is delivered to a Subsequent Purchaser, not misleading.
(c) Amendment to Offering Memorandum and Supplements. The Company will
advise each Initial Purchaser promptly of any proposal to amend or supplement
the Offering Memorandum, but will not effect any such amendment or supplement to
which the Initial Purchasers shall reasonably object in writing within a
reasonable time after the receipt thereof. Neither the consent of the Initial
Purchasers, nor the Initial Purchasers' delivery of any such amendment or
supplement, shall constitute a waiver of any of the conditions set forth in
Section 5 hereof.
(d) Qualification of Securities for Offer and Sale. The Company will
use its reasonable efforts, in cooperation with the Initial Purchasers, to
qualify the Securities for offering and sale under the applicable securities
laws of such jurisdictions as the Representative may reasonably request and
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<PAGE> 12
will maintain such qualifications in effect as long as required for the sale of
the Securities; provided, however, that the Company shall not be obligated to
file any general consent to service of process or to qualify as a foreign
corporation or as a dealer in securities in any jurisdiction in which it is not
so qualified as of the date hereof or to subject itself to taxation in respect
of doing business in any jurisdiction in which it is not otherwise so subject as
of the date hereof.
(e) Rating of Securities. The Company shall take all reasonable action
necessary to enable Standard & Poor's Ratings Services ("S&P"), and Moody's
Investors Service, Inc. ("Moody's") to provide their respective credit ratings
of the Securities.
(f) DTC. The Company will cooperate with the Representative and use
its best efforts to permit the Securities to be eligible for clearance and
settlement through the facilities of DTC.
(g) Use of Proceeds. The Company will use the net proceeds received by
it from the sale of the Securities in the manner specified in the Offering
Memorandum under "Use of Proceeds".
(h) Restriction on Sale of Securities. During the period from the date
of the Offering Memorandum to the Closing Time, the Company will not, without
the prior written consent of Merrill Lynch, directly or indirectly, issue, sell,
offer or agree to sell, grant any option for the sale of, or otherwise dispose
of, any other debt securities of the Company or securities of the Company that
are convertible into, or exchangeable for, the Securities or such other debt
securities.
(i) Termination of Obligations. Notwithstanding any provisions of
paragraphs (a), (b) or (c) of this Section 3 to the contrary, the Company's
obligations under paragraphs (a), (b) and (c) shall terminate on the date upon
which the Initial Purchasers cease to hold Securities acquired as part of their
initial distribution, but in any event not later than nine months from the
Closing Time.
SECTION 4. Payment of Expenses.
(a) Expenses. The Company agrees to pay all expenses incident to the
performance of its obligations under this Agreement, including (i) the
preparation, printing and any filing of the Offering Memorandum (including
financial statements and any schedules or exhibits and any document incorporated
therein by reference) and of each amendment or supplement thereto, (ii) the
preparation, printing and delivery to the Initial Purchasers of this Agreement,
any Agreement among Initial Purchasers, the Indenture, the Registration Rights
Agreement and such other documents as may be required in connection with the
offering, purchase, sale and delivery of the Securities, (iii) the preparation,
issuance and delivery of the certificates for the Securities to the Initial
Purchasers, including any charges of DTC in connection therewith, (iv) the fees
and disbursements of the Company's counsel, accountants and other advisors, (v)
the qualification of the Securities under securities laws in accordance with the
provisions of Section 3(d) hereof, including filing fees and the reasonable fees
and disbursements of counsel for the Initial Purchasers in connection therewith
and in connection with the preparation of the Blue Sky Survey, any supplement
thereto and any Legal Investment Survey; provided, that the Company shall not
pay any other expenses of counsel for the
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<PAGE> 13
Initial Purchasers, (vi) the fees and expenses of the Trustee, including the
fees and disbursements of counsel for the Trustee in connection with the
Indenture and the Securities and (vii) any fees payable in connection with the
rating of the Securities.
(b) Termination of Agreement. If this Agreement is terminated by the
Representative in accordance with the provisions of Section 5 or Section
10(a)(i) hereof, the Company agrees to reimburse the Initial Purchasers for all
of their reasonable out-of-pocket expenses, including the reasonable fees and
disbursements of counsel for the Initial Purchasers.
SECTION 5. Conditions of Initial Purchasers' Obligations. The obligations
of the several Initial Purchasers hereunder are subject to the accuracy of the
representations and warranties of the Company contained in Section 1 hereof or
in certificates of any officer of the Company or any of its subsidiaries
delivered pursuant to the provisions hereof, to the performance by the Company
of its covenants and other obligations hereunder, and to the following further
conditions:
(a) Opinion of Counsel for Company. At the Closing Time, the
Representative shall have received the opinion, dated as of the Closing Time, of
Joey M. Loudermilk, Esq., Senior Vice President and General Counsel of the
Company, and of Skadden, Arps, Slate, Meagher & Flom LLP, special counsel for
the Company, in the form set forth in Exhibits A and B hereto, respectively,
together with signed or reproduced copies of each of such letter for each of the
other Initial Purchasers.
(b) Opinion of Counsel for Initial Purchasers. At the Closing Time,
the Representative shall have received the favorable opinion, dated as of the
Closing Time, of Simpson Thacher & Bartlett, counsel for the Initial Purchasers,
together with signed or reproduced copies of such letter for each of the other
Initial Purchasers, in the form set forth in Exhibit C hereto. In giving such
opinion such counsel may rely, as to all matters governed by the laws of
jurisdictions other than the law of the State of New York and the federal law of
the United States, upon the opinions of counsel satisfactory to the
Representative. Such counsel may also state that, insofar as such opinion
involves factual matters, they have relied, to the extent they deem proper, upon
certificates of officers of the Company and its subsidiaries and certificates of
public officials.
(c) Officers' Certificate. At the Closing Time, there shall not have
been, since the date hereof or since the respective dates as of which
information is given in the Offering Memorandum, any material adverse change in
the condition, financial or otherwise, or in the earnings, business affairs or
business prospects of the Company and its subsidiaries considered as one
enterprise, whether or not arising in the ordinary course of business, and the
Representative shall have received a certificate of the President or a Vice
President of the Company and of the chief financial or chief accounting officer
or the assistant financial or assistant accounting officer of the Company, dated
as of the Closing Time, to the effect that (i) there has been no such material
adverse change, (ii) the representations and warranties in Section 1 hereof are
true and correct with the same force and effect as though expressly made at and
as of the Closing Time, and (iii) the Company has complied with all
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<PAGE> 14
agreements and satisfied all conditions on its part to be performed or satisfied
at or prior to the Closing Time.
(d) Accountant's Comfort Letter. At the time of the execution of this
Agreement, the Representative shall have received from KPMG LLP a letter dated
such date, in form and substance reasonably satisfactory to the Representative,
together with signed or reproduced copies of such letter for each of the other
Initial Purchasers, containing statements and information of the type ordinarily
included in accountants' "comfort letters" to initial purchasers with respect to
the financial statements and certain financial information contained in the
Offering Memorandum.
(e) Bring-down Comfort Letter. At the Closing Time, the Representative
shall have received from KPMG LLP a letter, dated as of the Closing Time, to the
effect that they reaffirm the statements made in the letter furnished pursuant
to subsection (d) of this Section, except that the specified date referred to
shall be a date not more than three business days prior to the Closing Time.
(f) Maintenance of Rating. At the Closing Time, the Securities shall
be rated at least "A2" by Moody's and "A" by S&P, and the Company shall have
delivered to the Representative a letter dated the Closing Time, from each such
rating agency, or other evidence satisfactory to the Representative, confirming
that the Securities have such ratings; and since the date of this Agreement,
there shall not have occurred a downgrading in the rating assigned to the
Securities or any of the Company's other debt securities or the financial
strength or claims paying ability of American Family Life Assurance Company of
Columbus, a Georgia corporation ("AFLAC"), by any nationally recognized
securities rating agency, and no such securities rating agency shall have
publicly announced that it has under surveillance or review, with possible
negative implications, its rating of the Securities or any of the Company's
other debt securities or the financial strength or claims paying ability of
AFLAC.
(g) Additional Documents. At the Closing Time, counsel for the Initial
Purchasers shall have been furnished with such documents and opinions as they
may require for the purpose of enabling them to pass upon the issuance and sale
of the Securities as herein contemplated, or in order to evidence the accuracy
of any of the representations or warranties, or the fulfillment of any of the
conditions, herein contained; and all proceedings taken by the Company in
connection with the issuance and sale of the Securities as herein contemplated
shall be satisfactory in form and substance to the Representative and counsel
for the Initial Purchasers.
(h) Termination of Agreement. If any condition specified in this
Section shall not have been fulfilled when and as required to be fulfilled, this
Agreement may be terminated by the Representative by written notice to the
Company at any time at or prior to the Closing Time, and such termination shall
be without liability of any party to any other party except as provided in
Section 4 and except that Sections 1, 7 and 8 shall survive any such termination
and remain in full force and effect.
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SECTION 6. Subsequent Offers and Resales of the Securities.
(a) Offer and Sale Procedures. Each of the Initial Purchasers,
severally and not jointly, and the Company hereby represents, warrants and
agrees to observe the following procedures in connection with the offer and sale
of the Securities:
(i) Offers and Sales Only to Qualified Institutional Buyers or
Non-U.S. Persons Outside the United States. Offers and sales of the
Securities will be made only by the Initial Purchasers or Affiliates
thereof qualified to do so in the jurisdictions in which such offers or
sales are made. Each such offer or sale shall only be made (A) to persons
whom the offeror or seller reasonably believes to be Qualified
Institutional Buyers or (B) to non-U.S. persons outside the United States
to whom the offeror or seller reasonably believes offers and sales of the
Securities may be made in reliance upon Regulation S.
(ii) No General Solicitation. No general solicitation or general
advertising (within the meaning of Rule 502(c) under the 1933 Act) will
be used in the United States in connection with the offering of the
Securities, nor will any directed selling efforts (within the meaning of
Rule 903 under the 1933 Act) be conducted.
(iii) Purchases by Non-Bank Fiduciaries. In the case of a non-bank
Subsequent Purchaser of a Security acting as a fiduciary for one or more
third parties, in connection with an offer and sale to such purchaser
pursuant to clause (i) above, each third party shall, in the judgment of
the applicable Initial Purchaser, be a Qualified Institutional Buyer or a
non-U.S. person outside the United States.
(iv) Subsequent Purchaser Notification. Each Initial Purchaser
will take reasonable steps to inform, and cause each of its Affiliates to
take reasonable steps to inform, persons acquiring Securities from such
Initial Purchaser or Affiliate, as the case may be, in the United States
that the Securities (A) have not been and will not be registered under
the 1933 Act, (B) are being sold to them without registration under the
1933 Act in reliance on Rule 144A or in accordance with another exemption
from registration under the 1933 Act, as the case may be, and (C) may not
be offered, sold or otherwise transferred except (1) to the Company, (2)
outside the United States in accordance with Rule 904 of Regulation S, or
(3) inside the United States in accordance with (x) Rule 144A to a person
whom the seller reasonably believes is a Qualified Institutional Buyer
that is purchasing such Securities for its own account or for the account
of a Qualified Institutional Buyer to whom notice is given that the
offer, sale or transfer is being made in reliance on Rule 144A or (y) the
exemption from registration under the 1933 Act provided by Rule 144, if
available.
(v) Minimum Principal Amount. No sale of the Securities to any one
Subsequent Purchaser will be for less than U.S. $1,000 principal amount
and no Security will be issued in a smaller principal amount. If the
Subsequent Purchaser is a non-bank fiduciary acting on
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behalf of others, each person for whom it is acting must purchase at
least U.S. $1,000 principal amount of the Securities.
(vi) Restrictions on Transfer. The transfer restrictions and the
other provisions set forth in Section 2.13 of the Indenture, including
the legend required thereby, shall apply to the Securities except as
otherwise agreed by the Company and the Initial Purchasers. Following the
sale of the Securities by the Initial Purchasers to Subsequent Purchasers
pursuant to the terms hereof, the Initial Purchasers shall not be liable
or responsible to the Company for any losses, damages or liabilities
suffered or incurred by the Company, including any losses, damages or
liabilities under the 1933 Act, arising from or relating to any resale or
transfer of any Security.
(vii) Delivery of Offering Memorandum. Each Initial Purchaser will
deliver to each purchaser of the Securities from such Initial Purchaser,
in connection with its original distribution of the Securities, a copy of
the Offering Memorandum, as amended and supplemented at the date of such
delivery.
(b) Covenants of the Company. The Company covenants with each Initial
Purchaser as follows:
(i) Due Diligence. In connection with the original distribution of
the Securities, the Company agrees that, prior to any offer or resale of
the Securities by the Initial Purchasers, the Initial Purchasers and
counsel for the Initial Purchasers shall have the right to make
reasonable inquiries into the business of the Company and its
subsidiaries. The Company also agrees to provide answers to each
prospective Subsequent Purchaser of Securities who so requests concerning
the Company and its subsidiaries (to the extent that such information is
available or can be acquired and made available to prospective Subsequent
Purchasers without unreasonable effort or expense and to the extent the
provision thereof is not prohibited by applicable law or contractual
obligation) and the terms and conditions of the offering of the
Securities, as provided in the Offering Memorandum.
(ii) Integration. The Company agrees that it will not and will
cause its Affiliates not to make any offer or sale of securities of the
Company of any class if, as a result of the doctrine of "integration"
referred to in Rule 502 under the 1933 Act, such offer or sale would
render invalid (for the purpose of (i) the sale of the Securities by the
Company to the Initial Purchasers, (ii) the resale of the Securities by
the Initial Purchasers to Subsequent Purchasers or (iii) the resale of
the Securities by such Subsequent Purchasers to others) the exemption
from the registration requirements of the 1933 Act provided by Section
4(2) thereof or by Rule 144A or by Regulation S thereunder or otherwise.
(iii) Rule 144A Information. The Company agrees that, in order to
render the Securities eligible for resale pursuant to Rule 144A under the
1933 Act, while any of the Securities are "restricted securities" (as
such term is defined under Rule 144(a)(3) under the
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<PAGE> 17
1933 Act), it will make available, upon request, to any holder of
Securities or prospective purchasers of Securities the information
specified in Rule 144A(d)(4), unless the Company furnishes information to
the Commission pursuant to Section 13 or 15(d) of the 1934 Act (such
information, whether made available to holders or prospective purchasers
or furnished to the Commission, is herein referred to as "Additional
Information").
(iv) Restriction on Repurchases. Until the expiration of two years
after the original issuance of the Securities, the Company will not, and
will cause its Affiliates not to, purchase or agree to purchase or
otherwise acquire any Securities which are "restricted securities" (as
such term is defined under Rule 144(a)(3) under the 1933 Act), whether as
beneficial owner or otherwise (except as agent acting as a securities
broker on behalf of and for the account of customers in the ordinary
course of business in unsolicited brokers' transactions) unless,
immediately upon any such purchase, the Company or any Affiliate shall
submit such Securities to the Trustee for cancellation.
(c) Resale Pursuant to Rule 903 of Regulation S or Rule 144A. Each
Initial Purchaser understands that the Securities have not been and will not be
registered under the 1933 Act and may not be offered or sold within the United
States or to, or for the account or benefit of, U.S. persons except in
accordance with Regulation S under the 1933 Act or pursuant to an exemption from
the registration requirements of the 1933 Act. Each Initial Purchaser represents
and agrees that, except as permitted by Section 6(a) above, it has offered and
sold Securities and will offer and sell Securities (i) as part of their
distribution at any time and (ii) otherwise until forty days after the later of
the date upon which the offering of the Securities commences and the Closing
Time, only in accordance with Rule 903 of Regulation S or Rule 144A.
Accordingly, neither the Initial Purchasers, their Affiliates nor any persons
acting on their behalf have engaged or will engage in any directed selling
efforts with respect to Securities, and the Initial Purchasers, their Affiliates
and any person acting on their behalf have complied and will comply with the
offering restriction requirements of Regulation S. Each Initial Purchaser agrees
that at or prior to confirmation of a sale of Securities (other than a sale of
Securities pursuant to Rule 144A), it will have sent to each distributor, dealer
or person receiving a selling concession, fee or other remuneration that
purchases Securities from it or through it during the restricted period a
confirmation or notice to substantially the following effect:
"The Securities covered hereby have not been registered
under the United States Securities Act of 1933, as
amended (the "Securities Act"), and may not be offered
or sold within the United States or to or for the
account or benefit of U.S. persons (i) as part of their
distribution at any time and (ii) otherwise until forty
days after the later of the date upon which the offering
of the Securities commenced and the date of closing,
except in either case in accordance with Regulation S or
Rule 144A under the Securities Act. Terms used above
have the meaning given to them by Regulation S."
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Each Initial Purchaser severally represents and agrees that it has not entered
and will not enter into any contractual arrangements with respect to the
distribution of the Securities, except with its Affiliates or with the prior
written consent of the Company.
SECTION 7. Indemnification.
(a) Indemnification of Initial Purchasers. The Company agrees to
indemnify and hold harmless each Initial Purchaser and each person, if any, who
controls any Initial Purchaser within the meaning of Section 15 of the 1933 Act
or Section 20 of the 1934 Act as follows:
(i) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of any untrue statement or alleged
untrue statement of a material fact contained in any Preliminary Offering
Memorandum or the Final Offering Memorandum (or any amendment or
supplement thereto), or the omission or alleged omission therefrom of a
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount
paid in settlement of any litigation, or any investigation or proceeding
by any governmental agency or body, commenced or threatened, or of any
claim whatsoever based upon any such untrue statement or omission, or any
such alleged untrue statement or omission; provided, that (subject to
Section 7(d) below) any such settlement is effected with the written
consent of the Company; and
(iii) against any and all expense whatsoever, as incurred
(including the fees and disbursements of counsel chosen by Merrill Lynch,
except to the extent otherwise expressly provided in Section 7(c)
hereof), reasonably incurred in investigating, preparing or defending
against any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission, to the extent that any such expense
is not paid under (i) or (ii) above;
provided, however, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by any
Initial Purchaser through Merrill Lynch expressly for use in the Offering
Memorandum (or any amendment thereto); provided further, that the foregoing
indemnity with respect to the Preliminary Offering Memorandum shall not inure to
the benefit of any Initial Purchaser (or to the benefit of any person
controlling such Initial Purchaser) from whom the person asserting any such
losses, claims, damages or liabilities purchased Securities if (i) such untrue
statement or omission made in the Preliminary Offering Memorandum was eliminated
or remedied in the Final Offering Memorandum (as amended or supplemented if the
Company shall have furnished any amendments or supplements thereto to such
Initial Purchaser prior to confirmation of the sale of such
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<PAGE> 19
Securities to such person by such Initial Purchaser) and (ii) a copy of the
Final Offering Memorandum (as so amended and supplemented) was not furnished to
such person at or prior to the written confirmation of the sale of such
Securities to such person, unless such failure to deliver was a result of
non-compliance by the Company with Sections 3(a) or 3(b), and the claims
asserted by such person do not include allegations of other untrue statements or
omissions of material facts made in the Final Offering Memorandum which
allegations are upheld in a final judgment.
(b) Indemnification of Company, Directors and Officers. Each Initial
Purchaser severally agrees to indemnify and hold harmless the Company, its
directors, its officers and each person, if any, who controls the Company within
the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act against
any and all loss, liability, claim, damage and expense described in the
indemnity contained in subsection (a) of this Section, as incurred, but only
with respect to untrue statements or omissions, or alleged untrue statements or
omissions, made in the Offering Memorandum in reliance upon and in conformity
with written information furnished to the Company by such Initial Purchaser
through Merrill Lynch expressly for use in the Offering Memorandum.
(c) Actions Against Parties; Notification. Each indemnified party
shall give notice as promptly as reasonably practicable to each indemnifying
party of any action commenced against it in respect of which indemnity may be
sought hereunder, but failure to so notify an indemnifying party shall not
relieve such indemnifying party from any liability hereunder to the extent it is
not materially prejudiced as a result thereof and in any event shall not relieve
it from any liability which it may have otherwise than on account of this
indemnity agreement. In the case of parties indemnified pursuant to Section 7(a)
above, counsel to the indemnified parties shall be selected by Merrill Lynch,
and, in the case of parties indemnified pursuant to Section 7(b) above, counsel
to the indemnified parties shall be selected by the Company. An indemnifying
party may participate at its own expense in the defense of any such action;
provided, however, that counsel to the indemnifying party shall not (except with
the consent of the indemnified party) also be counsel to the indemnified party.
In no event shall the indemnifying parties be liable for fees and expenses of
more than one counsel (in addition to any local counsel) separate from their own
counsel for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances. No indemnifying party shall,
without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any judgment with respect to any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever in respect of which
indemnification or contribution could be sought under this Section 7 or Section
8 hereof (whether or not the indemnified parties are actual or potential parties
thereto), unless such settlement, compromise or consent (i) includes an
unconditional release of each indemnified party from all liability arising out
of such litigation, investigation, proceeding or claim and (ii) does not include
a statement as to or an admission of fault, culpability or a failure to act by
or on behalf of any indemnified party.
(d) Settlement Without Consent if Failure to Reimburse. If at any time
an indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel, such indemnifying party
agrees that it shall be liable for any settlement of the
19
<PAGE> 20
nature contemplated by Section 7(a)(ii) effected without its written consent if
(i) such settlement is entered into more than 45 days after receipt by such
indemnifying party of the aforesaid request, (ii) such indemnifying party shall
have received notice of the terms of such settlement at least 30 days prior to
such settlement being entered into, and (iii) such indemnifying party shall not
have reimbursed such indemnified party in accordance with such request prior to
the date of such settlement. Notwithstanding the immediately preceding sentence,
if at any time an indemnified party shall have requested an indemnifying party
to reimburse the indemnified party for fees and expenses of counsel, such
indemnifying party shall not be liable for any settlement of the nature
contemplated by Section 7(a)(ii) effected without its prior written consent if
such indemnifying party (i) reimburses such indemnified party in accordance with
such request to the extent it considers such request to be reasonable and (ii)
provides written notice to the indemnified party substantiating the unpaid
balance as unreasonable, in each case prior to the date of such settlement.
SECTION 8. Contribution. If the indemnification provided for in Section 7
hereof is for any reason unavailable to or insufficient to hold harmless an
indemnified party in respect of any losses, liabilities, claims, damages or
expenses referred to therein, then each indemnifying party shall contribute to
the aggregate amount of such losses, liabilities, claims, damages and expenses
incurred by such indemnified party, as incurred, (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company on the one
hand and the Initial Purchasers on the other hand from the offering of the
Securities pursuant to this Agreement or (ii) if the allocation provided by
clause (i) is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company on the one hand and of the
Initial Purchasers on the other hand in connection with the statements or
omissions which resulted in such losses, liabilities, claims, damages or
expenses, as well as any other relevant equitable considerations.
The relative benefits received by the Company on the one hand and the
Initial Purchasers on the other hand in connection with the offering of the
Securities pursuant to this Agreement shall be deemed to be in the same
respective proportions as the total net proceeds from the offering of the
Securities pursuant to this Agreement (before deducting expenses) received by
the Company and the total underwriting discount received by the Initial
Purchasers bear to the aggregate initial offering price of the Securities.
The relative fault of the Company on the one hand and the Initial
Purchasers on the other hand shall be determined by reference to, among other
things, whether any such untrue or alleged untrue statement of a material fact
or omission or alleged omission to state a material fact relates to information
supplied by the Company or by the Initial Purchasers and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
The Company and the Initial Purchasers agree that it would not be just
and equitable if contribution pursuant to this Section 8 were determined by pro
rata allocation (even if the Initial Purchasers were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to above in this Section 8. The
20
<PAGE> 21
aggregate amount of losses, liabilities, claims, damages and expenses incurred
by an indemnified party and referred to above in this Section 8 shall be deemed
to include any legal or other expenses reasonably incurred by such indemnified
party in investigating, preparing or defending against any litigation or any
investigation or proceeding by any governmental agency or body commenced or
threatened, or any claim whatsoever based upon any such untrue or alleged untrue
statement or omission or alleged omission.
Notwithstanding the provisions of this Section 8, no Initial Purchaser
shall be required to contribute any amount in excess of the amount by which the
total price at which the Securities underwritten by it and distributed to the
public were offered to the public exceeds the amount of any damages which such
Initial Purchaser has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 8, each person, if any, who controls an
Initial Purchaser within the meaning of Section 15 of the 1933 Act or Section 20
of the 1934 Act shall have the same rights to contribution as such Initial
Purchaser, and each director of the Company, each officer of the Company who
signed the Offering Memorandum, and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act or Section 20 of the
1934 Act shall have the same rights to contribution as the Company. The Initial
Purchasers' respective obligations to contribute pursuant to this Section 8 are
several in proportion to the principal amount of Securities set forth opposite
their respective names in Schedule A hereto and not joint.
SECTION 9. Representations, Warranties and Agreements to Survive
Delivery. All representations, warranties and agreements contained in this
Agreement, or in certificates of officers of the Company submitted pursuant
hereto, shall remain operative and in full force and effect, regardless of any
investigation made by or on behalf of any Initial Purchaser or controlling
person, or by or on behalf of the Company, and shall survive delivery of the
Securities to the Initial Purchasers.
SECTION 10. Termination of Agreement.
(a) Termination; General. The Representative may terminate this
Agreement, by notice to the Company, at any time at or prior to the Closing Time
(i) if there has been, since the time of execution of this Agreement or since
the respective dates as of which information is given in the Offering
Memorandum, any material adverse change in the condition, financial or
otherwise, or in the earnings, business affairs or business prospects of the
Company and its subsidiaries considered as one enterprise, whether or not
arising in the ordinary course of business, or (ii) if there has occurred any
material adverse change in the financial markets in the United States or the
international financial markets, any outbreak of hostilities or escalation
thereof or other calamity or crisis or any change or
21
<PAGE> 22
development involving a prospective change in national or international
political, financial or economic conditions, in each case the effect of which is
such as to make it, in the judgment of the Representative, impracticable to
market the Securities or to enforce contracts for the sale of the Securities, or
(iii) if trading in any securities of the Company has been suspended or limited
by the Commission or the New York Stock Exchange, Inc., or if trading generally
on the American Stock Exchange or the New York Stock Exchange, Inc. or in the
NASDAQ National Market System has been suspended or limited, or minimum or
maximum prices for trading have been fixed, or maximum ranges for prices have
been required, by any of said exchanges or by such system or by order of the
Commission, the National Association of Securities Dealers, Inc. or any other
governmental authority, or (iv) if a banking moratorium has been declared by
either Federal, New York or Georgia authorities.
(b) Liabilities. If this Agreement is terminated pursuant to this
Section, such termination shall be without liability of any party to any other
party except as provided in Section 4 hereof; and provided further, that
Sections 1, 7 and 8 shall survive such termination and remain in full force and
effect.
SECTION 11. Default by One or More of the Initial Purchasers. If one or
more of the Initial Purchasers shall fail at the Closing Time to purchase the
Securities which it or they are obligated to purchase under this Agreement (the
"Defaulted Securities"), the Representative shall have the right, but not the
obligation, within 24 hours thereafter, to make arrangements for one or more of
the non-defaulting Initial Purchasers, or any other Initial Purchasers, to
purchase all, but not less than all, of the Defaulted Securities in such amounts
as may be agreed upon and upon the terms herein set forth; provided, however,
that if the Representative shall not have completed such arrangements within
such 24-hour period, then this Agreement shall terminate without liability on
the part of any non-defaulting Initial Purchaser.
No action pursuant to this Section shall relieve any defaulting Initial
Purchaser from liability in respect of its default.
In the event of any such default which does not result in a termination
of this Agreement, either the Representative or the Company shall have the right
to postpone the Closing Time for a period not exceeding seven days in order to
effect any required changes in the Offering Memorandum or in any other documents
or arrangement. As used herein, the term "Initial Purchaser" includes any person
substituted for an Initial Purchaser under this Section 11.
SECTION 12. Notices. All notices and other communications hereunder shall
be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the Initial
Purchasers shall be directed to the Representative at North Tower, World
Financial Center, New York, New York 10281-1201, attention of Joseph E.
Consolino; notices to the Company shall be directed to it at 1932 Wynnton Road,
Columbus, Georgia 31999, attention of Gary L. Stegman.
22
<PAGE> 23
SECTION 13. Parties. This Agreement shall each inure to the benefit of
and be binding upon the Initial Purchasers and the Company and their respective
successors. Nothing expressed or mentioned in this Agreement is intended or
shall be construed to give any person, firm or corporation, other than the
Initial Purchasers and the Company and their respective successors and the
controlling persons and officers and directors referred to in Sections 7 and 8
and their heirs and legal representatives, any legal or equitable right, remedy
or claim under or in respect of this Agreement or any provision herein
contained. This Agreement and all conditions and provisions hereof are intended
to be for the sole and exclusive benefit of the Initial Purchasers and the
Company and their respective successors, and said controlling persons and
officers and directors and their heirs and legal representatives, and for the
benefit of no other person, firm or corporation. No purchaser of Securities from
any Initial Purchaser shall be deemed to be a successor by reason merely of such
purchase.
SECTION 14. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. SPECIFIED
TIMES OF DAY REFER TO NEW YORK CITY TIME.
SECTION 15. Effect of Headings. The Article and Section headings herein
are for convenience only and shall not affect the construction hereof.
[Rest of page intentionally left blank.]
23
<PAGE> 24
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company a counterpart hereof, whereupon
this instrument, along with all counterparts, will become a binding agreement
between the Initial Purchasers and the Company in accordance with its terms.
Very truly yours,
AFLAC INCORPORATED
By:
-------------------------
Name:
Title:
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
By:
----------------------
Authorized Signatory
For itself and as Representative of the other Initial Purchasers named in
Schedule A hereto.
24
<PAGE> 25
SCHEDULE A
<TABLE>
<CAPTION>
Principal
Amount of
Name of Initial Purchaser Securities
- ------------------------- ----------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith Incorporated........... $247,500,000
Donaldson, Lufkin & Jenrette................................. 50,625,000
First Union Capital Markets Corp............................. 50,625,000
NationsBanc Montgomery Securities LLC........................ 50,625,000
Salomon Smith Barney Inc. ................................... 50,625,000
------------
Total ............................................. $450,000,000
- ----- ============
</TABLE>
Sch A - 1
<PAGE> 26
SCHEDULE B
AFLAC INCORPORATED
$450,000,000 Senior Notes due 2009
1. The initial offering price of the Securities shall be 99.733% of the
principal amount thereof, plus accrued interest, if any, from the date of
issuance.
2. The purchase price to be paid by the Initial Purchasers for the
Securities shall be 99.083% of the principal amount thereof at maturity.
3. The interest rate on the Securities shall be 6 1/2% per annum and will
be payable semi-annually on April 15 and October 15 of each year commencing
October 15, 1999.
4. The Securities will mature on April 15, 2009.
5. The Securities will be redeemable at the option of the Company, in
whole or in part, at any time and from time to time, upon not less than 30 nor
more than 60 days' notice, at a redemption price equal to (i) 100% of the
principal amount of the Securities being redeemed, plus accrued and unpaid
interest thereon and Additional Interest, if any, to the redemption date, and
(ii) a make-whole amount, if any.
Sch B - 1
<PAGE> 27
Exhibit A
FORM OF OPINION OF JOEY M. LOUDERMILK, ESQ.
TO BE DELIVERED PURSUANT TO
SECTION 5(a)
April 21, 1999
Merrill Lynch, Pierce, Fenner
& Smith Incorporated
NationsBanc Montgomery Securities LLC
Donaldson, Lufkin & Jenrette
First Union Capital Markets Corp.
Salomon Smith Barney Inc.
c/o Merrill Lynch, Pierce, Fenner
& Smith Incorporated
North Tower
World Financial Center
New York, NY 10281-1209
Re: AFLAC Incorporated 6 1/2% Senior Notes
Due 2009
Ladies and Gentlemen:
I am the Senior Vice President, Secretary & General Counsel of
AFLAC Incorporated, a Georgia corporation (the "Company"). This opinion is
delivered in connection with the issuance and sale by the Company of
$450,000,000 aggregate principal amount of the Company's 6 1/2% Senior Notes Due
2009 (the "Senior Notes") pursuant to the Purchase Agreement, dated as of April
16, 1999, between you and the Company (the "Purchase Agreement").
This opinion is being furnished pursuant to Section 5(a) of the
Purchase Agreement. Capitalized terms not otherwise defined herein have the
respective meanings set forth in the Purchase Agreement or, if not therein
defined, the Indenture, dated as of April 21, 1999 (the "Indenture"), between
the Company and The Bank of New York, as Trustee (the "Trustee").
In connection with this opinion I have examined and am familiar
with originals or copies, certified or otherwise identified to my satisfaction,
of (a) the Offering Memorandum,
A - 1
<PAGE> 28
dated April 16, 1999, relating to the Senior Notes (the "Offering Memorandum");
(b) an executed copy of the Purchase Agreement; (c) an executed copy of the
Indenture (including the form set forth therein of certificates evidencing the
Senior Notes); (d) an executed copy of the Registration Rights Agreement dated
April 21, 1999, between you and the Company (the "Registration Rights
Agreement"); (e) the Certificate of Incorporation of the Company and each of its
subsidiaries, as amended to date; (f) the By-laws of the Company and each of its
subsidiaries, as amended to date; (g) certain resolutions of the Board of
Directors of the Company and the Note Pricing Committee of the Board of
Directors of the Company relating to the issuance and sale of the Senior Notes
and (h) such other documents as I have deemed necessary or appropriate as a
basis for the opinions set forth below. I have also examined the originals or
copies, certified or otherwise identified to my satisfaction, of such records of
the Company and such agreements, certificates of public officials, certificates
of officers or other representatives of the Company and others, and such other
statements, documents, certificates and corporate or other records as I have
deemed necessary or appropriate as a basis for the opinions set forth below.
In my examination, I have assumed the genuineness of all
signatures, the legal capacity of all natural persons, the authenticity of all
documents submitted to me as originals, the conformity to original documents of
all documents submitted to me as certified or photostatic copies and the
authenticity of the originals of such copies. In making my examination of
documents executed by parties other than the Company, I have assumed that such
parties had the power, corporate or other, to enter into and perform all
obligations thereunder and have also assumed the due authorization by all
requisite action, corporate or other, and execution and delivery by such parties
of such documents and the validity and binding effect of such documents on such
parties thereof. As to any facts material to the opinions expressed herein which
were not independently established or verified, I have relied upon oral or
written statements and representations of officers and other representatives of
the Company, you and others. For purposes of the foregoing, I note that the
Offering Memorandum has been prepared in the context of an offering of the
Senior Notes pursuant to Rule 144A promulgated under the Securities Act of 1933,
as amended (the "Securities Act") and not as part of a registration statement
under the Securities Act.
I am admitted to the Bar in the State of Georgia and I do not
express any opinion as to the laws of any other jurisdiction other than the laws
of the United States of America to the extent referred to specifically herein.
In rendering the opinions expressed herein, I express no opinion
as to the application or effect of any fraudulent transfer or similar law on the
Purchase Agreement, the Senior Notes, the Registration Rights Agreement or the
Indenture or any of the transactions contemplated thereby.
Based upon and subject to the foregoing, I am of the opinion that:
A - 2
<PAGE> 29
1. The Company has been duly incorporated, is validly existing as
a corporation in good standing under the laws of the jurisdiction of its
incorporation, has the corporate power and authority to own, lease and operate
its properties and to conduct its business as described in the Offering
Memorandum and is duly qualified to transact business and is in good standing in
each jurisdiction in which the conduct of its business or its ownership or
leasing of property requires such qualification, except to the extent that the
failure to be so qualified or be in good standing would not have a material
adverse effect on the Company and its subsidiaries, taken as a whole.
2. Each subsidiary of the Company listed on Schedule I hereto
(each, a "Material Subsidiary") has been duly incorporated, is validly existing
as a corporation in good standing under the laws of the jurisdiction of its
incorporation, has the corporate power and authority to own, lease and operate
its properties and to conduct its business as described in the Offering
Memorandum and is duly qualified to transact business and is in good standing in
each jurisdiction in which the conduct of its business or its ownership or
leasing of property requires such qualification, except to the extent that the
failure to be so qualified or be in good standing would not have a material
adverse effect on the Company and its subsidiaries, taken as a whole. All of the
issued shares of capital stock of each Material Subsidiary have been duly and
validly authorized and issued, and are fully paid and non-assessable, and is
owned by the Company, directly or through subsidiaries.
3. The Purchase Agreement has been duly authorized, executed and
delivered by the Company.
4. The Senior Notes have been duly authorized, executed and
delivered by the Company.
5. Each of the Registration Rights Agreement and the Indenture has
been duly authorized, executed and delivered by the Company.
6. Except as set forth in the Offering Memorandum, I know of no
legal or governmental actions, suits or proceedings pending or, to my knowledge,
threatened against the Company or any of its subsidiaries wherein an unfavorable
ruling, decision or finding would have a material adverse effect on the Company
and its subsidiaries, taken as a whole, or on the ability of the Company to
perform its obligations under the Purchase Agreement, the Indenture, the
Registration Rights Agreement or the Senior Notes or to consummate the
transactions contemplated by the Offering Memorandum.
7. The statements contained in the Offering Memorandum under the
heading "Description of Certain Indebtedness", insofar as such statements
purport to summarize certain provisions of agreements, fairly summarize such
provisions in all material respects. To my knowledge, there are no franchises,
contracts, indentures, mortgages, loan agreements, notes, leases or other
instruments that would be required to be described in the Offering Memorandum
A - 3
<PAGE> 30
that are not described or referred to in the Offering Memorandum other than
those described or referred to therein or incorporated by reference thereto.
8. Neither the issue and sale of the Senior Notes by the Company,
the execution and delivery by the Company of the Purchase Agreement, the
Registration Rights Agreement and the Indenture (together, the "Documents"), nor
the consummation of any other of the transactions contemplated by the Documents,
each in accordance with its terms, will conflict with, result in a breach or
violation of, or constitute a default under the Certificate of Incorporation or
By-laws of the Company or any subsidiary or to the best of my knowledge, any
agreement or other instrument binding upon the Company or any subsidiary that is
described or referred to in the Offering Memorandum or incorporated by reference
into the Offering Memorandum.
9. No authorization, approval, consent or order of any Georgia
court or Georgia governmental authority or agency (other than such as may be
required under applicable Georgia securities laws, as to which I express no
opinion) is required in connection with the due authorization, execution and
delivery of the Purchase Agreement or the due execution, delivery or performance
of the Indenture or the Registration Rights Agreement by the Company or for the
offering, issuance, sale or delivery of the Senior Notes to the Initial
Purchasers or the resale by the Initial Purchasers in accordance with the
Purchase Agreement.
10. The execution, delivery and performance of the Purchase
Agreement, the Indenture, the Registration Rights Agreement and the Senior Notes
and the consummation of the transactions contemplated in the Purchase Agreement
and in the Offering Memorandum (including the use of the proceeds from the sale
of the Senior Notes as described in the Offering Memorandum under the caption
"Use of Proceeds") and compliance by the Company with its obligations under the
Purchase Agreement, the Indenture, the Registration Rights Agreement and the
Senior Notes will not, whether with or without the giving of notice or lapse of
time or both, conflict with or constitute a breach of, or default under or
result in the creation or imposition of any lien, charge or encumbrance upon any
property or assets of the Company or any subsidiary thereof pursuant to any
contract, indenture, mortgage, deed of trust, loan or credit agreement, note,
lease or any other agreement or instrument to which the Company or any of its
subsidiaries is a party or by which it or any of them may be bound, or to which
any of the property or assets of the Company or any subsidiary thereof is
subject (except for such conflicts, breaches or defaults or liens, charges or
encumbrances that would not have a material adverse effect on the Company and
its subsidiaries, taken as a whole), nor will such action result in any
violation of any applicable Georgia law, statute, rule or regulation or any
judgment, order, writ or decree of any court or governmental authority or agency
binding upon the Company.
In addition, I have participated in conferences with officers and
other representatives of the Company, representatives of the independent
accountants of the Company, you and your counsel at which the contents of the
Offering Memorandum and related matters were discussed and, although I am not
passing upon, and do not assume any responsibility for, the
A - 4
<PAGE> 31
accuracy, completeness or fairness of the statements contained in the Offering
Memorandum and have made no independent check or verification thereof (except to
the extent referred to in paragraph 7 above), on the basis of the foregoing, no
facts have come to my attention that have led me to believe that the Offering
Memorandum, as of its date or as of the date hereof, contained or contains an
untrue statement of a material fact or omitted or omits to state any material
fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, except that I express
no opinion or belief with respect to the financial statements and related notes,
the pro forma financial information and other financial and accounting data
included therein or excluded therefrom.
This opinion is furnished to you solely for your benefit in
connection with the closing under the Purchase Agreement occurring today and is
not to be used, circulated, quoted or otherwise referred to for any other
purpose without my express written permission.
Very truly yours,
Joey M. Loudermilk
A - 5
<PAGE> 32
Schedule I
American Family Life Assurance Company of Columbus (AFLAC)
A - 6
<PAGE> 33
Exhibit B
FORM OF OPINION OF SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
TO BE DELIVERED PURSUANT TO
SECTION 5(a)
April 21, 1999
Merrill Lynch, Pierce, Fenner
& Smith Incorporated
Donaldson, Lufkin & Jenrette
First Union Capital Markets
NationsBanc Montgomery Securities LLC
Salomon Smith Barney
c/o Merrill Lynch, Pierce, Fenner
& Smith Incorporated
North Tower
World Financial Center
New York, NY 10281-1209
Re: AFLAC Incorporated 6 1/2% Senior Notes
Due 2009
Ladies and Gentlemen:
We have acted as special counsel to AFLAC Incorporated, a Georgia
corporation (the "Company"), in connection with the issuance and sale by the
Company of $450,000,000 aggregate principal amount of the Company's 6 1/2%
Senior Notes Due 2009 (the "Senior Notes") pursuant to the Purchase Agreement,
dated as of April 16, 1999, between you and the Company (the "Purchase
Agreement").
This opinion is being furnished pursuant to Section 5(a) of the
Purchase Agreement. Capitalized terms not otherwise defined herein have the
respective meanings set forth in the Purchase Agreement or, if not therein
defined, the Indenture, dated as of April 21, 1999 (the "Indenture"), between
the Company and The Bank of New York, as Trustee.
In connection with this opinion we have examined and are familiar
with originals or copies, certified or otherwise identified to our satisfaction,
of (a) the Offering Memorandum, dated April 16, 1999, relating to the Senior
Notes (the "Offering Memorandum"); (b) an executed copy of
B - 1
<PAGE> 34
the Purchase Agreement; (c) an executed copy of the Indenture (including the
form set forth therein of certificates evidencing the Senior Notes); (d) an
executed copy of the Registration Rights Agreement, dated April 21, 1999,
between you and the Company (the "Registration Rights Agreement"); (e) the
Certificate of Incorporation of the Company, as amended to date; (f) the By-laws
of the Company, as amended to date; (g) certain resolutions of the Board of
Directors of the Company and the Note Pricing Committee of the Board of
Directors of the Company relating to the issuance and sale of the Senior Notes;
(h) an Officer's Certificate with respect to compliance with financial ratios
and tests under certain of the Applicable contracts (as defined below),
including supporting calculations (the "Calculation Certificate") and (i) such
other documents as we have deemed necessary or appropriate as a basis for the
opinions set forth below. We have also examined the originals or copies,
certified or otherwise identified to our satisfaction, of such records of the
Company and such agreements, certificates of public officials, certificates of
officers or other representatives of the Company and others, and such other
statements, documents, certificates and corporate or other records as we have
deemed necessary or appropriate as a basis for the opinions set forth below.
In our examination, we have assumed the genuineness of all
signatures, the legal capacity of all natural persons, the authenticity of all
documents submitted to us as originals, the conformity to original documents of
all documents submitted to us as certified or photostatic copies and the
authenticity of the originals of such copies. In making our examination of
documents, we have assumed that the parties thereto (including the Company) had
the power, corporate or other, to enter into and perform all obligations
thereunder and have also assumed the due authorization by all requisite action,
corporate or other, and the execution and delivery by such parties of such
documents and (except as set forth below) the validity and binding effect of
such documents on such parties. We have also assumed, and relied upon without
independent investigation, the accuracy of the information contained in the
Calculation Certificate. In rendering the opinions set forth in paragraphs 1 and
2, we have also assumed that the execution and delivery by the Company of the
Indenture, the Senior Notes and the Registration Rights Agreement and the
performance of its obligations thereunder do not and will not violate, conflict
with or constitute a default under (i) any agreement or instrument to which the
Company or its properties is subject (except that we do not make the assumption
set forth in this clause (i) with respect to Applicable Contracts), (ii) any
law, rule, or regulation to which the Company is subject (except that we do not
make the assumption set forth in this clause (ii) with respect to Applicable
Laws (as defined below), the United States securities laws, antifraud laws or
the rules and regulations of the National Association of Securities Dealers,
Inc. (the "NASD")), (iii) any judicial or regulatory order or decree of any
governmental authority (except that we do not make the assumption set forth in
this clause (iii) with respect to Applicable Orders (as defined below)) or (iv)
any consent, approval, license, authorization or validation of, or filing,
recording or registration with any governmental authority (except that we do not
make the assumption set forth in this clause (iv) with respect to Governmental
Approvals (as defined below)). As to any facts material to the opinions
expressed herein which were not independently established or verified, we have
relied upon oral or written statements and representations of officers and other
representatives of the Company, you and others.
B - 2
<PAGE> 35
As used herein, (a) the term "Applicable Laws" means those laws,
rules and regulations of the State of New York and the United States of America
that, in our experience, are normally applicable to transactions of the type
contemplated by the Purchase Agreement (other than securities, blue sky and
antifraud laws of any jurisdiction and the rules and regulations of the NASD),
but without our having made any special investigation concerning any other laws,
rules or regulations; (b) the term "Governmental Authorities" means any New York
or federal executive, legislative, judicial, administrative or regulatory body
established under Applicable Laws; (c) the term "Applicable Orders" means those
orders or decrees of Governmental Authorities identified on Schedule I hereto;
(d) the term "Governmental Approval" means any consent, approval, license,
authorization or validation of, or filing, recording or registration with, any
Governmental Authority pursuant to Applicable Laws or with the Securities and
Exchange Commission under the United States securities laws, other than Section
5 of the Securities Act of 1933, as amended (the "Securities Act"), which is
addressed in paragraph 8 below; and (e) the term "Applicable Contracts" means
the agreements listed on Schedule II hereto.
We understand that you are separately receiving an opinion with
respect to certain of the foregoing matters from Joey M. Loudermilk, Senior Vice
President and General Counsel of the Company, and we are advised that such
opinion contains certain assumptions and qualifications. In rendering our
opinion to you, we express no opinion as to the effect on our opinion of the
qualifications, assumptions, or conclusions set forth in the opinion referred to
in the preceding sentence. In rendering our opinion to you, we have relied with
your consent and without independent investigation or verification of any kind
upon the following assumptions:
(i) The Company has been duly incorporated and is in good standing
under the laws of the State of Georgia.
(ii) The Company has the corporate power and corporate authority
to execute and deliver the Senior Notes, the Indenture, the Registration Rights
Agreement and the Purchase Agreement and to perform all of its obligations
thereunder, and the execution and delivery of the Senior Notes, the Indenture,
the Registration Rights Agreement and the Purchase Agreement and consummation by
the Company of the transactions contemplated thereby have been duly authorized
by all requisite corporate action on the part of the Company.
(iii) The Indenture, the Registration Rights Agreement and the
Purchase Agreement have been duly executed and delivered by the Company and the
Senior Notes have been duly executed by the Company.
(iv) The Company has complied with all provisions of Georgia law
in connection with consummation of the transactions contemplated by the Senior
Notes, the Indenture, the Registration Rights Agreement and the Purchase
Agreement.
(v) The laws of the State of Georgia do not affect any of the
opinions set forth herein.
B - 3
<PAGE> 36
Members of our firm are admitted to the Bar in the State of New
York and we do not express any opinion as to the laws of any other jurisdiction
other than the laws of the United States of America to the extent referred to
specifically herein.
In rendering our opinions expressed herein, we express no opinion
as to the application or effect of any fraudulent transfer or similar law on the
Purchase Agreement, the Senior Notes, the Registration Rights Agreement or the
Indenture or any of the transactions contemplated thereby.
Based upon and subject to the foregoing, we are of the opinion
that:
1. When the Senior Notes are executed and authenticated in
accordance with the terms of the Indenture and delivered to and paid for by you
in accordance with the terms of the Purchase Agreement and in accordance with
the terms of the Indenture, the Senior Notes will constitute valid and binding
obligations of the Company, enforceable against the Company in accordance with
their terms and entitled to the benefits of the Indenture, except that (a)
enforcement thereof may be limited by (i) bankruptcy, reorganization,
insolvency, moratorium or other similar laws now or hereafter in effect relating
to creditors' rights generally and (ii) general principles of equity (regardless
of whether enforceability is considered in a proceeding at law or in equity) and
(b) the waiver contained in Section 9.7 of the Indenture may be unenforceable.
2. Each of the Indenture and the Registration Rights Agreement is
a valid and binding agreement of the Company enforceable against the Company in
accordance with its terms except that (a) the enforcement thereof may be subject
to or limited by (i) bankruptcy, reorganization, insolvency, moratorium or other
similar laws now or hereafter in effect relating to creditors' rights generally
and (ii) general principles of equity (regardless of whether such enforceability
is considered in a proceeding at law or in equity), (b) the rights to
indemnification and contribution contained in the Registration Rights Agreement
may be limited by state or federal securities laws or the public policy
underlying such laws and (c) the waiver contained in Section 9.7 of the
Indenture may be unenforceable.
3. Neither the issue and sale of the Senior Notes by the Company,
the execution, delivery and performance by the Company of the Purchase
Agreement, the Registration Rights Agreement or the Indenture (together, the
"Documents"), nor the consummation of any other of the transactions contemplated
by the Documents, each in accordance with its terms, will conflict with, result
in a breach or violation of, or constitute a default under (i) any Applicable
Law; (ii) any Applicable Order; or (iii) any Applicable Contract. We call to
your attention that certain of the Applicable Contracts are governed by laws
other than Applicable Laws. We express no opinion as to the effect of such other
laws on the opinion stated in this paragraph 3.
4. Assuming the accuracy of the representations and warranties of
the Company in Sections 1 and 6(a) of the Purchase Agreement and of you in
Section 6(a) of the Purchase Agreement and compliance by the Company with the
covenants in Sections 3 and 6(b) of the
B - 4
<PAGE> 37
Purchase Agreement, no Governmental Approval is required for the consummation of
the transactions contemplated by the Documents, other than such approvals as
have been, or as are not required to be, obtained by the date hereof.
5. The Company is not required to be registered as an "investment
company" under the Investment Company Act of 1940, as amended.
6. The statements contained in the Offering Memorandum under the
heading "Description of the Senior Notes", insofar as such statements purport to
summarize certain provisions of the Senior Notes, the Registration Rights
Agreement and the Indenture, fairly summarize such provisions in all material
respects.
7. Although the discussion set forth in the Offering Memorandum
under the heading "Certain U.S. Federal Tax Considerations" does not purport to
discuss all possible United States federal income tax considerations of the
purchase, ownership, and disposition of the Senior Notes, such discussion
constitutes, in all material respects, a fair and accurate summary of the
matters referred to therein.
8. Assuming (i) the accuracy of the representations and warranties
of the Company in Sections 1 and 6(a) and of you in Section 6(a) of the Purchase
Agreement and compliance with the agreements of the Company and you contained in
the Purchase Agreement, (ii) the compliance by you with the offering and
transfer procedures and restrictions described in the Purchase Agreement and the
Offering Memorandum, (iii) the accuracy of, and compliance with, the
representations, warranties and covenants of each of the purchasers to whom you
initially resell the Senior Notes as specified in the Offering Memorandum and
the Purchase Agreement and (iv) that purchasers to whom you initially resell the
Senior Notes receive a copy of the Offering Memorandum prior to such sale, no
registration of the Senior Notes under the Securities Act is required, and no
qualification of the Indenture under the Trust Indenture Act of 1939, as
amended, is necessary, for the offer and sale to you of the Senior Notes in the
manner contemplated by the Purchase Agreement or the initial resale of the
Senior Notes by you in the manner contemplated by the Purchase Agreement;
provided, however, we express no opinion as to any subsequent resale of the
Senior Notes.
