<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 1994
_______________
Commission file number 1-5704
________
Aetna Life and Casualty Company
_______________________________________________________________________
(Exact name of registrant as specified in its charter)
Connecticut 06-0843808
_______________________________________________________________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
151 Farmington Avenue, Hartford, Connecticut 06156
_______________________________________________________________________
(Address of principal executive offices) (ZIP Code)
Registrant's telephone number, including area code (203) 273-0123
__________________
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No _____
_____
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Shares Outstanding
Title of Class at July 31, 1994
________________ __________________
Common Capital Stock 112,631,669
without par value
<PAGE> 2
TABLE OF CONTENTS
_________________
Page
____
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Statements of Income 3
Consolidated Balance Sheets 4
Consolidated Statements of Shareholders'
Equity 6
Consolidated Statements of Cash Flows 7
Condensed Notes to Financial Statements 8
Independent Auditors' Review Report 21
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations. 22
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. 54
Item 4. Submission of Matters to a Vote
of Security Holders. 54
Item 5. Other Information. 55
Item 6. Exhibits and Reports on Form 8-K. 58
Signatures 59
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
AETNA LIFE AND CASUALTY COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
3 Months Ended 6 Months Ended
June 30 June 30
____________________________ ____________________________
(Millions, except share data) 1994 1993 1994 1993
____ ____ ____ ____
<S> <C> <C> <C> <C>
Revenue:
Premiums................................. $ 2,839.0 $ 2,688.8 $ 5,581.3 $ 5,311.1
Net investment income.................... 1,121.0 1,252.6 2,247.5 2,502.5
Fees and other income.................... 458.4 411.9 909.1 823.4
Net realized capital gains (losses)...... (13.4) (3.4) (19.3) 32.8
___________ ___________ ___________ ___________
Total revenue........................ 4,405.0 4,349.9 8,718.6 8,669.8
___________ ___________ ___________ ___________
Benefits and expenses:
Current and future benefits.............. 3,114.5 3,088.7 6,232.1 6,133.8
Operating expenses....................... 924.4 917.4 1,879.4 1,815.6
Amortization of deferred policy
acquisition costs....................... 177.9 192.7 362.5 378.0
___________ ___________ ___________ ___________
Total benefits and expenses.......... 4,216.8 4,198.8 8,474.0 8,327.4
___________ ___________ ___________ ___________
Income from continuing operations before
income taxes, extraordinary item and
cumulative effect adjustments............. 188.2 151.1 244.6 342.4
Federal and foreign income taxes (benefits):
Current.................................. (27.9) 16.7 (25.6) 86.9
Deferred................................. 83.7 (16.4) 92.1 (34.6)
___________ ___________ ___________ ___________
Total federal and foreign
income taxes........................ 55.8 .3 66.5 52.3
___________ ___________ ___________ __________
Income from continuing operations before
extraordinary item and cumulative effect
adjustments............................... 132.4 150.8 178.1 290.1
Discontinued operations, net of tax........ - - - 27.0
___________ ___________ ___________ ___________
Income before extraordinary item
and cumulative effect adjustments... 132.4 150.8 178.1 317.1
Extraordinary loss on debenture redemption,
net of tax................................ - (4.7) - (4.7)
Cumulative effect adjustments, net of tax.. - - - 227.8
___________ ___________ ___________ ___________
Net income........................... $ 132.4 $ 146.1 $ 178.1 $ 540.2
___________ ___________ ___________ ___________
___________ ___________ ___________ ___________
Results per common share:
Income from continuing operations before
extraordinary item and cumulative
effect adjustments...................... $ 1.17 $ 1.36 $ 1.58 $ 2.62
Discontinued operations, net of tax...... - - - .25
___________ ___________ ___________ ___________
Income before extraordinary item
and cumulative effect adjustments... 1.17 1.36 1.58 2.87
Extraordinary loss on debenture
redemption, net of tax.................. - (.04) - (.04)
Cumulative effect adjustments, net of tax - - - 2.06
___________ ___________ ___________ ___________
Net income........................... $ 1.17 $ 1.32 $ 1.58 $ 4.89
___________ ___________ ___________ ___________
___________ ___________ ___________ ___________
Dividends declared....................... $ .69 $ .69 $ 1.38 $ 1.38
___________ ___________ ___________ ___________
___________ ___________ ___________ ___________
Weighted average common shares outstanding. 112,904,466 110,500,118 112,956,551 110,405,425
___________ ___________ ___________ ___________
___________ ___________ ___________ ___________
<FN>
See Condensed Notes to Financial Statements.
</TABLE>
<PAGE> 4
AETNA LIFE AND CASUALTY COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
(Millions) 1994 1993
____________ ____________
<S> <C> <C>
Assets:
Investments:
Debt securities:
Held for investment, at amortized
cost (fair value $2,307.1 and
$2,704.2)....................... $ 2,237.6 $ 2,557.8
Available for sale, at fair value
(amortized cost $37,368.3 and
$36,933.6)...................... 36,353.7 38,868.9
Trading securities, at fair value
(1993 amortized cost $119.0)..... - 117.8
Equity securities, at fair value
(cost $1,361.1 and $1,238.1)....... 1,677.7 1,658.9
Short-term investments.............. 753.0 669.9
Mortgage loans...................... 13,591.7 14,839.2
Real estate......................... 1,191.0 1,315.8
Policy loans........................ 507.9 490.7
Other............................... 1,193.2 936.8
__________ __________
Total investments............... 57,505.8 61,455.8
Cash and cash equivalents............. 1,812.2 1,557.8
Reinsurance recoverables and
receivables.......................... 5,108.6 4,840.7
Accrued investment income............. 780.7 782.6
Premiums due and other receivables.... 1,551.2 1,664.9
Federal and foreign income taxes:
Current............................. 170.0 124.0
Deferred............................ 1,565.9 1,282.9
Deferred policy acquisition costs..... 1,936.0 1,867.0
Other assets.......................... 2,297.4 1,756.3
Separate Accounts assets.............. 23,249.5 24,704.7
__________ __________
Total assets.................... $ 95,977.3 $100,036.7
__________ __________
__________ __________
<FN>
See Condensed Notes to Financial Statements.
</TABLE>
<PAGE> 5
AETNA LIFE AND CASUALTY COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Continued)
<TABLE>
<CAPTION>
June 30, December 31,
(Millions, except share data) 1994 1993
____________ ____________
<S> <C> <C>
Liabilities:
Future policy benefits.................. $ 17,666.2 $ 17,597.6
Unpaid claims and claim expenses........ 17,807.3 17,112.2
Unearned premiums....................... 1,536.9 1,502.2
Policyholders' funds left with the
company................................ 25,220.1 27,592.2
__________ __________
Total insurance reserve liabilities. 62,230.5 63,804.2
Dividends payable to shareholders....... 77.7 77.4
Short-term debt......................... 174.9 35.7
Long-term debt.......................... 1,128.8 1,160.0
Other liabilities....................... 3,040.9 3,162.1
Minority and participating
policyholders' interests............... 143.9 172.5
Separate Accounts liabilities........... 23,131.2 24,581.7
__________ __________
Total liabilities................... 89,927.9 92,993.6
__________ __________
Shareholders' Equity:
Class A Voting Preferred Stock (no par
value; 10,000,000 shares authorized;
no shares issued or outstanding)....... - -
Class B Voting Preferred Stock (no par
value; 15,000,000 shares authorized;
no shares issued or outstanding)....... - -
Class C Non-Voting Preferred Stock (no
par value; 15,000,000 shares authorized;
no shares issued or outstanding)....... - -
Common Capital Stock (no par value;
250,000,000 shares authorized;
114,939,275 issued, and 112,618,169
and 112,200,567 outstanding)........... 1,417.8 1,422.0
Net unrealized capital gains (losses)... (387.5) 648.2
Retained earnings....................... 5,125.7 5,103.3
Treasury stock, at cost (2,321,106 and
2,738,708 shares)...................... (106.6) (130.4)
__________ __________
Total shareholders' equity.......... 6,049.4 7,043.1
__________ __________
Total liabilities and
shareholders' equity............... $ 95,977.3 $100,036.7
__________ __________
__________ __________
Shareholders' equity per common share... $ 53.72 $ 62.77
__________ __________
__________ __________
<FN>
See Condensed Notes to Financial Statements.
</TABLE>
<PAGE> 6
AETNA LIFE AND CASUALTY COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
(Millions, except share data)
Net
Common Unrealized
Capital Capital Retained Treasury
Six Months Ended June 30, 1994 Total Stock Gains (Losses) Earnings Stock
___________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1993 $7,043.1 $1,422.0 $ 648.2 $5,103.3 $ (130.4)
___________________________________________________________________________________________________________
Net income............................ 178.1 178.1
Net change in unrealized capital gains
and losses.......................... (1,035.7) (1,035.7)
Common stock issued for benefit plans
(417,602 shares).................... 23.8 23.8
Loss on issuance of treasury stock.... (4.2) (4.2)
Common stock dividends declared....... (155.7) (155.7)
_____________________________________________________________________
Balances at June 30, 1994 $6,049.4 $1,417.8 $ (387.5) $5,125.7 $ (106.6)
___________________________________________________________________________________________________________
___________________________________________________________________________________________________________
Six Months Ended June 30, 1993
___________________________________________________________________________________________________________
Balances at December 31, 1992 $7,238.3 $1,417.7 $ 259.6 $5,777.9 $ (216.9)
___________________________________________________________________________________________________________
Net income............................ 540.2 540.2
Net change in unrealized capital gains
and losses.......................... 224.3 224.3
Common stock issued for benefit plans
(362,623 shares).................... 17.6 17.6
Loss on issuance of treasury stock.... (2.8) (2.8)
Common stock dividends declared....... (152.7) (152.7)
_____________________________________________________________________
Balances at June 30, 1993 $7,864.9 $1,414.9 $ 483.9 $6,165.4 $ (199.3)
___________________________________________________________________________________________________________
___________________________________________________________________________________________________________
<FN>
See Condensed Notes to Financial Statements.
</TABLE>
<PAGE> 7
AETNA LIFE AND CASUALTY COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
6 Months Ended
June 30,
___________________
(Millions) 1994 1993
____ ____
<S> <C> <C>
Cash Flows from Operating Activities:
Net income....................................................... $ 178.1 $ 540.2
Adjustments to reconcile net income to net
cash used for operating activities:
Cumulative effect adjustments.................................. - (227.8)
Extraordinary loss on debenture redemption..................... - 4.7
Increase in accrued investment income.......................... (0.5) (75.6)
Decrease (increase) in premiums due and other receivables...... 153.1 (525.4)
Increase in reinsurance recoverables and receivables........... (254.3) (165.4)
Increase in deferred policy acquisition costs.................. (93.0) (66.6)
Depreciation and amortization.................................. 94.3 102.8
(Increase) decrease in federal and foreign income taxes........ (326.6) 72.9
Net (decrease) increase in other assets and other liabilities.. (692.3) 492.3
Increase in insurance reserve liabilities...................... 755.9 560.8
Net sales (purchases) of debt trading securities............... 52.3 (1,619.0)
Increase in minority interest.................................. (22.7) (7.4)
Gain on sale of subsidiary..................................... - (15.0)
Net realized capital losses (gains)............................ 19.3 (32.8)
Amortization of net investment discount........................ (51.8) (55.9)
Other, net..................................................... 18.2 (158.4)
_________ _________
Net cash used for operating activities....................... (170.0) (1,175.6)
_________ _________
Cash Flows from Investing Activities:
Proceeds from sales of:
Debt securities available for sale............................. 12,258.8 1,941.3
Debt securities held for investment............................ 5.6 -
Equity securities.............................................. 398.9 405.8
Mortgage loans................................................. 67.4 6.3
Real estate.................................................... 316.6 141.2
Short-term investments......................................... 30,322.7 33,025.6
Investment repayments of:
Debt securities available for sale............................. 2,125.8 2,817.2
Debt securities held for investment............................ 330.7 -
Mortgage loans................................................. 1,107.8 1,035.2
Cost of investments in:
Debt securities available for sale............................. (14,799.0) (5,635.5)
Debt securities held for investment............................ (46.3) -
Equity securities.............................................. (493.6) (236.9)
Mortgage loans................................................. (159.7) (88.1)
Real estate.................................................... (20.1) (46.5)
Short-term investments......................................... (30,444.4) (32,557.7)
Proceeds from disposal of subsidiary.............................. - 93.1
Increase in property, plant & equipment........................... (65.5) (75.2)
Net decrease in Separate Accounts................................. 4.7 5.2
Other, net........................................................ 127.5 20.1
_________ _________
Net cash provided by investing activities....................... 1,037.9 851.1
_________ _________
Cash Flows from Financing Activities:
Deposits and interest credited for investment contracts........... 1,757.9 1,971.4
Withdrawals of investment contracts............................... (2,342.6) (2,182.0)
Issuance of long-term debt........................................ 65.5 12.5
Stock issued under benefit plans.................................. 19.6 14.8
Repayment of long-term debt....................................... (93.0) (266.8)
Net increase in short-term debt................................... 138.4 333.5
Dividends paid to shareholders.................................... (155.7) (152.5)
_________ _________
Net cash used for financing activities.......................... (609.9) (269.1)
_________ _________
Effect of exchange rate changes on cash and cash
equivalents....................................................... (3.6) (6.3)
_________ _________
Net increase (decrease) in cash and cash equivalents................. 254.4 (599.9)
Cash and cash equivalents, beginning of period....................... 1,557.8 2,415.0
_________ _________
Cash and cash equivalents, end of period............................. $ 1,812.2 $ 1,815.1
_________ _________
_________ _________
Supplemental Cash Flow Information:
Interest paid..................................................... $ 37.7 $ 30.9
_________ _________
_________ _________
Income taxes paid................................................. $ 18.0 $ 97.7
_________ _________
_________ _________
<FN>
See Condensed Notes to Financial Statements.
</TABLE>
<PAGE> 8
AETNA LIFE AND CASUALTY COMPANY AND SUBSIDIARIES
CONDENSED NOTES TO FINANCIAL STATEMENTS
(1) Basis of Presentation
The consolidated financial statements include Aetna Life and
Casualty Company and its majority-owned subsidiaries
(collectively, the "company"). Less than majority-owned entities
in which the company has at least a 20% interest are reported on
the equity basis. These consolidated financial statements have
been prepared in accordance with generally accepted accounting
principles and are unaudited. Certain reclassifications have been
made to 1993 financial information to conform to 1994
presentation. These interim statements necessarily rely heavily
on estimates, including assumptions as to annualized tax rates.
In the opinion of management, all adjustments necessary for a fair
statement of results for the interim periods have been made. All
such adjustments are of a normal recurring nature.
(2) Revenue Recognition
Property-casualty premiums are generally recognized as revenue on
a pro rata basis over the policy term. Certain policies allow the
company to charge additional premiums as a result of recognizing
additional claim and expense costs under the policies. Such
premiums are recognized when the related losses are provided.
For universal life and certain annuity contracts, charges assessed
against policyholders' funds for the cost of insurance, surrender
charges, actuarial margin and other fees are recorded as revenue
in fees and other income. Other amounts received for these
contracts are reflected as deposits and are not recorded as
revenue. Life insurance premiums, other than premiums for
universal life and certain annuity contracts, are recorded as
premium revenue when due. Related policy benefits are recorded in
relation to the associated premiums or gross profit so that
profits are recognized over the expected lives of the contracts.
Group Health and Life premiums are generally recorded as premium
revenue over the term of coverage. Some group contracts allow for
premiums to be adjusted to reflect emerging experience. Such
premiums are recognized as the related experience emerges. Fees
for contracts providing claim processing services only are
recorded over the period the service is provided and are reflected
in fees and other income.
(3) Accounting Changes
Under certain insurance contracts with deductible features, the
company is obligated to pay the claimant for the full amount of a
claim. The company is subsequently reimbursed from the
policyholder for the deductible. Prior to March 31, 1994, unpaid
claim reserves were reported net of such deductibles. On March
31, 1994, the company adopted Financial Accounting Standards Board
("FASB") Interpretation No. 39, Offsetting of Amounts Related to
Certain Contracts, which requires that unpaid claims under certain
insurance contracts be reported on a gross basis. Deductible
amounts recoverable from policyholders of $432.0 million are
included in other assets at June 30, 1994.
<PAGE> 9
AETNA LIFE AND CASUALTY COMPANY AND SUBSIDIARIES
CONDENSED NOTES TO FINANCIAL STATEMENTS
(Continued)
(3) Accounting Changes (Continued)
In 1993, the company adopted, retroactive to January 1, 1993,
Financial Accounting Standard ("FAS") No. 112, Employers'
Accounting for Postemployment Benefits, which requires that
employers accrue the cost and recognize the liability for
providing certain benefits (primarily long-term disability) to
former or inactive employees after employment but before
retirement. A cumulative effect charge of $48.5 million ($.44 per
common share), net of taxes of $26.1 million, related to the
adoption of this standard is reflected in the Consolidated
Statement of Income for the six months ended June 30, 1993.
Adoption of FAS No. 112 had no impact on income from continuing
operations before extraordinary item and cumulative effect
adjustments for the three and six months ended June 30, 1993.
During 1993, the company elected to change its accounting policy
for reporting reserves for current and expected workers'
compensation life table indemnity claims to a discounted basis.
These reserves are discounted at 5% for voluntary business and
3.5% for involuntary business, with mortality and morbidity
assumptions that reflect current company and industry experience.
Management believes that this change better reflects the economic
value of its obligations and improves the matching of revenues and
expenses (i.e., investment earnings from underlying assets are
matched with the accretion of the liability as those amounts occur
over time). Additionally, it is consistent with the practice of
the company's principal competitors and is permitted by state
regulatory authorities. The company implemented discounting of
reserves for workers' compensation life table indemnity claims
retroactive to January 1, 1993, and reported a cumulative effect
benefit of $250.0 million ($2.26 per common share), net of taxes
of $134.7 million, in the Consolidated Statement of Income for the
six months ended June 30, 1993. The change in accounting for
workers' compensation life table indemnity reserves had no impact
on income from continuing operations before extraordinary item and
cumulative effect adjustments for the three and six months ended
June 30, 1993. The company's reserves for workers' compensation
life table indemnity claims at June 30, 1994 were 20.2% of its
total workers' compensation reserves for unpaid claims and claim
adjustment expenses.
During 1993, the Emerging Issues Task Force of the FASB reached a
consensus on a recommended method of accounting for
retrospectively rated reinsurance contracts. The company changed
its method of accounting for such contracts to conform to the
consensus. Accordingly, the company reported a cumulative effect
adjustment, retroactive to January 1, 1993, to recognize an asset
for the amounts due from reinsurers related to the experience
through January 1, 1993 under retrospectively rated reinsurance
contracts. These contracts provided for amounts to be returned to
the company based on favorable cumulative loss experience. The
company reported a cumulative effect benefit related to the change
in accounting for retrospectively rated reinsurance contracts of
$26.3 million ($.24 per common share), net of taxes of $8.6
million, in the Consolidated Statement of Income for the six
months ended June 30, 1993. The effect of the change for the
three and six months ended June 30, 1993 was an increase to income
from continuing operations before extraordinary item and
cumulative effect adjustments of $3.3 million ($.03 per share).
<PAGE> 10
AETNA LIFE AND CASUALTY COMPANY AND SUBSIDIARIES
CONDENSED NOTES TO FINANCIAL STATEMENTS
(Continued)
(4) Future Application of Accounting Standards
In May 1993, the FASB issued FAS No. 114, Accounting by Creditors
for Impairment of a Loan. This statement requires that loans be
impaired when it is probable that a creditor will be unable to
collect all amounts (i.e., principal and interest) contractually
due, and the impairment be measured based on the present value of
expected future cash flows discounted at the loan's original
effective interest rate. The statement also allows impairments to
be measured based on the loan's market price or the fair value of
the collateral if the loan is collateral dependent. This
statement will be effective for 1995 financial statements,
although early adoption is permissible. The company has not yet
determined the timing or impact of adoption of this statement.
(5) Discontinued Products
In January 1994, the company announced its decision to discontinue
the sale of its fully guaranteed large case pension products,
which include guaranteed investment contracts ("GICs") and single-
premium annuities ("SPAs") sold to large case pension customers.
A reserve representing management's best estimate of anticipated
future losses was established at December 31, 1993. Accordingly,
results of discontinued products for the three and six months
ended June 30, 1994 were charged against the reserve for
discontinued products and did not impact the net income of the
company.
<PAGE> 11
AETNA LIFE AND CASUALTY COMPANY AND SUBSIDIARIES
CONDENSED NOTES TO FINANCIAL STATEMENTS
(Continued)
(5) Discontinued Products (Continued)
Results of discontinued products included in the Consolidated
Statement of Income were as follows (in millions):
<TABLE>
<CAPTION>
Charged to
Guaranteed Single- Reserve for
Investment Premium Future
Three months ended June 30, 1994 Contracts Annuities Total Losses Net*
______________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Premiums $ - $ 5.5 $ 5.5 $ - $ 5.5
Net investment income 156.5 106.9 263.4 - 263.4
Net realized capital losses (31.6) (10.9) (42.5) 42.5 -
Interest earned on receivable
from continuing business 4.9 6.9 11.8 - 11.8
Other income 3.6 3.6 7.2 - 7.2
__________________________________________________________________
Total revenue 133.4 112.0 245.4 42.5 287.9
__________________________________________________________________
Current and future benefits 190.1 112.6 302.7 (15.8) 286.9
Operating expenses 0.3 0.7 1.0 - 1.0
__________________________________________________________________
Total benefits and expenses 190.4 113.3 303.7 (15.8) 287.9
__________________________________________________________________
Results of discontinued products $ (57.0) $ (1.3) $ (58.3) $ 58.3 $ -
______________________________________________________________________________________________________
__________________________________________________________________
Charged to
Guaranteed Single- Reserve for
Investment Premium Future
Six months ended June 30, 1994 Contracts Annuities Total Losses Net*
______________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Premiums $ - $ 44.7 $ 44.7 $ - $ 44.7
Net investment income 327.5 215.8 543.3 - 543.3
Net realized capital losses (57.1) (26.4) (83.5) 83.5 -
Interest earned on receivable
from continuing business 9.6 13.8 23.4 - 23.4
Other income 6.5 6.4 12.9 - 12.9
__________________________________________________________________
Total revenue 286.5 254.3 540.8 83.5 624.3
__________________________________________________________________
Current and future benefits 392.7 263.9 656.6 (36.4) 620.2
Operating expenses 2.2 1.9 4.1 - 4.1
__________________________________________________________________
Total benefits and expenses 394.9 265.8 660.7 (36.4) 624.3
__________________________________________________________________
Results of discontinued products $ (108.4) $ (11.5) $ (119.9) $ 119.9 $ -
______________________________________________________________________________________________________
__________________________________________________________________
<FN>
* Amounts are reflected in the Consolidated Statement of Income, except for interest of $11.8 million
and $23.4 million for the three and six months ended June 30, 1994, respectively, earned on the
receivable from continuing business which is eliminated in consolidation.
</TABLE>
Deposits of $34.3 million and $168.5 million were received under
pre-existing GIC contracts for the three and six months ended June
30, 1994, respectively. In accordance with FAS No. 97, such
deposits are not included in premiums or revenue.
<PAGE> 12
AETNA LIFE AND CASUALTY COMPANY AND SUBSIDIARIES
CONDENSED NOTES TO FINANCIAL STATEMENTS
(Continued)
(5) Discontinued Products (Continued)
Assets and liabilities of discontinued products included in the
Consolidated Balance Sheets were as follows (in millions):
<TABLE>
<CAPTION>
June 30, 1994 December 31, 1993
______________________________ ______________________________
Guaranteed Single- Guaranteed Single-
Investment Premium Investment Premium
Contracts Annuities Total Contracts Annuities Total
______________________________ ______________________________
<S> <C> <C> <C> <C> <C> <C>
Debt securities available for sale $ 4,126.1 $ 3,238.7 $ 7,364.8 $ 4,690.9 $ 3,578.1 $ 8,269.0
Mortgage loans 3,152.2 1,771.7 4,923.9 3,468.2 1,950.9 5,419.1
Real estate 489.4 25.1 514.5 534.5 - 534.5
Short-term and other investments 347.8 173.9 521.7 399.7 72.8 472.5
______________________________________________________________________
Total investments 8,115.5 5,209.4 13,324.9 9,093.3 5,601.8 14,695.1
Current and deferred income taxes 305.3 131.1 436.4 253.7 26.2 279.9
Receivable from continuing
business 399.6 448.8 848.4 390.0 435.0 825.0
Other 12.4 2.1 14.5 7.6 1.3 8.9
______________________________________________________________________
Total assets $ 8,832.8 $ 5,791.4 $14,624.2 $ 9,744.6 $ 6,064.3 $15,808.9
__________________________________________________________________________________________________________
__________________________________________________________________________________________________________
Future policy benefits $ - $ 5,077.0 $ 5,077.0 $ - $ 5,079.1 $ 5,079.1
Policyholders' funds left with
the company 8,326.9 - 8,326.9 8,976.6 - 8,976.6
Reserve for future losses on
discontinued products 491.6 658.5 1,150.1 600.0 670.0 1,270.0
Other 14.3 55.9 70.2 168.0 315.2 483.2
______________________________________________________________________
Total liabilities $ 8,832.8 $ 5,791.4 $14,624.2 $ 9,744.6 $ 6,064.3 $15,808.9
__________________________________________________________________________________________________________
__________________________________________________________________________________________________________
</TABLE>
Net unrealized capital gains and losses on available for sale debt
securities of discontinued products are included in other
liabilities of discontinued products and are not reflected in
consolidated shareholders' equity. The reserve for future losses
on GICs is included in policyholders' funds left with the company
and the reserve for future losses on SPAs is included in future
policy benefits on the Consolidated Balance Sheets.
The reserve for anticipated future losses on discontinued products
represents the present value of the difference between (a) the
expected cash flows from the assets supporting discontinued
products, and (b) the cash flows expected to be required to meet
the obligations of the outstanding contracts. Calculation of the
reserve for future losses on discontinued products required
projection of both the amount and the timing of cash flows over
approximately the next 30 years, including consideration of, among
other things, future investment results, participant withdrawal
and mortality rates and cost of asset management and customer
service. The amounts of cash flows on the assets of the
discontinued products projected to occur in each period are risk-
adjusted such that the present value (at the risk free rate at
December 31, 1993, consistent with the duration of the
liabilities) of those cash flows approximates the current fair
value of the assets.
<PAGE> 13
AETNA LIFE AND CASUALTY COMPANY AND SUBSIDIARIES
CONDENSED NOTES TO FINANCIAL STATEMENTS
(Continued)
(5) Discontinued Products (Continued)
At June 30, 1994 and December 31, 1993, estimated future after-tax
capital losses of approximately $153 million and $190 million
($235 million and $292 million, pretax), respectively,
attributable to mortgage loans and real estate supporting GICs and
$53 million and $70 million ($82 million and $108 million,
pretax), respectively, attributable to mortgage loans and real
estate supporting SPAs were expected to be charged to the reserve
for future losses. Projections of future investment results took
into account both industry and company data and were based on
recent performance of mortgage loan and real estate assets,
projections regarding certain levels of future defaults and
prepayments, and assumptions regarding future real estate market
conditions, which assumptions management believes are reasonable.
The activity in the reserve for future losses on discontinued
products for the six months ended June 30, 1994 was as follows (in
millions):
<TABLE>
<CAPTION>
Guaranteed Single-
Investment Premium
Contracts Annuities Total
_____________________________________________________________________________________
<S> <C> <C> <C>
Reserve at December 31, 1993 $ 600.0 $ 670.0 $ 1,270.0
Loss on discontinued products (108.4) (11.5) (119.9)
______________________________________________
Reserve at June 30, 1994 $ 491.6 $ 658.5 $ 1,150.1
_____________________________________________________________________________________
______________________________________________
</TABLE>
The average contractual yields guaranteed on the contracts
relating to the discontinued products exceed the average
historical and expected future yields on assets supporting the
products. The resulting anticipated negative cash flows will be
funded from the cash flows of the company's continuing business.
Receivables of $848.4 million and $825.0 million to fund these
negative cash flows (which accrue interest at the rates used to
measure the loss for the two products) are included in the
discontinued products' assets at June 30, 1994 and December 31,
1993, respectively. These receivables are fully offset by
payables from the company's continuing business. These amounts
are eliminated in consolidation and are therefore not reflected on
the Consolidated Balance Sheets. The activity in the receivable
from continuing business for the six months ended June 30, 1994
was as follows (in millions):
<TABLE>
<CAPTION>
Guaranteed Single-
Investment Premium
Contracts Annuities Total
_____________________________________________________________________________________
<S> <C> <C> <C>
Receivable at December 31, 1993 $ 390.0 $ 435.0 $ 825.0
Interest earned 9.6 13.8 23.4
______________________________________________
Receivable at June 30, 1994 $ 399.6 $ 448.8 $ 848.4
_____________________________________________________________________________________
______________________________________________
</TABLE>
<PAGE> 14
AETNA LIFE AND CASUALTY COMPANY AND SUBSIDIARIES
CONDENSED NOTES TO FINANCIAL STATEMENTS
(Continued)
(5) Discontinued Products (Continued)
Pursuant to a segmentation plan approved in 1983 by the New York
Insurance Department, the combined assets supporting discontinued
products were segregated coincident with the receipt of premiums
and deposits on the discontinued products. Assets of the
discontinued products were distinguished, physically,
operationally and for financial reporting purposes, from the
remaining assets of the company.
Management believes the timing and amount of cash flows with
respect to the discontinued products have been estimated with
reasonable accuracy, and the financial statements reflect
management's best estimate of the most likely cash flows that will
occur. However, future periods may include a charge or benefit
equal to the present value of the differences, if any, between
future projected cash flows and current estimates.
(6) Severance and Facilities Charges
In recent years, management has placed a strong focus on reducing
costs in order to improve the competitive position of the
company's businesses. Among the steps taken to reduce costs was
the elimination of approximately 4,800 positions in the latter
half of 1992 and through 1993. The decision to undertake these
actions resulted in an after-tax charge of $96 million ($145
million pretax) to second quarter 1992 earnings. The 1992
severance and facilities charge included the following (pretax,
millions):
<TABLE>
<CAPTION>
Vacated Pension
Severance Leased Curtailment
Related Property Gain Total
_________ ________ ___________ _______
<S> <C> <C> <C> <C>
Health and Life Insurance and Services. $ 65.3 $ - $ (11.2) $ 54.1
Financial Services..................... 7.0 - (1.4) 5.6
Commercial Property-Casualty
Insurance and Services............... 39.9 7.1 (8.2) 38.8
Personal Property-Casualty............. 38.8 13.8 (6.6) 46.0
International.......................... .6 - (.1) 0.5
_______ ________ _______ _______
Total Company (1)...................... $ 151.6 $ 20.9 $ (27.5) $ 145.0
_______ ________ _______ _______
_______ ________ _______ _______
<FN>
(1) The pension curtailment gain is a non-cash item. All other items shown above
required cash outlays.
</TABLE>
Standard severance benefit arrangements that would be available to
employees whose positions were eliminated were communicated through
company newsletters to all employees when the restructuring action
was adopted and announced in June 1992. By the end of the second
quarter of 1993, all affected individuals had been notified that
their positions were being eliminated. The excess leased office
space resulting from the elimination of these positions was
substantially vacated by year-end 1993. The remaining lease
payments (net of expected subrentals) on such vacated facilities
are payable over approximately the next three years. By year-end
1993, all expected actions under the 1992 restructuring had been
completed and after-tax savings of approximately $100 million ($130
million annualized) had been achieved.
<PAGE> 15
AETNA LIFE AND CASUALTY COMPANY AND SUBSIDIARIES
CONDENSED NOTES TO FINANCIAL STATEMENTS
(Continued)
(6) Severance and Facilities Charges (Continued)
In late 1993, management decided upon a plan under which it would
take additional restructuring actions as part of its strategic and
financial assessment of the company's businesses. That assessment
was formally concluded and announced to the marketplace on January
28, 1994. As a result of these planned actions, the company
announced in January 1994, a $200 million after tax ($308 million
pretax) severance and facilities charge to fourth quarter 1993
earnings. The planned actions include the elimination of
approximately 4,000 positions. As a result of the planned
elimination of these positions, the company determined that it
would have excess office space. Accordingly, the severance and
facilities charge also included costs related to vacating the
excess leased office space, and costs related to abandoning and
preparing for sale an owned property in Hartford, Connecticut.
The 1993 severance and facilities charge included the following
(pretax, millions):
<TABLE>
<CAPTION>
Facility and Vacated
Severance Asset Write- Leased
Related Off Related Property Other Total
_________ ____________ ________ _______ _______
<S> <C> <C> <C> <C> <C>
Health and Life Insurance and Services. $ 49.7 $ 23.8 $ 11.8 $ 3.2 $ 88.5
Financial Services..................... 22.9 12.5 2.4 14.4 (1) 52.2
Commercial Property-Casualty
Insurance and Services............... 70.6 20.5 12.7 3.8 107.6
Personal Property-Casualty............. 31.7 5.9 8.0 1.8 47.4
International.......................... 5.5 3.3 2.0 1.5 12.3
_______ _______ _______ _______ _______
Total Company (3)...................... $ 180.4 $ 66.0 (2) $ 36.9 $ 24.7 $ 308.0
_______ _______ _______ _______ _______
_______ _______ _______ _______ _______
<FN>
(1) Includes a charge of $13.0 million related to the cessation of a business providing administrative
services to defined contribution pension plans. The charge includes broker buyout, direct losses
on run-off of the existing contracts and other related costs.
(2) Facility and asset write-off related charges include the write-down to realizable value of a
company property that will be abandoned. Realizable value was determined to be the estimated
selling price of the property (based on an internally prepared appraisal). The charge does not
include operating costs expected to be incurred prior to the date of abandonment of the property.
Facility and asset write-off related charges also include costs to retire personal computers and
printers used by employees whose positions were, or are expected to be, eliminated and other
related costs.
(3) Facility and asset write-off related charges are non-cash costs. All other items shown above
required, or will require, cash outlays.
</TABLE>
Severance benefit arrangements that would be available to
employees whose positions were eliminated were communicated to all
employees prior to the announcement of the restructuring actions
through an employee handbook and company newsletters. The
composition of the positions expected to be eliminated (e.g.,
business unit, location and levels of affected employees) was
generally known at the time the restructuring actions were
approved by senior management. Vacating the resulting excess
leased office space is expected to be substantially completed by
year-end 1994. The remaining lease payments (net of expected
subrentals) on such vacated facilities are payable over
approximately the next six years. The owned property that is
being vacated and prepared for sale is expected to be fully
vacated by the end of the first quarter of 1995 and has been
written down ($37 million, pretax) to its estimated net realizable
value.
<PAGE> 16
AETNA LIFE AND CASUALTY COMPANY AND SUBSIDIARIES
CONDENSED NOTES TO FINANCIAL STATEMENTS
(Continued)
(6) Severance and Facilities Charges (Continued)
During the three and six months ended June 30, 1994, the company
charged costs of $31 million and $51 million, respectively,
related to the cost reduction actions to the severance and
facilities reserve established in 1993. Of the approximately
4,000 positions expected to be eliminated, approximately 700 had
been eliminated by June 30, 1994 and the related severance
benefits charged against the reserve. The remaining actions are
expected to be substantially completed in 1994 and are expected to
produce annual after-tax savings of approximately $200 million by
1995, including savings resulting from a modification of the
company's postretirement health care plan. The total estimated
savings of approximately $200 million are expected to benefit
individual segments by 1995 as follows:
<TABLE>
<CAPTION>
<S> <C>
Health and Life Insurance and Services................ $ 80
Financial Services.................................... 5
Commercial Property-Casualty Insurance and Services... 90
Personal Property-Casualty............................ 25
International......................................... -
_____
Total estimated savings............................... $ 200
_____
_____
</TABLE>
(7) Investments
Net investment income includes amounts allocable to experience
rated contractholders of $198 million and $249 million for the
three months ended June 30, 1994 and 1993, respectively, and $388
million and $479 million for the six months ended June 30, 1994
and 1993, respectively. Interest credited to contractholders is
included in current and future benefits.
Net realized capital gains and losses include a loss of $58
million and a gain of $2 million for the three months ended June
30, 1994 and 1993, respectively, and losses of $110 million and
$28 million for the six months ended June 30, 1994 and 1993,
respectively, allocable to experience rated contractholders.
Realized capital gains and losses allocable to experience rated
contractholders are deducted from net realized capital gains and
losses reflected in the income statement and an offsetting amount
is reflected on the balance sheet in policyholders' funds left
with the company.
During 1994, the company sold a held for investment debt security
with a carrying value of $7 million due to significant
deterioration in the issuer's creditworthiness. The sale resulted
in an after-tax loss of $1 million.
<PAGE> 17
AETNA LIFE AND CASUALTY COMPANY AND SUBSIDIARIES
CONDENSED NOTES TO FINANCIAL STATEMENTS
(Continued)
(8) Federal and Foreign Income Taxes
Net unrealized capital gains and losses are presented in
shareholders' equity net of deferred taxes. At June 30, 1994,
$350 million of net unrealized capital losses on available for
sale debt and equity securities were reflected in shareholders'
equity without deferred tax benefits. For federal tax reporting
purposes, capital losses are deductible only against capital gains
in the period of sale or during the carryback and carryforward
periods (three and five years, respectively). Due to the expected
full utilization of capital gains in the carryback period and the
uncertainty of future capital gains, deferred tax benefits related
to the $350 million of net unrealized losses were not reflected in
shareholders' equity. This had no impact on net income for the
three and six months ended June 30, 1994.
In August 1993, the Omnibus Budget Reconciliation Act of 1993 was
enacted which resulted in an increase in the federal corporate tax
rate from 34% to 35%, retroactive to January 1, 1993. Three and
six month 1993 results were not restated for the effects of this
change.
(9) Reinsurance
Ceded earned premiums were $.3 billion for both the three months
ended June 30, 1994 and 1993, and $.6 billion for both the six
months ended June 30, 1994 and 1993. Ceded current and future
benefits were $.3 billion and $.2 billion for the three months
ended June 30, 1994 and 1993, respectively, and $.7 billion and
$.8 billion for the six months ended June 30, 1994 and 1993,
respectively.
(10) Debt
The company's $800 million committed long-term credit facility
established with a group of worldwide banks was due to expire on
July 31, 1994. Effective July 27, 1994, the company terminated
this credit facility and entered into new credit facilities
aggregating $1 billion with a group of worldwide banks. One $500
million facility terminates in July 1995 and the other $500
million facility terminates in July 1999. Various interest rate
options are available under each facility and any borrowings
mature on the expiration date of the applicable credit commitment.
The company pays facility fees ranging from .08% to .375% per
annum under the short-term credit agreement and from .1% to .5%
per annum under the medium-term credit agreement, depending upon
the company's long-term senior unsecured debt rating. The
commitments require the company to maintain shareholders' equity,
excluding net unrealized capital gains and losses, of at least
$5.0 billion. These facilities also support the company's
commercial paper borrowing program.
On June 15, 1993, the company redeemed $200 million principal
amount of its 8 1/8% Debentures whose scheduled maturity was 2007.
The company recognized an extraordinary loss on the debenture
redemption of $4.7 million (after taxes of $2.4 million).
<PAGE> 18
AETNA LIFE AND CASUALTY COMPANY AND SUBSIDIARIES
CONDENSED NOTES TO FINANCIAL STATEMENTS
(Continued)
(11) Sale of Subsidiaries
On June 30, 1993, the company completed the sale of its U.K. life
and investment management operations. The company realized an
after-tax loss of $12.0 million on the sale as well as $37.4
million of tax benefits from cumulative operating losses of the
subsidiary not previously tax benefited.
As part of the 1992 sale of American Re-Insurance Company,
formerly a wholly-owned subsidiary, the company received 70,000
shares of American Re Corporation's (the new holding company)
Junior Cumulative Redeemable Exchangeable Preferred Stock which
were redeemed in the first quarter of 1993 resulting in an after-
tax gain of $27 million.
(12) Supplemental Cash Flow Information
Significant non-cash investing and financing activities include
acquisition of real estate through foreclosures of mortgage loans
amounting to $149 million and $201 million for the six months
ended June 30, 1994 and 1993, respectively.
(13) Earnings Per Share
Earnings per share are computed using net income divided by the
weighted average number of common shares outstanding. There is
not a significant difference between primary and fully diluted
earnings per share.
(14) Commitments and Contingent Liabilities
Asbestos and Environmental-Related Claims
Reserving for asbestos and environmental-related claims is subject
to significant uncertainties. Because of these significant
uncertainties and the likelihood that they will not be resolved in
the near future, management is unable to make a reasonable
estimate as to the ultimate amount of losses for all asbestos and
environmental-related claims and related litigation expenses and
as such is unable to determine whether or not the adverse effect
of such losses will be material to the company's future results,
liquidity and/or capital resources. Reserves for asbestos and
environmental-related liabilities are evaluated by management
regularly, and, subject to the significant uncertainties mentioned
above, adjustments are made to such reserves as developing loss
patterns and other information appear to warrant. Reserves for
asbestos and environmental-related claims, as reflected on the
Consolidated Balance Sheets, were as follows (pretax and before
reinsurance; in millions):
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993
______________________________________________________________________
<S> <C> <C>
Environmental Liability $ 387 $ 234
Asbestos Bodily Injury 290 248
Asbestos Property Damage 33 29
_______________________________
Total Asbestos and
Environmental-Related Reserves $ 710 $ 511
______________________________________________________________________
_______________________________
</TABLE>
<PAGE> 19
AETNA LIFE AND CASUALTY COMPANY AND SUBSIDIARIES
CONDENSED NOTES TO FINANCIAL STATEMENTS
(Continued)
(14) Commitments and Contingent Liabilities (Continued)
Commercial General Liability
The company has noted evidence of adverse loss developments in its
commercial general liability line of business. The company
believes that such developments largely are attributable to the
unusual frequency and size of claims in this line of business.
The company also believes that the unusual frequency and size of
construction defect claims brought against contractor
policyholders (observed by the company in 1994) and the increasing
size of other types of claims brought against contractor
policyholders (observed by the company to be continuing in 1994)
are contributing to these loss developments. The company believes
that it is reasonably possible that these adverse loss
developments will continue. If they do, they would adversely
affect the company's future results of operations, although the
company is unable at this time to estimate the extent to which
results would be affected. Management has and continues to review
the factors contributing to these developments (by, for example,
segregating and examining data on a policyholder by policyholder
basis) and to adjust its reserves as more current data becomes
available.
(15) Litigation
Beginning in 1988, the attorneys general of 20 states each filed
separate antitrust suits against The Aetna Casualty and Surety
Company ("Aetna") and over 30 other insurers, reinsurers, trade
associations and brokers. The suits are on behalf of the states
themselves and, in most cases, alleged classes of their political
subdivisions. Additionally, 20 class actions were filed in
various courts on behalf of private plaintiffs. The attorneys
general suits and the private plaintiff actions all were
consolidated for pretrial proceedings in the United States
District Court for the Northern District of California ("U.S.
District Court").
All of the suits allege that the defendants violated various
federal or state antitrust laws (or laws related to business trade
practices) by, among other things, conspiring to restrict the
terms and coverages of commercial general liability insurance and
also reinsurance. The state suits seek civil penalties,
unspecified damages and extensive injunctive relief. The private
suits seek unspecified treble damages and broad injunctive relief.
In September 1989, the U.S. District Court entered an order
granting the motions of the defendants (including Aetna),
dismissing with prejudice all federal antitrust claims in all of
the complaints before it. The U.S. District Court declined to
exercise jurisdiction over the state claims in the attorneys
general complaints.
<PAGE> 20
AETNA LIFE AND CASUALTY COMPANY AND SUBSIDIARIES
CONDENSED NOTES TO FINANCIAL STATEMENTS
(Continued)
(15) Litigation (Continued)
After unsuccessfully attempting to have the federal claims
reinstated before the U.S. District Court, the 20 states and most
of the private plaintiffs then appealed the U.S. District Court's
decision dismissing the federal claims to the United States Court
of Appeals for the Ninth Circuit ("Court of Appeals"). In June
1991, the Court of Appeals reversed the U.S. District Court's
decision dismissing the federal antitrust claims and remanded
those claims to the U.S. District Court for trial. The defendants
subsequently filed a motion for rehearing; in October 1991, the
Court of Appeals denied this motion. In January 1992, Aetna and
several other defendants filed a petition for a writ of certiorari
with the Supreme Court of the United States ("Supreme Court"),
seeking review of the Court of Appeals' decision. On October 5,
1992, the Supreme Court granted the defendants' petition.
On June 28, 1993, the Supreme Court issued its decision returning
the suit to the Court of Appeals for further proceedings
consistent with the standards articulated by the Supreme Court.
The Supreme Court held unanimously that Aetna and the other
defendant insurers did not forfeit their otherwise available
McCarran-Ferguson Act immunity when they acted with reinsurers to
produce acceptable policy terms. The Supreme Court also held that
Aetna and the other defendant insurers could lose their immunity
under the "boycott" exception to the McCarran exemption only if
the plaintiffs could prove that the defendant insurers attempted
to coerce acceptance of insurance policy terms by means of
refusals to deal in separate and unrelated transactions. On
October 7, 1993, the Court of Appeals remanded the case to the
U.S. District Court for further proceedings. On March 23, 1994,
the Court issued an order directing the parties to commence
discovery on the remaining issues in the case.
Aetna is continuously involved in numerous other lawsuits arising,
for the most part, in the ordinary course of its business
operations either as a liability insurer defending third-party
claims brought against its insureds or as an insurer defending
coverage claims brought against itself, including lawsuits related
to issues of policy coverage and judicial interpretation. One
such area of coverage litigation involves legal liability for
asbestos and environmental-related claims. These lawsuits and
other factors make reserving for asbestos and environmental-
related claims subject to significant uncertainties.
While the ultimate outcome of the litigation described herein
cannot be determined at this time, such litigation (other than
that related to asbestos and environmental-related claims, which
is subject to significant uncertainties), net of reserves
established therefor and giving effect to reinsurance, is not
expected to result in judgments for amounts material to the
financial condition of the company, although it may adversely
affect results of operations in future periods. Future results
are expected to be adversely affected by losses for asbestos and
environmental-related claims and litigation expense. Due to
significant uncertainties, management is unable to determine
whether or not such effects on operations in future periods will
be material.
<PAGE> 21
Independent Auditors' Review Report
The Board of Directors
Aetna Life and Casualty Company:
We have reviewed the accompanying condensed consolidated balance
sheet of Aetna Life and Casualty Company and Subsidiaries as of
June 30, 1994, and the related condensed consolidated statements
of income for the three-month and six-month periods ended June 30,
1994 and 1993, and the related condensed consolidated statements
of shareholders' equity and cash flows for the six-month periods
ended June 30, 1994 and 1993. These condensed consolidated
financial statements are the responsibility of the company's
management.
We conducted our review in accordance with standards established
by the American Institute of Certified Public Accountants. A
review of interim financial information consists principally of
applying analytical procedures to financial data and making
inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole. Accordingly,
we do not express such an opinion.
Based on our review, we are not aware of any material
modifications that should be made to the accompanying condensed
consolidated financial statements for them to be in conformity
with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet of Aetna Life
and Casualty Company and Subsidiaries as of December 31, 1993, and
the related consolidated statements of income, shareholders'
equity, and cash flows for the year then ended (not presented
herein); and in our report dated February 8, 1994, we expressed an
unqualified opinion on those consolidated financial statements.
Our report referred to changes in 1993 in the company's accounting
for certain investments in debt and equity securities, reinsurance
of short-duration and long-duration contracts, postemployment
benefits, workers' compensation life table indemnity reserves and
retrospectively rated reinsurance contracts. In our opinion, the
information set forth in the accompanying condensed consolidated
balance sheet as of December 31, 1993, is fairly presented, in all
material respects, in relation to the consolidated balance sheet
from which it has been derived.
KPMG PEAT MARWICK LLP
Hartford, Connecticut
July 28, 1994
<PAGE> 22
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
<TABLE>
<CAPTION>
Consolidated Results of Operations
__________________________________
Operating Summary
(Millions, except per share data) Three Months Ended June 30 Six Months Ended June 30
__________________________________ __________________________________
1994 1993 % Change 1994 1993 % Change
____ ____ ________ ____ ____ ________
<S> <C> <C> <C> <C> <C> <C>
Premiums............................. $ 2,839.0 $ 2,688.8 5.6% $ 5,581.3 $ 5,311.1 5.1%
Net investment income................ 1,121.0 1,252.6 (10.5) 2,247.5 2,502.5 (10.2)
Fees and other income................ 458.4 411.9 11.3 909.1 823.4 10.4
Net realized capital gains (losses).. (13.4) (3.4) - (19.3) 32.8 -
_________ _________ _________ _________
Total revenue.................... 4,405.0 4,349.9 1.3 8,718.6 8,669.8 .6
Current and future benefits.......... 3,114.5 3,088.7 .8 6,232.1 6,133.8 1.6
Operating expenses................... 924.4 917.4 .8 1,879.4 1,815.6 3.5
Amortization of deferred policy
acquisition costs................... 177.9 192.7 (7.7) 362.5 378.0 (4.1)
_________ _________ _________ _________
Total benefits and expenses...... 4,216.8 4,198.8 .4 8,474.0 8,327.4 1.8
_________ _________ _________ _________
Income from continuing operations
before income taxes, extraordinary
item and cumulative effect
adjustments......................... 188.2 151.1 24.6 244.6 342.4 (28.6)
Income taxes......................... 55.8 .3 - 66.5 52.3 27.2
_________ _________ _________ _________
Income from continuing operations
before extraordinary item and
cumulative effect adjustments....... 132.4 150.8 (12.2) 178.1 290.1 (38.6)
Discontinued operations, net of tax.. - - - - 27.0 (100.0)
_________ _________ _________ _________
Income before extraordinary item and
cumulative effect adjustments....... 132.4 150.8 (12.2) 178.1 317.1 (43.8)
Extraordinary loss on debenture
redemption, net of tax.............. - (4.7) 100.0 - (4.7) 100.0
Cumulative effect adjustments,
net of tax.......................... - - - - 227.8 (100.0)
_________ _________ _________ _________
Net income....................... $ 132.4 $ 146.1 (9.4) $ 178.1 540.2 (67.0)
_________ _________ _________ _________
_________ _________ _________ _________
Net realized capital gains (losses),
net of tax (included above)......... $ (8.0) $ (2.5) - $ (15.5) $ 19.8 -
_________ _________ _________ _________
_________ _________ _________ _________
Results per common share:
Income from continuing operations
before extraordinary item and
cumulative effect adjustments....... $ 1.17 $ 1.36 (14.0) $ 1.58 $ 2.62 (39.7)
Discontinued operations, net of tax.. - - - - .25 (100.0)
_________ _________ _________ _________
Income before extraordinary item and
cumulative effect adjustments....... 1.17 1.36 (14.0) 1.58 2.87 (44.9)
Extraordinary loss on debenture
redemption, net of tax.............. - (.04) 100.0 - (.04) 100.0
Cumulative effect adjustments,
net of tax.......................... - - - - 2.06 (100.0)
_________ _________ _________ _________
Net income....................... $ 1.17 $ 1.32 (11.4) $ 1.58 $ 4.89 (67.7)
_________ _________ _________ _________
_________ _________ _________ _________
</TABLE>
Overview
________
Net income was $132 million and $178 million for the three and six
months ended June 30, 1994, respectively, compared with $146
million and $540 million for the same periods a year ago. Year-
to-date net income in 1993 reflected a net cumulative effect
benefit of $228 million relating to changes in accounting for (i)
discounting workers' compensation life table indemnity reserves
($250 million after-tax benefit), (ii) postemployment benefits
($48 million after-tax charge) and (iii) retrospectively rated
reinsurance contracts ($26 million after-tax benefit). Year-to-
date net income in 1993 also included a gain from discontinued
operations of $27 million realized on the redemption of preferred
stock received in connection with the 1992 sale of American Re-
Insurance Company. Net income for the three and six months ended
June 30, 1993 included a $5 million extraordinary loss on
redemption of debentures.