9. The documents incorporated by reference in the Offering
Memorandum (other than the financial statements and supporting schedules
therein, as to which we express no opinion), when they were filed with the
Securities and Exchange Commission, complied as to form in all material respects
with the requirements of the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
In addition, we have participated in conferences with officers and
other representatives of the Company, in-house counsel for the Company,
representatives of the independent accountants of the Company, you and your
counsel at which the contents of the Offering Memorandum and related matters
were discussed. We did not participate in the preparation of the documents
B - 5
<PAGE> 38
incorporated by reference in the Offering Memorandum, but have, however,
reviewed such documents and discussed the business and affairs of the Company
with representatives of the Company. Although we are not passing upon, and do
not assume any responsibility for, the accuracy, completeness or fairness of the
statements contained in the Offering Memorandum and have made no independent
check or verification thereof (except to the extent referred to in paragraphs 6
and 7 above), on the basis of the foregoing, no facts have come to our attention
that have led us to believe that the Offering Memorandum, as of its date or as
of the date hereof, contained or contains an untrue statement of a material fact
or omitted or omits to state any material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading, except that we express no opinion or belief with respect to the
financial statements and related notes, the pro forma financial information and
other financial and accounting data included therein or excluded therefrom. For
purposes of the foregoing, we note that the Offering Memorandum has been
prepared in the context of an offering of the Senior Notes pursuant to Rule 144A
promulgated under the Securities Act and not as part of a registration statement
under the Securities Act.
This opinion is furnished to you solely for your benefit in
connection with the closing under the Purchase Agreement occurring today and is
not to be used, circulated, quoted or otherwise referred to for any other
purpose without our express written permission.
Very truly yours,
B - 6
<PAGE> 39
Exhibit C
FORM OF OPINION OF SIMPSON THACHER & BARTLETT
TO BE DELIVERED PURSUANT TO SECTION 5(b)
April 21, 1999
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
DONALDSON, LUFKIN & JENRETTE
FIRST UNION CAPITAL MARKETS CORP.
NATIONSBANC MONTGOMERY SECURITIES LLC
SALOMON SMITH BARNEY INC.
c/o Merrill Lynch, Pierce, Fenner & Smith Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Ladies and Gentlemen:
We have acted as your counsel in connection with the purchase by
you of $450,000,000 aggregate principal amount of 6 1/2% Senior Notes due 2009
(the "Senior Notes") of AFLAC Incorporated, a Georgia corporation (the
"Company"), pursuant to the Purchase Agreement dated April 16, 1999 (the
"Purchase Agreement") among Merrill Lynch, Pierce, Fenner & Smith Incorporated,
Donaldson, Lufkin & Jenrette, First Union Capital Markets Corp., NationsBanc
Montgomery Securities LLC and Salomon Smith Barney Inc., as initial purchasers
(the "Initial Purchasers"), and the Company.
We have examined the Offering Memorandum dated April 16, 1999,
relating to the sale of the Senior Notes (the "Offering Memorandum"), which
incorporates by reference the Annual Report on Form 10-K of the Company for the
fiscal year ended December 31, 1998 (the "Exchange Act Document"), as filed
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"); the
Indenture dated as of April 21, 1999 (the "Indenture") between the Company and
The Bank of New York, as Trustee (the "Trustee"), relating to the Senior Notes;
the Global Senior Notes and a specimen of the Certificated Senior Notes; the
Purchase Agreement; and the Registration Rights Agreement dated as of April 21,
1999 (the "Registration Rights Agreement") among the Company and the Initial
Purchasers. In addition, we have examined, and have relied as to matters of fact
upon, the documents delivered to you at the
C-1
<PAGE> 40
closing, and upon originals, or duplicates or certified or conformed copies, of
such corporate records, agreements, documents and other instruments and such
certificates or comparable documents of public officials and of officers and
representatives of the Company, and have made such other investigations, as we
have deemed relevant and necessary in connection with the opinions hereinafter
set forth.
In such examination, we have assumed the genuineness of all
signatures, the legal capacity of natural persons, the authenticity of all
documents submitted to us as originals, the conformity to original documents of
all documents submitted to us as duplicates or certified or conformed copies,
and the authenticity of the originals of such latter documents.
Based upon the foregoing, and subject to the qualifications and
limitations stated herein, we are of the opinion that:
1. The Company has been duly incorporated and is validly existing
and in good standing as a corporation under the laws of the State of
Georgia.
2. The Indenture has been duly authorized, executed and delivered
by the Company and, assuming that the Indenture is the valid and legally
binding obligation of the Trustee, constitutes a valid and legally
binding obligation of the Company, enforceable against the Company in
accordance with its terms.
3. The Senior Notes have been duly authorized, executed and issued
by the Company and, assuming due authentication thereof by the Trustee
and upon payment and delivery in accordance with the Purchase Agreement,
will constitute valid and legally binding obligations of the Company
enforceable against the Company in accordance with their terms and
entitled to the benefits of the Indenture.
4. The Registration Rights Agreement has been duly authorized,
executed and delivered by the Company and, assuming that the Registration
Rights Agreement is the valid and legally binding obligation of the
Initial Purchasers, constitutes a valid and legally binding obligation of
the Company, enforceable against the Company in accordance with its
terms.
5. The Purchase Agreement has been duly authorized, executed and
delivered by the Company.
6. The statements made in the Offering Memorandum under the
caption "Description of the Senior Notes," insofar as they purport to
constitute summaries of certain terms of documents referred to therein,
constitute accurate summaries of the terms of such documents in all
material respects.
C-2
<PAGE> 41
7. No registration under the Securities Act of 1933, as amended,
of the Senior Notes and no qualification of the Indenture under the Trust
Indenture Act of 1939, as amended, is required for the offer and sale of
the Senior Notes by the Company to the Initial Purchasers or the reoffer
and resale of the Senior Notes by the Initial Purchasers to the initial
purchasers therefrom solely in the manner contemplated by the Offering
Memorandum, the Purchase Agreement and the Indenture.
Our opinions in paragraphs 2, 3 and 4 above are subject to (i) the
effects of bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and other similar laws relating to or affecting creditors' rights
generally, (ii) general equitable principles (whether considered in a proceeding
in equity or at law) and (iii) an implied covenant of good faith and fair
dealing. Our opinion in paragraph 4 is further limited by considerations of
public policy.
We express no opinion as to the validity, legally binding effect
or enforceability of any provision of the Registration Rights Agreement or any
related provisions of the Indenture that requires or relates to payment of any
interest at a rate or in an amount which a court would determine in the
circumstances under applicable law to be commercially unreasonable or a penalty
or a forfeiture.
All legal proceedings taken by the Company in connection with the
offering of the Senior Notes, and the legal opinions, dated the date hereof,
rendered to you by Joey M. Loudermilk, Esq., Senior Vice President, Secretary &
General Counsel of the Company, and Skadden, Arps, Slate, Meagher & Flom LLP,
counsel for the Company, pursuant to the Purchase Agreement, are in form
satisfactory to us. Insofar as the opinions expressed herein relate to or are
dependent upon matters governed by the laws of the State of Georgia, we have
relied upon the opinion of Joey M. Loudermilk, Esq., Senior Vice President,
Secretary & General Counsel of the Company.
We have not independently verified the accuracy, completeness or
fairness of the statements made or included in the Offering Memorandum or the
Exchange Act Document and take no responsibility therefor, except as and to the
extent set forth in paragraph 6 above. In the course of the preparation by the
Company of the Offering Memorandum, we participated in conferences with certain
officers and employees of the Company, with representatives of KPMG LLP and with
counsel to the Company. We did not participate in the preparation of the
Exchange Act Document or review the Exchange Act Document prior to its filing
with the Commission. Based upon our examination of the Offering Memorandum and
the Exchange Act Document, our investigations made in connection with the
preparation of the Offering Memorandum (excluding the Exchange Act Document) and
our participation in the conferences referred to above, we have no reason to
believe that the Offering Memorandum (including the Exchange Act Document)
contains any untrue statement of a material fact or omits to state any material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, except that we express
no belief with respect to the financial statements or
C-3
<PAGE> 42
other financial data contained or incorporated by reference in the Offering
Memorandum or the Exchange Act Document.
We are members of the Bar of the State of New York and we do not
express any opinion herein concerning any law other than the law of the State of
New York and the federal law of the United States.
This opinion letter is rendered to you in connection with the
above described transactions. This opinion letter may not be relied upon by you
for any other purpose, or relied upon by, or furnished to, any other person,
firm or corporation without our prior written consent.
Very truly yours,
SIMPSON THACHER & BARTLETT
C-4
<PAGE> 1
EXHIBIT 4.1
AFLAC INCORPORATED
$450,000,000 6 1/2% SENIOR NOTES DUE 2009
REGISTRATION RIGHTS AGREEMENT
April 21, 1999
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Donaldson, Lufkin & Jenrette
First Union Capital Markets Corp.
NationsBanc Montgomery Securities LLC
Salomon Smith Barney Inc.
c/o Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1325
Ladies and Gentlemen:
AFLAC Incorporated, a Georgia corporation (the "Company"),
proposes to issue and sell to Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Donaldson, Lufkin & Jenrette, First Union Capital Markets Corp.,
NationsBanc Montgomery Securities LLC, and Salomon Smith Barney Inc. (the
"Initial Purchasers") upon the terms set forth in a Purchase Agreement dated
April 16, 1999 (the "Purchase Agreement") its 6 1/2% Senior Notes due 2009 (the
"Senior Notes") (the "Initial Placement"). As an inducement to the Initial
Purchasers to enter into the Purchase Agreement and in satisfaction of a
condition to the obligations of the Initial Purchasers thereunder, the Company
agrees with the Initial Purchasers, (i) for the benefit of the Initial
Purchasers and (ii) for the benefit of the holders from time to time of the
Transfer Restricted Securities (as defined herein) (including the Initial
Purchasers) (each of the foregoing a "Holder" and together the "Holders"), as
follows:
<PAGE> 2
1. Definitions. Capitalized terms used herein without
definition shall have their respective meanings set forth in the Purchase
Agreement. As used in this Agreement, the following capitalized defined terms
shall have the following meanings:
"Act" means the Securities Act of 1933, as amended, and the rules
and regulations of the Commission promulgated thereunder.
"Additional Interest" shall have the meaning set forth in Section
4 of this Agreement.
"Advice" shall have the meaning set forth in Section 6 of this
Agreement.
"Affiliate" of any specified person means any other person which,
directly or indirectly, is in control of, is controlled by, or is under common
control with, such specified person. For purposes of this definition, control
of a person means the power, direct or indirect, to direct or cause the
direction of the management and policies of such person whether by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Agreement" means this Registration Rights Agreement, dated April
21, 1999, between the Company and the Initial Purchasers.
"Commission" means the Securities and Exchange Commission.
"Company" means AFLAC Incorporated, a Georgia corporation.
"Consummate" or "Consummated," with respect to a registered
Exchange Offer, means that (i) the Exchange Offer Registration Statement
relating to the Exchange Notes to be issued in the Exchange Offer has been
filed and is effective; (ii) such Registration Statement has been kept
continuously effective, and the Exchange Offer has been kept open, for a period
not less than the minimum period required pursuant to paragraphs 2(c)(ii) and
2(e)(ii) hereof; and (iii) the Company has delivered Exchange Notes in the same
aggregate principal amount as the aggregate principal amount of Transfer
Restricted Securities that were validly tendered by Holders thereof pursuant to
the Exchange Offer.
2
<PAGE> 3
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission promulgated thereunder.
"Exchange Notes" means an issue of securities of the Company with
terms identical to the Senior Notes (except that the Exchange Notes will not
bear the Private Placement Legend or the Regulation S Legend (each as defined in
the Indenture) or any other legends restricting the transfer thereof, will
contain the alternative paragraph 1(b) appearing on the reverse of the Senior
Notes and except that interest thereon shall accrue from the last date on which
interest was paid on the Senior Notes or, if no such interest has been paid,
from the date of issuance of the Senior Notes) to be exchanged for the Senior
Notes pursuant to the Exchange Offer.
"Exchange Offer" means the registered offer by the Company to
exchange the Senior Notes for the Exchange Notes.
"Exchange Offer Registration Period" means the 30-day period
following the commencement of the Exchange Offer, exclusive of any period
during which any stop order shall be in effect suspending the effectiveness of
the Exchange Offer Registration Statement.
"Exchange Offer Registration Statement" means a registration
statement of the Company on an appropriate form under the Act with respect to
the Exchange Offer, all amendments and supplements to such registration
statement, including post-effective amendments, in each case including the
Prospectus contained therein, all exhibits thereto and all material
incorporated by reference therein.
"Exchanging Dealer" means any Holder (which may include the
Initial Purchasers) which is a broker-dealer, electing to exchange Senior Notes
acquired for its own account as a result of market-making activities or other
trading activities, for Exchange Notes.
"Final Offering Memorandum" has the meaning set forth in the
Purchase Agreement.
"Holder" has the meaning set forth in the preamble hereto.
"Indenture" means the Indenture relating to the Senior Notes dated
as of April 21, 1999, between the Company and The Bank of New York, as trustee,
as the same may be amended from time to time in accordance with the terms
thereof.
3
<PAGE> 4
"Initial Placement" has the meaning set forth in the preamble
hereto.
"Issue Date" means the date on which Senior Notes are originally
issued under the Indenture.
"Losses" shall have the meaning set forth in Section 8(d) of this
Agreement.
"Majority Holders" means the Holders of a majority of the aggregate
principal amount of Senior Notes registered under a Registration Statement.
"Managing Underwriters" means the investment banker or investment
bankers and manager or managers that shall administer an Underwritten Offering.
"Prospectus" means the prospectus included in any Registration
Statement (including, without limitation, a prospectus that discloses
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A under the Act), as amended or
supplemented by any prospectus supplement, with respect to the terms of the
offering of any portion of the Senior Notes or the Exchange Notes, covered by
such Registration Statement, and all amendments and supplements to the
Prospectus, including post-effective amendments.
"Registration Expenses" shall mean any and all expenses incident to
performance of or compliance by the Company with this Agreement, including
without limitation: (i) all Commission, stock exchange or National Association
of Securities Dealers, Inc. registration and filing fees, (ii) all fees and
expenses incurred in connection with compliance with state securities or blue
sky laws (including reasonable fees and disbursements of counsel for any
Underwriters or Holders in connection with blue sky qualification of any of the
Exchange Notes or Senior Notes), (iii) all expenses of any persons in preparing
or assisting in preparing, word processing, printing and distributing any
Registration Statement, any Prospectus, and amendments or supplements thereto,
any underwriting agreements, securities sales agreements and other documents
relating to the performance of and compliance with this Agreement, (iv) all
rating agency fees, (v) all fees and disbursements relating to the qualification
of the Indenture under applicable securities laws, (vi) the fees and
disbursements of the Trustee and its counsel, (vii) the fees and disbursements
of counsel for the Company and, in the case of a Shelf Registration Statement,
the fees and disbursements of one counsel for the Holders (which counsel shall
be selected by
4
<PAGE> 5
the Majority Holders and which counsel may also be counsel for the Underwriters)
and (viii) the fees and disbursements of the independent public accountants of
the Company, including the expenses of any special audits or "cold comfort"
letters required by or incident to such performance and compliance, but
excluding fees and expenses of counsel to the Underwriters (other than fees and
expenses set forth in clauses (ii) or (vii) above) or the Holders and
underwriting discounts and commissions and transfer taxes, if any, relating to
the sale or disposition of Senior Notes by a Holder.
"Registration Statement" means any Exchange Offer Registration
Statement or Shelf Registration Statement that covers any of the Senior Notes or
the Exchange Notes pursuant to the provisions of this Agreement, amendments and
supplements to such registration statement, including post-effective amendments,
in each case including the Prospectus contained therein, all exhibits thereto
and all material incorporated by reference therein.
"Representative" means Merrill Lynch, Pierce, Fenner & Smith
Incorporated, as Representative of the Initial Purchasers.
"Senior Notes" has the meaning set forth in the preamble hereto.
"Shelf Registration" means a registration effected pursuant to
Section 3 hereof.
"Shelf Registration Period" has the meaning set forth in Section
3(b) hereof.
"Shelf Registration Statement" means a "shelf" registration
statement of the Company pursuant to the provisions of Section 3 hereof which
covers some or all of the Senior Notes or Exchange Notes, as applicable, on an
appropriate form under Rule 415 under the Act, or any similar rule that may be
adopted by the Commission, amendments and supplements to such registration
statement, including post-effective amendments, in each case including the
Prospectus contained therein, all exhibits thereto and all material incorporated
by reference therein.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sections
7aaa-77bbbb) as amended.
5
<PAGE> 6
"Transfer Restricted Security" means each Senior Note or Exchange
Note until (i) the date on which such Transfer Restricted Security has been
exchanged by a person other than a broker-dealer for an Exchange Note in the
Exchange Offer that is freely transferable under the Act, (ii) following the
exchange by a broker-dealer in the Exchange Offer of a Transfer Restricted
Security for an Exchange Note, the date on which such Exchange Note is sold to a
purchaser who receives from such broker-dealer on or prior to the date of such
sale a copy of the Prospectus contained in the Exchange Offer Registration
Statement, (iii) the date on which such Transfer Restricted Security has been
effectively registered under the Act and disposed of in accordance with the
Shelf Registration Statement, or (iv) the date on which such Transfer Restricted
Security is distributed to the public pursuant to Rule 144 under the Act or is
saleable pursuant to Rule 144 (k) under the Act.
"Trustee" means the trustee with respect to the Senior Notes under
the Indenture.
"Underwriter" means any underwriter of Senior Notes in connection
with an offering thereof under a Shelf Registration Statement.
"Underwritten Offering" means a registration in which securities of
the Company are sold to an underwriter for reoffering to the public.
2. Exchange Offer; Resales of Exchange Notes by Exchanging
Dealers; Private Exchange. (a) The Company shall prepare and, not later than 90
days following the Issue Date (or if the 90th day is not a business day, the
first business day thereafter), shall file with the Commission the Exchange
Offer Registration Statement with respect to the Exchange Offer. The Company
shall use its best efforts to cause the Exchange Offer Registration Statement
to become effective under the Act within 180 days of the Issue Date (or if the
180th day is not a business day, the first business day thereafter). In
connection with the foregoing, the Company shall use its best efforts to (A)
file all pre-effective amendments to such Exchange Offer Registration Statement
as may be necessary in order to cause such Registration Statement to become
effective, (B) file if applicable, a post-effective amendment to such
Registration Statement pursuant to Rule 430A under the Act, and (C) cause all
necessary filings in connection with the registration and qualification of the
Exchange Notes to be made under the blue sky laws of such jurisdictions as are
necessary to permit the Exchange Offer to be Consummated.
6
<PAGE> 7
(b) Upon the effectiveness of the Exchange Offer Registration
Statement, the Company shall promptly commence the Exchange Offer, it being the
objective of such Exchange Offer to enable each Holder electing to exchange
Senior Notes for Exchange Notes (assuming that such Holder is not an affiliate
of the Company within the meaning of the Act, acquires the Exchange Notes in the
ordinary course of such Holder's business and has no arrangements with any
person to participate in the distribution of the Exchange Notes) to trade such
Exchange Notes from and after their receipt without any limitations or
restrictions under the Act and without material restrictions under the
securities laws of a substantial proportion of the several states of the United
States.
(c) In connection with the Exchange Offer, the Company shall:
(i) mail to each Holder a copy of the Prospectus forming
part of the Exchange Offer Registration Statement, together with
an appropriate letter of transmittal and related documents;
(ii) keep the Exchange Offer open for not less than 30
days after the date notice thereof is mailed to the Holders (or
longer if required by applicable law);
(iii) utilize the services of a depositary for the
Exchange Offer with an address in the Borough of Manhattan, the
City of New York;
(iv) not include any other securities other than the
Exchange Notes in the Exchange Offer Registration Statement;
(v) use its reasonable best efforts to cause the
Exchange Offer to be Consummated on the earliest practicable date
after the Exchange Offer Registration Statement has become
effective; and
(vi) comply in all respects with all applicable laws.
(d) As soon as practicable after the close of the Exchange
Offer, the Company shall:
(i) accept for exchange all Senior Notes tendered and
not validly withdrawn pursuant to the Exchange Offer;
7
<PAGE> 8
(ii) deliver to the Trustee for cancellation all Senior
Notes so accepted for exchange; and
(iii) cause the Trustee promptly to authenticate and
deliver to each Holder of Senior Notes, Exchange Notes equal in
principal amount to the Senior Notes of such Holder so accepted
for exchange.
(e) The Initial Purchasers and the Company acknowledge that,
pursuant to interpretations by the Commission's staff of Section 5 of the Act,
and in the absence of an applicable exemption therefrom, each Exchanging Dealer
is required to deliver a Prospectus in connection with a sale of any Exchange
Notes received by such Exchanging Dealer pursuant to the Exchange Offer in
exchange for Senior Notes acquired for its own account as a result of
market-making activities or other trading activities. Accordingly, the Company
shall:
(i) include the information set forth in Annex A hereto
on the cover of the Exchange Offer Registration Statement, in
Annex B hereto in the forepart of the Exchange Offer Registration
Statement in a section setting forth details of the Exchange
Offer, and in Annex C hereto in the underwriting or plan of
distribution section of the Prospectus forming a part of the
Exchange Offer Registration Statement, and include the
information set forth in Annex D hereto in the letter of
transmittal delivered pursuant to the Exchange Offer; and
(ii) use its best efforts to keep the Exchange Offer
Registration Statement continuously effective under the Act
during the Exchange Offer Registration Period for delivery by
Exchanging Dealers in connection with sales of Exchange Notes
received pursuant to the Exchange Offer, as contemplated by
Section 5(j) below.
(f) In the event that any Initial Purchaser determines that it
is not eligible to participate in the Exchange Offer with respect to the
exchange of Senior Notes constituting any portion of an unsold allotment, at
the request of such Initial Purchaser, the Company shall issue and deliver to
such Initial Purchaser or the party purchasing Exchange Notes registered under
a Shelf Registration Statement as contemplated by Section 3 hereof from such
Initial Purchaser, in exchange for such Senior Notes, a like principal amount
of Exchange Notes. The Company shall seek
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<PAGE> 9
to cause the CUSIP Service Bureau to issue the same CUSIP number for such
Exchange Notes issued pursuant to the Exchange Offer.
3. Shelf Registration. If, (i) because of any change in law or
applicable interpretations thereof by the Commission's staff, the Company
determines upon advice of its outside counsel that it is not permitted to effect
the Exchange Offer as contemplated by Section 2 hereof, (ii) for any other
reason the Exchange Offer Registration Statement is not declared effective
within 180 days following the Issue Date (or if the 180th day is not a business
day, the first business day thereafter), (iii) any Initial Purchaser so requests
with respect to Senior Notes held by it following consummation of the Exchange
Offer, (iv) any Holder (other than an Initial Purchaser) is not eligible to
participate in the Exchange Offer because of any change in law or applicable
interpretations of the staff of the Commission or otherwise, or (v) in the case
of any Initial Purchaser that participates in the Exchange Offer or acquires
Exchange Notes pursuant to Section 2(f) hereof, such Initial Purchaser does not
receive freely tradeable Exchange Notes in exchange for Senior Notes (it being
understood that, for purposes of this Section 3, (x) the requirement that an
Initial Purchaser deliver a Prospectus containing the information required by
Items 507 and/or 508 of Regulation S-K under the Act in connection with sales of
Exchange Notes acquired in exchange for such Senior Notes shall result in such
Exchange Notes not being "freely tradeable" but (y) the requirement that an
Exchanging Dealer deliver a Prospectus in connection with sales of Exchange
Notes acquired in the Exchange Offer in exchange for Senior Notes acquired as a
result of market-making activities or other trading activities shall not result
in such Exchange Notes being not "freely tradeable"), the following provisions
shall apply:
(a) The Company shall as promptly as practicable after so
required or requested pursuant to this Section 3, file with the Commission and
thereafter shall use its best efforts to cause to be declared effective under
the Act by the 210th day (or if the 210th day is not a business day, the first
business day thereafter) after the original issuance of the Senior Notes, a
Shelf Registration Statement relating to the offer and sale of the Senior Notes
or the Exchange Notes, as applicable, by the Holders from time to time in
accordance with the methods of distribution elected by such Holders and set
forth in such Shelf Registration Statement; provided, that with respect to
Exchange Notes received by an Initial Purchaser in exchange for Senior Notes
constituting any portion of an unsold allotment, the Company may, if permitted
by current interpretations by the Commission's staff, file a post-effective
amendment to the Exchange Offer Registration Statement containing the
information required by Regulation S-K Items 507 and/or 508, as applicable, in
satisfaction of its
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<PAGE> 10
obligations under this paragraph (a) with respect thereto, and any such Exchange
Offer Registration Statement, as so amended, shall be referred to herein as,
and governed by the provisions herein applicable to, a Shelf Registration
Statement.
(b) The Company shall use its best efforts to keep the Shelf
Registration Statement continuously effective in order to permit the Prospectus
forming a part thereof to be usable by Holders for a period of two years from
the date the Shelf Registration Statement is declared effective by the
Commission or until one year after such effective date if such Shelf
Registration Statement is filed at the request of an Initial Purchaser or such
shorter period that will terminate when all the Senior Notes or Exchange Notes,
as applicable, covered by the Shelf Registration Statement have been sold
pursuant to the Shelf Registration Statement (in any such case, such period
being called the "Shelf Registration Period"). The Company shall be deemed not
to have used its best efforts to keep the Shelf Registration Statement
effective during the requisite period if it voluntarily takes any action that
would result in Holders of securities covered thereby not being able to offer
and sell such securities during that period, unless (i) such action is required
by applicable law, or (ii) such action is taken by the Company in good faith
and for valid business reasons (not including avoidance of the Company's
obligations hereunder), including the acquisition or divestiture of assets.
4. Additional Interest. In the event that the Exchange Offer
Registration Statement is not filed with the Commission on or prior to the 90th
day following the Issue Date, the Exchange Offer Registration Statement is not
declared effective on or prior to the 180th day following the Issue Date or the
Exchange Offer is not Consummated and a Shelf Registration Statement is not
declared effective on or prior to the 210th day following the Issue Date (or if
the 90th, 180th or 210th day is not a business day, the first business day
thereafter), interest will accrue (in addition to stated interest on the Senior
Notes) from and including the next day following such 90- 180- or 210-day
period. Such additional interest (the "Additional Interest") will be payable in
cash semiannually in arrears each April 15 and October 15, at a rate per annum
equal to 0.25% of the principal amount of the Senior Notes, for each event
described in the preceding sentence; provided, however, that the aggregate
amount of Additional Interest payable pursuant to the above provisions shall in
no event exceed 0.75% per annum of the principal amount of the Senior Notes.
Upon the filing of the Exchange Offer Registration Statement, the effectiveness
of the Exchange Offer Registration Statement, the Consummation of the Exchange
Offer or the effectiveness of a Shelf Registration Statement, as the case may
be, after such 90- 180- or 210-day period, the Additional Interest payable on
the Senior Notes from the
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<PAGE> 11
date of such filing, effectiveness or consummation, as the case may be, will
cease to accrue and all accrued and unpaid Additional Interest as of such
occurrence shall be paid to the holders of the Senior Notes.
Notwithstanding the fact that any securities for which Additional
Interest is due cease to be Transfer Restricted Securities, all obligations of
the Company to pay Additional Interest with respect to such securities shall
survive until such time as such obligations with respect to such securities
shall have been satisfied in full.
In the event that a Shelf Registration Statement is declared
effective pursuant to Section 3 hereof, if the Company fails to keep such
Registration Statement continuously effective for the period required by this
Agreement, or if the Shelf Registration Statement fails to be usable for its
intended purpose without being succeeded by a post-effective amendment to such
Shelf Registration Statement that cures such failure and that is itself declared
effective within 10 days of filing such post-effective amendment to such Shelf
Registration Statement, then from such time as the Shelf Registration Statement
is no longer effective or usable, as the case may be, until the earlier of (i)
the date that the Shelf Registration Statement is again deemed effective or
usable, as the case may be, (ii) the date that is the second anniversary of the
Issue Date, or (iii) the date as of which all of the Senior Notes are sold
pursuant to the Shelf Registration Statement, Additional Interest shall accrue
at a rate per annum equal to 0.25% of the principal amount of the Senior Notes
and shall be payable in cash semiannually in arrears each April 15 and October
15.
All accrued Additional Interest shall be paid to Holders by the
Company in the same manner as interest is paid pursuant to the Indenture. The
aggregate amount of Additional Interest payable pursuant to this Agreement shall
in no event exceed 0.75% per annum of the principal amount of Senior Notes.
5. Registration Procedures. In connection with any Shelf
Registration Statement and, to the extent applicable, any Exchange Offer
Registration Statement, the following provisions shall apply:
(a) The Company shall use its best efforts to keep any
Registration Statement required by this Agreement continuously effective and
provide all requisite financial statements for the period specified in Section
2 or 3 of this Agreement, as applicable; upon the occurrence of any event that
would cause any such Registration Statement or the Prospectus contained therein
to be either not
11
<PAGE> 12
effective or not usable for resale of Transfer Restricted Securities during the
period required by this Agreement, the Company shall use its best efforts to
cause such amendment to be declared effective and such Registration Statement
and the related Prospectus to become usable for their intended purpose(s) as
soon as practicable thereafter.
(b) The Company shall prepare and file with the Commission
such amendments and post-effective amendments to any Registration Statement
required by this Agreement as may be necessary to keep such Registration
Statement effective for the applicable period set forth in Section 2 or 3
hereof, as applicable; cause the Prospectus to be supplemented by any required
Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424
under the Act, and to comply with the applicable provisions of Rules 424 and
430A under the Act in a timely manner; and comply with the provisions of the
Act with respect to the disposition of all securities covered by such
Registration Statement during the applicable period in accordance with the
intended method or methods of distribution by the sellers thereof set forth in
such Registration Statement or supplement to the Prospectus.
(c) The Company shall furnish to the Representative and to
each Holder named therein, a reasonable period of time prior to the filing
thereof with the Commission, a copy of any Shelf Registration Statement and any
Exchange Offer Registration Statement, and each amendment thereof and each
amendment or supplement, if any, to the Prospectus included therein and shall
use its reasonable best efforts to reflect in each such document, when so filed
with the Commission, such comments as the Representative or any Holder may
propose.
(d) The Company shall use its best efforts to ensure that (i)
any Registration Statement and any amendment thereto and any Prospectus forming
a part thereof and any amendment or supplement thereto complies in all material
respects with the Act and the rules and regulations thereunder, (ii) any
Registration Statement and any amendment thereto does not, when it becomes
effective, contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading and (iii) any Prospectus forming part of any
Registration Statement, and any amendment or supplement to such Prospectus,
does not include an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements, in the light of the
circumstances under which they were made, not misleading.
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<PAGE> 13
(e) (1) The Company shall advise the Representative and, in
the case of a Shelf Registration Statement, the Holders of securities covered
thereby, and, if requested by the Representative or any such Holder, confirm
such advice in writing:
(i) when a Registration Statement and any amendment
thereto has been filed with the Commission and when the
Registration Statement or any post-effective amendment thereto
has become effective; and
(ii) of any request by the Commission for amendments or
supplements to the Registration Statement or the Prospectus
included therein or for additional information.
(2) The Company shall advise the Representative and, in the
case of a Shelf Registration Statement, the Holders of securities
covered thereby, and, in the case of any Exchange Offer Registration
Statement, any Exchanging Dealer which has provided in writing to the
Company a telephone or facsimile number and address for notices, and, if
requested by the Representative or any such Holder or Exchanging
Dealer, confirm such advice in writing:
(i) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose;
(ii) of the receipt by the Company of any notification
with respect to the suspension of the qualification of the
securities included therein for sale in any jurisdiction or the
initiation or threatening of any proceeding for such purpose; and
(iii) of the existence of any fact or the happening of
any event that requires the making of any changes in the
Registration Statement, Prospectus or any amendment or supplement
thereto, so that, as of such date, the statements therein are not
misleading and do not omit to state a material fact required to
be stated therein or necessary to make the statements therein (in
the case of the Prospectus, in light of the circumstances under
which they were made) not mislead-
13
<PAGE> 14
ing (which advice shall be accompanied by an instruction to
suspend the use of the Prospectus until the requisite changes have
been made).
(f) The Company shall use its reasonable best efforts to
obtain the withdrawal of any order suspending the effectiveness of any
Registration Statement, or of any other suspension of the qualification of the
securities, at the earliest possible time.
(g) The Company shall furnish to each Holder of securities
included within the coverage of any Shelf Registration Statement, without
charge, at least one copy of such Shelf Registration Statement and any
post-effective amendment thereto, including financial statements and schedules,
and, if the Holder so requests in writing, any documents incorporated by
reference therein and all exhibits (including those incorporated by reference).
(h) The Company shall, during the Shelf Registration Period,
deliver to each Holder of securities included within the coverage of any Shelf
Registration Statement, without charge, as many copies of the Prospectus
(including each preliminary Prospectus) included in such Shelf Registration
Statement and any amendment or supplement thereto as such Holder may reasonably
request; and the Company consents to the use of the Prospectus or any amendment
or supplement thereto by each of the selling Holders of securities in connection
with the offering and sale of the securities covered by such Prospectus or any
amendment or supplement thereto.
(i) The Company shall furnish to each Exchanging Dealer which
so requests, without charge, at least one copy of the Exchange Offer
Registration Statement and any post-effective amendment thereto, including
financial statements and schedules, any documents incorporated by reference
therein, and, if the Exchanging Dealer so requests in writing, any documents
incorporated by reference therein and all exhibits (including those
incorporated by reference).
(j) The Company shall, during the Exchange Offer Registration
Period, promptly deliver to each Exchanging Dealer, without charge, as many
copies of the Prospectus included in such Exchange Offer Registration Statement
and any amendment or supplement thereto as such Exchanging Dealer may reasonably
request for delivery by such Exchanging Dealer in connection with a sale of
Exchange Notes received by it pursuant to the Exchange Offer; and the Company
14
<PAGE> 15
consents to the use of the Prospectus or any amendment or supplement thereto by
any such Exchanging Dealer, as aforesaid.
(k) In connection with any Shelf Registration Statement, the
Company shall register or qualify or cooperate with any of the Holders of
securities named therein and such Holders' counsel in connection with the
registration or qualification of such securities for offer and sale under the
securities or blue sky laws of such jurisdictions as any such Holder reasonably
requests in writing and do any and all other acts or things necessary or
advisable to enable the offer and sale in such jurisdictions of the securities
covered by such Registration Statement; provided, however, that the Company will
not be required to qualify generally to do business in any jurisdiction where it
is not then so qualified or to take any action which would subject it to general
service of process or to taxation in any such jurisdiction where it is not then
so subject.
(l) Unless the applicable Senior Notes shall be in book-entry
only form, the Company shall cooperate with the Holders of Senior Notes to
facilitate the timely preparation and delivery of certificates representing
Senior Notes to be sold pursuant to any Registration Statement free of any
restrictive legends and in such denominations and registered in such names as
Holders may request prior to sales of securities pursuant to such Registration
Statement.
(m) The Company shall use its reasonable best efforts to cause
the Transfer Restricted Securities covered by the Registration Statement to be
registered with or approved by such other governmental agencies or authorities
as may be necessary to enable the seller(s) or the Underwriter(s), if any, to
consummate the disposition of such Transfer Restricted Securities, subject to
the proviso contained in paragraph 5(k) hereof.
(n) Upon the occurrence of any event contemplated by paragraph
5(e) (2) (iii) above, the Company shall promptly prepare a post-effective
amendment to any Registration Statement or an amendment or supplement to the
related Prospectus or file any other required document so that, as thereafter
delivered to purchasers of the securities included therein, the Prospectus will
not include an untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
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<PAGE> 16
(o) Not later than the effective date of any such Registration
Statement hereunder, the Company shall provide a CUSIP number for the Senior
Notes or Exchange Notes, as the case may be, registered under such Registration
Statement, and provide the applicable trustee with printed certificates for such
Senior Notes or Exchange Notes, in a form eligible for deposit with The
Depository Trust Company.
(p) The Company shall use its reasonable best efforts to
comply with all applicable rules and regulations of the Commission and shall
make generally available to its security holders as soon as practicable after
the effective date of the applicable Registration Statement an earnings
statement satisfying the provisions of Section 11(a) of the Act.
(q) The Company shall cause the Indenture to be qualified
under the TIA in a timely manner, and, in connection therewith, cooperate with
the Trustee and the Holders of the Senior Notes and the Exchange Notes to
effect such changes to the Indenture as may be required for such Indenture to
be so qualified in accordance with the terms of the TIA, and execute and use
their reasonable best efforts to cause the Trustee to execute all documents
that may be required to be filed with the Commission to enable such Indenture
to be so qualified in a timely manner.
(r) The Company may require each Holder of securities to be
sold pursuant to any Shelf Registration Statement to furnish to the Company
such information regarding the Holder and the distribution of such securities
as the Company may from time to time reasonably require for inclusion in such
Registration Statement, and the Company may exclude from such registration the
Senior Notes of any Holder that fails to furnish such information within a
reasonable time after receiving such request.
(s) The Company shall provide promptly to each Holder upon
request each document which has been filed with the Commission pursuant to the
requirements of Section 13 and Section 15 of the Exchange Act.
(t) The Company shall, if requested, promptly incorporate in
any Registration Statement or Prospectus, pursuant to a Prospectus supplement
or post-effective amendment, if necessary, such information as the Managing
Underwriters and Majority Holders agree should be included therein and to which
the Company does not unreasonably object and shall make all required filings of
such Prospectus supplement or post-effective amendment as soon as notified of
the matters to be incorporated in such Prospectus supplement or post-effective
amendment.
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<PAGE> 17
(u) In the case of any Shelf Registration Statement, the
Company shall enter into such customary agreements (including underwriting
agreements) and take all other appropriate actions in order to expedite or
facilitate the registration or the disposition of the Senior Notes, and in
connection therewith, if an underwriting agreement is entered into, cause the
same to contain indemnification provisions and procedures no less favorable
than those set forth in Section 8 (or such other provisions and procedures
reasonably acceptable to the Company, the Majority Holders and the Managing
Underwriters, if any) with respect to all parties to be indemnified pursuant to
Section 8 hereof from Holders of Senior Notes to the Company.
(v) In the case of any Shelf Registration Statement, the
Company shall (i) make reasonably available for inspection by the Holders of
securities to be registered thereunder, any Underwriter participating in any
disposition pursuant to such Registration Statement, and any attorney,
accountant or other agent retained by the Holders or any such Underwriter all
relevant financial and other records, pertinent corporate documents and
properties of the Company and its subsidiaries; (ii) cause the Company's
officers, directors and employees to supply all relevant information reasonably
requested by the Holders or any such Underwriter, attorney, accountant or agent
in connection with any such Registration Statement prior to its effectiveness
as is customary for similar due diligence examinations; provided, however, that
any information that is designated in writing by the Company, in good faith, as
confidential at the time of delivery of such information shall be kept
confidential by the Holders or any such Underwriter, attorney, accountant or
other agent, unless such disclosure is made in connection with a court
proceeding or required by law, or such information becomes available to the
public generally or through a third party without an accompanying obligation of
confidentiality; (iii) make such representations and warranties to the Holders
of securities registered thereunder and the Underwriters, if any, in form,
substance and scope as are customarily made by issuers to Underwriters in
primary underwritten offerings and covering matters including, but not limited
to, those set forth in the Purchase Agreement; (iv) obtain opinions of counsel
to the Company and updates thereof (which counsel and opinions (in form, scope
and substance) shall be reasonably satisfactory to the Managing Underwriters,
if any) addressed to each selling Holder and the Underwriters, if any, covering
such matters as are customarily covered in opinions requested in underwritten
offerings and such other matters as may be reasonably requested by such Holders
and Underwriters; (v) obtain "cold comfort" letters and updates thereof from
the independent certified public accountants of the Company (and, if necessary,
any other independent certified public accountants of any subsidiary of the
Company or of any business acquired by the Company for which financial
statements and financial data are, or are required to
17
<PAGE> 18
be, included in the Registration Statement), addressed to each selling Holder of
securities registered thereunder and the Underwriters, if any, in customary form
and covering matters of the type customarily covered in "cold comfort" letters
in connection with primary underwritten offerings; and (vi) deliver such
documents and certificates as may be reasonably requested by the Majority
Holders and the Managing Underwriters, if any, including those to evidence
compliance with Section 5(n) and with any customary conditions contained in the
underwriting agreement or other agreement entered into by the Company. The
foregoing actions set forth in clauses (iii), (iv), (v) and (vi) of this Section
5(v) shall be performed at (A) the effective date of such Registration Statement
and each post-effective amendment thereto and (B) each closing under any
underwriting or similar agreement as and to the extent required thereunder.
6. Restriction on Holders. Each Holder agrees by acquisition
of a Transfer Restricted Security that, upon receipt of any notice from the
Company of the existence of any fact of the kind described in paragraph
5(e)(2)(iii) hereof, such Holder will forthwith discontinue disposition of
Transfer Restricted Securities pursuant to the applicable Registration
Statement until such Holder's receipt of the copies of the supplemented or
amended Prospectus contemplated by paragraph 5(n) hereof, or until it is
advised in writing (the "Advice") by the Company that the use of the Prospectus
may be resumed, and has received copies of any additional or supplemental
filings that are incorporated by reference in the Prospectus. If so directed by
the Company, each Holder will deliver to the Company (at the Company's expense)
all copies, other than permanent file copies then in such Holder's possession,
of the Prospectus covering such Transfer Restricted Securities that was current
at the time of receipt of such notice. In the event the Company shall give any
such notice, the time period regarding the effectiveness of such Registration
Statement set forth in Section 2 or 3 hereof, as applicable, shall be extended
by the number of days during the period from and including the date of the
giving of such notice pursuant to paragraph 5(c)(2)(iii) hereof to and
including the date when each selling Holder covered by such Registration
Statement shall have received the copies of the supplemented or amended
Prospectus contemplated by paragraph 5(n) hereof or shall have received the
Advice.
7. Registration Expenses. The Company shall pay all
Registration Expenses in connection with the registration pursuant to Section 2
or Section 3. Each Holder shall pay all underwriting discounts and commissions
and transfer taxes, if any, relating to the sale or disposition of such
Holder's Senior Notes pursuant to the Shelf Registration Statement.
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<PAGE> 19
8. Indemnification and Contribution. (a) In connection with
any Registration Statement, the Company agrees to indemnify and hold harmless
each Holder of securities covered thereby (including each Initial Purchaser
and, with respect to any Prospectus delivery as contemplated in Section 5(j)
hereof, each Exchanging Dealer), the directors, officers, employees and agents
of each such Holder and each person who controls any such Holder within the
meaning of either the Act or the Exchange Act against any and all losses,
claims, damages or liabilities, joint or several, to which they or any of them
may become subject under the Act, the Exchange Act or other Federal or state
statutory law or regulation, at common law or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise
out of or are based upon any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement as originally filed or in
any amendment thereof, or in any preliminary Prospectus or Prospectus, or in
any amendment thereof or supplement thereto, or arise out of or are based upon
the omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
and agrees to reimburse each such indemnified party, as incurred, for any legal
or other expenses reasonably incurred by them in connection with investigating
or defending any such loss, claim, damage, liability or action; provided,
however, that the Company will not be liable in any case to the extent that any
such loss, claim, damage or liability arises out of or is based upon any such
untrue statement or alleged untrue statement or omission or alleged omission
made therein in reliance upon and in conformity with written information
furnished to the Company by or on behalf of any such Holder specifically for
inclusion therein; provided further, that with respect to any untrue statement
or omission of material fact made in the Registration Statement, any amendment
thereto or the preliminary Prospectus, the indemnity agreement contained in
this Section 8(a) shall not inure to the benefit of any Holder from whom the
person asserting any such loss, claim, damage or liability purchased the
securities concerned, to the extent that any such loss, claim, damage or
liability of such Holder occurs under the circumstance where it shall have been
determined by a court of competent jurisdiction by final and nonappealable
judgment that (w) the Company had previously furnished copies of the
preliminary Prospectus to the Holder, (x) delivery of the Prospectus was
required to be made to such person, (y) the untrue statement or omission of a
material fact contained in the preliminary Prospectus was corrected in the
Prospectus and (z) there was not sent or given to such person, at or prior to
the written confirmation of the sale of such securities to such person, a copy
of the Prospectus unless such failure resulted solely from non-compliance by
the Company with any of its obligations under Section 5 of this Agreement. This
indemnity
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<PAGE> 20
agreement will be in addition to any liability which the Company may otherwise
have.
The Company also agrees to indemnify or contribute to Losses of, as
provided in Section 8(d), any underwriters of Senior Notes registered under a
Shelf Registration Statement, their officers and directors and each person who
controls such underwriters on substantially the same basis as that of the
indemnification of the Initial Purchaser and the selling Holders provided in
this Section 8(a) and shall, if requested by any Holder, enter into an
underwriting agreement reflecting such agreement, as provided in Section 5(u)
hereof.
(b) Each Holder of securities covered by a Registration
Statement (including each Initial Purchaser and, with respect to any Prospectus
delivery as contemplated in Section 5(j) hereof, each Exchanging Dealer)
severally and not jointly agrees to indemnify and hold harmless (i) the
Company, (ii) each of its directors, (iii) each of its officers who signs such
Registration Statement, and (iv) each person who controls the Company within
the meaning of either the Act or the Exchange Act to the same extent as the
foregoing indemnity from the Company to each such Holder, but only with
reference to written information relating to such Holder furnished to the
Company by or on behalf of such Holder specifically for inclusion in the
documents referred to in the foregoing indemnity. In no event shall any Holder,
its directors, officers or any Person who controls such Holder be liable or
responsible for any amount in excess of the amount by which the total amount
received by such Holder with respect to its sale of Transfer Restricted
Securities pursuant to a Registration Statement exceeds the amount of any
damages that such Holder, its directors, officers or any Person who controls
such Holder has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. This indemnity
agreement will be in addition to any liability which any such Holder may
otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section 8 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under this Section 8, notify the indemnifying party in writing of the
commencement thereof; but the failure so to notify the indemnifying party (i)
will not relieve it from liability under paragraph (a) or (b) above unless and
to the extent it did not otherwise learn of such action and such failure results
in the forfeiture by the indemnifying party of substantial rights and defenses
and (ii) will not, in any event, relieve the indemnifying party from any
obligations to any indemnified party other than the indemnification
20
<PAGE> 21
obligation provided in paragraph (a) or (b) above. The indemnifying party shall
be entitled to appoint as counsel one firm of attorneys of the indemnifying
party's choice at the indemnifying party's expense to represent the indemnified
party (together with one local counsel in each jurisdiction) in any action for
which indemnification is sought (in which case the indemnifying party shall not
thereafter be responsible for the fees and expenses of any separate counsel
retained by the indemnified party or parties except as set forth below);
provided, however, that such counsel shall be reasonably satisfactory to the
indemnified party. Notwithstanding the indemnifying party's election to appoint
counsel to represent the indemnified party in an action, the indemnified party
shall have the right to employ separate counsel (including local counsel), and
the indemnifying party shall bear the reasonable fees, costs and expenses of
such separate counsel (and local counsel) if (i) the use of counsel chosen by
the indemnifying party to represent the indemnified party would present such
counsel with a conflict of interest, (ii) the actual or potential defendants
in, or targets of, any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be legal defenses available to it and/or other indemnified
parties which are different from or additional to those available to the
indemnifying party, (iii) the indemnifying party shall not have employed
counsel reasonably satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after notice of the institution of
such action, or (iv) the indemnifying party shall authorize the indemnified
party to employ separate counsel at the expense of the indemnifying party, it
being understood that the indemnifying party shall not be liable for more than
one separate firm (in addition to one local counsel in each jurisdiction) for
all indemnified parties in each jurisdiction in which any claim or action
arising out of the same general allegations or circumstances is brought. An
indemnifying party will not, without the prior written consent of the
indemnified parties, settle or compromise or consent to the entry of any
judgment with respect to any pending or threatened claim, action, suit or
proceeding in respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified parties are actual or potential
parties to such claim or action) unless such settlement, compromise or consent
includes an unconditional release of each indemnified party from all liability
arising out of such claim, action, suit or proceeding. An indemnifying party
will not, without its prior written consent, be liable for any settlement or
compromise or consent to the entry of any judgment, but if settled with its
written consent, the indemnifying party agrees to indemnify and hold harmless
any indemnified party from and against any loss or liability by reason of such
settlement.
21
<PAGE> 22
(d) In the event that the indemnity provided in paragraph (a)
or (b) of this Section 8 is unavailable to or insufficient to hold harmless an
indemnified party for any reason, then each applicable indemnifying party, in
lieu of indemnifying such indemnified party, shall have a joint and several
obligation to contribute to the aggregate losses, claims, damages and
liabilities (including legal or other expenses incurred in connection with
investigating or defending same) (collectively "Losses") to which such
indemnified party may be subject in such proportion as is appropriate to
reflect the relative benefits received by such indemnifying party, on the one
hand, and such indemnified party, on the other hand, from the Initial Placement
and the Registration Statement which resulted in such Losses; provided,
however, that in no case shall any Initial Purchaser or any subsequent Holder
of any Senior Note or Exchange Note be responsible, in the aggregate, for any
amount in excess of the purchase discount or commission applicable to such
Senior Note, or in the case of an Exchange Note, applicable to the Senior Note
which was exchangeable into such Exchange Note, as set forth on the cover page
of the Final Offering Memorandum, nor shall any under writer be responsible for
any amount in excess of the underwriting discount or commission applicable to
the Senior Notes purchased by such underwriter under the Registration Statement
which resulted in such Losses. If the allocation provided by the immediately
preceding sentence is unavailable for any reason, the indemnifying party and
the indemnified party shall contribute in such proportion as is appropriate to
reflect not only such relative benefits but also the relative fault of such
indemnifying party, on the one hand, and such indemnified party, on the other
hand, in connection with the statements or omissions which resulted in such
Losses as well as any other relevant equitable considerations. Benefits
received by the Company shall be deemed to be equal to the total net proceeds
from the Initial Placement (before deducting expenses) as set forth on the
cover page of the Final Offering Memorandum. Benefits received by the Initial
Purchasers shall be deemed to be equal to the total purchase discounts and
commissions as set forth on the cover page of the Final Offering Memorandum,
and benefits received by any other Holders shall be deemed to be equal to the
value of receiving Senior Notes or Exchange Notes, as applicable, registered
under the Act. Benefits received by any underwriter shall be deemed to be equal
to the total underwriting discounts and commissions, as set forth on the cover
page of the Prospectus forming a part of the Registration Statement which
resulted in such Losses. Relative fault shall be determined by reference to
whether any alleged untrue statement or omission relates to information
provided by the indemnifying party, on the one hand, or by the indemnified
party, on the other hand, the intent of the parties and their relative
knowledge and access to information and opportunity to correct or prevent such
statement or omission. The parties agree that it would not be just and
equitable if contribution were determined by pro rata
22
<PAGE> 23
allocation or any other method of allocation which does not take account of the
equitable considerations referred to above. Notwithstanding the provisions of
this paragraph (d), no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation and no Holder,
nor its directors, its officers or any Person, if any, who controls such Holder
shall be required to contribute, in the aggregate, any amount in excess of the
amount by which the total received by such Holder with respect to the sale of
Transfer Restricted Securities pursuant to a Registration Statement exceeds the
amount of any damages which such Holder has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. For purposes of this Section 8, each person who controls a Holder
within the meaning of either the Act or the Exchange Act and each director,
officer, employee and agent of such Holder shall have the same rights to
contribution as such Holder, and each person who controls the Company within the
meaning of either the Act or the Exchange Act, each officer of the Company who
shall have signed the Registration Statement and each director of the Company
shall have the same rights to contribution as the Company, subject in each case
to the applicable terms and conditions of this paragraph (d).
(e) The provisions of this Section 8 will remain in full force
and effect, regardless of any investigation made by or on behalf of any Holder
or the Company or any of the officers, directors or controlling persons
referred to in Section 8 hereof, and will survive the sale by a Holder of
securities covered by a Registration Statement.
9. Rules 144 and 144A
The Company agrees with each Holder, for so long as any
Transfer Restricted Securities remain outstanding and during any period in which
the Company (i) is not subject to Section 13 or 15(d) of the Exchange Act, to
make available, upon request of any Holder, to such Holder or beneficial owner
of Transfer Restricted Securities in connection with any sale thereof and any
prospective purchaser of such Transfer Restricted Securities designated by such
Holder or beneficial owner, the information required by Rule 144A(d)(4) under
the Act in order to permit resales of such Transfer Restricted Securities
pursuant to Rule 144A, and (ii) is subject to Section 13 or 15(d) of the
Exchange Act, to make all filings required thereby in a timely manner in order
to permit resales of such Transfer Restricted Securities pursuant to Rule 144.
23
<PAGE> 24
10. Underwritten Offerings
The Holders of Transfer Restricted Securities covered by
the Shelf Registration Statement who desire to do so may sell such Transfer
Restricted Securities in an Underwritten Offering. In any such Underwritten
Offering, the investment banker(s) and manager(s) that will administer the
offering will be selected by the Holders of a majority in aggregate principal
amount of the Transfer Restricted Securities included in such offering;
provided, that such investment bankers and managers must be reasonably
satisfactory to the Company.
No Holder may participate in any Underwritten Offering
hereunder unless such Holder (a) agrees to sell such Holder's Transfer
Restricted Securities on the basis provided in any underwriting arrangements
approved by the persons entitled hereunder to approve such arrangements and (b)
completes and executes all reasonable questionnaires, powers of attorney,
indemnities, underwriting agreements, lock-up letters and other documents
required under the terms of such underwriting arrangements.
11. Miscellaneous.
(a) Remedies. The Company acknowledges and agrees that any
failure by the Company to comply with their respective obligations under
Sections 2 and 3 hereof may result in material, irreparable injury to the
Initial Purchasers or the Holders for which there is no adequate remedy at law,
that it will not be possible to measure damages for such injuries precisely and
that, in the event of any such failure, the Initial Purchasers or any Holder
may obtain such relief as may be required to specifically enforce the Company's
obligations under Sections 2 and 3 hereof. The Company further agrees to waive
the defense in any action for specific performance that a remedy in law would
be adequate.
(b) No Inconsistent Agreements. The Company has not, as of the
date hereof, entered into, nor shall it, on or after the date hereof, enter
into, any agreement with respect to its securities that is inconsistent with
the rights granted to the Holders herein or otherwise conflicts with the
provisions hereof.
(c) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, qualified,
modified or supplemented, and waivers or consents to departures from the
provisions hereof may not be given, unless the Company has obtained the written
consent of the Holders of
24
<PAGE> 25
at least a majority of the then outstanding aggregate principal amount of Senior
Notes (or, after the consummation of any Exchange Offer in accordance with
Section 2 hereof, of Exchange Notes); provided that, with respect to any matter
that directly or indirectly affects the rights of any Initial Purchaser
hereunder, the Company shall obtain the written consent of each such Initial
Purchaser against which such amendment, qualification, supplement, waiver or
consent is to be effective. Notwithstanding the foregoing (except the foregoing
proviso), a waiver or consent to departure from the provisions hereof with
respect to a matter that relates exclusively to the rights of Holders whose
securities are being sold pursuant to a Registration Statement and that does not
directly or indirectly affect the rights of other Holders may be given by the
Majority Holders, determined on the basis of securities being sold rather than
registered under such Registration Statement.
(d) Notices. All notices and other communications provided for
or permitted hereunder shall be made in writing by hand-delivery, first-class
mail (registered or certified, return receipt requested), telex, telecopier or
air courier guaranteeing overnight delivery:
(i) if to a Holder, at the most current address given by
such holder to the Company in accordance with the provisions of
this Section 11(d), which address initially is, with respect to
each Holder, the address of such Holder maintained by the
Registrar under the Indenture, with a copy in like manner to
Merrill Lynch, Pierce, Fenner & Smith Incorporated;
(ii) if to any of the Initial Purchasers at the address
of the Representative set forth on Page 1 of this Agreement; and
(iii) if to the Company, initially at its address set
forth in the Purchase Agreement.
All such notices and communications shall be deemed to have been
duly given when received. The Initial Purchasers or the Company by notice to the
other may designate additional or different addresses for subsequent notices or
communications.
(e) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties, including, without the need for an express assignment or any consent
by the Company
25
<PAGE> 26
thereto, subsequent Holders of Senior Notes and/or Exchange Notes. The Company
hereby agrees to extend the benefits of this Agreement to any Holder of Senior
Notes and/or Exchange Notes and any such Holder may specifically enforce the
provisions of this Agreement as if an original party hereto.
(f) Counterparts. This Agreement may be executed in any number
of counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(g) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(h) Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York.
(i) Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstances,
is held invalid, illegal or unenforceable in any respect for any reason, the
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions hereof shall not be in any way impaired
or affected thereby, it being intended that all of the rights and privileges of
the parties shall be enforceable to the fullest extent permitted by law.
(j) Securities Held by the Company, etc. Whenever the consent
or approval of Holders of a specified percentage of principal amount of Senior
Notes or Exchange Notes is required hereunder, Senior Notes or Exchange Notes,
as applicable, held by the Company or its Affiliates (other than subsequent
Holders of Senior Notes or Exchange Notes if such subsequent Holders are deemed
to be Affiliates solely by reason of their holdings of such Senior Notes or
Exchange Notes) shall not be counted in determining whether such consent or
approval was given by the Holders of such required percentage.
26
<PAGE> 27
Please confirm that the foregoing correctly sets forth the
agreement between the Company and you.
AFLAC INCORPORATED
By: /s/ GARY L. STEGMAN
------------------------------
Name: Gary L. Stegman
Title: Senior Vice President and
Assistant Chief Financial Officer
The foregoing Agreement is
hereby accepted as of the
date first above written.
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
DONALDSON, LUFKIN & JENRETTE
FIRST UNION CAPITAL MARKETS CORP.
NATIONSBANC MONTGOMERY SECURITIES LLC
SALOMON SMITH BARNEY INC.
By: MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED,
AS REPRESENTATIVE
By: /s/ RICHARD BONAVENTURA
--------------------------------
Name: Richard Bonaventura
Title: Managing Director
<PAGE> 28
ANNEX A
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of Exchange Notes received in exchange for Senior Notes where such
Exchange Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. The Company has agreed that, starting on
the Expiration Date (as defined herein) and ending on the close of business on
the 90th day following the Expiration Date, it will make this Prospectus
available to any broker-dealer for use in connection with any such resale. See
"Plan of Distribution."
<PAGE> 29
ANNEX B
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Senior Notes, where such Senior Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. See "Plan of Distribution."
<PAGE> 30
ANNEX C
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. The
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Senior Notes where such Senior Notes were acquired as a result of
market-making activities or other trading activities. The Company has agreed
that, starting on the Expiration Date and ending on the close of business on the
90th day following the Expiration Date, it will make this Prospectus, as
amended or supplemented, available to any broker-dealer for use in connection
with any such resale. In addition, until ________, 199__, all dealers effecting
transactions in the Exchange Notes may be required to deliver a prospectus.(1)
The Company will not receive any proceeds from any sale of Exchange
Notes by broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
may be made directly to purchasers or to or through brokers or dealers who may
receive compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such Exchange Notes. Any
broker-dealer that resells Exchange Notes that were received by it for its own
account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
"under writer" within the meaning of the Securities Act and any profit of any
such resale of Exchange Notes and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under the Securities
Act. The Letter of Transmittal states that by acknowledging that it will deliver
and by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act.
- -------------------
(1) In addition, the legend required by Item 502(e) of Regulation S-K
will appear on the back cover page of the Exchange Offer prospectus.
<PAGE> 31
For a period of 90 days after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay all expenses
incident to the Exchange Offer (including the expenses of one counsel for the
holders of the Senior Notes) other than commissions or concessions of any
brokers or dealers and will indemnify the holders of the Senior Notes (including
any broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
[If applicable, add information required by Regulation S-K Items 507
and/or 508.]
2
<PAGE> 32
ANNEX D
Rider A
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO
RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10
COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO.
Name:
---------------------------------------------
Address:
------------------------------------------
--------------------------------------------------
Rider B
If the undersigned is not a broker-dealer, the undersigned represents
that it is not engaged in, and does not intend to engage in, a distribution of
Exchange Notes. If the undersigned is a broker-dealer that will receive Exchange
Notes for its own account in exchange for Senior Notes that were acquired as a
result of market-making activities or other trading activities, it acknowledges
that it will deliver a prospectus in connection with any resale of such Exchange
Notes; provided, however, by so acknowledging and by delivering a prospectus,
the undersigned will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act.
<PAGE> 1
EXHIBIT 4.2
AFLAC Incorporated,
as Issuer
and
The Bank of New York,
as Trustee
------------------
INDENTURE
Dated as of April 21, 1999
$450,000,000
6 1/2% Senior Notes
due 2009
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
ARTICLE I
<S> <C>
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION...............................1
SECTION 1.1. Definitions.........................................................1
SECTION 1.2. Other Definitions..................................................16
SECTION 1.3. Incorporation by Reference of Trust Indenture Act..................17
SECTION 1.4. Compliance Certificates and Opinions...............................17
SECTION 1.5. Form of Documents Delivered to Trustee.............................18
SECTION 1.6. Acts of Holders....................................................18
SECTION 1.7. Notices, Etc., to Trustee and the Issuer...........................20
SECTION 1.8. Notice to Holders; Waiver..........................................20
SECTION 1.9. Conflict of any Provision of Indenture with Trust
Indenture Act....................................................21
SECTION 1.10. Effect of Headings and Table of Contents..........................21
SECTION 1.11. Successors and Assigns............................................21
SECTION 1.12. Severability Clause...............................................21
SECTION 1.13. Benefits of Indenture.............................................21
SECTION 1.14. Governing Law.....................................................21
SECTION 1.15. Legal Holidays....................................................22
SECTION 1.16. No Recourse Against Others........................................22
SECTION 1.17. Submission of Jurisdiction. .....................................22
SECTION 1.18. Currency Indemnity................................................22
ARTICLE II
THE SENIOR NOTES.....................................................................23
SECTION 2.1. Form and Dating....................................................23
SECTION 2.2. Denominations......................................................29
SECTION 2.3. Execution and Authentication.......................................29
SECTION 2.4. Registrar and Paying Agent.........................................30
SECTION 2.5. Paying Agent to Hold Money in Trust................................31
SECTION 2.6. Senior Note Holder Lists...........................................33
SECTION 2.7. Transfer and Exchange..............................................33
SECTION 2.8. Replacement Senior Notes...........................................35
SECTION 2.9. Outstanding Senior Notes...........................................35
SECTION 2.10. Temporary Senior Notes............................................36
SECTION 2.11. Cancellation......................................................36
SECTION 2.12. Defaulted Interest................................................36
SECTION 2.13. Special Transfer Provisions.......................................37
SECTION 2.14. CUSIP and ISIN Numbers............................................40
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
ARTICLE III
<S> <C>
SATISFACTION AND DISCHARGE...........................................................40
SECTION 3.1. Satisfaction and Discharge of Indenture.............................40
SECTION 3.2. Application of Trust Money..........................................42
ARTICLE IV
DEFAULTS AND REMEDIES................................................................42
SECTION 4.1. Events of Default...................................................42
SECTION 4.2. Acceleration of Maturity; Rescission................................44
SECTION 4.3. Collection of Indebtedness and Suits for
Enforcement by Trustee.............................................
SECTION 4.4. Trustee May File Proofs of Claim....................................46
SECTION 4.5. Trustee May Enforce Claims Without Possession
of Senior Notes...................................................47
SECTION 4.6. Application of Money Collected......................................47
SECTION 4.7. Limitation on Suits.................................................48
SECTION 4.8. Unconditional Right of Holders to Receive Principal,
Premium and Interest...............................................
SECTION 4.9. Restoration of Rights and Remedies..................................49
SECTION 4.10. Rights and Remedies Cumulative......................................49
SECTION 4.11. Delay or Omission Not Waiver........................................49
SECTION 4.12. Control by Holders..................................................49
SECTION 4.13. Waiver of Defaults..................................................50
SECTION 4.14. Undertaking for Costs...............................................50
ARTICLE V
THE TRUSTEE..........................................................................51
SECTION 5.1. Notice of Events of Default.........................................51
SECTION 5.2. Certain Rights of Trustee...........................................51
SECTION 5.3. Not Responsible for Recitals or Issuance of Senior Notes............54
SECTION 5.4. Trustee and Agents May Hold Senior Notes;
Collections; Etc..................................................54
SECTION 5.5. Money Held in Trust.................................................54
SECTION 5.6. Compensation and Reimbursement......................................54
SECTION 5.7. Conflicting Interests...............................................55
SECTION 5.8. Corporate Trustee Required; Eligibility.............................55
SECTION 5.9. Resignation and Removal; Appointment of Successor...................56
SECTION 5.10. Acceptance of Appointment of Successor..............................58
SECTION 5.11. Merger, Conversion, Consolidation or
Succession to Business............................................58
SECTION 5.12. Preferential Collection of Claims Against the Issuer................59
SECTION 5.13. Trustee's Application for Instructions from the Company.............59
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
ARTICLE VI
<S> <C>
HOLDERS' LISTS AND REPORTS BY TRUSTEE................................................59
SECTION 6.1. Disclosure of Names and Addresses of Holders........................59
SECTION 6.2. Reports by Trustee..................................................59
ARTICLE VII
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE.................................60
SECTION 7.1. Issuer May Consolidate, Etc., Only on Certain Terms.................60
SECTION 7.2. Successor Substituted...............................................61
ARTICLE VIII
SUPPLEMENTAL INDENTURES..............................................................61
SECTION 8.1. Supplemental Indentures Without Consent of Holders..................61
SECTION 8.2. Supplemental Indentures with Consent of Holders.....................62
SECTION 8.3. Execution of Supplemental Indentures................................63
SECTION 8.4. Effect of Supplemental Indentures...................................63
SECTION 8.5. Conformity with Trust Indenture Act.................................63
SECTION 8.6. Reference in Senior Notes to Supplemental Indentures................63
ARTICLE IX
COVENANTS............................................................................64
SECTION 9.1. Payment of Principal, Premium and Interest..........................64
SECTION 9.2. Corporate Existence.................................................64
SECTION 9.3. Payment of Taxes and Other Claims...................................65
SECTION 9.4. Maintenance of Properties; Insurance; Books and
Records; Compliance with Law......................................65
SECTION 9.5. Liens...............................................................66
SECTION 9.6. Statement as to Compliance; Notice of Default;
Provision of Financial Statements.................................66
SECTION 9.7. Waiver of Stay; Extension of Usury Law..............................67
SECTION 9.8. Waiver of Certain Covenants.........................................67
ARTICLE X
REDEMPTION OF SENIOR NOTES...........................................................68
SECTION 10.1. Right of Redemption................................................68
SECTION 10.2. Applicability of Article. .........................................68
SECTION 10.3. Election to Redeem; Notice to Trustee..............................68
SECTION 10.4. Selection by Trustee of Senior Notes to Be Redeemed................68
SECTION 10.5. Notice of Redemption...............................................69
SECTION 10.6. Deposit of Redemption Price........................................70
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C>
SECTION 10.7. Senior Notes Payable on Redemption Date............................70
SECTION 10.8. Senior Notes Redeemed in Part......................................71
SECTION 10.9. Optional Redemption................................................71
ARTICLE XI
DEFEASANCE AND COVENANT DEFEASANCE...................................................72
SECTION 11.1. Option to Effect Defeasance or Covenant Defeasance.................72
SECTION 11.2. Defeasance and Discharge...........................................72
SECTION 11.3. Covenant Defeasance................................................72
SECTION 11.4. Conditions to Defeasance or Covenant Defeasance....................73
SECTION 11.5. Deposited Money and U.S. Government Obligations to
Be Held in Trust; Other Miscellaneous Provisions.................75
SECTION 11.6. Reinstatement......................................................75
</TABLE>
EXHIBITS
Exhibit A Form of U.S. Global Senior Note
Exhibit B Form of Reg S Global Senior Note
Exhibit C Form of Certificated Senior Note
Exhibit D Form of Institutional Accredited Investor Transfer Certificate
Exhibit E Form of Regulation S Transfer Certificate
iv
<PAGE> 6
INDENTURE, dated as of April 21, 1999, between AFLAC Incorporated, a
Georgia corporation (hereinafter called the "ISSUER"), and The Bank of New York,
a New York banking corporation, as trustee (hereinafter called the "TRUSTEE").
RECITALS
WHEREAS, the Issuer has duly authorized the issue of its 6 1/2% Senior
Notes due 2009 in an aggregate principal amount not to exceed $450,000,000, and
to provide the terms and conditions upon which the Senior Notes (as defined
herein) are to be authenticated, issued and delivered; and the Issuer has duly
authorized the execution and delivery of this Indenture;
WHEREAS, upon issuance of the Exchange Notes (as defined herein), if any,
or upon the effectiveness of the Shelf Registration Statement (as defined
herein) filed with respect to the Senior Notes, this Indenture will be subject
to, and shall be governed by, the provisions of the Trust Indenture Act (as
defined herein) that are required to be part of and govern indentures qualified
under the Trust Indenture Act; and
WHEREAS, all acts and things necessary have been done to make the Senior
Notes, when executed by the Issuer and authenticated and delivered hereunder and
duly issued by the Issuer, the valid, binding and legal obligations of the
Issuer, and to make this Indenture a valid agreement of the Issuer in accordance
with its terms;
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the Senior
Notes by the Holders (as defined herein) thereof, it is mutually covenanted and
agreed, for the equal and proportionate benefit of all Holders, as follows:
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 1.1 For all purposes of this Indenture, except as otherwise
expressly provided or unless the context otherwise requires:
<PAGE> 7
(a) the terms defined in this Article I have the meanings assigned to them
in this Article I and include the plural as well as the singular;
(b) all other terms used herein which are defined in the Trust Indenture
Act, either directly or by reference therein, have the meanings assigned to them
therein;
(c) all accounting terms not otherwise defined herein have the meanings
assigned to them in accordance with GAAP;
(d) the words "HEREIN," "HEREOF" and "HEREUNDER" and other words of similar
import refer to this Indenture as a whole and not to any particular Article,
Section or other subdivision;
(e) all references to "$" or "DOLLARS" shall refer to the lawful currency
of the United States of America;
(f) the words "INCLUDE," "INCLUDED" and "INCLUDING" as used herein shall be
deemed in each case to be followed by the phrase "WITHOUT LIMITATION", if not
expressly followed by such phrase or the phrase "BUT NOT LIMITED TO"; and
(g) any reference to a Section or Article refers to such Section or Article
of this Indenture unless otherwise indicated.
Certain terms used principally in Articles II, IX, and XI are defined in
those Articles.
"ADDITIONAL INTEREST" means, as of any date of determination, all
additional interest then owing pursuant to the Registration Rights Agreement.
"ADJUSTED TREASURY RATE" means, with respect to any Redemption Date, the
rate per annum equal to the semi-annual equivalent yield to maturity of the
Comparable Treasury Issue, calculated using a price for the Comparable Treasury
Issue (expressed as a percentage of its principal amount) equal to the
Comparable Treasury Price for such Redemption Date, calculated on the third
Business Day preceding the Redemption Date, plus in each case 25 basis points.
"AFFILIATE" means, with respect to any specified Person, any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common
2
<PAGE> 8
control with such specified Person (except in cases where substantially all of
the control that would ordinarily be exercisable by virtue of ownership of
stock, other than the election of directors, has been eliminated by applicable
regulatory authorities). For the purposes of this definition, "CONTROL" when
used with respect to any specified Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of Voting Stock, by contract or otherwise; and the terms
"CONTROLLING" and "CONTROLLED" have meanings correlative to the foregoing.
"BOARD OF DIRECTORS" means the board of directors of the Issuer or any duly
authorized committee of such board.
"BOARD RESOLUTION" means a copy of a resolution certified by the Secretary
or an Assistant Secretary of the Issuer to have been duly adopted by the Board
of Directors and to be in full force and effect on the date of such
certification and delivered to the Trustee.
"BUSINESS DAY" means each Monday, Tuesday, Wednesday, Thursday and Friday
that is not a day on which banking institutions in the City of New York are
authorized or obligated by law, regulation or executive order to close.
"CAPITAL LEASE OBLIGATION" means, as to any Person, any obligation of such
Person and its subsidiaries on a consolidated basis under any capital lease of
real or personal property which, in accordance with GAAP, has been recorded as a
capitalized lease obligation.
"CAPITAL STOCK" of any Person means any and all shares, interests,
participation or other equivalent (however designated) of such Person's capital
stock and any rights (other than debt securities convertible into or
exchangeable for capital stock), warrants or options to purchase the foregoing
whether now outstanding or issued after the date hereof.
"CEDEL" means Cedel Bank, societe anonyme.
"CERTIFICATED SENIOR NOTE" means any Senior Note substantially in the form
of Exhibit C to this Indenture issued in accordance with this Indenture.
"COMMISSION" means the Securities and Exchange Commission, as from time to
time constituted, created under the Exchange Act; or if at any time after the
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<PAGE> 9
execution of this Indenture such Commission is not existing and performing the
duties now assigned to it under the Trust Indenture Act, then the body
performing such duties at such time.
"COMPARABLE TREASURY ISSUE" means the United States Treasury security
selected by the Quotation Agent as having a maturity comparable to the remaining
term from the Redemption Date to the Stated Maturity of the Senior Notes that
would be utilized, at the time of selection and in accordance with customary
financial practice, in pricing new issues of corporate debt securities of
comparable maturity to the remaining term of the Senior Notes.
"COMPARABLE TREASURY PRICE" means, with respect to any Redemption Date, (i)
the average of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) on the third
Business Day preceding such Redemption Date, as set forth in the daily
statistical release (or any successor release) published by the Federal Reserve
Bank of New York and designated "COMPOSITE 3:30 P.M. QUOTATIONS FOR U.S.
GOVERNMENT SECURITIES" or (ii) if such release (or any successor release) is not
published or does not contain such prices on such Business Day, (A) the average
of the Reference Treasury Dealer Quotations for such Redemption Date, after
excluding the highest and lowest such Reference Treasury Dealer Quotations, or
(B) if the Quotation Agent obtains fewer than three such Reference Treasury
Dealer Quotations, the average of all such quotations.
"CONSOLIDATED NET WORTH" of any Person means the consolidated stockholders'
equity of such Person and its subsidiaries as determined in accordance with
GAAP.
"CORPORATE TRUST OFFICE" means the office of the Trustee at which at any
particular time its corporate trust business shall be principally administered,
which office at the date of execution of this Indenture is located at 101
Barclay Street, 21 West, New York, New York 10286, Attn: Corporate Trust
Administration.
"CORPORATION" includes corporations, associations, partnerships, companies
and business trusts.
"CURRENCY AGREEMENT" means any currency swap agreements, forward exchange
rate agreements, foreign currency futures or options, exchange rate collar
agreements, exchange rate insurance or other similar agreements or arrangements,
or
4
<PAGE> 10
combinations thereof, principally designed to protect a Person or any of its
subsidiaries against fluctuations in currency values. A Currency Agreement may
also include an Interest Swap Obligation.
"DEFAULT" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"DTC" means The Depository Trust Company, its nominees and their respective
successors.
"EUROCLEAR" means Morgan Guaranty Trust Company of New York, Brussels
Office, as operator of the Euroclear System.
"EVENT OF DEFAULT" has the meaning specified in Article IV.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXCHANGE NOTES" means an issue of senior notes of the Issuer with terms
identical to the Global Senior Notes (except that the Exchange Notes will not
bear the Private Placement Legend or any other legends restricting the transfer
thereof, will contain the alternative paragraph 1(b) appearing on the reverse of
the Global Senior Notes and except that interest thereon shall accrue from the
last date on which interest was paid on the Global Senior Notes or, if no such
interest has been paid, from the date of issuance of the Global Senior Notes) to
be exchanged for the Global Senior Notes and the Certificated Senior Notes
pursuant to the Exchange Offer.
"EXCHANGE OFFER" means the registered offer by the Issuer to exchange the
Global Senior Notes and the Certificated Senior Notes for the Exchange Notes
pursuant to the Registration Rights Agreement.
"EXCHANGE OFFER REGISTRATION STATEMENT" means the registration statement
relating to an Exchange Offer on an appropriate form and all amendments and
supplements to such registration statement, in each case including the
prospectus contained therein, all exhibits thereto and all material incorporated
by reference therein.
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<PAGE> 11
"EXCHANGE REGISTRATION" means a registration of the Exchange Notes by the
Issuer under the Securities Act pursuant to and in accordance with the terms of
the Registration Rights Agreement.
"FAIR MARKET VALUE" means, with respect to any asset or property, the sale
value that would be obtained in an arm's-length transaction between an informed
and willing seller under no compulsion to sell and an informed and willing buyer
under no compulsion to buy.
"FEDERAL BANKRUPTCY CODE" means the Bankruptcy Act of Title 11 of the
United States Code, as amended from time to time.
"GAAP" means generally accepted accounting principles in the United States,
set forth in the opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants ("AICPA") and
statements and pronouncements of the Financial Accounting Standards Board
("FASB") or in such other statements by such other entity as may be approved by
a significant segment of the accounting profession, consistently applied except
for accounting changes required by the AICPA, FASB or the Commission, as in
effect from time to time.
"GLOBAL SENIOR NOTES" means, collectively, the U.S. Global Senior Note and
the Reg S Global Senior Note substantially in the forms of Exhibit A and Exhibit
B to this Indenture.
"GUARANTEED DEBT" of any Person means, without duplication, all
Indebtedness of any other Person guaranteed directly or indirectly in any manner
by such Person, or in effect guaranteed directly or indirectly by such Person
through an agreement: (1) to pay or purchase such Indebtedness or to advance or
supply funds for the payment or purchase of such Indebtedness, (2) to purchase,
sell or lease (as lessee or lessor) property, or to purchase or sell services,
primarily for the purpose of enabling such other Person to make payment of such
Indebtedness or to assure the holder of such Indebtedness against loss, (3) to
supply funds to, or in any other manner invest in, such other Person (including
any agreement to pay for property or services to be acquired by such other
Person irrespective of whether such property is received or such services are
rendered), (4) to maintain working capital or equity capital of such other
Person, or otherwise to maintain the net worth, solvency or other financial
condition of the debtor, or (5) otherwise to assure a creditor of such other
Person against loss; provided that the term "GUARANTEE" shall not include
6
<PAGE> 12
endorsements for collection or deposit, in either case in the ordinary course of
business, or any obligation or liability of such other Person in respect of
leasehold interests assigned by such other Person to any other Person.
"HOLDER" means the Person in whose name a Senior Note is registered.
"INDEBTEDNESS" means, with respect to any Person, without duplication, (1)
all obligations of such Person for borrowed money or for the deferred purchase
price of property or services, excluding any trade payables and other accrued
current liabilities incurred in the ordinary course of business, if, and to the
extent, any of the foregoing would appear as a liability upon a balance sheet of
such Person prepared in accordance with GAAP, (2) all obligations of such Person
evidenced by bonds, notes, debentures or other similar instruments, if, and to
the extent, any of the foregoing would appear as a liability upon a balance
sheet of such Person prepared in accordance with GAAP, (3) all obligations
created or arising under any conditional sale or other title retention agreement
with respect to property acquired by such Person (even if the rights and
remedies of the seller or lender under such agreement in the event of default
are limited to repossession or sale of such property), but excluding trade
accounts payable arising in the ordinary course of business, (4) all Capital
Lease Obligations of such Person, (5) all obligations referred to in (but not
excluded from) clause (1), (2), (3) or (4) above of other Persons and all
dividends of other Persons, the payment of which is secured by (or for which the
holder of such obligations has an existing right, contingent or otherwise, to be
secured by) any Lien, upon or in property (including, without limitation,
accounts and contract rights) owned by such Person, even though such Person has
not assumed or become liable for the payment of such obligations, (6) all
Guaranteed Debt of such Person, (7) all Redeemable Capital Stock issued by such
Person valued at the greater of its voluntary or involuntary maximum fixed
repurchase price plus accrued and unpaid dividends, (8) all obligations under
Currency Agreements or Interest Swap Obligations of such Person, (9) all
obligations for the reimbursement of any obligor on any letter of credit,
banker's acceptance or similar credit transaction (other than obligations with
respect to letters of credit securing insurance obligations entered into in the
ordinary course of business of such Person to the extent that such letters of
credit are not drawn upon, or if and to the extent drawn upon, such drawing is
reimbursed not later than the 30th Business Day following a demand for
reimbursement following payment on the letter of credit), and (10) any
amendment, supplement, modification, deferral, renewal, extension or refunding
of any liability of the types referred to in clauses (1) through (9) above.
Indebtedness shall not include obligations under insurance, reinsurance or
retrocession contracts entered
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<PAGE> 13
into in the ordinary course of business. For purposes hereof, the "MAXIMUM FIXED
REPURCHASE PRICE" of any Redeemable Capital Stock which does not have a fixed
repurchase price shall be calculated in accordance with the terms of such
Redeemable Capital Stock as if such Redeemable Capital Stock were purchased on
any date on which Indebtedness shall be required to be determined pursuant to
this Indenture, and if such price is based upon, or measured by, the Fair Market
Value of such Redeemable Capital Stock, such Fair Market Value shall be
determined in good faith by the board of directors of the issuer of such
Redeemable Capital Stock.
"INDENTURE" means this instrument as originally executed (including all
exhibits and schedules hereto) and as it may from time to time be supplemented
or amended by one or more indentures supplemental hereto entered into pursuant
to the applicable provisions hereof.
"INSTITUTIONAL ACCREDITED INVESTOR" means an institutional "accredited
investor" as defined in Rule 501(a)(1), (2), (3) and (7) under the Securities
Act.
"INTEREST PAYMENT DATE" means the Stated Maturity of an installment of
interest on the Senior Notes.
"INTEREST SWAP OBLIGATIONS" means the obligations of any Person pursuant to
any interest rate swap agreement, interest rate cap agreement, interest rate
collar agreement or other similar agreement or arrangement principally designed
to protect such Person or any of its subsidiaries against fluctuations in
interest rates.
"ISSUE DATE" means the date on which Senior Notes are originally issued
under this Indenture.
"ISSUER" means the Person named as the "ISSUER" in the first paragraph of
this instrument, until a successor Person shall have become such pursuant to the
applicable provisions of this Indenture, and thereafter "ISSUER" shall mean such
successor Person. To the extent necessary to comply with the requirements of the
provisions of Sections 310 through 317 of the Trust Indenture Act as they are
applicable to the Issuer, the term "ISSUER" shall include any other obligor with
respect to the Senior Notes for the purposes of complying with such provisions.
"LIEN" means any mortgage, charge, pledge, security interest, lien or other
encumbrance of any kind.
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<PAGE> 14
"MAKE-WHOLE AMOUNT" means, in connection with any optional redemption of
any Senior Notes, the excess, if any, of (i) the sum, as determined by a
Quotation Agent of the present values of the principal amount of such Senior
Notes, together with scheduled payments of interest from the Redemption Date to
the Stated Maturity of the Senior Notes, in each case discounted to the
Redemption Date on a semi-annual basis (assuming a 360-day year consisting of
twelve 30-day months) at the Adjusted Treasury Rate, over (ii) 100% of the
principal amount of the Senior Notes to be redeemed.
"MATURITY" when used with respect to any Senior Note means the date on
which the principal of, and premium and Additional Interest, if any, and
interest on such Senior Note becomes due and payable as therein provided,
whether at Stated Maturity or Redemption Date and whether by declaration of
acceleration, call for redemption or otherwise.
"MERRILL LYNCH" means Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner &
Smith Incorporated.
"NON-U.S. PERSON" means a person who is not a "U.S. person" (as defined in
Regulation S).
"OFFICERS' CERTIFICATE" means a certificate signed by: (1) the Chairman, a
Vice Chairman, the President, a Vice President, the Treasurer or a director (or
equivalent officers) of the Issuer, and (2) the Secretary or an Assistant
Secretary of the Issuer and delivered to the Trustee; provided, however, that
such certificate may be signed by two of the officers or directors listed in
clause (1) above in lieu of being signed by one of such officers or directors
listed in such clause (1) and one of the officers listed in clause (2) above.
"OPINION OF COUNSEL" means a written opinion of counsel, who may be counsel
for the Issuer. Such opinion shall include the statements provided for in
Section 314(e) of the Trust Indenture Act to the extent applicable.
"ORDER" means a written order signed in the name of the Issuer: (1) by its
Chairman, a Vice Chairman, its President, a Vice President, its Treasurer or a
director (or equivalent officers), and (2) by its Treasurer, an Assistant
Treasurer, its Secretary or an Assistant Secretary and delivered to the Trustee;
provided, however, that such written request or order may be signed by any two
of the officers or
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<PAGE> 15
directors listed in clause (1) above in lieu of being signed by one of such
officers or directors listed in such clause (1) and one of the officers listed
in clause (2) above.
"OUTSTANDING" when used with respect to the Senior Notes means, as of the
date of determination, all Senior Notes theretofore authenticated and delivered
under this Indenture, except:
(i) Senior Notes theretofore cancelled by the Trustee or delivered to
the Trustee for cancellation;
(ii) Senior Notes, or portions thereof, for which payment or
redemption money in the necessary amount has been theretofore deposited
with the Trustee or any Paying Agent (other than the Issuer) in trust or
set aside and segregated in trust by the Issuer (if the Issuer shall act as
its own Paying Agent) for the Holders of such Senior Notes; provided that,
if such Senior Notes are to be redeemed, notice of such redemption has been
duly given pursuant to this Indenture or provision therefor satisfactory to
the Trustee has been made;
(iii) Senior Notes, except to the extent provided in Section 11.2 and
Section 11.3, with respect to which the Issuer has effected defeasance or
covenant defeasance as provided in Article XI; and
(iv) Senior Notes in exchange for or in lieu of which other Senior
Notes have been authenticated and delivered pursuant to this Indenture,
other than any such Senior Notes in respect of which there shall have been
presented to the Trustee proof satisfactory to it that such Senior Notes
are held by a bona fide purchaser in whose hands the Senior Notes are valid
obligations of the Issuer whose determination shall be conclusive;
provided, however, that in determining whether the Holders of the requisite
principal amount of Outstanding Senior Notes have given any request, demand,
authorization, notice, direction, consent or waiver hereunder, Senior Notes
owned by the Issuer, any other obligor upon the Senior Notes or any Affiliate of
the Issuer or such other obligor shall be disregarded and deemed not to be
Outstanding solely for purposes of such determination, except that, in
determining whether the Trustee shall be protected in relying upon any such
request, demand, authorization, notice, direction, consent or waiver, only
Senior Notes which a Responsible Officer of the Trustee
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<PAGE> 16
actually knows to be so owned shall be so disregarded. Senior Notes so owned
which have been pledged in good faith may be regarded as Outstanding if the
pledgee establishes to the satisfaction of the Trustee the pledgee's right so to
act with respect to such Senior Notes and that the pledgee is not the Issuer or
any other obligor upon the Senior Notes or any Affiliate of the Issuer or such
other obligor.
"PERMITTED LIENS" means: (1) Liens securing Indebtedness pursuant to any
senior credit agreement or senior credit facility of the Issuer or any
Subsidiary existing on the date of the Indenture as such agreement may be
supplemented, extended, renewed, replaced or otherwise modified from time to
time, and any refinancing, replacement or substitution thereof; (2) Liens in
favor of the Issuer or any Subsidiary; (3) Liens on property of a Person
existing at the time such Person is merged into or consolidated with the Issuer
or any Subsidiary; provided that such Liens were not incurred in connection
with, or in contemplation of, such merger or consolidation and such Liens do not
extend to any assets of the Issuer or any Subsidiary other than the assets of
the Person so merged into or consolidated with the Issuer or such Subsidiary;
(4) Liens on property existing at the time of acquisition thereof by the Issuer
or any Subsidiary; provided that such Liens were not incurred in connection
with, or in contemplation of, such acquisition and do not extend to any assets
of the Issuer or any of the Subsidiaries other than the property so acquired;
(5) Liens incurred or deposits required to secure the performance of United
States or foreign statutory obligations (including insurance regulations),
tenders, surety or appeal bonds or performance or return of money bonds or
similar obligations, or landlords', carriers', warehousemen's, mechanics',
suppliers', materialmen's or other like Liens, in any case incurred in the
ordinary course of business; (6) Liens required by any United States, state or
foreign authority pursuant to applicable insurance regulations; (7) Liens
existing on the date of the Indenture; (8) Liens for taxes, assessments or
governmental charges or claims that are not yet delinquent or that are being
contested in good faith by appropriate proceedings promptly instituted and
diligently concluded; provided that any reserve or other appropriate provision
as shall be required in conformity with GAAP shall have been made therefor; (9)
Liens to secure Capital Lease Obligations or operating leases; (10) judgment and
attachment Liens not giving rise to an Event of Default; (11) Liens with respect
to obligations under Currency Agreements or Interest Swap Obligations of the
Issuer or any Subsidiary; (12) Liens incurred in the ordinary course of business
of the Issuer or any Subsidiary other than in connection with Indebtedness for
borrowed money; (13) purchase money Liens to finance property or assets of the
Issuer or any Subsidiary acquired in the ordinary course of business; provided,
however, that (a) the related purchase money Indebtedness shall not be secured
by any property or assets of the
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<PAGE> 17
Issuer or any Subsidiary other than the property and assets so acquired, and (b)
the Lien securing such Indebtedness shall be created within 90 days of such
acquisition; (14) Liens on assets of the Subsidiaries to secure obligations of
such Subsidiaries to the Issuer; (15) Liens in favor of collecting or payor
banks having a right of setoff, revocation, refund or chargeback with respect to
money or instruments of the Issuer or any Subsidiary on deposit with or in
possession of such bank; (16) Liens attributable to sale and leaseback
transactions that collectively do not exceed 30% of the total assets of the
Issuer; (17) easements, covenants, zoning restrictions, rights-of-way or other
similar changes or encumbrances not interfering in any material respect with the
ordinary conduct of the business of the Issuer or any Subsidiary; (18) Liens
securing reimbursement obligations with respect to commercial letters of credit
which encumber documents and other property relating to such letters of credit;
(19) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual, or warranty requirements of the Issuer or
any Subsidiary, including rights of offset and set-off; (20) leases or subleases
granted to others that do not materially interfere with the ordinary course of
business of the Issuer and the Subsidiaries; and (21) any Lien extending,
renewing or replacing, in whole or in part, any Permitted Lien; provided that
any such Lien is limited to all or part of the same property or assets (plus
improvements, accessions, proceeds or dividends or distributions in respect
thereof) that secured (or, under the written arrangements under which the
original Lien arose, could secure) the Indebtedness being refinanced or is in
respect of property that is the security for a Permitted Lien hereunder.
"PERSON" means any individual, corporation, limited or general partnership,
limited liability company, joint venture, association, joint stock company,
trust, fund, unincorporated organization or government or any agency or
political subdivision thereof.
"PRINCIPAL SUBSIDIARY" means: (i) the insurance company Subsidiaries in
existence on the Issue Date; (ii) any other insurance company Subsidiary that
becomes a "SIGNIFICANT SUBSIDIARY" as defined in Regulation S-X as promulgated
by the Commission; and (iii) any other insurance company Subsidiary that may
succeed, by merger, consolidation or otherwise, to all or substantially all of
the business of one or more of such Persons as specified in (i) and (ii) above.
"QUALIFIED INSTITUTIONAL BUYER" OR "QIB" means a "qualified institutional
buyer" as defined in Rule 144A.
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<PAGE> 18
"QUOTATION AGENT" means the Reference Treasury Dealer appointed by the
Issuer.
"REDEEMABLE CAPITAL STOCK" means any Capital Stock that, either by its
terms, by the terms of any security into which it is convertible or exchangeable
or otherwise, is, or upon the happening of an event or passage of time would be
required to be, redeemed on or prior to the final Stated Maturity of the Senior
Notes or is redeemable at the option of the holder thereof at any time prior to
such final Stated Maturity, or is convertible into or exchangeable for debt
securities at any time prior to such final Stated Maturity.
"REDEMPTION DATE", when used with respect to any Senior Notes to be
redeemed, means the date fixed for such redemption pursuant to this Indenture.
"REDEMPTION PRICE", when used with respect to any Senior Notes to be
redeemed, means the price at which they are to be redeemed pursuant to this
Indenture.
"REFERENCE TREASURY DEALER" means, at any time, (i) Merrill Lynch and its
respective successors and two additional Primary Treasury Dealers selected by
the Issuer; provided, however, that if any of the foregoing shall cease to be a
primary U.S. Government securities dealer in New York City (a "PRIMARY TREASURY
DEALER"), the Issuer will substitute therefor another Primary Treasury Dealer;
and (ii) any other Primary Treasury Dealer selected by the Trustee after
consultation with the Issuer.
"REFERENCE TREASURY DEALER QUOTATIONS" means, with respect to each
Reference Treasury Dealer and any Redemption Date, the average, as determined by
the Quotation Agent, of the bid and asked prices for the Comparable Treasury
Issue (expressed in each case as a percentage of its principal amount) quoted in
writing to the Trustee by such Quotation Agent at 5:00 p.m., New York City time,
on the third Business Day preceding such Redemption Date.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights Agreement,
dated as of the date hereof, between the Issuer, Merrill Lynch, Donaldson,
Lufkin & Jenrette, First Union Capital Markets Corp., NationsBanc Montgomery
Securities LLC and Salomon Smith Barney Inc.
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<PAGE> 19
"REGISTRATION STATEMENT" means the Registration Statement as defined and
described in the Registration Rights Agreement.
"REGULAR RECORD DATE" for the interest payable on any Interest Payment Date
means the April 1 or October 1 (whether or not a Business Day), as the case may
be, next preceding such Interest Payment Date.
"REGULATION S" means Regulation S under the Securities Act.
"REG S CERTIFICATED SENIOR NOTE" means a Certificated Senior Note issued in
exchange for an interest in the Reg S Global Senior Note.
"REG S GLOBAL SENIOR NOTE" means the Reg S Global Senior Note substantially
in the form of Exhibit B to this Indenture.
"REQUEST" means a written request signed in the name of the Issuer (1) by
its Chairman, a Vice Chairman, its President, a Vice President, its Treasurer or
a director (or equivalent officers), and (2) by its Treasurer, an Assistant
Treasurer, its Secretary or an Assistant Secretary and delivered to the Trustee;
provided, however, that such written request or order may be signed by any two
of the officers or directors listed in clause (1) above in lieu of being signed
by one of such officers or directors listed in such clause (1) and one of the
officers listed in clause (2) above.
"RESPONSIBLE OFFICER" when used with respect to the Trustee, means any
officer assigned to the Corporate Trust Office of the Trustee or any other
officer of the Trustee customarily performing functions similar to those
performed by any of the above designated officers or assigned by the Trustee to
administer corporate trust matters at its Corporate Trust Office and also means,
with respect to a particular corporate trust matter, any other officer to whom
such matter is referred because of his knowledge of and familiarity with the
particular subject.
"RULE 144A" means Rule 144A under the Securities Act.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SENIOR NOTES" means (a) the Global Senior Notes, substantially in the form
of Exhibit A and Exhibit B to this Indenture, (b) the Certificated Senior Notes,
substantially in the form of Exhibit C to this Indenture, issued in accordance
with this Indenture and (c) any Exchange Notes to be issued and exchanged for
(a) or
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<PAGE> 20
(b) above pursuant to the Registration Rights Agreement and this Indenture. For
purposes of this Indenture, all Senior Notes shall vote together as one series
of Senior Notes under this Indenture.
"SHELF REGISTRATION STATEMENT" means the Shelf Registration Statement as
defined in the Registration Rights Agreement.
"SPECIAL RECORD DATE" means a date fixed by the Trustee for the payment of
any Defaulted Interest.
"STATED MATURITY" means, when used with respect to any Indebtedness or any
installment of principal or of interest thereon, the date specified in such
Indebtedness as the fixed date on which the principal of such Indebtedness or
such installment of principal or of interest is due and payable.
"SUBSIDIARY" means any Person, a majority of the equity ownership or the
Voting Stock of which is at the time owned, directly or indirectly, by the
Issuer or by one or more other Subsidiaries, or by the Issuer and one or more
other Subsidiaries.
"TRUST INDENTURE ACT" means the Trust Indenture Act of 1939, as amended,
and as in force at the date as of which this Indenture was executed, except as
provided in Section 8.5.
"TRUSTEE" means the Person named as the "TRUSTEE" in the first paragraph of
this Indenture, until a successor Trustee shall have become such pursuant to the
applicable provisions of this Indenture, and thereafter "TRUSTEE" shall mean
such successor Trustee.
"U.S. CERTIFICATED SENIOR NOTE" means a Certificated Senior Note issued in
exchange for an interest in the U.S. Global Senior Note.
"U.S. GLOBAL SENIOR NOTE" means the U.S. Global Senior Note substantially
in the form of Exhibit A to this Indenture.
"U.S. GOVERNMENT OBLIGATIONS" means securities that are (i) direct
obligations of the United States of America for the timely payment of which its
full faith and credit is pledged or (ii) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America, the
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timely payment of which is unconditionally guaranteed as a full faith and credit
obligation by the United States of America, which, in either case, are not
callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank (as defined in Section 3(a)(2) of
the Securities Act) as custodian with respect to any such U.S. Government
Obligation or a specific payment of principal of or interest on any such U.S.
Government Obligation held by such custodian for the account of the holder of
such depository receipt; provided that (except as required by law) such
custodian is not authorized to make any deduction from the amount payable to the
holder of such depository receipt from any amount received by the custodian in
respect of the U.S. Government Obligation or the specific payment of principal
of or interest on the U.S. Government Obligation evidenced by such depository
receipt.
"VOTING STOCK" means stock of the class or classes pursuant to which the
holders thereof have the general voting power under ordinary circumstances to
elect at least a majority of the board of directors, managers or trustees of a
corporation (irrespective of whether or not at the time stock of any other class
or classes shall have or might have voting power by reason of the happening of
any contingency).
SECTION 1.2. Other Definitions
<TABLE>
<CAPTION>
Defined in
Term Section
- -----------------------------------------------------------------------
<S> <C>
"ACT" .................................................... 1.6
"COVENANT DEFEASANCE" .................................... 11.3
"DEFAULTED INTEREST" ..................................... 2.12
"DEFEASANCE" ............................................. 11.2
"DIRECT PARTICIPANT"...................................... 2.1
"DISTRIBUTION COMPLIANCE PERIOD".......................... 2.1
"INCORPORATED PROVISION" ................................. 1.9
"INDIRECT PARTICIPANTS"................................... 2.1
"NOTICE OF DEFAULT" ...................................... 4.1
</TABLE>
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<TABLE>
<S> <C>
"PAYING AGENT" ........................................ 2.4
"PRIVATE PLACEMENT LEGEND" ............................ 2.1
"REGISTER" ............................................ 2.6
"REGISTRAR" ........................................... 2.4
"RESALE RESTRICTION TERMINATION DATE".................. 2.13
"RESTRICTIVE LEGEND"................................... 2.13
"SURVIVING ENTITY" .................................... 7.1
</TABLE>
SECTION 1.3. Incorporation by Reference of Trust Indenture Act. Whenever
this Indenture refers to a provision of the Trust Indenture Act, the provision
is incorporation by reference in and made a part of this Indenture. All Trust
Indenture Act terms used in this Indenture that are defined by the Trust
Indenture Act, defined by reference in the Trust Indenture Act to another
statute or defined by a rule of the Commission and not otherwise defined herein
shall have the meanings assigned to them therein.
SECTION 1.4. Compliance Certificates and Opinions. Upon any application or
request by the Issuer to the Trustee to take any action under any provision of
this Indenture, the Issuer shall furnish to the Trustee an Officers' Certificate
stating that all conditions precedent, if any, provided for in this Indenture
(including any covenant compliance with which constitutes a condition precedent)
relating to the proposed action have been complied with and an Opinion of
Counsel stating that in the opinion of such counsel all such conditions
precedent, if any, have been complied with, except that, in the case of any such
application or request as to which the furnishing of such documents is
specifically required by any provision of this Indenture relating to such
particular application or request, no additional certificate or opinion need be
furnished.
Every certificate or opinion (other than the certificates required by
Section 9.6(a)) with respect to compliance with a condition or covenant provided
for in this Indenture shall include:
(a) a statement that each individual signing such certificate or opinion
has read such covenant or condition and the definitions herein relating thereto;
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(b) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement that, in the opinion of each such individual, he has made
such examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
complied with; and
(d) a statement as to whether, in the opinion of each such individual, such
condition or covenant has been complied with.
SECTION 1.5. Form of Documents Delivered to Trustee. In any case where
several matters are required to be certified by, or covered by an opinion of,
any specified Person, it is not necessary that all such matters be certified by,
or covered by the opinion of, only one such Person, or that they be so certified
or covered by only one document, but one such Person may certify or give an
opinion with respect to some matters and one or more other such Persons as to
other matters, and any such Person may certify or give an opinion as to such
matters in one or several documents.
Any certificate or opinion of an officer of the Issuer may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows that the certificate or
opinion or representations with respect to the matters upon which the
certificate or opinion is based are erroneous. Any such certificate or Opinion
of Counsel may be based, insofar as it relates to factual matters, upon a
certificate or opinion of, or representations by, an officer or officers of the
Issuer stating that the information with respect to such factual matters is in
the possession of the Issuer, unless such counsel knows that the certificate or
opinion or representations with respect to such matters are erroneous.
When any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 1.6. Acts of Holders. (a) Any request, demand, authorization,
direction, notice, consent, waiver or other action provided by this
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Indenture to be given or taken by Holders may be embodied in and evidenced by
one or more instruments of substantially similar tenor signed by such Holders in
person or by agent duly appointed in writing; and, except as herein otherwise
expressly provided, such request, demand, authorization, direction, notice,
consent, waiver or other action shall become effective when such instrument or
instruments are delivered to the Trustee and, where it is hereby expressly
required, to the Issuer. Such instrument or instruments (and the request,
demand, authorization, direction, notice, consent, waiver or other action
embodied therein and evidenced thereby) are herein sometimes referred to as the
"ACT" of the Holders signing such instrument or instruments. Proof of execution
of any such instrument or of a writing appointing any such agent shall be
sufficient for any purpose of this Indenture and (subject to Section 315 of the
Trust Indenture Act) conclusive in favor of the Trustee and the Issuer, if made
in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any such instrument
or writing may be proved in any reasonable manner which the Trustee deems
sufficient.
(c) The ownership of Certificated Senior Notes shall be proved by the
Register.
(d) If the Issuer shall solicit from the Holders any request, demand,
authorization, direction, notice, consent, waiver or other Act, the Issuer may,
at its option, by or pursuant to a Board Resolution, fix in advance a record
date for the determination of such Holders entitled to give such request,
demand, authorization, direction, notice, consent, waiver or other Act, but the
Issuer shall have no obligation to do so. Notwithstanding Section 316(c) of the
Trust Indenture Act, any such record date shall be the record date specified in
or pursuant to such Board Resolution, which shall be a date not more than 30
days prior to the first solicitation of Holders generally in connection
therewith and no later than the date such solicitation is completed.