<PAGE> 23
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Overview (Continued)
____________________
Income from continuing operations before extraordinary item and
cumulative effect adjustments for the three and six months ended
June 30, 1994 decreased by $18 million and $112 million,
respectively, compared with the same periods a year ago. Results
for the three and six months ended June 30, 1994 included after-
tax catastrophe losses of $29 million and $153 million,
respectively, related primarily to the Los Angeles earthquake and
the severe winter weather occurring in January and February.
Catastrophe losses for the three and six months ended June 30,
1993 were $16 million and $48 million (after-tax), respectively.
Second quarter and year-to-date results in 1994 also reflected
increased charges for additions to loss and loss expense reserves
for prior accident years in the Commercial Property-Casualty
segment. Such reserve additions primarily reflected additions to
reserves for environmental-related claims and were $82 million and
$117 million (after tax and net of reinsurance) for the three and
six months ended June 30, 1994, respectively, compared with $17
million and $36 million, respectively, in the same periods of
1993. (Please see "Commercial Property-Casualty" on page 31.)
Results for the three and six months ended June 30, 1994 included
after-tax reductions of prior year loss reserves in the personal
auto business of $54 million and $59 million, respectively,
compared with $2 million and $8 million, respectively, for the
same periods a year ago. (Please see "Personal Property-Casualty"
on page 33.)
Net realized capital losses were $8 million and $16 million
(after-tax) for the three and six months ended June 30, 1994,
respectively, compared with net realized capital losses of $3
million and net realized capital gains of $20 million for the same
periods a year ago.
<PAGE> 24
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Overview (Continued)
____________________
Net Realized Capital Gains and Losses
Net realized after-tax capital gains and losses included in the
results of continuing operations, allocable to experience rated
pension contractholders, and supporting discontinued products for
the three and six months ended June 30 were as follows (in
millions):
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
__________________________ ________________________
1994 1993 1994 1993
____ ____ ____ ____
<S> <C> <C> <C> <C>
Net realized capital gains from sales........ $ 12.2 $ 94.3 $ 27.4 $ 188.0
Realized capital losses from additions to
reserves for mortgage loans and real estate (19.8) (94.8) (42.0) (165.1)
Realized capital losses from additions to
reserves for debt and equity securities.... (.4) (2.0) (.9) (3.1)
_______ _______ _______ _______
Net realized capital gains (losses) from
continuing operations...................... $ (8.0) $ (2.5) $ (15.5) $ 19.8
_______ _______ _______ _______
_______ _______ _______ _______
Net realized capital gains (losses) allocable
to experience rated pension contractholders
(excluded above)........................... $ (37.7) $ (1.5) $ (71.6) $ 18.3
_______ _______ _______ _______
_______ _______ _______ _______
Net realized capital losses on assets
supporting discontinued products
(excluded above)........................... $ (27.6)* ** $ (54.3)* **
_______ _______ _______ _______
_______ _______ _______ _______
<FN>
* Net realized capital losses of $27.6 million and $54.3 million for the three and six months
ended June 30, 1994, respectively, on assets supporting discontinued products were charged
to the reserve for future losses on discontinued products. (Please see "Financial
Services - Discontinued Products" on page 28.)
** Net realized capital gains of $9.3 million and $28.7 million for the three and six months
ended June 30, 1993, respectively, on assets supporting discontinued products are included
in the $2.5 million of capital losses and $19.8 million of capital gains, respectively,
shown above.
</TABLE>
Net realized capital gains from sales for the six months ended
June 30, 1994, as presented above, include a $14 million gain
resulting from the sale of a portion of an unconsolidated
subsidiary. Net realized capital gains from sales for the three
and six months ended June 30, 1993 were primarily attributable to
bond sales and also included a $12 million loss on the sale of the
U.K. life and investment management operations.
<PAGE> 25
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
<TABLE>
<CAPTION>
Health and Life Insurance and Services
______________________________________
Operating Summary
(Millions) Three Months Ended June 30 Six Months Ended June 30
__________________________________ __________________________________
1994 1993 % Change 1994 1993 % Change
____ ____ ________ ____ ____ ________
<S> <C> <C> <C> <C> <C> <C>
Premiums............................ $ 1,453.5 $ 1,232.1 18.0% $ 2,803.6 $ 2,418.2 15.9%
Net investment income............... 141.4 143.8 (1.7) 285.1 294.7 (3.3)
Fees and other income............... 337.2 299.7 12.5 672.5 588.0 14.4
Net realized capital losses......... (.5) (8.8) 94.3 (21.1) (8.0) (163.8)
_________ _________ _________ _________
Total revenue.................... 1,931.6 1,666.8 15.9 3,740.1 3,292.9 13.6
Current and future benefits......... 1,273.9 1,100.2 15.8 2,447.4 2,190.0 11.8
Operating expenses.................. 502.1 443.6 13.2 1,000.0 859.4 16.4
Amortization of deferred policy
acquisition costs.................. 1.4 5.2 (73.1) 9.2 8.0 15.0
_________ _________ _________ _________
Total benefits and expenses...... 1,777.4 1,549.0 14.7 3,456.6 3,057.4 13.1
_________ _________ _________ _________
Income before income taxes.......... 154.2 117.8 30.9 283.5 235.5 20.4
Income taxes........................ 57.0 40.3 41.4 105.5 82.1 28.5
_________ _________ _________ _________
Income before cumulative
effect adjustments................. $ 97.2 $ 77.5 25.4 $ 178.0 $ 153.4 16.0
_________ _________ _________ _________
_________ _________ _________ _________
Net realized capital losses,
net of tax (included above)........ $ (.1) $ (6.1) 98.4 $ (14.1) $ (8.3) (69.9)
_________ _________ _________ _________
_________ _________ _________ _________
</TABLE>
Health and Life Insurance and Services income before cumulative
effect adjustments for the three and six months ended June 30,
1994 increased by $20 million and $25 million, respectively,
compared with the same periods a year ago. Excluding net realized
capital losses, results for the three and six months increased $14
million and $30 million, respectively, from the prior year.
Second quarter and year-to-date 1994 results reflected increased
premium and fee revenue due to growth in managed care members and
favorable medical claim experience, partially offset by an
increase in managed care-related operating expenses to meet both
current and future needs. Six month results in 1994 also included
an aggregate of $8 million of non-recurring revenue from the
settlement of a lawsuit and the termination of an HMO management
contract. Second quarter and year-to-date results in 1993
reflected favorable medical experience on several contracts.
The number of members covered under health care arrangements was
15.7 million and 15.0 million at June 30, 1994 and December 31,
1993, respectively.
<PAGE> 26
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
<TABLE>
<CAPTION>
Financial Services
__________________
Operating Summary
(Millions) Three Months Ended June 30 Six Months Ended June 30
__________________________________ __________________________________
1994 1993 % Change 1994 1993 % Change
____ ____ ________ ____ ____ ________
<S> <C> <C> <C> <C> <C> <C>
Premiums........................... $ 58.2 $ 58.5 (.5)% $ 127.9 $ 107.9 18.5%
Net investment income.............. 687.6 771.9 (10.9) 1,376.7 1,550.1 (11.2)
Fees and other income.............. 64.6 52.4 23.3 128.5 104.7 22.7
Net realized capital gains (losses) 1.2 7.6 (84.2) (2.1) 29.0 -
_________ _________ _________ _________
Total revenue................... 811.6 890.4 (8.8) 1,631.0 1,791.7 (9.0)
Current and future benefits........ 699.6 777.3 (10.0) 1,409.6 1,535.5 (8.2)
Operating expenses................. 80.7 94.1 (14.2) 163.2 191.4 (14.7)
Amortization of deferred policy
acquisition costs................ 5.0 3.3 51.5 11.3 6.9 63.8
_________ _________ _________ _________
Total benefits and expenses..... 785.3 874.7 (10.2) 1,584.1 1,733.8 (8.6)
_________ _________ _________ _________
Income before income taxes......... 26.3 15.7 67.5 46.9 57.9 (19.0)
Income tax (benefits) expenses..... 6.0 (1.6) - 9.8 9.6 2.1
_________ _________ _________ _________
Income before cumulative
effect adjustments................ $ 20.3 $ 17.3 17.3 $ 37.1 $ 48.3 (23.2)
_________ _________ _________ _________
_________ _________ _________ _________
Deposits not included in premiums
above (a)........................ $ 1,251.5 $ 1,400.1 (10.6) $ 2,682.6 $ 2,651.7 1.2
_________ _________ _________ _________
_________ _________ _________ _________
Net realized capital gains (losses),
net of tax (included above)...... $ .9 $ 6.6 (86.4) $ (2.6) $ 19.3 -
_________ _________ _________ _________
_________ _________ _________ _________
Net realized capital gains (losses),
net of tax, allocable to experience
rated pension contractholders
(excluded above)................. $ (31.1) $ .4 - $ (65.1) $ 17.2 -
_________ _________ _________ _________
_________ _________ _________ _________
Net realized capital gains
(losses), net of tax, on assets
supporting discontinued products
(excluded above)................. $ (27.6)(b) (c) - $ (54.3)(b) (c) -
_________ _________ _________ _________
_________ _________ _________ _________
<FN>
(a) Under Financial Accounting Standard No. 97, certain deposits are not included
in premiums or revenue.
(b) Net realized capital losses of $27.6 million and $54.3 million for the three and six months ended
June 30, 1994, respectively, on assets supporting discontinued products were charged to the
reserve for future losses on discontinued products.
(c) Net realized capital gains of $9.3 million and $28.7 million for the three and six months ended
June 30, 1993, respectively, on assets supporting discontinued products are included in the
$6.6 million and $19.3 million of capital gains shown above.
</TABLE>
Total Segment Results
Financial Services income before cumulative effect adjustments for
the three and six months ended June 30, 1994 increased by $3
million and decreased by $11 million, respectively, compared with
the same periods a year ago. Excluding net realized capital gains
and losses, results for the three and six months increased $9
million and $11 million, respectively, from the prior year.
<PAGE> 27
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Second quarter and year-to-date 1993 results included losses
(excluding net realized capital gains and losses) on discontinued
products of $9 million and $2 million, respectively. Second
quarter and year-to-date results of discontinued products in 1993
included $5 million and $19 million, respectively, of gains on
futures contracts which are not expected to recur. Results of
discontinued products for the three and six months ended June 30,
1994 were charged against the reserve for future losses and did
not impact the net income of the segment. (Please see page 28 for
a discussion of the results of discontinued products.)
Excluding the effects of net realized capital gains and losses,
total segment results for the quarter reflected relatively flat
earnings in the continuing large case pension businesses and in
the annuity and small case pension businesses. Results in these
businesses improved for the six months ended June 30, 1994 as
compared with the same period a year ago. Second quarter and
year-to-date results in 1994 reflected decreases in net investment
income, partially offset by reductions in interest rates credited
to contractholders and by lower operating expenses. The decline
in net investment income was driven principally by lower yields on
the bond portfolio, and is expected to continue.
Pension and annuity assets under management were $66 billion at
June 30, 1994 and 1993. Assets under management attributable to
non-guaranteed lines of business increased, while assets
attributable to fully guaranteed and experience rated lines of
business decreased, from June 30, 1993 to June 30, 1994.
Experience Rated Product Lines
Pursuant to the terms of the company's experience rated pension
contracts, realized capital gains and losses related to assets
supporting such contracts are passed through to contractholders,
subject, among other things, to certain minimum guarantees, and
the effect of such realized capital gains and losses does not
impact the company's results. A number of factors, such as
customer withdrawal activity, future losses on investments,
including mortgage loans, experience rated contract modifications,
if any, and significant changes in interest rates could reduce the
company's capacity to pass through future investment losses to
contractholders (or investment losses currently considered
allocable to contractholders) either as a result of triggering
minimum guarantee provisions or through exercise of management
judgment, thereby adversely affecting the company's future
results.
<PAGE> 28
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Large case experience rated pension contractholder and participant
directed withdrawals were as follows (excluding transfers to other
company products) for the three and six month periods ended June
30 (in millions):
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
__________________________ ________________________
1994 1993 1994 1993
____ ____ ____ ____
<S> <C> <C> <C> <C>
Scheduled contract maturities
and benefit payments: (1)......... $ 261.6 $ 256.7 $ 501.9 $ 538.5
________ ________ ________ ________
________ ________ ________ ________
Contractholder withdrawals other
than scheduled contract maturities
and benefit payments (2).......... $ 152.3 $ 92.5 $ 312.0 $ 490.2 (3)
________ ________ ________ ________
________ ________ ________ ________
Participant directed withdrawals... $ 46.9 $ 69.3 $ 108.6 $ 122.6
________ ________ ________ ________
________ ________ ________ ________
<FN>
(1) Includes payments made upon contract maturity and other amounts distributed in
accordance with contract schedules.
(2) Contractholder withdrawals were higher in the second quarter of 1994 than in the second
quarter of 1993. Management currently expects full year contractholder withdrawals to
be lower in 1994 than they were in 1993.
(3) Contractholder withdrawals in 1993 included withdrawals made in connection with the
fourth quarter 1992 conversion offer.
</TABLE>
The level of contractholder withdrawals is affected by such
factors as returns available from other comparable investments,
declines in contractholder confidence resulting from, among other
things, ratings downgrades or perceived financial difficulties in
the industry, and contractholder diversification among investment
managers.
Discontinued Products
In January 1994, the company announced its decision to discontinue
the sale of its fully guaranteed large case pension products which
include guaranteed investment contracts ("GICs") and single-
premium annuities ("SPAs"). As a result of the decision to
discontinue the sale of GICs and SPAs to large case pension
customers, the company established a reserve of $1,270 million at
December 31, 1993 for anticipated future losses on these products.
Losses on discontinued products for the three and six months ended
June 30, 1994, as shown below, were charged to the reserve and did
not affect the company's results of operations. Results of
discontinued products for the three and six months ended June 30
were as follows (in millions):
<TABLE>
<CAPTION>
Three Months Ended June 30
__________________________________________
1994 1993
__________________________________ _____
GICs SPAs Total Total
____ ____ _____ _____
<S> <C> <C> <C> <C>
Negative interest margin (a)............. $ (21.9) $ (.1) $ (22.0) $ (22.9)
Net realized capital gains (losses)...... (20.5) (7.1) (27.6) 9.3
Interest earned on receivable from
continuing operations.................. 3.1 4.5 7.6 -
Non-recurring gains on futures contracts. - - - 4.9
Other, net............................... 2.8 4.0 6.8 8.6
________ ________ ________ ________
Results of discontinued products,
after-tax.............................. $ (36.5) $ 1.3 $ (35.2) $ (.1)
________ ________ ________ ________
________ ________ ________ ________
Results of discontinued products, pretax. $ (57.0) $ (1.3) $ (58.3) $ (.2)
________ ________ ________ ________
________ ________ ________ ________
</TABLE>
<PAGE> 29
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
<TABLE>
<CAPTION>
Six Months Ended June 30
__________________________________________
1994 1993
_________________________________ _____
GICs SPAs Total Total
____ ____ _____ _____
<S> <C> <C> <C> <C>
Negative interest margin (a)............. $ (42.4) $ (2.2) $ (44.6) $ (40.6)
Net realized capital gains (losses)...... (37.1) (17.2) (54.3) 28.7
Interest earned on receivable from
continuing operations.................. 6.2 9.0 15.2 -
Non-recurring gains on futures contracts. - - - 18.8
Other, net............................... 3.4 5.1 8.5 19.7
________ ________ ________ ________
Results of discontinued products,
after-tax.............................. $ (69.9) (5.3) $ (75.2) $ 26.6
________ ________ ________ ________
________ ________ ________ ________
Results of discontinued products, pretax. $ (108.4) $ (11.5) $ (119.9) $ 40.9
________ ________ ________ ________
________ ________ ________ ________
<FN>
(a) Represents the amount by which interest credited to holders of fully guaranteed large
case pension contracts exceeds interest earned on invested assets supporting such contracts.
</TABLE>
The activity in the reserve for anticipated future losses on
discontinued products for the three and six months ended June 30,
1994 was as follows (pretax, in millions):
<TABLE>
<CAPTION>
Six Months Ended June 30, 1994
________________________________
GICs SPAs Total
____ ____ _____
<S> <C> <C> <C>
Reserve at December 31, 1993..... $ 600.0 $ 670.0 $1,270.0
Loss on discontinued products.... (108.4) (11.5) (119.9)
________ ________ ________
Reserve at June 30, 1994......... $ 491.6 $ 658.5 $1,150.1
________ ________ ________
________ ________ ________
</TABLE>
The reserve for anticipated future losses on discontinued products
represents the present value of anticipated net cash flow
shortfalls as the liabilities on these products are run off. Such
net cash flow shortfalls include losses from anticipated negative
interest margins, future capital losses, and operating expenses
and other costs expected to be incurred as the liabilities are run
off. At June 30, 1994 and December 31, 1993, estimated future
after-tax capital losses of $153 million and $190 million ($235
million and $292 million, pretax), respectively, attributable to
mortgage loans and real estate supporting GICs and $53 million and
$70 million ($82 million and $108 million, pretax), respectively,
attributable to mortgage loans and real estate supporting SPAs
were expected to be charged to the reserve for future losses.
Calculation of the losses on discontinuance required projection of
both the amount and the timing of cash flows over approximately
the next 30 years, including projections of, among other things,
future investment results, participant withdrawal and mortality
rates, and cost of asset management and customer service.
Projections of future investment results took into account both
industry and company data and were based on recent performance of
mortgage loan and real estate assets, assumptions regarding levels
of future defaults and prepayments, and assumptions regarding
future real estate market conditions, which assumptions management
believes reasonable.
At June 30, 1994 and December 31, 1993, assets under management
supporting GICs were $8.1 billion and $9.1 billion, respectively.
Assets under management supporting SPAs at June 30, 1994 and
December 31, 1993 were $5.2 billion and $5.6 billion,
respectively.
<PAGE> 30
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Scheduled contract maturities and benefit payments and participant
directed withdrawals on GICs and SPAs for the three months ended
June 30 were as follows (in millions):
<TABLE>
<CAPTION>
Three Months Ended June 30
_______________________________________________
1994 1993
____________________________________ _____
GICs SPAs Total Total
____ ____ _____ _____
<S> <C> <C> <C> <C>
Scheduled contract maturities
and benefit payments (1).......... $ 520.7 $ 132.4 $ 653.1 $ 570.0
________ ________ ________ ________
________ ________ ________ ________
Participant directed withdrawals... $ 52.1 $ - $ 52.1 $ 68.6
________ ________ ________ ________
________ ________ ________ ________
<FN>
(1) Includes payments made upon contract maturity and other amounts
distributed in accordance with contract schedules.
</TABLE>
Scheduled contract maturities and benefit payments and participant
directed withdrawals on GICs and SPAs for the six months ended
June 30 were as follows (in millions):
<TABLE>
<CAPTION>
Six Months Ended June 30
_______________________________________________
1994 1993
____________________________________ _____
GICs SPAs Total Total
____ ____ _____ _____
<S> <C> <C> <C> <C>
Scheduled contract maturities
and benefit payments: (1)......... $1,083.7 $ 264.0 $1,347.7 $1,182.7
________ ________ ________ ________
________ ________ ________ ________
Participant directed withdrawals... $ 126.1 $ - $ 126.1 $ 137.9
________ ________ ________ ________
________ ________ ________ ________
<FN>
(1) Includes payments made upon contract maturity and other amounts
distributed in accordance with contract schedules.
</TABLE>
Cash required to meet the above payments was provided by earnings
on, sales of, and scheduled payments on invested assets.
(Please see "General Account Investments" on page 35 for a
discussion of investments supporting discontinued products.)
<PAGE> 31
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
<TABLE>
<CAPTION>
Commercial Property-Casualty Insurance and Services
___________________________________________________
Operating Summary
(Millions) Three Months Ended June 30 Six Months Ended June 30
__________________________________ __________________________________
1994 1993 % Change 1994 1993 % Change
____ ____ ________ ____ ____ ________
<S> <C> <C> <C> <C> <C> <C>
Premiums............................ $ 755.3 $ 779.9 (3.2) $ 1,528.8 $ 1,583.8 (3.5)%
Net investment income............... 173.5 195.2 (11.1) 347.8 389.7 (10.8)
Fees and other income............... 29.6 34.3 (13.7) 59.0 76.5 (22.9)
Net realized capital gains (losses). (12.4) 17.0 - 3.3 35.8 (90.8)
_________ _________ _________ _________
Total revenue.................... 946.0 1,026.4 (7.8) 1,938.9 2,085.8 (7.0)
Current and future benefits......... 724.7 653.1 11.0 1,471.4 1,341.7 9.7
Operating expenses.................. 209.0 247.5 (15.6) 442.4 478.3 (7.5)
Amortization of deferred policy
acquisition costs.................. 84.1 84.1 - 172.1 178.0 (3.3)
_________ _________ _________ _________
Total benefits and expenses...... 1,017.8 984.7 3.4 2,085.9 1,998.0 4.4
_________ _________ _________ _________
Income (loss) before income taxes... (71.8) 41.7 - (147.0) 87.8 -
Income tax (benefits) expenses...... (31.3) 6.9 - (67.1) 12.7 -
_________ _________ _________ _________
Income (loss) before cumulative
effect adjustments.................. $ (40.5) $ 34.8 - $ (79.9) $ 75.1 -
_________ _________ _________ _________
_________ _________ _________ _________
Net realized capital gains (losses),
net of tax (included above)......... $ (8.1) $ 9.4 - $ 2.1 $ 23.5 (91.1)
_________ _________ _________ _________
_________ _________ _________ _________
Statutory combined loss and
expense ratio...................... 130.5% 118.5% - 131.6% 117.5% -
_________ _________ _________ _________
_________ _________ _________ _________
GAAP combined loss and expense ratio 129.9% 117.5% - 131.4% 116.8% -
_________ _________ _________ _________
_________ _________ _________ _________
Catastrophe loss ratio
(included in combined ratios above) 1.0% 1.6% - 9.1% 2.0% -
_________ _________ _________ _________
_________ _________ _________ _________
</TABLE>
Commercial Property-Casualty Insurance and Services income before
cumulative effect adjustments for the three and six months ended
June 30, 1994 decreased $75 million and $155 million,
respectively, compared with the same periods a year ago.
Excluding net realized capital gains and losses, results for the
three and six months decreased $58 million and $134 million,
respectively, from the prior year. Catastrophe losses for the
three and six months ended June 30, 1994 were $5 million and $89
million, respectively, compared with $8 million and $21 million
for the same periods a year ago. Catastrophe losses in 1994
included $88 million ($275 million pretax and before reinsurance)
from the Los Angeles earthquake and the severe winter weather
occurring in January and February of 1994.
Second quarter and year-to-date results in 1994 reflected
increased charges for additions to loss and loss expense reserves
for prior accident years. Additions (after-tax and net of
reinsurance) to prior year loss reserves during the three and six
months ended June 30, 1994 were $65 million and $81 million
higher, respectively, than in the same periods of 1993 and were
primarily for environmental-related claims reserves. During the
second quarter of 1994, $77 million ($141 million pretax and
before reinsurance) was added to environmental claims reserves.
Of the amount added to environmental-related claims reserves in
the second quarter of 1994, $64 million ($121 million pretax and
before reinsurance) related to estimated indemnity-related
liabilities and $13 million ($20 million pretax and before
reinsurance) related to litigation expenses. The increase for
indemnity-related liabilities related to certain of the
environmental claim sites involving some of the policyholders
which appear to present the largest risk of liability to the
company and to settlements effected with certain policyholders
during the period.
<PAGE> 32
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Commercial Property-Casualty Insurance and Services (Continued)
_______________________________________________________________
The company continues to gather and analyze developing legal and
factual information on known environmental-related claims and to
reassess its reserving techniques in order to determine whether it
can reasonably estimate the likelihood and amount of its liability
for such claims. For instance, as claims in litigation mature and
approach the trial stage, the company obtains information that may
allow it to estimate exposure on certain of the claims involved in
the litigation and policyholders may seek to settle their claims
with the company. As a result of these reserving and information
gathering processes, which are on-going, the company increased its
environmental-liability reserves in the first and second quarters
of 1994. The estimation of reserves for reported environmental
claims is difficult and likely to change as additional information
emerges.
Because of significant legal and factual uncertainties and the
likelihood that these uncertainties will not be resolved in the
near future, management is unable to make a reasonable estimate as
to the ultimate amount or reasonable range of losses for
environmental-related claims. Future results of the company are
expected to be affected adversely by losses for environmental-
related claims and related litigation expenses. Management is
unable to determine whether or not such effect will be material to
the company's future results, liquidity and/or capital resources.
Three and six month results in 1994 also reflected reduced
operating expenses, lower net investment income (driven by lower
interest rates) and lower workers' compensation servicing carrier
fees than in the same periods a year ago.
Premium revenue for the three and six months ended June 30, 1994
was approximately 3 percent lower than in the same periods a year
ago, due to stricter general liability underwriting, reduced
workers' compensation exposure (in certain states where that
business does not offer the potential to achieve acceptable
financial returns) and the current competitive marketplace.
The company has noted evidence of adverse loss developments in its
commercial general liability line of business. The company
believes that such developments largely are attributable to the
unusual frequency and size of claims in this line of business.
The company also believes that the unusual frequency and size of
construction defect claims brought against contractor
policyholders (observed by the company in 1994) and the increasing
size of other types of claims brought against contractor
policyholders (observed by the company to be continuing in 1994)
are contributing to these loss developments. The company believes
that it is reasonably possible that these adverse loss
developments will continue. If they do, they would adversely
affect the company's future results of operations, although the
company is unable at this time to estimate the extent to which
results would be affected. Management has and continues to review
the factors contributing to these developments (by, for example,
segregating and examining data on a policyholder by policyholder
basis) and to adjust its reserves as more current data becomes
available.
The company renewed its principal property catastrophe reinsurance
program in May 1994. It provides approximately 90% coverage of
losses between $150 million and $400 million. (The company's
prior property catastrophe reinsurance program provided
approximately 81% coverage of losses between $150 million and $325
million.) Under this program, catastrophe losses below the level
specified are retained by the company.
<PAGE> 33
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
<TABLE>
<CAPTION>
Personal Property-Casualty
__________________________
Operating Summary
(Millions) Three Months Ended June 30 Six Months Ended June 30
__________________________________ __________________________________
1994 1993 % Change 1994 1993 % Change
____ ____ ________ ____ ____ ________
<S> <C> <C> <C> <C> <C> <C>
Premiums............................ $ 338.2 $ 384.0 (11.9)% $ 682.6 $ 756.0 (9.7)%
Net investment income............... 39.2 48.1 (18.5) 81.3 100.2 (18.9)
Fees and other income............... 3.4 3.1 9.7 4.0 4.6 (13.0)
Net realized capital losses......... (.9) (2.7) 66.7 (5.3) (5.2) (1.9)
_________ _________ _________ _________
Total revenue.................... 379.9 432.5 (12.2) 762.6 855.6 (10.9)
Current and future benefits......... 207.1 288.3 (28.2) 505.1 600.2 (15.8)
Operating expenses.................. 40.2 43.8 (8.2) 92.2 100.6 (8.3)
Amortization of deferred policy
acquisition costs.................. 72.9 85.9 (15.1) 143.8 156.5 (8.1)
_________ _________ _________ _________
Total benefits and expenses...... 320.2 418.0 (23.4) 741.1 857.3 (13.6)
_________ _________ _________ _________
Income (loss) before income taxes... 59.7 14.5 - 21.5 (1.7) -
Income tax (benefits) expenses...... 19.6 2.7 - 5.2 (5.4) -
_________ _________ _________ _________
Income before cumulative
effect adjustments................. $ 40.1 $ 11.8 - $ 16.3 $ 3.7 -
_________ _________ _________ _________
_________ _________ _________ _________
Net realized capital losses,
net of tax (included above)........ $ (.5) $ (2.0) 75.0 $ (3.7) $ (3.4) (8.8)
_________ _________ _________ _________
_________ _________ _________ _________
Statutory combined loss and
expense ratio...................... 96.3% 110.4% - 111.0% 116.3% -
_________ _________ _________ _________
_________ _________ _________ _________
GAAP combined loss and expense ratio 94.3% 108.3% - 110.1% 114.8% -
_________ _________ _________ _________
_________ _________ _________ _________
Catastrophe loss ratio
(included in combined ratios above) 11.2% 3.3% - 12.6% 5.4% -
_________ _________ _________ _________
_________ _________ _________ _________
</TABLE>
Personal Property-Casualty results before cumulative effect
adjustments for the three and six months ended June 30, 1994
increased $28 million and $13 million, respectively, from the same
periods a year ago. Excluding net realized capital losses,
results for the three and six months ended June 30, 1994 increased
$27 million and $13 million, respectively, over the same periods a
year ago. Catastrophe losses for the three and six months ended
June 30, 1994 were $24 million and $64 million, respectively,
compared with $8 million and $27 million for the same periods a
year ago. Second quarter and year-to-date catastrophe losses in
1994 included $18 million and $61 million ($27 million and $108
million pretax and before reinsurance), respectively, from the Los
Angeles earthquake and the severe winter weather occurring in
January and February of 1994.
Three and six month results in 1994 included after-tax reductions
of prior year loss reserves of $54 million and $59 million,
respectively, compared with reductions of prior year loss reserves
of $2 million and $8 million, respectively, for the same periods a
year ago. These reductions in prior year loss reserves reflected
favorable loss trends experienced in the personal auto business.
Reserve releases also included $10 million related to the New
Jersey Market Transition Facility. The company released these
reserves because its potential liability to fund this residual
automobile insurance market mechanism has been significantly
limited as a result of the settlement of litigation between the
insurance industry and the State of New Jersey.
The company renewed its principal property catastrophe reinsurance
program in May 1994. It provides approximately 90% coverage of
losses between $150 million and $400 million. (The company's
prior property catastrophe reinsurance program provided
approximately 81% coverage of losses between $150 million and $325
million.) Under this program, catastrophe losses below the level
specified are retained by the company.
<PAGE> 34
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
<TABLE>
<CAPTION>
International
_____________
Operating Summary
(Millions) Three Months Ended June 30 Six Months Ended June 30
__________________________________ __________________________________
1994 1993 % Change 1994 1993 % Change
____ ____ ________ ____ ____ ________
<S> <C> <C> <C> <C> <C> <C>
Premiums............................ $ 233.8 $ 234.3 (.2)% $ 438.4 $ 445.2 (1.5)%
Net investment income............... 79.3 93.6 (15.3) 156.6 167.8 (6.7)
Fees and other income............... 23.6 22.4 5.4 45.1 49.6 (9.1)
Net realized capital gains (losses). (.8) (16.5) 95.2 5.9 (18.8) -
_________ _________ _________ _________
Total revenue.................... 335.9 333.8 .6 646.0 643.8 .3
Current and future benefits......... 209.2 269.8 (22.5) 398.6 466.4 (14.5)
Operating expenses.................. 92.4 88.4 4.5 181.6 185.9 (2.3)
Amortization of deferred policy
acquisition costs.................. 14.5 14.2 2.1 26.1 28.6 (8.7)
_________ _________ _________ _________
Total benefits and expenses...... 316.1 372.4 (15.1) 606.3 680.9 (11.0)
_________ _________ _________ _________
Income (loss) before income taxes... 19.8 (38.6) - 39.7 (37.1) -
Income tax expenses (benefits)...... 4.5 (48.0) - 13.1 (46.7) -
_________ _________ _________ _________
Income before cumulative
effect adjustments................. $ 15.3 $ 9.4 62.8 $ 26.6 $ 9.6 177.1
_________ _________ _________ _________
_________ _________ _________ _________
Net realized capital gains (losses),
net of tax (included above)........ $ (.2) $ (10.4) 98.1 $ 2.8 $ (11.3) -
_________ _________ _________ _________
_________ _________ _________ _________
</TABLE>
International income before cumulative effect adjustments for the
three and six months ended June 30, 1994 increased $6 million and
$17 million, respectively, compared with the same periods a year
ago. Net realized capital losses for the three and six months
ended June 30, 1993 included an after-tax capital loss of $12
million realized on the sale of the U.K. life and investment
management operations. Excluding net realized capital gains and
losses, results for the three and six months ended June 30, 1994
decreased $4 million and increased $3 million, respectively,
compared with the same periods a year ago.
Second quarter and year-to-date results in 1994 reflect increased
earnings in the Pacific Rim, Canada and Chile and from the
company's increased investment in a Mexican insurance operation.
Three and six month results in 1993 reflected losses from the U.K.
life and investment management operations and a $37 million tax
benefit from prior year operating losses on those operations.
Second quarter and year-to-date results in 1993 were adversely
affected by additions to loss and loss expense reserves for prior
accident years of $17 million and $20 million, respectively.
These reserve additions reflected emerging losses in casualty,
property and marine excess of loss coverage written by the
company's U.K. reinsurance operation. The losses arose
principally from prior year catastrophes in the discontinued
marine line of business and from various non-U.S. property
business exposures. The reserve additions also resulted from the
refinement of the methodology used to establish and evaluate loss
reserves for this business and from the availability of better
information.
<PAGE> 35
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
General Account Investments
___________________________
General account invested assets, net of related impairment
reserves, at June 30, 1994 and December 31, 1993 were as follows
(in millions):
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993
___________________________
<S> <C> <C>
Debt securities....................... $ 38,591.3 $ 41,544.5
Mortgage loans........................ 13,591.7 14,839.2
Real estate........................... 1,191.0 1,315.8
Equity securities..................... 1,677.7 1,658.9
Short term and other.................. 2,454.1 2,097.4
___________________________
Total invested assets.............. $ 57,505.8 $ 61,455.8
___________________________
___________________________
</TABLE>
The decline in invested assets from December 31, 1993 to June 30,
1994 related principally to debt securities and mortgage loans.
The decrease in debt securities was due principally to changes in
market values of such securities. Debt securities included
unrealized capital gains of $1.9 billion at December 31, 1993,
compared with unrealized capital losses of $1.0 billion at June
30, 1994. Interest rates rose from December 31, 1993 to June 30,
1994, causing a decrease in the value of debt securities and
resulting in the change from unrealized gains to unrealized losses
during the period. The decrease in mortgage loans principally
reflected prepayments and payments at maturity on mortgage loans.
Aetna's investment objective is to fund policyholder and certain
corporate liabilities in a manner which enhances shareholder
value, subject to appropriate risk constraints. It is the
company's intention that this investment objective will be met by
a mix of investments which matches the characteristics (e.g.,
duration and cash flow) of the liabilities they support;
diversifies the types of investment risks in its portfolios by
interest rate, liquidity, credit and equity price risk; and
achieves asset diversification by investment type, industry,
issuer and geographic location. Interest rate risk is managed
within a tight duration band and credit risk is managed by
maintaining high average bond ratings and broad sector exposure.
Within the $38.6 billion debt securities portfolio, the company
maintains several classes of securities whose market value is
partially determined by, among other things, levels or changes in:
domestic and/or foreign interest rates (short term or long term),
exchange rates, prepayment rates, or credit ratings/spreads. The
book and market value of these securities as of June 30, 1994 was
as follows (in millions):
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
_________ _______
<S> <C> <C>
Collateralized mortgage obligations (including
interest-only and principal-only strips)...... $ 4,437 $ 4,396
Treasury and agency strips:
Principal..................................... 728 493
Interest...................................... 537 628
Foreign yield curve notes
(Sweden, France and Spain).................... 135 111
LIBOR notes..................................... 30 25
Yen notes....................................... 23 20
Warrants to purchase debt securities............ 12 12
</TABLE>
<PAGE> 36
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
General Account Investments (Continued)
_______________________________________
Debt Securities
As of June 30, 1994 and December 31, 1993, the company's
investments in debt securities represented 67% and 68%,
respectively, of total general account invested assets and were as
follows (in millions):
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993
___________________________
<S> <C> <C>
Supporting discontinued products $ 7,364.8 $ 8,269.0
Supporting experience rated products 11,570.3 11,763.8
Supporting remaining products 19,656.2 21,511.7
___________________________
Total $38,591.3 $41,544.5
___________________________
___________________________
</TABLE>
Included in the company's total debt security balances at June 30,
1994 and December 31, 1993 were the following categories of debt
securities (in millions):
<TABLE>
<CAPTION>
June 30, 1994 December 31, 1993
__________________________________ ___________________________________
Supporting Experience Rated Supporting Experience Rated
Pension and Annuity Contracts Pension and Annuity Contracts
_____________________________ _____________________________
Total Amount % of Total Total Amount % of Total
_____ ______ __________ _____ ______ __________
<S> <C> <C> <C> <C> <C> <C>
"Below investment grade"
debt securities $ 1,949.7 $ 449.2 22.8% $ 1,970.1 $ 449.6 22.8%
Problem debt securities 219.2 21.4 9.8 196.1 26.6 13.6
Potential problem debt
securities 122.9 47.6 38.7 191.0 65.1 34.1
</TABLE>
Individual debt securities are written down for other than
temporary declines in value. Impairment reserves on debt
securities are established to provide for losses that management
believes have occurred related to securities in the portfolio
excluding that portion of the portfolio supporting experience
rated pension and annuity contracts. Impairment reserves related
to debt securities were as follows (in millions):
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993
__________________________
<S> <C> <C>
Allocable to discontinued products $ 34.6 $ 37.9
Allocable to contractholders 10.5 15.0
Allocable to remaining products 43.1 49.9
__________________________
Total $ 88.2 $ 102.8
__________________________
__________________________
</TABLE>
<PAGE> 37
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
General Account Investments (Continued)
_______________________________________
After-tax impairment expense related to debt securities was as
follows (in millions):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
___________________ ___________________
1994 1993 1994 1993
_______ _______ ______ _______
<S> <C> <C> <C> <C>
Allocable to discontinued products $ 1.9* $ 1.6 $ 3.6* $ 1.2
Allocable to contractholders** $ .6 $ - $ 2.3 $ .1
Allocable to remaining products $ .4 $ .4 $ .9 $ 1.8
<FN>
* Impairment expense allocable to discontinued products for the three and six
months ended June 30, 1994 does not affect the company's results of operations.
** Impairment expense allocable to contractholders does not affect the company's
results of operations.
</TABLE>
Management defines problem debt securities to be securities for
which payment is in default, securities of issuers which are
currently in bankruptcy or in out-of-court reorganizations, or
securities of issuers for which bankruptcy or reorganization
within six months is considered likely.
"Potential problem debt securities" are currently performing debt
securities for which neither payment default nor debt
restructuring is anticipated within six months, but whose issuers
are experiencing major financial difficulties. Identifying such
potential problem debt securities requires significant judgment as
to likely future market conditions and developments specific to
individual debt securities. Provision for losses that are likely
to arise from potential problem debt securities, excluding those
potential problem debt securities supporting experience rated
pension and annuity contracts, is included in the general reserve.
The company does not accrue interest on problem debt securities
when management believes the likelihood of collection of interest
is doubtful. Lost investment income on problem debt securities
for the three and six months ended June 30 was as follows (in
millions):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
___________________ ___________________
1994 1993 1994 1993
_______ _______ ______ _______
<S> <C> <C> <C> <C>
Allocable to discontinued products $ 1.1 $ 1.4 $ 1.9 $ 2.6
Allocable to contractholders $ .8 $ .1 $ 1.3 $ 1.0
Allocable to remaining products $ .8 $ .4 $ 1.7 $ 1.5
</TABLE>
At June 30, 1994 and December 31, 1993, the carrying value (fair
value) of collateralized mortgage obligations ("CMOs") was $4.4
billion and $6.3 billion, respectively. The principal risks
inherent in holding CMOs are prepayment and extension risks
related to dramatic decreases and increases in interest rates
whereby the CMOs would be subject to repayment of principal
earlier or later than originally anticipated. At June 30, 1994
and December 31, 1993, approximately 90% and 91%, respectively, of
the company's CMO holdings consisted of sequential and planned
amortization class bonds that are subject to less prepayment and
extension risk than other CMO instruments.
<PAGE> 38
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
General Account Investments (Continued)
_______________________________________
Mortgage Loan Investments
As of June 30, 1994 and December 31, 1993, the company's mortgage
loan investments, net of impairment reserves, supported the
following types of business (in millions):
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993
__________________________
<S> <C> <C>
Supporting discontinued products $ 4,923.9 $ 5,419.1
Supporting experience rated products 4,356.1 4,732.7
Supporting remaining products 4,311.7 4,687.4
__________________________
Total $13,591.7 $14,839.2
__________________________
__________________________
</TABLE>
The mortgage loan portfolio is monitored closely through the
review of loan and property information such as debt service
coverage, annual operating statements and property inspection
reports. This information is evaluated in light of current
economic conditions and other factors such as geographic and
property-type loan concentrations. Evaluation of individual
mortgage loans, including identification of currently performing
loans that, for a variety of reasons, management believes warrant
closer monitoring, is part of the company's regular review process
designed, among other things, to help determine whether
adjustments to mortgage loan impairment reserves appear warranted.
Mortgage loan impairment reserves are established to provide for
1) probable estimated losses on specific loans (i.e., "specific
reserves") and 2) losses that management believes are likely to
arise from the overall portfolio excluding that portion of the
portfolio supporting experience rated pension contracts (i.e.,
"general reserve"). As of the dates shown below, the mortgage
loan impairment reserves were as follows (in millions):
<TABLE>
<CAPTION>
Balances at June 30, 1994 Balances at December 31, 1993
______________________________ _______________________________
Specific General Specific General
Reserves Reserve Total Reserves Reserve Total
________ _______ _____ ________ _______ _____
<S> <C> <C> <C> <C> <C> <C>
Allocable to the company*... $ 598.0 $ 375.0 $ 973.0 $ 639.8 $ 400.0 $1,039.8
Allocable to contractholders 253.1 ** 253.1 268.5 ** 268.5
________ ________ ________ ________ ________ ________
Total..................... $ 851.1 $ 375.0 $1,226.1 $ 908.3 $ 400.0 $1,308.3
________ ________ ________ ________ ________ ________
________ ________ ________ ________ ________ ________
<FN>
* Includes total reserves of $591.5 million ($361.4 million of specific reserves and $230.1 million
of general reserves) allocated to discontinued products at June 30, 1994 and total reserves
of $647.2 million ($406.0 million of specific reserves and $241.2 million of general reserves)
allocated to discontinued products at December 31, 1993. (Please see "Financial Services" on
page 29 for a discussion of anticipated future capital losses on assets supporting discontinued
products.)
** The general reserve at June 30, 1994 and December 31, 1993 excluded reserves for losses of
$207.1 million and $217.0 million, respectively, that management believes are likely to arise
from that portion of the overall portfolio supporting experience rated pension contracts.
</TABLE>
<PAGE> 39
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
General Account Investments (Continued)
_______________________________________
For the periods shown below, after-tax mortgage loan impairment
expense was as follows (in millions):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
___________________ ___________________
1994 1993 1994 1993
____ ____ ____ ____
<S> <C> <C> <C> <C>
Allocable to discontinued products $ 8.7* $ 35.2 $ 30.3* $ 59.5
Allocable to contractholders** $ 2.6 $ 20.4 $ 39.3 $ 44.7
Allocable to remaining products $ 18.6 $ 45.3 $ 42.4 $ 75.4
<FN>
* Impairment expense allocable to discontinued products for the three and six months
ended June 30, 1994 does not affect the company's results of operations.
** Impairment expense allocable to contractholders does not affect the company's
results of operations.
</TABLE>
Included in the company's total mortgage loan balances at June 30,
1994 and December 31, 1993 were the following categories of
mortgage loans (in millions):
<TABLE>
<CAPTION> Balances at June 30, 1994
_____________________________________________________________
Supporting Experience Supporting
Rated Pension Contracts Discontinued Products
_______________________ ______________________
Total Amount % of Total Amount % of Total
_____ ______ __________ ______ __________
<S> <C> <C> <C> <C> <C>
Problem loans........... $1,378.9 $ 388.1 28.1% $ 610.1 44.2%
Restructured loans (1).. 1,383.0 402.9 29.1 616.3 44.6
Potential problem and
restructured loans..... 1,319.6 501.2 38.0 452.6 34.3
________
Total................ $4,081.5
________
________
Impairment reserves..... $1,226.1
________
________
Impairment reserves as
a percentage of total.. 30.0%
________
________
Balances at December 31, 1993
_____________________________________________________________
Supporting Experience Supporting
Rated Pension Contracts Discontinued Products
_______________________ ______________________
Total Amount % of Total Amount % of Total
_____ ______ __________ ______ __________
<S> <C> <C> <C> <C> <C>
Problem loans........... $1,116.0 $ 387.8 34.7% $ 410.8 36.8%
Restructured loans (1).. 1,858.8 481.1 25.9 957.4 51.5
Potential problem and
restructured loans..... 1,575.6 602.0 38.2 523.8 33.2
________
Total................ $4,550.4
________
________
Impairment reserves..... $1,308.3
________
________
Impairment reserves as
a percentage of total.. 28.8%
_________
_________
<FN>
(1) During the six month period ended June 30, 1994, $110.6 million of loans which had been
restructured, after write-offs of $44.1 million, were classified as performing.
Of these loans, $17.8 million, after write-offs of $6.4 million, supported experience
rated pension contracts and $62.4 million, after write-offs of $27.0 million, supported
discontinued products. Please see page 40 for further discussion of such transfers.
</TABLE>
Problem mortgage loans are defined to be loans with payments over
60 days past due, loans on properties in the process of
foreclosure, loans on properties involved in bankruptcy
proceedings and loans on properties subject to redemption. Loans
on properties in the process of foreclosure increased to $759
million at June 30, 1994 from $399 million at December 31, 1993,
due primarily to the company's move to foreclose upon a $220
million loan secured by an office building. A specific reserve of
approximately $80 million relating to this loan was provided for
in prior years. This reserve will be written off and the asset
will be reflected at its estimated fair value at the time of
foreclosure (approximately $140 million). The foreclosure is not
expected to affect results of operations in 1994.
<PAGE> 40
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
General Account Investments (Continued)
_______________________________________
Restructured loans are loans whose original contract terms have
been modified to grant concessions to the borrower and are
currently performing pursuant to such modified terms.
Restructured loans that have a market rate of interest at the time
of the restructure (which represents the interest rate the company
would charge for a new loan with comparable risk) and demonstrate
sustainable performance (as generally evidenced by six months of
pre- or post- restructuring payment performance in accordance with
the restructured terms), may be returned to performing status.
Candidates for such treatment must be underwritten and meet
specific guidelines which are intended to provide reasonable
assurance that the loan will perform in accordance with its
contract terms. These guidelines require (i) adequate debt
service coverage throughout the term of the loan, (ii) appropriate
loan-to-value ratios based upon collateral value currently and at
projected maturity of the loan, and (iii) reasonable protection
against capital expenditure risk associated with lease rollovers.
In addition, such restructured loans are designed to enhance the
company's security position in the collateral, maximize borrower
commitment to the property, and in many cases, ensure the
company's participation in any appreciation of the property as
market conditions improve.
Prior to restructuring, such loans are generally classified and
accounted for as problem loans. However, in certain cases, loans
may be classified as potential problem loans if they are
performing pursuant to their existing loan terms at the time.
Upon closing of the restructure, any uncollectible portion of the
loan is written off against the impairment reserve and the
remaining recorded investment in the loan is classified as
restructured until it is returned to performing status.
In the second quarter of 1994, loans which had been restructured,
with a carrying value of $111 million (net of write-offs of $44
million) and with an average current yield of 8% were classified
as performing. The amount the write-off approximated the reserves
related to these loans; therefore, there was an immaterial effect
on the Consolidated Statement of Income in 1994. Of the
aforementioned loans, $18 million (net of write-offs of $6
million) supported experience rated pension contracts and $62
million (net of write-offs of $27 million) supported discontinued
products. No such transfers occurred in 1993 or in the first
quarter of 1994. The company anticipates that additional loans
will be reclassified to performing in future quarters if such
loans demonstrate sustainable performance (as described above).
<PAGE> 41
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
General Account Investments (Continued)
_______________________________________
Currently performing loans which management believes are likely to
become classified as problem or restructured loans in the next
twelve months or so are identified through the portfolio review
process on the basis of known information about the ability of
borrowers to comply with present loan repayment terms.
Identifying such "potential problem and restructured loans"
requires significant judgment as to likely future market
conditions, developments specific to individual properties and
borrowers, and the timing of potential defaults. Provision for
losses that are likely to arise from such potential problem and
restructured loans, excluding those potential problem and
restructured loans supporting experience rated pension contracts,
is included in the general reserve.
The company does not accrue interest on problem loans or
restructured loans when management believes the collection of
interest is unlikely. The amount of pretax investment income
required by the original terms of such non-accruing problem and
restructured loans outstanding at June 30 and the portion thereof
actually recorded as income for the three and six months ended
June 30 were as follows (in millions):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
__________________ ________________
1994 1993 1994 1993
____ ____ ____ ____
<S> <C> <C> <C> <C>
Income which would have been recorded
under original terms of loans.......... $ 65.7 $ 74.5 $139.6 $146.0
Income recorded......................... 28.0 37.8 62.1 66.9
______ ______ ______ ______
Lost investment income.................. $ 37.7 $ 36.7 $ 77.5 $ 79.1
______ ______ ______ ______
______ ______ ______ ______
Lost investment income allocated to
investments supporting discontinued
products (included above).............. $ 20.7 $ 19.3 $ 37.4 $ 40.4
______ ______ ______ ______
______ ______ ______ ______
Lost investment income allocated to
investments supporting experience rated
pension contracts (included above)..... $ 6.6 $ 9.4 $ 19.4 $ 21.7
______ ______ ______ ______
______ ______ ______ ______
</TABLE>
Real Estate Investments
At June 30, 1994 and December 31, 1993, Aetna's equity real estate
balances, net of write-downs and reserves, were as follows:
<TABLE>
<CAPTION> Balances at June 30, 1994
_____________________________________________________________
Supporting Experience Supporting
Rated Pension Contracts Discontinued Products
_______________________ ______________________
Total Amount % of Total Amount % of Total
_____ ______ __________ ______ __________
<S> <C> <C> <C> <C> <C>
Investment real estate.... $ 389.1 $ 30.6 7.9% $ 95.7 24.6%
Properties held for sale.. 801.9 210.9 26.3 418.8 52.2
________ ________ ________
Total equity real estate.. $1,191.0 $ 241.5 20.3 $ 514.5 43.2
________ ________ ________
________ ________ ________
Balances at December 31, 1993
_____________________________________________________________
Supporting Experience Supporting
Rated Pension Contracts Discontinued Products
_______________________ ______________________
Total Amount % of Total Amount % of Total
_____ ______ __________ ______ __________
<S> <C> <C> <C> <C> <C>
Investment real estate.... $ 434.9 $ 36.7 8.4% $ 98.5 22.6%
Properties held for sale.. 880.9 243.7 27.7 436.0 49.5
________ ________ ________
Total equity real estate.. $1,315.8 $ 280.4 21.3 $ 534.5 40.6
________ ________ ________
________ ________ ________
</TABLE>
<PAGE> 42
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
General Account Investments (Continued)
_______________________________________
The company's investment real estate is held for the production of
income and is generally carried at depreciated cost. Property
valuations are reviewed regularly by investment management. The
carrying value is based upon various factors, including a review
of market conditions and the company's long-range strategy for the
property. The carrying value of investment real estate is reduced
through a valuation reserve to reflect other than temporary
declines in market value. The fair value of assets acquired
through foreclosure is established as the cost basis at the time
of foreclosure. Subsequent to foreclosure, properties held for
sale are carried at the lower of cost or fair value less selling
costs. Beginning in 1992, adjustments to the carrying value, as a
result of changes in fair value subsequent to foreclosure, are
recorded in a valuation reserve. Prior to 1992, such changes in
carrying value of both investment real estate and properties held
for sale were recorded as write-downs. Capital additions and
asset improvements increase the carrying value and depreciation
reduces the carrying value of both properties held for sale and
investment real estate.