If such a record date is fixed, such request, demand, authorization,
direction, notice, consent, waiver or other Act may be given before or after
such record date, but only the Holders of record at the close of business on
such record date shall be deemed to be Holders for the purposes of determining
whether Holders of the requisite proportion of Senior Notes then outstanding
have authorized or agreed or consented to such request, demand, authorization,
direction, notice, consent, waiver or other Act, and for this purpose the Senior
Notes then outstanding
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shall be computed as of such record date; provided that no such request, demand,
authorization, direction, notice, consent, waiver or other Act by the Holders on
such record date shall be deemed effective unless it shall become effective
pursuant to the provisions of this Indenture not later than six months after the
record date.
(e) Any request, demand, authorization, direction, notice, consent, waiver
or other Act by the Holder of any Senior Notes shall bind every future Holder of
the same Senior Notes or the Holder of every Senior Note issued upon the
registration of transfer thereof or in exchange therefor or in lieu thereof, in
respect of anything done, suffered or omitted to be done by the Trustee, any
Paying Agent or the Issuer in reliance thereon, whether or not notation of such
action is made upon such Senior Notes.
SECTION 1.7. Notices, Etc., to Trustee and the Issuer. Any request, demand,
authorization, direction, notice, consent, waiver or Act of Holders or other
document provided or permitted by this Indenture to be made upon, given or
furnished to, or filed with:
(a) the Trustee by any Holders or any representative of the Issuer shall be
sufficient for every purpose hereunder if made, given, furnished or delivered in
writing or mailed, first-class postage prepaid, or by facsimile, to or with the
Trustee at its Corporate Trust Office; or
(b) the Issuer by the Trustee or any representative of any Holder shall be
sufficient for every purpose hereunder (unless otherwise herein expressly
provided) if made, given, furnished or delivered in writing or mailed,
first-class postage prepaid, or by facsimile, to the Issuer at 1932 Wynnton
Road, Columbus, Georgia 31999, Attention: Corporate Secretary, facsimile number
(706) 323-1448; or at any other address or facsimile number furnished in writing
to the Trustee by the Issuer.
SECTION 1.8. Notice to Holders; Waiver. Where this Indenture provides for
notice to Holders of any event, such notice shall be sufficiently given (unless
otherwise herein expressly provided) if in writing and mailed, first-class
postage prepaid, to each Holder affected by such event at his address as it
appears in the Register or at the address provided by such Holder in writing to
the Trustee not later than the latest date and not earlier than the earliest
date prescribed for the giving of such notice. When notice to Holders is given
by mail, neither the failure to mail such notice, nor any defect in any notice
so mailed, to any particular Holder shall
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affect the sufficiency of such notice with respect to other Holders. Any notice
when mailed to a Holder in the aforesaid manner shall be conclusively deemed to
have been received by such Holder whether or not actually received by such
Holder. Where this Indenture provides for notice in any manner, such notice may
be waived in writing by the Person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice. Waivers of notice by Holders shall be filed with the Trustee, but such
filing shall not be a condition precedent to the validity of any action taken in
reliance upon such waiver.
In case by reason of the suspension of regular mail service or by reason of
any other cause, it shall be impracticable to mail notice of any event as
required by any provisions of this Indenture, then any method of giving such
notice as shall be satisfactory to the Trustee shall be deemed to be a
sufficient giving of such notice for every purpose hereunder.
SECTION 1.9. Conflict of any Provision of Indenture with Trust Indenture
Act. If and to the extent that any provision of this Indenture limits, qualifies
or conflicts with the duties imposed by Sections 310 to 318 of the Trust
Indenture Act, inclusive, or conflicts with any provision (an "INCORPORATED
PROVISION") required by or deemed to be included in this Indenture by operation
of such Trust Indenture Act sections, such imposed duties or incorporated
provision of the Trust Indenture Act shall control. If any provision of this
Indenture modifies or excludes any provision of the Trust Indenture Act that may
be so modified or excluded, such provision of the Trust Indenture Act shall be
deemed to apply to this Indenture as so modified or excluded, as the case may
be, if this Indenture shall then be qualified under the Trust Indenture Act.
SECTION 1.10. Effect of Headings and Table of Contents. The Article and
Section headings herein and the Table of Contents are for convenience only and
shall not affect the construction hereof.
SECTION 1.11. Successors and Assigns. All covenants and agreements in this
Indenture by the Issuer and the Trustee shall bind each of their respective
successors and assigns, whether so expressed or not.
SECTION 1.12. Severability Clause. In case any provision in this Indenture
or in the Senior Notes shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
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SECTION 1.13. Benefits of Indenture. Nothing in this Indenture or in the
Senior Notes, express or implied, shall give to any Person (other than the
parties hereto and their successors hereunder, any Paying Agent or Registrar and
their successors hereunder, and the Holders) any benefit or any legal or
equitable right, remedy or claim under this Indenture.
SECTION 1.14. Governing Law. This Indenture and the Senior Notes shall be
governed by and construed in accordance with the laws of the State of New York.
Upon the issuance of Exchange Notes, if any, or the effectiveness of the Shelf
Registration Statement, this Indenture will be subject to the provisions of the
Trust Indenture Act that are required to be part of this Indenture and shall, to
the extent applicable, be governed by such provisions.
SECTION 1.15. Legal Holidays. In any case where any Interest Payment Date,
any date established for payment of Defaulted Interest pursuant to Section 2.12
or any Maturity with respect to any Senior Note shall not be a Business Day,
then (notwithstanding any other provisions of this Indenture or of the Senior
Notes) payment of the principal of, premium and Additional Interest, if any, or
interest on the Senior Notes need not be made on such date but may be made on
the next succeeding Business Day with the same force and effect as if made on
the Interest Payment Date or date established for payment of Defaulted Interest
pursuant to Section 2.12 or Maturity, and no interest shall accrue with respect
to such payment for the period from and after such Interest Payment Date or date
established for payment of Defaulted Interest pursuant to Section 2.12 or
Maturity, as the case may be, to the next succeeding Business Day.
SECTION 1.16. No Recourse Against Others. No director, officer, employee or
stockholder, as such, of the Issuer or any Subsidiary shall have any liability
for any payment of the principal of, premium or Additional Interest, if any, or
interest on, any of the Senior Notes, or any other obligations of the Issuer
under the Senior Notes or this Indenture or for any claim based on, in respect
of or by reason of such obligations or their creation. Each Holder by accepting
any of the Senior Notes waives and releases all such liability. The waiver and
release are part of the consideration for issuance of the Senior Notes.
SECTION 1.17. Submission of Jurisdiction. Each of the parties hereby
irrevocably submits to the non-exclusive jurisdiction of any federal or state
court in the Borough of Manhattan, the City of New York, in respect of any legal
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action or proceeding against it with respect to its obligations under this
Indenture and/or the Senior Notes.
SECTION 1.18. Currency Indemnity. U.S. dollars are the sole currency of
account and payment for all sums payable by the Issuer under or in connection
with the Senior Notes, including damages. Any amount received or recovered in a
currency other than dollars (whether as a result of, or of the enforcement of,
a judgment or order of a court of any jurisdiction, in the winding-up or
dissolution of the Issuer or otherwise) by any Holder in respect of any sum
expressed to be due to it from the Issuer shall only constitute a discharge to
the Issuer to the extent of the dollar amount which the recipient is able to
purchase with the amount so received or recovered in that other currency on the
date of that receipt or recovery (or, if it is not practicable to make that
purchase on that date, on the first date on which it is practicable to do so).
If that dollar amount is less than the dollar amount expressed to be due to the
recipient under any Senior Note, the Issuer shall indemnify the recipient
against any loss sustained by it as a result. In any event, the Issuer shall
indemnify the recipient against the cost of making any such purchase. For the
purposes of this Section 1.18, it will be sufficient for the Holder to certify
in a satisfactory manner (indicating the sources of information used) that it
would have suffered a loss had an actual purchase of dollars been made with the
amount so received in that other currency on the date of receipt or recovery
(or, if a purchase of dollars on such date had not been practicable, on the
first date on which it would have been practicable, it being required that the
need for a change of date be certified in the manner mentioned above). These
indemnities constitute a separate and independent obligation from the Issuer's
other obligations, shall give rise to a separate and independent cause of
action, shall apply irrespective of any indulgence granted by any Holder and
shall continue in full force and effect despite any other judgment, order,
claim or proof for a liquidated amount in respect of any sum due under any
Senior Note.
ARTICLE II
THE SENIOR NOTES
SECTION 2.1. Form and Dating. (a)(i) The Global Senior Notes shall be
substantially in the form of Exhibit A and Exhibit B, and the Trustee's
certificate of authentication shall be substantially in the form set forth in
such
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exhibits, which are hereby incorporated in and expressly made a part of this
Indenture and (ii) the Certificated Senior Notes and the Trustee's certificate
of authentication shall be substantially in the form of Exhibit C, which is
hereby incorporated in and expressly made a part of this Indenture; provided
that with respect to clauses (i) and (ii) above, Exchange Notes (A) shall
contain the alternative Paragraph 1(b) appearing on the reverse of the Senior
Notes, and (B) shall not contain the Private Placement Legend or any other
legends restricting the transfer thereof. The Global Senior Notes and the
Certificated Senior Notes may have notations, legends or endorsements required
by law, governmental rule or regulation, stock or other securities exchange
rule, depositary rule or usage agreements to which the Issuer is subject, if
any, or usage (provided that any such notation, legend or endorsement is
approved by the Issuer). The Issuer shall furnish any such legend not contained
in Exhibit A, Exhibit B or Exhibit C to the Trustee in writing. Each Senior Note
shall be dated the date of its authentication.
The terms and provisions contained in the Senior Notes shall constitute,
and are hereby expressly made, a part of this Indenture, and the Issuer and the
Trustee, by their execution and delivery of this Indenture, expressly agree to
such terms and provisions and to be bound thereby.
The Senior Notes sold to QIBs in the United States initially will be in the
form of one or more registered global notes without interest coupons
substantially in the form set forth in Exhibit A (collectively, the "U.S. GLOBAL
SENIOR NOTE"). Upon issuance, the U.S. Global Senior Note will be deposited with
the Trustee, as custodian for DTC, in New York, New York, and registered in the
name of DTC or its nominee, in each case for credit to the accounts of DTC's
participating organizations (the "DIRECT PARTICIPANTS") and other entities that
clear through or maintain a direct or indirect relationship with a Direct
Participant (the "INDIRECT PARTICIPANTS").
The Senior Notes being offered and sold in offshore transactions in
reliance on Regulation S, if any, initially will be in the form of one or more
registered, global notes without interest coupons substantially in the form set
forth in Exhibit B (collectively, the "REG S GLOBAL SENIOR NOTE"). The Reg S
Global Senior Note will be deposited with the Trustee, as custodian for DTC, in
New York, New York, and registered in the name of a nominee of DTC for credit to
the accounts of Indirect Participants at Euroclear and Cedel. During the 40-day
period commencing on the day after the later of the offering date and the
original Issue Date of the Senior Notes (the "DISTRIBUTION COMPLIANCE PERIOD"),
beneficial interests in
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<PAGE> 30
the Reg S Global Senior Note may be held only through the DTC participants for
Euroclear or Cedel.
The Global Senior Notes may be transferred, in whole and not in part,
only to another nominee of DTC or to a successor of DTC or its nominee in
certain limited circumstances provided for in this Indenture. Beneficial
interests in the Global Senior Notes may be exchanged for Senior Notes in
certificated form in certain limited circumstances provided for in this
Indenture.
(b) Restrictive Legends.
(i) Private Placement Legend. Unless and until a Global Senior Note or a
Certificated Senior Note is exchanged for an Exchange Note in an Exchange
Offer in connection with an effective Exchange Registration or is
registered in accordance with the Shelf Registration Statement, each
pursuant to the Registration Rights Agreement, the U.S. Global Senior Note,
and each U.S. Certificated Senior Note, unless the Issuer determines
otherwise in compliance with applicable law, shall bear the following
legend (the "PRIVATE PLACEMENT LEGEND") on the face thereof:
THIS SENIOR NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY
STATE OR OTHER JURISDICTION. NEITHER THIS SENIOR NOTE NOR ANY INTEREST
OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED,
PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH
REGISTRATION UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT
TO, SUCH REGISTRATION.
THE HOLDER OF THIS SENIOR NOTE BY ITS ACCEPTANCE HEREOF AGREES, ON ITS
OWN BEHALF AND ON BEHALF OF ANY INVESTOR ACCOUNT FOR WHICH IT HAS
PURCHASED SENIOR NOTES, TO OFFER, SELL OR OTHERWISE TRANSFER SUCH
SENIOR NOTE, PRIOR TO THE DATE (THE "RESALE RESTRICTION TERMINATION
DATE") WHICH IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE
HEREOF AND THE LAST DATE ON
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<PAGE> 31
WHICH THE ISSUER OR ANY AFFILIATE OF THE ISSUER WAS THE OWNER OF THIS
SENIOR NOTE (OR ANY PREDECESSOR OF SUCH SENIOR NOTE), ONLY (A) TO THE
ISSUER, (B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN
DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE
SENIOR NOTES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE
SECURITIES ACT ("RULE 144A"), TO A PERSON IT REASONABLY BELIEVES IS A
"QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A THAT PURCHASES
FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL
BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN
RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES THAT OCCUR
OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE
SECURITIES ACT, (E) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN
THE MEANING OF RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES
ACT THAT IS ACQUIRING THE SENIOR NOTE FOR ITS OWN ACCOUNT, OR FOR THE
ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR, IN EACH CASE IN
A TRANSACTION INVOLVING A MINIMUM PRINCIPAL AMOUNT OF $250,000 OF
SENIOR NOTES, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO OR FOR
OFFER OR SALE IN CONNECTION WITH ANY DISTRIBUTION IN VIOLATION OF THE
SECURITIES ACT, OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE
ISSUER'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR
TRANSFER (i) PURSUANT TO CLAUSE (D), (E) OR (F) TO REQUIRE THE
DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER
INFORMATION SATISFACTORY TO EACH OF THEM AND (ii) PURSUANT TO CLAUSE
(E), TO REQUIRE THAT THE TRANSFEROR DELIVER TO THE TRUSTEE A LETTER
FROM THE TRANSFEREE SUBSTANTIALLY IN THE FORM OF APPENDIX A TO THE
OFFERING MEMORANDUM DATED APRIL 16, 1999. THIS LEGEND WILL BE REMOVED
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UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION
TERMINATION DATE.
(ii) Regulation S Legend. The Reg S Global Senior Note and the Reg S
Certificated Senior Note shall bear the following legend on the face
thereof until the end of the Distribution Compliance Period (the
"Regulation S Legend"):
THIS SENIOR NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT
BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO OR FOR THE ACCOUNT
OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING
SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT IT
IS NOT A U.S. PERSON NOR IS IT PURCHASING FOR THE ACCOUNT OF A U.S.
PERSON AND IS ACQUIRING THIS SENIOR NOTE IN AN OFFSHORE TRANSACTION IN
ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT ("REGULATION
S"), (2) BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE
TRANSFER SUCH SENIOR NOTE, PRIOR TO THE DATE WHICH IS 40 DAYS AFTER
THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH
THE ISSUER OR ANY AFFILIATE OF THE ISSUER WAS THE OWNER OF THIS SENIOR
NOTE (OR ANY PREDECESSOR OF SUCH SENIOR NOTE), ONLY (A) TO THE ISSUER,
(B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED
EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SENIOR
NOTES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE
SECURITIES ACT ("RULE 144A"), TO A PERSON IT REASONABLY BELIEVES IS A
"QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A THAT PURCHASES
FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL
BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN
RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES THAT OCCUR
OUTSIDE THE UNITED
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STATES WITHIN THE MEANING OF REGULATION S, (E) TO AN INSTITUTIONAL
"ACCREDITED INVESTOR" WITHIN THE MEANING OF RULE 501(a)(1), (2), (3)
OR (7) UNDER THE SECURITIES ACT THAT IS ACQUIRING THE SENIOR NOTE FOR
ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL
ACCREDITED INVESTOR, IN EACH CASE IN A MINIMUM PRINCIPAL AMOUNT OF THE
SENIOR NOTES OF $250,000, FOR INVESTMENT PURPOSES AND NOT WITH A VIEW
TO OR FOR OFFER OR SALE IN CONNECTION WITH ANY DISTRIBUTION IN
VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT TO ANOTHER AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT,
SUBJECT TO THE ISSUER'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH
OFFER, SALE OR TRANSFER (i) PURSUANT TO CLAUSE (D), (E) OR (F) TO
REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR
OTHER INFORMATION SATISFACTORY TO EACH OF THEM AND (ii) PURSUANT TO
CLAUSE (E), TO REQUIRE THAT THE TRANSFEROR DELIVER TO THE TRUSTEE A
LETTER FROM THE TRANSFEREE SUBSTANTIALLY IN THE FORM OF APPENDIX A TO
THE OFFERING MEMORANDUM DATED APRIL 16, 1999. THIS LEGEND WILL BE
REMOVED AFTER 40 CONSECUTIVE DAYS BEGINNING ON AND INCLUDING THE LATER
OF (A) THE DAY ON WHICH THE SENIOR NOTES ARE OFFERED TO PERSONS OTHER
THAN DISTRIBUTORS (AS DEFINED IN REGULATION S) AND (B) THE DATE OF THE
CLOSING OF THE ORIGINAL OFFERING. AS USED HEREIN, THE TERMS "OFFSHORE
TRANSACTION", "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS
GIVEN TO THEM BY REGULATION S.
(iii) Global Senior Note Legend. Each Global Senior Note shall bear a
legend in substantially the following form:
UNLESS THIS SENIOR NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW
YORK, NEW YORK, TO THE ISSUER OR ITS AGENT FOR
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REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY SENIOR NOTE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME
AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY
PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED
BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER
USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL
INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.
TRANSFERS OF THIS SENIOR NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE,
BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS SENIOR NOTE
SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS
SET FORTH IN THE INDENTURE REFERRED TO ON THE REVERSE HEREOF.
SECTION 2.2. Denominations. The Senior Notes shall be issuable only in
registered form without coupons and only in denominations of $1,000 and any
integral multiple thereof; provided that Senior Notes transferred to an
Institutional Accredited Investor that delivers a letter from the transferee
substantially in the form of Exhibit D pursuant to Section 2.13 shall be
issuable only in registered form without coupons and only in denominations of
$250,000 and any integral multiple of $1,000 in excess thereof.
SECTION 2.3. Execution and Authentication. Two directors, or a
director and the Secretary or Assistant Secretary, shall sign the Senior Notes
for the Issuer by manual or facsimile signature. The signatures required hereby
may in each case be the manual signature of any person duly delegated by a
director or the Secretary or Assistant Secretary, as the case may be. The
Issuer's seal shall be reproduced on the Senior Notes and may be in facsimile
form.
If an officer (including a director, Secretary or Assistant Secretary)
whose signature is on a Senior Note no longer holds that office at the time the
Trustee authenticates the Senior Note, such Senior Note shall be valid
nevertheless.
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A Senior Note shall not be valid until an authorized officer of the
Trustee manually signs the certificate of authentication on the Senior Note. The
signature shall be conclusive evidence that such Senior Note has been
authenticated under this Indenture.
The Trustee shall authenticate and deliver the (a) Global Senior Notes
for original issue in an aggregate principal amount at maturity not in excess of
$450,000,000, and (b) Exchange Notes for issue only in an Exchange Offer
pursuant to the Registration Rights Agreement, for a like principal amount of
Global Senior Notes exchanged pursuant thereto, in each case upon a written
order signed by a director or Secretary or Assistant Secretary of the Issuer.
Such order shall specify the principal amount of the Global Senior Notes to be
authenticated and the date on which the original issue of the Global Senior
Notes are to be authenticated and shall further provide instructions concerning
delivery of the Global Senior Notes. The aggregate principal amount of Senior
Notes outstanding at any time may not exceed $450,000,000, except as provided in
Section 2.8 hereof. Each Global Senior Note shall be dated the date of its
authentication, shall bear interest from the applicable date and shall be
payable on the dates specified on the face of the form of Global Senior Notes
set forth as Exhibit A and Exhibit B hereto. Each Certificated Senior Note shall
be dated the date of its authentication, shall bear interest from the applicable
date and shall be payable on the dates specified on the face of the form of
Certificated Senior Note set forth in Exhibit C hereto.
The Trustee may appoint an authenticating agent reasonably acceptable
to the Issuer to authenticate the Senior Notes. Unless limited by the terms of
such appointment, an authenticating agent may authenticate Senior Notes whenever
the Trustee may do so. Each reference in this Indenture to authentication by the
Trustee includes authentication by such agent. An authenticating agent has the
same rights as any Registrar or Paying Agent.
SECTION 2.4. Registrar and Paying Agent. The Issuer will maintain in
the City of New York an office or agency where Senior Notes may be presented or
surrendered for payment (the "PAYING AGENT"), where Senior Notes may be
surrendered for registration of transfer or exchange (the "REGISTRAR") and where
notices and demands to or upon the Issuer in respect of the Senior Notes and
this Indenture may be served. The Registrar shall keep a Register of the Senior
Notes and of their transfer and exchange. Until otherwise designated by the
Issuer, such office or agency in the City of New York shall be the office
maintained by the Trustee for such purpose. The Issuer will give prompt written
notice to the Trustee
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of any change in the location of any such office or agency. If at any time the
Issuer shall fail to maintain any such required office or agency or shall fail
to furnish the Trustee with the address thereof, such presentations, surrenders,
notices and demands may be made or served at the Corporate Trust Office, and the
Issuer hereby appoints the Trustee as its agent to receive all such
presentations, surrenders, notices and demands.
The Issuer may from time to time designate one or more other offices
or agencies (in or outside the City of New York) where the Senior Notes may be
presented or surrendered for any or all such purposes, and may from time to time
rescind such designation; provided, however, that no such designation or
rescission shall in any manner relieve the Issuer of its obligation to maintain
an office or agency in the City of New York for such purposes. The Issuer will
give prompt written notice to the Trustee of any such designation or rescission
and any change in the location of any such office or agency.
The Issuer shall enter into an appropriate agency agreement with any
Registrar, Paying Agent or co-registrar not a party to this Indenture, which
shall incorporate the terms of the Trust Indenture Act. The agreement shall
implement the provisions of this Indenture that relate to such agent. The Issuer
shall promptly notify the Trustee of the name and address of any such agent. The
Issuer may change any Paying Agent, Registrar, co-registrar or transfer agent
without prior notice to any Holder. If the Issuer fails to maintain a Registrar
or Paying Agent, the Trustee shall act as such and shall be entitled to
appropriate compensation therefor pursuant to Section 5.6.
The Issuer initially appoints the Trustee as Registrar and Paying
Agent in connection with the Senior Notes.
SECTION 2.5. Paying Agent to Hold Money in Trust. If the Issuer shall
at any time act as its own Paying Agent, it will, by 10:00 a.m. (New York City
time) on each due date of the principal of, premium and Additional Interest, if
any, and interest on the Senior Notes, segregate and hold in trust for the
benefit of the Persons entitled thereto a sum sufficient to pay the principal
of, premium and Additional Interest, if any, and interest on the Senior Notes so
becoming due until such sums shall be paid to such Persons or otherwise disposed
of as herein provided, and will promptly notify the Trustee of its action or
failure so to act.
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Whenever the Issuer shall have one or more Paying Agents for the
Senior Notes, it will, at least one Business Day before such due date of the
principal of, premium and Additional Interest, if any, and interest on the
Senior Notes, deposit with such Paying Agent(s) a sum in same day funds (or New
York Clearing House funds if such deposit is made prior to the date on which
such deposit is required to be made) sufficient to pay the principal, premium
and Additional Interest, if any, and interest to become due on the Senior Notes,
such sum to be held in trust for the benefit of the Persons entitled to such
principal of, premium and Additional Interest, if any, or interest on the Senior
Notes, and (unless such Paying Agent is the Trustee) the Issuer will promptly
notify the Trustee of such action or any failure so to act.
The Issuer will cause each Paying Agent other than the Trustee to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent will:
(a) hold all sums held by it for the payment of the principal of,
premium and Additional Interest, if any, and interest on the Senior Notes in
trust for the benefit of the Persons entitled thereto until such sums shall be
paid to such Persons or otherwise disposed of as herein provided;
(b) give the Trustee notice of any default by the Issuer (or any other
obligor upon the Senior Notes) in the making of any payment of principal of,
premium and Additional Interest, if any, and interest on the Senior Notes;
(c) at any time during the continuance of any such default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so held in
trust by such Paying Agent; and
(d) acknowledge, accept and agree to comply in all respects with the
provisions of this Indenture relating to the duties, rights and obligations of
such Paying Agent.
The Issuer may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by an order of the Issuer direct any Paying Agent to pay, to the Trustee all
sums held in trust by the Issuer or such Paying Agent, such sums to be held by
the Trustee upon the same terms as those upon which such sums were held by the
Issuer or such
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Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such
Paying Agent shall be released from all further liability with respect to such
money.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Issuer, in trust for the payment of the principal of, premium and
Additional Interest, if any, and interest on the Senior Notes and remaining
unclaimed for two years after such principal of, premium and Additional
Interest, if any, and interest on the Senior Notes have become due and payable
shall be paid to the Issuer upon Request by the Issuer; and the Holder of such
Senior Note shall thereafter, as an unsecured general creditor, look only to the
Issuer for payment thereof, and all liability of the Trustee or such Paying
Agent with respect to such trust money, and all liability of the Issuer as
trustee thereof, shall thereupon cease; provided, however, that the Trustee or
such Paying Agent, before being required to make any such repayment, may at the
expense of the Issuer cause to be published once, in The New York Times and The
Wall Street Journal (national edition), notice that such money remains unclaimed
and that, after a date specified therein, which shall not be less than 30 days
from the date of such notification or publication, any unclaimed balance of such
money then remaining will be repaid to the Issuer.
SECTION 2.6. Senior Note Holder Lists. The Trustee, or such other
person designated by the Issuer, shall preserve in as current a form as is
reasonably practicable the most recent list available to it of the names and
addresses of all Holders (the "REGISTER"). If the Trustee is not the Registrar,
the Issuer shall furnish to the Trustee, in writing at least seven Business Days
before each Interest Payment Date and at such other times as the Trustee may
request in writing, a list in such form and as of such date as the Trustee may
reasonably require of the names and addresses of all Holders.
SECTION 2.7. Transfer and Exchange. An entire Global Senior Note may
be exchanged for definitive Senior Notes in registered, certificated form
without interest coupons ("CERTIFICATED SENIOR NOTES") if (i) DTC (A) notifies
the Issuer that it is unwilling or unable to continue as depositary for the
Global Senior Notes and the Issuer thereupon fails to appoint a successor
depositary within 90 days or (B) has ceased to be a clearing agency registered
under the Exchange Act, (ii) the Issuer, at its option, notifies the Trustee in
writing that it elects to cause the issuance of Certificated Senior Notes, or
(iii) there shall have occurred and be continuing a Default or an Event of
Default with respect to the Senior Notes. In any such case, the Issuer will
notify the Trustee in writing that, upon surrender by the Direct Participants
and Indirect Participants of their interest in such Global Senior Note,
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Certificated Senior Notes will be issued to each person that such Direct
Participants and Indirect Participants and DTC identify as being the beneficial
owner of the related Senior Notes.
Whenever all of a Global Senior Note is exchanged for one or more
Certificated Senior Notes, such Global Senior Note shall be surrendered by the
Holder thereof to the Trustee for cancellation. Whenever a part of a Global
Senior Note is exchanged for one or more Certificated Senior Notes (which shall
be in denominations of $1,000 or integral multiples thereof), such Global Senior
Note shall be surrendered by the Holder thereof to the Trustee who shall cause
an adjustment to be made to such Global Senior Note such that the principal
amount of such Global Senior Note will be equal to the portion of such Global
Senior Note not exchanged and shall thereafter return such Global Senior Note to
such Holder. Certificated Senior Notes issued in exchange for a Global Senior
Note or any portion thereof shall be registered in such names as DTC shall
instruct the Trustee, as requested by the Issuer. The Global Senior Notes may
not be exchanged other than as provided in this Section 2.7.
Beneficial interests in Global Senior Notes held by any Direct
Participant or Indirect Participant may be exchanged for Certificated Senior
Notes upon request to DTC, by such Direct Participant (for itself or on behalf
of an Indirect Participant), by the Trustee in accordance with customary DTC
procedures. Certificated Senior Notes delivered in exchange for any beneficial
interest in any Global Senior Note will be registered in the names, and issued
in any approved denominations, requested by DTC on behalf of such Direct
Participant or Indirect Participant (in accordance with DTC's customary
procedures).
Certificated Senior Notes shall be transferable only upon the
surrender of such Certificated Senior Notes for registration of transfer. When a
Certificated Senior Note is presented to the Registrar or a co-registrar with a
request to register a transfer, the Registrar shall register the transfer as
requested if its requirements for such transfers are met. When Certificated
Senior Notes are presented to the Registrar or a co-registrar with a request to
exchange them for an equal principal amount of Certificated Senior Notes of
other denominations (including an exchange of Certificated Senior Notes for
Exchange Notes), the Registrar shall make the exchange as requested if the same
requirements are met; provided that no exchange of Certificated Senior Notes
shall occur until a Registration Statement shall have been declared effective by
the Commission and that any Certificated Senior Notes that are exchanged for
Exchange Notes shall be cancelled by the Trustee. To permit
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registration of transfers and exchanges, the Issuer shall execute and the
Trustee shall authenticate Certificated Senior Notes at the Registrar's or
co-registrar's request.
The Holder of a Global Senior Note may increase the principal amount
of such Global Senior Note held by it by surrendering any Certificated Senior
Notes registered in its name to the Registrar for cancellation; provided that no
Certificated Senior Note shall be so surrendered during the period beginning on
the Record Date and ending on the corresponding Interest Payment Date. Upon
surrender of such Certificated Senior Note, the Registrar shall forward such
Certificated Senior Note to the Trustee for cancellation and the Trustee shall
cause an adjustment to be made to such Global Senior Note to increase the
principal amount at maturity of such Global Senior Note by an amount equal to
the principal amount at maturity of the Certificated Senior Note surrendered for
cancellation.
The Issuer shall not be required to make and the Registrar need not
register transfers or exchanges of Certificated Senior Notes selected for
redemption (except, in the case of Certificated Senior Notes to be redeemed in
part, the portion thereof not to be redeemed) or any Certificated Senior Notes
for a period of 15 days before a selection of Certificated Senior Notes to be
redeemed.
Prior to the due presentation for registration of transfer of any
Certificated Senior Note, the Issuer, the Trustee, the Paying Agent, the
Registrar or any co-registrar shall deem and treat the Person in whose name a
Certificated Senior Note is registered as the absolute owner of such
Certificated Senior Note for the purpose of receiving payment of principal of,
premium and Additional Interest, if any, and interest on such Certificated
Senior Note and for all other purposes whatsoever, whether or not such
Certificated Senior Note is overdue, and none of the Issuer, the Trustee, the
Paying Agent, the Registrar or any co-registrar shall be affected by notice to
the contrary.
The Issuer may require payment of a sum sufficient to pay all taxes,
assessments or other governmental charges in connection with any transfer or
exchange pursuant to this Section 2.7.
All Senior Notes issued upon any transfer or exchange pursuant to the
terms of this Indenture will evidence the same debt and will be entitled to the
same benefits under this Indenture as the Senior Notes surrendered upon such
transfer or exchange.
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SECTION 2.8. Replacement Senior Notes. If a mutilated Certificated
Senior Note is surrendered to the Registrar, or if a mutilated Global Senior
Note is surrendered to the Issuer, or if a Holder claims that a Senior Note has
been lost, destroyed or wrongfully taken, the Issuer shall issue, and the
Trustee shall authenticate, a replacement Senior Note in such form as the Senior
Note mutilated, lost, destroyed or wrongfully taken, if the Holder satisfies all
reasonable requirements of the Trustee, the Registrar or the Issuer. If required
by the Trustee, the Registrar or the Issuer, such Holder shall furnish an
indemnity bond sufficient in the judgment of the Issuer, the Registrar and the
Trustee to protect the Issuer, the Trustee, the Paying Agent, the Registrar and
any co-registrar from any loss which any of them may suffer if a Senior Note is
replaced. The Issuer, the Registrar and the Trustee may charge the Holder for
their expenses in replacing a Senior Note.
Every replacement Senior Note is an additional obligation of the
Issuer and every Holder of such Senior Note shall be entitled to all of the
benefits of this Indenture equally and proportionately with Holders of all other
Senior Notes duly issued hereunder.
SECTION 2.9. Outstanding Senior Notes. If a Senior Note is replaced
pursuant to Section 2.8 hereof, it ceases to be Outstanding unless the Trustee
and the Issuer receive proof satisfactory to them that the replaced Senior Note
is held by a bona fide purchaser.
If the Paying Agent (other than the Issuer or any of its subsidiaries
or affiliates) segregates and holds in trust, in accordance with this Indenture,
on a redemption date or maturity date, money sufficient to pay all principal of,
premium and Additional Interest, if any, and interest payable on that date with
respect to the Senior Notes (or portions thereof) to be redeemed or maturing, as
the case may be, then on and after that date such Senior Notes (or portions
thereof) shall cease to be Outstanding and interest on them shall cease to
accrue, as the case may be.
SECTION 2.10. Temporary Senior Notes. Until Certificated Senior Notes
are ready for delivery, the Issuer may prepare and the Trustee shall
authenticate temporary Senior Notes. Temporary Senior Notes shall be
substantially in the form of Certificated Senior Notes but may have variations
that the Issuer considers appropriate for temporary Senior Notes. Without
unreasonable delay, the Issuer shall prepare and the Trustee shall authenticate
corresponding Certificated Senior Notes and deliver them in exchange for
temporary Senior Notes.
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Holders of temporary Senior Notes shall be entitled to all of the
benefits of this Indenture.
SECTION 2.11. Cancellation. The Issuer at any time may deliver Senior
Notes to the Trustee for cancellation. The Registrar and the Paying Agent shall
forward to the Trustee any Senior Notes surrendered to them for registration of
transfer, exchange, purchase or payment. The Trustee (and no one else) shall
cancel all Senior Notes surrendered for registration of transfer, exchange,
purchase, payment or cancellation and shall dispose of cancelled Senior Notes in
its customary manner. The Issuer may not issue new Senior Notes to replace
Senior Notes it has redeemed, paid or delivered to the Trustee for cancellation.
The Trustee shall not authenticate Senior Notes in place of cancelled Senior
Notes other than pursuant to the terms of this Indenture.
SECTION 2.12. Defaulted Interest. If the Issuer defaults in a payment
of interest on the Senior Notes, the Issuer shall pay defaulted interest
("DEFAULTED INTEREST") (plus interest on such Defaulted Interest to the extent
lawful) in any lawful manner to the Persons who are Holders on a subsequent
Special Record Date. The Issuer shall fix or cause to be fixed any such Special
Record Date and payment date and shall promptly mail to each Holder and the
Trustee a notice that states the Special Record Date, if any, the payment date
and the amount of Defaulted Interest to be paid.
The Issuer may make payment of any Defaulted Interest in any other
lawful manner not inconsistent with the requirements (if applicable) of any
securities exchange on which the Senior Notes may be listed, and upon such
notice as may be required by such exchange, if, after notice given by the Issuer
to the Trustee of the proposed payment pursuant to this paragraph, such manner
of payment shall be deemed practicable by the Trustee.
SECTION 2.13. Special Transfer Provisions. Unless and until a Global
Senior Note or a Certificated Senior Note is exchanged for an Exchange Note in
connection with an effective Exchange Registration or is registered in
accordance with the Shelf Registration Statement, each pursuant to the
Registration Rights Agreement, the following provisions shall apply:
(a) The following provisions shall apply with respect to any proposed
transfer of a U.S. Certificated Senior Note or an interest in the U.S. Global
Senior Note prior to the date which is two years after the later of the date of
original
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issue and the last date on which the Issuer or any Affiliate of the Issuer was
the owner of such Senior Note (or any predecessor thereto) (the "RESALE
RESTRICTION TERMINATION DATE"):
(i) a transfer of a U.S. Certificated Senior Note or a
beneficial interest in the U.S. Global Senior Note to a QIB shall be
made upon the representation of the transferee that it is purchasing
the Senior Note for its own account or an account with respect to
which it exercises sole investment discretion and that it and any such
account is a "qualified institutional buyer" within the meaning of
Rule 144A, and is aware that the sale to it is being made in reliance
on Rule 144A and acknowledges that it has received such information
regarding the Issuer as it has requested pursuant to Rule 144A or has
determined not to request such information and that it is aware that
the transferor is relying upon its foregoing representations in order
to claim the exemption from registration provided by Rule 144A;
(ii) a transfer of a U.S. Certificated Senior Note or a
beneficial interest in the U.S. Global Senior Note to an Institutional
Accredited Investor shall be made upon receipt by the Trustee or its
agent of a certificate substantially in the form of Exhibit D from the
proposed transferee and, if requested by the Issuer or the Trustee,
the delivery of an Opinion of Counsel that such transfer is in
compliance with the Securities Act; and
(iii) a transfer of a U.S. Certificated Senior Note or a
beneficial interest in the U.S. Global Senior Note to a Non-U.S.
Person shall be made upon receipt by the Trustee or its agent of a
certificate substantially in the form of Exhibit E from the proposed
transferee and, if requested by the Issuer or the Trustee, the
delivery of an Opinion of Counsel that such transfer is in compliance
with the Securities Act.
After the Resale Restriction Termination Date, interests
in a U.S. Certificated Senior Note or a beneficial interest in the U.S. Global
Senior Note may be transferred without requiring the certification set forth
in Exhibit D or Exhibit E or any additional certification.
(b) The following provisions shall apply with respect to
any proposed transfer of a Reg S Certificated Senior Note or a beneficial
interest in the Reg S Global Senior Note prior to the expiration of the
Distribution Compliance Period:
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(i) a transfer of a Reg S Certificated Senior Note or a
beneficial interest in the Reg S Global Senior Note to a QIB shall be
made upon the representation of the transferee that it is purchasing
the Senior Note for its own account or an account with respect to
which it exercises sole investment discretion and that it and any such
account is a "qualified institutional buyer" within the meaning of
Rule 144A, and is aware that the sale to it is being made in reliance
on Rule 144A and acknowledges that it has received such information
regarding the Issuer as it has requested pursuant to Rule 144A or has
determined not to request such information and that it is aware that
the transferor is relying upon its foregoing representations in order
to claim the exemption from registration provided by Rule 144A;
(ii) a transfer of a Reg S Certificated Senior Note or a
beneficial interest in the Reg S Global Senior Note to an
Institutional Accredited Investor shall be made upon receipt by the
Trustee or its agent of a certificate substantially in the form of
Exhibit D from the proposed transferee and, if requested by the Issuer
or the Trustee, the delivery of an Opinion of Counsel that such
transfer is in compliance with the Securities Act; and
(iii) a transfer of a Reg S Certificated Senior Note or a
beneficial interest in the Reg S Global Senior Note to a Non-U.S.
Person shall be made upon receipt by the Trustee or its agent of a
certificate substantially in the of Exhibit E from the proposed
transferee and, if requested by the Issuer or the Trustee, the
delivery of an Opinion of Counsel that such transfer is in compliance
with the Securities Act.
After the expiration of the Distribution Compliance Period,
interests in a Reg S Certificated Senior Note or a beneficial interest in the
Reg S Global Senior Note may be transferred without requiring the
certifications set forth in Exhibit D or Exhibit E or any additional
certification.
(c) Restrictive Legends. All Senior Notes originally
issued shall bear the Private Placement Legend or the Regulation S Legend
(each a "RESTRICTIVE LEGEND"). Upon the transfer, exchange or replacement of
Senior Notes not bearing a Restrictive Legend, the Registrar shall deliver
Senior Notes that do not bear a Restrictive Legend. Upon the transfer,
exchange or replacement of Senior Notes bearing a Restrictive Legend, other
than in connection with the exchange of Exchange Notes for Global Senior Notes
or Certificated Senior Notes, the Registrar shall deliver only Senior Notes
that bear a Restrictive Legend unless there is
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delivered to the Registrar an Opinion of Counsel reasonably satisfactory to the
Issuer and the Trustee to the effect that neither such legend nor the related
restrictions on transfer are required in order to maintain compliance with the
provisions of the Securities Act.
(d) General. By its acceptance of any Senior Note bearing a
Restrictive Legend, each Holder acknowledges the restrictions on transfer of
such Senior Note set forth in this Indenture and in such Restrictive Legend and
agrees that it will transfer such Senior Note only as provided in this
Indenture. The Registrar shall not register a transfer of any Senior Note unless
such transfer complies with the restrictions on transfer of such Senior Note set
forth in this Indenture. In connection with any transfer of Senior Notes, each
Holder agrees by its acceptance of the Senior Notes to furnish the Registrar or
the Issuer such certifications, Opinion of Counsel or other information as the
Issuer may reasonably require to confirm that such transfer is being made
pursuant to an exemption from, or a transaction not subject to, the registration
requirements of the Securities Act; provided that the Registrar shall not be
required to determine (but may rely on a determination made by the Issuer with
respect to) the sufficiency of any such certifications, Opinion of Counsel or
other information.
The Registrar shall retain copies of all letters, notices and other
written communications received pursuant to Section 2.7 or this Section 2.13 in
accordance with its customary procedures. The Issuer shall have the right to
inspect and make copies of all such letters, notices or other written
communications at any reasonable time upon the giving of reasonable prior
written notice to the Registrar.
In connection with any transfer of Senior Notes, the Trustee, the
Registrar and the Issuer shall be entitled to receive, shall be under no duty to
inquire into, may conclusively presume the correctness of, and shall be fully
protected in relying upon the certificate, opinions and other information
referred to herein (or in the forms provided herein, attached hereto or to the
Senior Notes, or otherwise) received from any Holder and any transferee of any
Senior Notes regarding the validity, legality and due authorization of any such
transfer, the eligibility of the transferee to receive such Senior Notes and any
other facts and circumstances related to such transfer.
SECTION 2.14. CUSIP and ISIN Numbers. The Issuer in issuing the Senior
Notes may use "CUSIP" and "ISIN" numbers (if then generally in use), and the
Trustee shall use CUSIP and ISIN numbers in notices of redemption or exchange
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as a convenience to Holders; provided that any such notice shall state that no
representation is made as the correctness of such numbers either as printed on
the Senior Notes or as contained in any notice of redemption or exchange and
that reliance may be placed only on the other identification numbers printed on
the Senior Notes. The Issuer shall promptly notify the Trustee of any change in
the CUSIP or ISIN numbers.
ARTICLE III
SATISFACTION AND DISCHARGE
SECTION 3.1. Satisfaction and Discharge of Indenture. This Indenture
shall, upon request of the Issuer, cease to be of further effect (except as to
surviving rights of registration of transfer or exchange of Senior Notes herein
expressly provided for) and the Trustee, on demand of and at the expense of the
Issuer, shall execute proper instruments acknowledging satisfaction and
discharge of this Indenture, when:
(a) either:
(i) all Senior Notes theretofore authenticated and delivered (other
than (A) Senior Notes which have been destroyed, lost or stolen and
which have been replaced or paid as provided in Section 2.8 and (B)
Senior Notes for whose payment money has theretofore been deposited in
trust or segregated and held in trust by the Issuer and thereafter
repaid to the Issuer or discharged from such trust, as provided in
Section 2.5) have been delivered to the Trustee for cancellation; or
(ii) all such Senior Notes not theretofore delivered to the Trustee
for cancellation,
(A) have become due and payable, or
(B) will become due and payable at their Stated Maturity within
one year, or
(C) are to be called for redemption within one year under
arrangements satisfactory to the Trustee for the giving of notice of
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redemption by the Trustee in the name, and at the expense, of the
Issuer,
and the Issuer, in the case of Section 3.1(a)(ii) above, has irrevocably
deposited or caused to be deposited with the Trustee as trust funds in trust for
such purpose an amount of money or U.S. Government Obligations sufficient to pay
and discharge the entire indebtedness on such Senior Notes, not theretofore
delivered to the Trustee for cancellation, for principal, premium and Additional
Interest, if any, and interest to the date of such deposit (in the case of
Senior Notes which have become due and payable) or to the Stated Maturity or
Redemption Date, as the case may be;
(b) the Issuer has paid or caused to be paid all other sums payable
hereunder by the Issuer;
(c) such satisfaction and discharge shall not result in a breach or
violation of, or constitute a default under, this Indenture or any other
material agreement or instrument to which the Issuer is a party or by which the
Issuer is bound; and
(d) the Issuer has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel stating that (1) all conditions precedent herein
provided for relating to the satisfaction and discharge of this Indenture have
been complied with and (2) such satisfaction and discharge will not result in a
breach or violation of, or constitute a default under, this Indenture or any
other material agreement or instrument to which the Issuer is a party or by
which the Issuer is bound.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Issuer to the Trustee under Section 5.6 and, if money shall
have been deposited with the Trustee pursuant to this Section 3.1, the
obligations of the Trustee under Sections 2.5 and 3.2 shall survive such
satisfaction and discharge.
SECTION 3.2. Application of Trust Money. Subject to the provisions of
Section 2.5, all money deposited with the Trustee pursuant to Section 3.1 shall
be held in trust and applied by it, in accordance with the provisions of the
Senior Notes and this Indenture, to the payment, either directly or through any
Paying Agent (including the Issuer acting as Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal of, premium and
Additional Interest, if any, and interest on the Senior Notes for whose payment
such money has been deposited with the Trustee.
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If the Trustee or Paying Agent is unable to apply any money or U.S.
Government Obligations in accordance with Section 3.1 by reason of any legal
proceeding or by reason of any order or judgment of any court or governmental
authority enjoining, restraining or otherwise prohibiting such application, the
Issuer's obligations under this Indenture and the Senior Notes shall be revived
and reinstated as though no deposit had occurred pursuant to Section 3.1;
provided that if the Issuer has made any payment of principal of, premium or
Additional Interest, if any, or interest on any Senior Notes because of the
reinstatement of its obligations, the Issuer shall be subrogated to the rights
of the Holders of such Senior Notes to receive such payment for the money or
U.S. Government Obligations held by the Trustee or Paying Agent.
ARTICLE IV
DEFAULTS AND REMEDIES
SECTION 4.1. Events of Default. "EVENT OF DEFAULT," wherever used
herein, means any one of the following events (whatever the reason for such
Event of Default and whether or not it shall be voluntary or involuntary or be
effected by the operation of law or pursuant to any judgment, decree or order of
any court or any order, rule or regulation of any administrative or governmental
body):
(a) default in the payment of interest on or Additional Interest with
respect to any Senior Note when the same becomes due and payable and the
continuance of such default for a period of 30 days; or
(b) default in the payment of the principal of and any premium on any
Senior Note when the same becomes due and payable at its Maturity upon
acceleration, optional redemption or otherwise; or
(c) default in the performance, or breach, of any covenant or
agreement of the Issuer hereunder (other than a default in the performance, or
breach, of a covenant or agreement that is specifically dealt with in clauses
(a), (b) and (h) in this Section 4.1), and continuance of such default or breach
for a period of 60 days after there has been given, by registered or certified
mail, to the Issuer by the Trustee or to the Issuer and the Trustee by the
Holders of at least 25% in principal amount of the Outstanding Senior Notes, a
written notice specifying such default or breach and stating that such notice is
a "NOTICE OF DEFAULT" hereunder; or
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(d) (1) an event of default shall have occurred under any mortgage,
bond, indenture, loan agreement or other document evidencing any issue of
Indebtedness of the Issuer or any Subsidiary for money borrowed (or the payment
of which is guaranteed by the Issuer or any Subsidiary), which issue has an
aggregate outstanding principal amount of not less than $25,000,000, and such
default shall have resulted in such Indebtedness becoming, whether by
declaration or otherwise, due and payable prior to the date on which it would
otherwise become due and payable or (2) a default in any payment when due at
final Stated Maturity of any such Indebtedness outstanding in an aggregate
principal amount of not less than $25,000,000 and, in each case, ten Business
Days shall have elapsed after such event during which period such event shall
not have been cured or rescinded or such Indebtedness shall not have been
satisfied; or
(e) final judgments or orders are rendered against the Issuer or any
Subsidiary by a court or regulatory agency of competent jurisdiction which
require the payment in money, either individually or in an aggregate amount,
that is more than $25,000,000 (other than any judgment to the extent a reputable
non-affiliated insurance company has accepted liability) and such judgment or
order shall not be discharged and either (1) any creditor shall have commenced
an enforcement proceeding upon such judgment or order, which enforcement
proceeding shall have remained unstayed for a period of ten days, or (2) a
period of 60 days during which a stay of enforcement shall not be in effect
shall have elapsed following the date on which any period for appeal has
expired; or
(f) a decree or order is entered by a court having jurisdiction (1)
for relief in respect of the Issuer or any Principal Subsidiary in an
involuntary case or proceeding under the Federal Bankruptcy Code or any other
federal or state bankruptcy, insolvency, reorganization or similar law or (2)
adjudging the Issuer or any Principal Subsidiary bankrupt or insolvent, or
seeking reorganization, arrangement, adjustment or composition of or in respect
of the Issuer or any Principal Subsidiary under the Federal Bankruptcy Code or
any other applicable federal or state law, or appointing a custodian, receiver,
liquidator, assignee, trustee, sequestrator (or other similar official) of the
Issuer or any Principal Subsidiary or of any substantial part of any of their
properties, or ordering the winding up or liquidation of any of their affairs,
and any such decree or order remains unstayed and in effect for a period of 60
consecutive days; or
(g) the Issuer or any Principal Subsidiary institutes a voluntary case
or proceeding under the Federal Bankruptcy Code or any other applicable
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federal or state law or any other case or proceedings to be adjudicated bankrupt
or insolvent, or the Issuer or any Principal Subsidiary consents to the entry of
a decree or order for relief in respect of the Issuer or any Principal
Subsidiary in any involuntary case or proceeding under the Federal Bankruptcy
Code or any other applicable federal or state law or to the institution of
bankruptcy or insolvency proceedings against the Issuer or any Principal
Subsidiary, or the Issuer or any Principal Subsidiary files a petition or answer
or consent seeking reorganization or relief under the Federal Bankruptcy Code or
any other applicable federal or state law, or consents to the filing of any such
petition or to the appointment of or taking possession by a custodian, receiver,
liquidator, assignee, trustee or sequestrator (or other similar official) of any
of the Issuer or any Principal Subsidiary or of any substantial part of its
property, or makes an assignment for the benefit of creditors, or admits in
writing its inability to pay its debts generally as they become due or takes
corporate action in furtherance of any such action; or
(h) default in the performance or breach of the provisions of Article
VII hereof.
SECTION 4.2. Acceleration of Maturity; Rescission. If an Event of
Default (other than an Event of Default specified in Section 4.1(f) or
Section 4.1(g)) occurs and is continuing, the Trustee or the Holders of at
least 25% in principal amount of the Outstanding Senior Notes, by written
notice to the Issuer (and to the Trustee if such notice is given by the
Holders), may, and the Trustee at the request of such Holders shall, declare
all unpaid principal of, premium and Additional Interest, if any, and accrued
interest on, all the Senior Notes to be due and payable immediately.
Notwithstanding the foregoing, in the event of an Event of Default specified in
Section 4.1(f) or 4.1(g), the amounts described above shall by such fact itself
become and be immediately due and payable without any declaration or other act
on the part of the Trustee or any Holder.
After a declaration of acceleration, but before a judgment or decree
for payment of the money due has been obtained by the Trustee, the Holders of at
least a majority in aggregate principal amount of the Outstanding Senior Notes,
by written notice to the Issuer and the Trustee, may annul such declaration if
(a) the Issuer has paid or deposited with the Trustee a sum sufficient to pay
(1) all sums paid or advanced by the Trustee under this Indenture and the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel, (2) all overdue interest on all Senior Notes, (3) the
principal of, and premium and Additional Interest, if any, on any Senior Notes
which have become due otherwise
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than by such declaration of acceleration and interest thereon at the rate borne
by the Senior Notes, and (4) to the extent that payment of such interest is
lawful, interest upon overdue interest at the rate borne by the Senior Notes;
and (b) all Events of Default, other than the non-payment of principal of the
Senior Notes which have become due solely by such declaration of acceleration,
have been waived as provided in Section 4.13 or cured. No such rescission shall
affect any subsequent default or impair any right consequent thereon.
Notwithstanding the preceding paragraph, in the event of a declaration
of acceleration in respect of the Senior Notes because of an Event of Default
specified in Section 4.1a(d) shall have occurred and be continuing, such
declaration of acceleration shall be automatically rescinded and annulled if the
Indebtedness that is the subject of such Event of Default has been discharged or
the holders thereof have rescinded their declaration of acceleration in respect
of such Indebtedness, and written notice of such discharge or rescission, as the
case may be, shall have been given to the Trustee by the Issuer and
countersigned by the holders of such Indebtedness or a trustee, fiduciary or
agent for such holders, within 60 days after such declaration of acceleration in
respect of the Senior Notes, and no other Event of Default has occurred during
such 60-day period which has not been cured or waived during such period.
SECTION 4.3. Collection of Indebtedness and Suits for Enforcement by
Trustee. The Issuer covenants that if:
(a) default is made in the payment of any interest on or Additional
Interest with respect to any Senior Note when the same becomes due and payable
and such default continues for a period of 30 days, or
(b) default is made in the payment of the principal of and any premium
on any Senior Note at the Maturity thereof,
the Issuer will, upon demand of the Trustee, pay to it, for the benefit of the
Holders of such Senior Notes, the whole amount then due and payable on such
Senior Notes for principal, premium and Additional Interest, if any, and
interest and, to the extent that payment of such interest shall be legally
enforceable, interest on overdue installments of interest and Additional
Interest, if any, at the rate borne by the Senior Notes; and, in addition
thereto, such further amount as shall be sufficient to cover the costs and
expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel.
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If the Issuer fails to pay such amounts forthwith upon such demand,
the Trustee, in its own name and as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid and may
prosecute such proceeding to judgment or final decree, and may enforce the same
against the Issuer or any other obligor upon the Senior Notes and collect the
moneys adjudged or decreed to be payable in the manner provided by law out of
the property of the Issuer or any other obligor upon the Senior Notes, wherever
situated.
If an Event of Default occurs and is continuing, the Trustee may in
its discretion proceed to protect and enforce its rights and the rights of the
Holders under this Indenture by such appropriate private or judicial proceedings
as are necessary or as the Trustee shall deem necessary to protect and enforce
such rights.
SECTION 4.4. Trustee May File Proofs of Claim. In case of the pendency
of any receivership, insolvency, liquidation, bankruptcy, reorganization,
arrangement, adjustment, composition or other judicial proceeding relative to
the Issuer or any other obligor upon the Senior Notes or the property of the
Issuer or of such other obligor or their creditors, the Trustee (irrespective of
whether the principal of the Senior Notes shall then be due and payable as
therein expressed or by declaration or otherwise and irrespective of whether the
Trustee shall have made any demand on the Issuer for the payment of overdue
principal, premium and Additional Interest, if any, or interest) shall be
entitled and empowered, by intervention in such proceeding or otherwise,
(a) to file and prove a claim for the whole amount of principal,
premium and Additional Interest, if any, and interest owing and unpaid in
respect of the Senior Notes and to file such other papers or documents as may be
necessary or advisable in order to have the claims of the Trustee (including any
claim for the reasonable compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel) and of the Holders allowed in such judicial
proceeding, and
(b) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same, and any custodian,
receiver, assignee, trustee, liquidator, sequestrator or similar official in any
such judicial proceeding is hereby authorized by each Holder to make such
payments to the Trustee and, in the event that the Trustee shall consent to the
making of such payments directly to the Holders, to pay the Trustee any amount
due it for the reasonable compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 5.6.
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Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any proposal,
plan of reorganization, arrangement, adjustment or composition or other similar
arrangement affecting the Senior Notes or the rights of any Holder thereof, or
to authorize the Trustee to vote in respect of the claim of any Holder in any
such proceeding.
SECTION 4.5. Trustee May Enforce Claims Without Possession of Senior
Notes. All rights of action and claims under this Indenture or the Senior Notes
may be prosecuted and enforced by the Trustee without the possession of any of
the Senior Notes or the production thereof in any proceeding relating thereto,
and any such proceeding instituted by the Trustee shall be brought in its own
name and as trustee of an express trust, and any recovery of judgment shall,
after provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, be for the
ratable benefit of the Holders of the Senior Notes in respect of which such
judgment has been recovered.
SECTION 4.6. Application of Money Collected. Any money, securities or
other property collected by the Trustee pursuant to this Article IV shall be
applied in the following order, at the date or dates fixed by the Trustee and,
in case of the distribution of such money on account of principal, premium and
Additional Interest, if any, and interest, upon presentation of the Senior Notes
and the notation thereon of the payment if only partially paid and upon
surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under
Section 5.6;
SECOND: To the payment of the amounts then due and unpaid
upon the Senior Notes for principal, premium and Additional Interest,
if any, and interest, in respect of which or for the benefit of which
such money has been collected, ratably, without preference or priority
of any kind, according to the amounts due and payable on such Senior
Notes for principal, premium and Additional Interest, if any, and
interest; and
THIRD: The balance, if any, to the Issuer.
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SECTION 4.7. Limitation on Suits. No Holder shall have any right to
institute any proceeding, judicial or otherwise, with respect to this Indenture
or the Senior Notes, or for the appointment of a receiver or trustee, or for any
other remedy hereunder, unless:
(a) such Holder has previously given written notice to the Trustee of
a continuing Event of Default;
(b) the Holders of not less than 25% in principal amount of the
Outstanding Senior Notes shall have made written request to the Trustee to
institute proceedings in respect of such Event of Default in the Trustee's own
name;
(c) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request;
(d) the Trustee for 60 days after its receipt of such notice, request
and offer of indemnity has failed to institute any such proceeding; and
(e) no direction inconsistent with such written request has been given
to the Trustee during such 60-day period by the Holders of a majority in
principal amount of the Outstanding Senior Notes;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders,
or to obtain or to seek to obtain priority or preference over any other Holders
or to enforce any right under this Indenture except in the manner provided in
this Indenture and for the equal and ratable benefit of all the Holders.
SECTION 4.8. Unconditional Right of Holders to Receive Principal,
Premium and Interest. Notwithstanding any other provision in this Indenture or
any provision of the Senior Notes, any Holder shall have the right, which is
absolute and unconditional, to receive payment of the principal of, premium and
Additional Interest, if any, and (subject to Section 2.12) interest on such
Senior Note on the respective due dates expressed in such Senior Note (or, in
the case of redemption, on the Redemption Date) and to institute suit for the
enforcement of any such payment, and such rights shall not be impaired or
affected without the consent of such Holder.
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SECTION 4.9. Restoration of Rights and Remedies. If the Trustee or any
Holder has instituted any proceeding to enforce any right or remedy under this
Indenture and such proceeding has been discontinued or abandoned for any reason,
or has been determined adversely to the Trustee or to such Holder, then and in
every such case the Issuer, the Trustee and the Holders shall, subject to any
determination in such proceeding, be restored severally and respectively to
their former positions hereunder, and thereafter all rights and remedies of the
Trustee and the Holders shall continue as though no such proceeding had been
instituted.
SECTION 4.10. Rights and Remedies Cumulative. Except as provided in
Section 2.8, no right or remedy herein conferred upon or reserved to the Trustee
or to the Holders is intended to be exclusive of any other right or remedy, and
every right and remedy shall, to the extent permitted by law, be cumulative and
in addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
SECTION 4.11. Delay of Omission Not Waiver. No delay or omission of
the Trustee or of any Holder to exercise any right or remedy accruing upon any
Event of Default shall impair any such right or remedy or constitute a waiver of
any such Event of Default or an acquiescence therein. Every right and remedy
given by this Article IV or by law to the Trustee or to the Holders may be
exercised from time to time, and as often as may be deemed expedient, by the
Trustee or by the Holders, as the case may be.
SECTION 4.12. Control by Holders. The Holders of not less than a
majority in principal amount of the Outstanding Senior Notes shall have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee, or exercising any trust or power conferred on
the Trustee; provided that:
(a) such direction shall not be in conflict with any rule of law or
with this Indenture or expose the Trustee to personal liability, and
(b) subject to the provisions of Section 315 of the Trust Indenture
Act, the Trustee may take any other action deemed proper by the Trustee which is
not inconsistent with such direction.
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SECTION 4.13. Waiver of Defaults. The Holders of not less than a
majority in aggregate principal amount of the Outstanding Senior Notes by notice
to the Trustee may on behalf of all Holders waive any existing or past Default
or Event of Default hereunder and its consequences, except a Default or Event of
Default:
(a) in the payment of the principal of, premium or Additional
Interest, if any, or interest on any Senior Note when the same becomes due and
payable,
(b) in respect of a covenant or provision hereof which under Article
VIII cannot be modified or amended without the consent of the Holder of each
Outstanding Senior Note affected, or
(c) in respect of a covenant or provision hereof which under Article
VIII cannot be modified or amended without the consent of the Holders of a
greater percentage in principal amount of, or all of, the Outstanding Senior
Notes.
The Holders of not less than the percentage in principal amount of Outstanding
Senior Notes specified in Article VIII may on behalf of the Holders of all the
Senior Notes waive any past Default or Event of Default hereunder and its
consequences arising under a covenant or provision specified in Section 4.13(b).
Upon any such waiver, such Default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other Default or impair any right consequent thereon.
SECTION 4.14. Undertaking for Costs. All parties to this Indenture
agree, and each Holder of any Senior Note by his acceptance thereof shall be
deemed to have agreed, that any court may in its discretion require, in any suit
for the enforcement of any right or remedy under this Indenture, or in any suit
against the Trustee for any action taken, suffered or omitted by it as Trustee,
the filing by any party litigant in such suit of an undertaking to pay the costs
of such suit, and that such court may in its discretion assess reasonable costs,
including reasonable attorneys' fees and expenses, against any party litigant in
such suit, having due regard to the merits and good faith of the claims or
defenses made by such party litigant; but the provisions of this Section 4.14
shall not apply to any suit instituted by the Trustee, to any suit instituted by
any Holder, or group of Holders, holding in the aggregate more than 10% in
principal amount of the Outstanding Senior Notes, or to
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any suit instituted by any Holder for the enforcement of the payment of the
principal of, premium or Additional Interest, if any, or interest on any Senior
Note on or after the respective Stated Maturities expressed in such Senior Note
(or, in the case of redemption, on or after the Redemption Date).
ARTICLE V
THE TRUSTEE
SECTION 5.1. Notice of Events of Default. Within 60 days after the
occurrence of any Event of Default, the Trustee shall transmit by mail to all
Holders, as their names and addresses appear in the Register or at the addresses
provided by Holders in writing to the Trustee, notice of such Event of Default
hereunder actually known to a Responsible Officer of the Trustee, unless such
Event of Default shall have been cured or waived; provided, however, that,
except in the case of a default in the payment of the principal of, premium or
Additional Interest, if any, or interest on any Senior Note, the Trustee shall
be protected in withholding such notice if and so long as a trust committee of
Responsible Officers of the Trustee in good faith determines that the
withholding of such notice is in the interest of the Holders.
SECTION 5.2. Certain Rights of Trustee. (a) If an Event of Default has
occurred and is continuing, the Trustee shall exercise such of the rights and
powers vested in it by this Indenture and use the same degree of care and skill
in their exercise as a prudent person would exercise or use under the
circumstances in the conduct of his own affairs.
(b) Except during the period when an Event of Default is continuing:
(i) the Trustee is required to perform only those duties as are
specifically set forth in this Indenture and no covenants or
obligations shall be implied in this Indenture that are adverse to the
Trustee; and
(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein and, upon certificates
or opinions furnished to the Trustee and conforming to the
requirements of this Indenture.
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(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act or its own willful
misconduct, except that:
(i) this Section 5.2(c) does not limit the effect of Section 5.2(b);
(ii) the Trustee shall not be liable for any error of judgment made in
good faith by a Responsible Officer, unless it is proved that the
Trustee was negligent in ascertaining the pertinent facts;
(iii) the Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 4.12; and
(iv) no provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any financial
liability in the performance of any of its duties hereunder or in the
exercise of any of its rights or powers if it shall have reasonable
grounds for believing that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to
it.
(d) Every provision of this Indenture that in any way relates to the
Trustee is subject to this Section 5.2.
(e) The Trustee may refuse to perform any duty or exercise any right
or power unless it receives indemnity satisfactory to it against any loss,
liability or expense, including such reasonable advances as may be requested by
the Trustee.
(f) Subject to the foregoing Sections 5.2(a), 5.2(b), 5.2(c), 5.2(d)
and 5.2(e):
(i) The Trustee may conclusively rely and shall be fully protected in
acting or in refraining from acting upon any document (whether in its
original or facsimile form) believed by it to be genuine and to have
been signed or presented by the proper Person. The Trustee need not
investigate any fact or matter stated in the document. Any request or
direction of the Issuer mentioned herein shall be sufficiently
evidenced by a Request or Order of the Issuer and any resolution by
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the Board of Directors may be sufficiently evidenced by a Board
Resolution.
(ii) Before the Trustee acts or refrains form acting, it may require
an Officers' Certificate and/or an Opinion of Counsel. The Trustee
shall not be liable for any action it takes or omits to take in good
faith in reliance on such Officers' Certificate or Opinion of Counsel.
In addition, in determining the compliance of the Issuer with the
financial covenants set forth herein, the Trustee may rely on the
certificate delivered to the Trustee pursuant to Section 9.6(a).
(iii) The Trustee may act through its attorneys and agents and shall
not be responsible for the misconduct or negligence of any agent
appointed with due care.
(iv) The Trustee shall not be liable for any action it takes or omits
to take in good faith that it believes to be authorized or within its
rights or powers.
(v) The Trustee may consult with counsel, accountants or other experts
of its own selection, and any advice of such counsel, accountants or
other experts shall be full and complete authorization and protection
in respect of any action taken, suffered or omitted to be taken by it
hereunder in good faith and in accordance with such advice.
(vi) The Trustee shall not be deemed to have notice of any Default
hereunder, except for Events of Default described in Paragraphs (a),
(b) or (c) of Section 4.1 (only to the extent that the Trustee acts as
the Paying Agent), unless a Responsible Officer of the Trustee shall
be specifically notified by a writing delivered to it of such Default
by the Issuer, the Paying Agent (to the extent the Trustee is not
acting as the Paying Agent) or by the Holders of at least 25% in
aggregate principal amount of the Outstanding Senior Notes, and in the
absence of such notice so delivered, the Trustee may conclusively
assume that there is no Default except as aforesaid.
SECTION 5.3. Not Responsible for Recitals or Issuance of Senior Notes.
The recitals contained herein and in the Senior Notes, except the Trustee's
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certificates of authentication, shall be taken as the statements of the Issuer,
and the Trustee assumes no responsibility for their correctness. The Trustee
makes no representations as to the validity or sufficiency of this Indenture or
the Senior Notes. The Trustee shall not be accountable for the use or
application by the Issuer of Senior Notes or the proceeds thereof, except that
the Trustee represents that it is duly authorized to execute and deliver this
Indenture, authenticate the Senior Notes and perform its obligations hereunder.
SECTION 5.4. Trustee and Agents May Hold Senior Notes; Collections;
Etc. The Trustee and any Paying Agent, Registrar or other agent of the Issuer,
in its individual or any other capacity, may become the owner or pledgee of
Senior Notes with the same rights it would have if it were not the Trustee,
Paying Agent, Registrar or such other agent and, subject to Sections 310(b) and
311 of the Trust Indenture Act, may otherwise deal with the Issuer and receive,
collect, hold and retain collections from the Issuer with the same rights it
would have if it were not Trustee, Paying Agent, Registrar or such other agent.
SECTION 5.5. Money Held in Trust. All moneys received by the Trustee
shall, until used or applied as herein provided, be held in trust hereunder for
the purposes for which they were received and need not be segregated from other
funds except to the extent required by law. The Trustee shall be under no
liability for interest on any money received by it hereunder except as otherwise
agreed with the Issuer.
SECTION 5.6. Compensation and Reimbursement. The Issuer covenants and
agrees:
(a) to pay to the Trustee as agreed upon from time to time in writing
compensation for all services rendered by it hereunder (which compensation shall
not be limited by any provision of law in regard to the compensation of a
trustee of an express trust);
(b) except as otherwise expressly provided herein, to reimburse the
Trustee upon its request for all reasonable expenses, disbursements and advances
incurred or made by the Trustee in accordance with any provision of this
Indenture (including the reasonable compensation and the expenses and
disbursements of its agents and counsel), except any such expense, disbursement
or advance as may be attributable to its negligence or bad faith; and
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(c) to fully indemnify the Trustee and each of its officers,
directors, employees, agents and counsel and any predecessor Trustee for, and to
hold them harmless against, any and all loss, liability, claim, damage or
expense (including taxes other than taxes based on the income of the Trustee)
incurred without negligence or bad faith on their part, arising out of or in
connection with the acceptance or administration of this Indenture or the trusts
hereunder, including the costs and expenses of defending itself against any
claim or liability in connection with the exercise or performance of any of its
powers or duties hereunder.
The obligation of the Issuer under this Section 5.6 to compensate the
Trustee and to pay and reimburse the Trustee for such expenses, disbursements
and advances shall constitute additional Indebtedness hereunder and shall
survive the satisfaction and discharge of this Indenture.
As security for the performance of the obligation of the Issuer under
this Section 5.6, the Trustee shall have a claim prior to the Senior Notes upon
all money, securities or other property held or collected by the Trustee as
such, except funds held in trust for the payment of principal of, premium and
Additional Interest, if any, or interest on particular Senior Notes.
If the Trustee incurs expenses or renders services after an Event of
Default specified in Section 4.1(f) or 4.1(g) occurs, the expenses and the
compensation for the services are intended to constitute expenses of
administration under the Federal Bankruptcy Code and any other applicable
federal or state bankruptcy law. The provisions of this Section 5.6 shall
survive the resignation or removal of the Trustee or the termination of this
Indenture.
SECTION 5.7. Conflicting Interests. The Trustee shall comply with the
provisions of Section 310(b) of the Trust Indenture Act.
SECTION 5.8. Corporate Trustee Required; Eligibility. There shall at
all times be a Trustee hereunder which shall be eligible to act as Trustee under
Section 310(a)(1) of the Trust Indenture Act and which shall have a combined
capital and surplus of at least $50,000,000 and have its Corporate Trust Office
located in the City of New York (or if its Corporate Trust Office shall not be
located in the City of New York, the Issuer shall, pursuant to Section 2.4,
maintain an office or agency in the City of New York where the Senior Notes may
be presented or surrendered and notices and demands hereunder may be made or
served) to the extent there is such an institution eligible and willing to
serve. If such corporation publishes reports of
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condition at least annually pursuant to law or to the requirements of federal,
state, territorial or the District of Columbia supervising or examining
authority, then, for the purposes of this Section 5.8, the combined capital and
surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. If at
any time the Trustee shall cease to be eligible in accordance with the
provisions of this Section 5.8, it shall resign immediately in the manner and
with the effect hereinafter specified in this Article V.
SECTION 5.9. Resignation and Removal; Appointment of Successor. (a) No
resignation or removal of the Trustee and no appointment of a successor Trustee
pursuant to this Article V shall become effective until the acceptance of
appointment by the successor Trustee under Section 5.10, at which time the
retiring Trustee shall be fully discharged from its obligations hereunder.
(b) The Trustee may resign at any time by giving written notice
thereof to the Issuer. If an instrument of acceptance by a successor Trustee
shall not have been delivered to the Trustee within 30 days after the giving of
such notice of resignation, the resigning Trustee may petition at the expense of
the Issuer any court of competent jurisdiction for the appointment of a
successor Trustee. Such court may thereupon, after such notice, if any, as it
may deem proper, appoint a successor Trustee.
(c) The Trustee may be removed at any time by an Act of the Holders of
a majority in principal amount of the Outstanding Senior Notes, delivered to the
Trustee and the Issuer. If an instrument of acceptance by a successor Trustee
shall not have been delivered to the Trustee within 30 days after the giving of
such notice of removal, the removed Trustee may petition at the expense of the
Issuer any court of competent jurisdiction for the appointment of a successor
Trustee. Such court may thereupon, after such notice, if any, as it may deem
proper, appoint a successor Trustee.
(d) If at any time:
(i) the Trustee shall fail to comply with the provisions of Section
310(b) of the Trust Indenture Act after written request therefor by
the Issuer or by any Holder who has been a bona fide Holder for at
least six months, or
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(ii) the Trustee shall cease to be eligible under Section 5.8 and
shall fail to resign after written request therefor by the Issuer or
by any Holder who has been a bona fide Holder for at least six months,
or
(iii) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent, or a receiver of the Trustee or of
its property shall be appointed or any public officer shall take
charge or control of the Trustee or of its property or affairs for the
purpose of rehabilitation, conservation or liquidation,
then, in any such case, (i) the Issuer, by a Board Resolution, may remove the
Trustee, or (ii) subject to Section 4.14, any Holder who has been a bona fide
Holder for at least six months may, on behalf of himself and all others
similarly situated, petition any court of competent jurisdiction for the removal
of the Trustee and the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause, the
Issuer, by a Board Resolution, shall promptly appoint a successor Trustee. If,
within one year after such resignation, removal or incapability, or the
occurrence of such vacancy, a successor Trustee shall be appointed by Act of the
Holders of a majority in principal amount of the Outstanding Senior Notes
delivered to the Issuer and the retiring Trustee, the successor Trustee so
appointed shall, forthwith upon its acceptance of such appointment in accordance
with Section 5.10, become the successor Trustee and supersede the successor
Trustee appointed by the Issuer. If no successor Trustee shall have been so
appointed by the Issuer or the Holders and so accepted appointment, any Holder
who has been a bona fide Holder for at least six months may on behalf of himself
and all others similarly situated petition any court of competent jurisdiction
for the appointment of a successor Trustee.
(f) The Issuer shall give notice of each resignation and each removal
of the Trustee and each appointment of a successor Trustee by mailing written
notice of such event by first class mail, postage prepaid, to the Holders as
their names and addresses appear in the Register. Each notice shall include the
name of the successor Trustee and the address of its Corporate Trust Office.
SECTION 5.10. Acceptance of Appointment of Successor. Every successor
Trustee appointed hereunder shall execute, acknowledge and deliver to the
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Issuer and to the retiring Trustee an instrument accepting such appointment, and
thereupon the resignation or removal of the retiring Trustee shall become
effective and such successor Trustee, without any further act, deed or
conveyance, shall become vested with all the rights, powers, trusts and duties
of the retiring Trustee; provided, however, that the retiring Trustee shall
continue to be entitled to the benefit of Section 5.6(c); but, on request of the
Issuer or the successor Trustee, such retiring Trustee shall, upon payment of
its charges and the charges of its agents and counsel, execute and deliver an
instrument transferring to such successor Trustee all the rights, powers and
trusts of the retiring Trustee, and shall duly assign, transfer and deliver to
such successor Trustee all property and money held by such retiring Trustee
hereunder. Upon request of any such successor Trustee, the Issuer shall execute
any and all instruments in order to fully vest in such successor Trustee all
such rights, powers and trusts.
No successor Trustee shall accept its appointment unless at the time
of such acceptance such successor Trustee shall be qualified and eligible under
this Article V.
Upon acceptance of appointment by any successor Trustee as provided in
this Section 5.10, the Issuer shall give notice thereof to the Holders by
mailing such notice to the Holders as their names and addresses appear on the
Register. If the acceptance of appointment is substantially contemporaneous with
the resignation, then the notice called for by the preceding sentence may be
combined with the notice called for by Section 5.9. If the Issuer fails to give
such notice within ten days after acceptance of appointment by the successor
Trustee, the successor Trustee shall cause such notice to be given at the
expense of the Issuer.
SECTION 5.11. Merger, Conversion, Consolidation or Succession to
Business. Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided such corporation shall be otherwise qualified and eligible under this
Article V, without the execution or filing of any paper or any further act on
the part of any of the parties hereto. In case any Senior Notes shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Senior Notes so authenticated
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with the same effect as if such successor Trustee had itself authenticated such
Senior Notes.
SECTION 5.12. Preferential Collection of Claims Against the Issuer. If
and when the Trustee shall be or become a creditor of the Issuer (or any other
obligor under the Senior Notes), the Trustee shall be subject to the provisions
of Section 311(b) of the Trust Indenture Act regarding the collection of claims
against the Issuer (or any such other obligor).
SECTION 5.13. Trustee's Application for Instructions from the Company.
Any application by the Trustee for written instructions from the Issuer may, at
the option of the Trustee, set forth in writing any action proposed to be taken
or omitted by the Trustee under this Indenture and the date on and/or after
which such action shall be taken or such omission shall be effective. The
Trustee shall not be liable for any action taken by, or omission of, the Trustee
in accordance with a proposal included in such application on or after the date
specified in such application (which date shall not be less than three Business
Days after the date any officer of the Issuer actually receives such
application, unless any such officer shall have consented in writing to any
earlier date) unless prior to taking any such action (or the effective date in
the case of an omission), the Trustee shall have received written instructions
in response to such application specifying the action to be taken or omitted.
ARTICLE VI
HOLDERS' LISTS AND REPORTS BY TRUSTEE
SECTION 6.1. Disclosure of Names and Addresses of Holders. Every
Holder, by receiving and holding the same, agrees with the Issuer and the
Trustee that neither the Issuer nor the Trustee or any agent of either of them
shall be held accountable by reason of the disclosure of any information as to
the names and addresses of the Holders in accordance with Section 312 of the
Trust Indenture Act, regardless of the source from which such information was
derived, and that the Trustee shall not be held accountable by reason of mailing
any material pursuant to a request made under Section 312 of the Trust Indenture
Act.
SECTION 6.2. Reports by Trustee. Within 60 days after May 15 of each
year commencing with the first May 15 after the first issuance of Senior Notes,
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the Trustee shall transmit by mail to all Holders, as their names and addresses
appear in the Register, as provided in Trust Indenture Act Section 313(c), a
brief report dated as of such May 15 if required by Trust Indenture Act Section
313(a).
ARTICLE VII
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 7.1. Issuer May Consolidate, Etc., Only on Certain Terms.
After the Issue Date, the Issuer shall not consolidate with or merge with or
into any other Person, or, directly or indirectly, sell, assign, convey,
transfer, lease or otherwise dispose of all or substantially all of its assets
in one or more related transactions to any Person or group of affiliated Persons
unless, at the time and after giving effect thereto:
(a) (i) the Issuer shall be the continuing corporation, or (ii) the
Person (if other than the Issuer) formed by such consolidation, or into which
the Issuer is merged, or the Person that acquires by sale, assignment, transfer,
lease, conveyance or other disposition the assets of the Issuer, substantially
as an entirety (the "SURVIVING ENTITY"), is a corporation duly organized and
validly existing under the laws of the United States or any other jurisdiction
that is not materially adverse to the holders of the Senior Notes and shall, in
the case of clause (ii), expressly assume, by supplemental indenture hereto,
executed and delivered to the Trustee, in form reasonably satisfactory to the
Trustee, all the obligations of the Issuer under this Indenture;
(b) immediately before and after such transaction, giving effect to
such transaction, no Default or Event of Default shall have occurred and be
continuing;
(c) immediately after giving effect to such transaction on a pro forma
basis, the Consolidated Net Worth (after giving pro forma effect to such
transaction but not including the effect of any purchase accounting adjustments
or the accrual of deferred tax liabilities resulting from the transaction) of
the Issuer (or the Surviving Entity) is at least equal to the Consolidated Net
Worth of the Issuer immediately before such transaction;
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(d) if any of the property or assets of the Issuer would thereupon
become subject to any Lien, the outstanding Senior Notes shall be secured
equally and ratably with (or prior to) the obligation or liability secured by
such Lien, unless the Issuer could create such Lien hereunder without equally
and ratably securing the Senior Notes; and
(e) the Issuer has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that such consolidation, merger,
transfer or lease and such supplemental indenture, if one is required by this
Section 7.1, comply with this Section 7.1 and that all conditions precedent
herein provided for relating to such transaction have been complied with.
SECTION 7.2. Successor Substituted. Upon any consolidation or merger
or any sale, assignment, transfer, lease or conveyance or other disposition of
all or substantially all of the assets of the Issuer in accordance with Section
7.1, the successor Person formed by such consolidation or into which the Issuer
is merged or to which such sale, assignment, transfer, lease, conveyance or
other disposition is made shall succeed to, and be substituted for, and may
exercise every right and power of, the Issuer under this Indenture with the same
effect as if such successor Person had been named as the Issuer herein. When a
successor assumes all the obligations of its predecessor under this Indenture
and the Senior Notes, the predecessor will be released from those obligations;
provided that in the case of a transfer by lease, the predecessor corporation
shall not be released from the payment of principal of, premium and Additional
Interest, if any, and interest on the Senior Notes.
ARTICLE VIII
SUPPLEMENTAL INDENTURES
SECTION 8.1. Supplemental Indentures Without Consent of Holders.
Without the consent of any Holders, the Issuer, when authorized by a Board
Resolution, and the Trustee, at any time and from time to time, may enter into
one or more indentures supplemental hereto in form satisfactory to the Trustee,
for any of the following purposes:
(a) to cure any ambiguity or to correct any provision herein which may
be defective or inconsistent with any other provision herein;
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(b) to provide for the assumption of the Issuer's obligations to
Holders in the case of a merger or consolidation;
(c) to secure the Senior Notes pursuant to the requirements of Section
7.1 or 9.5 or otherwise;
(d) to comply with the requirements of the Commission in order to
effect or maintain the qualification of this Indenture under the Trust Indenture
Act, as contemplated by this Indenture or otherwise;
(e) to evidence and provide the acceptance of the appointment of a
successor Trustee hereunder; or
(f) to make any other change that would provide any additional rights
or benefits to the Holders or that does not adversely affect the legal rights of
any Holder under this Indenture or the Senior Notes.
SECTION 8.2. Supplemental Indentures with Consent of Holders. With the
consent of the Holders of not less than a majority in principal amount of the
Outstanding Senior Notes (including consents obtained in connection with a
tender offer or exchange offer for the Senior Notes), by Act of such Holders
delivered to the Issuer and the Trustee, the Issuer, when authorized by a Board
Resolution, and the Trustee may enter into one or more indentures supplemental
hereto for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of this Indenture or of waiving or modifying
in any manner the rights of the Holders under this Indenture; provided, however,
that no such supplemental indenture, amendment or waiver shall without the
consent of the Holder of each Outstanding Senior Note affected thereby:
(i) change the Stated Maturity or the principal of, or any installment
of interest on, or change the obligation of the Issuer to pay any
Additional Interest with respect to, any Senior Note or reduce the
principal amount thereof or the rate of interest thereon or any
provision relating to the Redemption Price of Senior Notes or the
periods during which redemption may be effected, or change the coin or
currency in which the principal of any Senior Note or premium or
Additional Interest, if any, or the interest thereon is payable, or
impair the right to institute suit for the enforcement of any such
payment
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after the Stated Maturity thereof (or, in the case of redemption, on
or after the Redemption Date); or
(ii) reduce the percentage in principal amount of the Outstanding
Senior Notes, the consent of whose Holders is required for any such
supplemental indenture or the consent of whose Holders is required for
any waiver of compliance with certain provisions of this Indenture or
certain defaults hereunder and their consequences provided for in this
Indenture; or
(iii) modify any of the provisions of this Section 8.2, Section 4.13
or Section 9.8, except to increase any such percentage or to provide
that certain other provisions of this Indenture cannot be modified or
waived without the consent of the Holder of each Senior Note affected
thereby.
It shall not be necessary for any Act of Holders under this Section
8.2 to approve the particular form of any proposed supplemental indenture, but
it shall be sufficient if such Act shall approve the substance thereof.
SECTION 8.3. Execution of Supplemental Indentures. In executing, or
accepting the additional trusts created by, any supplemental indenture permitted
by this Article VIII or the modifications thereby of the trusts created by this
Indenture, the Trustee shall be entitled to receive, and (subject to Section
315(a) through 315(d) of the Trust Indenture Act and Section 5.2 hereof) shall
be fully protected in relying upon, an Officers' Certificate and an Opinion of
Counsel stating that the execution of such supplemental indenture is authorized
or permitted by this Indenture. The Trustee may, but shall not be obligated to,
enter into any such supplemental indenture which adversely affects the Trustee's
own rights, duties or immunities under this Indenture or otherwise.
SECTION 8.4. Effect of Supplemental Indentures. Upon the execution of
any supplemental indenture under this Article VIII, this Indenture shall be
modified in accordance therewith, and such supplemental indenture shall form a
part of this Indenture for all purposes; and every Holder of Senior Notes
theretofore or thereafter authenticated and delivered hereunder shall be bound
thereby.
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SECTION 8.5. Conformity with Trust Indenture Act. Every supplemental
indenture executed pursuant to this Article VIII shall conform to the
requirements of the Trust Indenture Act as then in effect.
SECTION 8.6. Reference in Senior Notes to Supplemental Indentures.
Senior Notes authenticated and delivered after the execution of any supplemental
indenture pursuant to this Article VIII may, and shall if required by the
Issuer, bear a notation in form approved by the Issuer as to any matter provided
for in such supplemental indenture. If the Issuer shall so determine, new Senior
Notes so modified as to conform, in the opinion of the Issuer, to any such
supplemental indenture may be prepared and executed by the Issuer and shall be
authenticated and delivered by the Trustee in exchange for Outstanding Senior
Notes.
ARTICLE IX
COVENANTS
SECTION 9.1. Payment of Principal, Premium and Interest. The Issuer
will duly and punctually pay the principal of and any premium and interest on
the Senior Notes in accordance with the terms of the Senior Notes and this
Indenture. Principal, premium, if any, and interest shall be considered paid on
the date due if the Paying Agent (other than the Issuer) holds as of 10:00 a.m.
(New York City time) on that date money sufficient to pay all principal,
premium, if any, and interest then due. The Issuer shall pay all Additional
Interest, if any, in the same manner on the dates and in the amounts set forth
in the Registration Rights Agreement. The Issuer will promptly notify the
Trustee of an obligation to pay Additional Interest under the Registration
Rights Agreement and any cure thereof.
The Issuer shall pay interest on overdue principal and premium, if
any, and to the extent lawful, interest on overdue installments of interest and
Additional Interest, at the rate per annum set forth in the Senior Notes.
SECTION 9.2. Corporate Existence. The Issuer shall do or cause to be
done all things necessary to preserve and keep in full force and effect its
corporate existence and that of each Subsidiary and the corporate rights
(charter and statutory), corporate licenses and corporate franchises of the
Issuer and each Subsidiary, except where a failure to do so, singly or in the
aggregate, would not have a material adverse effect upon the business,
prospects, assets, conditions (financial or otherwise) or
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results of operations of the Issuer and the Subsidiaries taken as a whole
determined on a consolidated basis in accordance with GAAP; provided that the
Issuer shall not be required to preserve any such existence (except of the
Issuer), right, license or franchise if the Board of Directors or the board of
directors of the Subsidiary concerned, shall determine that the preservation
thereof is no longer desirable in the conduct of the business of the Issuer or
such Subsidiary and that the loss thereof is not disadvantageous in any material
respect to the Holders.
SECTION 9.3. Payment of Taxes and Other Claims. The Issuer will pay or
discharge or cause to be paid or discharged, before the same shall become
delinquent, (a) all material taxes, assessments and governmental charges levied
or imposed upon it or any of the Subsidiaries or upon the income, profits or
property of the Issuer or any of the Subsidiaries and (b) all material lawful
claims for labor, materials and supplies, which, if unpaid, might by law become
a Lien upon the property of the Issuer or any of the Subsidiaries that could
produce a material adverse effect on the consolidated financial condition of the
Issuer (in the good faith judgment of management of the Issuer); provided,
however, that the Issuer shall not be required to pay or discharge or cause to
be paid or discharged any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings and in respect of which appropriate reserves (in the good faith
judgment of management of the Issuer) are being maintained in accordance with
GAAP.
SECTION 9.4. Maintenance of Properties; Insurance; Books and Records;
Compliance with Law. (a) The Issuer shall cause all properties owned by or
leased to it or any Subsidiary and used or useful in the conduct of its business
or the business of such Subsidiary to be maintained and kept in normal
condition, repair and working order, ordinary wear and tear excepted; provided
that nothing in this Section 9.4 shall prevent the Issuer or any Subsidiary from
discontinuing the use, operation or maintenance of any of such properties, or
disposing of any of them, if such discontinuance or disposal is, in the judgment
of the Board of Directors or the board of directors of the Subsidiaries
concerned, or of any officer (or other agent employed by the Issuer or any
Subsidiary) of the Issuer or such Subsidiary having managerial responsibility
for any such property, desirable in the conduct of the business of the Issuer or
any Subsidiary and if such discontinuance or disposal is not adverse in any
material respect to the Holders.
(b) The Issuer shall provide or cause to be provided, for itself and
any Subsidiary, insurance (including appropriate self-insurance) against loss or
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damage of the kinds customarily insured against by corporations similarly
situated and owning like properties in the same general areas in which the
Issuer or such Subsidiaries operate.
(c) The Issuer shall and shall cause each Subsidiary to keep proper
and true books of record and account, in which full and correct entries shall be
made of all financial transactions and the assets and business of the Issuer and
each Subsidiary, and reflect on its financial statements adequate accruals and
appropriations to reserves, all in accordance with GAAP consistently applied
except for accounting changes required by the AICPA, FASB or the Commission to
the Issuer and the Subsidiaries taken as a whole.
(d) The Issuer shall and shall cause each Subsidiary to comply with
all statutes, laws, ordinances or government rules and regulations to which it
is subject, except where a failure to do so, singly or in the aggregate, is not
likely to have a materially adverse effect upon the business, prospects, assets
or condition (financial or otherwise) or results of operations of the Issuer and
the Subsidiaries taken as a whole.
SECTION 9.5. Liens. The Issuer will not, and will not permit any
Subsidiary to, directly or indirectly, create, incur, assume or suffer to exist
any Lien securing Indebtedness (other than Permitted Liens) on any property or
asset now owned or hereafter acquired, or on any income or profits therefrom or
assign or convey any right to receive income therefrom, unless all payments due
under the Senior Notes and hereunder are secured on an equal and ratable basis
with (or prior to in the case of Liens with respect to subordinated obligations)
the obligations so secured until such time as such obligations are no longer
secured by a Lien.
SECTION 9.6. Statement as to Compliance; Notice of Default; Provision
of Financial Statements. (a) The Issuer will deliver to the Trustee, within 120
days after the end of each fiscal year ending after the date hereof, a
certificate of its principal executive officer, principal financial officer or
principal accounting officer stating whether, to such officer's knowledge, the
Issuer is in compliance with all covenants and conditions to be complied with by
it under this Indenture. For purposes of this Section 9.6, such compliance shall
be determined without regard to any period of grace or requirement of notice
under this Indenture.
(b) If the Issuer becomes aware of a Default or if the Trustee, any
Holder or the trustee for or the holder of any other evidence of Indebtedness of
the
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Issuer (other than Indebtedness in the aggregate principal amount of less than
$25,000,000) gives any notice or takes any other action with respect to a
claimed Default, the Issuer shall deliver to the Trustee an Officers'
Certificate specifying such Default, notice or other action within five Business
Days of its occurrence.
(c) The Issuer shall supply without cost to each Holder, and file with
the Trustee within 15 days after the Issuer is required to file the same with
the Commission, copies of the annual reports and quarterly reports and of the
information, documents and other reports which the Issuer may be required to
file with the Commission pursuant to Sections 13(a), 13(c) or 15(d) of the
Exchange Act; and
(d) Whether or not the Issuer is required to file with the Commission
such reports and other information referred to in Section 9.6(c), the Issuer
shall file with the Commission and the Trustee such reports and information and
furnish without cost to each Holder all financial information that would be
required to be contained in a filing referred to in Section 9.6(c). The Issuer
shall also make such reports available to prospective purchasers of the Senior
Notes, securities analysts and broker-dealers upon their written request. The
Issuer shall also file with the Trustee and the Commission, in accordance with
rules and regulations prescribed from time to time by the Commission, such
additional information, documents and reports with respect to compliance by the
Issuer with the conditions and covenants of this Indenture as may be required
from time to time by such rules and regulations. Delivery of such reports,
information and documents to the Trustee is for informational purposes only and
the Trustee's receipt of such shall not constitute constructive notice of any
information contained therein or determinable from information contained
therein, including the Issuer's compliance with any of its covenants hereunder
(as to which the Trustee is entitled to rely exclusively on Officers'
Certificates).
SECTION 9.7. Waiver of Stay; Extension of Usury Law. The Issuer
covenants (to the extent that it may lawfully do so) that it will not at any
time insist upon, or plead, or in any manner whatsoever claim or take the
benefit or advantage of, any stay, extension or usury law wherever enacted, now
or at any time hereafter in force, which may affect the covenants or the
performance of this Indenture; and the Issuer (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
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SECTION 9.8. Waiver of Certain Covenants. The Issuer may omit in any
particular instance to comply with any covenant or condition set forth in
Sections 9.4 and 9.5 if, before or after the time for such compliance, the
Holders of not less than a majority in aggregate principal amount of the Senior
Notes at the time Outstanding shall, by Act of such Holders, waive such
compliance in such instance with such covenant or condition. No such waiver
shall extend to or affect such covenant or condition except to the extent so
expressly waived, and, until such waiver shall become effective, the obligations
of the Issuer and the duties of the Trustee in respect of any such covenant or
condition shall remain in full force and effect.
ARTICLE X
REDEMPTION OF SENIOR NOTES
SECTION 10.1. Right of Redemption. The Issuer shall have the right to
redeem the Senior Notes, in whole or in part, at any time and from time to time,
subject to the receipt of any consent required under the terms of any
Indebtedness of the Issuer which may be outstanding from time to time.
SECTION 10.2. Applicability of Article. Redemption of Senior Notes at
the election of the Issuer or otherwise, as permitted or required by any
provision of this Indenture, shall be made in accordance with such provision
and this Article X.
SECTION 10.3. Election to Redeem; Notice to Trustee. The election of
the Issuer to redeem any Senior Notes pursuant to Section 10.1 shall be
evidenced by a Board Resolution. In case of such redemption, the Issuer shall,
at least 60 days prior to the Redemption Date fixed by it (unless a shorter
notice period shall be satisfactory to the Trustee), notify the Trustee of such
Redemption Date and of the principal amount of Senior Notes to be redeemed.
SECTION 10.4. Selection by Trustee of Senior Notes to Be Redeemed. If
less than all of the Senior Notes are to be redeemed, the particular Senior
Notes or portions thereof to be redeemed shall be selected not more than 60 days
and not less than 30 days prior to the Redemption Date by the Trustee, from the
Outstanding Senior Notes not previously called for redemption on a pro rata
basis, by lot or by any other method the Trustee shall deem fair and appropriate
and in compliance with the requirements of such principal national securities
exchange, if
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any, on which the Senior Notes are listed or, if the Senior Notes are not so
listed, on a pro rata basis, by lot or by any other method the Trustee shall
deem fair and appropriate; provided that the amounts to be redeemed shall be
equal to at least $1,000 or any integral multiple thereof.
The Trustee shall promptly notify the Issuer, DTC and the Registrar in
writing of the Senior Notes selected for redemption and, in the case of any
Senior Notes selected for partial redemption, the principal amount thereof to be
redeemed.
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to redemption of Senior Notes shall relate, in
the case of any Senior Note redeemed or to be redeemed only in part, to the
portion of the principal amount of such Senior Note which has been or is to be
redeemed.
SECTION 10.5. Notice of Redemption. Notice of redemption shall be
given by first-class mail, postage prepaid, mailed not less than 30 nor more
than 60 days prior to the Redemption Date, to each Holder of Senior Notes to be
redeemed at the Redemption Price specified in Section 10.9.
All notices of redemption shall state:
(a) the Redemption Date;
(b) the Redemption Price including, in connection with an optional
redemption pursuant to Section 10.9, the estimated Make-Whole Amount due in
connection with such redemption (calculated as if the date of such notice were
the date of the prepayment) and setting forth the details of such calculation of
Make-Whole Amount;
(c) if less than all Outstanding Senior Notes are to be redeemed, the
identification (and, if the case of a Senior Note to be redeemed in part, the
principal amount) of the particular Senior Notes to be redeemed;
(d) that on the Redemption Date the Redemption Price will become due
and payable upon each such Senior Note or portion thereof, and that (unless the
Issuer shall default in payment of the Redemption Price) interest thereon shall
cease to accrue on and after said date;
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(e) the place or places where such Senior Notes are to be surrendered
for payment of the Redemption Price;
(f) that Senior Notes called for redemption must be surrendered to the
Paying Agent to collect the Redemption Price;
(g) the CUSIP or ISIN number or numbers, if any, relating to such
Senior Notes, but that no representation is made as to the correctness or
accuracy of the CUSIP or ISIN number listed in such notice or printed on the
Senior Notes and that reliance may be placed only on the other identification
numbers printed on the Senior Notes;
(h) in the case of a Certificated Senior Note to be redeemed in part,
the principal amount of such Certificated Senior Note to be redeemed and that
after the Redemption Date upon surrender of such Certificated Senior Note, a new
Certificated Senior Note or Certificated Senior Notes in the aggregate principal
amount equal to the unredeemed portion thereof will be issued; and
(i) in the case of a Global Senior Note to be redeemed in part, the
principal amount of such Global Senior Note to be redeemed and that after the
Redemption Date upon surrender of such Global Senior Note a new Global Senior
Note in principal amount equal to the unredeemed portion will be issued or an
adjustment will be made to the existing Global Senior Note such that the
aggregate principal amount of the Global Senior Note will equal the unredeemed
portion of the Global Senior Note.
Notice of redemption of Senior Notes to be redeemed at the election of
the Issuer shall be given by the Issuer or, at its request, by the Trustee in
the name and at the expense of the Issuer. Failure to give notice or any defect
in the notice to any Holder shall not affect the validity of the notice to any
other Holder.
SECTION 10.6. Deposit of Redemption Price. On or prior to any
Redemption Date, the Issuer shall deposit with the Trustee or with a Paying
Agent (or, if the Issuer is acting as its own Paying Agent, segregate and hold
in trust as provided in Section 2.5) an amount of money in same-day funds (or
New York Clearing House funds if such deposit is made prior to the applicable
Redemption Date) sufficient to pay the Redemption Price of, and (except if the
Redemption Date shall be an Interest Payment Date) Additional Interest, if any,
and accrued interest on, all the Senior Notes or portions thereof which are to
be redeemed on that date.
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SECTION 10.7. Senior Notes Payable on Redemption Date. Notice of
redemption having been given as aforesaid, the Senior Notes to be redeemed
shall, subject to the provisions of Section 10.3, on the Redemption Date, become
due and payable at the Redemption Price therein specified and from and after
such date (unless the Issuer shall default in the payment of the Redemption
Price and accrued interest) such Senior Notes shall cease to bear interest. Upon
surrender of any such Senior Note for redemption in accordance with said notice,
such Senior Note shall be paid by the Issuer at the Redemption Price together
with accrued interest to the Redemption Date; provided, however, that
installments of interest on any Certificated Senior Notes whose Stated Maturity
is on or prior to the Redemption Date shall be payable to the Holders of such
Certificated Senior Notes, or one or more predecessor Certificated Senior Notes,
registered as such on the relevant Regular Record Dates according to the terms
and the provisions of Section 2.6.
If any Senior Note called for redemption shall not be so paid upon
surrender thereof for redemption, the principal thereof (and premium, if any,
thereon) shall, until paid, bear interest from the Redemption Date at the rate
borne by such Senior Note.
SECTION 10.8. Senior Notes Redeemed in Part. Any Senior Note which is
to be redeemed only in part shall be surrendered at the office or agency of the
Issuer maintained for such purpose pursuant to Section 2.4 (with, if the Issuer,
the Registrar or the Trustee so requires, due endorsement by, or a written
instrument of transfer in form satisfactory to the Issuer, the Registrar or the
Trustee duly executed by, the Holder thereof or his attorney duly authorized in
writing). Upon surrender of a Certificated Senior Note that is redeemed in part,
the Issuer shall execute, and the Trustee shall authenticate and deliver to the
Holder of such Certificated Senior Note without service charge, a new
Certificated Senior Note or Certificated Senior Notes, of any authorized
denomination as requested by such Holder in aggregate principal amount equal to
and in exchange for the unredeemed portion of the principal of the Certificated
Senior Note so surrendered. Upon surrender of a Global Senior Note that is
redeemed in part, the Paying Agent shall forward the Global Senior Note to the
Trustee who shall reduce the principal amount of such Global Senior Note to an
amount equal to the unredeemed portion of the Global Senior Note surrendered.
SECTION 10.9. Optional Redemption. (a) The Senior Notes are subject to
optional redemption by the Issuer at a Redemption Price equal to 100% of the
principal amount, together with accrued and unpaid interest and Additional
Interest, if any, thereon to the Redemption Date (subject to the right of
Holders of
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record on relevant Regular Record Dates to receive interest due on an Interest
Payment Date), plus the Make-Whole Amount, if any, with respect to such Senior
Notes.
Three Business Days prior to such redemption, the Issuer shall give
notice to the Quotation Agent requesting the Quotation Agent to provide a quote
of the Comparable Treasury Price, and the Quotation Agent shall provide such
quotation to the Issuer on or before one Business Day prior to such redemption.
One Business Day prior to such redemption, the Quotation Agent or the
Issuer shall give notice to the Trustee specifying the calculation of the
Make-Whole Amount as of the Redemption Date.
(b) The Senior Notes are not subject to redemption through operation
of a sinking fund.
ARTICLE XI
DEFEASANCE AND COVENANT DEFEASANCE
SECTION 11.1. Option to Effect Defeasance or Covenant Defeasance. The
Issuer may, at its option by Board Resolution, at any time, elect to have
either Section 11.2 or Section 11.3 be applied to all Outstanding Senior Notes
upon compliance with the conditions set forth below in this Article XI.
SECTION 11.2. Defeasance and Discharge. Upon the Issuer's exercise
under Section 11.1 of the option applicable to this Section 11.2, the Issuer
shall be deemed to have been discharged from its obligations with respect to all
Outstanding Senior Notes on the date the conditions set forth below are
satisfied (hereinafter, "DEFEASANCE"). For this purpose, such defeasance means
that the Issuer shall be deemed to have paid and discharged the entire
indebtedness represented by the Outstanding Senior Notes, which shall thereafter
be deemed to be "OUTSTANDING" only for the purposes of Section 11.5 and the
other sections of this Indenture referred to in Section 11.2(a) and Section
11.2(b) below, and to have satisfied all other obligations under such Senior
Notes and this Indenture (and the Trustee, on demand of and at the expense of
the Issuer, shall execute proper instruments acknowledging the same), except for
the following which shall survive until otherwise terminated or discharged
hereunder: (a) the rights of Holders of Outstanding Senior Notes to receive
solely from the trust fund described in Section
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11.5 and as more fully set forth in such Section, payments in respect of the
principal of, premium and Additional Interest, if any, and interest on such
Senior Notes when such payments are due, or on the Redemption Date, as the case
may be, (b) the Issuer's obligations with respect to such Senior Notes under
Section 2.4, Section 2.5, Section 2.6, Section 2.7, Section 2.8, Section 2.10
and Section 2.13, (c) the rights, powers, trusts, duties and immunities of the
Trustee hereunder and the Issuer's obligations in connection therewith, and (d)
this Article XI. Subject to compliance with this Article XI the Issuer may
exercise its option under this Section 11.2 notwithstanding the prior exercise
of its option under Section 11.3 with respect to the Senior Notes.