Total real estate write-downs and valuation reserves on properties
included in the company's equity real estate balances were as
follows (in millions):
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993
__________________________
<S> <C> <C>
Allocable to discontinued products $286.3 $298.3
Allocable to contractholders 198.1 228.3
Allocable to remaining products 188.8 242.9
__________________________
Total $673.2 $769.5
__________________________
__________________________
</TABLE>
For the periods shown below, total after-tax net realized capital
losses from real estate write-downs and increases (decreases) in
the valuation reserves were as follows (in millions):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
__________________ __________________
1994 1993 1994 1993
____ ____ ____ ____
<S> <C> <C> <C> <C>
Allocable to discontinued products $ 1.2* $ 10.1 $ 13.8* $ 24.3
Allocable to contractholders** $ 4.5 $ .9 $ 4.6 $ 4.9
Allocable to remaining products $ 1.2 $ 4.2 $ (.4) $ 5.9
<FN>
* Write-downs and impairment expense allocable to discontinued products for the three
and six months ended June 30, 1994 do not affect the company's results of operations.
** Write-downs and impairment expense allocable to contractholders do not affect the
company's results of operations.
</TABLE>
<PAGE> 43
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
General Account Investments (Continued)
_______________________________________
Outlook
Management intends that general account investments in new
mortgage loans for the foreseeable future will be restricted
largely to extending and refinancing existing mortgages as they
mature. The company has reduced the mortgage loan and equity real
estate portfolios, after reserves and write-downs, by $7.4 billion
since the end of 1991, bringing mortgage loans and real estate as
a percentage of general account invested assets from 38% in 1991
to 26% at June 30, 1994. It is management's continuing objective,
real estate and capital market conditions permitting, to reduce
over the next several years the size of the mortgage loan and real
estate portfolios relative to total invested general account
assets. Although extensions and refinancings of existing mortgage
loans may delay achieving this objective, management intends to
pursue plans to maximize returns and reduce portfolio levels
through loan restructurings and sales of foreclosed real estate.
Although the pace of recovery in the commercial real estate market
is open to debate, management is beginning to see improvement in
this market. While additional losses may emerge in the company's
mortgage loan and real estate portfolios, and may increase to the
extent any recovery in this market is delayed, management believes
that the improvement in this market will favorably impact real
estate values.
The reserve for discontinued products reflects all anticipated
future losses on discontinued products, including capital losses
related to the $5.4 billion of mortgage loans and real estate
supporting such products. Therefore, additional losses on the
portion of the portfolio supporting discontinued products are not
expected to impact the company's results of operations, although
there can be no assurances that such losses will not be greater
than anticipated and thus materially impact such results.
Liquidity and Capital Resources
_______________________________
Cash and cash equivalents at June 30, 1994 and December 31, 1993
were $1.8 billion and $1.6 billion, respectively. For the six
months ended June 30, 1994, net cash used for operating activities
was $170 million. Net cash used for operating activities of $1.2
billion during the first six months of 1993 included $1.6 billion
of cash used for net purchases of debt trading securities.
For the first six months of 1994, net cash provided by investing
activities was $1.0 billion and included an increase of $122
million in short-term investments. Net cash provided by investing
activities of $851 million for the six months ended June 30, 1993
included $468 million provided by a decrease in short-term
investments.
Short-term borrowings are used from time to time to provide for
timing differences between receipts and disbursements in various
portfolios. The maximum amount of domestic short-term borrowings
outstanding during the first six months of 1994 was $256 million.
<PAGE> 44
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Liquidity and Capital Resources (Continued)
___________________________________________
As a result of adverse conditions in real estate markets and tight
lending practices by banks and other financial institutions over
the past several years, the company has extended the maturity of,
and adjusted interest rates to current market on, certain maturing
mortgage loans where the borrower was unable to obtain financing
elsewhere. Of the $979 million of mortgage loans scheduled to
mature during the first six months of 1994, $690 million were not
paid as scheduled, a substantial portion of which supported large
case pension liabilities. Of the loans not paid as scheduled,
$152 million were extended at interest rates at least equal to
current market (average rate of 8% over an average extension
period of 6 years), $132 million were under forbearance
(continuing to make payments under original loan terms), $5
million were foreclosed upon and $401 million were under
discussion with borrowers at June 30, 1994. Of the $401 million
of loans under discussion with borrowers, $114 million were
classified as problem or restructured loans at June 30, 1994.
Absent significant improvement in commercial real estate markets
or in the availability of refinancing by other financial
institutions, there will continue to be a similar need to extend
or refinance maturing loans.
Please refer to "Financial Services" on pages 28 through 30 for a
discussion of the liquidity requirements specific to the large
case pension business.
The company engages in limited hedging activity. Such hedging
activity has principally consisted of using futures and forward
contracts and interest rate swaps to hedge translation risk and
interest rate risk. All of these instruments are subject to
market and credit risk. Market risk is the risk that future
changes in market prices may make a financial instrument less
valuable. Credit risk arises from the potential inability of
counterparties to perform under the terms of the contracts.
Management does not believe that the current level of hedging
activity will have a material effect on the company's liquidity or
results of operations.
In July 1994, the company entered into two committed bank lines of
$500 million each with a group of worldwide banks. One facility
terminates in July 1995 and the other terminates in July 1999.
These facilities replace the company's $800 million revolving
credit facility which expired in July 1994. (Please see Note 10
of Notes to Financial Statements.)
On March 25, 1994, the company filed a shelf registration
statement with the Securities and Exchange Commission ("the
Commission") for the registration of $500 million of preferred
securities to be issued by a finance subsidiary and guaranteed by
the company. If and when the registration statement is declared
effective by the Commission, these securities may be offered from
time to time pursuant to the Commission's shelf registration
rules. The proceeds from any sale of these securities would be
loaned from the subsidiary to the company and, except as may
otherwise be noted in any offering documents related to such
securities, used for general corporate purposes.
<PAGE> 45
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Liquidity and Capital Resources (Continued)
___________________________________________
Pursuant to shelf registration statements declared effective by
the Commission during 1993, the company may offer and sell up to
an additional $550 million of securities.
On June 15, 1993, the company redeemed $200 million principal
amount of its 8 1/8 % Debentures whose scheduled maturity was
2007. The company recognized an after-tax extraordinary loss of
$5 million on the early redemption.
Rating Agencies
During 1994, the senior debt and commercial paper ratings of Aetna
Life and Casualty Company were lowered by certain of the rating
agencies. Aetna's ratings at February 8, 1994, as detailed in the
1993 Form 10-K, and at August 15, 1994, follow:
<TABLE>
<CAPTION>
Rating Agencies
____________________________________________________________
Moody's Investors Standard
A.M. Best Duff & Phelps Service & Poor's
____________________________________________________________
<S> <C> <C> <C> <C>
Aetna Life and Casualty Company
(senior debt)
February 8, 1994 * AA- A1 AA-
August 15, 1994 * A+ A1 AA-
Aetna Life and Casualty Company
(commercial paper)
February 8, 1994 * Duff 1+ P-1 A-1+
August 15, 1994 * Duff 1 P-1 A-1+
Aetna Life Insurance Company
(claims paying)
February 8, 1994 A AA Aa3 A+
August 15, 1994 A AA Aa3 A+
The Aetna Casualty and Surety Company
(claims paying)
February 8, 1994 A AA Aa2 AA-
August 15, 1994 A AA (on rating Aa2 AA-
watch-down)
Aetna Life Insurance and Annuity Company
(claims paying)
February 8, 1994 A++ AAA Aa2 AAA
August 15, 1994 A++ AAA Aa2 AAA
<FN>
* Not rated by the agency.
</TABLE>
Dividends Declared
On June 24, 1994, the Board of Directors declared a quarterly
dividend of $.69 per share of common capital stock for
shareholders of record at the close of business on July 29, 1994,
payable August 15, 1994.
<PAGE> 46
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Other Matters
_____________
For additional discussion of income taxes, severance and
facilities charges and property-casualty reserves, please see the
company's 1993 Annual Report to Shareholders, 1993 Form 10-K and
March 31, 1994 Form 10-Q. The following is intended to supplement
those discussions.
Income Taxes
Net unrealized capital gains and losses are presented in
shareholders' equity net of deferred taxes. At June 30, 1994,
$350 million of net unrealized capital losses on available for
sale debt and equity securities were reflected in shareholders'
equity without deferred tax benefits. For federal tax reporting
purposes, capital losses are deductible only against capital gains
in the period of sale or during the carryback and carryforward
periods (three and five years, respectively). Due to the expected
full utilization of capital gains in the carryback period and the
uncertainty of future capital gains, deferred tax benefits related
to the $350 million of net unrealized losses were not reflected in
shareholders' equity. This had no impact on net income for the
three and six months ended June 30, 1994.
Severance and Facilities Charges
In recent years, management has placed a strong focus on reducing
costs in order to improve the competitive position of the
company's businesses. Among the steps taken to reduce costs was
the elimination of approximately 4,800 positions in the latter
half of 1992 and through 1993. The decision to undertake these
actions resulted in an after-tax charge of $96 million ($145
million pretax) to second quarter 1992 earnings. The 1992
severance and facilities charge included the following (pretax,
millions):
<TABLE>
<CAPTION>
Vacated Pension
Severance Leased Curtailment
Related Property Gain Total
_________ ________ ___________ _______
<S> <C> <C> <C> <C>
Health and Life Insurance and Services. $ 65.3 $ - $ (11.2) $ 54.1
Financial Services..................... 7.0 - (1.4) 5.6
Commercial Property-Casualty
Insurance and Services............... 39.9 7.1 (8.2) 38.8
Personal Property-Casualty............. 38.8 13.8 (6.6) 46.0
International.......................... .6 - (.1) 0.5
_______ ________ _______ _______
Total Company (1)...................... $ 151.6 $ 20.9 $ (27.5) $ 145.0
_______ ________ _______ _______
_______ ________ _______ _______
<FN>
(1) The pension curtailment gain is a non-cash item. All other items shown above required
cash outlays.
</TABLE>
<PAGE> 47
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Other Matters (Continued)
_________________________
Standard severance benefit arrangements that would be available to
employees whose positions were eliminated were communicated
through company newsletters to all employees when the
restructuring action was adopted and announced in June 1992. By
the end of the second quarter of 1993, all affected individuals
had been notified that their positions were being eliminated. The
excess leased office space resulting from the elimination of these
positions was substantially vacated by year-end 1993. The
remaining lease payments (net of expected subrentals) on such
vacated facilities are payable over approximately the next three
years. By year-end 1993, all expected actions under the 1992
restructuring had been completed and after-tax savings of
approximately $100 million ($130 million annualized) had been
achieved.
In late 1993, management decided upon a plan under which it would
take additional restructuring actions as part of its strategic and
financial assessment of the company's businesses. That assessment
was formally concluded and announced to the marketplace on January
28, 1994. As a result of these planned actions, the company
announced in January 1994, a $200 million after tax ($308 million
pretax) severance and facilities charge to fourth quarter 1993
earnings. The planned actions include the elimination of
approximately 4,000 positions. As a result of the elimination of
these positions, the company determined that it would have excess
office space. Accordingly, the severance and facilities charge
also included costs related to vacating the excess leased office
space, and costs related to abandoning and preparing for sale an
owned property in Hartford, Connecticut. The 1993 severance and
facilities charge included the following (pretax, millions):
<TABLE>
<CAPTION>
Facility and Vacated
Severance Asset Write- Leased
Related Off Related Property Other Total
_________ ____________ ________ _______ _______
<S> <C> <C> <C> <C> <C>
Health and Life Insurance and Services. $ 49.7 $ 23.8 $ 11.8 $ 3.2 $ 88.5
Financial Services..................... 22.9 12.5 2.4 14.4 (1) 52.2
Commercial Property-Casualty
Insurance and Services............... 70.6 20.5 12.7 3.8 107.6
Personal Property-Casualty............. 31.7 5.9 8.0 1.8 47.4
International.......................... 5.5 3.3 2.0 1.5 12.3
_______ _______ _______ _______ _______
Total Company (3)...................... $ 180.4 $ 66.0 (2) $ 36.9 $ 24.7 $ 308.0
_______ _______ _______ _______ _______
_______ _______ _______ _______ _______
<FN>
(1) Includes a charge of $13.0 million related to the cessation of a business providing administrative
services to defined contribution pension plans. The charge includes broker buyout, direct losses
on run-off of the existing contracts and other related costs.
(2) Facility and asset write-off related charges include the write-down to realizable value of a
company property that will be abandoned. Realizable value was determined to be the estimated
selling price of the property (based on an internally prepared appraisal). The charge does not
include operating costs expected to be incurred prior to the date of abandonment of the property.
Facility and asset write-off related charges also include costs to retire personal computers and
printers used by employees whose positions were, or are expected to be, eliminated and other
related costs.
(3) Facility and asset write-off related charges are non-cash costs. All other items shown above
required, or will require, cash outlays.
</TABLE>
<PAGE> 48
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Other Matters (Continued)
_________________________
Severance benefit arrangements that would be available to
employees whose positions were eliminated were communicated to all
employees prior to the announcement of the restructuring actions
through an employee handbook and company newsletters. The
composition of the positions expected to be eliminated (e.g.,
business unit, location and levels of affected employees) was
generally known at the time the restructuring actions were
approved by senior management. Vacating the resulting excess
leased office space is expected to be substantially completed by
year-end 1994. The remaining lease payments (net of expected
subrentals) on such vacated facilities are payable over
approximately the next six years. The owned property that is
being vacated and prepared for sale is expected to be fully
vacated by the end of the first quarter of 1995 and has been
written down ($37 million, pretax) to its estimated net realizable
value.
During the three and six months ended June 30, 1994, the company
charged costs of $31 million and $51 million, respectively,
related to the cost reduction actions to the severance and
facilities reserve established in 1993. Of the approximately
4,000 positions expected to be eliminated, approximately 700 had
been eliminated by June 30, 1994 and the related severance
benefits charged against the reserve. The remaining actions are
expected to be substantially completed in 1994 and are expected to
produce annual after-tax savings of approximately $200 million by
1995, including savings resulting from a modification of the
company's postretirement health care plan. The total estimated
savings of approximately $200 million are expected to benefit
individual segments by 1995 as follows:
<TABLE>
<CAPTION>
<S> <C>
Health and Life Insurance and Services................ $ 80
Financial Services.................................... 5
Commercial Property-Casualty Insurance and Services... 90
Personal Property-Casualty............................ 25
International......................................... -
_____
Total estimated savings............................... $ 200
_____
_____
</TABLE>
Workers' Compensation Reserves
During 1993, the company elected to change its accounting policy
for reporting reserves for current and expected workers'
compensation life table indemnity claims to a discounted basis.
These reserves are discounted at 5% for voluntary business and
3.5% for involuntary business, with mortality and morbidity
assumptions that reflect current company and industry experience.
Management believes that this change better reflects the economic
value of its obligations and improves the matching of revenues and
expenses (i.e., investment earnings from underlying assets are
matched with the accretion of the liability as those amounts occur
over time). Additionally, it is consistent with the practice of
the company's principal competitors and is permitted by state
regulatory authorities. This discounting resulted in a pretax
reduction of $634 million to loss reserves for workers'
compensation claims. The current year effect of the change to
discounting in 1993 was a $78 million after-tax benefit in the
Consolidated Statement of Income. (Please see Note 3 of Notes to
Financial Statements.) The company's reserves for workers'
compensation life table indemnity claims at December 31, 1993 were
17% of its total workers' compensation reserves for unpaid claims
and claim adjustment expenses.
<PAGE> 49
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Other Matters (Continued)
_________________________
During the fourth quarter of 1993, the company added $574 million
(pretax, before discount) to prior accident year loss reserves for
workers' compensation claims. (Please see "Property-Casualty
Reserves: Loss Development" on pages 56 and 57.) Of the $574
million of additions to workers' compensation reserves in the
fourth quarter of 1993, approximately $250 million, or 44%, were
additions to the company's reserves for workers' compensation life
table indemnity claims, resulting from the use of a longer "tail"
(as described below) in estimating these claims. The remaining
approximately $325 million, or 56%, were additions to the
company's reserves for workers' compensation medical claims,
reflecting an increase of approximately $560 million attributable
to the use of a longer "tail" in estimating these claims,
partially offset by a decrease of approximately $235 million
reflecting the company's judgment (discussed later) that recent
claims will benefit from a slowing in the growth of medical costs
from that being experienced by the company on older claims.
Factors leading to the fourth quarter increase in workers'
compensation reserves are described below.
During 1992, the company noted further adverse development in its
workers' compensation claims and, based upon information then
available to it, added $149 million (pretax) to workers'
compensation reserves for claims occurring in prior accident
years. (Please see "Property-Casualty Reserves: Loss
Development" on pages 56 and 57.) The company noted that
uncertainty existed with respect to such adverse development, and
the extent to which it was attributable to the following factors:
(i) the length of the "tail" (i.e., pay-out period) for workers'
compensation claims; (ii) differences in development patterns of
claim-types (i.e., medical, indemnity and life table) comprising
the tail; and (iii) the potential effects of inflation and other
socioeconomic phenomena (e.g., long-term development of medical
costs) upon long-tail liabilities. However, at that time
management was uncertain as to whether, and to what extent, each
factor was contributing to the adverse development noted.
In February 1993, the company's internal actuarial staff (with
assistance and advice from internal accounting and legal staff)
decided to undertake a study to clarify the uncertainties
regarding these factors and their potential effects on workers'
compensation reserves. As part of the study process, claim-types
were examined separately, rather than in the aggregate as had
generally been the company's practice in prior years, in order to
understand differences in development patterns of claim-types.
During the course of the study, the company consulted with
external accounting and actuarial advisors, and reviewed publicly
available competitor claim data, in order to determine whether the
study's preliminary and ultimate findings appeared consistent with
competitors' claims experience and reserving practices.
In May 1993, senior management was advised that the study of
workers' compensation reserves was underway and that the study
could result in recommendations that, if adopted, might lead to an
increase in workers' compensation reserves.
<PAGE> 50
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Other Matters (Continued)
_________________________
In August 1993, an analysis of year-end 1992 claims data assuming
a 60-year tail (rather than the 40-year tail then used by the
company in its workers' compensation reserve projections) was
performed. Senior management then directed that the study be
continued in order to incorporate the most current 1993 data.
Additionally, the study's scope was expanded to include a review
of the results of a survey conducted by the National Council on
Compensation Insurance ("NCCI"), a national workers' compensation
pool, which was released in June 1993 to the company and other
NCCI members.
In October 1993, an analysis similar to that described in the
preceding paragraph but utilizing claims data gathered through the
third quarter of 1993 was performed. Both the August and October
analyses suggested the possible need to increase workers'
compensation reserves, subject to the considerations noted below.
After review of the results of the October analysis, project staff
was directed: (i) to review the study's methodology with the
company's external auditors; and (ii) to perform final analyses of
reserve balances using full-year 1993 results and to verify
certain key underlying assumptions.
In early December 1993, these final analyses were completed based
upon actual eleven-month results extrapolated to the full year.
Among other things, the study confirmed that: (i) indemnity and
medical losses developed in different patterns; (ii) the "tail" on
these losses was longer than that previously considered in
establishing reserves (reflecting increased longevity of injured
workers); and (iii) the portion of total loss costs attributable
to medical loss costs had increased significantly in recent years.
As a result of the study, management concluded that the
information developed supported adjustment of workers'
compensation reserve balances to reflect (i) a 60-year tail; and
(ii) a judgment that, because of application of costly medical
technologies sooner after injury and medical advancements in the
early treatment of injuries, recent claims would benefit from a
slowing in the growth of medical costs from that being experienced
by the company on older claims.
At year-end 1992 and during the time that the studies were being
conducted, the company continued its practice of evaluating
reserve adequacy on a quarterly basis. At year-end 1992 and at
the first two quarter-ends in 1993, management had not estimated
an amount or a range of reasonably possible additional loss
exposure in the workers' compensation line directly attributable
to the specifically identified uncertainties noted above because,
during these periods, management was still in the process of
analyzing data and evaluating assumptions. Subsequent analyses
indicated a reasonably possible loss exposure in the workers'
compensation line on a stand-alone basis as of the end of the
third quarter of 1993 of approximately $600 million, subject to
verification of certain key factors as noted above. However,
based upon the internal actuarial opinions and notwithstanding the
uncertainties described above relating to workers' compensation
reserves (including, specifically, the $600 million reasonably
possible loss exposure described in the preceding sentence), at
year-end 1992 and at the first three quarter-ends in 1993, the
company determined that aggregate Commercial Property-Casualty
segment reserves were actuarially reasonable and stated in
accordance with generally accepted accounting principles.
<PAGE> 51
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Other Matters (Continued)
_________________________
While the company was conducting the study described above, it
also studied whether to discount workers' compensation life table
indemnity reserves. The two studies were linked because the
length of the workers' compensation claim "tail" was a key issue
in each study. Specifically, it was noted that as the claim tail
lengthened, discounting would more accurately reflect the economic
value of the company's obligations and improve the matching of
revenues and expenses. Further, the company noted that state
insurance regulators permitted discounting of such claims, and
that virtually all of the company's principal competitors
discounted these reserves. In conducting both studies, the
company recognized that discounting would tend to mitigate any
reserve addition deemed necessary.
The results of the review of workers' compensation reserves and
reserve discounting were analyzed in conjunction with the
company's strategic and financial assessment of its businesses.
On January 28, 1994, senior management formally concluded that
assessment and: (i) accepted the recommendation of the workers'
compensation reserve study to increase workers' compensation
reserve balances to an amount equal to that indicated in the final
projection which applied a 60-year tail to full-year 1993 data;
and (ii) chose to discount life table indemnity reserves. The net
effect of these two actions regarding workers' compensation
reserves was immaterial to the company's net income. The workers'
compensation reserve actions, along with the decisions resulting
from the company's strategic and financial assessment of its
businesses, were disclosed to the marketplace on January 28, 1994.
The company's Commercial Property-Casualty reserves (including
workers' compensation reserves) represent the estimated liability
for the cost of claims (including claim adjustment expenses) that
have been reported but not settled and claims that have been
incurred but not yet reported. These estimates become more
difficult to make (and are therefore more subject to change) as
the length of time between the occurrence, reporting and
settlement of claims increases. Actual claim costs are dependent
upon a number of complex factors including social and economic
trends and changes in doctrines of legal liability and damage
awards. Workers' compensation reserves remain subject to these
uncertainties, particularly because of the length of the "tail"
associated with workers' compensation claims. Estimated
liabilities for property-casualty coverages are recomputed
periodically using a variety of actuarial and statistical
techniques.
<PAGE> 52
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Other Matters (Continued)
_________________________
Environmental-Related Claims
While environmental-related claim activity increased in 1993, the
company did not add significantly to reserves in 1993. There were
two reasons for this development. First, in 1993 the company did
not proportionately increase the portion of the reserve relating
to legal and other costs associated with these claims because: (i)
in 1993 the company changed its relationships with outside counsel
in an attempt to lower costs per case; (ii) certain new claims in
1993 related to new sites for policyholders already involved in
coverage disputes with the company and the addition of new sites
to existing lawsuits was not expected to add proportionately to
legal fees; (iii) a considerable number of new claims relate to
time periods when, based on policy language, it is expected that
the legal costs of disposing of these claims should be relatively
small; and (iv) the company took note that legal fees paid in each
of the last three years remained constant at approximately $31 -
$35 million despite net increases in claims opened during 1993 and
1992. Second, in 1993 the company did not proportionately
increase the indemnity portion of the reserve for these claims
because the company has generally disputed that there is any
insurance coverage for environmental claims and, because of
significant factual and legal uncertainties, the company generally
has not been able to reasonably estimate the amount or a
reasonable range of losses for environmental-related claims. In
summary, management believes that there is not a meaningful
correlation between the number of outstanding environmental claims
and the recorded environmental reserve. The company continues,
however, to gather and analyze developing legal and factual
information on known environmental-related claims and to reassess
its reserving techniques in order to determine whether it can
reasonably estimate the likelihood and amount of its liability for
such claims. (Please see "Commercial Property-Casualty" on pages
31 and 32.)
Asbestos Bodily Injury and Property Damage Claims
The company had approximately 1,300 open asbestos bodily injury
claims (involving approximately 287 policyholders) at December 31,
1993 and approximately 1,900 such claims (involving approximately
239 policyholders) at December 31, 1992. In 1993, the company
opened 248 new claims and closed 829 claims. In 1992, the company
opened 172 new claims and closed 638 claims. In 1993, the number
of open claims decreased while the number of policyholders
increased. This reflects the closing of numerous claims related
to a small number of large policyholders pertaining to the Center
for Claims Resolution settlement and the opening of claims related
to other policyholders having a smaller number of claims
individually.
The company had approximately 400 open asbestos property damage
claims (involving approximately 73 policyholders) at December 31,
1993 and approximately 300 such claims (involving approximately 24
policyholders) at December 31, 1992. In 1993, the company opened
122 new claims and closed 27 claims. In 1992, the company opened
55 new claims and closed 227 claims. While the number of open
asbestos property damage claims increased from December 31, 1992
to December 31, 1993, the reserve balance for such claims
decreased by $6 million. This resulted because reserve additions
for incurred losses in 1993 were less than net payments for claims
and claim adjustment expenses during 1993. Reserve additions for
the period reflect the company's belief that new claims arising
during the period were primarily small or incidental claims.
<PAGE> 53
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Other Matters (Continued)
_________________________
In some circumstances, the company counts asbestos claims
individually by the number of underlying claimants. However, in
other circumstances (when, for example, the policyholder is an
asbestos producer and numerous bodily injury claims against that
policyholder, and in turn against the company, are expected) the
company counts asbestos claims in the aggregate by policyholder.
Also, reserving for asbestos claims is subject to significant
uncertainties. Therefore, management believes that there is not a
meaningful correlation between the number of outstanding asbestos
claims and the recorded reserves for such claims.
The "claims" numbers above reflect cases where policyholders have
notified the company of a claim under primary insurance policies
issued by the company. In addition, they reflect cases where
policyholders have placed the company on notice of possible claims
that may potentially involve excess general liability policies
written by the company, in those instances where the company
believes its excess policies are likely to be accessed.
<PAGE> 54
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
In Re: Attorneys General Antitrust Litigation
______________________________________________
The description of this litigation is contained in Note 15 of
Notes to Financial Statements on page 19.
Other Litigation
________________
Aetna is continuously involved in numerous other lawsuits arising,
for the most part, in the ordinary course of its business
operations either as a liability insurer defending third-party
claims brought against its insureds or as an insurer defending
coverage claims brought against itself, including lawsuits related
to issues of policy coverage and judicial interpretation. One
such area of coverage litigation involves legal liability for
asbestos and environmental-related claims. These lawsuits and
other factors make reserving for asbestos and environmental-
related claims subject to significant uncertainties.
While the ultimate outcome of the litigation described herein
cannot be determined at this time, such litigation (other than
that related to asbestos and environmental-related claims, which
is subject to significant uncertainties), net of reserves
established therefor and giving effect to reinsurance, is not
expected to result in judgments for amounts material to the
financial condition of the company, although it may adversely
affect results of operations in future periods. Future results
are expected to be adversely affected by losses for asbestos and
environmental-related claims and litigation expense. Due to
significant uncertainties, management is unable to determine
whether or not such effects on operations in future periods will
be material.
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The Annual Meeting of Shareholders of Aetna Life and Casualty
Company was held on Friday, April 29, 1994.
(b) Directors elected at the Meeting:
<TABLE>
<CAPTION>
Votes Votes Broker
For Withheld Non-Votes
__________ _________ _________
<S> <C> <C> <C>
Wallace Barnes 98,418,523 1,440,885 0
Ronald E. Compton 98,148,827 1,710,581 0
John F. Donahue 98,670,612 1,188,796 0
William H. Donaldson 98,622,212 1,237,196 0
Barbara H. Franklin 98,700,268 1,159,140 0
Earl G. Graves 98,655,046 1,204,362 0
Gerald Greenwald 98,701,300 1,158,108 0
Michael H. Jordan 98,701,040 1,158,368 0
Jack D. Kuehler 98,609,437 1,249,971 0
Frank R. O'Keefe, Jr. 98,660,943 1,198,465 0
David M. Roderick 98,543,349 1,316,059 0
</TABLE>
<PAGE> 55
Item 4. Submission of Matters to a Vote of Security Holders.
(Continued)
(c) Other matters voted upon:
<TABLE>
<CAPTION>
Votes Votes Broker
For Against Abstain Non-Votes
__________ __________ _________ _________
<S> <C> <C> <C> <C>
(1) Appointment of
Independent Auditors 98,652,397 815,814 391,197 0
(2) Approval of 1994
Stock Incentive Plan 67,735,414 25,646,266 1,305,347 5,172,381
(3) Approval of 1994
Non-Employee Director
Deferred Stock Plan 83,127,491 10,146,426 1,413,110 5,172,381
</TABLE>
Item 5. Other Information.
(a) Ratios of Earnings to Fixed Charges and Earnings to
Combined Fixed Charges and Preferred Stock Dividends
The following table sets forth Aetna's ratio of earnings to fixed
charges and ratio of earnings to combined fixed charges and
preferred stock dividends for the periods indicated.
<TABLE>
<CAPTION>
6 Months Ended Years ended December 31
June 30, 1994 1993 1992 1991 1990 1989
_____________ ____ ____ ____ ____ ____
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges.... 3.88 (a) .42(b) 2.13 3.03 4.13
Ratio of Earnings to Combined Fixed
Charges and Preferred Stock Dividends 3.88 (a) .42(b) 2.13 3.03 4.05
<FN>
(a) Aetna reported a pretax loss from continuing operations in 1993 which was
inadequate to cover fixed charges by $1.1 billion.
(b) Earnings were inadequate to cover fixed charges by $112.8 million in 1992.
</TABLE>
For purposes of computing both the ratio of earnings to fixed
charges and the ratio of earnings to combined fixed charges and
preferred stock dividends, "earnings" represent consolidated
earnings from continuing operations before income taxes,
cumulative effect adjustments and extraordinary items plus fixed
charges and minority interest. "Fixed charges" consist of
interest (and the portion of rental expense deemed representative
of the interest factor). Preferred stock dividends, which are not
deductible for income tax purposes, have been increased to a
taxable equivalent basis. This adjustment has been calculated by
using the effective tax rate of the applicable year. All shares
of Aetna's preferred stock were redeemed in 1989 and, as a result,
for the six months ended June 30, 1994 and for the years ended
December 31, 1993, 1992, 1991 and 1990 the ratios of earnings to
combined fixed charges and preferred stock dividends were the same
as the ratios of earnings to fixed charges.
<PAGE> 56
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Item 5. Other Information. (Continued)
(b) Property-Casualty Reserves: Loss Development
The following represents changes in aggregate reserves for the
years ended December 31, 1993, 1992 and 1991, net of reinsurance,
for the combined property-casualty experience (in millions) (1,2):
<TABLE>
<CAPTION>
1993 1992 1991
____ ____ ____
<S> <C> <C> <C>
Unpaid claims and claim adjustment
expenses at beginning of year........ $11,747 $11,407 $11,064
Incurred claims and claim
adjustment expenses:
Provision for insured events of
the current year................... 3,744 4,407 5,019
Increases in provision for insured
events of prior years.............. 674 466 45
Current year effect of discounting.. (120) - -
Cumulative effect of discounting.... (514) - -
_______ _______ _______
Total incurred claims and claim
adjustment expenses.................. 3,784 4,873 5,064
_______ _______ _______
Payments:
Claims and claim adjustment expenses
attributable to insured events of
the current year................... 1,204 1,560 1,641
Claims and claim adjustment expenses
attributable to insured events of
prior years........................ 2,889 2,973 3,080
_______ _______ _______
Total payments........................ 4,093 4,533 4,721
_______ _______ _______
Total unpaid claims and claim
adjustment expenses at end of
the year............................. $11,438 $11,747 $11,407
_______ _______ _______
_______ _______ _______
<FN>
(1) Accident and health business is excluded.
(2) Includes International
</TABLE>
The following reserve runoff table represents Aetna's combined
property-casualty loss and loss expense experience. Each column
shows, for the year indicated:
- - the reserve held at year end;
- - cumulative data for payments made in each subsequent year for
that reserve year;
- - liability reestimates made in each subsequent year for that
reserve year;
- - the redundancy (deficiency) represented by the difference
between the original reserve held at the end of that year
and the reestimated liability as of the end of 1993; and
- - the change in redundancy (deficiency) between the end of each
reserve year shown and the end of the prior reserve year.
The majority of increases to prior accident year reserves were for
losses and related expenses for asbestos and other product
liability risks and environmental liability risks attributable to
policies written prior to 1978 and for workers' compensation
claims.
<PAGE> 57
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Item 5. Other Information. (Continued)
The table represents historical data; it would not be appropriate
to use such data to project the company's future reserving
activity or its future performance generally.
<TABLE>
<CAPTION>
Year Ended 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993
____ ____ ____ ____ ____ ____ ____ ____ ____ ____ ____
(Millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Liability for unpaid
claims and claim
adjustment expenses......$5,650 $5,948 $6,560 $7,503 $8,708 $9,843 $10,557 $11,064 $11,407 $11,747 $11,438
Paid (cumulative) as of:
End of year.............. 0 0 0 0 0 0 0 0 0 0 0
One year later........... 1,741 1,844 2,067 2,180 2,552 3,134 3,069 3,080 2,973 2,889
Two years later.......... 2,806 3,055 3,372 3,727 4,547 4,955 4,994 5,133 5,116
Three years later........ 3,634 3,936 4,436 5,179 5,797 6,250 6,404 6,735
Four years later......... 4,221 4,669 5,504 6,065 6,682 7,212 7,578
Five years later......... 4,730 5,493 6,118 6,692 7,354 8,048
Six years later.......... 5,386 5,942 6,571 7,197 7,991
Seven years later........ 5,747 6,290 6,955 7,705
Eight years later........ 6,012 6,597 7,375
Nine years later......... 6,264 6,959
Ten years later.......... 6,581
Liability reestimated as of (1):
End of year.............. 5,650 5,948 6,560 7,503 8,708 9,843 10,557 11,064 11,407 11,747 12,072
One year later........... 5,659 6,013 6,778 7,746 9,022 10,015 10,644 11,109 11,873 12,421
Two years later.......... 5,730 6,272 7,056 8,188 9,312 10,203 10,791 11,737 12,677
Three years later........ 5,943 6,531 7,536 8,539 9,547 10,457 11,376 12,578
Four years later......... 6,130 6,926 7,910 8,813 9,808 10,985 12,090
Five years later......... 6,461 7,291 8,156 9,084 10,319 11,624
Six years later.......... 6,791 7,515 8,422 9,577 10,860
Seven years later........ 6,985 7,778 8,907 10,089
Eight years later........ 7,235 8,250 9,398
Nine years later......... 7,691 8,707
Ten years later.......... 8,118
Effect of discounting...... (200) (235) (274) (317) (362) (417) (473) (528) (577) (614) (634)
Liability reestimated,
adjusted for discounting(1) 7,918 8,472 9,124 9,772 10,498 11,207 11,617 12,050 12,100 11,807 11,438
Redundancy (Deficiency)....(2,268)(2,524)(2,564)(2,269)(1,790) (1,364) (1,060) (986) (693) (60) 0
Change in redundancy
(deficiency)............. N/A (256) (40) 295 479 426 304 74 293 633 60
Gross liability,
end of year (2).......... $15,979 $15,846
Reinsurance recoverable.... 4,232 4,408
Net liability,
end of year.............. $11,747 $11,438
Gross reestimated
liability-latest (2)..... $16,358
Reestimated
recoverable-latest....... 4,551
Net reestimated
liability-latest......... $11,807
Gross cumulative deficiency $ (379)
<FN>
(1) The reestimated liability at December 31, 1993 includes $574 million related to development in workers'
compensation reserves in the fourth quarter of 1993. This affected the reestimated liability by reserve
year as follows: $574 million in 1992; $565 million in 1991; $534 million in 1990; $484 million in 1989;
$433 million in 1988; $396 million in 1987; $372 million in 1986; $346 million in 1985; $308 million in
1984; and $265 million in 1983.
(2) Information presented gross in 1993 and 1992 due to the adoption of FAS No. 113,
Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration Contracts,
retroactive to December 31, 1992. Adoption of FAS No. 113 had no impact on the 1993 net loss.
</TABLE>
<PAGE> 58
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
(10) Material Contracts.
(10.1) $500,000,000 Short-Term Credit Agreement dated as of
July 27, 1994 among Aetna Life and Casualty Company,
the banks listed on the signature pages thereof,
Morgan Guaranty Trust Company of New York, as
Managing Agent, Deutsche Bank AG, as Co-Arranger, and
The Chase Manhattan Bank, N.A., Citibank, N.A., and
Credit Suisse, as Co-Agents.
(10.2) $500,000,000 Medium-Term Credit Agreement dated as of
July 27, 1994 among Aetna Life and Casualty Company,
the banks listed on the signature pages thereof,
Morgan Guaranty Trust Company of New York, as
Managing Agent, Deutsche Bank AG, as Co-Arranger, and
The Chase Manhattan Bank, N.A., Citibank, N.A., and
Credit Suisse, as Co-Agents.
(12) Statement Re Computation of Ratios.
(12.1) Computation of ratio of earnings to fixed charges and
ratio of earnings to combined fixed charges and
preferred stock dividends for the six months ended
June 30, 1994 and for the years ended December 31,
1993, 1992, 1991, 1990 and 1989.
(15) Letter Re Unaudited Interim Financial Information.
(15.1) Letter from KPMG Peat Marwick LLP acknowledging
awareness of the use of a report on unaudited
interim financial information, dated
August 15,1994.
(b) Reports on Form 8-K
None.
<PAGE> 59
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
Aetna Life and Casualty Company
_______________________________
(Registrant)
Date August 15, 1994 By ROBERT E. BROATCH
_________________________________
(Signature)
Robert E. Broatch
Senior Vice President, Finance
and Corporate Controller
<PAGE> 1
===============================================================================
$500,000,000
SHORT-TERM CREDIT AGREEMENT
dated as of
July 27, 1994
among
Aetna Life and Casualty Company,
The Banks Listed Herein,
Morgan Guaranty Trust Company of New York,
as Managing Agent
Deutsche Bank AG,
as Co-Arranger
and
The Chase Manhattan Bank, N.A., Citibank, N.A., and
Credit Suisse, as Co-Agents
================================================================================
<PAGE> 2
TABLE OF CONTENTS*/
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
DEFINITIONS
SECTION 1.01 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.02 Accounting Terms and Determinations . . . . . . . . . . . . . . . . . . . 13
1.03 Classifications of Borrowings . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE II
THE CREDITS
SECTION 2.01 Commitments to Lend . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.02 Notice of Committed Borrowings . . . . . . . . . . . . . . . . . . . . . . 14
2.03 Money Market Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.04 Notice to Banks; Funding of Loans . . . . . . . . . . . . . . . . . . . . 20
2.05 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.06 Maturity of Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.07 Termination or Reduction of
Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
2.08 Interest Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
2.09 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
2.10 Method of Electing Interest Rates . . . . . . . . . . . . . . . . . . . . 26
2.11 Optional Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
2.12 General Provisions as to Payments . . . . . . . . . . . . . . . . . . . . 29
2.13 Funding Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
2.14 Computation of Interest and Fees . . . . . . . . . . . . . . . . . . . . . 30
2.15 Regulation D Compensation . . . . . . . . . . . . . . . . . . . . . . . . 31
2.16 Extension of Commitments . . . . . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE III
CONDITIONS
SECTION 3.01 Effectiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
3.02 Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
</TABLE>
- ----------------------------------
*/ The Table of Contents is not a part of this Agreement.
<PAGE> 3
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 4.01 Corporate Existence and Power . . . . . . . . . . . . . . . . . . . . . . 35
4.02 Corporate and Governmental
Authorization; No Contravention . . . . . . . . . . . . . . . . . . . . 35
4.03 Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
4.04 Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . 35
4.05 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
4.06 Compliance with ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . 36
4.07 Principal Insurance Subsidiaries . . . . . . . . . . . . . . . . . . . . . 37
4.08 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
ARTICLE V
COVENANTS
SECTION 5.01 Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
5.02 Conduct of Business and
Maintenance of Existence . . . . . . . . . . . . . . . . . . . . . . . . 39
5.03 Minimum Adjusted Consolidated Net
Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
5.04 Equal and Ratable Lien Protection . . . . . . . . . . . . . . . . . . . . 39
5.05 Consolidations, Mergers and Sales
of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
5.06 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
5.07 Cross Default Provisions . . . . . . . . . . . . . . . . . . . . . . . . . 40
5.08 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
ARTICLE VI
DEFAULTS
SECTION 6.01 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
6.02 Notice of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
ARTICLE VII
THE AGENT
SECTION 7.01 Appointment and Authorization . . . . . . . . . . . . . . . . . . . . . . 43
7.02 Agent and Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
7.03 Action by Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
7.04 Consultation with Experts . . . . . . . . . . . . . . . . . . . . . . . . 43
7.05 Liability of Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
7.06 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
7.07 Credit Decision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
7.08 Successor Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
</TABLE>
-2-
<PAGE> 4
ARTICLE VIII
CHANGE IN CIRCUMSTANCES
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 8.01 Basis for Determining Interest
Rate Inadequate or Unfair . . . . . . . . . . . . . . . . . . . . . . . 45
8.02 Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
8.03 Increased Cost and Reduced Return . . . . . . . . . . . . . . . . . . . . 46
8.04 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
8.05 Base Rate Loans Substituted for
Affected Euro-Dollar Loans . . . . . . . . . . . . . . . . . . . . . . 51
8.06 Substitution of Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
8.07 Election to Terminate . . . . . . . . . . . . . . . . . . . . . . . . . . 52
ARTICLE IX
MISCELLANEOUS
SECTION 9.01 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
9.02 No Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
9.03 Expenses; Indemnification . . . . . . . . . . . . . . . . . . . . . . . . 53
9.04 Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . 54
9.05 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . 54
9.06 New York Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
9.07 Counterparts; Integration . . . . . . . . . . . . . . . . . . . . . . . . 56
9.08 WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Exhibit A - Note
Exhibit B - Form of Money Market Quote Request
Exhibit C - Form of Invitation for Money Market Quotes
Exhibit D - Form of Money Market Quote
Exhibit E - Opinions of Counsel for the Borrower
Exhibit F - Opinion of Special Counsel for the Agent
Exhibit G - Form of Extension Notice
</TABLE>
-3-
<PAGE> 5
CREDIT AGREEMENT
AGREEMENT dated as of July 27, 1994 among AETNA LIFE AND
CASUALTY COMPANY, the BANKS listed on the signature pages hereof, MORGAN
GUARANTY TRUST COMPANY OF NEW YORK, as Managing Agent, DEUTSCHE BANK AG, as
Co-Arranger, and THE CHASE MANHATTAN BANK, N.A., CITIBANK, N.A., and CREDIT
SUISSE, as Co-Agents.
The parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions. The following terms, as used
herein, have the following meanings:
"Absolute Rate Auction" means a solicitation of Money
Market Quotes setting forth Money Market Absolute Rates pursuant to
Section 2.03.
"Adjusted CD Rate" has the meaning set forth in
Section 2.08(b).
"Adjusted Consolidated Net Worth" means at any date the
total shareholders' equity of the Borrower and its Consolidated Subsidiaries
determined as of such date, adjusted to exclude net unrealized capital gains
and losses.
"Administrative Questionnaire" means, with respect to each
Bank, the administrative questionnaire in the form submitted to such Bank by the
Agent and submitted to the Agent (with a copy to the Borrower) duly completed
by such Bank.
"Affiliate" means, (1) any bank which, directly or
indirectly, wholly owns, is wholly owned by or shares common one hundred
percent ownership with the transferor Bank and, (ii) is of credit rating
better than or equal to that of the transferor Bank on the Effective Date, as
determined by Moody's Investors Service and Standard & Poor's Corporation.
"Agent" means Morgan Guaranty Trust Company of New York
in its capacity as Managing Agent for the Banks hereunder, and its successors
in such capacity.
<PAGE> 6
2
"Applicable Lending Office" means, with respect to any
Bank, (i) in the case of its Base Rate Loans and CD Loans, its Domestic
Lending Office, (ii) in the case of its Euro-Dollar Loans, its Euro-Dollar
Lending Office and (iii) in the case of its Money Market Loans, its Money
Market Lending Office.
"Assessment Rate" has the meaning set forth in
Section 2.08(b).
"Assignee" has the meaning set forth in Section 9.05(c).
"Bank" means each bank listed on the signature pages
hereof and its successors.
"Base Rate" means, for any day, a rate per annum equal to
the higher of (i) the Prime Rate for such day and (ii) the sum of 1/2 of 1% plus
the Federal Funds Rate for such day.
"Base Rate Loan" means (i) a Committed Loan which bears
interest at the Base Rate pursuant to the applicable Notice of Committed
Borrowing or a Notice of Interest Rate Election or the provisions of Article
VIII or (ii) an overdue amount which was a Base Rate Loan immediately before
it became overdue.
"Borrower" means Aetna Life and Casualty Company, a
Connecticut insurance corporation and, except for purposes of Section 6.01(i),
its successors.
"Borrower's 1993 Form 10-K" means the Borrower's annual
report on Form 10-K for 1993, as filed with the Securities and Exchange
Commission pursuant to the Securities Exchange Act of 1934.
"Borrower's 1994 First Quarter Form 10-Q" means the
Borrower's quarterly report for the fiscal quarter ended March 31, 1994 as
filed with the Securities and Exchange Commission pursuant to the Securities
Exchange Act of 1934.
"Borrowing" means a borrowing hereunder consisting of
Loans made to the Borrower at the same time by the Banks pursuant to
Article II. A Borrowing is a "Base Rate Borrowing" if such Loans are Base
Rate Loans, a "CD Borrowing" if such Loans are CD Loans, a "Euro-Dollar
Borrowing" if such
<PAGE> 7
3
Loans are Euro-Dollar Loans and a "Money Market Borrowing" if such Loans are
Money Market Loans.
"CD Base Rate" has the meaning set forth in
Section 2.08(b).
"CD Loan" means (i) a Committed Loan which bears interest
at the Fixed CD Rate pursuant to the applicable Notice of Committed Borrowing
or a Notice of Interest Rate Election or (ii) an overdue amount which was a CD
Loan immediately before it became overdue.
"CD Margin" has the meaning set forth in Section 2.08(b).
"CD Reference Banks" means The Chase Manhattan Bank, N.A.,
Deutsche Bank AG and Morgan Guaranty Trust Company of New York.
"Commitment" means, with respect to each Bank, the amount
set forth opposite the name of such Bank on the signature pages hereof, as such
amount may be reduced from time to time pursuant to Section 2.07 or terminated
pursuant to Section 8.07.
"Committed Loan" means a loan made by a Bank pursuant to
Section 2.01; provided that, if any such loan or loans (or portions thereof) are
combined or subdivided pursuant to a Notice of Interest Rate Election, the term
"Committed Loan" shall refer to the combined principal amount resulting from
such combination or to each of the separate principal amounts resulting from
such subdivision, as the case may be.
"Consolidated Subsidiary" means at any date any
Subsidiary or other entity the accounts of which would be consolidated with
those of the Borrower in its consolidated financial statements if such
statements were prepared as of such date.
"Continuing Director" means, at any time, a director who
(i) was a director of Aetna Life and Casualty Company 24 months prior to such
time or (ii) was nominated or elected as a director by vote of a majority of the
persons who were Continuing Directors at the time of such nomination or
election.
<PAGE> 8
4
"Default" means any condition or event which constitutes
an Event of Default or which with the giving of notice or lapse of time or
both would, unless cured or waived, become an Event of Default.
"Domestic Business Day" means any day except a Saturday,
Sunday or other day on which commercial banks in New York City are authorized
by law to close.
"Domestic Lending Office" means, as to each Bank, its
office located at its address set forth in its Administrative Questionnaire (or
identified in its Administrative Questionnaire as its Domestic Lending Office)
or such other office as such Bank may hereafter designate as its Domestic
Lending Office by notice to the Borrower and the Agent; provided that any Bank
may so designate separate Domestic Lending Offices for its Base Rate Loans, on
the one hand, and its CD Loans, on the other hand, in which case all references
herein to the Domestic Lending Office of such Bank shall be deemed to refer to
either or both of such offices, as the context may require.
"Domestic Loans" means CD Loans or Base Rate Loans or
both.
"Domestic Reserve Percentage" has the meaning set forth
in Section 2.08(b).
"Duff" means Duff & Phelps Inc.
"Effective Date" means the date this Agreement becomes
effective in accordance with Section 3.01.
"Environmental Laws" means any and all federal, state,
local and foreign statutes, laws, judicial decisions, regulations, ordinances,
rules judgments, orders, decrees, plans, injunctions, permits, concessions,
grants, franchises, licenses, agreements and other governmental restrictions
relating to the environment, the effect of the environment on human health or to
emissions, discharges or releases of pollutants, contaminants, Hazardous
Substances or wastes into the environment including, without limitation,
ambient air, surface water, ground water, or land, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of pollutants, contaminants, Hazardous Substances or
wastes or the clean-up or other remediation thereof.
<PAGE> 9
5
"ERISA" means the Employee Retirement Income Security Act
of 1974, as amended.
"ERISA Group" means all members of a controlled group of
corporations and all trades or businesses (whether or not incorporated) under
common control which, together with the Borrower, are treated as a single
employer under Section 414 of the Internal Revenue Code.
"Euro-Dollar Business Day" means any Domestic Business
Day on which commercial banks are open for international business (including
dealings in dollar deposits) in London.
"Euro-Dollar Lending Office" means, as to each Bank, its
office, branch or affiliate located at its address set forth in its
Administrative Questionnaire (or identified in its Administrative Questionnaire
as its Euro-Dollar Lending Office) or such other office, branch or affiliate of
such Bank as it may hereafter designate as its Euro-Dollar Lending Office by
notice to the Borrower and the Agent.
"Euro-Dollar Loan" means (i) a Committed Loan which bears
interest at a Euro-Dollar Rate pursuant to the applicable Notice of Committed
Borrowing or a Notice of Interest Rate Election or (ii) an overdue amount
which was a Euro-Dollar Loan immediately before it became overdue.
"Euro-Dollar Margin" has the meaning set forth in
Section 2.08(c).
"Euro-Dollar Rate" means a rate of interest determined
pursuant to Section 2.08(c) on the basis of the London Interbank Offered Rate.
"Euro-Dollar Reference Banks" means The Chase Manhattan
Bank, N.A., Deutsche Bank AG and Morgan Guaranty Trust Company of New York.
"Euro-Dollar Reserve Percentage" means, for any day, that
percentage (expressed as a decimal) which is in effect on such day, as
prescribed by the Board of Governors of the Federal Reserve System (or any
successor), for determining the maximum reserve requirement for a member bank
of the Federal Reserve System in New York City with deposits exceeding five
billion dollars in respect of "Eurocurrency liabilities" (or in respect of any
other category of liabilities which includes deposits by reference
<PAGE> 10
6
to which the interest rate on Euro-Dollar Loans is determined or any category
of extensions of credit or other assets which includes loans by a non-United
States office of any Bank to United States residents).
"Event of Default" has the meaning set forth in
Section 6.01.
"Federal Funds Rate" means, for any day, the rate per annum
(rounded upwards, if necessary, to the nearest 1/100th of 1%) equal to the
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers on such
day, as published by the Federal Reserve Bank of New York on the Domestic
Business Day next succeeding such day, provided that (i) if such day is not a
Domestic Business Day, the Federal Funds Rate for such day shall be such rate
on such transactions on the next preceding Domestic Business Day as so
published on the next succeeding Domestic Business Day, and (ii) if no such
rate is so published on such next succeeding Domestic Business Day, the Federal
Funds Rate for such day shall be the average rate quoted to Morgan Guaranty
Trust Company of New York on such day on such transactions as calculated by the
Agent, such calculation to be supplied to the Borrower upon the Borrower's
request.
"Fixed CD Rate" has the meaning set forth in Section
2.08(b).
"Fixed Rate Borrowing" means a CD Borrowing, a Euro-Dollar
Borrowing or a Money Market Borrowing.
"Fixed Rate Loans" means Euro-Dollar Loans, CD Loans or
Money Market Loans (excluding Money Market LIBOR Loans bearing interest at the
Base Rate for the reason stated in Section 8.01) or any combination of the
foregoing.
"Group of Loans" means at any time a group of Loans
consisting of (i) all Committed Loans which are Base Rate Loans at such time,
(ii) all Committed Loans which are CD Loans having the same Interest Period at
such time or (iii) all Committed Loans which are Euro-Dollar Loans having the
same Interest Period at such time; provided that, if Committed Loans of any
particular Bank are converted to or made as Base Rate Loans pursuant to
Article VIII, such Loans shall be included in the same Group or Groups of
Loans from time to time as they would have been in if they had not been so
converted or made.
<PAGE> 11
7
"Hazardous Substances" means any toxic, radioactive,
caustic or otherwise hazardous substance, including petroleum, its derivatives,
by-products and other hydrocarbons, or any substances having any constituent
elements displaying any of the foregoing characteristics.
"Interest Period" means:
(1) with respect to each Base Rate Borrowing, the period commencing on the
date of such Borrowing and ending 90 days thereafter; provided that:
(a) any Interest Period which would otherwise end on a day
which is not a Euro-Dollar Business Day shall be extended to the
next succeeding Euro-Dollar Business Day;
(b) any Interest Period which begins on the last
Euro-Dollar Business Day of a calendar month (or on a day for which
there is no numerically corresponding day in the calendar month
at the end of such Interest Period) shall, subject to clause (c)
below, end on the last Euro-Dollar Business Day of a calendar
month; and
(c) any Interest Period which would otherwise end after
the Termination Date shall end on the Termination Date.
(2) with respect to each CD Borrowing, the period commencing on the date of
such Borrowing and ending 30, 60, 90 or 180 days thereafter, as the Borrower
may elect in the applicable Notice of Borrowing or such longer period as
mutually agreed to by the Borrower and all of the Banks; provided that:
(a) any Interest Period which would otherwise end on a day
which is not a Euro-Dollar Business Day shall be extended to the
next succeeding Euro-Dollar Business Day;
(b) any Interest Period which begins on the last
Euro-Dollar Business Day of a calendar month (or on a day for which
there is no numerically corresponding day in the calendar month
at the end of such Interest Period) shall, subject to clause (c)
below, end on the last Euro-Dollar Business Day of a calendar
month; and
<PAGE> 12
8
(c) any Interest Period which would otherwise end after
the Termination Date shall end on the Termination Date.
(3) with respect to each Euro-Dollar Loan, a period commencing on the date of
Borrowing specified in the applicable Notice of Committed Borrowing or on the
date specified in the applicable Notice of Interest Rate Election and ending
one, two, three or six months thereafter, as the Borrower may elect in the
applicable Notice or such longer period as mutually agreed to by the Borrower
and all of the Banks; provided that:
(a) any Interest Period which would otherwise end on a day
which is not a Euro-Dollar Business Day shall be extended to the
next succeeding Euro-Dollar Business Day;
(b) any Interest Period which begins on the last
Euro-Dollar Business Day of a calendar month (or on a day for
which there is no numerically corresponding day in the calendar
month at the end of such Interest Period) shall, subject to clause
(c) below, end on the last Euro-Dollar Business Day of a calendar
month; and
(c) any Interest Period which would otherwise end after
the Termination Date shall end on the Termination Date.
(4) with respect to each Money Market LIBOR Loan, the period commencing on the
date of Borrowing and ending such whole number of months thereafter, as the
Borrower may elect in accordance with Section 2.03; provided that:
(a) any Interest Period which would otherwise end on a day
which is not a Euro-Dollar Business Day shall be extended to the
next succeeding Euro-Dollar Business Day;
(b) any Interest Period which begins on the last
Euro-Dollar Business Day of a calendar month (or on a day for
which there is no numerically corresponding day in the calendar
month at the end of such Interest Period) shall, subject to clause
(c) below, end on the last Euro-Dollar Business Day of a calendar
month; and
<PAGE> 13
9
(c) any Interest Period which would otherwise end after
the Termination Date shall end on the Termination Date.
(5) with respect to each Money Market Absolute Rate Loan, the period
commencing on the date of Borrowing and ending such number of days thereafter
(but not less than 7 days) as the Borrower may elect in accordance with Section
2.03; provided that:
(a) any Interest Period which would otherwise end on a day
which is not a Euro-Dollar Business Day shall be extended to the
next succeeding Euro-Dollar Business Day; and
(b) any Interest Period which would otherwise end after
the Termination Date shall end on the Termination Date.
"Internal Revenue Code" means the Internal Revenue Code of
1986, as amended, or any successor statute.
"Level I Period" means any period during which any
long-term Senior Unsecured Debt of the Borrower has ratings that are better
than or equal to at least two of the following three ratings: (i) AA+ by S&P
and/or (ii) Aa1 by Moody's and/or (iii) AA+ by Duff; provided that if S&P or
Moody's or Duff changes its rating system after the date hereof, the new rating
of such rating agency that most closely corresponds to the level specified
above for such rating agency shall be substituted for such level.
"Level II Period" means any period (other than a Level I
Period) during which any long-term Senior Unsecured Debt of the Borrower has
ratings that are better than or equal to at least two of the following three
ratings: (i) AA- by S&P and/or (ii) Aa3 by Moody's and/or (iii) AA- by Duff;
provided that if S&P or Moody's or Duff changes its rating system after the
date hereof, the new rating of such rating agency that most closely corresponds
to the level specified above for such rating agency shall be substituted for
such level.
"Level III Period" means any period (other than a Level I
Period or a Level II Period) during which any long- term Senior Unsecured Debt
of the Borrower has ratings which are better than or equal to at least two of
the following three ratings: (i) A- by S&P and/or (ii) A3 by Moody's
<PAGE> 14
10
and/or (iii) A- by Duff; provided that if S&P or Moody's or Duff changes its
rating system after the date hereof, the new rating of such agency that most
closely corresponds to the level specified above for such rating agency shall
be substituted for such level.
"Level IV Period" means any period (other than a Level I
Period, Level II Period or Level III Period) during which any long-term Senior
Unsecured Debt of the Borrower has ratings which are better than or equal to at
least two of the following three ratings: (i) BBB by S&P and/or (ii) Baa2 by
Moody's and/or (iii) BBB by Duff; provided that if S&P or Moody's or Duff
changes its rating system after the date hereof, the new rating of such agency
that most closely corresponds to the level specified above for such rating
agency shall be substituted for such level.
"Level V Period" means any period other than a Level I
Period, Level II Period, Level III Period or Level IV Period.
"LIBOR Auction" means a solicitation of Money Market
Quotes setting forth Money Market Margins based on the London Interbank Offered
Rate pursuant to Section 2.03.
"Loan" means a Base Rate Loan, a Euro-Dollar Loan, a CD
Loan or a Money Market Loan and "Loans" means any combination of the foregoing.
"London Interbank Offered Rate" has the meaning set forth
in Section 2.08(c).
"Money Market Absolute Rate" has the meaning set forth in
Section 2.03(d).
"Money Market Absolute Rate Loan" means a loan made or to
be made by a Bank pursuant to an Absolute Rate Auction.
"Money Market Lending Office" means, as to each Bank, its
Domestic Lending Office or such other office, branch or affiliate of such Bank
as it may hereafter designate as its Money Market Lending Office by notice to
the Borrower and the Agent; provided that any Bank may from time to time by
notice to the Borrower and the Agent designate separate Money Market Lending
Offices for its Money Market LIBOR Loans, on the one hand, and its Money Market
Absolute Rate Loans, on the other hand, in which case all references
<PAGE> 15
11
herein to the Money Market Lending Office of such Bank shall be deemed to refer
to either or both of such offices, as the context may require.
"Money Market LIBOR Loan" means a loan made or to be made
by a Bank pursuant to a LIBOR Auction (including such a loan bearing interest
at the Base Rate for the reason stated in Section 8.01).
"Money Market Loan" means a Money Market LIBOR Loan or a
Money Market Absolute Rate Loan.
"Money Market Margin" has the meaning set forth in Section
2.03(d).
"Money Market Quote" means an offer by a Bank to make a
Money Market Loan in accordance with Section 2.03.
"Money Market Quote Request" means a request by the
Borrower to the Banks to make Money Market Loans in accordance with Section
2.03(b).
"Moody's" means Moody's Investors Service, Inc.
"Non-Recourse Indebtedness" means indebtedness for
borrowed money as to which the liability of the Borrower or its Principal
Insurance Subsidiaries, as the case may be, is limited solely to specific
assets.
"Notes" means promissory notes of the Borrower,
substantially in the form of Exhibit A hereto, evidencing the obligation of the
Borrower to repay the Loans, and "Note" means any one of such promissory notes
issued hereunder.
"Notice of Borrowing" means a Notice of Committed
Borrowing (as defined in Section 2.02) or a Notice of Money Market Borrowing
(as defined in Section 2.03(f)).
"Notice of Interest Rate Election" has the meaning set
forth in Section 2.10.
"Other Taxes" has the meaning set forth in Section 8.04(a).
"Participant" has the meaning set forth in Section 9.05(d).
<PAGE> 16
12
"PBGC" means the Pension Benefit Guaranty Corporation or
any entity succeeding to any or all of its functions under ERISA.
"Person" means an individual, a corporation, a
partnership, an association, a trust or any other entity or organization,
including a government or political subdivision or an agency or instrumentality
thereof.
"Plan" means at any time an employee pension benefit plan
which is covered by Title IV of ERISA or subject to the minimum funding
standards under Section 412 of the Internal Revenue Code and is either (i)
maintained by a member of the ERISA Group for employees of a member of the
ERISA Group or (ii) maintained pursuant to a collective bargaining agreement or
any other arrangement under which more than one employer makes contributions
and to which a member of the ERISA Group is then making or accruing an
obligation to make contributions or has within the preceding five plan years
made contributions.
"Prime Rate" means the rate of interest publicly announced
by Morgan Guaranty Trust Company of New York in New York City from time to time
as its Prime Rate.
"Principal Insurance Subsidiary" means Aetna Life
Insurance Company, The Aetna Casualty and Surety Company, or any other
Subsidiary of the Borrower, including Subsidiaries of Subsidiaries, which shall
succeed by merger or otherwise to a major part of the business of one or more
of the Principal Insurance Subsidiaries. For the purposes of this definition
the decision as to whether a Subsidiary shall have succeeded to a major part of
the business of one or more Principal Insurance Subsidiaries shall be made in
good faith by the Borrower's Board of Directors by the adoption of a resolution
so stating.
"Quarterly Date" means the last Domestic Business Day of
each January, April, July and October.
"Reference Banks" means The Chase Manhattan Bank, N.A.,
Deutsche Bank AG and Morgan Guaranty Trust Company of New York, and "Reference
Bank" means any one of such Reference Banks.
"Regulation U" means Regulation U of the Board of
Governors of the Federal Reserve System, as in effect from time to time.
<PAGE> 17
13
"Required Banks" means at any time Banks having at least
66 2/3% of the aggregate amount of the Commitments or, if the Commitments shall
have been terminated, holding Notes evidencing at least 66 2/3% of the
aggregate unpaid principal amount of the Loans.
"Required Capital" has the meaning set forth in Section
8.03(b).
"Responsible Financial Officer" means chief financial
officer, treasurer, chief accounting officer or senior corporate finance
officer.
"Revolving Credit Period" means the period from the date
hereof to and including the Termination Date.
"S&P" means Standard & Poor's Corporation.
"Senior Unsecured Debt" means indebtedness for borrowed
money that is not subordinated to any other indebtedness for borrowed money and
is not secured or supported by a guarantee, letter of credit or other form of
credit enhancement.
"Subsidiary" means any corporation or other entity of
which securities or other ownership interests having ordinary voting power to
elect a majority of the board of directors or other persons performing similar
functions are at the time directly or indirectly owned by the Borrower.
"Taxes" has the meaning set forth in Section 8.04(a).
"Termination Date" means July 26, 1995 or, if such day is
not a Euro-Dollar Business Day, the next preceding Euro-Dollar Business Day,
subject to extension in accordance with Section 2.16.
"Trigger Event" has the meaning set forth in Section
8.03(c).
SECTION 1.02. Accounting Terms and Determinations.
Unless otherwise specified herein, all accounting terms used herein shall be
interpreted, all accounting determinations hereunder shall be made, and all
financial statements required to be delivered hereunder shall be prepared in
accordance with United States generally accepted accounting principles as in
effect from time to
<PAGE> 18
14
time, applied on a basis consistent (except for changes concurred in by the
Borrower's independent public accountants) with the most recent audited
consolidated financial statements of the Borrower and its Consolidated
Subsidiaries delivered to the Banks.
SECTION 1.03. Classifications of Borrowings. Borrowings
are classified for purposes of this Agreement either by reference to the
pricing of Loans comprising such Borrowing (e.g., a "Euro-Dollar Borrowing" is
a Borrowing comprised of Euro- Dollar Loans) or by reference to the provisions
of Article II under which participation therein is determined (i.e., a
"Committed Borrowing" is a Borrowing under Section 2.01 in which all Banks
participate in proportion to their Commitments, while a "Money Market
Borrowing" is a Borrowing under Section 2.03 in which the Bank participants are
determined on the basis of their bids).
ARTICLE II
THE CREDITS
SECTION 2.01. Commitments to Lend. On the terms and
conditions set forth in this Agreement, each Bank severally agrees to lend to
the Borrower, from time to time during the Revolving Credit Period amounts not
to exceed in the aggregate at any one time outstanding the amount of such
Bank's Commitment. Each Borrowing under this Section 2.01 shall be in an
aggregate principal amount of $25,000,000 or any larger multiple of $1,000,000
(except that any such Borrowing may be in the aggregate amount of the unused
Commitments) and shall be made from the several Banks ratably in proportion to
their respective Commitments. Within the foregoing limits, the Borrower may
borrow under this Section, repay, or to the extent permitted by Section 2.11,
prepay Loans and reborrow at any time during the Revolving Credit Period under
this Section. Failure by any Bank to make Loans as required under the terms of
this Agreement will not relieve any other Bank of its obligations hereunder.
SECTION 2.02. Notice of Committed Borrowings. The
Borrower shall give the Agent notice (a "Notice of Committed Borrowing") not
later than 10:30 A.M. (New York City time) on (x) the date of each Base Rate
Borrowing, (y) the second Domestic Business Day before each CD Borrowing
<PAGE> 19
15
and (z) the third Euro-Dollar Business Day before each Euro-Dollar Borrowing,
specifying:
(a) the date of such Borrowing, which shall be a Domestic
Business Day in the case of a Base Rate Borrowing or a CD Borrowing
and a Euro-Dollar Business Day in the case of a Euro-Dollar Borrowing,
(b) the aggregate amount of such Borrowing,
(c) whether the Loans comprising such Borrowing are to be
CD Loans, Base Rate Loans or Euro-Dollar Loans, and
(d) in the case of a CD Borrowing or Euro-Dollar
Borrowing, the duration of the initial Interest Period applicable
thereto, subject to the provisions of the definition of Interest
Period.
SECTION 2.03. Money Market Borrowings.
(a) The Money Market Option. In addition to Committed
Borrowings pursuant to Section 2.01, the Borrower may, as set forth in
this Section, request the Banks from time to time during the Revolving
Credit Period to make offers to make Money Market Loans to the
Borrower. The Banks may, but shall have no obligation to, make such
offers and the Borrower may, but shall have no obligation to, accept
any such offers in the manner set forth in this Section.
(b) Money Market Quote Request. When the Borrower wishes
to request offers to make Money Market Loans under this Section, it
shall transmit to the Agent by telex or facsimile transmission a Money
Market Quote Request substantially in the form of Exhibit B hereto so
as to be received no later than 10:00 A.M. (New York City time) on (x)
the fourth Euro-Dollar Business Day prior to the date of Borrowing
proposed therein, in the case of a LIBOR Auction or (y) the Domestic
Business Day next preceding the date of Borrowing proposed therein, in
the case of an Absolute Rate Auction (or, in either case, such other
time or date as the Borrower and the Agent shall have mutually agreed
upon and shall have notified to the Banks
<PAGE> 20
16
not later than the date of the Money Market Quote Request for the
first LIBOR Auction or Absolute Rate Auction for which such change is
to be effective) specifying:
(i) the proposed date of Borrowing, which shall be a
Euro-Dollar Business Day in the case of a LIBOR Auction or a Domestic
Business Day in the case of an Absolute Rate Auction,
(ii) the aggregate amount of such Borrowing, which shall
be $25,000,000 or a larger multiple of $1,000,000,
(iii) the duration of the Interest Period applicable
thereto, subject to the provisions of the definition of Interest
Period, and
(iv) whether the Money Market Quotes requested are to set
forth a Money Market Margin or a Money Market Absolute Rate.
The Borrower may request offers to make Money Market Loans for more than one
Interest Period in a single Money Market Quote Request. No Money Market Quote
Request shall be given within five Euro-Dollar Business Days (or following
notice to each of the Banks, such other number of days as the Borrower and the
Agent may agree upon) of any other Money Market Quote Request.
(c) Invitation for Money Market Quotes. Promptly upon
receipt of a Money Market Quote Request, the Agent shall send to the Banks by
telex or facsimile transmission an Invitation for Money Market Quotes
substantially in the form of Exhibit C hereto, which shall constitute an
invitation by the Borrower to each Bank to submit Money Market Quotes offering
to make the Money Market Loans to which such Money Market Quote Request relates
in accordance with this Section.
(d) Submission and Contents of Money Market Quotes. (i)
Each Bank may submit a Money Market Quote containing an offer or offers to make
Money Market Loans in response to any Invitation for Money Market Quotes. Each
Money Market Quote must comply with the requirements of this subsection (d) and
must be submitted to the Agent by telex or facsimile transmission at its
offices specified in or pursuant to Section 9.01 not later than (x) 9:30 A.M.
(New
<PAGE> 21
17
York City time) on the third Euro-Dollar Business Day prior to the proposed
date of Borrowing, in the case of a LIBOR Auction or (y) 9:30 A.M. (New York
City time) on the proposed date of Borrowing, in the case of an Absolute Rate
Auction (or, in either case, such other time or date as the Borrower and the
Agent shall have mutually agreed and shall have notified to the Banks not later
than the date of the Money Market Quote Request for the first LIBOR Auction or
Absolute Rate Auction for which such change is to be effective); provided that
Money Market Quotes submitted by the Agent (or any affiliate of the Agent) in
the capacity of a Bank may be submitted, and may only be submitted, if the
Agent or such affiliate notifies the Borrower of the terms of the offer or
offers contained therein not later than (x) 9:15 A.M. (New York City time) on
the third Euro-Dollar Business Day prior to the proposed date of Borrowing, in
the case of a LIBOR Auction or (y) 9:15 A.M. (New York City time) on the
proposed date of Borrowing, in the case of an Absolute Rate Auction. Subject
to Articles III and VI, any Money Market Quote so made shall be irrevocable
except with the written consent of the Agent given on the instructions of the
Borrower.
(ii) Each Money Market Quote shall be in substantially
the form of Exhibit D hereto and shall in any case specify:
(A) the proposed date of Borrowing,
(B) the principal amount of the Money Market Loan for
which each such offer is being made, which principal amount (x) may be
greater than or less than the Commitment of the quoting Bank, (y) must
be $25,000,000 or a larger multiple of $1,000,000 and (z) may not
exceed the principal amount of Money Market Loans for which offers
were requested,
(C) in the case of a LIBOR Auction, the margin above or
below the applicable London Interbank Offered Rate (the "Money Market
Margin") offered for each such Money Market Loan, expressed as a
percentage (rounded to the nearest 1/10,000th of 1%) to be added to or
subtracted from such base rate,
(D) in the case of an Absolute Rate Auction, the rate of
interest per annum (rounded to the
<PAGE> 22
18
nearest 1/10,000th of 1%) (the "Money Market Absolute Rate") offered
for each such Money Market Loan, and
(E) the identity of the quoting Bank.
A Money Market Quote may set forth up to five separate offers by the quoting
Bank with respect to each Interest Period specified in the related Invitation
for Money Market Quotes.
(iii) Any Money Market Quote shall be disregarded if it:
(A) is not substantially in conformity with Exhibit D
hereto or does not specify all of the information required by
subsection (d)(ii);
(B) contains qualifying, conditional or similar language;
(C) proposes terms other than or in addition to those set
forth in the applicable Invitation for Money Market Quotes; or
(D) arrives after the time set forth in
subsection (d)(i).
(e) Notice to Borrower. The Agent shall promptly notify
the Borrower of the terms (x) of any Money Market Quote submitted by a Bank
that is in accordance with subsection (d) and (y) of any Money Market Quote
that amends, modifies or is otherwise inconsistent with a previous Money Market
Quote submitted by such Bank with respect to the same Money Market Quote
Request. Any such subsequent Money Market Quote shall be disregarded by the
Agent unless such subsequent Money Market Quote is submitted solely to correct
a manifest error in such former Money Market Quote. The Agent's notice to the
Borrower shall specify (A) the aggregate principal amount of Money Market Loans
for which offers have been received for each Interest Period specified in the
related Money Market Quote Request, (B) the respective principal amounts and
Money Market Margins or Money Market Absolute Rates, as the case may be, so
offered (including the names of the Banks) and (C) if applicable, limitations
on the aggregate principal amount of Money Market Loans for which offers in any
single Money Market Quote for any Interest Period may be accepted.
<PAGE> 23
19
(f) Acceptance and Notice by Borrower. Not later than
10:30 A.M. (New York City time) on (x) the third Euro- Dollar Business Day
prior to the proposed date of Borrowing, in the case of a LIBOR Auction or (y)
the proposed date of Borrowing, in the case of an Absolute Rate Auction (or, in
either case, such other time or date as the Borrower and the Agent shall have
mutually agreed upon and shall have notified to the Banks not later than the
date of the Money Market Quote Request for the first LIBOR Auction or Absolute
Rate Auction for which such change is to be effective), the Borrower shall
notify the Agent of its acceptance or non-acceptance of the offers so notified
to it pursuant to subsection (e). In the case of acceptance, such notice (a
"Notice of Money Market Borrowing") shall specify the aggregate principal
amount of offers for each Interest Period that are accepted. The Borrower may
accept any Money Market Quote for any Interest Period in whole or in part;
provided that:
(i) the aggregate principal amount of each Money Market
Borrowing may not exceed the applicable amount set forth in the
related Money Market Quote Request,
(ii) the principal amount of each Money Market Borrowing
must be $25,000,000 or a larger multiple of $1,000,000,
(iii) acceptance of offers may only be made on the basis
of ascending Money Market Margins or Money Market Absolute Rates, as
the case may be, and
(iv) the Borrower may not accept any offer that is
described in subsection (d)(iii) or that otherwise fails to comply
with the requirements of this Agreement.
(g) Allocation by Agent. If offers are made by two or
more Banks with the same Money Market Margins or Money Market Absolute Rates,
as the case may be, for a greater aggregate principal amount than the amount in
respect of which such offers are accepted for the related Interest Period, the
principal amount of Money Market Loans in respect of which such offers are
accepted shall be allocated by the Agent among such Banks as nearly as possible
(in multiples of such number, not greater than $1,000,000 as the Agent may deem
appropriate) in proportion
<PAGE> 24
20
to the aggregate principal amounts of such offers. Determinations by the Agent
of the pro rata amounts of Money Market Loans shall be conclusive in the
absence of manifest error.
SECTION 2.04. Notice to Banks; Funding of Loans. (a)
Upon receipt of a Notice of Borrowing, the Agent shall promptly notify each
Bank of the contents thereof and of such Bank's share (if any) of such
Borrowing and such Notice of Borrowing shall not thereafter be revocable by the
Borrower.
(b) Not later than 12:00 Noon (New York City time) on the
date of each Borrowing, each Bank participating therein shall make available
its share of such Borrowing, in Federal or other funds immediately available in
New York City, to the Agent at its address specified in or pursuant to Section
9.01. Unless the Agent determines that any applicable condition specified in
Article III has not been satisfied, the Agent will make the funds so received
from the Banks available to the Borrower at the Agent's aforesaid address.
(c) Unless the Agent shall have received notice from a
Bank prior to the date of any Borrowing that such Bank will not make available
to the Agent such Bank's share of such Borrowing, the Agent may assume that
such Bank has made such share available to the Agent on the date of such
Borrowing in accordance with subsection (b) of this Section 2.04 and the Agent
may, in reliance upon such assumption, make available to the Borrower on such
date a corresponding amount. If and to the extent that such Bank shall not
have so made such share available to the Agent, such Bank and the Borrower
severally agree to repay to the Agent forthwith on demand such corresponding
amount together with interest thereon, for each day from the date such amount
is made available to the Borrower until the date such amount is repaid to the
Agent, at (i) in the case of the Borrower, a rate per annum equal to the higher
of the Federal Funds Rate and the interest rate applicable thereto pursuant to
Section 2.08 and (ii) in the case of such Bank, the Federal Funds Rate. If
such Bank shall repay to the Agent such corresponding amount, such amount so
repaid shall constitute such Bank's Loan included in such Borrowing for
purposes of this Agreement.
SECTION 2.05. Notes. (a) The Loans of each Bank shall
be evidenced by a single Note payable to the order of
<PAGE> 25
21
such Bank in an amount equal to the aggregate unpaid principal amount of such
Bank's Loans.
(b) Each Bank may, by notice to the Borrower and the
Agent, request that its Loans of a particular type be evidenced by a separate
Note in an amount equal to the aggregate unpaid principal amount of such Loans.
Each such Note shall be in substantially the form of Exhibit A hereto with
appropriate modifications to reflect the fact that it evidences solely Loans of
the relevant type. Each reference in this Agreement to the "Note" of such Bank
shall be deemed to refer to and include any or all of such Notes, as the
context may require.
(c) Upon receipt of each Bank's Note pursuant to Section
3.01(b), the Agent shall forward such Note to such Bank. Each Bank shall
record the date, amount and maturity of each Loan made by it and the date and
amount of each payment of principal made by the Borrower with respect thereto,
and prior to any transfer of its Note shall endorse on the schedule forming a
part thereof appropriate notations to evidence the foregoing information with
respect to each such Loan then outstanding; provided that the failure of any
Bank to make any such recordation or endorsement shall not affect the
obligations of the Borrower hereunder or under the Notes. Each Bank is hereby
irrevocably authorized by the Borrower so to endorse its Note and to attach to
and make a part of its Note a continuation of any such schedule as and when
required.
(d) Each Bank agrees that it will cancel and return to
the Borrower all Notes then held by it upon the earlier of (i) the Termination
Date provided no Default shall have then occurred and be continuing or (ii) the
date such Bank's Commitment has been terminated and there are no Loans
outstanding to or accrued interest owing to such Bank.
SECTION 2.06. Maturity of Loans. (a) The Committed
Loans of each Bank shall mature, and the principal amount thereof shall be due
and payable, together with accrued interest thereon, on the Termination Date.
(b) Each Money Market Loan shall mature, and the
principal amount thereof shall be due and payable, together with accrued
interest thereon, on the last day of the Interest Period applicable to such
Money Market Loan.
<PAGE> 26
22
SECTION 2.07. Termination or Reduction of Commitments.
(a) The Commitments of each Bank shall terminate at the end of the Revolving
Credit Period.
(b) During the Revolving Credit Period the Borrower may,
upon at least three Domestic Business Days' notice to the Agent, terminate the
Commitments at any time, if no Loans are outstanding at such time.
(c) During the Revolving Credit Period the Borrower may,
upon at least three Domestic Business Days' notice to the Agent, ratably reduce
the Commitments from time to time by an aggregate amount of $25,000,000 or any
larger multiple of $1,000,000, but only to the extent that the aggregate amount
of the Commitments exceeds the aggregate outstanding principal amount of the
Loans.
SECTION 2.08. Interest Rates. (a) Each Base Rate Loan
shall bear interest on the outstanding principal amount thereof, for each day
from the date such Loan is made until it becomes due, at a rate per annum equal
to the Base Rate for such day. Such interest shall be payable for each
Interest Period on the earlier of (i) the last day of the Interest Period
applicable thereto or (ii) the Termination Date. Any overdue principal of and,
to the extent permitted by law, overdue interest on any Base Rate Loan shall
bear interest, payable on demand, for each day until paid at a rate per annum
equal to the sum of 1% plus the Base Rate for such day.
(b) Each CD Loan shall bear interest on the outstanding
principal amount thereof, for each Interest Period applicable thereto, at a
rate per annum equal to the applicable Fixed CD Rate. Such interest shall be
payable for each Interest Period on the earlier of (i) the last day of the
Interest Period applicable thereto, (ii) 90 days after the initial date thereof
and, if such Interest Period is longer than 90 days, at intervals of 90 days
thereafter or (iii) the Termination Date. Any overdue principal of and, to the
extent permitted by law, overdue interest on any CD Loan shall bear interest,
payable on demand, for each day until paid at a rate per annum equal to the sum
of 1% plus the higher of (i) the Fixed CD Rate applicable to such Loan and (ii)
the rate applicable to Base Rate Loans for such day.
<PAGE> 27
23
The "Fixed CD Rate" applicable to any CD Loan for any
Interest Period means a rate per annum equal to the sum of the CD Margin plus
the applicable Adjusted CD Rate.
"CD Margin" means (i) 0.395% during each Level I Period,
(ii) 0.435% during each Level II Period, (iii) 0.465% during each Level III
Period, (iv) 0.575% during each Level IV Period, and (v) 0.575% during each
Level V Period.
The "Adjusted CD Rate" applicable to any Interest Period
means a rate per annum determined pursuant to the following formula:
[ CDBR ]*
ACDR = [ ---------- ] + AR
[ 1.00 - DRP ]
ACDR = Adjusted CD Rate
CDBR = CD Base Rate
DRP = Domestic Reserve Percentage
AR = Assessment Rate
* The amount in brackets being rounded upwards, if necessary, to the next
higher 1/100 of 1%.
The "CD Base Rate" applicable to any Interest Period is
the rate of interest determined by the Agent to be the arithmetic average
(rounded upward, if necessary, to the next higher 1/100 of 1%) of the
prevailing rates per annum bid at 10:00 A.M. (New York City time) (or as soon
thereafter as practicable) on the first day of such Interest Period by two or
more New York certificate of deposit dealers of recognized standing for the
purchase at face value from each Reference Bank of its certificates of deposit
in an amount comparable to the unpaid principal amount of the CD Loan of such
Reference Bank to which such Interest Period applies and having a maturity
comparable to such Interest Period.
"Domestic Reserve Percentage" means for any day that
percentage (expressed as a decimal) which is in effect on such day, as
prescribed by the Board of Governors of the Federal Reserve System (or any
successor) for determining the maximum reserve requirement (including without
limitation any basic, supplemental or emergency reserves) for a member bank of
the Federal Reserve System in New York City with deposits exceeding five
billion dollars in respect
<PAGE> 28
24
of new non-personal time deposits in dollars in New York City having a maturity
comparable to the related Interest Period and in an amount of $100,000 or more.
The Fixed CD Rate shall be adjusted automatically on and as of the effective
date of any change in the Domestic Reserve Percentage.
"Assessment Rate" means for any Interest Period the net
annual assessment rate (rounded upwards, if necessary, to the next higher 1/100
of 1%) actually incurred by Morgan Guaranty Trust Company of New York to the
Federal Deposit Insurance Corporation (or any successor) for such Corporation's
(or such successor's) insuring time deposits at offices of Morgan Guaranty
Trust Company of New York in the United States during the most recent period
for which such rate has been determined prior to the commencement of such
Interest Period.
(c) Each Euro-Dollar Loan shall bear interest on the
outstanding principal amount thereof, for each Interest Period applicable
thereto, at a rate per annum equal to the sum of the Euro-Dollar Margin plus
the applicable London Interbank Offered Rate. Such interest shall be payable
for each Interest Period on the earlier of (i) the last day thereof, (ii) three
months after the initial date thereof and, if such Interest Period is longer
than three months, at intervals of three months thereafter or (iii) the
Termination Date.
"Euro-Dollar Margin" means (i) 0.270% during each Level I
Period, (ii) 0.310% during each Level II Period, (iii) 0.340% during each Level
III Period, (iv) 0.450% during each Level IV Period, and (v) 0.500% during each
Level V Period.
The "London Interbank Offered Rate" applicable to any
Interest Period means the average (rounded upward, if necessary, to the next
higher 1/16 of 1%) of the respective rates per annum at which deposits in
dollars are offered to each of the Euro-Dollar Reference Banks in the London
interbank market at approximately 11:00 A.M. (London time) two Euro-Dollar
Business Days before the first day of such Interest Period in an amount
approximately equal to the principal amount of the Euro-Dollar Loan of such
Euro-Dollar Reference Bank to which such Interest Period is to apply and for a
period of time comparable to such Interest Period.
<PAGE> 29
25
(d) Any overdue principal of and, to the extent permitted
by law, overdue interest on any Euro-Dollar Loan shall bear interest, payable
on demand, for each day from and including the date payment thereof was due to
but excluding the date of actual payment, at a rate per annum equal to the sum
of 1% plus the Euro-Dollar Margin plus the higher of (i) the London Interbank
Offered Rate applicable to such Loan and (ii) the average (rounded upward, if
necessary, to the next higher 1/100 of 1%) of the respective rates per annum at
which one day (or, if such amount due remains unpaid more than three
Euro-Dollar Business Days, then for such other period of time not longer than
three months as the Agent may select) deposits in dollars in an amount
approximately equal to such overdue payment due to each of the Reference Banks
are offered to such Reference Bank in the London interbank market for the
applicable period determined as provided above (or, if the circumstances
described in Section 8.01 shall exist, at a rate per annum equal to the sum of
1% plus the Base Rate for such day).
(e) Subject to clause (y) of Section 8.01, each Money
Market LIBOR Loan shall bear interest on the outstanding principal amount
thereof, for the Interest Period applicable thereto, at a rate per annum equal
to the sum of the London Interbank Offered Rate for such Interest Period
(determined in accordance with Section 2.08(c) as if each Reference Bank were
to participate in the related Money Market LIBOR Borrowing ratably in
proportion to its Commitment) plus (or minus) the Money Market Margin quoted by
the Bank making such Loan in accordance with Section 2.03. Each Money Market
Absolute Rate Loan shall bear interest on the outstanding principal amount
thereof, for the Interest Period applicable thereto, at a rate per annum equal
to the Money Market Absolute Rate quoted by the Bank making such Loan in
accordance with Section 2.03. Such interest shall be payable for each Interest
Period on the earlier of (i) the last day thereof (ii) three months after the
initial date thereof and, if such Interest Period is longer than three months,
at intervals of three months thereafter or (iii) the Termination Date. Any
overdue principal of and, to the extent permitted by law, overdue interest on
any Money Market Loan shall bear interest, payable on demand, for each day
until paid at a rate per annum equal to the sum of 1% plus the Base Rate for
such day.
(f) The Agent shall determine each interest rate
applicable to the Loans hereunder. The Agent shall give
<PAGE> 30
26
prompt notice to the Borrower by telecopy and the participating Banks by telex,
cable or telecopy of each rate of interest so determined, and its determination
thereof shall be conclusive in the absence of manifest error.
(g) Each Reference Bank agrees to use its best efforts to
furnish quotations to the Agent as contemplated by this Section. If any
Reference Bank does not furnish a timely quotation, the Agent shall determine
the relevant interest rate on the basis of the quotation or quotations
furnished by the remaining Reference Bank or Banks or, if none of such
quotations is available on a timely basis, the provisions of Section 8.01 shall
apply.
SECTION 2.09. Fees.
(a) Facility Fee. The Borrower shall pay to the Agent
for the account of the Banks ratably in proportion to their commitments, a
facility fee at the rate of (i) 0.080% per annum during each Level I Period,
(ii) 0.090% per annum during each Level II Period, (iii) 0.110% per annum
during each Level III Period, (iv) 0.150% per annum during each Level IV
Period, and (v) 0.375% per annum during each Level V Period. Such facility fee
shall accrue (i) from and including the date on which the conditions set forth
in Section 3.01(a) and (e) have been satisfied to but excluding the last day of
the Revolving Credit Period, in each case, on the daily average aggregate
amount of the Commitments (whether used or unused) and (ii) if any Loans remain
outstanding after the Revolving Credit Period, from and including the last day
of the Revolving Credit Period to but excluding the date such Loans shall be
repaid in full, on the daily average aggregate outstanding principal amount of
such Loans.
(b) Payments. Except as otherwise indicated, accrued
fees under this Section shall be payable quarterly in arrears on the earlier of
(i) each Quarterly Date, (ii) the Termination Date or (iii) if any Loans remain
outstanding after the Revolving Credit Period, on the date such Loans shall be
repaid in full.
SECTION 2.10. Method of Electing Interest Rates. (a)
The Loans included in each Committed Borrowing shall bear interest initially at
the type of rate specified by the Borrower in the applicable Notice of
Committed Borrowing. Thereafter, the Borrower may from time to time elect to
change or continue the type of interest rate borne by each
<PAGE> 31
27
Group of Loans (subject in each case to the provisions of Article VIII), as
follows:
(i) if such Loans are Base Rate Loans, the Borrower may
elect to convert such Loans to CD Loans as of any Domestic
Business Day or Euro-Dollar Loans as of any Euro-Dollar Business
Day;
(ii) if such Loans are CD Loans, the Borrower may (x)
elect to convert such Loans to Base Rate Loans as of any Domestic
Business Day, (y) elect to convert such Loans to Euro-Dollar Loans
or to CD Loans with an Interest Period different from the then
current Interest Period applicable to such Loans, as of any
Euro-Dollar Business Day or Domestic Business Day, respectively or
(z) elect to continue such Loans as CD Loans for an additional
Interest Period beginning on the last day of the then current
Interest Period applicable to such Loans; and
(iii) if such Loans are Euro-Dollar Loans, the Borrower
may (x) elect to convert such Loans to Base Rate Loans or CD Loans
as of any Domestic Business Day, (y) elect to convert such Loans
to CD Loans or Euro-Dollar Loans with an Interest Period different
from the then current Interest Period applicable to such Loans, as
of any Domestic Business Day or Euro-Dollar Business Day,
respectively or (z) elect to continue such Loans as Euro-Dollar
Loans for an additional Interest Period beginning on the last day
of the then current Interest Period applicable to such Loans;
provided that, if the Borrower elects to convert any CD Loans or Euro-Dollar
Loans, as the case may be, to Base Rate Loans or to CD Loans or Euro-Dollar
Loans, as the case may be, with a different Interest Period, as of any day
other than the last day of the then current Interest Period applicable to such
Loans, the Borrower shall reimburse each Bank in accordance with Section 2.13.
Each such election shall be made by delivering a notice (a
"Notice of Interest Rate Election") to the Agent (i) at least one Domestic
Business Day before such notice is to be effective if the relevant Loans are to
be converted into Base Rate Loans, (ii) at least two Domestic Business Days
before such conversion or continuation is to be effective if such Loans
<PAGE> 32
28
are to be converted into, or continued as, CD Rate Loans or (iii) at least
three Euro-Dollar Business Days before such conversion or continuation is to be
effective if such Loans are to be converted into, or continued as, Euro-Dollar
Loans.
A Notice of Interest Rate Election may, if it so
specifies, apply to only a portion of the aggregate principal amount of the
relevant Group of Loans; provided that (i) such portion is allocated ratably
among the Loans comprising such Group and (ii) the portion to which such Notice
applies, and the remaining portion to which it does not apply, are each
$25,000,000 or any larger multiple of $1,000,000.
(b) Each Notice of Interest Rate Election shall specify:
(i) the Group of Loans (or portion thereof) to which such
notice applies;
(ii) the date on which the conversion or continuation
selected in such notice is to be effective, which shall comply with
the applicable clause of subsection (a) above;
(iii) whether such Group of Loans (or portion thereof) is
to be converted to Base Rate Loans, CD Loans or Euro-Dollar Loans or
continued as CD Loans or Euro-Dollar Loans for an additional Interest
Period; and
(iv) if such Loans (or portions thereof) are to be
converted to or continued as CD Loans or Euro-Dollar Loans, as the
case may be, the duration of the Interest Period to be applicable
thereto immediately after such conversion or continuation.
Each Interest Period specified in a Notice of Interest Rate Election shall
comply with the provisions of the definition of Interest Period.
(c) Upon receipt of a Notice of Interest Rate Election
from the Borrower pursuant to subsection (a) above, the Agent shall promptly
notify each Bank of the contents thereof and such notice shall not thereafter
be revocable by the Borrower. If the Borrower fails to deliver a timely Notice
of Interest Rate Election to the Agent for any Group
<PAGE> 33
29
of Fixed Rate Loans, such Loans shall be converted into Base Rate Loans on the
last day of the then current Interest Period applicable thereto.
SECTION 2.11. Optional Prepayments. (a) The Borrower
may (i) upon at least one Domestic Business Day's notice to the Agent, prepay
the Base Rate Loans (or any Money Market LIBOR Loans which bear interest at the
Base Rate at such time for the reason stated in Section 8.01), in whole or in
part, on any Domestic Business Day and (ii) upon at least two Euro-Dollar
Business Days' notice to the Agent, prepay any Fixed Rate Loan, in whole or in
part, on the last day of any Interest Period applicable thereto, in amounts
aggregating $25,000,000 or any larger multiple of $1,000,000, by paying the
principal amount to be prepaid together with accrued interest thereon to the
date of prepayment. Each such optional prepayment shall be applied to prepay
ratably the relevant Loans of the several Banks.
(b) Upon receipt of a notice of prepayment pursuant to
this Section, the Agent shall promptly notify each Bank of the contents thereof
and of such Bank's ratable share (if any) of such prepayment and such notice
shall not thereafter be revocable by the Borrower.
SECTION 2.12. General Provisions as to Payments. (a) The
Borrower shall make each payment of principal of, and interest on, the Loans
and of fees hereunder, not later than 12:00 Noon (New York City time) on the
date when due, in Federal or other funds immediately available in New York
City, to the Agent at its address referred to in the Notes. The Agent will
promptly distribute to each Bank its ratable share of each such payment
received by the Agent for the account of the Banks. Whenever any payment of
principal of, or interest on, any Base Rate Loans, CD Loans or fees shall be
due on a day which is not a Domestic Business Day, the date for payment thereof
shall be extended to the next succeeding Domestic Business Day. Whenever any
payment of principal of, or interest on, the Euro-Dollar Loans and Money Market
LIBOR Loans shall be due on a day which is not a Euro-Dollar Business Day, the
date for payment thereof shall be extended to the next succeeding Euro-Dollar
Business Day unless such Euro-Dollar Business Day falls in another calendar
month, in which case the date for payment thereof shall be the next preceding
Euro-Dollar Business Day. Whenever any payment of principal of, or interest
on, the Money Market Absolute Loans shall be due on a day which is not a
Euro-Dollar Business Day, the date for
<PAGE> 34
30
payment thereof shall be extended to the next succeeding Euro-Dollar Business
Day. If the date for any payment of principal is extended by operation of law
or otherwise, interest thereon shall be payable for such extended time.
(b) Unless the Agent shall have received notice from the
Borrower prior to the date on which any payment is due to the Banks hereunder
that the Borrower will not make such payment in full, the Agent may assume that
the Borrower has made such payment in full to the Agent on such date and the
Agent may, in reliance upon such assumption, cause to be distributed to each
Bank on such due date an amount equal to the amount then due such Bank. If and
to the extent that the Borrower shall not have so made such payment, each Bank
shall repay to the Agent forthwith on demand such amount distributed to such
Bank together with interest thereon, for each day from the date such amount is
distributed to such Bank until the date such Bank repays such amount to the
Agent, at the Federal Funds Rate.
SECTION 2.13. Funding Losses. If the Borrower makes any
payment of principal with respect to any Fixed Rate Loan or any Fixed Rate Loan
is converted to another Loan (pursuant to Section 2.10, Article VI or Article
VIII) on any day other than the last day of an Interest Period applicable
thereto or the end of an applicable period fixed pursuant to Section 2.08(d),
or if the Borrower fails to borrow or prepay any Fixed Rate Loan after notice
has been given to any Bank in accordance with Section 2.04(a) or Section 2.11,
the Borrower shall reimburse each Bank within 15 days after demand for any
resulting loss or expense incurred by it (or by an existing or prospective
Participant in the related Loan), including (without limitation) any loss
reasonably incurred in obtaining, liquidating or employing deposits from third
parties, but excluding loss of margin for the period after such payment or
conversion or failure to borrow or prepay, provided that such Bank shall have
delivered to the Borrower a certificate as to the amount of such loss or
expense with an explanation of the calculation of such loss or expense, which
certificate shall be conclusive if made reasonably and in good faith.
SECTION 2.14. Computation of Interest and Fees. Interest
based on the Prime Rate hereunder shall be computed on the basis of a year of
365 days (or 366 days in a leap year) and paid for the actual number of days
elapsed (including the first day but excluding the last day). All other
interest and facility fees hereunder shall be computed
<PAGE> 35
31
on the basis of a year of 360 days and paid for the actual number of days
elapsed (including the first day but excluding the last day).
SECTION 2.15. Regulation D Compensation. For each day
for which a Bank is required to maintain reserves in respect of either (x)
"Eurocurrency Liabilities" (as defined in all regulations of the Board of
Governors of the Federal Reserve System) or (y) any other category of
liabilities which includes deposits by reference to which the interest rate in
Euro-dollar Loans is determined or any category of extensions of credit or
other assets which includes loans by a non-United States office of any Bank to
United States residents, such Bank may require the Borrower to pay,
contemporaneously with each payment of interest on the Euro-Dollar Loans,
additional interest on the related Euro-Dollar Loan of such Bank at a rate per
annum determined by such Bank up to but not exceeding the excess of (i) (A) the
applicable London Interbank Offered Rate divided by (B) one minus the
Euro-Dollar Reserve Percentage over (ii) the applicable London Interbank
Offered Rate. Any Bank wishing to require payment of such additional interest
(x) shall so notify the Borrower and the Agent, in which case such additional
interest on the Euro-Dollar Loans of such Bank shall be payable to such Bank at
the place indicated in such notice with respect to each Interest Period
commencing at least five Euro-Dollar Business Days after the giving of such
notice and (y) shall notify the Borrower at least five Euro-Dollar Business
Days prior to each date on which interest is payable on the Euro-Dollar Loans
of the amount then due to such Bank under this Section. Such Bank's notice to
the Borrower shall set forth its calculation of such additional interest and
such calculation shall be conclusive if made reasonably and in good faith.
SECTION 2.16. Extension of Commitments. Not later than
the date 90 days prior to the Termination Date, the Borrower may deliver to the
Agent (which shall promptly transmit to each Bank) a notice in the form of
Exhibit G hereto (an "Extension Notice") requesting that the Commitments be
extended, effective on a Domestic Business Day specified in such notice (the
"Extension Date") which Extension Date shall not be earlier than the date 60
days prior to the Termination Date at the time in effect nor later than the
Termination Date at the time in effect, to a Euro-Dollar Business Day specified
in such notice (the "Extended Maturity Date") which Extended Maturity Date
shall not be later than 364 days after the Extension Date so
<PAGE> 36
32
specified. Promptly after its receipt of any such Extension Notice, and in any
event not later than the Extension Date, each Bank shall notify the Agent of
its willingness or unwillingness so to extend its Commitment. Any Bank that is
willing to so extend its Commitment shall countersign and return the Extension
Notice to the Borrower, with a copy to the Agent. Any Bank which shall fail so
to notify the Agent by the Extension Date shall be deemed to have declined to
extend its Commitment. If all the Banks shall notify the Agent on or prior to
the Extension Date of their willingness so to extend their respective
Commitments (and no Bank shall have revoked such notice on or prior to the
Extension Date), then, without further act, effective on the Extension Date (i)
the Commitments shall be extended to the Extended Maturity Date, and (ii) the
"Termination Date" shall be extended to the Extended Maturity Date (subject to
further extension in accordance with this Section). Notwithstanding any other
provision in this Agreement, any notice by any Bank of its willingness to
extend its Commitment shall be revocable by such Bank in its sole discretion at
any time on or prior to the Extension Date. It is acknowledged by the parties
hereto that each Bank shall engage in a full credit assessment of the Borrower
in determining whether to extend its Commitment and that each Bank may in its
sole discretion elect to decline to extend its Commitment. If the conditions
set forth herein to extension of the Commitments shall not be satisfied as of
the close of business on the Extension Date, then the Commitments shall
continue in effect, subject to the terms and conditions hereof, until the
Termination Date at the time in effect. The Agent shall notify the Borrower
and the Banks promptly following the Extension Date whether the requested
extension was approved, which notice shall be conclusive absent manifest error.