SECTION 11.3. Covenant Defeasance. Upon the Issuer's exercise under
Section 11.1 of the option applicable to this Section 11.3, the Issuer and, if
applicable, the Trustee and each Holder, shall be released from its obligations
under the covenants contained in Article VII, Sections 9.2 through Section 9.5
inclusive and Section 9.6, with respect to the Outstanding Senior Notes on and
after the date the conditions set forth below are satisfied (hereinafter,
"COVENANT DEFEASANCE"), and the Senior Notes shall thereafter be deemed to be
not "OUTSTANDING" for the purposes of any request, demand, authorization,
direction, notice, consent, waiver or other Act of Holders (and the consequences
of any thereof) in connection with such covenants, but shall continue to be
deemed "OUTSTANDING" for all other purposes hereunder (it being understood that
such Senior Notes shall not be deemed Outstanding for financial accounting
purposes). For this purpose, such covenant defeasance means that, with respect
to the Outstanding Senior Notes, the Issuer may omit to comply with and shall
have no liability in respect of any term, condition or limitation set forth in
any such covenant, whether directly or indirectly, by reason of any reference
elsewhere herein to any such covenant or by reason of any reference in any such
covenant to any other provision herein or in any other document and such
omission to comply shall not constitute a Default or an Event of Default under
Section 4.1(b) or 4.1(h), but, except as specified above, the remainder of this
Indenture and such Senior Notes shall be unaffected thereby.
SECTION 11.4. Conditions to Defeasance or Covenant Defeasance. The
following shall be the conditions to application of either Section 11.2 or
Section 11.3 to the Outstanding Senior Notes:
(a) The Issuer shall irrevocably have deposited or caused to be
deposited with the Trustee as trust funds in trust for the purpose of making the
following payments, specifically pledged as security for, and dedicated solely
to, the
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benefit of the Holders of such Senior Notes, (1) cash in U.S. Dollars in an
amount, or (2) U.S. Government Obligations which through the scheduled payment
of principal and interest in respect thereof in accordance with their terms will
provide, not later than one day before the due date of any payment, cash in U.S.
Dollars in an amount, or (3) a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent public
accountants expressed in a written certification thereof delivered to the
Trustee, to pay and discharge and which shall be applied by the Trustee (or
other qualifying trustee) to pay and discharge the principal of, premium and
Additional Interest, if any, and interest on the Outstanding Senior Notes on the
Stated Maturity or on the applicable optional Redemption Date, as the case may
be, of such principal or installment of principal of, premium and Additional
Interest, if any, and interest on the Senior Notes; provided that the Trustee
shall have been irrevocably instructed by the Issuer in writing to apply such
money or the proceeds of such U.S. Government Obligations to said payments with
respect to the Senior Notes;
(b) In the case of an election under Section 11.2, the Issuer shall
have delivered to the Trustee an Opinion of Counsel in the United States
confirming that (1) the Issuer has received from, or there has been published
by, the Internal Revenue Service a ruling or (2) since the date hereof, there
has been a change in the applicable federal income tax law, in either case to
the effect that, and based thereon such opinion shall confirm that, the Holders
of the Outstanding Senior Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such defeasance and will be subject
to federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such defeasance had not occurred;
(c) In the case of an election under Section 11.3, the Issuer shall
have delivered to the Trustee an Opinion of Counsel in the United States
confirming that the Holders of the Outstanding Senior Notes will not recognize
income, gain or loss for federal income tax purposes as a result of such
covenant defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such covenant defeasance had not occurred;
(d) No Default or Event of Default with respect to the Senior Notes
shall have occurred and be continuing on the date of such deposit or, insofar as
Section 4.1(f) or Section 4.1(g) is concerned, at any time in the period ending
on the 91st day after the date of such deposit;
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(e) Such election under Section 11.2 or 11.3 shall not result in a
breach or violation of, or constitute a default under, this Indenture or any
other material agreement or instrument to which the Issuer is a party or by
which the Issuer is bound;
(f) In the case of an election under either Section 11.2 or 11.3, the
Issuer shall have delivered to the Trustee an Opinion of Counsel to the effect
that after the 91st day following deposit, the trust funds will not be subject
to the effect of any applicable bankruptcy, insolvency, reorganization or
similar laws affecting creditors' rights generally;
(g) In the case of an election under either Section 11.2 or 11.3, the
Issuer shall have delivered to the Trustee an Officers' Certificate stating that
the deposit made by the Issuer pursuant to its election under Section 11.2 or
11.3 was not made by the Issuer with the intent of preferring the Holders over
other creditors of the Issuer or with the intent of defeating, hindering,
delaying or defrauding creditors of the Issuer or others; and
(h) The Issuer shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel in the United States, each stating that
all conditions precedent provided for relating to either the defeasance under
Section 11.2 or the covenant defeasance under Section 11.3 (as the case may be)
have been complied with as contemplated by this Section 11.4.
SECTION 11.5. Deposited Money and U.S. Government Obligations to Be
Held in Trust; Other Miscellaneous Provisions. Subject to the provisions of
Section 2.5, all money and U.S. Government Obligations (including the proceeds
thereof) deposited with the Trustee (or other qualifying trustee, collectively
for purposes of this Section 11.5, the "Trustee") pursuant to Section 11.4 in
respect of the Outstanding Senior Notes shall be held in trust and applied by
the Trustee, in accordance with the provisions of such Senior Notes and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Issuer acting as its own Paying Agent) as the Trustee may
determine, to the Holders of such Senior Notes of all sums due and to become
due thereon in respect of principal, premium and Additional Interest, if any,
and interest, but such money need not be segregated from other funds except to
the extent required by law.
The Issuer shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the cash or U.S. Government
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Obligations deposited pursuant to Section 11.4 or the principal and interest
received in respect thereof other than any such tax, fee or other charge which
by law is for the account of the Holders of the Outstanding Senior Notes.
Anything in this Article XI to the contrary notwithstanding, the
Trustee shall deliver or pay to the Issuer from time to time upon the Issuer's
Request any money or U.S. Government Obligations held by it as provided in
Section 11.4 which, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee (which may be the opinion delivered under Section 11.4)
are in excess of the amount thereof which would then be required to be deposited
to effect an equivalent defeasance or covenant defeasance.
SECTION 11.6. Reinstatement. If the Trustee or Paying Agent is unable
to apply any United States dollars or U.S. Government Obligations in accordance
with Section 11.2 or 11.3 as the case may be, by reason of any order or judgment
of any court or governmental authority enjoining, restraining or otherwise
prohibiting such application, then the Issuer's obligations under this Indenture
and the Senior Notes shall be revived and reinstated as though no deposit had
occurred pursuant to Section 11.2 or 11.3 as the case may be, until such time as
the Trustee or Paying Agent is permitted to apply all such money in accordance
with Section 11.2 or 11.3, as the case may be; provided, however, that, if the
Issuer makes any payment of principal of, premium and Additional Interest, if
any, or interest on any Senior Note following the reinstatement of its
obligations, the Issuer shall be subrogated to the rights of the Holders of such
Senior Notes to receive such payment from the money held by the Trustee or
Paying Agent.
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IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed as of the date first above written.
AFLAC Incorporated
By: /s/ GARY L. STEGMAN
---------------------------------
Name: Gary L. Stegman
Title: Senior Vice President and Assistant
Chief Financial Officer
The Bank of New York, as Trustee
By: /s/ MARIE E. TRIMBOLI
---------------------------------
Name: Marie E. Trimboli
Title: Assistant Treasurer
<PAGE> 84
EXHIBIT A
[FORM OF FACE OF U.S. GLOBAL SENIOR NOTE]
THIS SENIOR NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE OR OTHER
JURISDICTION. NEITHER THIS SENIOR NOTE NOR ANY INTEREST OR PARTICIPATION HEREIN
MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION UNLESS SUCH TRANSACTION IS
EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION.
THE HOLDER OF THIS SENIOR NOTE BY ITS ACCEPTANCE HEREOF AGREES, ON ITS OWN
BEHALF AND ON BEHALF OF ANY INVESTOR ACCOUNT FOR WHICH IT HAS PURCHASED SENIOR
NOTES, TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SENIOR NOTE, PRIOR TO THE DATE
(THE "RESALE RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER
OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE ISSUER OR ANY
AFFILIATE OF THE ISSUER WAS THE OWNER OF THIS SENIOR NOTE (OR ANY PREDECESSOR OF
SUCH SENIOR NOTE), ONLY (A) TO THE ISSUER, (B) PURSUANT TO A REGISTRATION
STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO
LONG AS THE SENIOR NOTES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE
SECURITIES ACT ("RULE 144A"), TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED
INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT
OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN
THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS
AND SALES THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION
S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN
THE MEANING OF RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT THAT IS
ACQUIRING THE SENIOR NOTE FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN
INSTITUTIONAL ACCREDITED INVESTOR, IN EACH CASE IN A TRANSACTION INVOLVING A
MINIMUM PRINCIPAL AMOUNT OF $250,000 OF SENIOR NOTES, FOR INVESTMENT PURPOSES
AND NOT WITH A VIEW TO OR FOR OFFER OR SALE IN CONNECTION WITH ANY DISTRIBUTION
IN VIOLATION OF THE
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SECURITIES ACT, OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE ISSUER'S AND THE
TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER (i) PURSUANT TO CLAUSE
(D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION
AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM AND (ii) PURSUANT TO
CLAUSE (E), TO REQUIRE THAT THE TRANSFEROR DELIVER TO THE TRUSTEE A LETTER FROM
THE TRANSFEREE SUBSTANTIALLY IN THE FORM OF APPENDIX A TO THE OFFERING
MEMORANDUM DATED APRIL 16, 1999. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF
THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE.
UNLESS THIS SENIOR NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW YORK, TO
THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND
ANY SENIOR NOTE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER
NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS
MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS SENIOR NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN
PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE
AND TRANSFERS OF PORTIONS OF THIS SENIOR NOTE SHALL BE LIMITED TO TRANSFERS MADE
IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE REFERRED TO ON
THE REVERSE HEREOF.
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CUSIP No. ____________
Note No. ____________ Original Principal Amount U.S. $_______
THIS SENIOR NOTE IS A U.S. GLOBAL SENIOR NOTE WITHIN THE MEANING
OF
THE INDENTURE HEREINAFTER REFERRED TO.
AFLAC INCORPORATED
6 1/2% Senior Notes due 2009
AFLAC Incorporated, a corporation organized under the laws of Georgia,
promises to pay to the registered holder of this Senior Note, or its registered
assigns, the principal sum of U.S. $____ (or such other amount as reflected in
the records of the Trustee), on April 15, 2009.
Interest Payment Dates: April 15 and October 15, commencing
October 15, 1999.
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Additional provisions of this U.S. Global Senior Note are set forth
on the other side of this Senior Note.
Dated: April ___, 1999
AFLAC INCORPORATED
By:____________________
By:____________________
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
The Bank of New York,
as Trustee, certifies that this
is the U.S. Global Senior Note
referred to in the Indenture.
- ------------------------
Authorized Officer
<PAGE> 88
[FORM OF REVERSE OF U.S. GLOBAL SENIOR NOTE]
AFLAC INCORPORATED
6 1/2% Senior Notes due 2009
1. Interest
a. AFLAC Incorporated, a corporation organized under the laws of
Georgia (such company, and its successors and assigns under the Indenture
hereinafter referred to, being herein called the "ISSUER"), promises to pay
interest on the principal amount of this Senior Note to the registered holder
hereof at the rate per annum shown above.
[b. Interest on this Senior Note shall accrue at the rate of 6 1/2% per
annum and is payable semiannually in arrears on April 15 and October 15 of each
year, commencing on October 15, 1999. In the event that the Exchange Offer
Registration Statement is not filed with the Commission on or prior to the 90th
day following the Issue Date, the Exchange Offer Registration Statement is not
declared effective on or prior to the 180th day following the Issue Date or the
Exchange Offer is not consummated and a Shelf Registration Statement is not
declared effective on or prior to the 210th day following the Issue Date (or if
the 90th, 180th or 210th day is not a Business Day, the first Business Day
thereafter), interest will accrue (in addition to stated interest on the Senior
Notes) from and including the next day following such 90- 180- or 210-day
period. Such additional interest (the "ADDITIONAL INTEREST") will be payable in
cash semiannually in arrears each April 15 and October 15, at a rate per annum
equal to 0.25% of the principal amount of the Senior Notes, for each event
described in the preceding sentence; provided, however, that the aggregate
amount of Additional Interest payable pursuant to the above provisions shall in
no event exceed 0.75% per annum of the principal amount of the Senior Notes.
Upon the filing of the Exchange Offer Registration Statement, the effectiveness
of the Exchange Offer Registration Statement, the consummation of the Exchange
Offer or the effectiveness of a Shelf Registration Statement, as the case may
be, after such 90- 180- or 210-day period, the Additional Interest payable on
the Senior Notes from the date of such filing, effectiveness or consummation, as
the case may be, will cease to accrue and all accrued and unpaid Additional
Interest as of such occurrence shall be paid to the Holders.
Notwithstanding the fact that any Senior Notes for which Additional
Interest is due cease to be Transfer Restricted Securities (as defined in the
Registration Rights Agreement),
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all obligations of the Issuer to pay Additional Interest with respect to such
Senior Notes shall survive until such time as such obligations with respect to
such Senior Notes shall have been satisfied in full.
In the event that a Shelf Registration Statement is declared
effective pursuant to the preceding paragraph, if the Issuer fails to keep such
Registration Statement continuously effective for the period required by the
Registration Rights Agreement, or if the Shelf Registration Statement fails to
be usable for its intended purpose without being succeeded by a post-effective
amendment to such Shelf Registration Statement that cures such failure and that
is itself declared effective within 10 days of filing such post-effective
amendment to such Shelf Registration Statement, then from such time as the Shelf
Registration Statement is no longer effective or usable, as the case may be,
until the earlier of (i) the date that the Shelf Registration Statement is again
deemed effective or usable, as the case may be, (ii) the date that is the second
anniversary of the Issue Date or (iii) the date as of which all of the Senior
Notes are sold pursuant to the Shelf Registration Statement, Additional Interest
shall accrue at a rate per annum equal to 0.25% of the principal amount of the
Senior Notes and shall be payable in cash semiannually in arrears each April 15
and October 15.
All accrued Additional Interest shall be paid to Holders by the
Issuer in the same manner as interest is paid pursuant to the Indenture. The
aggregate amount of Additional Interest payable pursuant to this Section 1(b)
shall in no event exceed 0.75% per annum of the principal amount of Senior
Notes.](1)
b. Interest on this Senior Note shall accrue from the most recent date
to which interest has been paid on the Senior Note for which this Senior Note
was exchanged or, if no interest has been paid on such Senior Note, from the
Issue Date, at the rate of 6 1/2% per annum and shall be payable in cash
semiannually in arrears on April 15 and October 15 of each year, commencing on
October 15, 1999. There shall also be payable in respect of this Senior Note all
Additional Interest that may have accrued on the Senior Note for which this
Senior Note was exchanged (as calculated in accordance with the terms of such
Senior Note) pursuant to the Exchange Offer or otherwise pursuant to a
registration of such Senior Note under the Securities Act, such Additional
Interest to be payable at the same time and in the same manner as the periodic
interest on this Senior Note.](2)
- --------------
1. To be included in Senior Notes which are not Exchange Notes.
2. To be included in Exchange Notes.
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c. Interest will be computed on the basis of a 360-day year of
twelve 30-day months. The Issuer shall pay interest at the applicable interest
rate on the Senior Notes on overdue principal, interest (to the extent lawful)
or premium or Additional Interest, if any, on demand.
2. Method of Payment
The Issuer through the Paying Agent shall pay interest on this
Senior Note to the registered holder of this Senior Note or as instructed in
writing by such Holder. The Holder must surrender this Senior Note to the Paying
Agent to collect principal payments. The Issuer shall pay principal and interest
in money of the United States of America that at the time of payment is legal
tender for payment of public and private debts.
3. Paying Agent and Registrar
Initially, The Bank of New York, a New York banking corporation
(the "TRUSTEE"), will act as Paying Agent and Registrar. The Issuer may appoint
and change any Paying Agent, Registrar, co-registrar or transfer agent without
prior notice. The Issuer may act as Paying Agent, Registrar, co-registrar or
transfer agent to the Holder.
4. Indenture
The Issuer issued this Senior Note under an Indenture, dated as of
April 21, 1999 (the "INDENTURE"), between the Issuer and the Trustee. The terms
of this Senior Note include those stated in the Indenture and those made part of
the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C.
Sections 77aaa-77bbbb) as in effect on the date of the Indenture (the "ACT").
Terms defined in the Indenture and not defined herein have the meanings ascribed
thereto in the Indenture. This Senior Note is subject to all such terms, and
Holders are referred to the Indenture and the Act for a statement of those
terms.
This Senior Note is a senior unsecured obligation of the Issuer
limited to $450,000,000 aggregate principal amount at maturity (subject to
Section 2.8 of the Indenture).
5. Optional Redemption
a. This Senior Note is subject to redemption in whole or in part, at
any time and from time to time, upon not less than 30 nor more than 60 days'
notice, in an amount of $1,000 or an integral multiple of $1,000, at a
Redemption Price equal to the sum of (i) 100%
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of the principal amount, together with accrued and unpaid interest and
Additional Interest, if any, to the Redemption Date, and (ii) the Make-Whole
Amount, if any, as provided in the Indenture.
b. This Senior Note is not subject to redemption through operation of
a sinking fund.
6. Notice of Redemption
Notice of redemption shall be mailed not less than 30 nor more than 60
days prior to the Redemption Date to the registered holder of this Senior Note
at The Bank of New York, 101 Barclay Street, Floor 11 East, New York, New York
10286, or at any other address provided to the Trustee in writing by the
registered holder of this Senior Note. Senior Notes in denominations larger than
$1,000 of principal amount at maturity may be redeemed in part but only in whole
multiples of $1,000 at maturity. In the event of a redemption of less than all
of the Senior Notes, the Senior Notes for redemption will be chosen by the
Trustee in accordance with the Indenture. If any Senior Note is redeemed
subsequent to a record date with respect to any Interest Payment Date specified
above and/or prior to such Interest Payment Date, then any accrued interest will
be paid to the Holder at the close of business on such record date. If money
sufficient to pay the Redemption Price of and accrued interest on all Senior
Notes (or portions thereof) to be redeemed on the Redemption Date is deposited
with the Paying Agent on or before the Redemption Date and certain other
conditions are satisfied, on and after such date interest will cease to accrue
on such Senior Notes (or such portions thereof) called for redemption.
7. Denominations; Transfer; Exchange
This Senior Note is in registered form without coupons. This Senior Note
is in an aggregate principal amount of $_________ (or such other amount as
reflected in the records of the Trustee) (subject to adjustment as provided in
the Indenture). The Holder may only transfer or exchange this Senior Note in
accordance with the Indenture.
8. Persons Deemed Owners
The registered holder of this Senior Note will be treated as the owner of
it for all purposes.
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9. Defeasance and Covenant Defeasance
The Indenture contains provisions for defeasance at any time, upon
compliance by the Issuer with certain conditions set forth in the
Indenture, of (a) the entire indebtedness of the Issuer with respect to
this Senior Note and (b) certain restrictive covenants and the related
Defaults and Events of Default.
10. Amendment; Waiver
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Issuer and the Trustee with the consent of the Holders of a majority in
aggregate principal amount of the Senior Notes outstanding at the time of
amendment or modification. The Indenture also contains provisions permitting the
Holders of specified percentages in aggregate principal amount of the Senior
Notes at any time outstanding, on behalf of the Holders of all the Senior Notes,
to waive compliance by the Issuer with certain provisions of the Indenture and
certain past defaults under the Indenture and their consequences. Any such
consent or waiver by or on behalf of the holder of this Senior Note shall be
conclusive and binding upon such Holder and upon all future holders of this
Senior Note and of any Senior Note issued in exchange herefor or in lieu hereof
whether or not notation of such consent or waiver is made upon this Senior Note.
11. Defaults and Remedies
This Senior Note has the Events of Default as set forth in Section 4.1 of
the Indenture. If an Event of Default occurs and is continuing, the Trustee or
the Holders of at least 25% in principal amount of the Senior Notes, subject to
certain limitations, may declare all the Senior Notes to be due and payable
immediately. Certain events of bankruptcy or insolvency are Events of Default
and shall result in the Senior Notes being due and payable immediately upon the
occurrence of such Events of Default.
Holders may not enforce the Indenture or the Senior Notes except as
provided in the Indenture. The Trustee may refuse to enforce the Indenture or
the Senior Notes unless it receives reasonable indemnity or security. Subject to
certain limitations, Holders of a majority in principal amount of the Senior
Notes may direct the Trustee in its exercise of any trust or power. The Holders
of a majority in principal amount of the Senior Notes then outstanding by
written notice to the Trustee may rescind a declaration of acceleration if the
rescission is prior to a judgment or decree for payment and if all Events of
Default have been cured or waived except nonpayment of principal and interest
that has been due solely
9
<PAGE> 93
because of the acceleration. The Trustee may withhold from Holders notice of any
continuing Default (except a default in payment of principal or interest) if it
determines that withholding notice is in the interest of the Holders. The above
description of Events of Default and remedies is qualified by reference, and
subject in its entirety, to the more complete description thereof contained in
the Indenture.
12. Trustee Dealings with the Issuer
Subject to certain limitations imposed by the Act, the Trustee under the
Indenture, in its individual or any other capacity, may become the owner or
pledgee of this Senior Note and may otherwise deal with and collect obligations
owed to it by the Issuer or its Affiliates and may otherwise deal with the
Issuer or its Affiliates with the same rights it would have if it were not
Trustee. Any Paying Agent, Registrar or such other agent may do the same with
like rights.
13. No Recourse Against Others
A director, officer, employee or stockholder, as such, of the Issuer,
shall not have any liability for any payment of the principal of, or premium or
Additional Interest, if any, or interest on, any of the Senior Notes or any
other obligations of the Issuer under this Senior Note or the Indenture or for
any claim based on, in respect of or by reason of such obligations or their
creation. By accepting this Senior Note, the registered holder of this Senior
Note waives and releases all such liability. The waiver and release are part of
the consideration for the issuance of this Senior Note.
14. Authentication
This Senior Note shall not be valid until an authorized officer of the
Trustee (or an authenticating agent) manually signs the certificate of
authentication on the other side of this Senior Note.
15. Governing Law
The internal laws of the State of New York shall govern the Indenture and
this Senior Note.
10
<PAGE> 94
The Issuer will furnish to the Holder of this Senior Note upon written
request and without charge to the Holder a copy of the Indenture. Requests may
be made to:
AFLAC Incorporated
1932 Wynnton Road
Columbus, Georgia 31999
Attention: Investor Relations Department
Telephone: (706) 323-3431
11
<PAGE> 95
[FORM OF TRANSFER NOTICE]
FOR VALUE RECEIVED the undersigned registered Holder hereby
sell(s), assign(s) and transfer(s) unto
Insert Taxpayer Identification No.
- -------------------------------------------------------------------------------
Please print or typewrite name and address including zip code of assignee
- -------------------------------------------------------------------------------
the within Senior Note and all rights thereunder, hereby irrevocably
constituting and appointing _______________________ attorney to transfer said
Senior Note on the books of the Issuer with full power of substitution in the
premises.
In connection with any transfer of this Senior Note occurring (i)
in the case of a U.S. Certificated Senior Note or U.S. Global Senior
Note, prior to the Resale Restriction Termination Date, (ii) in the case
of a Reg S Certificated Senior Note or Reg S Global Senior Note, prior to
the expiration of the Distribution Compliance Period, or (iii) prior to
the date of an effective registration under the Securities Act, the
undersigned confirms that without utilizing any general solicitation or
general advertising that:
[Check One]
[ ](a) This Senior Note is being transferred in compliance with the
exemption from registration under the Securities Act, provided by
Rule 144A thereunder.
or
[ ](b) This Senior Note is being transferred in an offshore transaction
in compliance with Rule 904 of the Securities Act.
or
[ ](c) This Senior Note is being transferred to an institutional
"accredited investor" (as defined in Rule 501(a)(1), (2), (3) or
(7) under the Securities Act), that has furnished to the Trustee a
signed letter containing certain representations and agreements.
12
<PAGE> 96
or
[ ](d) This Senior Note is being transferred other than in accordance
with (a), (b) or (c) above and documents are being furnished which
comply with the conditions for transfer set forth in this Senior
Note and the Indenture.
If none of the foregoing boxes is checked the Trustee or other Registrar shall
refuse to register this Senior Note in the name of any Person other than the
Holder hereof unless and until the conditions to any such transfer or
registration set forth herein and in Section 2.13 of the Indenture shall have
been satisfied.
Date: ______________________ ________________________________
NOTICE: The signature to this
assignment must correspond with the
name as written upon the face of the
within-mentioned instrument in every
particular, without alteration or
any change whatsoever.
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this
Senior Note for its own account or an account with respect to which it
exercises sole investment discretion and that it and any such account is
a "QUALIFIED INSTITUTIONAL BUYER" within the meaning of Rule 144A, and is
aware that the sale to it is being made in reliance an Rule 144A and
acknowledges that it has received such information regarding the Issuer
as the undersigned has requested pursuant to Rule 144A or has determined
not to request such information and that it is aware that the transferor
is relying upon the undersigned's foregoing representations in order to
claim the exemption from registration provided by Rule 144A.
Date: ______________________ __________________________
NOTICE: To be executed by an
executive officer of the transferee.
<PAGE> 97
SCHEDULE OF INCREASE OR DECREASE IN GLOBAL SENIOR NOTE
The following increases or decreases in this Global Senior Note have been made:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
Principal
Amount of Amount of Amount of
Decrease in Increase in Global Senior
Principal Principal Note Signature of
Amount of this Amount of following Authorized
Date of Global Senior this Global such Increase Signatory of
Exchange Note Senior Note or Decrease Trustee
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
</TABLE>
14
<PAGE> 98
EXHIBIT B
[FORM OF FACE OF REG S GLOBAL SENIOR NOTE]
THIS SENIOR NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD
WITHIN THE UNITED STATES OR TO OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS
EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE
HOLDER (1) REPRESENTS THAT IT IS NOT A U.S. PERSON NOR IS IT PURCHASING FOR THE
ACCOUNT OF A U.S. PERSON AND IS ACQUIRING THIS SENIOR NOTE IN AN OFFSHORE
TRANSACTION IN ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT
("REGULATION S"), (2) BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR
OTHERWISE TRANSFER SUCH SENIOR NOTE, PRIOR TO THE DATE WHICH IS 40 DAYS AFTER
THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE
ISSUER OR ANY AFFILIATE OF THE ISSUER WAS THE OWNER OF THIS SENIOR NOTE (OR ANY
PREDECESSOR OF SUCH SENIOR NOTE), ONLY (A) TO THE ISSUER, (B) PURSUANT TO A
REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES
ACT, (C) FOR SO LONG AS THE SENIOR NOTES ARE ELIGIBLE FOR RESALE PURSUANT TO
RULE 144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON IT REASONABLY
BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A THAT
PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL
BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON
RULE 144A, (D) PURSUANT TO OFFERS AND SALES THAT OCCUR OUTSIDE THE UNITED STATES
WITHIN THE MEANING OF REGULATION S, (E) TO AN INSTITUTIONAL "ACCREDITED
INVESTOR" WITHIN THE MEANING OF RULE 501(a)(1), (2), (3) OR (7) UNDER THE
SECURITIES ACT THAT IS ACQUIRING THE SENIOR NOTE FOR ITS OWN ACCOUNT, OR FOR THE
ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR, IN EACH CASE IN A MINIMUM
PRINCIPAL AMOUNT OF THE SENIOR NOTES OF $250,000, FOR INVESTMENT PURPOSES AND
NOT WITH A VIEW TO OR FOR OFFER OR SALE IN CONNECTION WITH ANY DISTRIBUTION IN
VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE
ISSUER'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER (i)
PURSUANT TO CLAUSE (D), (E) OR (F) TO REQUIRE THE
1
<PAGE> 99
DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION
SATISFACTORY TO EACH OF THEM AND (ii) PURSUANT TO CLAUSE (E), TO REQUIRE THAT
THE TRANSFEROR DELIVER TO THE TRUSTEE A LETTER FROM THE TRANSFEREE SUBSTANTIALLY
IN THE FORM OF APPENDIX A TO THE OFFERING MEMORANDUM DATED APRIL 16, 1999. THIS
LEGEND WILL BE REMOVED AFTER 40 CONSECUTIVE DAYS BEGINNING ON AND INCLUDING THE
LATER OF (A) THE DAY ON WHICH THE SENIOR NOTES ARE OFFERED TO PERSONS OTHER THAN
DISTRIBUTORS (AS DEFINED IN REGULATION S) AND (B) THE DATE OF THE CLOSING OF THE
ORIGINAL OFFERING. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION", "UNITED
STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S.
UNLESS THIS SENIOR NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW YORK, TO
THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND
ANY SENIOR NOTE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER
NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS
MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS SENIOR NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN
PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE
AND TRANSFERS OF PORTIONS OF THIS SENIOR NOTE SHALL BE LIMITED TO TRANSFERS MADE
IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE REFERRED TO ON
THE REVERSE HEREOF.
2
<PAGE> 100
ISIN No.
Note No. _____________ Original Principal Amount U.S. $_______
THIS SENIOR NOTE IS A REG S GLOBAL SENIOR NOTE WITHIN THE MEANING
OF THE INDENTURE HEREINAFTER REFERRED TO.
AFLAC INCORPORATED
6 1/2% Senior Notes due 2009
AFLAC Incorporated, a corporation organized under the laws of
Georgia, promises to pay to the registered holder of this Senior Note, or its
registered assigns, the principal sum of U.S. $____ (or such other amount as
reflected in the records of the Trustee), on April 15, 2009.
Interest Payment Dates: April 15 and October 15, commencing October
15, 1999.
3
<PAGE> 101
Additional provisions of this Reg S Global Senior Note are set
forth on the other side of this Senior Note.
Dated: April ___, 1999.
AFLAC INCORPORATED
By:____________________
By:____________________
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
The Bank of New York,
as Trustee, certifies that this
is the Reg S Global Senior Note
referred to in the Indenture.
- ------------------------
Authorized Officer
<PAGE> 102
[FORM OF REVERSE OF REG S GLOBAL SENIOR NOTE]
AFLAC INCORPORATED
6 1/2% Senior Notes due 2009
1. Interest
a. AFLAC Incorporated, a corporation organized under the laws of
Georgia (such company, and its successors and assigns under the Indenture
hereinafter referred to, being herein called the "ISSUER"), promises to
pay interest on the principal amount of this Senior Note to the
registered holder hereof at the rate per annum shown above.
[b. Interest on this Senior Note shall accrue at the rate of 6
1/2% per annum and is payable semiannually on April 15 and October 15 of
each year, commencing on October 15, 1999. In the event that the
Exchange Offer Registration Statement is not filed with the Commission on
or prior to the 90th day following the Issue Date, the Exchange Offer
Registration Statement is not declared effective on or prior to the 180th
day following the Issue Date or the Exchange Offer is not consummated and
a Shelf Registration Statement is not declared effective on or prior to
the 210th day following the Issue Date (or if the 90th, 180th or 210th
day is not a Business Day, the first Business Day thereafter), interest
will accrue (in addition to stated interest on the Senior Notes) from and
including the next day following such 90- 180- or 210-day period. Such
additional interest (the "ADDITIONAL INTEREST") will be payable in cash
semiannually in arrears each April 15 and October 15, at a rate per annum
equal to 0.25% of the principal amount of the Senior Notes, for each
event described in the preceding sentence; provided, however, that the
aggregate amount of Additional Interest payable pursuant to the above
provisions shall in no event exceed 0.75% per annum of the principal
amount of the Senior Notes. Upon the filing of the Exchange Offer
Registration Statement, the effectiveness of the Exchange Offer
Registration Statement, the consummation of the Exchange Offer or the
effectiveness of a Shelf Registration Statement, as the case may be,
after such 90- 180- or 210-day period, the Additional Interest payable on
the Senior Notes from the date of such filing, effectiveness or
consummation, as the case may be, will cease to accrue and all accrued
and unpaid Additional Interest as of such occurrence shall be paid to the
Holders.
Notwithstanding the fact that any Senior Notes for which Additional
Interest is due cease to be Transfer Restricted Securities (as defined in
the Registration Rights Agreement),
5
<PAGE> 103
all obligations of the Issuer to pay Additional Interest with respect to such
Senior Notes shall survive until such time as such obligations with respect to
such Senior Notes shall have been satisfied in full.
In the event that a Shelf Registration Statement is declared effective
pursuant to the preceding paragraph, if the Issuer fails to keep such
Registration Statement continuously effective for the period required by the
Registration Rights Agreement, or if the Shelf Registration Statement fails to
be usable for its intended purpose without being succeeded by a post-effective
amendment to such Shelf Registration Statement that cures such failure and that
is itself declared effective within 10 days of filing such post-effective
amendment to such Shelf Registration Statement, then from such time as the Shelf
Registration Statement is no longer effective or usable, as the case may be,
until the earlier of (i) the date that the Shelf Registration Statement is again
deemed effective or usable, as the case may be, (ii) the date that is the second
anniversary of the Issue Date or (iii) the date as of which all of the Senior
Notes are sold pursuant to the Shelf Registration Statement, Additional Interest
shall accrue at a rate per annum equal to 0.25% of the principal amount of the
Senior Notes and shall be payable in cash semiannually in arrears each April 15
and October 15.
All accrued Additional Interest shall be paid to Holders by the
Issuer in the same manner as interest is paid pursuant to the Indenture. The
aggregate amount of Additional Interest payable pursuant to this Section 1(b)
shall in no event exceed 0.75% per annum of the principal amount of Senior
Notes.](1)
[b. Interest on this Senior Note shall accrue from the most recent date
to which interest has been paid on the Senior Note for which this Senior Note
was exchanged or, if no interest has been paid on such Senior Note, from the
Issue Date, at the rate of 6 1/2% per annum and shall be payable in cash
semiannually in arrears on April 15 and October 15 of each year, commencing on
October 15, 1999. There shall also be payable in respect of this Senior Note all
Additional Interest that may have accrued on the Senior Note for which this
Senior Note was exchanged (as calculated in accordance with the terms of such
Senior Note) pursuant to the Exchange Offer or otherwise pursuant to a
registration of such Senior Note under the Securities Act, such Additional
Interest to be payable at the same time and in the same manner as the periodic
interest on this Senior Note.](2)
- --------------------
1. To be included in Senior Notes which are not Exchange Notes.
2. To be included in Exchange Notes.
6
<PAGE> 104
c. Interest will be computed on the basis of a 360-day year of twelve
30-day months. The Issuer shall pay interest at the applicable interest rate on
the Senior Notes on overdue principal, interest (to the extent lawful) or
premium or Additional Interest, if any, on demand.
2. Method of Payment
The Issuer through the Paying Agent shall pay interest on this Senior Note
to the registered Holder of this Senior Note or as instructed in writing by such
Holder. The Holder must surrender this Senior Note to the Paying Agent to
collect principal payments. The Issuer shall pay principal and interest in money
of the United States of America that at the time of payment is legal tender for
payment of public and private debts.
3. Paying Agent and Registrar
Initially, The Bank of New York, a New York banking corporation (the
"TRUSTEE"), will act as Paying Agent and Registrar. The Issuer may appoint and
change any Paying Agent, Registrar, co-registrar or transfer agent without prior
notice. The Issuer may act as Paying Agent, Registrar, co-registrar or transfer
agent to the Holder.
4. Indenture
The Issuer issued this Senior Note under an Indenture, dated as of April
21, 1999, (the "INDENTURE"), between the Issuer and the Trustee. The terms of
this Senior Note include those stated in the Indenture and those made part of
the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C.
Sections 77aaa-77bbbb) as in effect on the date of the Indenture (the "ACT").
Terms defined in the Indenture and not defined herein have the meanings ascribed
thereto in the Indenture. This Senior Note is subject to all such terms, and
Holders are referred to the Indenture and the Act for a statement of those
terms.
This Senior Note is a senior unsecured obligation of the Issuer limited to
$450,000,000 aggregate principal amount at maturity (subject to Section 2.8 of
the Indenture).
5. Optional Redemption
a. This Senior Note is subject to redemption in whole or in part, at
any time and from time to time, upon not less than 30 nor more than 60 days'
notice, in an amount of $1,000 or an integral multiple of $1,000, at a
Redemption Price equal to the sum of (i) 100%
7
<PAGE> 105
of the principal amount, together with accrued and unpaid interest and
Additional Interest, if any, to the Redemption Date and (ii) the Make-Whole
Amount, if any, as provided in the Indenture.
b. This Senior Note is not subject to redemption through operation of a
sinking fund.
6. Notice of Redemption
Notice of redemption shall be mailed not less than 30 nor more than 60
days prior to the Redemption Date to the registered holder of this Senior Note
at The Bank of New York, 101 Barclay Street, Floor 11 East, New York, New York
10286, or at any other address provided to the Trustee in writing by the
registered holder of this Senior Note. Senior Notes in denominations larger than
$1,000 of principal amount at maturity may be redeemed in part but only in whole
multiples of $1,000 at maturity. In the event of a redemption of less than all
of the Senior Notes, the Senior Notes for redemption will be chosen by the
Trustee in accordance with the Indenture. If any Senior Note is redeemed
subsequent to a record date with respect to any Interest Payment Date specified
above and/or prior to such Interest Payment Date, then any accrued interest will
be paid to the Holder at the close of business on such record date. If money
sufficient to pay the Redemption Price of and accrued interest on all Senior
Notes (or portions thereof) to be redeemed on the Redemption Date is deposited
with the Paying Agent on or before the Redemption Date and certain other
conditions are satisfied, on and after such date interest will cease to accrue
on such Senior Notes (or such portions thereof) called for redemption.
7. Denominations; Transfer; Exchange
This Senior Note is in registered form without coupons. This Senior Note
is in an aggregate principal amount of $__ (or such other amount as reflected in
the records of the Trustee) (subject to adjustment as provided in the
Indenture). The Holder may only transfer or exchange this Senior Note in
accordance with the Indenture.
8. Persons Deemed Owners
The registered holder of this Senior Note will be treated as the owner of
it for all purposes.
8
<PAGE> 106
9. Defeasance and Covenant Defeasance
The Indenture contains provisions for defeasance at any time, upon
compliance by the Issuer with certain conditions set forth in the Indenture, of
(a) the entire indebtedness of the Issuer with respect to this Senior Note and
(b) certain restrictive covenants and the related Defaults and Events of
Default.
10. Amendment; Waiver
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Issuer and the Trustee with the consent of the Holders of a majority in
aggregate principal amount of the Senior Notes outstanding at the time of
amendment or modification. The Indenture also contains provisions permitting the
Holders of specified percentages in aggregate principal amount of the Senior
Notes at any time outstanding, on behalf of the Holders of all the Senior Notes,
to waive compliance by the Issuer with certain provisions of the Indenture and
certain past defaults under the Indenture and their consequences. Any such
consent or waiver by or on behalf of the Holder shall be conclusive and binding
upon such Holder and upon all future Holders and of any Senior Note issued in
exchange herefor or in lieu hereof whether or not notation of such consent or
waiver is made upon this Senior Note.
11. Defaults and Remedies
This Senior Note has the Events of Default as set forth in Section 4.1 of
the Indenture. If an Event of Default occurs and is continuing, the Trustee or
the Holders of at least 25% in principal amount of the Senior Notes, subject to
certain limitations, may declare all the Senior Notes to be due and payable
immediately. Certain events of bankruptcy or insolvency are Events of Default
and shall result in the Senior Notes being due and payable immediately upon the
occurrence of such Events of Default.
Holders may not enforce the Indenture or the Senior Notes except as
provided in the Indenture. The Trustee may refuse to enforce the Indenture or
the Senior Notes unless it receives reasonable indemnity or security. Subject to
certain limitations, Holders of a majority in principal amount of the Senior
Notes may direct the Trustee in its exercise of any trust or power. The Holders
of a majority in principal amount of the Senior Notes then outstanding by
written notice to the Trustee may rescind a declaration of acceleration if the
rescission is prior to a judgment or decree for payment and if all Events of
Default have been cured or waived except nonpayment of principal and interest
that has been due solely
9
<PAGE> 107
because of the acceleration. The Trustee may withhold from Holders notice of any
continuing Default (except a default in payment of principal or interest) if it
determines that withholding notice is in the interest of the Holders. The above
description of Events of Default and remedies is qualified by reference, and
subject in its entirety, to the more complete description thereof contained in
the Indenture.
12. Trustee Dealings with the Issuer
Subject to certain limitations imposed by the Act, the Trustee under the
Indenture, in its individual or any other capacity, may become the owner or
pledgee of this Senior Note and may otherwise deal with and collect obligations
owed to it by the Issuer or its Affiliates and may otherwise deal with the
Issuer or its Affiliates with the same rights it would have if it were not
Trustee. Any Paying Agent, Registrar or such other agent may do the same with
like rights.
13. No Recourse Against Others
A director, officer, employee or stockholder, as such, of the Issuer,
shall not have any liability for any payment of the principal of, or premium or
Additional Interest, if any, or interest on, any of the Senior Notes or any
other obligations of the Issuer under this Senior Note or the Indenture or for
any claim based on, in respect of or by reason of such obligations or their
creation. By accepting this Senior Note, the registered holder of this Senior
Note waives and releases all such liability. The waiver and release are part of
the consideration for the issuance of this Senior Note.
14. Authentication
This Senior Note shall not be valid until an authorized officer of the
Trustee (or an authenticating agent) manually signs the certificate of
authentication on the other side of this Senior Note.
15. Governing Law
The internal laws of the State of New York shall govern the Indenture and
this Senior Note.
10
<PAGE> 108
The Issuer will furnish to the Holder upon written request and without
charge to the Holder a copy of the Indenture. Requests may be made to:
AFLAC Incorporated
1932 Wynnton Road
Columbus, Georgia 31999
Attention: Investor Relations Department
Telephone: (706) 323-3431
11
<PAGE> 109
[FORM OF TRANSFER NOTICE]
FOR VALUE RECEIVED the undersigned registered Holder hereby
sell(s), assign(s) and transfer(s) unto
Insert Taxpayer Identification No.
- -------------------------------------------------------------------------------
Please print or typewrite name and address including zip code of assignee
- -------------------------------------------------------------------------------
the within Senior Note and all rights thereunder, hereby irrevocably
constituting and appointing _______________________ attorney to transfer said
Senior Note on the books of the Issuer with full power of substitution in the
premises.
In connection with any transfer of this Senior Note occurring (i) in the
case of a U.S. Certificated Senior Note or U.S. Global Senior Note, prior to the
Resale Restriction Termination Date, (ii) in the case of a Reg S Certificated
Senior Note or Reg S Global Senior Note, prior to the expiration of the
Distribution Compliance Period, or (iii) prior to the date of an effective
registration under the Securities Act, the undersigned confirms that without
utilizing any general solicitation or general advertising that:
[Check One]
[ ](a) This Senior Note is being transferred in compliance with the
exemption from registration under the Securities Act, provided by
Rule 144A thereunder.
or
[ ](b) This Senior Note is being transferred in an offshore transaction
in compliance with Rule 904 of the Securities Act.
or
[ ](c) This Senior Note is being transferred to an institutional
"accredited investor" (as defined in Rule 501(a)(1), (2), (3) or
(7) under the Securities Act), that has furnished to the Trustee a
signed letter containing certain representations and agreements.
12
<PAGE> 110
or
[ ](d) This Senior Note is being transferred other than in accordance
with (a), (b) or (c) above and documents are being furnished which
comply with the conditions for transfer set forth in this Senior
Note and the Indenture.
If none of the foregoing boxes is checked the Trustee or other Registrar shall
refuse to register this Senior Note in the name of any Person other than the
Holder hereof unless and until the conditions to any such transfer or
registration set forth herein and in Section 2.13 of the Indenture shall have
been satisfied.
Date: ______________________ ________________________________
NOTICE: The signature to this
assignment must correspond with the
name as written upon the face of the
within-mentioned instrument in every
particular, without alteration or
any change whatsoever.
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this Senior
Note for its own account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a "QUALIFIED
INSTITUTIONAL BUYER" within the meaning of Rule 144A and is aware that the sale
to it is being made in reliance on Rule 144A and acknowledges that it has
received such information regarding the Issuer as the undersigned has requested
pursuant to Rule 144A or has determined not to request such information and that
it is aware that the transferor is relying upon the undersigned's foregoing
representations in order to claim the exemption from registration provided by
Rule 144A.
Date: ______________________ __________________________
NOTICE: To be executed by an
executive officer of the transferee.
<PAGE> 111
SCHEDULE OF INCREASE OR DECREASE IN REG S GLOBAL SENIOR NOTE
The following increases or decreases in this Reg S Global Senior Note have been
made:
<TABLE>
<CAPTION>
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Amount of Principal
Amount of Increase in Amount of Reg
Decrease in Principal S Global
Principal Amount of Senior Note Signature of
Amount of this this Reg S following Authorized
Date of Reg S Global Global such Increase Signatory of
Exchange Senior Note Senior Note or Decrease Trustee
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
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</TABLE>
14
<PAGE> 112
EXHIBIT C
[FORM OF FACE OF CERTIFICATED SENIOR NOTE]
[THIS SENIOR NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE OR OTHER
JURISDICTION. NEITHER THIS SENIOR NOTE NOR ANY INTEREST OR PARTICIPATION HEREIN
MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION UNLESS SUCH TRANSACTION IS
EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION.
THE HOLDER OF THIS SENIOR NOTE BY ITS ACCEPTANCE HEREOF AGREES, ON ITS OWN
BEHALF AND ON BEHALF OF ANY INVESTOR ACCOUNT FOR WHICH IT HAS PURCHASED SENIOR
NOTES, TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SENIOR NOTE, PRIOR TO THE DATE
(THE "RESALE RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER
OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE ISSUER OR ANY
AFFILIATE OF THE ISSUER WAS THE OWNER OF THIS SENIOR NOTE (OR ANY PREDECESSOR OF
SUCH SENIOR NOTE), ONLY (A) TO THE ISSUER, (B) PURSUANT TO A REGISTRATION
STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO
LONG AS THE SENIOR NOTES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE
SECURITIES ACT ("RULE 144A"), TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED
INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT
OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN
THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS
AND SALES THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION
S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN
THE MEANING OF RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT THAT IS
ACQUIRING THE SENIOR NOTE FOR ITS OWN ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN
INSTITUTIONAL ACCREDITED INVESTOR, IN EACH CASE IN A TRANSACTION INVOLVING A
MINIMUM PRINCIPAL AMOUNT OF $250,000 OF SENIOR NOTES, FOR INVESTMENT PURPOSES
AND NOT WITH A VIEW TO OR FOR OFFER OR SALE IN CONNECTION WITH ANY DISTRIBUTION
IN VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT TO ANOTHER AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT
1
<PAGE> 113
TO THE ISSUER'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR
TRANSFER (i) PURSUANT TO CLAUSE (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN
OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH
OF THEM AND (ii) PURSUANT TO CLAUSE (E), TO REQUIRE THAT THE TRANSFEROR DELIVER
TO THE TRUSTEE A LETTER FROM THE TRANSFEREE SUBSTANTIALLY IN THE FORM OF
APPENDIX A TO THE OFFERING MEMORANDUM DATED APRIL 16, 1999. THIS LEGEND WILL BE
REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION
DATE.](1)
[THIS SENIOR NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD
WITHIN THE UNITED STATES OR TO OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS
EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE
HOLDER (1) REPRESENTS THAT IT IS NOT A U.S. PERSON NOR IS IT PURCHASING FOR THE
ACCOUNT OF A U.S. PERSON AND IS ACQUIRING THIS SENIOR NOTE IN AN OFFSHORE
TRANSACTION IN ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT
("REGULATION S"), (2) BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR
OTHERWISE TRANSFER SUCH SENIOR NOTE, PRIOR TO THE DATE WHICH IS 40 DAYS AFTER
THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE
ISSUER OR ANY AFFILIATE OF THE ISSUER WAS THE OWNER OF THIS SENIOR NOTE (OR ANY
PREDECESSOR OF SUCH SENIOR NOTE), ONLY (A) TO THE ISSUER, (B) PURSUANT TO A
REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES
ACT, (C) FOR SO LONG AS THE SENIOR NOTES ARE ELIGIBLE FOR RESALE PURSUANT TO
RULE 144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON IT REASONABLY
BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A THAT
PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL
BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON
RULE 144A, (D) PURSUANT TO OFFERS AND SALES THAT OCCUR OUTSIDE THE UNITED STATES
WITHIN THE MEANING OF REGULATION S, (E) TO AN INSTITUTIONAL "ACCREDITED
INVESTOR" WITHIN THE MEANING OF RULE 501(a)(1), (2), (3) OR (7) UNDER THE
SECURITIES ACT THAT IS ACQUIRING THE SENIOR NOTE FOR ITS OWN ACCOUNT, OR FOR THE
- -----------------
1. To be included in U.S. Certificated Senior Notes.
2
<PAGE> 114
ACCOUNT OF SUCH AN INSTITUTIONAL ACCREDITED INVESTOR, IN EACH CASE IN A MINIMUM
PRINCIPAL AMOUNT OF THE SENIOR NOTES OF $250,000, FOR INVESTMENT PURPOSES AND
NOT WITH A VIEW TO OR FOR OFFER OR SALE IN CONNECTION WITH ANY DISTRIBUTION IN
VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT TO ANOTHER AVAILABLE EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE
ISSUER'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER (i)
PURSUANT TO CLAUSE (D), (E) OR (F) TO REQUIRE THE DELIVERY OF AN OPINION OF
COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM AND
(ii) PURSUANT TO CLAUSE (E), TO REQUIRE THAT THE TRANSFEROR DELIVER TO THE
TRUSTEE A LETTER FROM THE TRANSFEREE SUBSTANTIALLY IN THE FORM OF APPENDIX A TO
THE OFFERING MEMORANDUM DATED APRIL 16, 1999. THIS LEGEND WILL BE REMOVED AFTER
40 CONSECUTIVE DAYS BEGINNING ON AND INCLUDING THE LATER OF (A) THE DAY ON WHICH
THE SENIOR NOTES ARE OFFERED TO PERSONS OTHER THAN DISTRIBUTORS (AS DEFINED IN
REGULATION S) AND (B) THE DATE OF THE CLOSING OF THE ORIGINAL OFFERING. AS USED
HEREIN, THE TERMS "OFFSHORE TRANSACTION", "UNITED STATES" AND "U.S. PERSON" HAVE
THE MEANINGS GIVEN TO THEM BY REGULATION S.](2)
- -----------------
2. To be included in Reg S Certificated Senior Notes.
3
<PAGE> 115
[CUSIP][ISIN] No.___________
Note No. _____________ Original Principal Amount U.S. $_______
THIS SENIOR NOTE IS A CERTIFICATED SENIOR NOTE
WITHIN THE MEANING OF
THE INDENTURE HEREINAFTER REFERRED TO.
AFLAC INCORPORATED
6 1/2% Senior Notes due 2009
AFLAC Incorporated, a corporation organized under the laws of Georgia,
promises to pay to the registered holder of this Senior Note, or its registered
assigns, the principal sum of U.S. $__________ (or such other amount as
reflected in the records of the Trustee), on April 15, 2009.
Interest Payment Dates: April 15 and October 15, commencing
October 15, 1999.
4
<PAGE> 116
Additional provisions of this Senior Note are set forth on the
other side of this Senior Note.