ARTICLE III
CONDITIONS
SECTION 3.01. Effectiveness. This Agreement shall become
effective on the date that all of the following conditions shall have been
satisfied (or waived in accordance with Section 9.04):
(a) receipt by the Agent from each of the parties hereto
of either (i) a counterpart hereof signed by such party or (ii)
telegraphic, telex or other written confirmation, in form satisfactory
to the Agent,
<PAGE> 37
33
confirming that a counterpart hereof has been signed by such party;
(b) receipt by the Agent for the account of each Bank of a
duly executed Note dated on or before the Effective Date complying
with the provisions of Section 2.05;
(c) receipt by the Agent of a certificate signed by the
Vice President-Finance and Treasurer or Senior Vice President, Finance
of the Borrower, dated the Effective Date, to the effect that (i) no
Default has occurred and is continuing as of the Effective Date, (ii)
the representations and warranties of the Borrower set forth in
Article IV hereof are true in all material respects on, and as of, the
Effective Date and (iii) the Borrower has terminated, effective on or
prior to the Effective Date, all commitments under the Credit
Agreement dated as of August 1, 1989, among the Borrower, the banks
party thereto and Morgan Guaranty Trust Company of New York, as agent
for such banks, and has repaid all loans outstanding thereunder;
(d) receipt by the Agent of an opinion of John W.
Campbell, Esq., counsel to the Borrower and given upon the Borrower's
express instructions, and of Davis Polk & Wardwell, special counsel to
the Borrower, and given upon the Borrower's express instructions
substantially in the forms of Exhibits E-1 and E-2 hereto,
respectively;
(e) receipt by the Agent of an opinion of Cravath, Swaine
& Moore, special counsel to the Agent, substantially in the form of
Exhibit F hereto; and
(f) receipt by the Agent of all documents it may
reasonably request relating to the existence of the Borrower, the
corporate authority for and the validity of this Agreement and the
Notes, and any other matters relevant hereto, all in form and
substance satisfactory to the Agent;
provided that this Agreement shall not become effective or be binding on any
party hereto unless all of the foregoing conditions are satisfied not later
than July 31, 1994. The Agent shall promptly notify the Borrower and the Banks
of the Effective Date, and such notice shall be conclusive and binding on all
parties hereto.
<PAGE> 38
34
SECTION 3.02. Borrowings. The obligation of any Bank to
make a Loan on the occasion of any Borrowing is subject to the satisfaction of
the following conditions:
(a) receipt by the Agent of a Notice of Borrowing as
required by Section 2.02 or 2.03, as the case may be;
(b) the fact that, immediately before and immediately
after such Borrowing, no Default shall have occurred and be
continuing;
(c) the fact that immediately after such Borrowing, the
aggregate outstanding principal amount of the Loans will not exceed
the aggregate amount of the Commitments;
(d) the fact that the representations and warranties of
the Borrower set forth in Sections 4.01(i), 4.02 and 4.07(i) shall be
true on and as of the date of such Borrowing;
(e) the fact that the most recent financial statements
provided by Borrower in compliance with Section 5.01, as supplemented
prior to such Borrowing, shall be, to the best of Borrower's
knowledge, accurate and complete in all material respects; and
(f) the fact that the Borrowing shall have been approved
in writing by (i) the Chairman of the Borrower, or (ii) the President
of the Borrower, or (iii) the Group Executive, Finance and
Administration, acting jointly with either the Senior Vice President,
Finance, or the Vice President-Finance and Treasurer.
Each Borrowing hereunder shall be deemed to be a representation and warranty by
the Borrower on the date of such Borrowing as to the facts specified in clauses
(b), (c), (d), (e) and (f) of this Section.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants that:
<PAGE> 39
35
SECTION 4.01. Corporate Existence and Power. The
Borrower (i) is a Connecticut insurance corporation duly incorporated, validly
existing and in good standing under the laws of the State of Connecticut, (ii)
has all corporate powers required to carry on its business as now conducted and
(iii) has all governmental licenses, authorizations, consents and approvals
required to carry on its business as now conducted, the failure to obtain which
would, individually or in the aggregate, have a material adverse effect on the
ability of the Borrower to perform its obligations hereunder or on the
financial condition of the Borrower and its Consolidated Subsidiaries taken as
a whole.
SECTION 4.02. Corporate and Governmental Authorization;
No Contravention. The execution, delivery and performance by the Borrower of
this Agreement and the Notes are within the Borrower's corporate powers, have
been duly authorized by all necessary corporate action, require no action by or
in respect of, or advance filing with, any governmental body, agency or
official and do not contravene, or constitute a default under, (i) any
provision of the certificate of incorporation or by-laws of the Borrower, (ii)
any applicable law or regulation or any judgment, injunction, order or decree
binding upon the Borrower, or (iii) any material financial agreement or
instrument (excluding insurance obligations) of the Borrower.
SECTION 4.03. Binding Effect. This Agreement constitutes
a valid and binding agreement of the Borrower and the Notes, when executed and
delivered in accordance with this Agreement, will constitute valid and binding
obligations of the Borrower.
SECTION 4.04. Financial Information.
(a) The consolidated balance sheet of the Borrower and its
Consolidated Subsidiaries as of December 31, 1993, the related
consolidated statements of cash flows for the year then ended and
consolidated statement of income and retained earnings for the year
then ended, reported on by KPMG Peat Marwick and set forth in the
Borrower's 1993 Annual Report, copies of which have been delivered to
the Agent for distribution to each of the Banks, fairly present, in
conformity with United States generally accepted accounting
principles, the consolidated financial position of the Borrower and
its Consolidated Subsidiaries as of such date and their
<PAGE> 40
36
consolidated results of operations and cash flows for such year.
(b) The unaudited consolidated balance sheet of the
Borrower and its Consolidated Subsidiaries as of March 31, 1994 and
the related unaudited consolidated statements of income and retained
earnings and cash flows for the three months then ended, set forth in
the Borrower's 1994 First Quarter Form 10-Q, copies of which have been
delivered to the Agent for distribution to each of the Banks, fairly
present, in conformity with United States generally accepted
accounting principles applied on a basis consistent with the financial
statements referred to in subsection (a) of this Section, the
consolidated financial position of the Borrower and its Consolidated
Subsidiaries as of such date and their consolidated results of
operations and cash flows for such three month period (subject to
normal year-end adjustments).
(c) Since March 31, 1994, there has been no material
adverse change in the business, financial position or results of
operations of the Borrower and its Consolidated Subsidiaries, taken as
a whole.
SECTION 4.05. Litigation. Except as disclosed in the
Borrower's 1993 Form 10-K or 1994 First Quarter Form 10-Q, there is no action,
suit or proceeding pending against, or to the knowledge of the Borrower
threatened against or affecting, the Borrower, its Consolidated Subsidiaries or
its Principal Insurance Subsidiaries before any court or arbitrator or any
governmental body, agency or official in which there is a reasonable
possibility of an adverse decision which could materially adversely affect the
business, consolidated financial position or consolidated results of operations
of the Borrower and its Consolidated Subsidiaries taken as a whole or which in
any manner draws into question the validity of this Agreement or the Notes.
SECTION 4.06. Compliance with ERISA. Each member of the
ERISA Group has fulfilled its obligations under the minimum funding standards
of ERISA and the Internal Revenue Code with respect to each Plan and is not in
violation of the presently applicable provisions of ERISA and the Internal
Revenue Code where such violation would have a material adverse effect on the
financial condition of the
<PAGE> 41
37
Borrower and its Consolidated Subsidiaries taken as a whole, and has not
incurred any liability to the PBGC or a Plan under Title IV of ERISA; provided
that this Section 4.06 applies to the members of the ERISA Group only in their
capacity as employers and not in any other capacity (such as fiduciaries or
service providers to Plans for the benefit of employers of others).
SECTION 4.07. Principal Insurance Subsidiaries. Each of
the Borrower's Principal Insurance Subsidiaries (i) is a Connecticut insurance
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Connecticut, (ii) has all corporate powers required to
carry on its business as now conducted and (iii) has all governmental licenses,
authorizations, consents and approvals required to carry on its business as now
conducted, the failure to obtain which would, individually or in the aggregate,
have a material adverse effect on the ability of the Borrower to perform its
obligations hereunder or on the financial condition of such Principal Insurance
Subsidiary and its consolidated subsidiaries taken as a whole.
SECTION 4.08. Compliance with Laws. To the best of the
Borrower's knowledge, the Borrower has complied in all material respects with
all applicable laws, except where any single failure to comply therewith would
not individually have a material adverse effect on its ability to perform its
obligations hereunder, and except where necessity of compliance therewith is
being contested in good faith by appropriate proceedings; provided, however,
that the sole representation and warranty with respect to compliance with ERISA
is limited to Section 4.06; and provided further that the reference to
applicable laws in this Section 4.08 shall not include Environmental Laws.
ARTICLE V
COVENANTS
The Borrower agrees that, so long as any Bank has any
Commitment hereunder or any amount payable under any Note remains unpaid:
SECTION 5.01. Information. The Borrower will deliver to
the Agent, for delivery by the Agent to each of the Banks:
<PAGE> 42
38
(a) as soon as available and in any event within 120 days
after the end of each fiscal year of the Borrower, the consolidated
balance sheet of the Borrower and its Consolidated Subsidiaries as of
the end of such fiscal year and the related consolidated statements of
earnings and of cash flows for such fiscal year, setting forth in each
case in comparative form the figures for the previous fiscal year, all
reported on in a manner acceptable to the Securities and Exchange
Commission by KPMG Peat Marwick or other independent public
accountants of nationally recognized standing;
(b) as soon as available and in any event within 60 days
after the end of each of the first three quarters of each fiscal year
of the Borrower, the Borrower's Form 10-Q as of the end of such
quarter;
(c) simultaneously with the delivery of each set of
financial statements referred to in clauses (a) and (b) above, a
certificate of a Responsible Financial Officer of the Borrower (i)
stating whether any Default exists on the date of such certificate
and, if any Default then exists, setting forth the details thereof and
the action which the Borrower is taking or proposes to take with
respect thereto, and (ii) setting forth calculations demonstrating
compliance, as of the date of the most recent balance sheet included
in the financial statements being furnished at such time, with the
covenant set forth in Section 5.03;
(d) within five days after any officer of the Borrower
obtains knowledge of any Default, if such Default is then continuing,
a certificate of a Responsible Financial Officer of the Borrower
setting forth the details thereof and the action which the Borrower is
taking or proposes to take with respect thereto;
(e) promptly upon the mailing thereof to the shareholders
of the Borrower generally, copies of all financial statements and
reports, and proxy statements so mailed; and
(f) from time to time such additional publicly available
information regarding the financial position or business of the
Borrower and its Principal Insurance
<PAGE> 43
39
Subsidiaries as the Agent, at the request of any Bank, may reasonably
request.
SECTION 5.02. Conduct of Business and Maintenance of
Existence. The Borrower will preserve, renew and keep in full force and
effect, and will cause each Principal Insurance Subsidiary to preserve, renew
and keep in full force and effect their respective corporate existence.
SECTION 5.03. Minimum Adjusted Consolidated Net Worth.
Adjusted Consolidated Net Worth will at no time be less than $5,000,000,000.
SECTION 5.04. Equal and Ratable Lien Protection. The
Borrower will not, and will not permit any Principal Insurance Subsidiary to,
issue, assume, incur or guarantee any indebtedness for borrowed money secured
by a mortgage, pledge, lien or other encumbrance, directly or indirectly on any
of the common stock of a Principal Insurance Subsidiary, which common stock is
owned by the Borrower or any Principal Insurance Subsidiary, unless the
obligations of the Borrower under this Agreement and the Notes and, if the
Borrower so elects, any other indebtedness of the Borrower ranking on a parity
with the Notes shall be secured equally and ratably with, or prior to, such
secured indebtedness for borrowed money so long as it is outstanding and is so
secured.
SECTION 5.05. Consolidations, Mergers and Sales of
Assets. The Borrower will not consolidate or merge with or into any other
corporation or convey or transfer its properties and assets substantially as an
entirety to any other Person unless (i) the surviving or acquiring entity is a
corporation organized under the laws of one of the United States, (ii) the
surviving or acquiring corporation, if other than the Borrower, expressly
assumes the performance of the obligations of the Borrower under this Agreement
and the Notes, and (iii) immediately after giving effect to such transaction,
no Default shall exist.
SECTION 5.06. Use of Proceeds. The proceeds of the Loans
made under this Agreement will be used by the Borrower for general corporate
purposes. None of such proceeds will be used, directly or indirectly, for the
purpose, whether immediate, incidental or ultimate, of buying or carrying any
"margin stock" within the meaning of Regulation U.
<PAGE> 44
40
SECTION 5.07. Cross Default Provisions. If a cross
default provision is included in any future instrument or agreement of the
Borrower evidencing or relating to indebtedness for borrowed money in a
principal amount in excess of $50,000,000, the Borrower will promptly notify
the Banks thereof and will, if requested to do so by the Required Banks, sign
an amendment to this Agreement to include a similar cross default provision
herein.
SECTION 5.08. Compliance with Laws. The Borrower will
comply in all material respects with all applicable laws, except where any
single failure to comply therewith would not individually have a material
adverse effect on its ability to perform its obligations hereunder, and except
where necessity of compliance therewith is being contested in good faith by
appropriate proceedings; provided, however, that with respect to its compliance
with ERISA, this Section 5.08 applies to the Borrower only in its capacity as
an employer and not in any other capacity (such as a fiduciary or service
provider to Plans for the benefit of employers of others); and provided further
that the reference to applicable laws in this Section 5.08 shall not include
Environmental Laws.
ARTICLE VI
DEFAULTS
SECTION 6.01. Events of Default. If one or more of the
following events ("Events of Default") shall have occurred and be continuing:
(a) the Borrower shall fail to pay when due any principal
on any Loan;
(b) the Borrower shall fail to pay within five Domestic
Business Days of when due any fees or interest on any Loan;
(c) the Borrower shall fail to observe or perform any
covenant contained in Sections 5.03 and 5.05;
(d) the Borrower shall fail to observe or perform, in any
material respect, any covenant or agreement contained in this
Agreement (other than those covered by clause (a), (b) or (c) above)
and such failure shall have continued for a period of 45 days after
written
<PAGE> 45
41
notice thereof has been given to the Borrower by the Agent at the
request of any Bank;
(e) any representation, warranty, certification or
statement made by the Borrower in this Agreement or in any
certificate, financial statement or other document delivered
pursuant to this Agreement shall prove to have been incorrect in
any material respect when made (or deemed made);
(f) an event of default, as defined in any indenture or
instrument evidencing or under which the Borrower or any Principal
Insurance Subsidiary has at the date of this Agreement or shall
hereafter have outstanding indebtedness for borrowed money in a
principal amount in excess of $50,000,000, shall occur and be
continuing and such indebtedness shall have been accelerated so
that the same shall be or become due and payable prior to the date
on which the same would otherwise have become due and payable
(other than acceleration of Non-Recourse Indebtedness which does
not exceed in the aggregate 4% of the Borrower's total
shareholders' equity, as set forth in the most recently published
audited consolidated balance sheet of the Borrower), and such
acceleration shall not have been waived, rescinded or annulled;
provided, however, that if such acceleration under such indenture
or instrument shall be remedied or cured by the Borrower or
Principal Insurance Subsidiary, or waived, rescinded or annulled
by the requisite holders of such indebtedness, then the Event of
Default shall be deemed likewise to have been thereupon remedied,
cured or waived without further action upon the part of the Banks;
(g) the Borrower or any Principal Insurance Subsidiary
shall commence a voluntary case or other proceeding seeking
liquidation, reorganization or other relief with respect to itself
or its debts under any bankruptcy, insolvency or other similar law
now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official
of it or all or substantially all of its property, or shall
consent to any such relief or to the appointment of or taking
possession by any such official in an involuntary case or other
proceeding commenced against it, or shall make a general
assignment for the benefit of creditors, or shall fail generally
to pay its debts as they become due, or shall
<PAGE> 46
42
take any corporate action to authorize any of the foregoing;
(h) an involuntary case or other proceeding shall be
commenced against the Borrower or any Principal Insurance
Subsidiary seeking liquidation, reorganization or other relief
with respect to it or its debts under any bankruptcy, insolvency
or other similar law now or hereafter in effect or seeking the
appointment of a trustee, receiver, liquidator, custodian or other
similar official of it or all or substantially all of its
property, and such involuntary case or other proceeding shall
remain undismissed and unstayed for a period of 60 days; or an
order for relief shall be entered against the Borrower or any
Principal Insurance Subsidiary under the federal bankruptcy laws
as now or hereafter in effect; or
(i) any person or group of persons (within the meaning of
Section 13 or 14 of the Securities Exchange Act of 1934, as
amended) shall have acquired beneficial ownership (within the
meaning of Rule 13d-3 promulgated by the Securities and Exchange
Commission under said Act) of more than 35% of the outstanding
shares of common stock of the Borrower; or at any time Continuing
Directors shall not constitute a majority of the board of
directors of the Borrower;
then, and in every such event, the Agent shall (i) if requested by Banks having
more than 50% in aggregate amount of the Commitments, by notice to the Borrower
terminate the Commitments and they shall thereupon terminate, and (ii) if
requested by Banks holding Notes evidencing more than 50% in aggregate
principal amount of the Loans, by notice to the Borrower declare the Notes
(together with accrued interest thereon) to be, and the Notes shall thereupon
become, immediately due and payable without presentment, demand, protest or
other notice of any kind, all of which are hereby waived by the Borrower;
provided that in the case of any of the Events of Default specified in clause
(g) or (h) above with respect to the Borrower, without any notice to the
Borrower or any other act by the Agent or the Banks, the Commitments shall
thereupon terminate and the Notes (together with accrued interest thereon)
shall become immediately due and payable without presentment, demand, protest
or other notice of any kind, all of which are hereby waived by the Borrower.
<PAGE> 47
43
SECTION 6.02. Notice of Default. The Agent shall give
notice to the Borrower under Section 6.01(c) promptly upon being requested to
do so by any Bank and shall thereupon notify all the Banks thereof.
ARTICLE VII
THE AGENT
SECTION 7.01. Appointment and Authorization. Each Bank
irrevocably appoints and authorizes the Agent to take such action as agent on
its behalf and to exercise such powers under this Agreement and the Notes as
are delegated to the Agent by the terms hereof or thereof, together with all
such powers as are reasonably incidental thereto.
SECTION 7.02. Agent and Affiliates. Morgan Guaranty
Trust Company of New York shall have the same rights and powers under this
Agreement as any other Bank and may exercise or refrain from exercising the
same as though it were not the Agent, and Morgan Guaranty Trust Company of New
York and its affiliates may accept deposits from, lend money to, and generally
engage in any kind of business with the Borrower or any Subsidiary or affiliate
of the Borrower as if it were not the Agent hereunder.
SECTION 7.03. Action by Agent. The obligations of the
Agent hereunder are only those expressly set forth herein. Without limiting
the generality of the foregoing, the Agent shall not be required to take any
action with respect to any Default, except as expressly provided in Article VI.
SECTION 7.04. Consultation with Experts. The Agent may
consult with legal counsel (who may be counsel for the Borrower), independent
public accountants and other experts selected by it and shall not be liable for
any action taken or omitted to be taken by it in good faith in accordance with
the advice of such counsel, accountants or experts.
SECTION 7.05. Liability of Agent. Neither the Agent nor
any of its directors, officers, agents, or employees shall be liable for any
action taken or not taken by it in connection herewith (i) with the consent or
at the request of the Required Banks or (ii) in the absence of its own gross
negligence or willful misconduct. Neither the
<PAGE> 48
44
Agent nor any of its directors, officers, agents or employees shall be
responsible for or have any duty to ascertain, inquire into or verify (i) any
statement, warranty or representation made in connection with this Agreement or
any borrowing hereunder; (ii) the performance or observance of any of the
covenants or agreements of the Borrower; (iii) the satisfaction of any
condition specified in Article III, except receipt of items required to be
delivered to the Agent; or (iv) the validity, effectiveness or genuineness of
this Agreement, the Notes or any other instrument or writing furnished in
connection herewith. The Agent shall not incur any liability by acting in
reliance upon any notice, consent, certificate, statement, or other writing
(which may be a bank wire, telex or similar writing) believed by it to
be genuine or to be signed by the proper party or parties.
SECTION 7.06. Indemnification. Each Bank shall, ratably
in accordance with its Commitment, indemnify the Agent (to the extent not
reimbursed by the Borrower) against any cost, expense (including counsel fees
and disbursements), claim, demand, action, loss or liability (except such as
result from the Agent's gross negligence or willful misconduct) that the Agent
may suffer or incur in connection with this Agreement or any action taken or
omitted by the Agent hereunder.
SECTION 7.07. Credit Decision. Each Bank acknowledges
that it has, independently and without reliance upon the Agent or any other
Bank, and based on such documents and information as it has deemed appropriate,
made its own credit analysis and decision to enter into this Agreement. Each
Bank also acknowledges that it will, independently and without reliance upon
the Agent or any other Bank, and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions
in taking or not taking any action under this Agreement.
SECTION 7.08. Successor Agent. The Agent may resign at
any time by giving written notice thereof to the Banks and the Borrower. Upon
any such resignation, the Required Banks shall have the right to appoint a
successor Agent approved by the Borrower (which approval shall not be
unreasonably withheld). If no successor Agent shall have been so appointed by
the Required Banks, and approved by the Borrower and shall have accepted such
appointment within 10 Domestic Business Days after the retiring Agent gives
notice
<PAGE> 49
45
of resignation, then the retiring Agent may, on behalf of the Banks, appoint a
successor Agent, which shall be a commercial bank organized or licensed under
the laws of the United States of America or of any State thereof and having a
combined capital and surplus of at least two billion dollars. Upon the
acceptance of its appointment as Agent hereunder by a successor Agent, such
successor Agent shall thereupon succeed to and become vested with all the
rights and duties of the retiring Agent, and the retiring Agent shall be
discharged from its duties and obligations hereunder. After any retiring
Agent's resignation hereunder as Agent, the provisions of this Article shall
inure to its benefit as to any actions taken or omitted to be taken by it while
it was Agent.
ARTICLE VIII
CHANGE IN CIRCUMSTANCES
SECTION 8.01. Basis for Determining Interest Rate
Inadequate or Unfair. If on or prior to the first day of any Interest Period
for any CD Loan, Euro-Dollar Loan or Money Market LIBOR Loan the Agent is
advised by each of the Reference Banks that deposits in dollars (in the
applicable amounts) are not being offered to each of the Reference Banks in the
relevant market for such Interest Period, the Agent shall forthwith give notice
thereof to the Borrower and the Banks, whereupon until the Agent notifies the
Borrower that the circumstances giving rise to such suspension no longer exist,
(i) the obligations of the Banks to make CD Loans or Euro-Dollar Loans, as the
case may be, or to convert outstanding Base Rate Loans into CD Loans or
Euro-Dollar Loans, as the case may be, or to convert outstanding CD Loans or
Euro-Dollar Loans into CD Loans or Euro-Dollar Loans, as the case may be, with
a different Interest Period shall be suspended, (ii) each outstanding CD Loan,
Euro-Dollar Loan or Money Market LIBOR Loan, as the case may be, shall be
converted into a Base Rate Loan on the last day of the then current Interest
Period applicable thereto, and (iii) unless the Borrower notifies the Agent at
least two Domestic Business Days before the date of any CD Borrowing,
Euro-Dollar Borrowing or Money Market LIBOR Borrowing, as the case may be, for
which a Notice of Borrowing has previously been given that it elects not to
borrow on such date, (x) if such Borrowing is a CD Borrowing or a Euro-Dollar
Borrowing, as the case may be, such Borrowing shall instead be made as a Base
Rate Borrowing and
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46
(y) if such Borrowing is a Money Market LIBOR Borrowing, the Money Market LIBOR
Loans comprising such Borrowing shall bear interest for each day from and
including the first day to but excluding the last day of the Interest Period
applicable thereto at the Base Rate for such day.
SECTION 8.02. Illegality. If, on or after the date of
this Agreement, the adoption of any applicable law, rule or regulation, or any
change in any applicable law, rule or regulation, or any change in the
interpretation or administration thereof by any governmental authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by any Bank (or its Applicable Lending Office) with any
request or directive (whether or not having the force of law) of any such
authority, central bank or comparable agency shall make it unlawful or
impossible for any Bank (or its Euro-Dollar Lending Office) to make, maintain
or fund its Euro-Dollar Loans and such Bank shall so notify the Agent, the
Agent shall forthwith give notice thereof to the other Banks and the Borrower,
whereupon until such Bank notifies the Borrower and the Agent that the
circumstances giving rise to such suspension no longer exist, the obligation of
such Bank to make Euro-Dollar Loans, or to convert outstanding Base Rate Loans
or CD Loans into Euro-Dollar Loans, or to convert outstanding Euro-Dollar Loans
into Euro-Dollar Loans with a different Interest Period shall be suspended.
Before giving any notice to the Agent pursuant to this Section, such Bank shall
designate a different Applicable Lending Office if such designation will avoid
the need for giving such notice and will not, in the judgment of such Bank, be
otherwise disadvantageous to such Bank. If such notice is given, all
Euro-Dollar Loans of such Bank then outstanding shall be converted to Base Rate
Loans either (a) on the last day of the then current Interest Period applicable
to such Euro-Dollar Loans if such Bank may lawfully continue to maintain and
fund such Loans to such day or (b) immediately if such Bank may not lawfully
continue to maintain and fund such Loans to such day.
SECTION 8.03. Increased Cost and Reduced Return. (a) If
any applicable law, rule or regulation, or any change in any applicable law,
rule or regulation, or any change in the interpretation or administration
thereof by any governmental authority, central bank or comparable agency
charged with the interpretation or administration thereof, or compliance by any
Bank (or its Applicable Lending Office) with any request or directive (whether
or
<PAGE> 51
47
not having the force of law) of any such governmental authority, central bank
or comparable agency, made or adopted after the date hereof (other than a
change currently provided for in any existing law, rule or regulation) shall
impose, modify or deem applicable any reserve, special deposit, insurance
assessment or similar requirement (including, without limitation, any such
requirement imposed by the Board of Governors of the Federal Reserve System,
but excluding (i) with respect to any Euro-Dollar Loan, any such requirement
with respect to which such Bank is entitled to compensation during the relevant
Interest Period under Section 2.15 and (ii) with respect to any CD Loan, any
such requirement reflected in the applicable Domestic Reserve Percentage or
Assessment Rate) against assets of, deposits with or for the account of, or
credit extended by, any Bank (or its Applicable Lending Office) or shall impose
on any Bank (or its Applicable Lending Office) or on the United States market
for certificates of deposit or the London interbank market any other condition
affecting its Fixed Rate Loans (other than Money Market Absolute Rate Loans),
its Notes (in respect of such Fixed Rate Loans) or its obligation to make such
Fixed Rate Loans; and the result of any of the foregoing is to increase the
cost to such Bank (or its Applicable Lending Office) of making or maintaining
any Fixed Rate Loan, or to reduce the amount of any sum received or receivable
by such Bank (or its Applicable Lending Office) under this Agreement or under
its Notes with respect thereto, by an amount reasonably deemed by such Bank to
be material, then, within 15 days after demand by such Bank (with a copy to the
Agent), the Borrower shall pay to such Bank such additional amount or amounts
as will compensate such Bank for such increased cost or reduction.
(b) If any Bank shall have determined that any applicable
law, rule or regulation regarding capital adequacy, or any change in any such
law, rule or regulation, or any change in the interpretation or administration
thereof by any governmental authority, central bank or comparable agency
charged with the interpretation or administration thereof, or any request or
directive regarding capital adequacy (whether or not having the force of law)
of any such governmental authority, central bank or comparable agency, made or
adopted after the date hereof (other than a change currently provided for in
any existing law, rule or regulation), has or would have the effect of
increasing the amount of capital of such Bank (or its parent) required to be
maintained in respect of, or otherwise allocated to, such Bank's obligations
hereunder
<PAGE> 52
48
(its "Required Capital") by an amount reasonably deemed by such Bank to be
material, then such Bank may, by notice to the Borrower and the Agent, increase
the facility fee payable to such Bank hereunder to the extent required so that
the ratio of (w) the sum of the increased facility fee applicable to such
Bank's unused Commitment hereunder to (x) the prior facility fee applicable to
such Bank's unused Commitment hereunder is the same as the ratio of (y) such
Bank's increased Required Capital to (z) its prior Required Capital. Such
Bank's notice to the Borrower and the Agent shall set forth its calculation of
the foregoing ratios and the increased facility fee to which it is entitled
under this Section.
(c) Each Bank will promptly notify the Borrower and the
Agent of any event of which it has knowledge, occurring after the date hereof,
which will entitle such Bank to compensation pursuant to this Section 8.03
(each, a "Trigger Event") and will designate a different Applicable Lending
Office if such designation will avoid the need for, or reduce the amount of,
such compensation and will not, in the judgment of such Bank, be otherwise
disadvantageous to such Bank. Notwithstanding any other provision of this
Section, no Bank shall be entitled to any compensation pursuant to this Section
in respect of any Trigger Event (i) for any period of time in excess of 120
days prior to such notice or (ii) for any period of time prior to such notice
if such Bank shall not have given such notice within 120 days of the date on
which such Trigger Event shall have been enacted, promulgated, adopted or
issued in definitive or final form unless such Trigger Event is retroactive. A
certificate of any Bank claiming compensation under Section 8.03(a) or (b) and
setting forth the additional amount or amounts to be paid to it hereunder and
describing the method of calculation thereof shall be conclusive if made
reasonably and in good faith. In determining such amount, such Bank may use
any reasonable averaging and attribution methods.
SECTION 8.04. Taxes. (a) For purposes of this Section
8.04, the following terms have the following meanings:
"Taxes" means any and all present or future taxes, duties,
levies, imposts, deductions, charges or withholdings with respect to any
payment by the Borrower pursuant to this Agreement or under any Note, and all
liabilities with respect thereto, excluding (i) in the case of each Bank and
<PAGE> 53
49
the Agent, taxes imposed on its income, and franchise or similar taxes imposed
on it, by a jurisdiction under the laws of which such Bank or the Agent (as the
case may be) is organized or in which its principal executive office is located
or, in the case of each Bank, in which its Applicable Lending Office is located
and (ii) in the case of each Bank, any United States withholding tax imposed on
such payments but only to the extent that such Bank is subject to United States
withholding tax at the time such Bank first becomes a party to this Agreement.
"Other Taxes" means any present or future stamp or
documentary taxes and any other excise or property taxes, or similar charges or
levies, which arise from any payment made pursuant to this Agreement or under
any Note or from the execution or delivery of, or otherwise with respect to,
this Agreement or any Note.
(b) Any and all payments by the Borrower to or for the
account of any Bank or the Agent hereunder or under any Note shall be made
without deduction for any Taxes or Other Taxes; provided that, if the Borrower
shall be required by law to deduct any Taxes or Other Taxes from any such
payments, (i) the sum payable shall be increased as necessary so that after
making all required deductions (including deductions applicable to additional
sums payable under this Section 8.04) such Bank or the Agent (as the case may
be) receives an amount equal to the sum it would have received had no such
deductions been made, (ii) the Borrower shall make such deductions, (iii) the
Borrower shall pay the full amount deducted to the relevant taxation authority
or other authority in accordance with applicable law and (iv) the Borrower
shall furnish to the Agent, at its address referred to in Section 9.01, the
original or a certified copy of a receipt evidencing payment thereof.
(c) The Borrower agrees to indemnify each Bank and the
Agent for the full amount of Taxes or Other Taxes (including, without
limitation, any Taxes or Other Taxes imposed or asserted by any jurisdiction on
amounts payable under this Section 8.04) paid by such Bank or the Agent (as the
case may be) and any liability (including penalties, interest and expenses,
except to the extent attributable to the negligence or misconduct of such Bank
or the Agent, as the case may be) arising therefrom or with respect thereto.
This indemnification shall be made within 15 days from the date such Bank or
the Agent (as the case may be) makes demand therefor.
<PAGE> 54
50
(d) Each Bank organized under the laws of a jurisdiction
outside the United States, on or prior to the date of its execution and
delivery of this Agreement in the case of each Bank listed on the signature
pages hereof and on or prior to the date on which it becomes a Bank in the case
of each other Bank, shall provide the Borrower with (i) two Internal Revenue
Service ("IRS") forms 1001 or any successor form prescribed by the IRS,
certifying that such Bank is entitled to benefits under an income tax treaty to
which the United States is a party which exempts such Bank from United States
withholding tax or reduces the rate of withtholding tax on payments of interest
and eliminates withholding tax on any fees, or (ii) two IRS forms 4224
certifying that the income receivable pursuant to this Agreement is effectively
connected with the conduct of a trade or business in the United States. If the
form provided by a Bank indicates a United States interest withholding tax rate
in excess of zero, withholding tax at such rate shall be considered excluded
from "Taxes" as defined in Section 8.04(a). Each such Bank undertakes to
deliver to each of the Borrower and the Agent (A) a replacement form (or
successor form) on or before the date that such form expires or becomes
obsolete or after the occurrence of any event requiring a change in the most
recent form so delivered by it, and (B) such amendments thereto or extensions
or renewals thereof as may reasonably be required (but only so long as such
Bank remains lawfully able to do so).
(e) For any period with respect to which a Bank has
failed to provide the Borrower with the appropriate form pursuant to Section
8.04(d) (unless such failure is due to a change in treaty, law or regulation
occurring subsequent to the date on which a form originally was required to be
provided), such Bank shall not be entitled to indemnification under Section
8.04(b) or Section 8.04(c) with respect to Taxes imposed by the United States;
provided that if a Bank, which is otherwise exempt from or subject to a reduced
rate of withholding tax, becomes subject to Taxes because of its failure to
deliver a form required hereunder, the Borrower shall take such steps as such
Bank shall reasonably request to assist such Bank to recover such Taxes.
(f) Each Bank will promptly notify the Borrower and the
Agent of any event of which it has knowledge, occurring after the date hereof,
which will entitle such Bank to make any claim for indemnification in respect
of
<PAGE> 55
51
Taxes or Other Taxes pursuant to this Section 8.04 (each, a "Tax Event") and
will designate a different Applicable Lending Office if such designation will
avoid the need for, or reduce the amount of, such claim or any other amounts
payable by the Borrower under this Section 8.04 and will not, in the judgment
of such Bank, be otherwise disadvantageous to such Bank. Notwithstanding any
other provisions of this Section, no Bank shall be entitled to any
indemnification pursuant to this Section in respect of any Tax Event (i) for
any period of time in excess of 180 days prior to such notice or (ii) for any
period of time prior to such notice if such Bank shall not have given such
notice within 120 days of the date on which such Bank became aware of such Tax
Event unless such Tax Event is retroactive.
SECTION 8.05. Base Rate Loans Substituted for Affected
Euro-Dollar Loans. If (i) the obligation of any Bank to make or maintain
Euro-Dollar Loans has been suspended pursuant to Section 8.02 or (ii) any Bank
has demanded compensation under Section 8.03(a) and the Borrower shall, by at
least five Euro-Dollar Business Days prior notice to such Bank through the
Agent, have elected that the provisions of this Section shall apply to such
Bank, then, unless and until such Bank notifies the Borrower that the
circumstances giving rise to such suspension or demand for compensation no
longer apply:
(a) all Loans which would otherwise be made by such Bank
as (or continued as or converted into) Euro-Dollar Loans shall
instead be Base Rate Loans, and
(b) after each of its outstanding Euro-Dollar Loans has
been repaid (or converted to a Base Rate Loan), all payments of
principal which would otherwise be applied to repay such
Euro-Dollar Loans shall be applied to repay its Base Rate Loans
instead.
If such Bank notifies the Borrower that the circumstances giving rise to such
notice no longer apply, the Borrower shall elect that the principal amount of
each such Base Rate Loan shall be converted into a Euro-Dollar Loan on the
first day of the next succeeding Interest Period applicable to the related
Euro-Dollar Loans of the other Banks.
SECTION 8.06. Substitution of Bank. If (i) the
obligation of any Bank to make Euro-Dollar Loans has been suspended pursuant to
Section 8.02 or (ii) any Bank has demanded compensation under Section 8.03 or
8.04, the
<PAGE> 56
52
Borrower shall have the right to seek a substitute bank or banks (which may be
one or more of the Banks) to purchase the Notes and assume the Commitment of
such Bank under this Agreement.
SECTION 8.07. Election to Terminate. If during any Level
I Period, Level II Period or Level III Period (i) the obligation of any Bank to
make Euro-Dollar Loans has been suspended pursuant to Section 8.02 or (ii) any
Bank has demanded compensation under Section 8.03 or 8.04, the Borrower may
elect to terminate this Agreement as to such Bank, and in connection therewith
not to borrow any Loan hereunder from such Bank or to prepay any Base Rate Loan
made pursuant to Section 8.02 or 8.05 (without altering the Commitments or
Loans of the remaining Banks), provided that the Borrower (i) notifies such
Bank through the Agent of such election at least two Euro-Dollar Business Days
before any date fixed for such borrowing or such a prepayment, as the case may
be, and (ii) repays all of such Bank's outstanding Loans concurrently with such
termination. Upon receipt by the Agent of such notice, the Commitment of such
Bank shall terminate.
ARTICLE IX
MISCELLANEOUS
SECTION 9.01. Notices. All notices, requests and other
communications to any party hereunder shall be in writing (including bank wire,
telex, facsimile transmission or similar writing) and shall be given to such
party: (x) in the case of the Borrower or the Agent, at its address or telex
or telecopy number set forth on the signature pages hereof, (y) in the case of
any Bank, at its address, telex or telecopy number set forth in its
Administrative Questionnaire or (z) in the case of any party, such other
address or telex or telecopy number as such party may hereafter specify for the
purpose by notice to the Agent and the Borrower. All notices from outside the
United States to the Borrower shall only be given by telecopy and all other
notices to the Borrower given by telex shall also be given by telecopy or
non-telex method. Each such notice, request or other communication shall be
effective (i) if given by telex or telecopy, when such telex or telecopy is
transmitted to the number determined pursuant to this Section and the
appropriate answerback is received, (ii) if given by registered or certified
mail, return receipt
<PAGE> 57
53
requested, when such return receipt is signed by the recipient or (iii) if
given by any other means, when delivered at the address specified in this
Section, or, if such date is not a business day in the location where received,
on the next business day in such location; provided that notices to the Agent
under Article II or Article VIII shall not be effective until received.
SECTION 9.02. No Waivers. No failure or delay by the
Agent or any Bank in exercising any right, power or privilege hereunder or
under any Note shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies
herein provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
SECTION 9.03. Expenses; Indemnification. (a) The
Borrower shall pay (i) all out-of-pocket expenses of the Agent, including
reasonable fees and disbursements of special counsel for the Agent (subject to
the limitations previously agreed with such counsel, in the case of fees
payable in connection with the preparation of this Agreement), in connection
with the preparation of this Agreement, any waiver or consent hereunder or any
amendment hereof or any Default or alleged Default hereunder and (ii) if an
Event of Default occurs, all out-of-pocket expenses incurred by the Agent or
any Bank, including fees and disbursements of counsel, in connection with such
Event of Default and collection and other enforcement proceedings resulting
therefrom.
(b) The Borrower agrees to indemnify each Bank and hold
each Bank harmless from and against any and all liabilities, claims, losses,
damages, costs and expenses of any kind, including, without limitation, the
reasonable fees and disbursements of counsel, which may be incurred by any Bank
(or by the Agent in connection with its actions as Agent hereunder) in
connection with any investigative, administrative or judicial proceeding
(whether or not such Bank shall be designated a party thereto) relating to or
arising out of (i) any actual or proposed use of proceeds of Loans hereunder to
acquire equity securities of any other Person or (ii) any transaction which
violates the change in control provisions set forth in Section 6.01(i);
provided that no Bank shall have the right to be indemnified
<PAGE> 58
54
hereunder for its own gross negligence or willful misconduct as determined by a
court of competent jurisdiction.
SECTION 9.04. Amendments and Waivers. Any provision of
this Agreement or the Notes may be amended or waived if, but only if, such
amendment or waiver is in writing and is signed by the Borrower and the
Required Banks (and, if the rights or duties of the Agent are affected thereby,
by the Agent); provided that no such amendment or waiver shall, unless signed
by all the Banks, (i) increase or decrease the Commitment of any Bank or
subject any Bank to any additional obligation, (ii) reduce or forgive the
principal of or rate of interest on any Loan or any fees hereunder, (iii)
postpone the date fixed for any payment of principal of or interest on any Loan
or any fees hereunder or for any reduction or termination of any Commitment or
(iv) amend this Section or otherwise change the percentage of the Commitments
or of the aggregate unpaid principal amount of the Notes, or the number of
Banks, which shall be required for the Banks or any of them to take any action
under this Section or any other provision of this Agreement.
SECTION 9.05. Successors and Assigns. (a) The
provisions of this Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns, except that the
Borrower may not assign, delegate, or otherwise transfer any of its rights or
obligations under this Agreement (other than as contemplated by Section 5.05)
without the prior written consent of all Banks.
(b) Except for (i) any assignment made with the
Borrower's consent, which consent shall be at the Borrower's sole discretion
unless the Assignee is an Affiliate of the transferor Bank, in which case, such
consent shall not be unreasonably withheld, (ii) any grant of participating
interests permitted by subsection (d) below and (iii) any designation of a
different Applicable Lending Office required by Section 8.02, Section 8.03 or
Section 8.04, no Bank may at any time assign or otherwise transfer any of its
rights and obligations under this Agreement and the Notes. An assignment or
other transfer which is not permitted by this subsection (b) shall be given
effect for purposes of this Agreement only to the extent of a participating
interest granted in accordance with subsection (d) below.
(c) Subject to the requirements of subsection (b) above,
any Bank may assign to one or more banks or other
<PAGE> 59
55
institutions (each an "Assignee) all, or a proportionate part of all, of its
rights and obligations under this Agreement and the Notes, and such Assignee
shall assume such rights and obligations, pursuant to an instrument executed by
such Assignee and such transferor Bank, with (and subject to) the subscribed
consent of the Borrower and the Agent. Upon execution and delivery of such an
instrument and payment by such Assignee to such transferor Bank of an amount
equal to the purchase price agreed between such transferor Bank and such
Assignee, such Assignee shall be a Bank party to this Agreement and shall have
all the rights and obligations of a Bank with a Commitment as set forth in such
instrument of assumption, and the transferor Bank shall be released from its
obligations hereunder to a corresponding extent, and no further consent or
action by any party shall be required. In connection with any such assignment,
the transferor Bank shall pay to the Agent an administrative fee for processing
such assignment in the amount of $2,000. Upon the consummation of any
assignment pursuant to this subsection (c), the transferor Bank, the Agent and
the Borrower shall make appropriate arrangements so that, if required, a new
Note is issued to the Assignee. If the Assignee is not incorporated under the
laws of the United States of America or a state thereof, it shall, prior to the
first date on which interest or fees are payable hereunder for its account,
deliver to the Borrower and the Agent certification as to exemption from
deduction or withholding of any United States federal income taxes in
accordance with Section 8.04.
(d) Any Bank may at any time grant to one or more banks
or other institutions (each a "Participant") participating interests in any or
all of its Loans. In the event of any such grant by a Bank of a participating
interest to a Participant, whether or not upon notice to the Borrower and the
Agent, such Bank shall remain responsible for the performance of its
obligations hereunder, and the Borrower and the Agent shall continue to deal
solely and directly with such Bank in connection with such Bank's rights and
obligations under this Agreement. Any agreement pursuant to which any Bank may
grant such a participating interest shall provide that such Bank shall retain
the sole right and responsibility to enforce the obligations of the Borrower
hereunder including, without limitation, the right to approve any amendment,
modification or waiver of any provision of this Agreement; provided that such
participation agreement may provide that such Bank will not agree to any
modification, amendment or waiver of this
<PAGE> 60
56
Agreement described in clause (ii) or (iii) of Section 9.04 without the consent
of the Participant. The Borrower agrees that each Participant shall, to the
extent provided in its participation agreement, be entitled to the benefits of
Article VIII with respect to its participating interest.
(e) No Participant or other transferee of any Bank's
rights shall be entitled to receive any greater payment under Section 8.03 or
8.04 than such Bank would have been entitled to receive with respect to the
rights transferred, unless such transfer is made with the Borrower's prior
written consent or by reason of the provisions of Section 8.02, 8.03 or 8.04
requiring such Bank to designate a different Applicable Lending Office under
certain circumstances.
(f) Any Bank may at any time assign all or any portion of
its rights under this Agreement and its Note to a Federal Reserve Bank. No
such assignment shall release the transferror Bank from its obligations
hereunder.
SECTION 9.06. New York Law. This Agreement and each Note
shall be construed in accordance with and governed by the law of the State of
New York.
SECTION 9.07. Counterparts; Integration. This Agreement
may be signed in any number of counterparts, each of which shall be an
original, with the same effect as if the signatures thereto and hereto were
upon the same instrument. This Agreement constitutes the entire agreement and
understanding among the parties hereto and supersedes any and all prior
agreements and understandings, oral or written, relating to the subject matter
hereof.
<PAGE> 61
57
SECTION 9.08. WAIVER OF JURY TRIAL. EACH OF THE
BORROWER, THE AGENT AND THE BANKS HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT
TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective authorized officers as of the
day and year first above written.
AETNA LIFE AND CASUALTY COMPANY
By /S/ ROBERT E. BROATCH
-------------------------------
Title: Senior Vice President,
Finance
Aetna Life and Casualty Company
151 Farmington Avenue
Hartford, Connecticut 06156
Attention: Assistant Treasurer,
Corporate Finance,
YF37
Telecopier: (203) 275-2661
Telex: 99-241
99-295
643056
With a copy to:
Aetna Life and Casualty Company
151 Farmington Avenue
Hartford, Connecticut 06156
Attention: General Counsel
Telecopier: (203) 273-0050
Telex: 99-241
99-295
643056
<PAGE> 62
Commitment
$50,000,000 MORGAN GUARANTY TRUST COMPANY OF
NEW YORK
By /S/ JERRY J. FALL
--------------------------------
Title: Vice President
Domestic Lending Office
Morgan Guaranty Trust Company
of New York
c/o J.P Morgan Services Inc.
500 Stanton Christiana Road
P.O. Box 6070
Newark, DE 19713-2107
Attention: Kevin M. McCann
Associate
Telecopier: (302) 992-1852/1872
Telex: 177425 MBDEL UT
Euro-Dollar Lending Office
Morgan Guaranty Trust Company of
New York
c/o J.P Morgan Services Inc.
500 Stanton Christiana Road
P.O. Box 6070
Newark, DE 19713-2107
Attention: Kevin M. McCann
Associate
Telecopier: (302) 992-1852/1872
Telex: 177425 MBDEL UT
Money Market Lending Office
Morgan Guaranty Trust Company of
New York
c/o J.P Morgan Services Inc.
500 Stanton Christiana Road
P.O. Box 6070
Newark, DE 19713-2107
Attention: Kevin M. McCann
Associate
Telecopier: (302) 992-1852/1872
Telex: 177425 MBDEL UT
<PAGE> 63
Commitment
$50,000,000 DEUTSCHE BANK AG, NEW YORK AND/OR
CAYMAN ISLANDS BRANCHES
By /S/ CLINTON M. JOHNSON
--------------------------------
Title: Vice President
By /S/ GEORGE-ANN TOBIN-DEW
--------------------------------
Title: Managing Director
Domestic Lending Office
Deutsche Bank AG, New York
Branch
31 West 52nd Street
New York, New York 10019
Attention: Cheryl Mandelbaum
Telecopier: (212) 474-8108
Telex: 429 166/DEUT BK NY
Euro-Dollar Lending Office
Deutsche Bank AG, Cayman Islands
Branch
31 West 52nd Street
New York, New York 10019
Attention: Cheryl Mandelbaum
Telecopier: (212) 474-8108
Telex: 429 166/DEUT BK NY
Money Market Lending Office
Deutsche Bank AG, New York Branch
31 West 52nd Street
New York, New York 10019
Attention: Cheryl Mandelbaum
Telecopier: (212) 474-8108
Telex: 429 166/DEUT BK NY
<PAGE> 64
Commitment
$37,500,000 THE CHASE MANHATTAN BANK, N.A.
By /S/ DENNIS COGAN
--------------------------------
Title: Vice President
Domestic Lending Office
The Chase manhattan Bank, N.A.
One Chase Manhattan Plaza
New York, NY 10081
Attention: Monique Parker
Telecopier: (212) 552-1477;
(212) 552-1999
Telex: N/A
Euro-Dollar Lending Office
The Chase Manhattan Bank, N.A.
One Chase Manhattan Plaza
New York, NY 10081
Attention: Monique Parker
Telecopier: (212) 552-1477;
(212) 552-1999
Telex: N/A
Money Market Lending Office
The Chase Manhattan Bank, N.A.
One Chase Manhattan Plaza
New York, NY 10081
Attention: Monique Parker
Telecopier: (212) 552-1477;
(212) 552-1999
Telex: N/A
<PAGE> 65
Commitment
$37,500,000 CITIBANK, N.A.
By /S/ SCOTT F. ENGLE
--------------------------------
Title: Vice President
Domestic Lending Office
Citibank, N.A.
399 Park Avenue
New York, New York 10043
Attention: Josephine Cameron,
Mgr./FINA-Insurance
Telecopier: (212) 935-4285
Telex: N/A
Euro-Dollar Lending Office
Citibank, N.A.
399 Park Avenue
New York, New York 10043
Attention: Josephine Cameron,
Mgr./FINA-Insurance
Telecopier: (212) 935-4285
Telex: N/A
Money Market Lending Office
Citibank, N.A.
399 Park Avenue
New York, New York 10043
Attention: Josephine Cameron,
Mgr./FINA-Insurance
Telecopier: (212) 935-4285
Telex: N/A
<PAGE> 66
Commitment
$37,500,000 CREDIT SUISSE
By /S/ LYNN ALLEGAERT
--------------------------------
Title: Member of Senior
Management
By /S/ JUERG JOHNER
--------------------------------
Title: Associate
Domestic Lending Office
Credit Suisse
12 East 49th Street
New York, New York 10017
Attention: Rita Santelli
Telecopier: (212) 238-5439
Telex: N/A
Euro-Dollar Lending Office
Credit Suisse
12 East 49th Street
New York, New York 10017
Attention: Rita Santelli
Telecopier: (212) 238-5439
Telex: N/A
Money Market Lending Office
Credit Suisse
12 East 49th Street
New York, New York 10017
Attention: Rita Santelli
Telecopier: (212) 238-5439
Telex: N/A
<PAGE> 67
Commitment
$22,500,000 BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By /S/ LARRY HESS
--------------------------------
Title: Vice President
Domestic Lending Office
Bank of America National Trust
and Savings Association
1850 Gateway Boulevard, GPO-AA
#5693
Concord, CA 94520
Attention: Hoyt Weller
Telecopier: (510) 675-7531
Telex: 34346
Euro-Dollar Lending Office
Bank of America National Trust
and Savings Association
1850 Gateway Boulevard, GPO-AA
#5693
Concord, CA 94520
Attention: Hoyt Weller
Telecopier: (510) 675-7531
Telex: 34346
Money Market Lending Office
Bank of America National Trust
and Savings Association
555 California Street, 10th Floor
San Francisco, CA 94104
Attention: Short Term Asset
Sales #5670
Telecopier: (415) 622-2235
Telex: N/A
<PAGE> 68
Commitment
$22,500,000 THE FIRST NATIONAL BANK OF CHICAGO
By /S/ THOMAS J. COLLIMORE
--------------------------------
Title: Vice President
Domestic Lending Office
The First National Bank of
Chicago
One First National Plaza
Insurance Companies Division,
Suite 0085
Chicago, IL 60670-0085
Attention: Lillian Arroyo
Telecopier: (312) 732-4033
Telex: N/A
Euro-Dollar Lending Office
The First National Bank of
Chicago
One First National Plaza
Insurance Companies Division,
Suite 0085
Chicago, IL 60670-0085
Attention: Lillian Arroyo
Telecopier: (312) 732-4033
Telex: N/A
Money Market Lending Office
The First National Bank of
Chicago
One First National Plaza
Insurance Companies Division,
Suite 0085
Chicago, IL 60670-0085
Attention: Lillian Arroyo
Telecopier: (312) 732-4033
Telex: N/A
<PAGE> 69
Commitment
$22,500,000 FLEET BANK, NATIONAL ASSOCIATION
By /S/ JAN-GEE W. MCCOLLAM
--------------------------------
Title: Senior Vice President
Domestic Lending Office
Fleet Bank, National Association
One Constitution Plaza
Hartford, CT 06115
Attention: Jacqueline Steffens/
Insurance
Telecopier: (203) 244-5391
Telex: N/A
Euro-Dollar Lending Office
Fleet Bank National Association
One Constitution Plaza
Hartford, CT 06115
Attention: Jacqueline Steffens/
Insurance
Telecopier: (203) 244-5391
Telex: N/A
Money Market Lending Office
Fleet Bank National Association
One Constitution Plaza
Hartford, CT 06115
Attention: Jacqueline Steffens/
Insurance
Telecopier: (203) 244-5391
Telex: N/A
<PAGE> 70
Commitment
$22,500,000 MELLON BANK, N.A.
By /S/ W. SCOTT SANFORD
--------------------------------
Title: Senior Vice President
Domestic Lending Office
Mellon Bank, N.A.
Three Mellon Bank Center
Pittsburgh, PA 15259
Attention: Sandra A. Castelli/
Loan Administration
Telecopier: N/A
Telex: N/A
Euro-Dollar Lending Office
Mellon Bank, N.A.
One Mellon Bank Center
Pittsburgh, PA 15258
Attention: Marilyn Wagner/
Money Markets
Telecopier: N/A
Telex: N/A
Money Market Lending Office
Mellon Bank, N.A.
Three Mellon Bank Center
Pittsburgh, PA 15259
Attention: Sandra A. Castelli/
Loan Administration
Telecopier: N/A
Telex: N/A
<PAGE> 71
Commitment
$22,500,000 NATIONS BANK OF GEORGIA, N.A.
By /S/ FRANK R. CALLISON
--------------------------------
Title: Vice President
Domestic Lending Office
Nations Bank of Georgia, N.A.
One Nations Bank Plaza
NC1-002-06-19/ P.O. Box 120
Charlotte, NC 28255
Attention: Chris Chaffee
Telecopier: (704) 386-8694
Telex: N/A
Euro-Dollar Lending Office
Nations Bank of Georgia, N.A.
One Nations Bank Plaza
NC1-002-06-19/ P.O. Box 120
Charlotte, NC 28255
Attention: Chris Chaffee
Telecopier: (704) 386-8694
Telex: N/A
Money Market Lending Office
Nations Bank of Georgia, N.A.
One Nations Bank Plaza
NC1-002-06-19/ P.O. Box 120
Charlotte, NC 28255
Attention: Chris Chaffee
Telecopier: (704) 386-8694
Telex: N/A
<PAGE> 72
Commitment
$22,500,000 SHAWMUT BANK CONNECTICUT, N.A.
By /S/ MARION B. HARDY
--------------------------------
Title: Vice President
Domestic Lending Office
Shawmut Bank Connecticut, N.A.
777 Main Street
Hartford, CT 06115
Attention: Leeane Hediger
Insurance Industry
Telecopier: (203) 240-1264
Telex: N/A
Euro-Dollar Lending Office
Shawmut Bank Connecticut, N.A.
777 Main Street
Hartford, CT 06115
Attention: Leeane Hediger
Insurance Industry
Telecopier: (203) 240-1264
Telex: N/A
Money Market Lending Office
Shawmut Bank Connecticut, N.A.
777 Main Street
Hartford, CT 06115
Attention: Leeane Hediger
Insurance Industry
Telecopier: (203) 240-1264
Telex: N/A
<PAGE> 73
Commitment
$22,500,000 THE TORONTO-DOMINION BANK
By /S/ E. E. WALKER
--------------------------------
Title: Manager - Credit
Administration
Domestic Lending Office
The Toronto-Dominion Bank
909 Fannin Street, Suite 1700
Houston, TX 77010
Attention: E. E. Walker
Manager, Credit
Administration
Telecopier: (713) 951-9921
Telex: N/A
Euro-Dollar Lending Office
The Toronto-Dominion Bank
909 Fannin Street, Suite 1700
Houston, TX 77010
Attention: E. E. Walker
Manager, Credit
Administration
Telecopier: (713) 951-9921
Telex: N/A
Money Market Lending Office
The Toronto-Dominion Bank
USA Treasury Group-
Short Term Asset Sales
31 West 52nd Street, 21st Floor
New York, NY 10019-6101
Attention: Senior Dealer
Telecopier: (212) 262-1949
Telex: N/A
<PAGE> 74
Commitment
$13,000,000 CHEMICAL BANK
By /S/ M. LUISA HUNNEWELL
--------------------------------
Title: Vice President
Domestic Lending Office
Chemical Bank
270 Park Avenue, 9th Floor
New York, NY 10017
Attention: Bill Castro
Telecopier: (212) 370-0429
Telex: N/A
Euro-Dollar Lending Office
Chemical Bank
270 Park Avenue, 9th Floor
New York, NY 10017
Attention: Bill Castro
Telecopier: (212) 370-0429
Telex: N/A
Money Market Lending Office
Chemical Bank
270 Park Avenue, 9th Floor
New York, NY 10017
Attention: Bill Castro
Telecopier: (212) 370-0429
Telex: N/A
<PAGE> 75
Commitment
$13,000,000 CORESTATES BANK N.A.
By /S/ DEIDRE LEDWITH
--------------------------------
Title: Assistant Vice President
Domestic Lending Office
Corestates Bank N.A.
Centre Square-West Tower-Loan
ACCTG
F.C. 1-3-81-1
1500 Market Street
Philadelphia, PA 19101
Attention: Sharon Burgess/
Loan Accounting
Telecopier: (215) 786-4113
Telex: N/A
Euro-Dollar Lending Office
Corestates Bank N.A.
Centre Square-West Tower-Loan
ACCTG
F.C. 1-3-81-1
1500 Market Street
Philadelphia, PA 19101
Attention: Sharon Burgess/
Loan Accounting
Telecopier: (215) 786-4113
Telex: N/A
Money Market Lending Office
Corestates Bank N.A.
Centre Square-West Tower-Loan
ACCTG
F.C. 1-3-81-1
1500 Market Street
Philadelphia, PA 19101
Attention: Sharon Burgess/
Loan Accounting
Telecopier: (215) 786-4113
Telex: N/A
<PAGE> 76
Commitment
$13,000,000 CREDIT LYONNAIS NEW YORK
By /S/ JEAN MARK MORIANI
--------------------------------
Title: Senior Vice President
Domestic Lending Office
Credit Lyonnais New York
1301 Avenue of the Americas
New York, NY 10019
Attention: Lucie Mercado
Financial Institutions
Telecopier: (212) 261-3401
Telex: 62410 YLRC
Euro-Dollar Lending Office
Credit Lyonnais New York
1301 Avenue of the Americas
New York, NY 10019
Attention: Lucie Mercado
Financial Institutions
Telecopier: (212) 261-3401
Telex: 62410 YLRC
Money Market Lending Office
Credit Lyonnais New York
1301 Avenue of the Americas
New York, NY 10019
Attention: Lucie Mercado
Financial Institutions
Telecopier: (212) 261-3401
Telex: 62410 YLRC
<PAGE> 77
Commitment
$13,000,000 THE DAI-ICHI KANGYO BANK, LTD.,
NEW YORK BRANCH
By /S/ KIM P. LEARY
---------------------------------
Title: Vice President
Domestic Lending Office
The Dai-Ichi Kangyo Bank, Ltd.,
New York Branch
One World Trade Center
Suite 4911
New York, NY 10048
Attention: Anne Marie Heverin
Telecopier: (212) 524-0579;
(212) 432-5221
Telex: 232988 DKB UR; 422581
DKB UI; 824613 DKB NYUF
Euro-Dollar Lending Office
The Dai-Ichi Kangyo Bank, Ltd.,
New York Branch
One World Trade Center
Suite 4911
New York, NY 10048
Attention: Anne Marie Heverin
Telecopier: (212) 524-0597;
(212) 432-5221
Telex: 232988 DKB UR; 422581
DKB UI; 824613 DKB NYUF
Money Market Lending Office
The Dai-Ichi Kangyo Bank, Ltd.,
New York Branch
One World Trade Center
Suite 4911
New York, NY 10048
Attention: Anne Marie Heverin
Telecopier: (212) 524-0597;
(212) 432-5221
Telex: 232988 DKB UR; 422581
DKB UI; 824613 DKB NYUF
<PAGE> 78
Commitment
$13,000,000 FIRST INTERSTATE BANK OF CALIFORNIA
By /S/ THOMAS J. HELOTES
--------------------------------
Title: Vice President
Domestic Lending Office
First Interstate Bank of
California
707 Wilshire Boulevard
W16-14
Los Angeles, CA 90017
Attention: Thomas John Helotes
Telecopier: (213) 614-4122
Telex: N/A
Euro-Dollar Lending Office
First Interstate Bank of
California
1055 Wilshire Boulevard
B10-6
Los Angeles, CA 90017
Attention: Claudine Stines
Unit Manager
Telecopier: (213) 488-9909/9959
Telex: N/A
Money Market Lending Office
First Interstate Bank of
California
707 Wilshire Boulevard
W16-20
Los Angeles, CA 90017
Attention: Matt Frey
Asst. Vice President
Telecopier: (213) 614-2305/2569
Telex: N/A
<PAGE> 79
Commitment
$13,000,000 THE FIRST NATIONAL BANK OF BOSTON
By /S/ CHARLES A. GARRITY
--------------------------------
Title: Vice President
Domestic Lending Office
The First National Bank of Boston
100 Federal Street
Boston, MA 02110
Attention: Loretta Barraffo
Commercial Loan
Department
Telecopier: (617) 467-2276
Telex: N/A
Euro-Dollar Lending Office
The First National Bank of Boston
P.O. Box 1187
Boston, MA 02103
Attention: Loretta Barraffo
Commercial Loan
Department
Telecopier: (617) 467-2276
Telex: N/A
Money Market Lending Office
The First National Bank of Boston
100 Federal Street
Boston, MA 02110
Attention: Loretta Barraffo
Commercial Loan
Department
Telecopier: (617) 467-2276
Telex: N/A
<PAGE> 80
Commitment
$13,000,000 NORTHERN TRUST COMPANY
By /S/ DEAN V. BANICK
--------------------------------
Title: Vice President
Domestic Lending Office
Northern Trust Company
50 South LaSalle
Chicago, IL 60675
Attention: Evelyn Jackson/
Commercial Banking
Telecopier: (312) 444-3432
Telex: N/A
Euro-Dollar Lending Office
Northern Trust Company
50 South LaSalle
Chicago, IL 60675
Attention: Evelyn Jackson/
Commercial Banking
Telecopier: (312) 444-3432
Telex: N/A
Money Market Lending office
Northern Trust Company
50 South LaSalle
Chicago, IL 60675
Attention: Evelyn Jackson/
Commercial Banking
Telecopier: (312) 557-8337
Telex: N/A
<PAGE> 81
Commitment
$13,000,000 STATE STREET BANK AND TRUST COMPANY
By /S/ ROBERT P. ENGVALL, JR.
--------------------------------
Title: Vice President
Domestic Lending Office
State Street Bank and Trust
Company
225 Franklin Street
Boston, MA 02110
Attention: Sandra L. Donnellan
Telecopier: (617) 985-5082
Telex: 200139/ STATE UR
Euro-Dollar Lending Office
State Street Bank and Trust
Company
225 Franklin Street
Boston, MA 02110
Attention: Sandra L. Donnellan
Telecopier: (617) 985-5082
Telex: 200139/ STATE UR
Money Market Lending Office
State Street Bank and Trust
Company
225 Franklin Street
Boston, MA 02110
Attention: Sandra L. Donnellan
Telecopier: (617) 985-5082
Telex: 200139/ STATE UR
<PAGE> 82
Commitment
$13,000,000 THE SUMITOMO BANK, LIMITED, NEW YORK
BRANCH
By /S/ SHINICHI ITO
--------------------------------
Title: Joint General Manager
Domestic Lending Office
The Sumitomo Bank, Limited,
New York Branch
One World Trade Center
Suite 9651
New York, NY 10048
Attention: Diana Pabon Hurtzig
Telecopier: (212) 323-0366
Telex: N/A
Euro-Dollar Lending Office
The Sumitomo Bank, Limited,
New York Branch
One World Trade Center
Suite 9651
New York, NY 10048
Attention: Diana Pabon Hurtzig
Telecopier: (212) 323-0366
Telex: N/A
Money Market Lending Office
The Sumitomo Bank, Limited,
New York Branch
One World Trade Center
Suite 9651
New York, NY 10048
Attention: Diana Pabon Hurtzig
Telecopier: (212) 323-0366
Telex: N/A
<PAGE> 83
Commitment
$13,000,000 WACHOVIA BANK OF GEORGIA, N.A.
By /S/ DAVID L. GAINES
--------------------------------
Title: Senior Vice President
Domestic Lending Office
Wachovia Bank of Georgia, N.A.
191 Peachtree Street NE MC-GA 370
Atlanta, GA 30303
Attention: Gwen Miles
U.S. Corporate
Telecopier: (404) 332-6898
Telex: 542553/WACHFEX-ATL
Euro-Dollar Lending Office
Wachovia Bank of Georgia, N.A.
191 Peachtree Street NE MC-GA 370
Atlanta, GA 30303
Attention: Gwen Miles
U.S. Corporate
Telecopier: (404) 332-6898
Telex: 542553/WACHFEX-ATL
Money Market Lending Office
Wachovia Bank of Georgia, N.A.
191 Peachtree Street NE MC-GA 370
Atlanta, GA 30303
Attention: Gwen Miles
U.S. Corporate
Telecopier: (404) 332-6898
Telex: 542553/WACHFEX-ATL
<PAGE> 84
MORGAN GUARANTY TRUST COMPANY OF
NEW YORK, as Agent
By /S/ JERRY J. FALL
--------------------------------
Title: Vice President
500 Stanton Christiana Road
P.O. Box 6070
Newark, DE 19713-2107
Attention: Kevin McCann,
Associate
Telecopier: (212) 385-2603
Telex: 177425 MBDEL UT
<PAGE> 85
EXHIBIT A
NOTE
New York, New York
July , 1994
For value received, Aetna Life and Casualty Company, a Connecticut
insurance corporation (the "Borrower"), promises to pay to the order of
_______________ (the "Bank"), for the account of its Applicable Lending Office,
the principal sum of $_________ or the aggregate unpaid principal amount of the
Bank's Loans then outstanding under the Credit Agreement referred to below on
the date or dates provided for in the Credit Agreement. The Borrower promises
to pay interest on the unpaid principal amount of each such Loan on the dates
and at the rate or rates provided for in the Credit Agreement. All such
payments of principal and interest shall be made in lawful money of the United
States in Federal or other immediately available funds at the office of Morgan
Guaranty Trust Company of New York, 60 Wall Street, New York, New York.
All Loans made by the Bank, the respective maturities thereof and
all repayments of the principal thereof shall be recorded by the Bank and,
prior to any transfer hereof, appropriate notations to evidence the foregoing
information with respect to each such Loan then outstanding shall be endorsed
by the Bank on the schedule attached hereto, or on a continuation of such
schedule attached to and made a part hereof; provided that the failure of the
Bank to make any such recordation or endorsement shall not affect the
obligations of the Borrower hereunder or under the Credit Agreement.
This note is one of the Notes referred to in the Short-Term Credit
Agreement dated as of July 27, 1994 among the Borrower, the banks listed on the
signature pages thereof and Morgan Guaranty Trust Company of New York, as
Managing Agent (as the same may be amended from time to time, the "Credit
Agreement"). Terms defined in the Credit Agreement are used herein with the
same meanings.
<PAGE> 86
2
Reference is made to the Credit Agreement for provisions for the prepayment
hereof and the acceleration of the maturity hereof.
AETNA LIFE AND CASUALTY
COMPANY
By
--------------------
Title:
<PAGE> 87
3
LOANS AND PAYMENTS OF PRINCIPAL
- --------------------------------------------------------------------------------
Amount of
Amount of Principal Maturity Notation
Date Loan Repaid Date Made By
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 88
EXHIBIT B
Form of Money Market Quote Request
[Date]
To: Morgan Guaranty Trust Company of New York
(the "Agent")
From: Aetna Life and Casualty Company
Re: Short-Term Credit Agreement (the "Credit Agreement") dated as of
July 27, 1994 among the Borrower, the Banks listed on the
signature pages thereof and the Agent
We hereby give notice pursuant to Section 2.03 of
the Credit Agreement that we request Money Market Quotes for
the following proposed Money Market Borrowing(s):
Date of Borrowing:
-------------------------
Principal Amount */ Interest Period **/
- ------------------- -------------------
$
Such Money Market Quotes should offer a Money
Market [Margin] [Absolute Rate]. [The applicable base rate
is the London Interbank Offered Rate.]
- ----------------------------------
*/ Amount must be $25,000,000 or a larger multiple of $1,000,000.
**/ Not less than one month (LIBOR Auction) or not less than 7 days
(Absolute Rate Auction), subject to the provisions of the definition of
Interest Period.
<PAGE> 89
2
Terms used herein have the meanings assigned to
them in the Credit Agreement.
AETNA LIFE AND CASUALTY
COMPANY
By
-------------------
Title:
<PAGE> 90
EXHIBIT C
Form of Invitation for Money Market Quotes
To: [Name of Bank]
Re: Invitation for Money Market Quotes
to Aetna Life and Casualty Company (the
"Borrower")
Pursuant to Section 2.03 of the Short-Term Credit Agreement dated as
of July 27, 1994 among the Borrower, the Banks parties thereto and the
undersigned, as Managing Agent, we are pleased on behalf of the Borrower to
invite you to submit Money Market Quotes to the Borrower for the following
proposed Money Market Borrowing(s):
Date of Borrowing:
------------------
Principal Amount Interest Period
- ---------------- ---------------
$
Such Money Market Quotes should offer a Money
Market [Margin] [Absolute Rate]. [The applicable base rate
is the London Interbank Offered Rate.]
Please respond to this invitation by no later than
9:30 A.M. (New York City time) on [date].
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By
------------------------
Authorized Officer
<PAGE> 91
EXHIBIT D
Form of Money Market Quote
Morgan Guaranty Trust Company
of New York, as Managing Agent
60 Wall Street
New York, New York 10260
Attention:
Re: Money Market Quote to
Aetna Life and Casualty Company (the "Borrower")
In response to your invitation on behalf of the Borrower dated
____________, 19__, we hereby make the following Money Market Quote on the
following terms:
1. Quoting Bank:
----------------------------
2. Person to contact at Quoting Bank:
- ---------------------------------------
3. Date of Borrowing: */
----------------------
- ----------------------------------
*/ As specified in the related Invitation.
<PAGE> 92
2
4. We hereby offer to make Money Market Loan(s) in the following
principal amounts, for the following Interest Periods and at the following
rates:
<TABLE>
<CAPTION>
Principal Interest Money Market [Absolute
Amount **/ Period ***/ [Margin ****/ ] Rate *****/ ]
- ---------- ----------- --------------- -------------
<S> <C> <C> <C>
$
$
</TABLE>
[Provided, that the aggregate principal amount of Money Market Loans for which
the above offers may be accepted shall not exceed $______________.] **/
We understand and agree that the offer(s) set forth above, subject
to the satisfaction of the applicable conditions set forth in the Short-Term
Credit Agreement dated as of July 27, 1994 among the Borrower, the Banks listed
on
- ----------------------------------
**/ Principal amount bid for each Interest Period may not exceed
principal amount requested. Specify aggregate limitation if the sum of the
individual offers exceeds the amount the Bank is willing to lend. Bids
must be made for $1,000,000 or a larger multiple thereof.
***/ Not less than one month (LIBOR Auction) or not less than 7 days
(Absolute Rate Auction), specified in the related Invitation. No more than
five bids are permitted for each Interest Period.
****/ Margin over or under the London Interbank Offered Rate
determined for the applicable Interest Period. Specify percentage
(rounded to the nearest 1/10,000 of 1%) and specify whether "PLUS" or "MINUS".
*****/ Specify rate of interest per annum (rounded to the nearest
1/10,000 of 1%).
<PAGE> 93
3
the signature pages thereof and yourselves, as Agent, irrevocably obligates us
to make the Money Market Loan(s) for which any offer(s) are accepted, in whole
or in part.
Very truly yours,
[NAME OF BANK]
By
-------------------------
Authorized Officer
<PAGE> 94
EXHIBIT E-1
OPINION OF
COUNSEL FOR THE BORROWER
July __, 1994
To the Banks and the Agent
Referred to Below
c/o Morgan Guaranty Trust Company
of New York, as Managing Agent
60 Wall Street
New York, NY 10260
Ladies and Gentlemen:
As counsel to Aetna Life and Casualty Company (the "Borrower"), I
have been asked to provide a legal opinion to you in connection with the
Short-Term Credit Agreement (the "Credit Agreement") dated as of July 27, 1994
among the Borrower, the banks listed on the signature pages thereof and Morgan
Guaranty Trust Company of New York, as Managing Agent. Terms defined in the
Credit Agreement are used herein as therein defined.
In furnishing this opinion, I have:
(1) made, or caused to be made, and relied upon such
investigations of fact and law and have examined,
or caused to be examined, and relied upon such
documents, records, certificates, instruments or
other written evidences, and upon such other
factual information, as in my judgment were
necessary or appropriate; and
(2) assumed that all such documents, records,
certificates, instruments and other written
evidences: (a) when examined as copies, conform
with the originals thereof; and (b) when
examined in the originals or in copies,
are complete, authentic and genuinely executed
on behalf of all parties other than, with respect
to the Credit Agreement and all
<PAGE> 95
2
other documents executed and delivered in connection
therewith, the Borrower.
Upon the basis of the foregoing, I am of the
opinion that:
1. The Borrower is an insurance corporation duly
incorporated, validly existing and in good standing under the laws
of the State of Connecticut.
2. The execution, delivery and performance by the Borrower
of the Credit Agreement and the Notes (i) are within the Borrower's
corporate powers, (ii) have been duly authorized by all necessary
corporate action, (iii) under the laws of Connecticut and federal laws
and, to the best of my knowledge and belief without any investigation,
the laws of any other jurisdictions, require no action by or in
respect of, or prior filing with, any governmental body, agency or
official, (iv) do not conflict with, violate or result in a breach of
or constitute a default under the Certificate of Incorporation or
By-Laws of the Borrower, its 9-1/2% Eurodollar Notes due 1995, its
8-5/8% Notes due 1998, its 6-3/8% Notes due 2003, its 6-3/4%
Debentures due 2013, its 7-3/4% Eurodollar Notes due 2016, its 8%
Debentures due 2017 or its 7-1/4% Debentures due 2023 and (v) to the
best of my knowledge and belief, will not conflict with or constitute
a breach of or a default under any other financial agreement
(excluding insurance obligations) binding upon the Borrower, which
conflict, breach or default would have a material adverse effect on
the earnings or financial condition of the Borrower and its
Consolidated Subsidiaries considered as a whole.
3. To the best of my knowledge, except as disclosed in the
Borrower's 1993 Form 10-K or 1994 First Quarter Form 10-Q, there is no
action, suit or proceeding pending against or threatened against or
affecting the Borrower or its Consolidated Subsidiaries before any
court or arbitrator or any governmental body, agency or official in
which there is a reasonable possibility of an adverse decision which
could materially adversely affect the business, consolidated financial
position or consolidated results of operations of the Borrower and its
Consolidated Subsidiaries taken as a whole or which in any manner
<PAGE> 96
3
draws into question the validity of the Credit Agreement or the Notes.
4. Each of the Borrower's Principal Insurance Subsidiaries is a
corporation validly existing and in good standing under the laws of
its jurisdiction of incorporation.
I am admitted to the Bar of the State of Connecticut, and the
foregoing opinion is limited to the laws of the State of Connecticut and
federal laws. I am furnishing this opinion to you solely for your benefit
pursuant to Section 3.01(d) of the Credit Agreement, and it is not to be used,
circulated, quoted or otherwise referred to for any other purpose.
Very truly yours,
John W. Campbell
<PAGE> 97
EXHIBIT E-2
OPINION OF
DAVIS POLK & WARDWELL
July __, 1994
The Banks and the Agent
Referred to Above
c/o Morgan Guaranty Trust Company
of New York, as Managing Agent
60 Wall Street
New York, New York 10260
Dear Sirs:
We have participated in the preparation of the Short-Term Credit
Agreement dated as of July 27, 1994 (the "Credit Agreement") among Aetna Life
and Casualty Company, a Connecticut insurance corporation (the "Borrower"), the
banks listed on the signature pages thereof (the "Banks") and Morgan Guaranty
Trust Company of New York, as Managing Agent (the "Agent"), and have acted as
special New York counsel for the Borrower for the purpose of rendering this
opinion pursuant to Section 3.01(d) of the Credit Agreement. Terms defined in
the Credit Agreement are used herein as therein defined.
We have examined originals or copies, certified or otherwise
identified to our satisfaction, of such documents, corporate records,
certificates of public officials and other instruments and have conducted such
other investigations of fact and law as we have deemed necessary or advisable
for purposes of this opinion.
Upon the basis of the foregoing, we are of the opinion that:
1. Under the laws of New York, the execution, delivery and
performance by the Borrower of the Credit Agreement and the Notes
require no action by or in
<PAGE> 98
2
respect of, or prior filing with, any governmental body, agency or
official.
2. The Credit Agreement constitutes a valid and binding agreement
of the Borrower and the Notes constitute valid and binding obligations
of the Borrower, enforceable in accordance with their terms, except
as may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the enforcement of creditors'
rights generally, by insolvency laws affecting the rights of creditors
of insurance companies generally and by general principles of equity.
We are members of the Bar of the State of New York and the
foregoing opinion is limited to the laws of the State of New York. In giving
the foregoing opinion, (i) we express no opinion as to the effect (if any) of
any law of any jurisdiction (except the State of New York) in which any Bank is
located which limits the rate of interest that such Bank may charge or collect
and (ii) we have relied, without independent investigation, as to all matters
governed by the laws of Connecticut, upon the opinion of John W. Campbell,
counsel for the Borrower, dated July __, 1994, a copy of which has been
delivered to you.
This opinion is rendered solely to you in connection with the
above matter. This opinion may not be relied upon by you for any other purpose
or relied upon by any other person without our prior written consent.
Very truly yours,
<PAGE> 99
EXHIBIT F
July __, 1994
Dear Sirs:
We have participated in the preparation of the Short-Term Credit
Agreement dated as of July 27, 1994 (the "Credit Agreement") among Aetna Life
and Casualty Company, a Connecticut insurance corporation (the "Borrower"), the
banks listed on the signature pages thereof (the "Banks") and Morgan Guaranty
Trust Company of New York, as Managing Agent (the "Agent"), and have acted as
special counsel for the Agent for the purpose of rendering this opinion
pursuant to Section 3.01(e) of the Credit Agreement. Terms defined in the
Credit Agreement are used herein as therein defined.
We have examined originals or copies, certified or otherwise
identified to our satisfaction, of such documents, corporate records,
certificates of public officials and other instruments and have conducted such
other investigations of fact and law as we have deemed necessary or advisable
for purposes of this opinion.
Upon the basis of the foregoing, we are of opinion as follows:
1. The execution, delivery and performance by the Borrower of the
Credit Agreement and the Notes are within the Borrower's corporate powers and
have been duly authorized by all necessary corporate action.
2. The Credit Agreement constitutes a valid and binding agreement of
the Borrower and the Notes constitute valid and binding obligations of the
Borrower.
In giving the foregoing opinion, (i) we express no opinion as to the
effect (if any) of any law of any jurisdiction (except the State of New York)
in which any Bank is located which limits the rate of interest that such Bank
may charge or collect and (ii) we have relied, without independent
investigation, as to all matters governed by the
<PAGE> 100
2
laws of Connecticut, upon the opinion of John W. Campbell, Esq., counsel for
the Borrower dated July , 1994, a copy of which has been delivered to you.
This opinion is rendered solely to you in connection with the
above matter. This opinion may not be relied upon by you for any other purpose
or relied upon by any other person without our prior written consent.
Very truly yours,
The Banks and the Agent
Referred to Above
In care of Morgan Guaranty Trust Company
of New York, as Managing Agent
60 Wall Street
New York, NY 10260
<PAGE> 101
EXHIBIT G
EXTENSION NOTICE
To the Banks party
to the Credit Agreement
referred to below:
In care of
Morgan Guaranty Trust Company
of New York, as Managing Agent
60 Wall Street
New York, NY 10260
Gentlemen:
Aetna Life and Casualty Company (the "Borrower") hereby requests
that the Commitments under the Short-Term Credit Agreement dated as of July 27,
1994 (the "Credit Agreement") among the Borrower, the Banks listed therein,
certain Co-Agents named therein and Morgan Guaranty Trust Company of New York,
as Managing Agent, pursuant to Section 2.16 of the Credit Agreement. The
Extension Date is _______ and the Extended Maturity Date is _______. Each Bank
that is willing to extend its Commitment as provided above is requested to
countersign a copy of this notice and return it to the Borrower, with a copy to
the Agent, as promptly as possible, but in any event prior to the Extension
Date specified above; provided that such Bank may revoke its agreement to so
extend its Commitment at any time on or prior to the Extension Date by written
notice to the Borrower delivered to the Borrower on or prior to the Extension
Date. Terms defined in the Credit Agreement are used herein as therein
defined.
This extension Notice shall be construed in accordance with and
governed by the law of the State of New York.
AETNA LIFE AND CASUALTY COMPANY
By
---------------------------
Title:
<PAGE> 102
2
The undersigned Bank is willing
to extend its Commitment as
specified above:
[NAME OF BANK]
By
---------------------------
Title:
<PAGE> 1
============================================================
$500,000,000
MEDIUM-TERM CREDIT AGREEMENT
dated as of
July 27, 1994
among
Aetna Life and Casualty Company,
The Banks Listed Herein,
Morgan Guaranty Trust Company of New York,
as Managing Agent
Deutsche Bank AG,
as Co-Arranger
and
The Chase Manhattan Bank, N.A., Citibank, N.A., and
Credit Suisse, as Co-Agents
============================================================
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ARTICLE I
DEFINITIONS
SECTION 1.01 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.02 Accounting Terms and Determinations . . . . . . . . . . . . . . . . . . . 13
1.03 Classifications of Borrowings . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE II
THE CREDITS
SECTION 2.01 Commitments to Lend . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.02 Notice of Committed Borrowings . . . . . . . . . . . . . . . . . . . . . 14
2.03 Money Market Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.04 Notice to Banks; Funding of Loans . . . . . . . . . . . . . . . . . . . . 20
2.05 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.06 Maturity of Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.07 Termination or Reduction of
Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
2.08 Interest Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
2.09 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
2.10 Method of Electing Interest Rates . . . . . . . . . . . . . . . . . . . . 26
2.11 Optional Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . 29
2.12 General Provisions as to Payments . . . . . . . . . . . . . . . . . . . . 29
2.13 Funding Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
2.14 Computation of Interest and Fees . . . . . . . . . . . . . . . . . . . . 30
2.15 Regulation D Compensation . . . . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE III
CONDITIONS
SECTION 3.01 Effectiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
3.02 Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01 Corporate Existence and Power . . . . . . . . . . . . . . . . . . . . . . 34
4.02 Corporate and Governmental
Authorization; No Contravention . . . . . . . . . . . . . . . . . . . . 34
4.03 Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
4.04 Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . 34
4.05 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
4.06 Compliance with ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . 35
4.07 Principal Insurance Subsidiaries . . . . . . . . . . . . . . . . . . . . 36
4.08 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . 36
ARTICLE V
COVENANTS
SECTION 5.01 Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
5.02 Conduct of Business and
Maintenance of Existence . . . . . . . . . . . . . . . . . . . . . . . 38
5.03 Minimum Adjusted Consolidated Net 38
Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5.04 Equal and Ratable Lien Protection . . . . . . . . . . . . . . . . . . . . 38
5.05 Consolidations, Mergers and Sales
of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
5.06 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
5.07 Cross Default Provisions . . . . . . . . . . . . . . . . . . . . . . . . 39
5.08 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE VI
DEFAULTS
SECTION 6.01 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
6.02 Notice of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
ARTICLE VII
THE AGENT
SECTION 7.01 Appointment and Authorization . . . . . . . . . . . . . . . . . . . . . . 42
7.02 Agent and Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . 42
7.03 Action by Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
7.04 Consultation with Experts . . . . . . . . . . . . . . . . . . . . . . . . 42
7.05 Liability of Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
7.06 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
7.07 Credit Decision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
7.08 Successor Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
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ARTICLE VIII
CHANGE IN CIRCUMSTANCES
SECTION 8.01 Basis for Determining Interest
Rate Inadequate or Unfair . . . . . . . . . . . . . . . . . . . . . . . 44
8.02 Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
8.03 Increased Cost and Reduced Return . . . . . . . . . . . . . . . . . . . . 46
8.04 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
8.05 Base Rate Loans Substituted for
Affected Euro-Dollar Loans . . . . . . . . . . . . . . . . . . . . . . 50
8.06 Substitution of Bank . . . . . . . . . . . . . . . . . . . . . . . . . . 51
8.07 Election to Terminate . . . . . . . . . . . . . . . . . . . . . . . . . . 51
ARTICLE IX
MISCELLANEOUS
SECTION 9.01 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
9.02 No Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
9.03 Expenses; Indemnification . . . . . . . . . . . . . . . . . . . . . . . . 52
9.04 Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . . . . 53
9.05 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . 53
9.06 New York Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
9.07 Counterparts; Integration . . . . . . . . . . . . . . . . . . . . . . . . 55
9.08 WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Exhibit A - Note
Exhibit B - Form of Money Market Quote Request
Exhibit C - Form of Invitation for Money Market Quotes
Exhibit D - Form of Money Market Quote
Exhibit E - Opinions of Counsel for the Borrower
Exhibit F - Opinion of Special Counsel for the Agent
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<PAGE> 5
CREDIT AGREEMENT
AGREEMENT dated as of July 27, 1994 among AETNA LIFE AND
CASUALTY COMPANY, the BANKS listed on the signature pages hereof, MORGAN
GUARANTY TRUST COMPANY OF NEW YORK, as Managing Agent, DEUTSCHE BANK AG, as
Co-Arranger, and THE CHASE MANHATTAN BANK, N.A., CITIBANK, N.A., and CREDIT
SUISSE, as Co-Agents.
The parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions. The following terms, as used
herein, have the following meanings:
"Absolute Rate Auction" means a solicitation of Money Market
Quotes setting forth Money Market Absolute Rates pursuant to Section 2.03.
"Adjusted CD Rate" has the meaning set forth in Section
2.08(b).
"Adjusted Consolidated Net Worth" means at any date the total
shareholders' equity of the Borrower and its Consolidated Subsidiaries
determined as of such date, adjusted to exclude net unrealized capital gains
and losses.
"Administrative Questionnaire" means, with respect to each
Bank, the administrative questionnaire in the form submitted to such Bank by
the Agent and submitted to the Agent (with a copy to the Borrower) duly
completed by such Bank.
"Affiliate" means, (1) any bank which, directly or indirectly,
wholly owns, is wholly owned by or shares common one hundred percent ownership
with the transferor Bank and, (ii) is of credit rating better than or equal to
that of the transferor Bank on the Effective Date, as determined by Moody's
Investors Service and Standard & Poor's Corporation.
"Agent" means Morgan Guaranty Trust Company of New York in its
capacity as Managing Agent for the Banks hereunder, and its successors in such
capacity.
<PAGE> 6
2
"Applicable Lending Office" means, with respect to any Bank,
(i) in the case of its Base Rate Loans and CD Loans, its Domestic Lending
Office, (ii) in the case of its Euro-Dollar Loans, its Euro-Dollar Lending
Office and (iii) in the case of its Money Market Loans, its Money Market
Lending Office.
"Assessment Rate" has the meaning set forth in
Section 2.08(b).
"Assignee" has the meaning set forth in Section 9.05(c).
"Bank" means each bank listed on the signature pages hereof
and its successors.
"Base Rate" means, for any day, a rate per annum equal to the
higher of (i) the Prime Rate for such day and (ii) the sum of 1/2 of 1% plus
the Federal Funds Rate for such day.
"Base Rate Loan" means (i) a Committed Loan which bears
interest at the Base Rate pursuant to the applicable Notice of Committed
Borrowing or a Notice of Interest Rate Election or the provisions of Article
VIII or (ii) an overdue amount which was a Base Rate Loan immediately before it
became overdue.
"Borrower" means Aetna Life and Casualty Company, a
Connecticut insurance corporation and, except for purposes of Section 6.01(i),
its successors.
"Borrower's 1993 Form 10-K" means the Borrower's annual report
on Form 10-K for 1993, as filed with the Securities and Exchange Commission
pursuant to the Securities Exchange Act of 1934.
"Borrower's 1994 First Quarter Form 10-Q" means the Borrower's
quarterly report for the fiscal quarter ended March 31, 1994 as filed with the
Securities and Exchange Commission pursuant to the Securities Exchange Act of
1934.
"Borrowing" means a borrowing hereunder consisting of Loans
made to the Borrower at the same time by the Banks pursuant to Article II. A
Borrowing is a "Base Rate Borrowing" if such Loans are Base Rate Loans, a "CD
Borrowing" if such Loans are CD Loans, a "Euro-Dollar Borrowing" if such
<PAGE> 7
3
Loans are Euro-Dollar Loans and a "Money Market Borrowing" if such Loans are
Money Market Loans.
"CD Base Rate" has the meaning set forth in Section 2.08(b).
"CD Loan" means (i) a Committed Loan which bears interest at
the Fixed CD Rate pursuant to the applicable Notice of Committed Borrowing or a
Notice of Interest Rate Election or (ii) an overdue amount which was a CD Loan
immediately before it became overdue.
"CD Margin" has the meaning set forth in Section 2.08(b).
"CD Reference Banks" means The Chase Manhattan Bank, N.A.,
Deutsche Bank AG and Morgan Guaranty Trust Company of New York.
"Commitment" means, with respect to each Bank, the amount set
forth opposite the name of such Bank on the signature pages hereof, as such
amount may be reduced from time to time pursuant to Section 2.07 or terminated
pursuant to Section 8.07.
"Committed Loan" means a loan made by a Bank pursuant to
Section 2.01; provided that, if any such loan or loans (or portions thereof)
are combined or subdivided pursuant to a Notice of Interest Rate Election, the
term "Committed Loan" shall refer to the combined principal amount resulting
from such combination or to each of the separate principal amounts resulting
from such subdivision, as the case may be.
"Consolidated Subsidiary" means at any date any Subsidiary or
other entity the accounts of which would be consolidated with those of the
Borrower in its consolidated financial statements if such statements were
prepared as of such date.
"Continuing Director" means, at any time, a director who (i)
was a director of Aetna Life and Casualty Company 24 months prior to such time
or (ii) was nominated or elected as a director by vote of a majority of the
persons who were Continuing Directors at the time of such nomination or
election.
<PAGE> 8
4
"Default" means any condition or event which constitutes an
Event of Default or which with the giving of notice or lapse of time or both
would, unless cured or waived, become an Event of Default.
"Domestic Business Day" means any day except a Saturday,
Sunday or other day on which commercial banks in New York City are authorized
by law to close.
"Domestic Lending Office" means, as to each Bank, its office
located at its address set forth in its Administrative Questionnaire (or
identified in its Administrative Questionnaire as its Domestic Lending Office)
or such other office as such Bank may hereafter designate as its Domestic
Lending Office by notice to the Borrower and the Agent; provided that any Bank
may so designate separate Domestic Lending Offices for its Base Rate Loans, on
the one hand, and its CD Loans, on the other hand, in which case all references
herein to the Domestic Lending Office of such Bank shall be deemed to refer to
either or both of such offices, as the context may require.
"Domestic Loans" means CD Loans or Base Rate Loans or both.
"Domestic Reserve Percentage" has the meaning set forth in
Section 2.08(b).
"Duff" means Duff & Phelps Inc.
"Effective Date" means the date this Agreement becomes
effective in accordance with Section 3.01.
"Environmental Laws" means any and all federal, state, local
and foreign statutes, laws, judicial decisions, regulations, ordinances, rules
judgments, orders, decrees, plans, injunctions, permits, concessions, grants,
franchises, licenses, agreements and other governmental restrictions relating
to the environment, the effect of the environment on human health or to
emissions, discharges or releases of pollutants, contaminants, Hazardous
Substances or wastes into the environment including, without limitation,
ambient air, surface water, ground water, or land, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of pollutants, contaminants, Hazardous Substances or
wastes or the clean-up or other remediation thereof.
<PAGE> 9
5
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"ERISA Group" means all members of a controlled group of
corporations and all trades or businesses (whether or not incorporated) under
common control which, together with the Borrower, are treated as a single
employer under Section 414 of the Internal Revenue Code.
"Euro-Dollar Business Day" means any Domestic Business Day on
which commercial banks are open for international business (including dealings
in dollar deposits) in London.
"Euro-Dollar Lending Office" means, as to each Bank, its
office, branch or affiliate located at its address set forth in its
Administrative Questionnaire (or identified in its Administrative Questionnaire
as its Euro-Dollar Lending Office) or such other office, branch or affiliate of
such Bank as it may hereafter designate as its Euro-Dollar Lending Office by
notice to the Borrower and the Agent.
"Euro-Dollar Loan" means (i) a Committed Loan which bears
interest at a Euro-Dollar Rate pursuant to the applicable Notice of Committed
Borrowing or a Notice of Interest Rate Election or (ii) an overdue amount which
was a Euro-Dollar Loan immediately before it became overdue.
"Euro-Dollar Margin" has the meaning set forth in Section
2.08(c).
"Euro-Dollar Rate" means a rate of interest determined
pursuant to Section 2.08(c) on the basis of the London Interbank Offered Rate.
"Euro-Dollar Reference Banks" means The Chase Manhattan Bank,
N.A., Deutsche Bank AG and Morgan Guaranty Trust Company of New York.
"Euro-Dollar Reserve Percentage" means, for any day, that
percentage (expressed as a decimal) which is in effect on such day, as
prescribed by the Board of Governors of the Federal Reserve System (or any
successor), for determining the maximum reserve requirement for a member bank
of the Federal Reserve System in New York City with deposits exceeding five
billion dollars in respect of "Eurocurrency liabilities" (or in respect of any
other category of liabilities which includes deposits by reference
<PAGE> 10
6
to which the interest rate on Euro-Dollar Loans is determined or any category
of extensions of credit or other assets which includes loans by a non-United
States office of any Bank to United States residents).
"Event of Default" has the meaning set forth in Section 6.01.
"Federal Funds Rate" means, for any day, the rate per annum
(rounded upwards, if necessary, to the nearest 1/100th of 1%) equal to the
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers on such
day, as published by the Federal Reserve Bank of New York on the Domestic
Business Day next succeeding such day, provided that (i) if such day is not a
Domestic Business Day, the Federal Funds Rate for such day shall be such rate
on such transactions on the next preceding Domestic Business Day as so
published on the next succeeding Domestic Business Day, and (ii) if no such
rate is so published on such next succeeding Domestic Business Day, the Federal
Funds Rate for such day shall be the average rate quoted to Morgan Guaranty
Trust Company of New York on such day on such transactions as calculated by the
Agent, such calculation to be supplied to the Borrower upon the Borrower's
request.
"Fixed CD Rate" has the meaning set forth in Section 2.08(b).
"Fixed Rate Borrowing" means a CD Borrowing, a Euro-Dollar
Borrowing or a Money Market Borrowing.
"Fixed Rate Loans" means Euro-Dollar Loans, CD Loans or Money
Market Loans (excluding Money Market LIBOR Loans bearing interest at the Base
Rate for the reason stated in Section 8.01) or any combination of the
foregoing.
"Group of Loans" means at any time a group of Loans consisting
of (i) all Committed Loans which are Base Rate Loans at such time, (ii) all
Committed Loans which are CD Loans having the same Interest Period at such time
or (iii) all Committed Loans which are Euro-Dollar Loans having the same
Interest Period at such time; provided that, if Committed Loans of any
particular Bank are converted to or made as Base Rate Loans pursuant to Article
VIII, such Loans shall be included in the same Group or Groups of Loans from
time to time as they would have been in if they had not been so converted or
made.
<PAGE> 11
7
"Hazardous Substances" means any toxic, radioactive, caustic
or otherwise hazardous substance, including petroleum, its derivatives,
by-products and other hydrocarbons, or any substances having any constituent
elements displaying any of the foregoing characteristics.
"Interest Period" means:
(1) with respect to each Base Rate Borrowing, the period commencing on the
date of such Borrowing and ending 90 days thereafter; provided that:
(a) any Interest Period which would otherwise end on a day
which is not a Euro-Dollar Business Day shall be extended to the next
succeeding Euro-Dollar Business Day;
(b) any Interest Period which begins on the last Euro-Dollar
Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of such
Interest Period) shall, subject to clause (c) below, end on the last
Euro-Dollar Business Day of a calendar month; and
(c) any Interest Period which would otherwise end after the
Termination Date shall end on the Termination Date.
(2) with respect to each CD Borrowing, the period commencing on the date of
such Borrowing and ending 30, 60, 90 or 180 days thereafter, as the Borrower
may elect in the applicable Notice of Borrowing or such longer period as
mutually agreed to by the Borrower and all of the Banks; provided that:
(a) any Interest Period which would otherwise end on a day
which is not a Euro-Dollar Business Day shall be extended to the next
succeeding Euro-Dollar Business Day;
(b) any Interest Period which begins on the last Euro-Dollar
Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of such
Interest Period) shall, subject to clause (c) below, end on the last
Euro-Dollar Business Day of a calendar month; and
<PAGE> 12
8
(c) any Interest Period which would otherwise end after the
Termination Date shall end on the Termination Date.
(3) with respect to each Euro-Dollar Loan, a period commencing on the date of
Borrowing specified in the applicable Notice of Committed Borrowing or on the
date specified in the applicable Notice of Interest Rate Election and ending
one, two, three or six months thereafter, as the Borrower may elect in the
applicable Notice or such longer period as mutually agreed to by the Borrower
and all of the Banks; provided that:
(a) any Interest Period which would otherwise end on a day
which is not a Euro-Dollar Business Day shall be extended to the next
succeeding Euro-Dollar Business Day;
(b) any Interest Period which begins on the last Euro-Dollar
Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of such
Interest Period) shall, subject to clause (c) below, end on the last
Euro-Dollar Business Day of a calendar month; and
(c) any Interest Period which would otherwise end after the
Termination Date shall end on the Termination Date.
(4) with respect to each Money Market LIBOR Loan, the period commencing on the
date of Borrowing and ending such whole number of months thereafter, as the
Borrower may elect in accordance with Section 2.03; provided that:
(a) any Interest Period which would otherwise end on a day
which is not a Euro-Dollar Business Day shall be extended to the next
succeeding Euro-Dollar Business Day;
(b) any Interest Period which begins on the last Euro-Dollar
Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of such
Interest Period) shall, subject to clause (c) below, end on the last
Euro-Dollar Business Day of a calendar month; and
<PAGE> 13
9
(c) any Interest Period which would otherwise end after the
Termination Date shall end on the Termination Date.
(5) with respect to each Money Market Absolute Rate Loan, the period
commencing on the date of Borrowing and ending such number of days thereafter
(but not less than 7 days) as the Borrower may elect in accordance with Section
2.03; provided that:
(a) any Interest Period which would otherwise end on a day
which is not a Euro-Dollar Business Day shall be extended to the next
succeeding Euro-Dollar Business Day; and
(b) any Interest Period which would otherwise end after the
Termination Date shall end on the Termination Date.
"Internal Revenue Code" means the Internal Revenue Code of
1986, as amended, or any successor statute.
"Level I Period" means any period during which any long-term
Senior Unsecured Debt of the Borrower has ratings that are better than or equal
to at least two of the following three ratings: (i) AA+ by S&P and/or (ii) Aa1
by Moody's and/or (iii) AA+ by Duff; provided that if S&P or Moody's or Duff
changes its rating system after the date hereof, the new rating of such rating
agency that most closely corresponds to the level specified above for such
rating agency shall be substituted for such level.
"Level II Period" means any period (other than a Level I
Period) during which any long-term Senior Unsecured Debt of the Borrower has
ratings that are better than or equal to at least two of the following three
ratings: (i) AA- by S&P and/or (ii) Aa3 by Moody's and/or (iii) AA- by Duff;
provided that if S&P or Moody's or Duff changes its rating system after the
date hereof, the new rating of such rating agency that most closely corresponds
to the level specified above for such rating agency shall be substituted for
such level.
"Level III Period" means any period (other than a Level I
Period or a Level II Period) during which any long-term Senior Unsecured Debt
of the Borrower has ratings which are better than or equal to at least two of
the following three ratings: (i) A- by S&P and/or (ii) A3 by Moody's
<PAGE> 14
10
and/or (iii) A- by Duff; provided that if S&P or Moody's or Duff changes its
rating system after the date hereof, the new rating of such agency that most
closely corresponds to the level specified above for such rating agency shall
be substituted for such level.
"Level IV Period" means any period (other than a Level I
Period, Level II Period or Level III Period) during which any long-term Senior
Unsecured Debt of the Borrower has ratings which are better than or equal to at
least two of the following three ratings: (i) BBB by S&P and/or (ii) Baa2 by
Moody's and/or (iii) BBB by Duff; provided that if S&P or Moody's or Duff
changes its rating system after the date hereof, the new rating of such agency
that most closely corresponds to the level specified above for such rating
agency shall be substituted for such level.
"Level V Period" means any period other than a Level I Period,
Level II Period, Level III Period or Level IV Period.
"LIBOR Auction" means a solicitation of Money Market Quotes
setting forth Money Market Margins based on the London Interbank Offered Rate
pursuant to Section 2.03.
"Loan" means a Base Rate Loan, a Euro-Dollar Loan, a CD Loan
or a Money Market Loan and "Loans" means any combination of the foregoing.
"London Interbank Offered Rate" has the meaning set forth in
Section 2.08(c).
"Money Market Absolute Rate" has the meaning set forth in
Section 2.03(d).
"Money Market Absolute Rate Loan" means a loan made or to be
made by a Bank pursuant to an Absolute Rate Auction.
"Money Market Lending Office" means, as to each Bank, its
Domestic Lending Office or such other office, branch or affiliate of such Bank
as it may hereafter designate as its Money Market Lending Office by notice to
the Borrower and the Agent; provided that any Bank may from time to time by
notice to the Borrower and the Agent designate separate Money Market Lending
Offices for its Money Market LIBOR Loans, on the one hand, and its Money Market
Absolute Rate Loans, on the other hand, in which case all references
<PAGE> 15
11
herein to the Money Market Lending Office of such Bank shall be deemed to refer
to either or both of such offices, as the context may require.