Dated: ______________
AFLAC INCORPORATED
By:
----------------
By:
----------------
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
The Bank of New York,
as Trustee, certifies that this
is one of the Certificated Senior
Notes referred to in the Indenture.
- -----------------------------
Authorized Officer
<PAGE> 117
[FORM OF REVERSE OF CERTIFICATED SENIOR NOTE]
AFLAC INCORPORATED
6 1/2% Senior Notes due 2009
1. Interest
a. AFLAC Incorporated, a corporation organized under the laws of
Georgia (such company, and its successors and assigns under the Indenture
hereinafter referred to, being herein called the "ISSUER"), promises to pay
interest on the principal amount of this Senior Note to the registered holder
hereof at the rate per annum shown above.
[b. Interest on this Senior Note shall accrue at the rate of 6 1/2% per
annum and is payable semiannually in arrears on April 15 and October 15 of each
year, commencing on October 15, 1999. In the event that the Exchange Offer
Registration Statement is not filed with the Commission on or prior to the 90th
day following the Issue Date, the Exchange Offer Registration Statement is not
declared effective on or prior to the 180th day following the Issue Date or the
Exchange Offer is not consummated and a Shelf Registration Statement is not
declared effective on or prior to the 210th day following the Issue Date (or if
the 90th, 180th or 210th day is not a Business Day, the first Business Day
thereafter), interest will accrue (in addition to stated interest on the Senior
Notes) from and including the next day following such 90- 180- or 210-day
period. Such additional interest (the "ADDITIONAL INTEREST") will be payable in
cash semiannually in arrears each April 15 and October 15, at a rate per annum
equal to 0.25% of the principal amount of the Senior Notes, for each event
described in the preceding sentence; provided, however, that the aggregate
amount of Additional Interest payable pursuant to the above provisions shall in
no event exceed 0.75% per annum of the principal amount of the Senior Notes.
Upon the filing of the Exchange Offer Registration Statement, the effectiveness
of the Exchange Offer Registration Statement, the consummation of the Exchange
Offer or the effectiveness of a Shelf Registration Statement, as the case may
be, after such 90- 180- or 210-day period, the Additional Interest payable on
the Senior Notes from the date of such filing, effectiveness or consummation, as
the case may be, will cease to accrue and all accrued and unpaid Additional
Interest as of such occurrence shall be paid to the Holders.
Notwithstanding the fact that any Senior Notes for which Additional
Interest is due cease to be Transfer Restricted Securities (as defined in the
Registration Rights Agreement), all obligations of the Issuer to pay Additional
Interest with respect to such Senior Notes shall
6
<PAGE> 118
survive until such time as such obligations with respect to such Senior Notes
shall have been satisfied in full.
In the event that a Shelf Registration Statement is declared effective
pursuant to the preceding paragraph, if the Issuer fails to keep such
Registration Statement continuously effective for the period required by the
Registration Rights Agreement, or if the Shelf Registration Statement fails to
be usable for its intended purpose without being succeeded by a post-effective
amendment to such Shelf Registration Statement that cures such failure and that
is itself declared effective within 10 days of filing such post-effective
amendment to such Shelf Registration Statement, then from such time as the Shelf
Registration Statement is no longer effective or usable, as the case may be,
until the earlier of (i) the date that the Shelf Registration Statement is again
deemed effective or usable, as the case may be, (ii) the date that is the second
anniversary of the Issue Date or (iii) the date as of which all of the Senior
Notes are sold pursuant to the Shelf Registration Statement, Additional Interest
shall accrue at a rate per annum equal to 0.25% of the principal amount of the
Senior Notes and shall be payable in cash semiannually in arrears each April 15
and October 15.
All accrued Additional Interest shall be paid to Holders by the Issuer in
the same manner as interest is paid pursuant to the Indenture. The aggregate
amount of Additional Interest payable pursuant to this Section 1(b) shall in no
event exceed 0.75% per annum of the principal amount of Senior Notes.](3)
[b. Interest on this Senior Note shall accrue from the most recent date
to which interest has been paid on the Senior Note for which this Senior Note
was exchanged or, if no interest has been paid on such Senior Note, from the
Issue Date, at the rate of 6 1/2% per annum and shall be payable in cash
semiannually in arrears on April 15 and October 15 of each year, commencing on
October 15, 1999. There shall also be payable in respect of this Senior Note all
Additional Interest that may have accrued on the Senior Note for which this
Senior Note was exchanged (as calculated in accordance with the terms of such
Senior Note) pursuant to the Exchange Offer or otherwise pursuant to a
registration of such Senior Note under the Securities Act, such Additional
Interest to be payable at the same time and in the same manner as the periodic
interest on this Senior Note.](4)
- ---------------
3. To be included in Senior Notes which are not Exchange Notes.
4. To be included in Exchange Notes.
7
<PAGE> 119
c. Interest will be computed on the basis of a 360-day year of
twelve 30-day months. The Issuer shall pay interest at the applicable interest
rate on the Senior Notes on overdue principal, interest (to the extent lawful)
or premium or Additional Interest, if any, on demand.
2. Method of Payment
The Issuer through the Paying Agent shall pay interest on this Senior Note
to the registered holder of this Senior Note or as instructed in writing by such
Holder. The Holder must surrender this Senior Note to the Paying Agent to
collect principal payments. The Issuer shall pay principal and interest in money
of the United States of America that at the time of payment is legal tender for
payment of public and private debts.
3. Paying Agent and Registrar
Initially, The Bank of New York, a New York banking corporation (the
"TRUSTEE"), will act as Paying Agent and Registrar. The Issuer may appoint and
change any Paying Agent, Registrar, co-registrar or transfer agent without prior
notice. The Issuer may act as Paying Agent, Registrar, co-registrar or transfer
agent to the Holder.
4. Indenture
The Issuer issued this Senior Note under an Indenture, dated as of
April 21, 1999 (the "INDENTURE"), between the Issuer and the Trustee. The terms
of this Senior Note include those stated in the Indenture and those made part of
the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C.
sections 77aaa-77bbbb) as in effect on the date of the Indenture (the "ACT").
Terms defined in the Indenture and not defined herein have the meanings ascribed
thereto in the Indenture. This Senior Note is subject to all such terms, and
Holders are referred to the Indenture and the Act for a statement of those
terms.
The Senior Notes are senior unsecured obligations of the Issuer limited to
$450,000,000 aggregate principal amount at maturity (subject to Section 2.8 of
the Indenture).
5. Optional Redemption
a. This Senior Note is subject to redemption in whole or in part, at
any time and from time to time, upon not less than 30 nor more than 60 days'
notice, in an amount of $1,000 or an integral multiple of $1,000, at a
Redemption Price equal to the sum of (i) 100%
8
<PAGE> 120
of the principal amount, together with accrued and unpaid interest and
Additional Interest, if any, to the Redemption Date, and (ii) the Make-Whole
Amount, if any, as provided in the Indenture.
b. This Senior Note is not subject to redemption through
operation of a sinking fund.
6. Notice of Redemption
Notice of redemption shall be mailed not less than 30 nor more than 60
days prior to the Redemption Date to the registered holders of the Senior Notes
at the addresses provided to the Trustee in writing by the Holders on the date
of issuance of such Senior Notes or on the dates of any subsequent transfers of
such Senior Notes or at any address provided to the Trustee in writing by such
Holders. Senior Notes in denominations larger than $1,000 of principal amount at
maturity may be redeemed in part but only in whole multiples of $1,000 at
maturity. In the event of a redemption of less than all of the Senior Notes, the
Senior Notes for redemption will be chosen by the Trustee in accordance with the
Indenture. If any Senior Note is redeemed subsequent to a record date with
respect to any Interest Payment Date specified above and/or prior to such
Interest Payment Date, then any accrued interest will be paid to the Holder at
the close of business on such record date. If money sufficient to pay the
Redemption Price of and accrued interest on all Senior Notes (or portions
thereof) to be redeemed on the Redemption Date is deposited with the Paying
Agent on or before the Redemption Date and certain other conditions are
satisfied, on and after such date interest will cease to accrue on such Senior
Notes (or such portions thereof) called for redemption.
7. Denominations; Transfer; Exchange
This Senior Note is in registered form without coupons. The Holder may
only transfer or exchange this Senior Note in accordance with the Indenture. The
Registrar may require a Holder, among other things, to furnish appropriate
endorsements or transfer documents and to pay any taxes and fees required by law
or permitted by the Indenture. The Registrar need not register the transfer of
or exchange any Senior Notes selected for redemption (except, in the case of a
Senior Note to be redeemed in part, the portion of the Senior Notes need not be
redeemed) or any Senior Notes for a period of 15 days before a selection of
Senior Notes to be redeemed.
9
<PAGE> 121
8. Persons Deemed Owners
The registered holder of this Senior Note will be treated as the owner of
it for all purposes.
9. Defeasance and Covenant Defeasance
The Indenture contains provisions for defeasance at any time, upon
compliance by the Issuer with certain conditions set forth in the
Indenture, of (a) the entire indebtedness of the Issuer with respect to
this Senior Note and (b) certain restrictive covenants and the related
Defaults and Events of Default.
10. Amendment; Waiver
The Indenture permits, with certain exceptions as therein provided,
the amendment thereof and the modification of the rights and obligations
of the Issuer and the Trustee with the consent of the Holders of a
majority in aggregate principal amount of the Senior Notes outstanding at
the time of amendment or modification. The Indenture also contains
provisions permitting the Holders of specified percentages in aggregate
principal amount of the Senior Notes at any time outstanding, on behalf
of the Holders of all the Senior Notes, to waive compliance by the Issuer
with certain provisions of the Indenture and certain past defaults under
the Indenture and their consequences. Any such consent or waiver by or
on behalf of the Holder shall be conclusive and binding upon such Holder
and upon all future Holders and of any Senior Note issued in exchange
therefor or in lieu hereof whether or not notation of such consent or
waiver is made upon this Senior Note.
11. Defaults and Remedies
This Senior Note has the Events of Default as set forth in Section
4.1 of the Indenture. If an Event of Default occurs and is continuing,
the Trustee or the Holders of at least 25% in principal amount of the
Senior Notes, subject to certain limitations, may declare all the Senior
Notes to be due and payable immediately. Certain events of bankruptcy or
insolvency are Events of Default and shall result in the Senior Notes
being due and payable immediately upon the occurrence of such Events of
Default.
Holders may not enforce the Indenture or the Senior Notes except as
provided in the Indenture. The Trustee may refuse to enforce the
Indenture or the Senior Notes unless it receives reasonable indemnity or
security. Subject to certain limitations, Holders of a majority in
principal amount of the Senior Notes may direct the Trustee in its
exercise of any
10
<PAGE> 122
trust or power. The Holders of a majority in principal amount of the Senior
Notes then outstanding by written notice to the Trustee may rescind a
declaration of acceleration if the rescission is prior to a judgment or decree
for payment and if all Events of Default have been cured or waived except
nonpayment of principal and interest that has been due solely because of the
acceleration. The Trustee may withhold from Holders notice of any continuing
default (except a default in payment of principal or interest) if it determines
that withholding notice is in the interest of the Holders. The above description
of Events of Default and remedies is qualified by reference, and subject in its
entirety, to the more complete description thereof contained in the Indenture.
12. Trustee Dealings with the Issuer
Subject to certain limitations imposed by the Act, the Trustee
under the Indenture, in its individual or any other capacity, may become
the owner or pledgee of this Senior Note and may otherwise deal with and
collect obligations owed to it by the Issuer or its Affiliates and may
otherwise deal with the Issuer or its Affiliates with the same rights it
would have if it were not Trustee. Any Paying Agent, Registrar or such
other agent may do the same with like rights.
13. No Recourse Against Others
A director, officer, employee or stockholder, as such, of the
Issuer, shall not have any liability for any payment of the principal of,
or premium or Additional Interest, if any, or interest on, any of the
Senior Notes or any other obligations of the Issuer under this Senior
Note or the Indenture or for any claim based on, in respect of or by
reason of such obligations or their creation. By accepting this Senior
Note, the registered holder of this Senior Note waives and releases all
such liability. The waiver and release are part of the consideration for
the issuance of this Senior Note.
14. Authentication
This Senior Note shall not be valid until an authorized officer of
the Trustee (or an authenticating agent) manually signs the certificate
of authentication on the other side of this Senior Note.
15. Governing Law
The internal laws of the State of New York shall govern the
Indenture and this Senior Note.
11
<PAGE> 123
The Issuer will furnish to the Holder upon written request and without
charge to the Holder a copy of the Indenture. Requests may be made to:
AFLAC Incorporated
1932 Wynnton Road
Columbus, Georgia 31999
Attention: Investor Relations Department
Telephone: (706) 323-3431
12
<PAGE> 124
[FORM OF TRANSFER NOTICE]
FOR VALUE RECEIVED the undersigned registered Holder hereby
sell(s), assign(s) and transfer(s) unto
Insert Taxpayer Identification No.
- -------------------------------------------------------------------------------
Please print or typewrite name and address including zip code of assignee
- -------------------------------------------------------------------------------
the within Senior Note and all rights thereunder, hereby irrevocably
constituting and appointing _______________________ attorney to transfer said
Senior Note on the books of the Issuer with full power of substitution in the
premises.
In connection with any transfer of this Senior Note occurring (i) in the
case of a U.S. Certificated Senior Note or U.S. Global Senior Note, prior to the
Resale Restriction Termination Date, (ii) in the case of a Reg S Certificated
Senior Note or Reg S Global Senior Note, prior to the expiration of the
Distribution Compliance Period, or (iii) prior to the date of an effective
registration under the Securities Act, the undersigned confirms that without
utilizing any general solicitation or general advertising that:
[Check One]
[ ](a) This Senior Note is being transferred in compliance with the
exemption from registration under the Securities Act, provided by
Rule 144A thereunder.
or
[ ](b) This Senior Note is being transferred in an offshore transaction
in compliance with Rule 904 of the Securities Act.
or
[ ](c) This Senior Note is being transferred to an institutional
"accredited investor" (as defined in Rule 501(a)(1), (2), (3) or
(7) under the Securities Act), that has furnished to the Trustee a
signed letter containing certain representations and agreements.
13
<PAGE> 125
or
[ ](d) This Senior Note is being transferred other than in accordance
with (a), (b) or (c) above and documents are being furnished which
comply with the conditions for transfer set forth in this Senior
Note and the Indenture.
If none of the foregoing boxes is checked the Trustee or other Registrar
shall refuse to register this Senior Note in the name of any Person other
than the Holder hereof unless and until the conditions to any such
transfer or registration set forth herein and in Section 2.13 of the
Indenture shall have been satisfied.
Date: ______________________ ________________________________
NOTICE: The signature to this
assignment must correspond with the
name as written upon the face of the
within-mentioned instrument in every
particular, without alteration or
any change whatsoever.
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this
Senior Note for its own account or an account with respect to which it
exercises sole investment discretion and that it and any such account is
a "QUALIFIED INSTITUTIONAL BUYER" within the meaning of Rule 144A and is
aware that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding the Issuer
as the undersigned has requested pursuant to Rule 144A or has determined
not to request such information and that it is aware that the transferor
is relying upon the undersigned's foregoing representations in order to
claim the exemption from registration provided by Rule 144A.
Date: ______________________ __________________________
NOTICE: To be executed by an
executive officer of the transferee.
<PAGE> 126
EXHIBIT D
FORM OF CERTIFICATE TO BE DELIVERED IN
CONNECTION WITH TRANSFERS TO
INSTITUTIONAL ACCREDITED INVESTORS
[Date]
AFLAC Incorporated
1932 Wynnton Road
Columbus, Georgia 31999
Ladies and Gentlemen:
In connection with our proposed transfer of $
aggregate principal amount of the 6 1/2% Senior Notes due 2009 (the
"Senior Notes") of AFLAC Incorporated (the "Issuer"), we represent and
warrant to you that:
1. We understand that the Senor Notes have not been
registered under the Securities Act of 1933, as amended (the
"Securities Act"), and, unless so registered, may not be sold except
as permitted in the following sentence. We agree on our own behalf
and on behalf of any investor account for which we are purchasing
Senior Notes to offer, sell or otherwise transfer such Senior Notes
prior to (x) the date which is two years (or such shorter period of
time as permitted by the Securities Act) after the later of the
date of original issue of the Senior Notes and the last date on
which the Issuer or any affiliate of the Issuer was the owner of
the Senior Notes or any predecessor of the Senior Notes and (y)
such later date, if any, as may be required by any subsequent
change in applicable law (the "Resale Restriction Termination
Date") only (a) to the Issuer, (b) pursuant to a registration
statement which has been declared effective under the Securities
Act, (c) so long as the Senior Notes are eligible for resale,
pursuant to Rule 144A under the Securities Act ("Rule 144A"), to a
person we reasonably believe is a "qualified institutional buyer"
under Rule 144A (a "QIB") that purchases for its own account or for
the account of a QIB and to whom notice is given that the transfer
is being made in reliance on Rule 144A, (d) pursuant to offers and
sales to non-U.S. persons that occur outside the United States
within the meaning of Regulation S under the Securities Act,(e) to
an institutional "accredited investor" within the meaning of Rule
501(a)(1), (2), (3) or (7) under the
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<PAGE> 127
Securities Act (an "Institutional Accredited Investor") that is purchasing
for its own account or for the account of an Institutional Accredited
Investor, in each case in a minimum principal amount of Senior Notes of
$250,000, or (f) pursuant to any other available exemption from the
registration requirements of the Securities Act, subject, in each of the
foregoing cases, to any requirement of law that the disposition of our
property or the property of such investor account or accounts be at all
times within our or their control and to compliance with any applicable
state securities laws. The foregoing restrictions on resale will not apply
subsequent to the Resale Restriction Termination Date. If any resale or
other transfer of the Senior Notes is proposed to be made to an
Institutional Accredited Investor pursuant to clause (e) above prior to
the Resale Restriction Termination Date, the transferor shall deliver a
letter from the transferee substantially in the form of this letter to the
trustee, which shall provide, among other things, that the transferee is
an Institutional Accredited Investor and that it is acquiring such Senior
Notes for investment purposes and not for distribution in violation of the
Securities Act. Each purchaser acknowledges that the Issuer and the
trustee under the indenture governing the Senior Notes, reserve the right
prior to any offer, sale or other transfer prior to the Resale Restriction
Termination Date of the Senior Notes pursuant to clause (d), (e) or (f)
above to require the delivery of an opinion of counsel, certification
and/or other information satisfactory to the Issuer and such trustee.
2. We are an Institutional Accredited Investor purchasing at
least $250,000 principal amount of Senior Notes for our own account
or for the account of one of more Institutional Accredited
Investors, and we are acquiring the Senior Notes for investment
purposes and not with a view to, or for offer or sale in connection
with, any distribution in violation of the Securities Act or the
securities law of any state of the United States, and we have such
knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risks of our investment in the
Senior Notes, and we and any accounts for which we are acting are
each able
2
<PAGE> 128
to bear the economic risk of our or its investment in the Senior Notes
for an indefinite period.
Very truly yours,
[Transferee]
By: ________________________
Date:_______________________
Upon transfer, the Senior Notes would be registered in the name of
the new beneficial owner as follows:
Name: ____________________________
Address:__________________________
Taxpayer ID Number: _____________
<PAGE> 129
EXHIBIT E
FORM OF CERTIFICATE TO BE DELIVERED IN CONNECTION
WITH TRANSFERS PURSUANT TO REGULATIONS
[Date]
AFLAC Incorporated
1932 Wynnton Road
Columbus, Georgia 31999
Ladies and Gentlemen:
In connection with our proposed transfer of U.S. $____________ aggregate
principal amount of 6 1/2% Senior Notes due 2009 (the "Senior Notes") of AFLAC
Incorporated, we confirm that such transfer has been effected pursuant to and in
accordance with Regulation S under the Securities Act of 1933, as amended
("Regulation S"), and, accordingly, we represent that:
1. The offer of the Senior Notes was not made to a person in
the United States.
2. Either (i) at the time the buy order was originated, the
transferee was outside the United States or we and any person
acting on our behalf reasonably believed that the transferee was
outside the United States or (ii) the transaction was executed in,
on or through the facilities of a designated off-shore securities
market and neither we nor any person acting on our behalf knows
that the transaction has been pre-arranged with a buyer in the
United States.
3. No directed selling efforts have been made by us in the
United States in contravention of the requirements of Rule 903(b)
or Rule 904(b) of Regulation S, as applicable.
4. The transaction is not part of a plan or scheme to evade
the registration requirements of the United States Securities Act
of 1933, as amended.
In addition, if the transfer is made during a restricted period and the
provisions of Rule 903(c)(3) or Rule 904(c)(1) of Regulation S are applicable
thereto, we confirm that
<PAGE> 130
such transfer has been made in accordance with the applicable provisions of Rule
903(c)(3) or Rule 904(c)(1), as the case may be.
You and the trustee under the Indenture governing the Senior Notes are
entitled to rely upon this letter and are irrevocably authorized to produce this
letter or a copy hereof to any interested party in any administrative or legal
proceedings or official inquiry with respect to the matters covered hereby.
Terms used in this certificate have the meanings set forth in Regulation S.
Very truly yours,
[Transferee]
By: ________________________
Date:_______________________
Upon transfer, the Senior Notes would be registered in the name of
the new beneficial owner as follows:
Name: ____________________________
Address:__________________________
Taxpayer ID Number: _____________
<PAGE> 1
EXHIBIT 5.1
May 13, 1999
AFLAC Incorporated
1932 Wynnton Road
Columbus, Georgia 31999
Re: AFLAC Incorporated - Registration Statement on Form S-4
Ladies and Gentlemen:
We have acted as special counsel to AFLAC Incorporated, a Georgia
corporation (the "Company"), in connection with the Company's offer to exchange
(the "Exchange Offer") up to $450,000,000 aggregate principal amount of its
outstanding 6 1/2% Senior Notes due 2009 (the "Old Notes") for its 6 1/2% Senior
Notes due 2009 (the "New Notes"). The New Notes are to be issued pursuant to an
Indenture dated as of April 21, 1999, between the Company and The Bank of New
York, as Trustee (the "Indenture").
This opinion is being furnished in accordance with the requirements of
Item 601(b)(5) of Regulation S-K under the Securities Act of 1933, as amended
(the "Act").
In connection with this opinion, we have examined originals or copies,
certified or otherwise identified to our satisfaction, of (i) the Registration
Statement on Form S-4 (File No. 333- ), as filed with the Securities and
Exchange Commission (the "Commission") under the Act on May 13, 1999 (the
"Registration Statement"); (ii) an executed copy of the Indenture; (iii) the
form of the New Notes and a specimen certificate thereof; (iv) the Articles of
Incorporation of the Company (the "Charter"); (v) the By-laws of the Company
(the "By-laws"); and (vi) certain resolutions of the Board of Directors of the
Company relating to the Exchange Offer and related matters. We have also
examined originals or copies, certified or otherwise identified to our
satisfaction, of such records of the Company and such agreements, certificates
of public officials, certificates of officers or other representatives of the
Company and others, and such other documents, certificates and records as we
have deemed necessary or appropriate as a basis for the opinions set forth
herein.
<PAGE> 2
In our examination, we have assumed the legal capacity of all natural
persons, the genuineness of all signatures, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified, conformed or photostatic copies and the
authenticity of the originals of such latter documents. In making our
examination of documents, we have assumed that the parties thereto (other than
the Company) had the power, corporate or other, to enter into and perform all
obligations thereunder and have also assumed the due authorization by all
requisite action, corporate or other, and execution and delivery by such parties
of such documents and (except as specifically set forth below) the validity and
binding effect on such parties. As to any facts material to the opinions
expressed herein which we did not independently establish or verify, we have
relied upon oral or written statements and representations of officers and other
representatives of the Company and others.
We have also assumed that the execution and delivery by the Company of
the Indenture and the New Notes and the performance of its obligations
thereunder do not and will not (A) violate, conflict with or constitute a
default under (i) any agreement or instrument to which the Company or any of its
properties is subject, (ii) any law, rule or regulation to which the Company or
any of its properties is subject (except that we do not make the assumption set
forth in this clause (ii) with respect to Applicable Laws (as defined below)),
or (iii) any judicial or regulatory order or decree of any governmental
authority, or (B) require any consent, approval, license, authorization or
validation of, or filing, recording or registration with, any governmental
authority, which has not been duly made or obtained. "Applicable Laws" means the
laws, rules and regulations of the State of New York and the United States of
America, which, in our experience, are normally applicable to transactions of
the type contemplated by the Exchange Offer (other than the securities laws,
blue sky laws and antifraud laws of any jurisdiction), but without our having
made any special investigation with respect to any other laws, rules or
regulations.
We have further assumed, based on the opinion of Joey Loudermilk, Esq.,
a copy of which is attached as Exhibit A hereto, that (i) the Company has been
duly incorporated and is validly existing as a corporation and is in good
standing under the laws of the State of Georgia and has the corporate power and
authority to execute, deliver and perform its obligations under the Indenture
and the New Notes; (ii) the execution, delivery and performance of the Company's
obligations under the Indenture and the New Notes have been duly authorized by
all requisite action on the part of the Company and the Indenture has been duly
executed and delivered by the Company; and (iii) the execution, delivery and
performance of the Company's
2
<PAGE> 3
obligations under the Indenture and the New Notes will not violate, conflict
with or constitute a breach or default under the Charter or By-laws of the
Company.
Members of our firm are admitted to the practice of law in the State of
New York and we do not express any opinion as to the laws of any other
jurisdiction other than the federal laws of the United States of America to the
extent specifically referred to herein.
Based upon and subject to the limitations, qualifications, exceptions
and assumptions set forth herein, we are of the opinion that when (i) the
Registration Statement becomes effective and the Indenture has been qualified
under the Trust Indenture Act of 1939, as amended, and (ii) the New Notes have
been duly executed and authenticated in accordance with the terms of the
Indenture and delivered in exchange for the Old Notes in accordance with the
Exchange Offer, the New Notes will be valid and binding obligations of the
Company entitled to the benefits of the Indenture and enforceable against the
Company in accordance with their terms, except to the extent that (a) the
enforcement thereof may be limited by (i) bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or other similar laws now or
hereafter in effect relating to creditors' rights generally and (ii) general
principles of equity (regardless of whether enforcement is considered in a
proceeding at law or in equity) and (b) the waiver contained in Section 9.7 of
the Indenture may be deemed unenforceable.
We hereby consent to the filing of this opinion with the Commission as
an exhibit to the Registration Statement. We also consent to the reference to
our firm under the caption "Legal Matters" in the Registration Statement. In
giving this consent, we do not thereby admit that we are included in the
category of persons whose consent is required under Section 7 of the Act or the
rules and regulations of the Commission.
Very truly yours,
/s/ SKADDEN, ARPS, SLATE,
MEAGHER & FLOM LLP
3
<PAGE> 4
EXHIBIT A
May 13, 1999
Skadden, Arps, Slate, Meagher & Flom LLP
1440 New York Avenue, N.W.
Washington, D.C. 20005
Re: AFLAC Incorporated - Registration Statement on Form S-4
Ladies and Gentlemen:
I am Senior Vice President, General Counsel and Secretary of AFLAC
Incorporated, a Georgia corporation (the "Company"). This opinion is delivered
in connection with the Company's offer to exchange (the "Exchange Offer") up to
$450,000,000 aggregate principal amount of its outstanding 6 1/2% Senior Notes
due 2009 (the "Old Notes"), for its 6 1/2% Senior Notes due 2009 (the
"New Notes"). The New Notes are to be issued pursuant to an Indenture, dated as
of April 21, 1999, between the Company and The Bank of New York, as Trustee (the
"Indenture").
In connection with this opinion, I have examined originals or copies,
certified or otherwise identified to my satisfaction, of: (i) the Registration
Statement on Form S-4 (File No. 333- ), as filed with the Securities and
Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended, on May 13, 1999 (the "Registration Statement"); (ii) an executed copy
of the Indenture; (iii) the form of the New Notes and a specimen certificate
thereof; (iv) the Articles of Incorporation of the Company; (v) the By-laws of
the Company; and (vi) certain resolutions of the Board of Directors of the
Company and the Pricing Committee of the Company relating to the issuance and
sale of the Old Notes and the New Notes. I have also examined originals or
copies, certified or otherwise identified to my satisfaction, of such records of
the Company and such agreements, certificates of public officials, certificates
of officers or other representatives of the Company, and others, and such other
documents, certificates and corporate or other records, all as I have deemed
necessary or appropriate as a basis for the opinions set forth herein.
<PAGE> 5
In my examination, I have assumed the genuineness of all signatures, the
legal capacity of all natural persons, the authenticity of all documents
submitted to me as originals, the conformity to original documents of all
documents submitted to me as certified or photostatic copies and the
authenticity of the originals of such copies. In making my examination of
documents executed by parties other than the Company, I have assumed that such
parties had the power, corporate or other, to enter into and perform all
obligations thereunder and have also assumed the due authorization by all
requisite action, corporate or other, and execution and delivery by such parties
of such documents and the validity and binding effect of such documents on such
parties thereof. As to any facts material to the opinions expressed herein which
were not independently established or verified, I have relied upon oral or
written statements and representations of officers and other representatives of
the Company and others.
Based upon the foregoing and subject to the limitations, qualifications,
exceptions and assumptions set forth herein, I am of the opinion that:
1. The Company has been duly incorporated, and is validly existing as a
corporation in good standing under the laws of the State of Georgia.
2. The Company has the corporate power and authority to execute, deliver
and perform its obligations under the Indenture and the New Notes.
3. The execution, delivery and performance of the Company's obligations
under the Indenture and the New Notes have been duly authorized by all requisite
action on the part of the Company.
4. The execution, delivery and performance of the Company's obligations
under the Indenture and the New Notes will not violate, conflict with or
constitute a breach or default under the Charter or By-laws of the Company.
5. The Indenture has been duly executed and delivered by the Company.
I am admitted to the practice of law in the State of Georgia, and I do
not express any opinion as to the laws of any other jurisdictions.
2
<PAGE> 6
This opinion is provided solely for your benefit and in connection with
the transactions described herein; provided, however, that I hereby consent to
your reliance on this opinion in connection with the rendering of your opinion
which is being filed as an exhibit to the Registration Statement on Form S-4 as
to which the New Notes relate, and the inclusion of this opinion as an exhibit
to your opinion.
Very truly yours,
/s/ JOEY LOUDERMILK
Joey Loudermilk
Senior Vice President,
General Counsel and Secretary
3
<PAGE> 1
EXHIBIT 12.1
AFLAC Incorporated
Ratio of Earnings to Fixed Charges
<TABLE>
<CAPTION>
Three Months Ended March 31, Years Ended December 31,
--------------------- ----------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
-------- -------- -------- -------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed Charges:
Interest Expense $ 3,608 $ 3,273 $ 13,152 $ 13,709 $ 16,186 $ 15,611 $ 11,077
Rental Expense Deemed Interest 119 95 396 439 563 757 1,192
-------- -------- -------- -------- -------- -------- --------
TOTAL FIXED CHARGES $ 3,727 $ 3,368 $ 13,548 $ 14,148 $ 16,749 $ 16,368 $ 12,269
======== ======== ======== ======== ======== ======== ========
Earnings Before Income Tax $202,897 $ 53,524 $550,793 $864,820 $650,001 $600,995 $504,336
Add Back:
Fixed Charges 3,727 3,368 13,548 14,148 16,749 16,368 12,269
TOTAL EARNINGS BEFORE INCOME -------- -------- -------- -------- -------- -------- --------
TAX AND FIXED CHARGES 206,624 56,892 564,341 878,968 666,750 617,363 516,605
-------- -------- -------- -------- -------- -------- --------
Adjustments:
Realized Gains/(Losses) (4,590) 183 (2,077) (5,400) 1,980 (270) (58)
Gain on Sale of Television Business 267,223 60,264
-------- -------- -------- -------- -------- -------- --------
Total Realized Gains/(Losses) (4,590) 183 (2,077) 261,823 62,244 (270) (58)
-------- -------- -------- -------- -------- -------- --------
TOTAL EARNINGS BEFORE INCOME
TAX AND FIXED CHARGES AND -------- -------- -------- -------- -------- -------- --------
REALIZED GAINS/(LOSSES) $211,214 $ 56,709 $566,418 $617,145 $604,506 $617,633 $516,663
======== ======== ======== ======== ======== ======== ========
EARNINGS EXCLUDING REALIZED GAINS/
(LOSSES) TO FIXED CHARGES 56.7x 16.8x 41.8x 43.6x 36.1x 37.7x 42.1x
</TABLE>
<PAGE> 2
AFLAC Incorporated
Debt to Total Capitalization Ratio
<TABLE>
<CAPTION>
Three Months Ended March 31, Years Ended December 31,
--------------------- ----------------------------------------------
1999 1998 1998 1997 1996
-------- -------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
Excludes: Unrealized gains on
investment securities
Notes payable (A) $ 573,160 $ 511,186 $ 595,791 $ 523,209 $ 353,533
Total Capitalization:
Shareholders' equity 3,858,894 3,453,698 3,769,679 3,430,472 2,125,569
Plus: Notes payable 573,160 511,186 595,791 523,209 353,533
Less: Unrealized gains on
investment securities 1,243,040 1,201,618 1,332,056 1,284,717 280,154
---------- ---------- ---------- ---------- ----------
Total capitalization (B) $3,189,014 $2,763,266 $3,033,414 $2,668,964 $2,198,948
========== ========== ========== ========== ==========
Debt to Equity (A / B) 18.0% 18.5% 19.6% 19.6% 16.1%
Includes: Unrealized gains on
investment securities
Notes payable (A) $ 573,160 $ 511,186 $ 595,791 $ 523,209 $ 353,533
Total capitalization:
Shareholders' equity 3,858,894 3,453,698 3,769,679 3,430,472 2,125,569
Plus: Notes payable 573,160 511,186 595,791 523,209 353,533
---------- ---------- ---------- ---------- ----------
Total capitalization (B) $4,432,054 $3,964,884 $4,365,470 $3,953,681 $2,479,102
========== ========== ========== ========== ==========
Debt to Equity (A / B) 12.9% 12.9% 13.6% 13.2% 14.3%
</TABLE>
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------
1995 1994
-------- --------
(In thousands)
Excludes: Unrealized gains on
investment securities
<S> <C> <C>
Notes payable (A) $ 327,268 $ 184,901
Total capitalization:
Shareholders' equity 2,134,141 1,751,767
Plus: Notes payable 327,268 184,901
Less: Unrealized gains on
investment securities 482,787 228,844
---------- ----------
Total capitalization (B) $1,978,622 $1,707,824
========== ==========
Debt to Equity (A / B) 16.5% 10.8%
Includes: Unrealized gains on
investment securities
Notes payable (A) $ 327,268 $ 184,901
Total capitalization:
Shareholders' equity 2,134,141 1,751,767
Plus: Notes payable 327,268 184,901
---------- ----------
Total capitalization (B) $2,461,409 $1,936,668
========== ==========
Debt to Equity (A / B) 13.3% 9.5%
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED ACCOUNTANTS
The Board of Directors
AFLAC Incorporated:
We consent to the use of our report included herein and to the reference of our
firm under the headings "Historical Consolidated Financial Information" and
"Experts" in the prospectus.
/s/ KPMG LLP
May 13, 1999
<PAGE> 1
EXHIBIT 25.1
================================================================================
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) /__/
---------------------------
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
<TABLE>
<S> <C>
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
One Wall Street, New York, N.Y 10286
(Address of principal executive offices) (Zip code)
</TABLE>
---------------------------
AFLAC INCORPORATED
(Exact name of obligor as specified in its charter)
<TABLE>
<S> <C>
Georgia 58-1167100
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
1932 Wynnton Road
Columbus, Georgia 31999
(Address of principal executive offices) (Zip code)
</TABLE>
---------------------------
6-1/2% Senior Notes Due 2009
(Title of the indenture securities)
================================================================================
<PAGE> 2
1. GENERAL INFORMATION. FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:
(a) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO
WHICH IT IS SUBJECT.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Name Address
- ------------------------------------------------------------------------------------------
<S> <C>
Superintendent of Banks of the State 2 Rector Street, New York, N.Y.
of New York 10006, and Albany, N.Y. 12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York, N.Y.
10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York 10005
</TABLE>
(b) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Yes.
2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
None.
16. LIST OF EXHIBITS.
EXHIBITS IDENTIFIED IN PARENTHESES BELOW, ON FILE WITH THE COMMISSION,
ARE INCORPORATED HEREIN BY REFERENCE AS AN EXHIBIT HERETO, PURSUANT TO
RULE 7a-29 UNDER THE TRUST INDENTURE ACT OF 1939 (THE "ACT") AND 17
C.F.R. 229.10(d).
1. A copy of the Organization Certificate of The Bank of New York
(formerly Irving Trust Company) as now in effect, which contains
the authority to commence business and a grant of powers to
exercise corporate trust powers. (Exhibit 1 to Amendment No. 1 to
Form T-1 filed with Registration Statement No. 33-6215, Exhibits
1a and 1b to Form T-1 filed with Registration Statement No.
33-21672 and Exhibit 1 to Form T-1 filed with Registration
Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form
T-1 filed with Registration Statement No. 33-31019.)
6. The consent of the Trustee required by Section 321(b) of the Act.
(Exhibit 6 to Form T-1 filed with Registration Statement No.
33-44051.)
7. A copy of the latest report of condition of the Trustee published
pursuant to law or to the requirements of its supervising or
examining authority.
-2-
<PAGE> 3
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New
York, a corporation organized and existing under the laws of the State of New
York, has duly caused this statement of eligibility to be signed on its behalf
by the undersigned, thereunto duly authorized, all in The City of New York, and
State of New York, on the 6th day of May, 1999.
THE BANK OF NEW YORK
By: /s/MICHELE L. RUSSO
-------------------------------
Name: MICHELE L. RUSSO
Title: ASSISTANT TREASURER
-3-
<PAGE> 4
- --------------------------------------------------------------------------------
Consolidated Report of Condition of
THE BANK OF NEW YORK
of One Wall Street, New York, N.Y. 10286
And Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System, at the close of business December 31,
1998, published in accordance with a call made by the Federal Reserve Bank of
this District pursuant to the provisions of the Federal Reserve Act.
<TABLE>
<CAPTION>
Dollar Amounts
ASSETS in Thousands
<S> <C>
Cash and balances due from
depository institutions:
Noninterest-bearing balances and
currency and coin ................................... $ 3,951,273
Interest-bearing balances ............................ 4,134,162
Securities:
Held-to-maturity securities .......................... 932,468
Available-for-sale securities ........................ 4,279,246
Federal funds sold and Securities
purchased under agreements to
resell ............................................... 3,161,626
Loans and lease financing receivables:
Loans and leases, net of unearned
income .............................................. 37,861,802
LESS: Allowance for loan and
lease losses ........................................ 619,791
LESS: Allocated transfer risk
reserve ............................................. 3,572
Loans and leases, net of unearned
income, allowance, and reserve ...................... 37,238,439
Trading Assets ......................................... 1,551,556
Premises and fixed assets (including
capitalized leases) .................................. 684,181
Other real estate owned ................................ 10,404
Investments in unconsolidated
subsidiaries and associated
companies ............................................ 196,032
Customers' liability to this bank on
acceptances outstanding .............................. 895,160
Intangible assets ...................................... 1,127,375
Other assets ........................................... 1,915,742
-----------
Total assets ........................................... $60,077,664
===========
</TABLE>
<PAGE> 5
<TABLE>
<CAPTION>
LIABILITIES
Deposits:
<S> <C>
In domestic offices .................................. $27,020,578
Noninterest-bearing .................................. 11,271,304
Interest-bearing ..................................... 15,749,274
In foreign offices, Edge and
Agreement subsidiaries, and IBFs .................... 17,197,743
Noninterest-bearing .................................. 103,007
Interest-bearing ..................................... 17,094,736
Federal funds purchased and
Securities sold under agreements
to repurchase ........................................ 1,761,170
Demand notes issued to the
U.S. Treasury ........................................ 125,423
Trading liabilities .................................... 1,625,632
Other borrowed money:
With remaining maturity of one
year or less ........................................ 1,903,700
With remaining maturity of more
than one year through three years ................... 0
With remaining maturity of more
than three years .................................... 31,639
Bank's liability on acceptances
executed and outstanding ............................. 900,390
Subordinated notes and debentures ...................... 1,308,000
Other liabilities ...................................... 2,708,852
-----------
Total liabilities ...................................... 54,583,127
===========
EQUITY CAPITAL
Common stock ........................................... 1,135,284
Surplus ................................................ 764,443
Undivided profits and capital
reserves ............................................. 3,542,168
Net unrealized holding gains
(losses) on available-for-sale
securities ........................................... 82,367
Cumulative foreign currency
translation adjustments .............................. (29,725)
-----------
Total equity capital ................................... 5,494,537
-----------
Total liabilities and equity capital ................... $60,077,664
===========
</TABLE>
- --------------------------------------------------------------------------------
<PAGE> 6
I, Thomas J. Mastro, Senior Vice President and Comptroller of the
above-named bank do hereby declare that this Report of Condition has been
prepared in conformance with the instructions issued by the Board of Governors
of the Federal Reserve System and is true to the best of my knowledge and
belief.
Thomas J. Mastro
We, the undersigned directors, attest to the correctness of this Report
of Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
<TABLE>
<S> <C>
Thomas A. Reyni
Gerald L. Hassell Directors
Alan R. Griffith
</TABLE>
<PAGE> 1
EXHIBIT 99.1
SECTIONS 14-2-850 TO 14-2-859 OF THE
OFFICIAL CODE OF GEORGIA
SECTION 14-2-850. PART DEFINITIONS
As used in this part, the term:
(1) "Corporation" includes any domestic or foreign predecessor entity of a
corporation in a merger or other transaction in which the predecessor's
existence ceased upon consummation of the transaction.
(2) "Director" or "officer" means an individual who is or was a director
or officer, respectively, of a corporation or who, while a director or officer
of the corporation, is or was serving at the corporation's request as a
director, officer, partner, trustee, employee, or agent of another domestic or
foreign corporation, partnership, joint venture, trust, employee benefit plan,
or other entity. A director or officer is considered to be serving an employee
benefit plan at the corporation's request if his or her duties to the
corporation also impose duties on, or otherwise involve services by, the
director or officer to the plan or to participants in or beneficiaries of the
plan. Director or officer includes, unless the context otherwise requires, the
estate or personal representative of a director or officer.
(3) "Disinterested director" means a director who at the time of a vote
referred to in subsection (c) of Code Section 14-2-853 or a vote or selection
referred to in subsection (b) or (c) of Code Section 14-2-855 or subsection (a)
of Code Section 14-2-856 is not:
(A) A party to the proceeding; or
(B) An individual who is a party to a proceeding having a familial,
financial, professional, or employment relationship with the director whose
indemnification or advance for expenses is the subject of the decision being
made with respect to the proceeding, which relationship would, in the
circumstances, reasonably be expected to exert an influence on the director's
judgment when voting on the decision being made.
<PAGE> 2
(4) "Expenses" includes counsel fees.
(5) "Liability" means the obligation to pay a judgment, settlement,
penalty, fine (including an excise tax assessed with respect to an employee
benefit plan), or reasonable expenses incurred with respect to a proceeding.
(6) "Official capacity" means:
(A) When used with respect to a director, the office of director in a
corporation; and
(B) When used with respect to an officer, as contemplated in Code
Section 14-2-857, the office in a corporation held by the officer.
Official capacity does not include service for any other domestic or foreign
corporation or any partnership, joint venture, trust, employee benefit plan, or
other entity.
(7) "Party" means an individual who was, is, or is threatened to be made a
named defendant or respondent in a proceeding.
(8) "Proceeding" means any threatened, pending, or completed action, suit,
or proceeding, whether civil, criminal, administrative, arbitrative, or
investigative and whether formal or informal.
SECTION 14-2-851. AUTHORITY TO INDEMNIFY
(a) Except as otherwise provided in this Code section, a corporation may
indemnify an individual who is a party to a proceeding because he or she is or
was a director against liability incurred in the proceeding if:
(1) Such individual conducted himself or herself in good faith; and
(2) Such individual reasonably believed:
(A) In the case of conduct in his or her official capacity, that such
conduct was in the best interests of the corporation;
(B) In all other cases, that such conduct was at least not opposed to
the best interests of the corporation; and
2
<PAGE> 3
(C) In the case of any criminal proceeding, that the individual had no
reasonable cause to believe such conduct was unlawful.
(b) A director's conduct with respect to an employee benefit plan for a
purpose he or she believed in good faith to be in the interests of the
participants in and beneficiaries of the plan is conduct that satisfies the
requirement of subparagraph (a)(2)(B) of this Code section.
(c) The termination of a proceeding by judgment, order, settlement, or
conviction, or upon a plea of nolo contendere or its equivalent is not, of
itself, determinative that the director did not meet the standard of conduct
described in this Code section.
(d) A corporation may not indemnify a director under this Code section:
(1) In connection with a proceeding by or in the right of the corporation,
except for reasonable expenses incurred in connection with the proceeding if it
is determined that the director has met the relevant standard of conduct under
this Code section; or
(2) In connection with any proceeding with respect to conduct for which he
or she was adjudged liable on the basis that personal benefit was improperly
received by him or her, whether or not involving action in his or her official
capacity.
SECTION 14-2-852. MANDATORY INDEMNIFICATION
A corporation shall indemnify a director who was wholly successful, on the
merits or otherwise, in the defense of any proceeding to which he or she was a
party because he or she was a director of the corporation against reasonable
expenses incurred by the director in connection with the proceeding.
SECTION 14-2-853. ADVANCE FOR EXPENSES
(a) A corporation may, before final disposition of a proceeding, advance
funds to pay for or reimburse the reasonable expenses incurred by a director who
is a party to a proceeding because he or she is a director if he or she delivers
to the corporation:
(1) A written affirmation of his or her good faith belief that he or she
has met the relevant standard of conduct described in Code Section 14-2-851 or
that the proceeding involves conduct for which liability has been eliminated
under a provision of the
3
<PAGE> 4
articles of incorporation as authorized by paragraph (4) of subsection (b) of
Code Section 14-2-202; and
(2) His or her written undertaking to repay any funds advanced if it is
ultimately determined that the director is not entitled to indemnification under
this part.
(b) The undertaking required by paragraph (2) of subsection (a) of this Code
section must be an unlimited general obligation of the director but need not be
secured and may be accepted without reference to the financial ability of the
director to make repayment.
(c) Authorizations under this Code section shall be made:
(1) By the board of directors:
(A) When there are two or more disinterested directors, by a majority
vote of all the disinterested directors (a majority of whom shall for such
purpose constitute a quorum) or by a majority of the members of a committee of
two or more disinterested directors appointed by such a vote; or
(B) When there are fewer than two disinterested directors, by the vote
necessary for action by the board in accordance with subsection (c) of Code
Section 14-2-824, in which authorization directors who do not qualify as
disinterested directors may participate; or
(2) By the shareholders, but shares owned or voted under the control of a
director who at the time does not qualify as a disinterested director with
respect to the proceeding may not be voted on the authorization.
SECTION 14-2-854. COURT-ORDERED INDEMNIFICATION AND ADVANCES FOR EXPENSES
(a) A director who is a party to a proceeding because he or she is a director
may apply for indemnification or advance for expenses to the court conducting
the proceeding or to another court of competent jurisdiction. After receipt of
an application and after giving any notice it considers necessary, the court
shall:
(1) Order indemnification or advance for expenses if it determines that
the director is entitled to indemnification under this part; or
4
<PAGE> 5
(2) Order indemnification or advance for expenses if it determines, in
view of all the relevant circumstances, that it is fair and reasonable to
indemnify the director or to advance expenses to the director, even if the
director has not met the relevant standard of conduct set forth in subsections
(a) and (b) of Code Section 14-2-851, failed to comply with Code Section
14-2-853, or was adjudged liable in a proceeding referred to in paragraph (1) or
(2) of subsection (d) of Code Section 14-2-851, but if the director was adjudged
so liable, the indemnification shall be limited to reasonable expenses incurred
in connection with the proceeding.
(b) If the court determines that the director is entitled to indemnification
or advance for expenses under this part, it may also order the corporation to
pay the director's reasonable expenses to obtain court-ordered indemnification
or advance for expenses.
SECTION 14-2-855. DETERMINATION AND AUTHORIZATION OF INDEMNIFICATION
(a) A corporation may not indemnify a director under Code Section 14-2-851
unless authorized thereunder and a determination has been made for a specific
proceeding that indemnification of the director is permissible in the
circumstances because he or she has met the relevant standard of conduct set
forth in Code Section 14-2-851.
(b) The determination shall be made:
(1) If there are two or more disinterested directors, by the board of
directors by a majority vote of all the disinterested directors (a majority of
whom shall for such purpose constitute a quorum) or by a majority of the members
of a committee of two or more disinterested directors appointed by such a vote;
(2) By special legal counsel:
(A) Selected in the manner prescribed in paragraph (1) of this
subsection; or
(B) If there are fewer than two disinterested directors, selected by
the board of directors (in which selection directors who do not qualify as
disinterested directors may participate); or
5
<PAGE> 6
(3) By the shareholders, but shares owned by or voted under the control of
a director who at the time does not qualify as a disinterested director may not
be voted on the determination.
(c) Authorization of indemnification or an obligation to indemnify and
evaluation as to reasonableness of expenses shall be made in the same manner as
the determination that indemnification is permissible, except that if there are
fewer than two disinterested directors or if the determination is made by
special legal counsel, authorization of indemnification and evaluation as to
reasonableness of expenses shall be made by those entitled under subparagraph
(b)(2)(B) of this Code section to select special legal counsel.
SECTION 14-2-856. SHAREHOLDER APPROVED INDEMNIFICATION
(a) If authorized by the articles of incorporation or a bylaw, contract, or
resolution approved or ratified by the shareholders by a majority of the votes
entitled to be cast, a corporation may indemnify or obligate itself to indemnify
a director made a party to a proceeding including a proceeding brought by or in
the right of the corporation, without regard to the limitations in other Code
sections of this part, but shares owned or voted under the control of a director
who at the time does not qualify as a disinterested director with respect to any
existing or threatened proceeding that would be covered by the authorization may
not be voted on the authorization.
(b) The corporation shall not indemnify a director under this Code section
for any liability incurred in a proceeding in which the director is adjudged
liable to the corporation or is subjected to injunctive relief in favor of the
corporation:
(1) For any appropriation, in violation of the director's duties, of any
business opportunity of the corporation;
(2) For acts or omissions which involve intentional misconduct or a
knowing violation of law;
(3) For the types of liability set forth in Code Section 14-2-832; or
(4) For any transaction from which he or she received an improper personal
benefit.
6
<PAGE> 7
(c) Where approved or authorized in the manner described in subsection (a) of
this Code section, a corporation may advance or reimburse expenses incurred in
advance of final disposition of the proceeding only if:
(1) The director furnishes the corporation a written affirmation of his or
her good faith belief that his or her conduct does not constitute behavior of
the kind described in subsection (b) of this Code section; and
(2) The director furnishes the corporation a written undertaking, executed
personally or on his or her behalf, to repay any advances if it is ultimately
determined that the director is not entitled to indemnification under this Code
section.
SECTION 14-2-857. INDEMNIFICATION OF OFFICERS, EMPLOYEES, AND AGENTS
(a) A corporation may indemnify and advance expenses under this part to an
officer of the corporation who is a party to a proceeding because he or she is
an officer of the corporation:
(1) To the same extent as a director; and
(2) If he or she is not a director, to such further extent as may be
provided by the articles of incorporation, the bylaws, a resolution of the board
of directors, or contract except for liability arising out of conduct that
constitutes:
(A) Appropriation, in violation of his or her duties, of any business
opportunity of the corporation;
(B) Acts or omissions which involve intentional misconduct or a knowing
violation of law;
(C) The types of liability set forth in Code Section 14-2-832; or
(D) Receipt of an improper personal benefit.