"Money Market LIBOR Loan" means a loan made or to be made by a
Bank pursuant to a LIBOR Auction (including such a loan bearing interest at the
Base Rate for the reason stated in Section 8.01).
"Money Market Loan" means a Money Market LIBOR Loan or a Money
Market Absolute Rate Loan.
"Money Market Margin" has the meaning set forth in Section
2.03(d).
"Money Market Quote" means an offer by a Bank to make a Money
Market Loan in accordance with Section 2.03.
"Money Market Quote Request" means a request by the Borrower
to the Banks to make Money Market Loans in accordance with Section 2.03(b).
"Moody's" means Moody's Investors Service, Inc.
"Non-Recourse Indebtedness" means indebtedness for borrowed
money as to which the liability of the Borrower or its Principal Insurance
Subsidiaries, as the case may be, is limited solely to specific assets.
"Notes" means promissory notes of the Borrower, substantially
in the form of Exhibit A hereto, evidencing the obligation of the Borrower to
repay the Loans, and "Note" means any one of such promissory notes issued
hereunder.
"Notice of Borrowing" means a Notice of Committed Borrowing
(as defined in Section 2.02) or a Notice of Money Market Borrowing (as defined
in Section 2.03(f)).
"Notice of Interest Rate Election" has the meaning set forth
in Section 2.10.
"Other Taxes" has the meaning set forth in Section 8.04(a).
"Participant" has the meaning set forth in Section 9.05(d).
<PAGE> 16
12
"PBGC" means the Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions under ERISA.
"Person" means an individual, a corporation, a partnership, an
association, a trust or any other entity or organization, including a
government or political subdivision or an agency or instrumentality thereof.
"Plan" means at any time an employee pension benefit plan
which is covered by Title IV of ERISA or subject to the minimum funding
standards under Section 412 of the Internal Revenue Code and is either (i)
maintained by a member of the ERISA Group for employees of a member of the
ERISA Group or (ii) maintained pursuant to a collective bargaining agreement or
any other arrangement under which more than one employer makes contributions
and to which a member of the ERISA Group is then making or accruing an
obligation to make contributions or has within the preceding five plan years
made contributions.
"Prime Rate" means the rate of interest publicly announced by
Morgan Guaranty Trust Company of New York in New York City from time to time as
its Prime Rate.
"Principal Insurance Subsidiary" means Aetna Life Insurance
Company, The Aetna Casualty and Surety Company, or any other Subsidiary of the
Borrower, including Subsidiaries of Subsidiaries, which shall succeed by merger
or otherwise to a major part of the business of one or more of the Principal
Insurance Subsidiaries. For the purposes of this definition the decision as to
whether a Subsidiary shall have succeeded to a major part of the business of
one or more Principal Insurance Subsidiaries shall be made in good faith by the
Borrower's Board of Directors by the adoption of a resolution so stating.
"Quarterly Date" means the last Domestic Business Day of each
January, April, July and October.
"Reference Banks" means The Chase Manhattan Bank, N.A.,
Deutsche Bank AG and Morgan Guaranty Trust Company of New York, and "Reference
Bank" means any one of such Reference Banks.
"Regulation U" means Regulation U of the Board of Governors of
the Federal Reserve System, as in effect from time to time.
<PAGE> 17
13
"Required Banks" means at any time Banks having at least 66
2/3% of the aggregate amount of the Commitments or, if the Commitments shall
have been terminated, holding Notes evidencing at least 66 2/3% of the
aggregate unpaid principal amount of the Loans.
"Required Capital" has the meaning set forth in Section
8.03(b).
"Responsible Financial Officer" means chief financial officer,
treasurer, chief accounting officer or senior corporate finance officer.
"Revolving Credit Period" means the period from the date
hereof to and including the Termination Date.
"S&P" means Standard & Poor's Corporation.
"Senior Unsecured Debt" means indebtedness for borrowed money
that is not subordinated to any other indebtedness for borrowed money and is
not secured or supported by a guarantee, letter of credit or other form of
credit enhancement.
"Subsidiary" means any corporation or other entity of which
securities or other ownership interests having ordinary voting power to elect a
majority of the board of directors or other persons performing similar
functions are at the time directly or indirectly owned by the Borrower.
"Taxes" has the meaning set forth in Section 8.04(a).
"Termination Date" means July 27, 1999 or, if such day is not
a Euro-Dollar Business Day, the next preceding Euro-Dollar Business Day.
"Trigger Event" has the meaning set forth in Section 8.03(c).
SECTION 1.02. Accounting Terms and Determinations. Unless
otherwise specified herein, all accounting terms used herein shall be
interpreted, all accounting determinations hereunder shall be made, and all
financial statements required to be delivered hereunder shall be prepared in
accordance with United States generally accepted accounting principles as in
effect from time to time, applied on a basis consistent (except for changes
<PAGE> 18
14
concurred in by the Borrower's independent public accountants) with the most
recent audited consolidated financial statements of the Borrower and its
Consolidated Subsidiaries delivered to the Banks.
SECTION 1.03. Classifications of Borrowings. Borrowings are
classified for purposes of this Agreement either by reference to the pricing of
Loans comprising such Borrowing (e.g., a "Euro-Dollar Borrowing" is a Borrowing
comprised of Euro-Dollar Loans) or by reference to the provisions of Article II
under which participation therein is determined (i.e., a "Committed Borrowing"
is a Borrowing under Section 2.01 in which all Banks participate in proportion
to their Commitments, while a "Money Market Borrowing" is a Borrowing under
Section 2.03 in which the Bank participants are determined on the basis of
their bids).
ARTICLE II
THE CREDITS
SECTION 2.01. Commitments to Lend. On the terms and
conditions set forth in this Agreement, each Bank severally agrees to lend
to the Borrower, from time to time during the Revolving Credit Period amounts
not to exceed in the aggregate at any one time outstanding the amount of such
Bank's Commitment. Each Borrowing under this Section 2.01 shall be in
an aggregate principal amount of $25,000,000 or any larger multiple of
$1,000,000 (except that any such Borrowing may be in the aggregate amount of
the unused Commitments) and shall be made from the several Banks ratably in
proportion to their respective Commitments. Within the foregoing limits, the
Borrower may borrow under this Section, repay, or to the extent permitted by
Section 2.11, prepay Loans and reborrow at any time during the Revolving
Credit Period under this Section. Failure by any Bank to make Loans as
required under the terms of this Agreement will not relieve any other Bank of
its obligations hereunder.
SECTION 2.02. Notice of Committed Borrowings. The Borrower
shall give the Agent notice (a "Notice of Committed Borrowing") not later than
10:30 A.M. (New York City time) on (x) the date of each Base Rate Borrowing,
(y) the second Domestic Business Day before each CD Borrowing
<PAGE> 19
15
and (z) the third Euro-Dollar Business Day before each Euro-Dollar Borrowing,
specifying:
(a) the date of such Borrowing, which shall be a Domestic
Business Day in the case of a Base Rate Borrowing or a CD Borrowing
and a Euro-Dollar Business Day in the case of a Euro-Dollar Borrowing,
(b) the aggregate amount of such Borrowing,
(c) whether the Loans comprising such Borrowing are to be CD
Loans, Base Rate Loans or Euro-Dollar Loans, and
(d) in the case of a CD Borrowing or Euro-Dollar Borrowing,
the duration of the initial Interest Period applicable thereto,
subject to the provisions of the definition of Interest Period.
SECTION 2.03. Money Market Borrowings.
(a) The Money Market Option. In addition to Committed
Borrowings pursuant to Section 2.01, the Borrower may, as set forth in
this Section, request the Banks from time to time during the Revolving
Credit Period to make offers to make Money Market Loans to the
Borrower. The Banks may, but shall have no obligation to, make such
offers and the Borrower may, but shall have no obligation to, accept
any such offers in the manner set forth in this Section.
(b) Money Market Quote Request. When the Borrower wishes to
request offers to make Money Market Loans under this Section, it shall
transmit to the Agent by telex or facsimile transmission a Money
Market Quote Request substantially in the form of Exhibit B hereto so
as to be received no later than 10:00 A.M. (New York City time) on (x)
the fourth Euro-Dollar Business Day prior to the date of Borrowing
proposed therein, in the case of a LIBOR Auction or (y) the Domestic
Business Day next preceding the date of Borrowing proposed therein, in
the case of an Absolute Rate Auction (or, in either case, such other
time or date as the Borrower and the Agent shall have mutually agreed
upon and shall have notified to the Banks
<PAGE> 20
16
not later than the date of the Money Market Quote Request for the
first LIBOR Auction or Absolute Rate Auction for which such change is
to be effective) specifying:
(i) the proposed date of Borrowing, which shall be a
Euro-Dollar Business Day in the case of a LIBOR Auction or a Domestic
Business Day in the case of an Absolute Rate Auction,
(ii) the aggregate amount of such Borrowing, which shall be
$25,000,000 or a larger multiple of $1,000,000,
(iii) the duration of the Interest Period applicable thereto,
subject to the provisions of the definition of Interest Period, and
(iv) whether the Money Market Quotes requested are to set
forth a Money Market Margin or a Money Market Absolute Rate.
The Borrower may request offers to make Money Market Loans for more than one
Interest Period in a single Money Market Quote Request. No Money Market Quote
Request shall be given within five Euro-Dollar Business Days (or following
notice to each of the Banks, such other number of days as the Borrower and the
Agent may agree upon) of any other Money Market Quote Request.
(c) Invitation for Money Market Quotes. Promptly upon
receipt of a Money Market Quote Request, the Agent shall send to the Banks by
telex or facsimile transmission an Invitation for Money Market Quotes
substantially in the form of Exhibit C hereto, which shall constitute an
invitation by the Borrower to each Bank to submit Money Market Quotes offering
to make the Money Market Loans to which such Money Market Quote Request relates
in accordance with this Section.
(d) Submission and Contents of Money Market Quotes. (i)
Each Bank may submit a Money Market Quote containing an offer or offers to make
Money Market Loans in response to any Invitation for Money Market Quotes. Each
Money Market Quote must comply with the requirements of this subsection (d) and
must be submitted to the Agent by telex or facsimile transmission at its
offices specified in or pursuant to Section 9.01 not later than (x) 9:30 A.M.
(New
<PAGE> 21
17
York City time) on the third Euro-Dollar Business Day prior to the proposed
date of Borrowing, in the case of a LIBOR Auction or (y) 9:30 A.M. (New York
City time) on the proposed date of Borrowing, in the case of an Absolute Rate
Auction (or, in either case, such other time or date as the Borrower and the
Agent shall have mutually agreed and shall have notified to the Banks not later
than the date of the Money Market Quote Request for the first LIBOR Auction or
Absolute Rate Auction for which such change is to be effective); provided that
Money Market Quotes submitted by the Agent (or any affiliate of the Agent) in
the capacity of a Bank may be submitted, and may only be submitted, if the
Agent or such affiliate notifies the Borrower of the terms of the offer or
offers contained therein not later than (x) 9:15 A.M. (New York City time) on
the third Euro-Dollar Business Day prior to the proposed date of Borrowing, in
the case of a LIBOR Auction or (y) 9:15 A.M. (New York City time) on the
proposed date of Borrowing, in the case of an Absolute Rate Auction. Subject
to Articles III and VI, any Money Market Quote so made shall be irrevocable
except with the written consent of the Agent given on the instructions of the
Borrower.
(ii) Each Money Market Quote shall be in substantially the
form of Exhibit D hereto and shall in any case specify:
(A) the proposed date of Borrowing,
(B) the principal amount of the Money Market Loan for which
each such offer is being made, which principal amount (x) may be
greater than or less than the Commitment of the quoting Bank, (y) must
be $25,000,000 or a larger multiple of $1,000,000 and (z) may not
exceed the principal amount of Money Market Loans for which offers
were requested,
(C) in the case of a LIBOR Auction, the margin above or below
the applicable London Interbank Offered Rate (the "Money Market
Margin") offered for each such Money Market Loan, expressed as a
percentage (rounded to the nearest 1/10,000th of 1%) to be added to or
subtracted from such base rate,
(D) in the case of an Absolute Rate Auction, the rate of
interest per annum (rounded to the
<PAGE> 22
18
nearest 1/10,000th of 1%) (the "Money Market Absolute Rate") offered
for each such Money Market Loan, and
(E) the identity of the quoting Bank.
A Money Market Quote may set forth up to five separate offers by the quoting
Bank with respect to each Interest Period specified in the related Invitation
for Money Market Quotes.
(iii) Any Money Market Quote shall be disregarded if it:
(A) is not substantially in conformity with Exhibit D hereto
or does not specify all of the information required by subsection
(d)(ii);
(B) contains qualifying, conditional or similar language;
(C) proposes terms other than or in addition to those set
forth in the applicable Invitation for Money Market Quotes; or
(D) arrives after the time set forth in subsection (d)(i).
(e) Notice to Borrower. The Agent shall promptly notify the
Borrower of the terms (x) of any Money Market Quote submitted by a Bank that is
in accordance with subsection (d) and (y) of any Money Market Quote that
amends, modifies or is otherwise inconsistent with a previous Money Market
Quote submitted by such Bank with respect to the same Money Market Quote
Request. Any such subsequent Money Market Quote shall be disregarded by the
Agent unless such subsequent Money Market Quote is submitted solely to correct
a manifest error in such former Money Market Quote. The Agent's notice to the
Borrower shall specify (A) the aggregate principal amount of Money Market Loans
for which offers have been received for each Interest Period specified in the
related Money Market Quote Request, (B) the respective principal amounts and
Money Market Margins or Money Market Absolute Rates, as the case may be, so
offered (including the names of the Banks) and (C) if applicable, limitations
on the aggregate principal amount of Money Market Loans for which offers in any
single Money Market Quote for any Interest Period may be accepted.
<PAGE> 23
19
(f) Acceptance and Notice by Borrower. Not later than 10:30
A.M. (New York City time) on (x) the third Euro-Dollar Business Day prior to
the proposed date of Borrowing, in the case of a LIBOR Auction or (y) the
proposed date of Borrowing, in the case of an Absolute Rate Auction (or, in
either case, such other time or date as the Borrower and the Agent shall have
mutually agreed upon and shall have notified to the Banks not later than the
date of the Money Market Quote Request for the first LIBOR Auction or Absolute
Rate Auction for which such change is to be effective), the Borrower shall
notify the Agent of its acceptance or non-acceptance of the offers so notified
to it pursuant to subsection (e). In the case of acceptance, such notice (a
"Notice of Money Market Borrowing") shall specify the aggregate principal
amount of offers for each Interest Period that are accepted. The Borrower may
accept any Money Market Quote for any Interest Period in whole or in part;
provided that:
(i) the aggregate principal amount of each Money Market
Borrowing may not exceed the applicable amount set forth in the
related Money Market Quote Request,
(ii) the principal amount of each Money Market Borrowing must
be $25,000,000 or a larger multiple of $1,000,000,
(iii) acceptance of offers may only be made on the basis of
ascending Money Market Margins or Money Market Absolute Rates, as the
case may be, and
(iv) the Borrower may not accept any offer that is described
in subsection (d)(iii) or that otherwise fails to comply with the
requirements of this Agreement.
(g) Allocation by Agent. If offers are made by two or more
Banks with the same Money Market Margins or Money Market Absolute Rates, as the
case may be, for a greater aggregate principal amount than the amount in
respect of which such offers are accepted for the related Interest Period, the
principal amount of Money Market Loans in respect of which such offers are
accepted shall be allocated by the Agent among such Banks as nearly as possible
(in multiples of such number, not greater than $1,000,000 as the Agent may deem
appropriate) in proportion
<PAGE> 24
20
to the aggregate principal amounts of such offers. Determinations by the Agent
of the pro rata amounts of Money Market Loans shall be conclusive in the
absence of manifest error.
SECTION 2.04. Notice to Banks; Funding of Loans. (a) Upon
receipt of a Notice of Borrowing, the Agent shall promptly notify each Bank of
the contents thereof and of such Bank's share (if any) of such Borrowing and
such Notice of Borrowing shall not thereafter be revocable by the Borrower.
(b) Not later than 12:00 Noon (New York City time) on the date
of each Borrowing, each Bank participating therein shall make available its
share of such Borrowing, in Federal or other funds immediately available in New
York City, to the Agent at its address specified in or pursuant to Section
9.01. Unless the Agent determines that any applicable condition specified in
Article III has not been satisfied, the Agent will make the funds so received
from the Banks available to the Borrower at the Agent's aforesaid address.
(c) Unless the Agent shall have received notice from a Bank
prior to the date of any Borrowing that such Bank will not make available to
the Agent such Bank's share of such Borrowing, the Agent may assume that such
Bank has made such share available to the Agent on the date of such Borrowing
in accordance with subsection (b) of this Section 2.04 and the Agent may, in
reliance upon such assumption, make available to the Borrower on such date a
corresponding amount. If and to the extent that such Bank shall not have so
made such share available to the Agent, such Bank and the Borrower severally
agree to repay to the Agent forthwith on demand such corresponding amount
together with interest thereon, for each day from the date such amount is made
available to the Borrower until the date such amount is repaid to the Agent, at
(i) in the case of the Borrower, a rate per annum equal to the higher of the
Federal Funds Rate and the interest rate applicable thereto pursuant to Section
2.08 and (ii) in the case of such Bank, the Federal Funds Rate. If such Bank
shall repay to the Agent such corresponding amount, such amount so repaid shall
constitute such Bank's Loan included in such Borrowing for purposes of this
Agreement.
SECTION 2.05. Notes. (a) The Loans of each Bank shall be
evidenced by a single Note payable to the order of
<PAGE> 25
21
such Bank in an amount equal to the aggregate unpaid principal amount of such
Bank's Loans.
(b) Each Bank may, by notice to the Borrower and the Agent,
request that its Loans of a particular type be evidenced by a separate Note in
an amount equal to the aggregate unpaid principal amount of such Loans. Each
such Note shall be in substantially the form of Exhibit A hereto with
appropriate modifications to reflect the fact that it evidences solely Loans of
the relevant type. Each reference in this Agreement to the "Note" of such Bank
shall be deemed to refer to and include any or all of such Notes, as the
context may require.
(c) Upon receipt of each Bank's Note pursuant to Section
3.01(b), the Agent shall forward such Note to such Bank. Each Bank shall
record the date, amount and maturity of each Loan made by it and the date and
amount of each payment of principal made by the Borrower with respect thereto,
and prior to any transfer of its Note shall endorse on the schedule forming a
part thereof appropriate notations to evidence the foregoing information with
respect to each such Loan then outstanding; provided that the failure of any
Bank to make any such recordation or endorsement shall not affect the
obligations of the Borrower hereunder or under the Notes. Each Bank is hereby
irrevocably authorized by the Borrower so to endorse its Note and to attach to
and make a part of its Note a continuation of any such schedule as and when
required.
(d) Each Bank agrees that it will cancel and return to the
Borrower all Notes then held by it upon the earlier of (i) the Termination Date
provided no Default shall have then occurred and be continuing or (ii) the date
such Bank's Commitment has been terminated and there are no Loans outstanding
to or accrued interest owing to such Bank.
SECTION 2.06. Maturity of Loans. (a) The Committed Loans of
each Bank shall mature, and the principal amount thereof shall be due and
payable, together with accrued interest thereon, on the Termination Date.
(b) Each Money Market Loan shall mature, and the principal
amount thereof shall be due and payable, together with accrued interest
thereon, on the last day of the Interest Period applicable to such Money Market
Loan.
<PAGE> 26
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SECTION 2.07. Termination or Reduction of Commitments. (a)
The Commitments of each Bank shall terminate at the end of the Revolving Credit
Period.
(b) During the Revolving Credit Period the Borrower may, upon
at least three Domestic Business Days' notice to the Agent, terminate the
Commitments at any time, if no Loans are outstanding at such time.
(c) During the Revolving Credit Period the Borrower may, upon
at least three Domestic Business Days' notice to the Agent, ratably reduce the
Commitments from time to time by an aggregate amount of $25,000,000 or any
larger multiple of $1,000,000, but only to the extent that the aggregate amount
of the Commitments exceeds the aggregate outstanding principal amount of the
Loans.
SECTION 2.08. Interest Rates. (a) Each Base Rate Loan shall
bear interest on the outstanding principal amount thereof, for each day from
the date such Loan is made until it becomes due, at a rate per annum equal to
the Base Rate for such day. Such interest shall be payable for each Interest
Period on the earlier of (i) the last day of the Interest Period applicable
thereto or (ii) the Termination Date. Any overdue principal of and, to the
extent permitted by law, overdue interest on any Base Rate Loan shall bear
interest, payable on demand, for each day until paid at a rate per annum equal
to the sum of 1% plus the Base Rate for such day.
(b) Each CD Loan shall bear interest on the outstanding
principal amount thereof, for each Interest Period applicable thereto, at a
rate per annum equal to the applicable Fixed CD Rate. Such interest shall be
payable for each Interest Period on the earlier of (i) the last day of the
Interest Period applicable thereto, (ii) 90 days after the initial date thereof
and, if such Interest Period is longer than 90 days, at intervals of 90 days
thereafter or (iii) the Termination Date. Any overdue principal of and, to the
extent permitted by law, overdue interest on any CD Loan shall bear interest,
payable on demand, for each day until paid at a rate per annum equal to the sum
of 1% plus the higher of (i) the Fixed CD Rate applicable to such Loan and (ii)
the rate applicable to Base Rate Loans for such day.
<PAGE> 27
23
The "Fixed CD Rate" applicable to any CD Loan for any Interest
Period means a rate per annum equal to the sum of the CD Margin plus the
applicable Adjusted CD Rate.
"CD Margin" means (i) 0.375% during each Level I Period, (ii)
0.400% during each Level II Period, (iii) 0.425% during each Level III Period,
(iv) 0.500% during each Level IV Period, and (v) 0.625% during each Level V
Period.
The "Adjusted CD Rate" applicable to any Interest Period means
a rate per annum determined pursuant to the following formula:
[ CDBR ]*
ACDR = [ ---------- ] + AR
[ 1.00 - DRP ]
ACDR = Adjusted CD Rate
CDBR = CD Base Rate
DRP = Domestic Reserve Percentage
AR = Assessment Rate
* The amount in brackets being rounded upwards, if necessary, to the next
higher 1/100 of 1%.
The "CD Base Rate" applicable to any Interest Period is the
rate of interest determined by the Agent to be the arithmetic average (rounded
upward, if necessary, to the next higher 1/100 of 1%) of the prevailing rates
per annum bid at 10:00 A.M. (New York City time) (or as soon thereafter as
practicable) on the first day of such Interest Period by two or more New York
certificate of deposit dealers of recognized standing for the purchase at face
value from each Reference Bank of its certificates of deposit in an amount
comparable to the unpaid principal amount of the CD Loan of such Reference Bank
to which such Interest Period applies and having a maturity comparable to such
Interest Period.
"Domestic Reserve Percentage" means for any day that
percentage (expressed as a decimal) which is in effect on such day, as
prescribed by the Board of Governors of the Federal Reserve System (or any
successor) for determining the maximum reserve requirement (including without
limitation any basic, supplemental or emergency reserves) for a member bank of
the Federal Reserve System in New York City with deposits exceeding five
billion dollars in respect
<PAGE> 28
24
of new non-personal time deposits in dollars in New York City having a maturity
comparable to the related Interest Period and in an amount of $100,000 or more.
The Fixed CD Rate shall be adjusted automatically on and as of the effective
date of any change in the Domestic Reserve Percentage.
"Assessment Rate" means for any Interest Period the net annual
assessment rate (rounded upwards, if necessary, to the next higher 1/100 of 1%)
actually incurred by Morgan Guaranty Trust Company of New York to the Federal
Deposit Insurance Corporation (or any successor) for such Corporation's (or
such successor's) insuring time deposits at offices of Morgan Guaranty Trust
Company of New York in the United States during the most recent period for
which such rate has been determined prior to the commencement of such Interest
Period.
(c) Each Euro-Dollar Loan shall bear interest on the
outstanding principal amount thereof, for each Interest Period applicable
thereto, at a rate per annum equal to the sum of the Euro-Dollar Margin plus
the applicable London Interbank Offered Rate. Such interest shall be payable
for each Interest Period on the earlier of (i) the last day thereof, (ii) three
months after the initial date thereof and, if such Interest Period is longer
than three months, at intervals of three months thereafter or (iii) the
Termination Date.
"Euro-Dollar Margin" means (i) 0.250% during each Level I
Period, (ii) 0.275% during each Level II Period, (iii) 0.300% during each Level
III Period, (iv) 0.375% during each Level IV Period, and (v) 0.500% during each
Level V Period.
The "London Interbank Offered Rate" applicable to any Interest
Period means the average (rounded upward, if necessary, to the next higher 1/16
of 1%) of the respective rates per annum at which deposits in dollars are
offered to each of the Euro-Dollar Reference Banks in the London interbank
market at approximately 11:00 A.M. (London time) two Euro-Dollar Business Days
before the first day of such Interest Period in an amount approximately equal
to the principal amount of the Euro-Dollar Loan of such Euro-Dollar Reference
Bank to which such Interest Period is to apply and for a period of time
comparable to such Interest Period.
<PAGE> 29
25
(d) Any overdue principal of and, to the extent permitted by
law, overdue interest on any Euro-Dollar Loan shall bear interest, payable on
demand, for each day from and including the date payment thereof was due to but
excluding the date of actual payment, at a rate per annum equal to the sum of
1% plus the Euro-Dollar Margin plus the higher of (i) the London Interbank
Offered Rate applicable to such Loan and (ii) the average (rounded upward, if
necessary, to the next higher 1/100 of 1%) of the respective rates per annum at
which one day (or, if such amount due remains unpaid more than three
Euro-Dollar Business Days, then for such other period of time not longer than
three months as the Agent may select) deposits in dollars in an amount
approximately equal to such overdue payment due to each of the Reference Banks
are offered to such Reference Bank in the London interbank market for the
applicable period determined as provided above (or, if the circumstances
described in Section 8.01 shall exist, at a rate per annum equal to the sum of
1% plus the Base Rate for such day).
(e) Subject to clause (y) of Section 8.01, each Money Market
LIBOR Loan shall bear interest on the outstanding principal amount thereof, for
the Interest Period applicable thereto, at a rate per annum equal to the sum of
the London Interbank Offered Rate for such Interest Period (determined in
accordance with Section 2.08(c) as if each Reference Bank were to participate
in the related Money Market LIBOR Borrowing ratably in proportion to its
Commitment) plus (or minus) the Money Market Margin quoted by the Bank making
such Loan in accordance with Section 2.03. Each Money Market Absolute Rate
Loan shall bear interest on the outstanding principal amount thereof, for the
Interest Period applicable thereto, at a rate per annum equal to the Money
Market Absolute Rate quoted by the Bank making such Loan in accordance with
Section 2.03. Such interest shall be payable for each Interest Period on the
earlier of (i) the last day thereof (ii) three months after the initial date
thereof and, if such Interest Period is longer than three months, at intervals
of three months thereafter or (iii) the Termination Date. Any overdue
principal of and, to the extent permitted by law, overdue interest on any Money
Market Loan shall bear interest, payable on demand, for each day until paid at
a rate per annum equal to the sum of 1% plus the Base Rate for such day.
(f) The Agent shall determine each interest rate applicable
to the Loans hereunder. The Agent shall give
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26
prompt notice to the Borrower by telecopy and the participating Banks by telex,
cable or telecopy of each rate of interest so determined, and its determination
thereof shall be conclusive in the absence of manifest error.
(g) Each Reference Bank agrees to use its best efforts to
furnish quotations to the Agent as contemplated by this Section. If any
Reference Bank does not furnish a timely quotation, the Agent shall determine
the relevant interest rate on the basis of the quotation or quotations
furnished by the remaining Reference Bank or Banks or, if none of such
quotations is available on a timely basis, the provisions of Section 8.01 shall
apply.
SECTION 2.09. Fees.
(a) Facility Fee. The Borrower shall pay to the Agent for
the account of the Banks ratably in proportion to their commitments, a facility
fee at the rate of (i) 0.100% per annum during each Level I Period, (ii) 0.125%
per annum during each Level II Period, (iii) 0.150% per annum during each Level
III Period, (iv) 0.225% per annum during each Level IV Period, and (v) 0.500%
per annum during each Level V Period. Such facility fee shall accrue (i) from
and including the date on which the conditions set forth in Section 3.01(a) and
(e) have been satisfied to but excluding the last day of the Revolving Credit
Period, in each case, on the daily average aggregate amount of the Commitments
(whether used or unused) and (ii) if any Loans remain outstanding after the
Revolving Credit Period, from and including the last day of the Revolving
Credit Period to but excluding the date such Loans shall be repaid in full, on
the daily average aggregate outstanding principal amount of such Loans.
(b) Payments. Except as otherwise indicated, accrued fees
under this Section shall be payable quarterly in arrears on the earlier of (i)
each Quarterly Date, (ii) the Termination Date or (iii) if any Loans remain
outstanding after the Revolving Credit Period, on the date such Loans shall be
repaid in full.
SECTION 2.10. Method of Electing Interest Rates.
(a) The Loans included in each Committed Borrowing shall bear interest
initially at the type of rate specified by the Borrower in the applicable
Notice of Committed Borrowing. Thereafter, the Borrower may from time to time
elect to change or continue the type of interest rate borne by each
<PAGE> 31
27
Group of Loans (subject in each case to the provisions of Article VIII), as
follows:
(i) if such Loans are Base Rate Loans, the Borrower may elect
to convert such Loans to CD Loans as of any Domestic Business Day or
Euro-Dollar Loans as of any Euro-Dollar Business Day;
(ii) if such Loans are CD Loans, the Borrower may (x) elect to
convert such Loans to Base Rate Loans as of any Domestic Business Day,
(y) elect to convert such Loans to Euro-Dollar Loans or to CD Loans
with an Interest Period different from the then current Interest
Period applicable to such Loans, as of any Euro-Dollar Business Day or
Domestic Business Day, respectively or (z) elect to continue such
Loans as CD Loans for an additional Interest Period beginning on the
last day of the then current Interest Period applicable to such Loans;
and
(iii) if such Loans are Euro-Dollar Loans, the Borrower may
(x) elect to convert such Loans to Base Rate Loans or CD Loans as of
any Domestic Business Day, (y) elect to convert such Loans to CD Loans
or Euro-Dollar Loans with an Interest Period different from the then
current Interest Period applicable to such Loans, as of any Domestic
Business Day or Euro-Dollar Business Day, respectively or (z) elect to
continue such Loans as Euro-Dollar Loans for an additional Interest
Period beginning on the last day of the then current Interest Period
applicable to such Loans;
provided that, if the Borrower elects to convert any CD Loans or Euro-Dollar
Loans, as the case may be, to Base Rate Loans or to CD Loans or Euro-Dollar
Loans, as the case may be, with a different Interest Period, as of any day
other than the last day of the then current Interest Period applicable to such
Loans, the Borrower shall reimburse each Bank in accordance with Section 2.13.
Each such election shall be made by delivering a notice (a
"Notice of Interest Rate Election") to the Agent (i) at least one Domestic
Business Day before such notice is to be effective if the relevant Loans are to
be converted into Base Rate Loans, (ii) at least two Domestic Business Days
before such conversion or continuation is to be effective if such Loans
<PAGE> 32
28
are to be converted into, or continued as, CD Rate Loans or (iii) at least
three Euro-Dollar Business Days before such conversion or continuation is to be
effective if such Loans are to be converted into, or continued as, Euro-Dollar
Loans.
A Notice of Interest Rate Election may, if it so specifies,
apply to only a portion of the aggregate principal amount of the relevant Group
of Loans; provided that (i) such portion is allocated ratably among the Loans
comprising such Group and (ii) the portion to which such Notice applies, and
the remaining portion to which it does not apply, are each $25,000,000 or any
larger multiple of $1,000,000.
(b) Each Notice of Interest Rate Election shall specify:
(i) the Group of Loans (or portion thereof) to which such
notice applies;
(ii) the date on which the conversion or continuation selected
in such notice is to be effective, which shall comply with the
applicable clause of subsection (a) above;
(iii) whether such Group of Loans (or portion thereof) is to
be converted to Base Rate Loans, CD Loans or Euro-Dollar Loans or
continued as CD Loans or Euro-Dollar Loans for an additional Interest
Period; and
(iv) if such Loans (or portions thereof) are to be converted
to or continued as CD Loans or Euro-Dollar Loans, as the case may be,
the duration of the Interest Period to be applicable thereto
immediately after such conversion or continuation.
Each Interest Period specified in a Notice of Interest Rate Election shall
comply with the provisions of the definition of Interest Period.
(c) Upon receipt of a Notice of Interest Rate Election from
the Borrower pursuant to subsection (a) above, the Agent shall promptly notify
each Bank of the contents thereof and such notice shall not thereafter be
revocable by the Borrower. If the Borrower fails to deliver a timely Notice of
Interest Rate Election to the Agent for any Group
<PAGE> 33
29
of Fixed Rate Loans, such Loans shall be converted into Base Rate Loans on the
last day of the then current Interest Period applicable thereto.
SECTION 2.11. Optional Prepayments. (a) The Borrower may
(i) upon at least one Domestic Business Day's notice to the Agent, prepay the
Base Rate Loans (or any Money Market LIBOR Loans which bear interest at the
Base Rate at such time for the reason stated in Section 8.01), in whole or in
part, on any Domestic Business Day and (ii) upon at least two Euro-Dollar
Business Days' notice to the Agent, prepay any Fixed Rate Loan, in whole or in
part, on the last day of any Interest Period applicable thereto, in amounts
aggregating $25,000,000 or any larger multiple of $1,000,000, by paying the
principal amount to be prepaid together with accrued interest thereon to the
date of prepayment. Each such optional prepayment shall be applied to prepay
ratably the relevant Loans of the several Banks.
(b) Upon receipt of a notice of prepayment pursuant to this
Section, the Agent shall promptly notify each Bank of the contents thereof and
of such Bank's ratable share (if any) of such prepayment and such notice shall
not thereafter be revocable by the Borrower.
SECTION 2.12. General Provisions as to Payments. (a) The
Borrower shall make each payment of principal of, and interest on, the Loans
and of fees hereunder, not later than 12:00 Noon (New York City time) on the
date when due, in Federal or other funds immediately available in New York
City, to the Agent at its address referred to in the Notes. The Agent will
promptly distribute to each Bank its ratable share of each such payment
received by the Agent for the account of the Banks. Whenever any payment of
principal of, or interest on, any Base Rate Loans, CD Loans or fees shall be
due on a day which is not a Domestic Business Day, the date for
<PAGE> 34
30
payment thereof shall be extended to the next succeeding Domestic Business Day.
Whenever any payment of principal of, or interest on, the Euro-Dollar Loans and
Money Market LIBOR Loans shall be due on a day which is not a Euro-Dollar
Business Day, the date for payment thereof shall be extended to the next
succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls
in another calendar month, in which case the date for payment thereof shall be
the next preceding Euro-Dollar Business Day. Whenever any payment of principal
of, or interest on, the Money Market Absolute Loans shall be due on a day
which is not a Euro-Dollar Business Day, the date for payment thereof shall be
extended to the next succeeding Euro-Dollar Business Day. If the date for any
payment of principal is extended by operation of law or otherwise, interest
thereon shall be payable for such extended time.
(b) Unless the Agent shall have received notice from the
Borrower prior to the date on which any payment is due to the Banks hereunder
that the Borrower will not make such payment in full, the Agent may assume that
the Borrower has made such payment in full to the Agent on such date and the
Agent may, in reliance upon such assumption, cause to be distributed to each
Bank on such due date an amount equal to the amount then due such Bank. If and
to the extent that the Borrower shall not have so made such payment, each Bank
shall repay to the Agent forthwith on demand such amount distributed to such
Bank together with interest thereon, for each day from the date such amount is
distributed to such Bank until the date such Bank repays such amount to the
Agent, at the Federal Funds Rate.
SECTION 2.13. Funding Losses. If the Borrower makes any
payment of principal with respect to any Fixed Rate Loan or any Fixed Rate Loan
is converted to another Loan (pursuant to Section 2.10, Article VI or Article
VIII) on any day other than the last day of an Interest Period applicable
thereto or the end of an applicable period fixed pursuant to Section 2.08(d),
or if the Borrower fails to borrow or prepay any Fixed Rate Loan after notice
has been given to any Bank in accordance with Section 2.04(a) or Section 2.11,
the Borrower shall reimburse each Bank within 15 days after demand for any
resulting loss or expense incurred by it (or by an existing or prospective
Participant in the related Loan), including (without limitation) any loss
reasonably incurred in obtaining, liquidating or employing deposits from third
parties, but excluding loss of margin for the period after such payment or
conversion or failure to borrow or prepay, provided that such Bank shall have
delivered to the Borrower a certificate as to the amount of such loss or
expense with an explanation of the calculation of such loss or expense, which
certificate shall be conclusive if made reasonably and in good faith.
SECTION 2.14. Computation of Interest and Fees. Interest
based on the Prime Rate hereunder shall be computed on the basis of a year of
365 days (or 366 days in a leap year) and paid for the actual number of days
elapsed (including the first day but excluding the last day). All other
interest and facility fees hereunder shall be computed
<PAGE> 35
31
on the basis of a year of 360 days and paid for the actual number of days
elapsed (including the first day but excluding the last day).
SECTION 2.15. Regulation D Compensation. For each day for
which a Bank is required to maintain reserves in respect of either (x)
"Eurocurrency Liabilities" (as defined in all regulations of the Board of
Governors of the Federal Reserve System) or (y) any other category of
liabilities which includes deposits by reference to which the interest rate in
Euro-dollar Loans is determined or any category of extensions of credit or
other assets which includes loans by a non-United States office of any Bank to
United States residents, such Bank may require the Borrower to pay,
contemporaneously with each payment of interest on the Euro-Dollar Loans,
additional interest on the related Euro-Dollar Loan of such Bank at a rate per
annum determined by such Bank up to but not exceeding the excess of (i) (A) the
applicable London Interbank Offered Rate divided by (B) one minus the
Euro-Dollar Reserve Percentage over (ii) the applicable London Interbank
Offered Rate. Any Bank wishing to require payment of such additional interest
(x) shall so notify the Borrower and the Agent, in which case such additional
interest on the Euro-Dollar Loans of such Bank shall be payable to such Bank at
the place indicated in such notice with respect to each Interest Period
commencing at least five Euro-Dollar Business Days after the giving of such
notice and (y) shall notify the Borrower at least five Euro-Dollar Business
Days prior to each date on which interest is payable on the Euro-Dollar Loans
of the amount then due to such Bank under this Section. Such Bank's notice to
the Borrower shall set forth its calculation of such additional interest and
such calculation shall be conclusive if made reasonably and in good faith.
ARTICLE III
CONDITIONS
SECTION 3.01. Effectiveness. This Agreement shall become
effective on the date that all of the following conditions shall have been
satisfied (or waived in accordance with Section 9.04):
(a) receipt by the Agent from each of the parties hereto of
either (i) a counterpart hereof signed by such party or (ii)
telegraphic, telex or other written
<PAGE> 36
32
confirmation, in form satisfactory to the Agent, confirming that a counterpart
hereof has been signed by such party;
(b) receipt by the Agent for the account of each Bank of a
duly executed Note dated on or before the Effective Date complying
with the provisions of Section 2.05;
(c) receipt by the Agent of a certificate signed by the Vice
President-Finance and Treasurer or Senior Vice President, Finance of
the Borrower, dated the Effective Date, to the effect that (i) no
Default has occurred and is continuing as of the Effective Date, (ii)
the representations and warranties of the Borrower set forth in
Article IV hereof are true in all material respects on, and as of, the
Effective Date and (iii) the Borrower has terminated, effective on or
prior to the Effective Date, all commitments under the Credit
Agreement dated as of August 1, 1989, among the Borrower, the banks
party thereto and Morgan Guaranty Trust Company of New York, as agent
for such banks, and has repaid all loans outstanding thereunder;
(d) receipt by the Agent of an opinion of John W. Campbell,
Esq., counsel to the Borrower and given upon the Borrower's express
instructions, and of Davis Polk & Wardwell, special counsel to the
Borrower, and given upon the Borrower's express instructions
substantially in the forms of Exhibits E-1 and E-2 hereto,
respectively;
(e) receipt by the Agent of an opinion of Cravath, Swaine &
Moore, special counsel to the Agent, substantially in the form of
Exhibit F hereto; and
(f) receipt by the Agent of all documents it may reasonably
request relating to the existence of the Borrower, the corporate
authority for and the validity of this Agreement and the Notes, and
any other matters relevant hereto, all in form and substance
satisfactory to the Agent;
provided that this Agreement shall not become effective or be binding on any
party hereto unless all of the foregoing conditions are satisfied not later
than July 31, 1994. The Agent shall promptly notify the Borrower and the Banks
of
<PAGE> 37
33
the Effective Date, and such notice shall be conclusive and binding on all
parties hereto.
SECTION 3.02. Borrowings. The obligation of any Bank to make
a Loan on the occasion of any Borrowing is subject to the satisfaction of the
following conditions:
(a) receipt by the Agent of a Notice of Borrowing as required
by Section 2.02 or 2.03, as the case may be;
(b) the fact that, immediately before and immediately after
such Borrowing, no Default shall have occurred and be continuing;
(c) the fact that immediately after such Borrowing, the
aggregate outstanding principal amount of the Loans will not exceed
the aggregate amount of the Commitments;
(d) the fact that the representations and warranties of the
Borrower set forth in Sections 4.01(i), 4.02 and 4.07(i) shall be true
on and as of the date of such Borrowing;
(e) the fact that the most recent financial statements
provided by Borrower in compliance with Section 5.01, as supplemented
prior to such Borrowing, shall be, to the best of Borrower's
knowledge, accurate and complete in all material respects; and
(f) the fact that the Borrowing shall have been approved in
writing by (i) the Chairman of the Borrower, or (ii) the President of
the Borrower, or (iii) the Group Executive, Finance and
Administration, acting jointly with either the Senior Vice President,
Finance, or the Vice President-Finance and Treasurer.
Each Borrowing hereunder shall be deemed to be a representation and warranty by
the Borrower on the date of such Borrowing as to the facts specified in clauses
(b), (c), (d), (e) and (f) of this Section.
<PAGE> 38
34
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants that:
SECTION 4.01. Corporate Existence and Power. The Borrower
(i) is a Connecticut insurance corporation duly incorporated, validly existing
and in good standing under the laws of the State of Connecticut, (ii) has all
corporate powers required to carry on its business as now conducted and (iii)
has all governmental licenses, authorizations, consents and approvals required
to carry on its business as now conducted, the failure to obtain which would,
individually or in the aggregate, have a material adverse effect on the ability
of the Borrower to perform its obligations hereunder or on the financial
condition of the Borrower and its Consolidated Subsidiaries taken as a whole.
SECTION 4.02. Corporate and Governmental Authorization; No
Contravention. The execution, delivery and performance by the Borrower of this
Agreement and the Notes are within the Borrower's corporate powers, have been
duly authorized by all necessary corporate action, require no action by or in
respect of, or advance filing with, any governmental body, agency or official
and do not contravene, or constitute a default under, (i) any provision of the
certificate of incorporation or by-laws of the Borrower, (ii) any applicable
law or regulation or any judgment, injunction, order or decree binding upon the
Borrower, or (iii) any material financial agreement or instrument (excluding
insurance obligations) of the Borrower.
SECTION 4.03. Binding Effect. This Agreement constitutes a
valid and binding agreement of the Borrower and the Notes, when executed and
delivered in accordance with this Agreement, will constitute valid and binding
obligations of the Borrower.
SECTION 4.04. Financial Information.
(a) The consolidated balance sheet of the Borrower and its
Consolidated Subsidiaries as of December 31, 1993, the related
consolidated statements of cash flows for the year then ended and
consolidated statement of income and retained earnings for the year
then ended, reported on by KPMG Peat Marwick and set forth in the
Borrower's 1993 Annual Report, copies of which have
<PAGE> 39
35
been delivered to the Agent for distribution to each of the Banks,
fairly present, in conformity with United States generally accepted
accounting principles, the consolidated financial position of the
Borrower and its Consolidated Subsidiaries as of such date and their
consolidated results of operations and cash flows for such year.
(b) The unaudited consolidated balance sheet of the Borrower
and its Consolidated Subsidiaries as of March 31, 1994 and the related
unaudited consolidated statements of income and retained earnings and
cash flows for the three months then ended, set forth in the
Borrower's 1994 First Quarter Form 10-Q, copies of which have been
delivered to the Agent for distribution to each of the Banks, fairly
present, in conformity with United States generally accepted
accounting principles applied on a basis consistent with the financial
statements referred to in subsection (a) of this Section, the
consolidated financial position of the Borrower and its Consolidated
Subsidiaries as of such date and their consolidated results of
operations and cash flows for such three month period (subject to
normal year-end adjustments).
(c) Since March 31, 1994, there has been no material adverse
change in the business, financial position or results of operations of
the Borrower and its Consolidated Subsidiaries, taken as a whole.
SECTION 4.05. Litigation. Except as disclosed in the
Borrower's 1993 Form 10-K or 1994 First Quarter Form 10-Q, there is no action,
suit or proceeding pending against, or to the knowledge of the Borrower
threatened against or affecting, the Borrower, its Consolidated Subsidiaries or
its Principal Insurance Subsidiaries before any court or arbitrator or any
governmental body, agency or official in which there is a reasonable
possibility of an adverse decision which could materially adversely affect the
business, consolidated financial position or consolidated results of operations
of the Borrower and its Consolidated Subsidiaries taken as a whole or which in
any manner draws into question the validity of this Agreement or the Notes.
SECTION 4.06. Compliance with ERISA. Each member of the
ERISA Group has fulfilled its obligations under the
<PAGE> 40
36
minimum funding standards of ERISA and the Internal Revenue Code with respect
to each Plan and is not in violation of the presently applicable provisions of
ERISA and the Internal Revenue Code where such violation would have a material
adverse effect on the financial condition of the Borrower and its Consolidated
Subsidiaries taken as a whole, and has not incurred any liability to the PBGC
or a Plan under Title IV of ERISA; provided that this Section 4.06 applies to
the members of the ERISA Group only in their capacity as employers and not in
any other capacity (such as fiduciaries or service providers to Plans for the
benefit of employers of others).
SECTION 4.07. Principal Insurance Subsidiaries. Each of the
Borrower's Principal Insurance Subsidiaries (i) is a Connecticut insurance
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Connecticut, (ii) has all corporate powers required to
carry on its business as now conducted and (iii) has all governmental licenses,
authorizations, consents and approvals required to carry on its business as now
conducted, the failure to obtain which would, individually or in the aggregate,
have a material adverse effect on the ability of the Borrower to perform its
obligations hereunder or on the financial condition of such Principal Insurance
Subsidiary and its consolidated subsidiaries taken as a whole.
SECTION 4.08. Compliance with Laws. To the best of the
Borrower's knowledge, the Borrower has complied in all material respects with
all applicable laws, except where any single failure to comply therewith would
not individually have a material adverse effect on its ability to perform its
obligations hereunder, and except where necessity of compliance therewith is
being contested in good faith by appropriate proceedings; provided, however,
that the sole representation and warranty with respect to compliance with ERISA
is limited to Section 4.06; and provided further that the reference to
applicable laws in this Section 4.08 shall not include Environmental Laws.
<PAGE> 41
37
ARTICLE V
COVENANTS
The Borrower agrees that, so long as any Bank has any
Commitment hereunder or any amount payable under any Note remains unpaid:
SECTION 5.01. Information. The Borrower will deliver to the
Agent, for delivery by the Agent to each of the Banks:
(a) as soon as available and in any event within 120 days
after the end of each fiscal year of the Borrower, the consolidated
balance sheet of the Borrower and its Consolidated Subsidiaries as of
the end of such fiscal year and the related consolidated statements of
earnings and of cash flows for such fiscal year, setting forth in each
case in comparative form the figures for the previous fiscal year, all
reported on in a manner acceptable to the Securities and Exchange
Commission by KPMG Peat Marwick or other independent public
accountants of nationally recognized standing;
(b) as soon as available and in any event within 60 days after
the end of each of the first three quarters of each fiscal year of the
Borrower, the Borrower's Form 10-Q as of the end of such quarter;
(c) simultaneously with the delivery of each set of financial
statements referred to in clauses (a) and (b) above, a certificate of
a Responsible Financial Officer of the Borrower (i) stating whether
any Default exists on the date of such certificate and, if any Default
then exists, setting forth the details thereof and the action which
the Borrower is taking or proposes to take with respect thereto, and
(ii) setting forth calculations demonstrating compliance, as of the
date of the most recent balance sheet included in the financial
statements being furnished at such time, with the covenant set forth
in Section 5.03;
(d) within five days after any officer of the Borrower obtains
knowledge of any Default, if such Default is then continuing, a
certificate of a Responsible Financial Officer of the Borrower setting
forth the details thereof and the action which the
<PAGE> 42
38
Borrower is taking or proposes to take with respect thereto;
(e) promptly upon the mailing thereof to the shareholders of
the Borrower generally, copies of all financial statements and
reports, and proxy statements so mailed; and
(f) from time to time such additional publicly available
information regarding the financial position or business of the
Borrower and its Principal Insurance Subsidiaries as the Agent, at the
request of any Bank, may reasonably request.
SECTION 5.02. Conduct of Business and Maintenance of
Existence. The Borrower will preserve, renew and keep in full force and
effect, and will cause each Principal Insurance Subsidiary to preserve, renew
and keep in full force and effect their respective corporate existence.
SECTION 5.03. Minimum Adjusted Consolidated Net Worth.
Adjusted Consolidated Net Worth will at no time be less than $5,000,000,000.
SECTION 5.04. Equal and Ratable Lien Protection. The
Borrower will not, and will not permit any Principal Insurance Subsidiary to,
issue, assume, incur or guarantee any indebtedness for borrowed money secured
by a mortgage, pledge, lien or other encumbrance, directly or indirectly on any
of the common stock of a Principal Insurance Subsidiary, which common stock is
owned by the Borrower or any Principal Insurance Subsidiary, unless the
obligations of the Borrower under this Agreement and the Notes and, if the
Borrower so elects, any other indebtedness of the Borrower ranking on a parity
with the Notes shall be secured equally and ratably with, or prior to, such
secured indebtedness for borrowed money so long as it is outstanding and is so
secured.
SECTION 5.05. Consolidations, Mergers and Sales of Assets.
The Borrower will not consolidate or merge with or into any other corporation
or convey or transfer its properties and assets substantially as an entirety to
any other Person unless (i) the surviving or acquiring entity is a corporation
organized under the laws of one of the United States, (ii) the surviving or
acquiring corporation, if other than the Borrower, expressly assumes the
performance of the obligations of the Borrower under this Agreement and
<PAGE> 43
39
the Notes, and (iii) immediately after giving effect to such transaction, no
Default shall exist.
SECTION 5.06. Use of Proceeds. The proceeds of the Loans
made under this Agreement will be used by the Borrower for general corporate
purposes. None of such proceeds will be used, directly or indirectly, for the
purpose, whether immediate, incidental or ultimate, of buying or carrying any
"margin stock" within the meaning of Regulation U.