(b) The provisions of paragraph (2) of subsection (a) of this Code section
shall apply to an officer who is also a director if the sole basis on which he
or she is made a party to the proceeding is an act or omission solely as an
officer.
7
<PAGE> 8
(c) An officer of a corporation who is not a director is entitled to
mandatory indemnification under Code Section 14-2-852, and may apply to a court
under Code Section 14-2-854 for indemnification or advances for expenses, in
each case to the same extent to which a director may be entitled to
indemnification or advances for expenses under those provisions.
(d) A corporation may also indemnify and advance expenses to an employee or
agent who is not a director to the extent, consistent with public policy, that
may be provided by its articles of incorporation, bylaws, general or specific
action of its board of directors, or contract.
SECTION 14-2-858. INSURANCE
A corporation may purchase and maintain insurance on behalf of an individual
who is a director, officer, employee, or agent of the corporation or who, while
a director, officer, employee, or agent of the corporation, serves at the
corporation's request as a director, officer, partner, trustee, employee, or
agent of another domestic or foreign corporation, partnership, joint venture,
trust, employee benefit plan, or other entity against liability asserted against
or incurred by him or her in that capacity or arising from his or her status as
a director, officer, employee, or agent, whether or not the corporation would
have power to indemnify or advance expenses to him or her against the same
liability under this part.
SECTION 14-2-859. APPLICATION OF PART
(a) A corporation may, by a provision in its articles of incorporation or
bylaws or in a resolution adopted or a contract approved by its board of
directors or shareholders, obligate itself in advance of the act or omission
giving rise to a proceeding to provide indemnification or advance funds to pay
for or reimburse expenses consistent with this part. Any such obligatory
provision shall be deemed to satisfy the requirements for authorization referred
to in subsection (c) of Code Section 14-2-853 or subsection (c) of Code Section
14-2-855. Any such provision that obligates the corporation to provide
indemnification to the fullest extent permitted by law shall be deemed to
obligate the corporation to advance funds to pay for or reimburse expenses in
accordance with Code Section 14-2-853 to the fullest extent permitted by law,
unless the provision specifically provides otherwise.
(b) Any provision pursuant to subsection (a) of this Code section shall not
obligate the corporation to indemnify or advance expenses to a director of a
predecessor of
<PAGE> 9
the corporation, pertaining to conduct with respect to the predecessor, unless
otherwise specifically provided. Any provision for indemnification or advance
for expenses in the articles of incorporation, bylaws, or a resolution of the
board of directors or shareholders, partners, or, in the case of limited
liability companies, members or managers of a predecessor of the corporation or
other entity in a merger or in a contract to which the predecessor is a party,
existing at the time the merger takes effect, shall be governed by paragraph (3)
of subsection (a) of Code Section 14-2-1106.
(c) A corporation may, by a provision in its articles of incorporation, limit
any of the rights to indemnification or advance for expenses created by or
pursuant to this part.
(d) This part does not limit a corporation's power to pay or reimburse
expenses incurred by a director or an officer in connection with his or her
appearance as a witness in a proceeding at a time when he or she is not a party.
(e) Except as expressly provided in Code Section 14-2-857, this part does not
limit a corporation's power to indemnify, advance expenses to, or provide or
maintain insurance on behalf of an employee or agent.
9
<PAGE> 1
EXHIBIT 99.2
LETTER OF TRANSMITTAL
AFLAC INCORPORATED
OFFER FOR ALL OUTSTANDING
6 1/2% SENIOR NOTES DUE 2009
IN EXCHANGE FOR
6 1/2% SENIOR EXCHANGE NOTES DUE 2009
WHICH HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED,
PURSUANT TO THE PROSPECTUS, DATED , 1999
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
, 1999, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY
BE WITHDRAWN PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION
DATE.
Delivery To:
THE BANK OF NEW YORK, EXCHANGE AGENT
<TABLE>
<S> <C>
By Registered or Certified Mail: By Hand or Overnight Delivery:
THE BANK OF NEW YORK THE BANK OF NEW YORK
101 Barclay Street, (7 East) 101 Barclay Street
New York, New York 10286 Corporate Trust Services Window
Attention: Ground Level
Reorganization Section New York, New York 10286
Attention:
Reorganization Section
</TABLE>
By Facsimile for Eligible Institutions:
(212) 815-6339
Confirm by Telephone:
(212) 815-
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS
OTHER THAN AS SET FORTH ABOVE, OR TRANSMISSION OF INSTRUCTIONS
VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE,
WILL NOT CONSTITUTE A VALID DELIVERY.
1
<PAGE> 2
The undersigned acknowledges that he or she has received and reviewed the
Prospectus, dated , 1999 (the "Prospectus"), of AFLAC Incorporated, a
Georgia corporation (the "Company"), and this Letter of Transmittal (the
"Letter"), which together constitute the Company's offer (the "Exchange Offer")
to exchange an aggregate principal amount of up to $450,000,000 of the Company's
6 1/2% Senior Exchange Notes due 2009 (the "New Notes") which have been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
for a like principal amount of the Company's issued and outstanding 6 1/2%
Senior Notes due 2009 (the "Old Notes") from the registered holders thereof (the
"Holders").
For each Old Note accepted for exchange, the Holder of such Old Note will
receive a New Note having a principal amount equal to that of the surrendered
Old Note. The New Notes will bear interest from the most recent date to which
interest has been paid on the Old Notes or, if no interest has been paid on the
Old Notes, from April 21, 1999. Accordingly, registered Holders of New Notes on
the relevant record date for the first interest payment date following the
consummation of the Exchange Offer will receive interest accruing from the most
recent date to which interest has been paid or, if no interest has been paid,
from April 21, 1999. Old Notes accepted for exchange will cease to accrue
interest from and after the date of consummation of the Exchange Offer. Holders
of Old Notes whose Old Notes are accepted for exchange will not receive any
payment in respect of accrued interest on such Old Notes otherwise payable on
any interest payment date the record date for which occurs on or after
consummation of the Exchange Offer.
This Letter is to be completed by a holder of Old Notes either if
certificates are to be forwarded herewith or if a tender of certificates for Old
Notes, if available, is to be made by book-entry transfer to the account
maintained by the Exchange Agent at The Depository Trust Company (the
"Book-Entry Transfer Facility") pursuant to the procedures set forth in "The
Exchange Offer -- Book-entry transfer" section of the Prospectus. Holders of Old
Notes whose certificates are not immediately available, or who are unable to
deliver their certificates or confirmation of the book-entry tender of their Old
Notes into the Exchange Agent's account at the Book-Entry Transfer Facility (a
"Book-Entry Confirmation") and all other documents required by this Letter to
the Exchange Agent on or prior to the Expiration Date, must tender their Old
Notes according to the guaranteed delivery procedures set forth in "The Exchange
Offer -- Guaranteed delivery procedures" section of the Prospectus. See
Instruction 1. Delivery of documents to the Book-Entry Transfer Facility does
not constitute delivery to the Exchange Agent.
The undersigned has completed the appropriate boxes below and signed this
Letter to indicate the action the undersigned desires to take with respect to
the Exchange Offer.
2
<PAGE> 3
List below the Old Notes to which this Letter relates. If the space
provided below is inadequate, the certificate numbers and principal amount of
Old Notes should be listed on a separate signed schedule affixed hereto.
- --------------------------------------------------------------------------------
DESCRIPTION OF OLD NOTES
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
AGGREGATE PRINCIPAL PRINCIPAL AMOUNT
NAME(S) AND ADDRESS(ES) OF REGISTERED CERTIFICATE AMOUNT AT MATURITY AT MATURITY
HOLDER(S) (PLEASE FILL IN, IF BLANK) NUMBER(S)* OF OLD NOTE(S) TENDERED**
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
---------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
Total
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Need not be completed if Old Notes are being tendered by book-entry
transfer.
** Unless otherwise indicated in this column, a holder will be deemed to have
tendered ALL of the Old Notes represented by the Old Notes indicated in
column 2. See Instruction 2. Old Notes tendered hereby must be in
denominations of principal amount of $1,000 and any integral multiple
thereof. See Instruction 1.
- --------------------------------------------------------------------------------
[ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY
TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution
- --------------------------------------------------------------------------------
Account Number
- --------------------------------------------------------------------------------
Transaction Code Number
- --------------------------------------------------------------------------------
[ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE
FOLLOWING:
Name(s) of Registered Holder(s)
- --------------------------------------------------------------------------------
Window Ticket Number (if any)
- --------------------------------------------------------------------------------
Date of Execution of Notice of Guaranteed Delivery
- --------------------------------------------------------------------------------
Name of Institution Which Guaranteed Delivery
- --------------------------------------------------------------------------------
If Delivered by Book-Entry Transfer, Complete the Following:
Account Number
- --------------------------------------------------------------------------------
Transaction Code Number
- --------------------------------------------------------------------------------
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name:
- --------------------------------------------------------------------------------
Address:
- --------------------------------------------------------------------------------
----------------------------------------------------------------------
If the undersigned is not a broker-dealer, the undersigned represents that
it is not engaged in, and does not intend to engage in, a distribution of New
Notes. If the undersigned is a broker-dealer that will receive New Notes for its
own account in exchange for Old Notes that were acquired as a result of
market-making activities or other trading activities, it acknowledges that it
will deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such New Notes; however, by so acknowledging and
by delivering such a prospectus, the undersigned will not be deemed to admit
that it is an "underwriter" within the meaning of the Securities Act. If the
undersigned is a broker-
3
<PAGE> 4
dealer that will receive New Notes, it represents that the Old Notes to be
exchanged for the New Notes were acquired as a result of market-making
activities or other trading activities.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the aggregate principal amount of Old
Notes indicated above. Subject to, and effective upon, the acceptance for
exchange of the Old Notes tendered hereby, the undersigned hereby sells, assigns
and transfers to, or upon the order of, the Company all right, title and
interest in and to such Old Notes as are being tendered hereby.
The undersigned hereby irrevocably constitutes and appoints the Exchange
Agent as the undersigned's true and lawful agent and attorney-in-fact with
respect to such tendered Old Notes, with full power of substitution, among other
things, to cause the Old Notes to be assigned, transferred and exchanged. The
undersigned hereby represents and warrants that the undersigned has full power
and authority to tender, sell, assign and transfer the Old Notes, and to acquire
New Notes issuable upon the exchange of such tendered Old Notes, and that, when
the same are accepted for exchange, the Company will acquire good and
unencumbered title thereto, free and clear of all liens, restrictions, charges
and encumbrances and not subject to any adverse claim when the same are accepted
by the Company. The undersigned hereby further represents that any New Notes
acquired in exchange for Old Notes tendered hereby will have been acquired in
the ordinary course of business of the person receiving such New Notes, whether
or not such person is the undersigned, that neither the Holder of such Old Notes
nor any such other person is participating in, intends to participate in or has
an arrangement or understanding with any person to participate in the
distribution of such New Notes and that neither the Holder of such Old Notes nor
any such other person is an "affiliate," as defined in Rule 405 under the
Securities Act, of the Company.
The undersigned acknowledges that this Exchange Offer is being made in
reliance on interpretations by the staff of the Securities and Exchange
Commission (the "SEC"), as set forth in no-action letters issued to third
parties, that the New Notes issued pursuant to the Exchange Offer in exchange
for the Old Notes may be offered for resale, resold and otherwise transferred by
Holders thereof (other than any such Holder that is an "affiliate" of the
Company within the meaning of Rule 405 under the Securities Act), without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such New Notes are acquired in the ordinary course
of such Holders' business and such Holders have no arrangement with any person
to participate in the distribution of such New Notes. However, the SEC has not
considered the Exchange Offer in the context of a no-action letter and there can
be no assurance that the staff of the SEC would make a similar determination
with respect to the Exchange Offer as in other circumstances. If the undersigned
is not a broker-dealer, the undersigned represents that it is not engaged in,
and does not intend to engage in, a distribution of New Notes and has no
arrangement or understanding to participate in a distribution of New Notes. If
any Holder is an affiliate of the Company, is engaged in or intends to engage in
or has any arrangement or understanding with respect to the distribution of the
New Notes to be acquired pursuant to the Exchange Offer, such Holder (i) could
not rely on the applicable interpretations of the staff of the SEC and (ii) must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction. If the undersigned is
a broker-dealer that will receive New Notes for its own account in exchange for
Old Notes, it represents that the Old Notes to be exchanged for the New Notes
were acquired by it as a result of market-making activities or other trading
activities and acknowledges that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of such New
Notes; however, by so acknowledging and by delivering a prospectus meeting the
requirements of the Securities Act, the undersigned will not be deemed to admit
that it is an "underwriter" within the meaning of the Securities Act.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Company to be necessary or desirable to complete the
sale, assignment and transfer of the Old Notes tendered hereby. All authority
conferred or agreed to be conferred in this Letter and every obligation of the
undersigned hereunder shall be binding upon the successors, assigns, heirs,
executors, administrators, trustees in bankruptcy and legal representatives of
the
4
<PAGE> 5
undersigned and shall not be affected by, and shall survive, the death or
incapacity of the undersigned. This tender may be withdrawn only in accordance
with the procedures set forth in "The Exchange Offer -- Withdrawal Rights"
section of the Prospectus.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, please deliver the New Notes (and, if applicable,
substitute certificates representing Old Notes for any Old Notes not exchanged)
in the name of the undersigned or, in the case of a book-entry delivery of Old
Notes, please credit the account indicated above maintained at the Book-Entry
Transfer Facility. Similarly, unless otherwise indicated under the box entitled
"Special Delivery Instructions" below, please send the New Notes (and, if
applicable, substitute certificates representing Old Notes for any Old Notes not
exchanged) to the undersigned at the address shown above in the box entitled
"Description of Old Notes."
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OLD NOTES"
ABOVE AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED THE OLD NOTES AS
SET FORTH IN SUCH BOX ABOVE.
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4)
To be completed ONLY if certificates for Old Notes not exchanged and/or New
Notes are to be issued in the name of and sent to someone other than the person
or persons whose signature(s) appear(s) on this Letter above, or if Old Notes
delivered by book-entry transfer which are not accepted for exchange are to be
returned by credit to an account maintained at the Book-Entry Transfer Facility
other than the account indicated above.
Issue New Notes and/or Old Notes to:
Name(s)
-------------------------------------------------------------------------
(PLEASE TYPE OR PRINT)
- --------------------------------------------------------------------------------
(PLEASE TYPE OR PRINT)
Address
-------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(ZIP CODE)
(COMPLETE SUBSTITUTE FORM W-9)
[ ] Credit unexchanged Old Notes delivered by book-entry transfer to the
Book-Entry Transfer Facility account set forth below.
- --------------------------------------------------------------------------------
(BOOK-ENTRY TRANSFER FACILITY
ACCOUNT NUMBER, IF APPLICABLE)
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4)
To be completed ONLY if certificates for Old Notes not exchanged and/or New
Notes are to be sent to someone other than the person or persons whose
signature(s) appear(s) on this Letter above or to such person or persons at an
address other than shown in the box entitled "Description of Old Notes" on this
Letter above.
Mail New Notes and/or Old Notes to:
Name(s)
-------------------------------------------------------------------------
(PLEASE TYPE OR PRINT)
- --------------------------------------------------------------------------------
(PLEASE TYPE OR PRINT)
Address
-------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(ZIP CODE)
IMPORTANT: THIS LETTER OR A FACSIMILE HEREOF (TOGETHER WITH THE
CERTIFICATES FOR OLD NOTES OR A BOOK-ENTRY CONFIRMATION AND ALL OTHER REQUIRED
DOCUMENTS OR THE NOTICE OF GUARANTEED DELIVERY) MUST BE RECEIVED BY THE EXCHANGE
AGENT PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
5
<PAGE> 6
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING ANY BOX ABOVE.
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
(COMPLETE ACCOMPANYING SUBSTITUTE FORM W-9 BELOW)
<TABLE>
<S> <C>
X , 1999
----------------------------------------------------------- -------------------------------------
X , 1999
----------------------------------------------------------- -------------------------------------
(SIGNATURE(S) OF OWNER(S)) (DATE)
</TABLE>
Area Code and Telephone Number
--------------------------------------------------
If a holder is tendering any Old Notes, this Letter must be signed by the
registered holder(s) as the name(s) appear(s) on the certificate(s) for the Old
Notes or by any person(s) authorized to become registered holder(s) by
endorsements and documents transmitted herewith. If signature is by a trustee,
executor, administrator, guardian, officer or other person acting in a fiduciary
or representative capacity, please set forth full title. See Instruction 3.
Name(s):
------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(PLEASE TYPE OR PRINT)
Capacity:
-----------------------------------------------------------------------
Address:
------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(INCLUDING ZIP CODE)
SIGNATURE GUARANTEE
(IF REQUIRED BY INSTRUCTION 3)
Signature(s) Guaranteed by
an Eligible Institution:
- --------------------------------------------------------------------------------
(AUTHORIZED SIGNATURE)
- --------------------------------------------------------------------------------
(TITLE)
- --------------------------------------------------------------------------------
(NAME AND FIRM)
Dated:
--------- , 1999
6
<PAGE> 7
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER FOR THE
6 1/2% SENIOR NOTES DUE 2009 OF AFLAC INCORPORATED
IN EXCHANGE FOR THE
6 1/2% SENIOR EXCHANGE NOTES DUE 2009 OF AFLAC INCORPORATED,
WHICH HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
, 1999, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY BE
WITHDRAWN PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
1. DELIVERY OF THIS LETTER AND NOTES; GUARANTEED DELIVERY PROCEDURES.
This Letter is to be completed by holders of Old Notes either if
certificates are to be forwarded herewith or if tenders are to be made pursuant
to the procedures for delivery by book-entry transfer set forth in "The Exchange
Offer -- Book-entry transfer" section of the Prospectus. Certificates for all
physically tendered Old Notes, or Book-Entry Confirmation, as the case may be,
as well as a properly completed and duly executed Letter (or manually signed
facsimile hereof) and any other documents required by this Letter, must be
received by the Exchange Agent at the address set forth herein on or prior to
the Expiration Date, or the tendering holder must comply with the guaranteed
delivery procedures set forth below. Old Notes tendered hereby must be in
denominations of principal amount of $1,000 and any integral multiple thereof.
Holders whose certificates for Old Notes are not immediately available or
who cannot deliver their certificates and all other required documents to the
Exchange Agent on or prior to the Expiration Date, or who cannot complete the
procedure for book-entry transfer on a timely basis, may tender their Old Notes
pursuant to the guaranteed delivery procedures set forth in "The Exchange
Offer -- Guaranteed delivery procedures" section of the Prospectus. Pursuant to
such procedures, (i) such tender must be made through an Eligible
Institution,(ii) prior to 5:00 P.M., New York City time, on the Expiration Date,
the Exchange Agent must receive from such Eligible Institution a properly
completed and duly executed Letter (or a facsimile thereof) and Notice of
Guaranteed Delivery, substantially in the form provided by the Company (by
facsimile transmission, mail or hand delivery), setting forth the name and
address of the holder of Old Notes and the amount of Old Notes tendered, stating
that the tender is being made thereby and guaranteeing that within three New
York Stock Exchange ("NYSE") trading days after the Expiration Date, the
certificates for all physically tendered Old Notes, in proper form for transfer,
or a Book-Entry Confirmation, as the case may be, and any other documents
required by this Letter will be deposited by the Eligible Institution with the
Exchange Agent, and (iii) the certificates for all physically tendered Old
Notes, in proper form for transfer, or a Book-Entry Confirmation, as the case
may be, and all other documents required by this Letter, must be received by the
Exchange Agent within three NYSE trading days after the Expiration Date.
The method of delivery of this Letter, the Old Notes and all other required
documents is at the election and risk of the tendering holders, but the delivery
will be deemed made only when actually received or confirmed by the Exchange
Agent. If Old Notes are sent by mail, it is suggested that the mailing be
registered mail, properly insured, with return receipt requested, made
sufficiently in advance of the Expiration Date to permit delivery to the
Exchange Agent prior to 5:00 P.M., New York City time, on the Expiration Date.
See "The Exchange Offer" section of the Prospectus.
2. PARTIAL TENDERS (NOT APPLICABLE TO NOTEHOLDERS WHO TENDER BY BOOK-ENTRY
TRANSFER).
If less than all of the Old Notes evidenced by a submitted certificate are
to be tendered, the tendering holder(s) should fill in the aggregate principal
amount of Old Notes to be tendered in the box above entitled "Description of Old
Notes -- Principal Amount Tendered." A reissued certificate representing the
balance of nontendered Old Notes will be sent to such tendering holder, unless
otherwise provided in the appropriate box on this Letter, promptly after the
Expiration Date. All of the Old Notes delivered to the Exchange Agent will be
deemed to have been tendered unless otherwise indicated.
7
<PAGE> 8
3. SIGNATURES ON THIS LETTER; BOND POWERS AND ENDORSEMENTS; GUARANTEE OF
SIGNATURES.
If this Letter is signed by the registered holder of the Old Notes tendered
hereby, the signature must correspond exactly with the name as written on the
face of the certificates without any change whatsoever.
If any tendered Old Notes are owned of record by two or more joint owners,
all of such owners must sign this Letter.
If any tendered Old Notes are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many separate
copies of this Letter as there are different registrations of certificates.
When this Letter is signed by the registered holder or holders of the Old
Notes specified herein and tendered hereby, no endorsements of certificates or
separate bond powers are required. If, however, the New Notes are to be issued,
or any untendered Old Notes are to be reissued, to a person other than the
registered holder, then endorsements of any certificates transmitted hereby or
separate bond powers are required. Signatures on such certificate(s) must be
guaranteed by a firm which is a financial institution (including most banks,
savings and loan associations and brokerage houses) that is a participant in the
Securities Transfer Agents Medallion Program, the New York Stock Exchange
Medallion Signature Program or the Stock Exchanges Medallion Program (each an
"Eligible Institution").
If this Letter is signed by a person other than the registered holder or
holders of any certificate(s) specified herein, such certificate(s) must be
endorsed or accompanied by appropriate bond powers, in either case signed
exactly as the name or names of the registered holder or holders appear(s) on
the certificate(s) and signatures on such certificate(s) must be guaranteed by
an Eligible Institution.
If this Letter or any certificates or bond powers are signed by trustees,
executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and, unless waived by the Company,
proper evidence satisfactory to the Company of their authority to so act must be
submitted.
Endorsements on certificates for Old Notes or signatures on bond powers
required by this Instruction 3 must be guaranteed by an Eligible Institution.
Signatures on this Letter need not be guaranteed by an Eligible
Institution, provided the Old Notes are tendered: (i) by a registered holder of
Old Notes (which term, for purposes of the Exchange Offer, includes any
participant in the Book-Entry Transfer Facility system whose name appears on a
security position listing as the holder of such Old Notes) who has not completed
the box entitled "Special Issuance Instructions" or "Special Delivery
Instructions" on this Letter, or (ii) for the account of an Eligible
Institution.
4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS.
Tendering holders of Old Notes should indicate in the applicable box the
name and address to which New Notes issued pursuant to the Exchange Offer and/or
substitute certificates evidencing Old Notes not exchanged are to be issued or
sent, if different from the name or address of the person signing this Letter.
In the case of issuance in a different name, the employer identification or
social security number of the person named must also be indicated. Noteholders
tendering Old Notes by book-entry transfer may request that Old Notes not
exchanged be credited to such account maintained at the Book-Entry Transfer
Facility as such noteholder may designate hereon. If no such instructions are
given, such Old Notes not exchanged will be returned to the name and address of
the person signing this Letter.
5. TAXPAYER IDENTIFICATION NUMBER.
Federal income tax law generally requires that a tendering holder whose Old
Notes are accepted for exchange must provide the Company (as payor) with such
holder's correct Taxpayer Identification Number ("TIN") on Substitute Form W-9
below, which in the case of a tendering holder who is an individual, is his or
her social security number. If the Company is not provided with the current TIN
or an adequate basis for an exemption from backup withholding, such tendering
holder may be subject to a $50 penalty imposed by the Internal Revenue Service.
In addition, the Exchange Agent may be required to withhold 31% of the amount of
any reportable payments made after the exchange to such tendering holder of New
Notes. If withholding results in an overpayment of taxes, a refund may be
obtained.
8
<PAGE> 9
Exempt holders of Old Notes (including, among others, all corporations and
certain foreign individuals) are not subject to these backup withholding and
reporting requirements. See the enclosed Guidelines of Certification of Taxpayer
Identification Number on Substitute Form W-9 (the "W-9 Guidelines") for
additional instructions.
To prevent backup withholding, each tendering holder of Old Notes must
provide its correct TIN by completing the Substitute Form W-9 set forth below,
certifying, under penalties of perjury, that the TIN provided is correct (or
that such holder is awaiting a TIN) and that (i) the holder is exempt from
backup withholding, or (ii) the holder has not been notified by the Internal
Revenue Service that such holder is subject to backup withholding as a result of
a failure to report all interest or dividends or (iii) the Internal Revenue
Service has notified the holder that such holder is no longer subject to backup
withholding. If the tendering holder of Old Notes is a nonresident alien or
foreign entity not subject to backup withholding, such holder must give the
Exchange Agent a completed Form W-8, Certificate of Foreign Status. These forms
may be obtained from the Exchange Agent. If the Old Notes are in more than one
name or are not in the name of the actual owner, such holder should consult the
W-9 Guidelines for information on which TIN to report. If such holder does not
have a TIN, such holder should consult the W-9 Guidelines for instructions on
applying for a TIN, check the box in Part 2 of the Substitute Form W-9 and write
"applied for" in lieu of its TIN. Note: Checking this box and writing "applied
for" on the form means that such holder has already applied for a TIN or that
such holder intends to apply for one in the near future. If the box in Part 2 of
the Substitute Form W-9 is checked, the Exchange Agent will retain 31% of
reportable payments made to a holder during the sixty (60) day period following
the date of the Substitute Form W-9. If the holder furnishes the Exchange Agent
with his or her TIN within sixty (60) days of the Substitute Form W-9, the
Exchange Agent will remit such amounts retained during such sixty (60) day
period to such holder and no further amounts will be retained or withheld from
payments made to the holder thereafter. If, however, such holder does not
provide its TIN to the Exchange Agent within such sixty (60) day period, the
Exchange Agent will remit such previously withheld amounts to the Internal
Revenue Service as backup withholding and will withhold 31% of all reportable
payments to the holder thereafter until such holder furnishes its TIN to the
Exchange Agent.
6. TRANSFER TAXES.
The Company will pay all transfer taxes, if any, applicable to the transfer
of Old Notes to it or its order pursuant to the Exchange Offer. If, however, New
Notes and/or substitute Old Notes not exchanged are to be delivered to, or are
to be registered or issued in the name of, any person other than the registered
holder of the Old Notes tendered hereby, or if tendered Old Notes are registered
in the name of any person other than the person signing this Letter, or if a
transfer tax is imposed for any reason other than the transfer of Old Notes to
the Company or its order pursuant to the Exchange Offer, the amount of any such
transfer taxes (whether imposed on the registered holder or any other persons)
will be payable by the tendering holder. If satisfactory evidence of payment of
such taxes or exemption therefrom is not submitted herewith, the amount of such
transfer taxes will be billed directly to such tendering holder.
Except as provided in this Instruction 6, it will not be necessary for
transfer tax stamps to be affixed to the Old Notes specified in this Letter.
7. WAIVER OF CONDITIONS.
The Company reserves the absolute right to waive satisfaction of any or all
conditions enumerated in the Prospectus.
8. NO CONDITIONAL TENDERS.
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering holders of Old Notes, by execution of this Letter, shall
waive any right to receive notice of the acceptance of their Old Notes for
exchange.
Neither the Company, the Exchange Agent nor any other person is obligated
to give notice of any defect or irregularity with respect to any tender of Old
Notes nor shall any of them incur any liability for failure to give any such
notice.
9. MUTILATED, LOST, STOLEN OR DESTROYED OLD NOTES.
Any holder whose Old Notes have been mutilated, lost, stolen or destroyed
should contact the Exchange Agent at the address indicated above for further
instructions.
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<PAGE> 10
10. WITHDRAWAL RIGHTS.
Tenders of Old Notes may be withdrawn at any time prior to 5:00 P.M., New
York City time, on the Expiration Date.
For a withdrawal of a tender of Old Notes to be effective, a written notice
of withdrawal must be received by the Exchange Agent at the address set forth
above prior to 5:00 P.M., New York City time, on the Expiration Date. Any such
notice of withdrawal must (i) specify the name of the person having tendered the
Old Notes to be withdrawn (the "Depositor"), (ii) identify the Old Notes to be
withdrawn (including certificate number or numbers and the principal amount of
such Old Notes), (iii) contain a statement that such holder is withdrawing his
election to have such Old Notes exchanged, (iv) be signed by the holder in the
same manner as the original signature on the Letter by which such Old Notes were
tendered (including any required signature guarantees) or be accompanied by
documents of transfer to have the Trustee with respect to the Old Notes register
the transfer of such Old Notes in the name of the person withdrawing the tender
and (v) specify the name in which such Old Notes are registered, if different
from that of the Depositor. If Old Notes have been tendered pursuant to the
procedure for book-entry transfer set forth in "The Exchange Offer--Book-entry
transfer" section of the Prospectus, any notice of withdrawal must specify the
name and number of the account at the Book-Entry Transfer Facility to be
credited with the withdrawn Old Notes and otherwise comply with the procedures
of such facility. All questions as to the validity, form and eligibility
(including time of receipt) of such notices will be determined by the Company,
whose determination shall be final and binding on all parties. Any Old Notes so
withdrawn will be deemed not to have been validly tendered for exchange for
purposes of the Exchange Offer and no New Notes will be issued with respect
thereto unless the Old Notes so withdrawn are validly retendered. Any Old Notes
that have been tendered for exchange but which are not exchanged for any reason
will be returned to the Holder thereof without cost to such Holder (or, in the
case of Old Notes tendered by book-entry transfer into the Exchange Agent's
account at the Book-Entry Transfer Facility pursuant to the book-entry transfer
procedures set forth in "The Exchange Offer -- Book-entry transfer" section of
the Prospectus, such Old Notes will be credited to an account maintained with
the Book-Entry Transfer Facility for the Old Notes) as soon as practicable after
withdrawal, rejection of tender or termination of the Exchange Offer. Properly
withdrawn Old Notes may be retendered by following the procedures described
above at any time on or prior to 5:00 P.M., New York City time, on the
Expiration Date.
11. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES.
Questions relating to the procedure for tendering, as well as requests for
additional copies of the Prospectus and this Letter, and requests for Notices of
Guaranteed Delivery and other related documents may be directed to the Exchange
Agent, at the address and telephone number indicated above.
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<PAGE> 11
TO BE COMPLETED BY ALL TENDERING HOLDERS
(SEE INSTRUCTION 5)
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------
PAYOR'S NAME: STATE STREET BANK AND TRUST COMPANY
- ------------------------------------------------------------------------------------------------------------------------
SUBSTITUTE PART I--PLEASE PROVIDE YOUR TIN IN THE BOX AT RIGHT AND
FORM W-9 CERTIFY BY SIGNING AND DATING BELOW. TIN: -----------------------
Social Security Number
or Employer
Identification Number
-------------------------------------------------------------------------------------------
DEPARTMENT OF THE PART 2--TIN Applied For [ ]
TREASURY, INTERNAL
REVENUE SERVICE
-------------------------------------------------------------------------------------------
PAYOR'S REQUEST FOR CERTIFICATION: UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT:
TAXPAYER IDENTIFICATION
NUMBER ("TIN") CER- (1) the number shown on this form is my correct TIN (or I am waiting for a number
TIFICATION to be issued to me),
(2) I am not subject to backup withholding either because: (a) I am exempt from backup
withholding, or (b) I have not been notified by the Internal Revenue Service
(the "IRS") and that I am subject to backup withholding as a result of a failure to
report all interest or dividends, or (c) the IRS has notified me that I am no longer
subject to backup withholding, and
(3) any other information provided on this form is true and correct.
-------------------------------------------------------------------------------------------
Signature ________________________________________ Date ________________
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
You must cross out item (2) of the above certification if you have been notified
by the IRS that you are subject to backup withholding because of underreporting
of interest or dividends on your tax return and you have not been notified by
the IRS that you are no longer subject to backup withholding.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX
IN PART 2 OF SUBSTITUTE FORM W-9
- --------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me, and either (a) I have mailed or delivered an application
to receive a taxpayer identification number to the appropriate Internal Revenue
Service Center or Social Security Administration Office or (b) I intend to mail
or deliver an application in the near future. I understand that if I do not
provide a taxpayer identification number by the time of the exchange, 31
percent of all reportable payments made to me thereafter will be withheld until
I provide a number.
Signature _________________________________________ Date _____________________
- --------------------------------------------------------------------------------
11
<PAGE> 1
EXHIBIT 99.3
NOTICE OF GUARANTEED DELIVERY
FOR
AFLAC INCORPORATED
This form or one substantially equivalent hereto must be used to accept the
Exchange Offer of AFLAC Incorporated (the "Company") made pursuant to the
Prospectus, dated , 1999 (the "Prospectus"), if certificates for the
outstanding 6 1/2% Senior Notes due 2009 of the Company (the "Old Notes") are
not immediately available or if the procedure for book-entry transfer cannot be
completed on a timely basis or time will not permit all required documents to
reach The Bank of New York, as exchange agent (the "Exchange Agent") prior to
5:00 P.M., New York City time, on the Expiration Date of the Exchange Offer.
Such form may be delivered or transmitted by facsimile transmission, mail or
hand delivery to the Exchange Agent as set forth below. In addition, in order to
utilize the guaranteed delivery procedure to tender Old Notes pursuant to the
Exchange Offer, a completed, signed and dated Letter of Transmittal (or
facsimile thereof) must also be received by the Exchange Agent prior to 5:00
P.M., New York City time, on the Expiration Date. Capitalized terms not defined
herein are defined in the Prospectus.
Delivery To:
THE BANK OF NEW YORK, EXCHANGE AGENT
<TABLE>
<S> <C>
By Registered or Certified Mail: By Hand or Overnight Delivery:
THE BANK OF NEW YORK THE BANK OF NEW YORK
101 Barclay Street, (7 East) 101 Barclay Street
New York, New York 10286 Corporate Trust Services Window
Attention: Ground Level
Reorganization Section New York, New York 10286
Attention:
Reorganization Section
</TABLE>
By Facsimile for Eligible Institutions
(212) 815-6339
Confirm by Telephone:
(212) 815-
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR
TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE, WILL
NOT CONSTITUTE A VALID DELIVERY.
1
<PAGE> 2
Ladies and Gentlemen:
Upon the terms and conditions set forth in the Prospectus and the
accompanying Letter of Transmittal, the undersigned hereby tenders to the
Company the principal amount of Old Notes set forth below pursuant to the
guaranteed delivery procedure described in "The Exchange Offer -- Guaranteed
delivery procedures" section of the Prospectus.
Principal Amount of Old Notes Tendered:*
$
- ----------------------------------------------------
Certificate Nos. (if available):
- ------------------------------------------------------
Total Principal Amount Represented by
Old Notes Certificate(s):
$
- ----------------------------------------------------
If Old Notes will be delivered by book-entry transfer to The Depository Trust
Company, provide account number.
Account Number
- ----------------------------------------
ALL AUTHORITY HEREIN CONFERRED OR AGREED TO BE CONFERRED SHALL SURVIVE
THE DEATH OR INCAPACITY OF THE UNDERSIGNED AND EVERY OBLIGATION OF THE
UNDERSIGNED HEREUNDER SHALL BE BINDING UPON THE HEIRS, PERSONAL
REPRESENTATIVES, SUCCESSORS AND ASSIGNS OF THE UNDERSIGNED.
<TABLE>
<S> <C>
PLEASE SIGN HERE
X
- ------------------------------------------------------------ ------------------------------------
X
- ------------------------------------------------------------ ------------------------------------
SIGNATURE(S) OF OWNER(S) OR AUTHORIZED SIGNATORY DATE
Area Code and Telephone Number:
- -----------------------------------------------------------------------------------------------------
</TABLE>
Must be signed by the holder(s) of Old Notes as their name(s) appear(s) on
certificates for Old Notes or on a security position listing, or by person(s)
authorized to become registered holder(s) by endorsement and documents
transmitted with this Notice of Guaranteed Delivery. If signature is by a
trustee, executor, administrator, guardian, attorney-in-fact, officer or other
person acting in a fiduciary or representative capacity, such person must set
forth his or her full title below.
PLEASE PRINT NAME(S) AND ADDRESS(ES)
Name(s):
- --------------------------------------------------------------------------------
------------------------------------------------------------------------
Capacity:
- --------------------------------------------------------------------------------
Address(es):
- --------------------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
----------------------------------------------------------------------
- ---------------
* Must be in denominations of principal amount of $1,000 and any integral
multiple thereof.
2
<PAGE> 3
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a financial institution (including most banks, savings and
loan associations and brokerage houses) that is a participant in the Securities
Transfer Agents Medallion Program, the New York Stock Exchange Medallion
Signature Program or the Stock Exchanges Medallion Program, hereby guarantees
that the certificates representing the principal amount of Old Notes tendered
hereby in proper form for transfer, or timely confirmation of the book-entry
transfer of such Old Notes into the Exchange Agent's account at The Depository
Trust Company pursuant to the procedures set forth in "The Exchange
Offer -- Guaranteed delivery procedures" section of the Prospectus, together
with any required signature guarantee and any other documents required by the
Letter of Transmittal, will be received by the Exchange Agent at the address set
forth above, no later than three New York Stock Exchange trading days after the
Expiration Date.
Name of Firm:
- --------------------------------------------------------------------------------
Address:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Area Code and Telephone No.:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AUTHORIZED SIGNATURE
Name:
- --------------------------------------------------------------------------------
Title:
- --------------------------------------------------------------------------------
Date:
- --------------------------------------------------------------------------------
DO NOT SEND CERTIFICATES FOR OLD NOTES WITH THIS FORM. CERTIFICATES FOR OLD
NOTES SHOULD BE SENT ONLY WITH A COPY OF YOUR PREVIOUSLY EXECUTED LETTER OF
TRANSMITTAL.
3
<PAGE> 1
EXHIBIT 99.4
AFLAC INCORPORATED
OFFER FOR ALL OUTSTANDING
6 1/2% SENIOR NOTES DUE 2009
IN EXCHANGE FOR
6 1/2% SENIOR EXCHANGE NOTES DUE 2009,
THE SECURITIES ACT OF 1933,
AS AMENDED
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY BE
WITHDRAWN PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
To: Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees:
AFLAC Incorporated (the "Company") is offering, upon and subject to the
terms and conditions set forth in the Prospectus, dated , 1999 (the
"Prospectus"), and the enclosed Letter of Transmittal (the "Letter of
Transmittal"), to exchange (the "Exchange Offer") its 6 1/2% Senior Notes due
2009, which have been registered under the Securities Act of 1933, as amended,
for its outstanding 6 1/2% Senior Exchange Notes due 2009 (the "Old Notes"). The
Exchange Offer is being made in order to satisfy certain obligations of the
Company contained in the Registration Rights Agreement dated April 21, 1999, by
and among the Company and the initial purchasers referred to therein.
We are requesting that you contact your clients for whom you hold Old Notes
regarding the Exchange Offer. For your information and for forwarding to your
clients for whom you hold Old Notes registered in your name or in the name of
your nominee, or who hold Old Notes registered in their own names, we are
enclosing the following documents:
1. Prospectus dated , 1999;
2. The Letter of Transmittal for your use and for the information of
your clients;
3. A Notice of Guaranteed Delivery to be used to accept the Exchange
Offer if certificates for Old Notes are not immediately available or time
will not permit all required documents to reach the Exchange Agent prior to
the Expiration Date (as defined below) or if the procedure for book-entry
transfer cannot be completed on a timely basis;
4. A form of letter which may be sent to your clients for whose
account you hold Old Notes registered in your name or the name of your
nominee, with space provided for obtaining such clients' instructions with
regard to the Exchange Offer;
5. Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9; and
6. Return envelopes addressed to The Bank of New York, the Exchange
Agent for the Exchange Offer.
YOUR PROMPT ACTION IS REQUESTED. THE EXCHANGE OFFER WILL EXPIRE AT 5:00
P.M., NEW YORK CITY TIME, ON , 1999, UNLESS EXTENDED BY THE COMPANY
(THE "EXPIRATION DATE"). OLD NOTES TENDERED PURSUANT TO THE EXCHANGE OFFER MAY
BE WITHDRAWN AT ANY TIME BEFORE THE EXPIRATION DATE.
To participate in the Exchange Offer, a duly executed and properly
completed Letter of Transmittal (or facsimile thereof), with any required
signature guarantees and any other required documents, should be sent to the
Exchange Agent and certificates representing the Old Notes should be delivered
to the Exchange Agent, all in accordance with the instructions set forth in the
Letter of Transmittal and the Prospectus.
If a registered holder of Old Notes desires to tender, but such Old Notes
are not immediately available, or time will not permit such holder's Old Notes
or other required documents to reach the Exchange Agent before the Expiration
Date, or the procedure for book-entry transfer cannot be completed on a timely
basis, a tender may be effected by following the
1
<PAGE> 2
guaranteed delivery procedures described in the Prospectus under the caption
"The Exchange Offer-Guaranteed delivery procedures."
The Company will, upon request, reimburse brokers, dealers, commercial
banks and trust companies for reasonable and necessary costs and expenses
incurred by them in forwarding the Prospectus and the related documents to the
beneficial owners of Old Notes held by them as nominee or in a fiduciary
capacity. The Company will pay or cause to be paid all stock transfer taxes
applicable to the exchange of Old Notes pursuant to the Exchange Offer, except
as set forth in Instruction 6 of the Letter of Transmittal.
Any inquiries you may have with respect to the Exchange Offer, or requests
for additional copies of the enclosed materials, should be directed to The Bank
of New York, the Exchange Agent for the Exchange Offer, at its address and
telephone number set forth on the front of the Letter of Transmittal.
Very truly yours,
AFLAC INCORPORATED
NOTHING HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY
PERSON AS AN AGENT OF THE COMPANY OR THE EXCHANGE AGENT, OR AUTHORIZE YOU OR ANY
OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY STATEMENTS ON BEHALF OF EITHER OF
THEM WITH RESPECT TO THE EXCHANGE OFFER, EXCEPT FOR STATEMENTS EXPRESSLY MADE IN
THE PROSPECTUS OR THE LETTER OF TRANSMITTAL.
2
<PAGE> 1
EXHIBIT 99.5
AFLAC INCORPORATED
OFFER FOR ALL OUTSTANDING
6 1/2% SENIOR NOTES DUE 2009
IN EXCHANGE FOR
6 1/2% SENIOR EXCHANGE NOTES DUE 2009,
WHICH HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933,
AS AMENDED
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
, 1999, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY BE
WITHDRAWN PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
To Our Clients:
Enclosed for your consideration is a Prospectus, dated , 1999
(the "Prospectus"), and the related Letter of Transmittal (the "Letter of
Transmittal"), relating to the offer (the "Exchange Offer") of AFLAC
Incorporated (the "Company") to exchange its 6 1/2% Senior Exchange Notes due
2009, which have been registered under the Securities Act of 1933, as amended
(the "New Notes"), for its outstanding 6 1/2% Senior Notes due 2009 (the "Old
Notes"), upon the terms and subject to the conditions described in the
Prospectus and the Letter of Transmittal. The Exchange Offer is being made in
order to satisfy certain obligations of the Company contained in the
Registration Rights Agreement dated April 21, 1999, by and among the Company and
the initial purchasers referred to therein.
This material is being forwarded to you as the beneficial owner of the Old
Notes held by us for your account but not registered in your name. A tender of
such Old Notes may only be made by us as the holder of record and pursuant to
your instructions.
Accordingly, we request instructions as to whether you wish us to tender on
your behalf the Old Notes held by us for your account, pursuant to the terms and
conditions set forth in the enclosed Prospectus and Letter of Transmittal.
Your instructions should be forwarded to us as promptly as possible in
order to permit us to tender the Old Notes on your behalf in accordance with the
provisions of the Exchange Offer. The Exchange Offer will expire at 5:00 P.M.,
New York City time, on , 1999, unless extended by the Company. Any Old
Notes tendered pursuant to the Exchange Offer may be withdrawn at any time
before the Expiration Date.
Your attention is directed to the following:
1. The Exchange Offer is for any and all Old Notes.
2. The Exchange Offer is subject to certain conditions set forth in
the Prospectus in the section captioned "The Exchange Offer -- Conditions
to the exchange offer."
3. Any transfer taxes incident to the transfer of Old Notes from the
holder to the Company will be paid by the Company, except as otherwise
provided in the Instructions in the Letter of Transmittal.
4. The Exchange Offer expires at 5:00 P.M., New York City time, on
, 1999, unless extended by the Company.
If you wish to have us tender your Old Notes, please so instruct us by
completing, executing and returning to us the instruction form on the back of
this letter. The Letter of Transmittal is furnished to you for information only
and may not be used directly by you to tender Old Notes.
1
<PAGE> 2
INSTRUCTIONS WITH RESPECT TO
THE EXCHANGE OFFER
The undersigned acknowledge(s) receipt of your letter and the enclosed
material referred to therein relating to the Exchange Offer made by AFLAC
Incorporated with respect to its Old Notes.
This will instruct you to tender the Old Notes held by you for the account
of the undersigned, upon and subject to the terms and conditions set forth in
the Prospectus and the related Letter of Transmittal.
Please tender the Old Notes held by you for my account as indicated below:
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL AMOUNT OF OLD NOTES
---------------------------------------
<S> <C>
6 1/2% Senior Notes due 2009...................... $ ------------------------------
[ ] Please do not tender any Old Notes held by
you for my account.
Dated: ------------------------- , 1999
--------------------------------------------------
SIGNATURE(S)
PRINT NAME(S) HERE: --------------------------------------------------
--------------------------------------------------
PRINT ADDRESS(ES): --------------------------------------------------
--------------------------------------------------
AREA CODE AND TELEPHONE NUMBER(S): --------------------------------------------------
TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER(S): --------------------------------------------------
</TABLE>
None of the Old Notes held by us for your account will be tendered unless
we receive written instructions from you to do so. Unless a specific contrary
instruction is given in the space provided, your signature(s) hereon shall
constitute an instruction to us to tender all the Old Notes held by us for your
account.
2
<PAGE> 1
EXHIBIT 99.6
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE
PAYER--Social Security numbers have nine digits separated by two hyphens: i.e.
000-00-0000. Employer identification numbers have nine digits separated by only
one hyphen: i.e. 00-0000000. The table below will help determine the number to
give the payer.
<TABLE>
<S> <C>
FOR THIS TYPE OF ACCOUNT: GIVE THE NAME AND SOCIAL SECURITY NUMBER OF:
1. An individual's account The individual
2. Two or more individuals (joint account) The actual owner of the account or, if combined funds, any
one of the individuals(1)
3. Husband and wife (joint account) The actual owner of the account or, if joint funds, either
person(1)
4. Custodian account of a minor (Uniform Gift to The minor(2)
Minors Act)
5. Adult and minor (joint account) The adult or, if the minor is the only contributor, the
minor(3)
6. Account in the name of guardian or committee The ward, minor, or incompetent person(4)
for a designated ward, minor, or incompetent
person
7. a. The usual revocable savings trust account The grantor-trustee(3)
(grantor is also trustee)
b. So-called trust account that is not a legal The actual owner(3)
or valid trust under State law
FOR THIS TYPE OF ACCOUNT: GIVE THE NAME AND EMPLOYER IDENTIFICATION NUMBER OF:
8. Sole proprietorship account The owner(5)
9. A valid trust, estate, or pension trust Legal entity (Do not furnish the identifying number of the
personal representative or trustee unless the legal entity
itself is not designated in the account title.)(3)
10. Corporate account The corporation
11. Religious, charitable, or educational The organization
organization account
12. Partnership account held in the name of the The partnership
business
13. Association, club, or other tax-exempt The organization
organization
14. A broker or registered nominee The broker or nominee
15. Account with the Department of Agriculture in The public entity
the name of a public entity (such as a State or
local government, school district, or prison)
that receives agricultural program payments
</TABLE>
- ---------------
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) List first and circle the name of the legal trust, estate, or pension trust.
(4) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
(5) Show the name of the owner.
NOTE: If no name is circled when there is more than one name, the number will
be considered to be that of the first name listed.
<PAGE> 2
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
OBTAINING A NUMBER
If you don't have a TIN or you don't know your number, obtain Internal
Revenue Service Form SS-5, Application for a Social Security Number Card, or
Form SS-4, Application for Employer Identification Number, at your local office
of the Social Security Administration or the Internal Revenue Service and apply
for a number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments include
the following:
(1) A corporation.
(2) A financial institution.
(3) An organization exempt from tax under section 501(a) or an individual
retirement plan.
(4) The United States or any agency or instrumentality thereof.
(5) A State, the District of Columbia, a possession of the United States, or
any subdivision or instrumentality thereof.
(6) A foreign government, a political subdivision of a foreign government,
or any agency or instrumentality thereof.
(7) An international organization or any agency, or instrumentality thereof.
(8) A registered dealer in securities or commodities registered in the U.S.
or a possession of the U.S.
(9) A real estate investment trust.
(10) A common trust fund operated by a bank under section 584(a).
(11) An exempt charitable remainder trust, or a non-exempt trust described
in section 4947(a)(1).
(12) An entity registered at all times under the Investment Company Act of
1940.
(13) A foreign central bank of issue.
Payments of dividends and patronage dividends not generally subject to
backup withholding include the following:
- Payments to nonresident aliens subject to withholding under section 1441.
- Payments to partnerships not engaged in a trade or business in the U.S.
and which have at least one nonresident partner.
- Payments of patronage dividends where the amount received is not paid in
money.
- Payments made by certain foreign organizations.
- Payments made to a nominee.
- Payments of interest not generally subject to backup withholding include
the following:
- Payments of interest on obligations issued by individuals. NOTE: You may
be subject to backup withholding if this interest is $600 or more and is
paid in the course of the payer's trade or business and you have not
provided your correct taxpayer identification number to the payer.
- Payments of tax-exempt interest (including exempt-interest dividends under
section 852).
- Payments described in section 6049(b)(5) to nonresident aliens.
- Payments on tax-free covenant bonds under section 1451.
- Payments made by certain foreign organizations.
Exempt payees described above should file Form W-9 to avoid possible
erroneous backup withholding. FILE THIS FORM WITH THE PAYER. FURNISH YOUR
TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, AND
RETURN IT TO THE PAYER. IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE
DIVIDENDS, ALSO SIGN AND DATE THE FORM.
Certain payments other than interest, dividends, and patronage dividends,
that are not subject to information reporting are also not subject to backup
withholding. For details, see the regulations under sections 6041, 6041A(a),
6045, and 6050A.
PRIVACY ACT NOTICE--Section 6109 requires most recipients of dividend,
interest, or other payments to give taxpayer identification numbers to payers
who must report the payments to IRS. IRS uses the numbers for identification
purposes. Payers must be given the numbers whether or not recipients are
required to file tax returns. Payers must generally withhold 31% of taxable
interest, dividend, and certain other payments to a payee who does not furnish a
taxpayer identification number to a payer. Certain penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER--If you fail
to furnish your taxpayer identification number to a payer, you are subject
to a penalty of $50 for each such failure unless your failure is due to
reasonable cause and not to willful neglect.
(2) FAILURE TO REPORT CERTAIN DIVIDEND AND INTEREST PAYMENTS--If you fail to
include any portion of an includible payment for interest, dividends, or
patronage dividends in gross income, such failure will be treated as being
due to negligence and will be subject to a penalty of 5% on any portion of
an under-payment attributable to that failure unless there is clear and
convincing evidence to the contrary.
(3) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING--If you make
a false statement with no reasonable basis which results in no imposition of
backup withholding, you are subject to a penalty of $500.
(4) CRIMINAL PENALTY FOR FALSIFYING INFORMATION--Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or
imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL
REVENUE SERVICE.