SECTION 5.07. Cross Default Provisions. If a cross default
provision is included in any future instrument or agreement of the Borrower
evidencing or relating to indebtedness for borrowed money in a principal amount
in excess of $50,000,000, the Borrower will promptly notify the Banks thereof
and will, if requested to do so by the Required Banks, sign an amendment to
this Agreement to include a similar cross default provision herein.
SECTION 5.08. Compliance with Laws. The Borrower will comply
in all material respects with all applicable laws, except where any single
failure to comply therewith would not individually have a material adverse
effect on its ability to perform its obligations hereunder, and except where
necessity of compliance therewith is being contested in good faith by
appropriate proceedings; provided, however, that with respect to its compliance
with ERISA, this Section 5.08 applies to the Borrower only in its capacity as
an employer and not in any other capacity (such as a fiduciary or service
provider to Plans for the benefit of employers of others); and provided further
that the reference to applicable laws in this Section 5.08 shall not include
Environmental Laws.
ARTICLE VI
DEFAULTS
SECTION 6.01. Events of Default. If one or more of the
following events ("Events of Default") shall have occurred and be continuing:
(a) the Borrower shall fail to pay when due any principal on
any Loan;
<PAGE> 44
40
(b) the Borrower shall fail to pay within five Domestic
Business Days of when due any fees or interest on any Loan;
(c) the Borrower shall fail to observe or perform any covenant
contained in Sections 5.03 and 5.05;
(d) the Borrower shall fail to observe or perform, in any
material respect, any covenant or agreement contained in this
Agreement (other than those covered by clause (a), (b) or (c) above)
and such failure shall have continued for a period of 45 days after
written notice thereof has been given to the Borrower by the Agent at
the request of any Bank;
(e) any representation, warranty, certification or statement
made by the Borrower in this Agreement or in any certificate,
financial statement or other document delivered pursuant to this
Agreement shall prove to have been incorrect in any material respect
when made (or deemed made);
(f) an event of default, as defined in any indenture or
instrument evidencing or under which the Borrower or any Principal
Insurance Subsidiary has at the date of this Agreement or shall
hereafter have outstanding indebtedness for borrowed money in a
principal amount in excess of $50,000,000, shall occur and be
continuing and such indebtedness shall have been accelerated so that
the same shall be or become due and payable prior to the date on which
the same would otherwise have become due and payable (other than
acceleration of Non-Recourse Indebtedness which does not exceed in the
aggregate 4% of the Borrower's total shareholders' equity, as set
forth in the most recently published audited consolidated balance
sheet of the Borrower), and such acceleration shall not have been
waived, rescinded or annulled;provided, however, that if such
acceleration under such indenture or instrument shall be remedied or
cured by the Borrower or Principal Insurance Subsidiary, or waived,
rescinded or annulled by the requisite holders of such indebtedness,
then the Event of Default shall be deemed likewise to have been
thereupon remedied, cured or waived without further action upon the
part of the Banks;
(g) the Borrower or any Principal Insurance Subsidiary shall
commence a voluntary case or other
<PAGE> 45
41
proceeding seeking liquidation, reorganization or other relief with
respect to itself or its debts under any bankruptcy, insolvency or
other similar law now or hereafter in effect or seeking the
appointment of a trustee, receiver, liquidator, custodian or other
similar official of it or all or substantially all of its property, or
shall consent to any such relief or to the appointment of or taking
possession by any such official in an involuntary case or other
proceeding commenced against it, or shall make a general assignment
for the benefit of creditors, or shall fail generally to pay its debts
as they become due, or shall take any corporate action to authorize
any of the foregoing;
(h) an involuntary case or other proceeding shall be commenced
against the Borrower or any Principal Insurance Subsidiary seeking
liquidation, reorganization or other relief with respect to it or its
debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or all or
substantially all of its property, and such involuntary case or other
proceeding shall remain undismissed and unstayed for a period of 60
days; or an order for relief shall be entered against the Borrower or
any Principal Insurance Subsidiary under the federal bankruptcy laws
as now or hereafter in effect; or
(i) any person or group of persons (within the meaning of
Section 13 or 14 of the Securities Exchange Act of 1934, as amended)
shall have acquired beneficial ownership (within the meaning of Rule
13d-3 promulgated by the Securities and Exchange Commission under said
Act) of more than 35% of the outstanding shares of common stock of the
Borrower; or at any time Continuing Directors shall not constitute a
majority of the board of directors of the Borrower;
then, and in every such event, the Agent shall (i) if requested by Banks having
more than 50% in aggregate amount of the Commitments, by notice to the Borrower
terminate the Commitments and they shall thereupon terminate, and (ii) if
requested by Banks holding Notes evidencing more than 50% in aggregate
principal amount of the Loans, by notice to the Borrower declare the Notes
(together with accrued interest thereon) to be, and the Notes shall thereupon
become,
<PAGE> 46
42
immediately due and payable without presentment, demand, protest or other
notice of any kind, all of which are hereby waived by the Borrower; provided
that in the case of any of the Events of Default specified in clause (g) or (h)
above with respect to the Borrower, without any notice to the Borrower or any
other act by the Agent or the Banks, the Commitments shall thereupon terminate
and the Notes (together with accrued interest thereon) shall become immediately
due and payable without presentment, demand, protest or other notice of any
kind, all of which are hereby waived by the Borrower.
SECTION 6.02. Notice of Default. The Agent shall give notice
to the Borrower under Section 6.01(c) promptly upon being requested to do so by
any Bank and shall thereupon notify all the Banks thereof.
ARTICLE VII
THE AGENT
SECTION 7.01. Appointment and Authorization. Each Bank
irrevocably appoints and authorizes the Agent to take such action as agent on
its behalf and to exercise such powers under this Agreement and the Notes as
are delegated to the Agent by the terms hereof or thereof, together with all
such powers as are reasonably incidental thereto.
SECTION 7.02. Agent and Affiliates. Morgan Guaranty Trust
Company of New York shall have the same rights and powers under this Agreement
as any other Bank and may exercise or refrain from exercising the same as
though it were not the Agent, and Morgan Guaranty Trust Company of New York and
its affiliates may accept deposits from, lend money to, and generally engage in
any kind of business with the Borrower or any Subsidiary or affiliate of the
Borrower as if it were not the Agent hereunder.
SECTION 7.03. Action by Agent. The obligations of the Agent
hereunder are only those expressly set forth herein. Without limiting the
generality of the foregoing, the Agent shall not be required to take any action
with respect to any Default, except as expressly provided in Article VI.
SECTION 7.04. Consultation with Experts. The Agent may
consult with legal counsel (who may be counsel for
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43
the Borrower), independent public accountants and other experts selected by it
and shall not be liable for any action taken or omitted to be taken by it in
good faith in accordance with the advice of such counsel, accountants or
experts.
SECTION 7.05. Liability of Agent. Neither the Agent nor any
of its directors, officers, agents, or employees shall be liable for any action
taken or not taken by it in connection herewith (i) with the consent or at the
request of the Required Banks or (ii) in the absence of its own gross
negligence or willful misconduct. Neither the Agent nor any of its directors,
officers, agents or employees shall be responsible for or have any duty to
ascertain, inquire into or verify (i) any statement, warranty or representation
made in connection with this Agreement or any borrowing hereunder; (ii) the
performance or observance of any of the covenants or agreements of the
Borrower; (iii) the satisfaction of any condition specified in Article III,
except receipt of items required to be delivered to the Agent; or (iv) the
validity, effectiveness or genuineness of this Agreement, the Notes or any
other instrument or writing furnished in connection herewith. The Agent shall
not incur any liability by acting in reliance upon any notice, consent,
certificate, statement, or other writing (which may be a bank wire, telex or
similar writing) believed by it to be genuine or to be signed by the proper
party or parties.
SECTION 7.06. Indemnification. Each Bank shall, ratably in
accordance with its Commitment, indemnify the Agent (to the extent not
reimbursed by the Borrower) against any cost, expense (including counsel fees
and disbursements), claim, demand, action, loss or liability (except such as
result from the Agent's gross negligence or willful misconduct) that the Agent
may suffer or incur in connection with this Agreement or any action taken or
omitted by the Agent hereunder.
SECTION 7.07. Credit Decision. Each Bank acknowledges that
it has, independently and without reliance upon the Agent or any other Bank,
and based on such documents and information as it has deemed appropriate, made
its own credit analysis and decision to enter into this Agreement. Each Bank
also acknowledges that it will, independently and without reliance upon the
Agent or any other Bank, and based on such documents and information as it
shall deem appropriate at the time, continue to make its
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44
own credit decisions in taking or not taking any action under this Agreement.
SECTION 7.08. Successor Agent. The Agent may resign at any
time by giving written notice thereof to the Banks and the Borrower. Upon any
such resignation, the Required Banks shall have the right to appoint a
successor Agent approved by the Borrower (which approval shall not be
unreasonably withheld). If no successor Agent shall have been so appointed by
the Required Banks, and approved by the Borrower and shall have accepted such
appointment within 10 Domestic Business Days after the retiring Agent gives
notice of resignation, then the retiring Agent may, on behalf of the Banks,
appoint a successor Agent, which shall be a commercial bank organized or
licensed under the laws of the United States of America or of any State thereof
and having a combined capital and surplus of at least two billion dollars.
Upon the acceptance of its appointment as Agent hereunder by a successor Agent,
such successor Agent shall thereupon succeed to and become vested with all the
rights and duties of the retiring Agent, and the retiring Agent shall be
discharged from its duties and obligations hereunder. After any retiring
Agent's resignation hereunder as Agent, the provisions of this Article shall
inure to its benefit as to any actions taken or omitted to be taken by it while
it was Agent.
ARTICLE VIII
CHANGE IN CIRCUMSTANCES
SECTION 8.01. Basis for Determining Interest Rate Inadequate
or Unfair. If on or prior to the first day of any Interest Period for any CD
Loan, Euro-Dollar Loan or Money Market LIBOR Loan the Agent is advised by each
of the Reference Banks that deposits in dollars (in the applicable amounts) are
not being offered to each of the Reference Banks in the relevant market for
such Interest Period, the Agent shall forthwith give notice thereof to the
Borrower and the Banks, whereupon until the Agent notifies the Borrower that
the circumstances giving rise to such suspension no longer exist, (i) the
obligations of the Banks to make CD Loans or Euro-Dollar Loans, as the case may
be, or to convert outstanding Base Rate Loans into CD Loans or Euro-Dollar
Loans, as the case may be, or to convert outstanding CD Loans or Euro- Dollar
Loans into CD Loans or Euro-Dollar Loans, as the case may be, with a different
<PAGE> 49
45
Interest Period shall be suspended, (ii) each outstanding CD Loan, Euro-Dollar
Loan or Money Market LIBOR Loan, as the case may be, shall be converted into a
Base Rate Loan on the last day of the then current Interest Period applicable
thereto, and (iii) unless the Borrower notifies the Agent at least two Domestic
Business Days before the date of any CD Borrowing, Euro-Dollar Borrowing or
Money Market LIBOR Borrowing, as the case may be, for which a Notice of
Borrowing has previously been given that it elects not to borrow on such date,
(x) if such Borrowing is a CD Borrowing or a Euro-Dollar Borrowing, as the case
may be, such Borrowing shall instead be made as a Base Rate Borrowing and (y)
if such Borrowing is a Money Market LIBOR Borrowing, the Money Market LIBOR
Loans comprising such Borrowing shall bear interest for each day from and
including the first day to but excluding the last day of the Interest Period
applicable thereto at the Base Rate for such day.
SECTION 8.02. Illegality. If, on or after the date of this
Agreement, the adoption of any applicable law, rule or regulation, or any
change in any applicable law, rule or regulation, or any change in the
interpretation or administration thereof by any governmental authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by any Bank (or its Applicable Lending Office) with any
request or directive (whether or not having the force of law) of any such
authority, central bank or comparable agency shall make it unlawful or
impossible for any Bank (or its Euro-Dollar Lending Office) to make, maintain
or fund its Euro- Dollar Loans and such Bank shall so notify the Agent, the
Agent shall forthwith give notice thereof to the other Banks and the Borrower,
whereupon until such Bank notifies the Borrower and the Agent that the
circumstances giving rise to such suspension no longer exist, the obligation of
such Bank to make Euro-Dollar Loans, or to convert outstanding Base Rate Loans
or CD Loans into Euro-Dollar Loans, or to convert outstanding Euro-Dollar Loans
into Euro-Dollar Loans with a different Interest Period shall be suspended.
Before giving any notice to the Agent pursuant to this Section, such Bank shall
designate a different Applicable Lending Office if such designation will avoid
the need for giving such notice and will not, in the judgment of such Bank, be
otherwise disadvantageous to such Bank. If such notice is given, all Euro-
Dollar Loans of such Bank then outstanding shall be converted to Base Rate
Loans either (a) on the last day of the then current Interest Period applicable
to such Euro-Dollar Loans if such Bank may lawfully continue to maintain
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46
and fund such Loans to such day or (b) immediately if such Bank may not
lawfully continue to maintain and fund such Loans to such day.
SECTION 8.03. Increased Cost and Reduced Return. (a) If any
applicable law, rule or regulation, or any change in any applicable law, rule
or regulation, or any change in the interpretation or administration thereof by
any governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by any Bank (or its
Applicable Lending Office) with any request or directive (whether or not having
the force of law) of any such governmental authority, central bank or
comparable agency, made or adopted after the date hereof (other than a change
currently provided for in any existing law, rule or regulation) shall impose,
modify or deem applicable any reserve, special deposit, insurance assessment or
similar requirement (including, without limitation, any such requirement
imposed by the Board of Governors of the Federal Reserve System, but excluding
(i) with respect to any Euro-Dollar Loan, any such requirement with respect to
which such Bank is entitled to compensation during the relevant Interest Period
under Section 2.15 and (ii) with respect to any CD Loan, any such requirement
reflected in the applicable Domestic Reserve Percentage or Assessment Rate)
against assets of, deposits with or for the account of, or credit extended by,
any Bank (or its Applicable Lending Office) or shall impose on any Bank (or its
Applicable Lending Office) or on the United States market for certificates of
deposit or the London interbank market any other condition affecting its Fixed
Rate Loans (other than Money Market Absolute Rate Loans), its Notes (in respect
of such Fixed Rate Loans) or its obligation to make such Fixed Rate Loans; and
the result of any of the foregoing is to increase the cost to such Bank (or its
Applicable Lending Office) of making or maintaining any Fixed Rate Loan, or to
reduce the amount of any sum received or receivable by such Bank (or its
Applicable Lending Office) under this Agreement or under its Notes with respect
thereto, by an amount reasonably deemed by such Bank to be material, then,
within 15 days after demand by such Bank (with a copy to the Agent), the
Borrower shall pay to such Bank such additional amount or amounts as will
compensate such Bank for such increased cost or reduction.
(b) If any Bank shall have determined that any applicable
law, rule or regulation regarding capital adequacy, or any change in any such
law, rule or regulation,
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47
or any change in the interpretation or administration thereof by any
governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or any request or directive regarding
capital adequacy (whether or not having the force of law) of any such
governmental authority, central bank or comparable agency, made or adopted
after the date hereof (other than a change currently provided for in any
existing law, rule or regulation), has or would have the effect of increasing
the amount of capital of such Bank (or its parent) required to be maintained in
respect of, or otherwise allocated to, such Bank's obligations hereunder (its
"Required Capital") by an amount reasonably deemed by such Bank to be material,
then such Bank may, by notice to the Borrower and the Agent, increase the
facility fee payable to such Bank hereunder to the extent required so that the
ratio of (w) the sum of the increased facility fee applicable to such Bank's
unused Commitment hereunder to (x) the prior facility fee applicable to such
Bank's unused Commitment hereunder is the same as the ratio of (y) such Bank's
increased Required Capital to (z) its prior Required Capital. Such Bank's
notice to the Borrower and the Agent shall set forth its calculation of the
foregoing ratios and the increased facility fee to which it is entitled under
this Section.
(c) Each Bank will promptly notify the Borrower and the Agent
of any event of which it has knowledge, occurring after the date hereof, which
will entitle such Bank to compensation pursuant to this Section 8.03 (each, a
"Trigger Event") and will designate a different Applicable Lending Office if
such designation will avoid the need for, or reduce the amount of, such
compensation and will not, in the judgment of such Bank, be otherwise
disadvantageous to such Bank. Notwithstanding any other provision of this
Section, no Bank shall be entitled to any compensation pursuant to this Section
in respect of any Trigger Event (i) for any period of time in excess of 120
days prior to such notice or (ii) for any period of time prior to such notice
if such Bank shall not have given such notice within 120 days of the date on
which such Trigger Event shall have been enacted, promulgated, adopted or
issued in definitive or final form unless such Trigger Event is retroactive. A
certificate of any Bank claiming compensation under Section 8.03(a) or (b) and
setting forth the additional amount or amounts to be paid to it hereunder and
describing the method of calculation thereof shall be conclusive if made
reasonably and in good faith. In determining such
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amount, such Bank may use any reasonable averaging and attribution methods.
SECTION 8.04. Taxes. (a) For purposes of this Section 8.04,
the following terms have the following meanings:
"Taxes" means any and all present or future taxes, duties,
levies, imposts, deductions, charges or withholdings with respect to any
payment by the Borrower pursuant to this Agreement or under any Note, and all
liabilities with respect thereto, excluding (i) in the case of each Bank and
the Agent, taxes imposed on its income, and franchise or similar taxes imposed
on it, by a jurisdiction under the laws of which such Bank or the Agent (as the
case may be) is organized or in which its principal executive office is located
or, in the case of each Bank, in which its Applicable Lending Office is located
and (ii) in the case of each Bank, any United States withholding tax imposed on
such payments but only to the extent that such Bank is subject to United States
withholding tax at the time such Bank first becomes a party to this Agreement.
"Other Taxes" means any present or future stamp or documentary
taxes and any other excise or property taxes, or similar charges or levies,
which arise from any payment made pursuant to this Agreement or under any Note
or from the execution or delivery of, or otherwise with respect to, this
Agreement or any Note.
(b) Any and all payments by the Borrower to or for the
account of any Bank or the Agent hereunder or under any Note shall be made
without deduction for any Taxes or Other Taxes; provided that, if the Borrower
shall be required by law to deduct any Taxes or Other Taxes from any such
payments, (i) the sum payable shall be increased as necessary so that after
making all required deductions (including deductions applicable to additional
sums payable under this Section 8.04) such Bank or the Agent (as the case may
be) receives an amount equal to the sum it would have received had no such
deductions been made, (ii) the Borrower shall make such deductions, (iii) the
Borrower shall pay the full amount deducted to the relevant taxation authority
or other authority in accordance with applicable law and (iv) the Borrower
shall furnish to the Agent, at its address referred to in Section 9.01, the
original or a certified copy of a receipt evidencing payment thereof.
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49
(c) The Borrower agrees to indemnify each Bank and the Agent
for the full amount of Taxes or Other Taxes (including, without limitation, any
Taxes or Other Taxes imposed or asserted by any jurisdiction on amounts payable
under this Section 8.04) paid by such Bank or the Agent (as the case may be)
and any liability (including penalties, interest and expenses, except to the
extent attributable to the negligence or misconduct of such Bank or the Agent,
as the case may be) arising therefrom or with respect thereto. This
indemnification shall be made within 15 days from the date such Bank or the
Agent (as the case may be) makes demand therefor.
(d) Each Bank organized under the laws of a jurisdiction
outside the United States, on or prior to the date of its execution and
delivery of this Agreement in the case of each Bank listed on the signature
pages hereof and on or prior to the date on which it becomes a Bank in the case
of each other Bank, shall provide the Borrower with (i) two Internal Revenue
Service ("IRS") forms 1001 or any successor form prescribed by the IRS,
certifying that such Bank is entitled to benefits under an income tax treaty to
which the United States is a party which exempts such Bank from United States
withholding tax or reduces the rate of withtholding tax on payments of interest
and eliminates withholding tax on any fees, or (ii) two IRS forms 4224
certifying that the income receivable pursuant to this Agreement is effectively
connected with the conduct of a trade or business in the United States. If the
form provided by a Bank indicates a United States interest withholding tax rate
in excess of zero, withholding tax at such rate shall be considered excluded
from "Taxes" as defined in Section 8.04(a). Each such Bank undertakes to
deliver to each of the Borrower and the Agent (A) a replacement form (or
successor form) on or before the date that such form expires or becomes
obsolete or after the occurrence of any event requiring a change in the most
recent form so delivered by it, and (B) such amendments thereto or extensions
or renewals thereof as may reasonably be required (but only so long as such
Bank remains lawfully able to do so).
(e) For any period with respect to which a Bank has failed to
provide the Borrower with the appropriate form pursuant to Section 8.04(d)
(unless such failure is due to a change in treaty, law or regulation occurring
subsequent to the date on which a form originally was required to be provided),
such Bank shall not be entitled to
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indemnification under Section 8.04(b) or Section 8.04(c) with respect to Taxes
imposed by the United States; provided that if a Bank, which is otherwise
exempt from or subject to a reduced rate of withholding tax, becomes subject to
Taxes because of its failure to deliver a form required hereunder, the Borrower
shall take such steps as such Bank shall reasonably request to assist such Bank
to recover such Taxes.
(f) Each Bank will promptly notify the Borrower and the Agent
of any event of which it has knowledge, occurring after the date hereof, which
will entitle such Bank to make any claim for indemnification in respect of
Taxes or Other Taxes pursuant to this Section 8.04 (each, a "Tax Event") and
will designate a different Applicable Lending Office if such designation will
avoid the need for, or reduce the amount of, such claim or any other amounts
payable by the Borrower under this Section 8.04 and will not, in the judgment
of such Bank, be otherwise disadvantageous to such Bank. Notwithstanding any
other provisions of this Section, no Bank shall be entitled to any
indemnification pursuant to this Section in respect of any Tax Event (i) for
any period of time in excess of 180 days prior to such notice or (ii) for any
period of time prior to such notice if such Bank shall not have given such
notice within 120 days of the date on which such Bank became aware of such Tax
Event unless such Tax Event is retroactive.
SECTION 8.05. Base Rate Loans Substituted for Affected
Euro-Dollar Loans. If (i) the obligation of any Bank to make or maintain
Euro-Dollar Loans has been suspended pursuant to Section 8.02 or (ii) any Bank
has demanded compensation under Section 8.03(a) and the Borrower shall, by at
least five Euro-Dollar Business Days prior notice to such Bank through the
Agent, have elected that the provisions of this Section shall apply to such
Bank, then, unless and until such Bank notifies the Borrower that the
circumstances giving rise to such suspension or demand for compensation no
longer apply:
(a) all Loans which would otherwise be made by such Bank as
(or continued as or converted into) Euro-Dollar Loans shall instead be
Base Rate Loans, and
(b) after each of its outstanding Euro-Dollar Loans has been
repaid (or converted to a Base Rate Loan), all payments of principal
which would otherwise
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51
be applied to repay such Euro-Dollar Loans shall be applied to repay
its Base Rate Loans instead.
If such Bank notifies the Borrower that the circumstances giving rise to such
notice no longer apply, the Borrower shall elect that the principal amount of
each such Base Rate Loan shall be converted into a Euro-Dollar Loan on the
first day of the next succeeding Interest Period applicable to the related
Euro-Dollar Loans of the other Banks.
SECTION 8.06. Substitution of Bank. If (i) the obligation of
any Bank to make Euro-Dollar Loans has been suspended pursuant to Section 8.02
or (ii) any Bank has demanded compensation under Section 8.03 or 8.04, the
Borrower shall have the right to seek a substitute bank or banks (which may be
one or more of the Banks) to purchase the Notes and assume the Commitment of
such Bank under this Agreement.
SECTION 8.07. Election to Terminate. If during any Level I
Period, Level II Period or Level III Period (i) the obligation of any Bank to
make Euro-Dollar Loans has been suspended pursuant to Section 8.02 or (ii) any
Bank has demanded compensation under Section 8.03 or 8.04, the Borrower may
elect to terminate this Agreement as to such Bank, and in connection therewith
not to borrow any Loan hereunder from such Bank or to prepay any Base Rate Loan
made pursuant to Section 8.02 or 8.05 (without altering the Commitments or
Loans of the remaining Banks), provided that the Borrower (i) notifies such
Bank through the Agent of such election at least two Euro-Dollar Business Days
before any date fixed for such borrowing or such a prepayment, as the case may
be, and (ii) repays all of such Bank's outstanding Loans concurrently with such
termination. Upon receipt by the Agent of such notice, the Commitment of such
Bank shall terminate.
ARTICLE IX
MISCELLANEOUS
SECTION 9.01. Notices. All notices, requests and other
communications to any party hereunder shall be in writing (including bank wire,
telex, facsimile transmission or similar writing) and shall be given to such
party: (x) in the case of the Borrower or the Agent, at its address or telex
or telecopy number set forth on the signature pages
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52
hereof, (y) in the case of any Bank, at its address, telex or telecopy number
set forth in its Administrative Questionnaire or (z) in the case of any party,
such other address or telex or telecopy number as such party may hereafter
specify for the purpose by notice to the Agent and the Borrower. All notices
from outside the United States to the Borrower shall only be given by telecopy
and all other notices to the Borrower given by telex shall also be given by
telecopy or non-telex method. Each such notice, request or other communication
shall be effective (i) if given by telex or telecopy, when such telex or
telecopy is transmitted to the number determined pursuant to this Section and
the appropriate answerback is received, (ii) if given by registered or
certified mail, return receipt requested, when such return receipt is signed by
the recipient or (iii) if given by any other means, when delivered at the
address specified in this Section, or, if such date is not a business day in
the location where received, on the next business day in such location;
provided that notices to the Agent under Article II or Article VIII shall not
be effective until received.
SECTION 9.02. No Waivers. No failure or delay by the Agent
or any Bank in exercising any right, power or privilege hereunder or under any
Note shall operate as a waiver thereof nor shall any single or partial exercise
thereof preclude any other or further exercise thereof or the exercise of any
other right, power or privilege. The rights and remedies herein provided shall
be cumulative and not exclusive of any rights or remedies provided by law.
SECTION 9.03. Expenses; Indemnification. (a) The Borrower
shall pay (i) all out-of-pocket expenses of the Agent, including reasonable
fees and disbursements of special counsel for the Agent (subject to the
limitations previously agreed with such counsel, in the case of fees payable in
connection with the preparation of this Agreement), in connection with the
preparation of this Agreement, any waiver or consent hereunder or any amendment
hereof or any Default or alleged Default hereunder and (ii) if an Event of
Default occurs, all out-of-pocket expenses incurred by the Agent or any Bank,
including fees and disbursements of counsel, in connection with such Event of
Default and collection and other enforcement proceedings resulting therefrom.
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(b) The Borrower agrees to indemnify each Bank and hold each
Bank harmless from and against any and all liabilities, claims, losses,
damages, costs and expenses of any kind, including, without limitation, the
reasonable fees and disbursements of counsel, which may be incurred by any Bank
(or by the Agent in connection with its actions as Agent hereunder) in
connection with any investigative, administrative or judicial proceeding
(whether or not such Bank shall be designated a party thereto) relating to or
arising out of (i) any actual or proposed use of proceeds of Loans hereunder to
acquire equity securities of any other Person or (ii) any transaction which
violates the change in control provisions set forth in Section 6.01(i);
provided that no Bank shall have the right to be indemnified hereunder for its
own gross negligence or willful misconduct as determined by a court of
competent jurisdiction.
SECTION 9.04. Amendments and Waivers. Any provision of this
Agreement or the Notes may be amended or waived if, but only if, such amendment
or waiver is in writing and is signed by the Borrower and the Required Banks
(and, if the rights or duties of the Agent are affected thereby, by the Agent);
provided that no such amendment or waiver shall, unless signed by all the
Banks, (i) increase or decrease the Commitment of any Bank or subject any Bank
to any additional obligation, (ii) reduce or forgive the principal of or rate
of interest on any Loan or any fees hereunder, (iii) postpone the date fixed
for any payment of principal of or interest on any Loan or any fees hereunder
or for any reduction or termination of any Commitment or (iv) amend this
Section or otherwise change the percentage of the Commitments or of the
aggregate unpaid principal amount of the Notes, or the number of Banks, which
shall be required for the Banks or any of them to take any action under this
Section or any other provision of this Agreement.
SECTION 9.05. Successors and Assigns. (a) The provisions of
this Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns, except that the Borrower
may not assign, delegate, or otherwise transfer any of its rights or
obligations under this Agreement (other than as contemplated by Section 5.05)
without the prior written consent of all Banks.
(b) Except for (i) any assignment made with the Borrower's
consent, which consent shall be at the Borrower's sole discretion unless the
Assignee is an Affiliate of the
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54
transferor Bank, in which case, such consent shall not be unreasonably
withheld, (ii) any grant of participating interests permitted by subsection (d)
below and (iii) any designation of a different Applicable Lending Office
required by Section 8.02, Section 8.03 or Section 8.04, no Bank may at any time
assign or otherwise transfer any of its rights and obligations under this
Agreement and the Notes. An assignment or other transfer which is not
permitted by this subsection (b) shall be given effect for purposes of this
Agreement only to the extent of a participating interest granted in accordance
with subsection (d) below.
(c) Subject to the requirements of subsection (b) above, any
Bank may assign to one or more banks or other institutions (each an "Assignee)
all, or a proportionate part of all, of its rights and obligations under this
Agreement and the Notes, and such Assignee shall assume such rights and
obligations, pursuant to an instrument executed by such Assignee and such
transferor Bank, with (and subject to) the subscribed consent of the Borrower
and the Agent. Upon execution and delivery of such an instrument and payment
by such Assignee to such transferor Bank of an amount equal to the purchase
price agreed between such transferor Bank and such Assignee, such Assignee
shall be a Bank party to this Agreement and shall have all the rights and
obligations of a Bank with a Commitment as set forth in such instrument of
assumption, and the transferor Bank shall be released from its obligations
hereunder to a corresponding extent, and no further consent or action by any
party shall be required. In connection with any such assignment, the
transferor Bank shall pay to the Agent an administrative fee for processing
such assignment in the amount of $2,000. Upon the consummation of any
assignment pursuant to this subsection (c), the transferor Bank, the Agent and
the Borrower shall make appropriate arrangements so that, if required, a new
Note is issued to the Assignee. If the Assignee is not incorporated under the
laws of the United States of America or a state thereof, it shall, prior to the
first date on which interest or fees are payable hereunder for its account,
deliver to the Borrower and the Agent certification as to exemption from
deduction or withholding of any United States federal income taxes in
accordance with Section 8.04.
(d) Any Bank may at any time grant to one or more banks or
other institutions (each a "Participant") participating interests in any or all
of its Loans. In the event of any such grant by a Bank of a participating
<PAGE> 59
55
interest to a Participant, whether or not upon notice to the Borrower and the
Agent, such Bank shall remain responsible for the performance of its
obligations hereunder, and the Borrower and the Agent shall continue to deal
solely and directly with such Bank in connection with such Bank's rights and
obligations under this Agreement. Any agreement pursuant to which any Bank may
grant such a participating interest shall provide that such Bank shall retain
the sole right and responsibility to enforce the obligations of the Borrower
hereunder including, without limitation, the right to approve any amendment,
modification or waiver of any provision of this Agreement; provided that such
participation agreement may provide that such Bank will not agree to any
modification, amendment or waiver of this Agreement described in clause (ii) or
(iii) of Section 9.04 without the consent of the Participant. The Borrower
agrees that each Participant shall, to the extent provided in its participation
agreement, be entitled to the benefits of Article VIII with respect to its
participating interest.
(e) No Participant or other transferee of any Bank's rights
shall be entitled to receive any greater payment under Section 8.03 or 8.04
than such Bank would have been entitled to receive with respect to the rights
transferred, unless such transfer is made with the Borrower's prior written
consent or by reason of the provisions of Section 8.02, 8.03 or 8.04 requiring
such Bank to designate a different Applicable Lending Office under certain
circumstances.
(f) Any Bank may at any time assign all or any portion of its
rights under this Agreement and its Note to a Federal Reserve Bank. No such
assignment shall release the transferror Bank from its obligations hereunder.
SECTION 9.06. New York Law. This Agreement and each Note
shall be construed in accordance with and governed by the law of the State of
New York.
SECTION 9.07. Counterparts; Integration. This Agreement may
be signed in any number of counterparts, each of which shall be an original,
with the same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement constitutes the entire agreement and understanding
among the parties hereto and supersedes any and all prior agreements and
understandings, oral or written, relating to the subject matter hereof.
<PAGE> 60
SECTION 9.08. WAIVER OF JURY TRIAL. EACH OF THE BORROWER,
THE AGENT AND THE BANKS HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY
JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR
THE TRANSACTIONS CONTEMPLATED HEREBY.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officers as of the day and year
first above written.
AETNA LIFE AND CASUALTY COMPANY
By /S/ ROBERT E. BROATCH
-----------------------
Title: Senior Vice President,
Finance
Aetna Life and Casualty Company
151 Farmington Avenue
Hartford, Connecticut 06156
Attention: Assistant Treasurer,
Corporate Finance,
YF37
Telecopier: (203) 275-2661
Telex: 99-241
99-295
643056
With a copy to:
Aetna Life and Casualty Company
151 Farmington Avenue
Hartford, Connecticut 06156
Attention: General Counsel
Telecopier: (203) 273-0050
Telex: 99-241
99-295
643056
<PAGE> 61
Commitment
$50,000,000 MORGAN GUARANTY TRUST COMPANY OF
NEW YORK
By /S/ JERRY J. FALL
--------------------------
Title: Vice President
Domestic Lending Office
Morgan Guaranty Trust Company
of New York
c/o J.P Morgan Services Inc.
500 Stanton Christiana Road
P.O. Box 6070
Newark, DE 19713-2107
Attention: Kevin M. McCann
Associate
Telecopier: (302) 992-1852/1872
Telex: 177425 MBDEL UT
Euro-Dollar Lending Office
Morgan Guaranty Trust Company of
New York
c/o J.P Morgan Services Inc.
500 Stanton Christiana Road
P.O. Box 6070
Newark, DE 19713-2107
Attention: Kevin M. McCann
Associate
Telecopier: (302) 992-1852/1872
Telex: 177425 MBDEL UT
Money Market Lending Office
Morgan Guaranty Trust Company of
New York
c/o J.P Morgan Services Inc.
500 Stanton Christiana Road
P.O. Box 6070
Newark, DE 19713-2107
Attention: Kevin M. McCann
Associate
Telecopier: (302) 992-1852/1872
Telex: 177425 MBDEL UT
<PAGE> 62
Commitment
$50,000,000 DEUTSCHE BANK AG, NEW YORK AND/OR
CAYMAN ISLANDS BRANCHES
By /S/ CLINTON M. JOHNSON
------------------------------
Title: Vice President
By /S/ GEORGE-ANN TOBIN-DEW
------------------------------
Title: Managing Director
Domestic Lending Office
Deutsche Bank AG, New York
Branch
31 West 52nd Street
New York, New York 10019
Attention: Cheryl Mandelbaum
Telecopier: (212) 474-8108
Telex: 429 166/DEUT BK NY
Euro-Dollar Lending Office
Deutsche Bank AG, Cayman Islands
Branch
31 West 52nd Street
New York, New York 10019
Attention: Cheryl Mandelbaum
Telecopier: (212) 474-8108
Telex: 429 166/DEUT BK NY
Money Market Lending Office
Deutsche Bank AG, New York Branch
31 West 52nd Street
New York, New York 10019
Attention: Cheryl Mandelbaum
Telecopier: (212) 474-8108
Telex: 429 166/DEUT BK NY
<PAGE> 63
Commitment
$37,500,000 THE CHASE MANHATTAN BANK, N.A.
By /S/ DENNIS COGAN
-----------------------------
Title: Vice President
Domestic Lending Office
The Chase manhattan Bank, N.A.
One Chase Manhattan Plaza
New York, NY 10081
Attention: Monique Parker
Telecopier: (212) 552-1477;
(212) 552-1999
Telex: N/A
Euro-Dollar Lending Office
The Chase Manhattan Bank, N.A.
One Chase Manhattan Plaza
New York, NY 10081
Attention: Monique Parker
Telecopier: (212) 552-1477;
(212) 552-1999
Telex: N/A
Money Market Lending Office
The Chase Manhattan Bank, N.A.
One Chase Manhattan Plaza
New York, NY 10081
Attention: Monique Parker
Telecopier: (212) 552-1477;
(212) 552-1999
Telex: N/A
<PAGE> 64
Commitment
$37,500,000 CITIBANK, N.A.
By /S/ SCOTT F. ENGLE
------------------------------
Title: Vice President
Domestic Lending Office
Citibank, N.A.
399 Park Avenue
New York, New York 10043
Attention: Josephine Cameron, Mgr./
FINA-Insurance
Telecopier: (212) 935-4285
Telex: N/A
Euro-Dollar Lending Office
Citibank, N.A.
399 Park Avenue
New York, New York 10043
Attention: Josephine Cameron, Mgr./
FINA-Insurance
Telecopier: (212) 935-4285
Telex: N/A
Money Market Lending Office
Citibank, N.A.
399 Park Avenue
New York, New York 10043
Attention: Josephine Cameron, Mgr./
FINA-Insurance
Telecopier: (212) 935-4285
Telex: N/A
<PAGE> 65
Commitment
$37,500,000 CREDIT SUISSE
By /S/ LYNN ALLEGAERT
------------------------------
Title: Member of Senior Management
By /S/ JUERG JOHNER
------------------------------
Title: Associate
Domestic Lending Office
Credit Suisse
12 East 49th Street
New York, New York 10017
Attention: Rita Santelli
Telecopier: (212) 238-5439
Telex: N/A
Euro-Dollar Lending Office
Credit Suisse
12 East 49th Street
New York, New York 10017
Attention: Rita Santelli
Telecopier: (212) 238-5439
Telex: N/A
Money Market Lending Office
Credit Suisse
12 East 49th Street
New York, New York 10017
Attention: Rita Santelli
Telecopier: (212) 238-5439
Telex: N/A
<PAGE> 66
Commitment
$22,500,000 BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By /S/ LARRY HESS
------------------------------
Title: Vice President
Domestic Lending Office
Bank of America National Trust
and Savings Association
1850 Gateway Boulevard, GPO-AA
#5693
Concord, CA 94520
Attention: Hoyt Weller
Telecopier: (510) 675-7531
Telex: 34346
Euro-Dollar Lending Office
Bank of America National Trust and
Savings Association
1850 Gateway Boulevard, GPO-AA
#5693
Concord, CA 94520
Attention: Hoyt Weller
Telecopier: (510) 675-7531
Telex: 34346
Money Market Lending Office
Bank of America National Trust
and Savings Association
555 California Street, 10th Floor
San Francisco, CA 94104
Attention: Short Term Asset Sales
#5670
Telecopier: (415) 622-2235
Telex: N/A
<PAGE> 67
Commitment
$22,500,000 THE FIRST NATIONAL BANK OF CHICAGO
By /S/ THOMAS J. COLLIMORE
------------------------------
Title: Vice President
Domestic Lending Office
The First National Bank of
Chicago
One First National Plaza
Insurance Companies Division,
Suite 0085
Chicago, IL 60670-0085
Attention: Lillian Arroyo
Telecopier: (312) 732-4033
Telex: N/A
Euro-Dollar Lending Office
The First National Bank of
Chicago
One First National Plaza
Insurance Companies Division,
Suite 0085
Chicago, IL 60670-0085
Attention: Lillian Arroyo
Telecopier: (312) 732-4033
Telex: N/A
Money Market Lending Office
The First National Bank of
Chicago
One First National Plaza
Insurance Companies Division,
Suite 0085
Chicago, IL 60670-0085
Attention: Lillian Arroyo
Telecopier: (312) 732-4033
Telex: N/A
<PAGE> 68
Commitment
$22,500,000 FLEET BANK, NATIONAL ASSOCIATION
By /S/ JAN-GEE W. MCCOLLAM
------------------------------
Title: Senior Vice President
Domestic Lending Office
Fleet Bank, National Association
One Constitution Plaza
Hartford, CT 06115
Attention: Jacqueline Steffens/
Insurance
Telecopier: (203) 244-5391
Telex: N/A
Euro-Dollar Lending Office
Fleet Bank National Association
One Constitution Plaza
Hartford, CT 06115
Attention: Jacqueline Steffens/
Insurance
Telecopier: (203) 244-5391
Telex: N/A
Money Market Lending Office
Fleet Bank National Association
One Constitution Plaza
Hartford, CT 06115
Attention: Jacqueline Steffens/
Insurance
Telecopier: (203) 244-5391
Telex: N/A
<PAGE> 69
Commitment
$22,500,000 MELLON BANK, N.A.
By /S/ W. SCOTT SANFORD
------------------------------
Title: Senior Vice President
Domestic Lending Office
Mellon Bank, N.A.
Three Mellon Bank Center
Pittsburgh, PA 15259
Attention: Sandra A. Castelli/
Loan Administration
Telecopier: N/A
Telex: N/A
Euro-Dollar Lending Office
Mellon Bank, N.A.
One Mellon Bank Center
Pittsburgh, PA 15258
Attention: Marilyn Wagner/
Money Markets
Telecopier: N/A
Telex: N/A
Money Market Lending Office
Mellon Bank, N.A.
Three Mellon Bank Center
Pittsburgh, PA 15259
Attention: Sandra A. Castelli/
Loan Administration
Telecopier: N/A
Telex: N/A
<PAGE> 70
Commitment
$22,500,000 NATIONS BANK OF GEORGIA, N.A.
By /S/ FRANK R. CALLISON
------------------------------
Title: Vice President
Domestic Lending Office
Nations Bank of Georgia, N.A.
One Nations Bank Plaza
NC1-002-06-19/ P.O. Box 120
Charlotte, NC 28255
Attention: Chris Chaffee
Telecopier: (704) 386-8694
Telex: N/A
Euro-Dollar Lending Office
Nations Bank of Georgia, N.A.
One Nations Bank Plaza
NC1-002-06-19/ P.O. Box 120
Charlotte, NC 28255
Attention: Chris Chaffee
Telecopier: (704) 386-8694
Telex: N/A
Money Market Lending Office
Nations Bank of Georgia, N.A.
One Nations Bank Plaza
NC1-002-06-19/ P.O. Box 120
Charlotte, NC 28255
Attention: Chris Chaffee
Telecopier: (704) 386-8694
Telex: N/A
<PAGE> 71
Commitment
$22,500,000 SHAWMUT BANK CONNECTICUT, N.A.
By /S/ MARION B. HARDY
------------------------------
Title: Vice President
Domestic Lending Office
Shawmut Bank Connecticut, N.A.
777 Main Street
Hartford, CT 06115
Attention: Leeane Hediger
Insurance Industry
Telecopier: (203) 240-1264
Telex: N/A
Euro-Dollar Lending Office
Shawmut Bank Connecticut, N.A.
777 Main Street
Hartford, CT 06115
Attention: Leeane Hediger
Insurance Industry
Telecopier: (203) 240-1264
Telex: N/A
Money Market Lending Office
Shawmut Bank Connecticut, N.A.
777 Main Street
Hartford, CT 06115
Attention: Leeane Hediger
Insurance Industry
Telecopier: (203) 240-1264
Telex: N/A
<PAGE> 72
Commitment
$22,500,000 THE TORONTO-DOMINION BANK
By /S/ E. E. WALKER
--------------------------------------
Title: Manager - Credit Administration
Domestic Lending Office
The Toronto-Dominion Bank
909 Fannin Street, Suite 1700
Houston, TX 77010
Attention: E. E. Walker
Manager, Credit
Administration
Telecopier: (713) 951-9921
Telex: N/A
Euro-Dollar Lending Office
The Toronto-Dominion Bank
909 Fannin Street, Suite 1700
Houston, TX 77010
Attention: E. E. Walker
Manager, Credit
Administration
Telecopier: (713) 951-9921
Telex: N/A
Money Market Lending Office
The Toronto-Dominion Bank
USA Treasury Group-
Short Term Asset Sales
31 West 52nd Street, 21st Floor
New York, NY 10019-6101
Attention: Senior Dealer
Telecopier: (212) 262-1949
Telex: N/A
<PAGE> 73
Commitment
$13,000,000 CHEMICAL BANK
By /S/ M. LUISA HUNNEWELL
------------------------------
Title: Vice President
Domestic Lending Office
Chemical Bank
270 Park Avenue, 9th Floor
New York, NY 10017
Attention: Bill Castro
Telecopier: (212) 370-0429
Telex: N/A
Euro-Dollar Lending Office
Chemical Bank
270 Park Avenue, 9th Floor
New York, NY 10017
Attention: Bill Castro
Telecopier: (212) 370-0429
Telex: N/A
Money Market Lending Office
Chemical Bank
270 Park Avenue, 9th Floor
New York, NY 10017
Attention: Bill Castro
Telecopier: (212) 370-0429
Telex: N/A
<PAGE> 74
Commitment
$13,000,000 CORESTATES BANK N.A.
By /S/ DEIDRE LEDWITH
------------------------------
Title: Assistant Vice President
Domestic Lending Office
Corestates Bank N.A.
Centre Square-West Tower-Loan ACCTG
F.C. 1-3-81-1
1500 Market Street
Philadelphia, PA 19101
Attention: Sharon Burgess/
Loan Accounting
Telecopier: (215) 786-4113
Telex: N/A
Euro-Dollar Lending Office
Corestates Bank N.A.
Centre Square-West Tower-Loan ACCTG
F.C. 1-3-81-1
1500 Market Street
Philadelphia, PA 19101
Attention: Sharon Burgess/
Loan Accounting
Telecopier: (215) 786-4113
Telex: N/A
Money Market Lending Office
Corestates Bank N.A.
Centre Square-West Tower-Loan ACCTG
F.C. 1-3-81-1
1500 Market Street
Philadelphia, PA 19101
Attention: Sharon Burgess/
Loan Accounting
Telecopier: (215) 786-4113
Telex: N/A
<PAGE> 75
Commitment
$13,000,000 CREDIT LYONNAIS NEW YORK
By /S/ JEAN MARK MORIANI
------------------------------
Title: Senior Vice President
Domestic Lending Office
Credit Lyonnais New York
1301 Avenue of the Americas
New York, NY 10019
Attention: Lucie Mercado
Financial Institutions
Telecopier: (212) 261-3401
Telex: 62410 YLRC
Euro-Dollar Lending Office
Credit Lyonnais New York
1301 Avenue of the Americas
New York, NY 10019
Attention: Lucie Mercado
Financial Institutions
Telecopier: (212) 261-3401
Telex: 62410 YLRC
Money Market Lending Office
Credit Lyonnais New York
1301 Avenue of the Americas
New York, NY 10019
Attention: Lucie Mercado
Financial Institutions
Telecopier: (212) 261-3401
Telex: 62410 YLRC
<PAGE> 76
Commitment
$13,000,000 THE DAI-ICHI KANGYO BANK, LTD.,
NEW YORK BRANCH
By /S/ KIM P. LEARY
------------------------------
Title: Vice President
Domestic Lending Office
The Dai-Ichi Kangyo Bank, Ltd.,
New York Branch
One World Trade Center
Suite 4911
New York, NY 10048
Attention: Anne Marie Heverin
Telecopier: (212) 524-0579;
(212) 432-5221
Telex: 232988 DKB UR; 422581 DKB
UI; 824613 DKB NYUF
Euro-Dollar Lending Office
The Dai-Ichi Kangyo Bank, Ltd.,
New York Branch
One World Trade Center
Suite 4911
New York, NY 10048
Attention: Anne Marie Heverin
Telecopier: (212) 524-0597;
(212) 432-5221
Telex: 232988 DKB UR; 422581 DKB
UI; 824613 DKB NYUF
Money Market Lending Office
The Dai-Ichi Kangyo Bank, Ltd.,
New York Branch
One World Trade Center
Suite 4911
New York, NY 10048
Attention: Anne Marie Heverin
Telecopier: (212) 524-0597;
(212) 432-5221
Telex: 232988 DKB UR; 422581 DKB
UI; 824613 DKB NYUF
<PAGE> 77
Commitment
$13,000,000 FIRST INTERSTATE BANK OF CALIFORNIA
By /S/ THOMAS J. HELOTES
------------------------------
Title: Vice President
Domestic Lending Office
First Interstate Bank of California
707 Wilshire Boulevard
W16-14
Los Angeles, CA 90017
Attention: Thomas John Helotes
Telecopier: (213) 614-4122
Telex: N/A
Euro-Dollar Lending Office
First Interstate Bank of California
1055 Wilshire Boulevard
B10-6
Los Angeles, CA 90017
Attention: Claudine Stines
Unit Manager
Telecopier: (213) 488-9909/9959
Telex: N/A
Money Market Lending Office
First Interstate Bank of California
707 Wilshire Boulevard
W16-20
Los Angeles, CA 90017
Attention: Matt Frey
Asst. Vice President
Telecopier: (213) 614-2305/2569
Telex: N/A
<PAGE> 78
Commitment
$13,000,000 THE FIRST NATIONAL BANK OF BOSTON
By /S/ CHARLES A. GARRITY
------------------------------
Title: Vice President
Domestic Lending Office
The First National Bank of Boston
100 Federal Street
Boston, MA 02110
Attention: Loretta Barraffo
Commercial Loan
Department
Telecopier: (617) 467-2276
Telex: N/A
Euro-Dollar Lending Office
The First National Bank of Boston
P.O. Box 1187
Boston, MA 02103
Attention: Loretta Barraffo
Commercial Loan
Department
Telecopier: (617) 467-2276
Telex: N/A
Money Market Lending Office
The First National Bank of Boston
100 Federal Street
Boston, MA 02110
Attention: Loretta Barraffo
Commercial Loan
Department
Telecopier: (617) 467-2276
Telex: N/A
<PAGE> 79
Commitment
$13,000,000 NORTHERN TRUST COMPANY
By /S/ DEAN V. BANICK
----------------------------
Title: Vice President
Domestic Lending Office
Northern Trust Company
50 South LaSalle
Chicago, IL 60675
Attention: Evelyn Jackson/
Commercial Banking
Telecopier: (312) 444-3432
Telex: N/A
Euro-Dollar Lending Office
Northern Trust Company
50 South LaSalle
Chicago, IL 60675
Attention: Evelyn Jackson/
Commercial Banking
Telecopier: (312) 444-3432
Telex: N/A
Money Market Lending office
Northern Trust Company
50 South LaSalle
Chicago, IL 60675
Attention: Evelyn Jackson/
Commercial Banking
Telecopier: (312) 557-8337
Telex: N/A
<PAGE> 80
Commitment
$13,000,000 STATE STREET BANK AND TRUST COMPANY
By /S/ ROBERT P. ENGVALL, JR.
------------------------------
Title: Vice President
Domestic Lending Office
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
Attention: Sandra L. Donnellan
Telecopier: (617) 985-5082
Telex: 200139/ STATE UR
Euro-Dollar Lending Office
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
Attention: Sandra L. Donnellan
Telecopier: (617) 985-5082
Telex: 200139/ STATE UR
Money Market Lending Office
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
Attention: Sandra L. Donnellan
Telecopier: (617) 985-5082
Telex: 200139/ STATE UR
<PAGE> 81
Commitment
$13,000,000 THE SUMITOMO BANK, LIMITED, NEW YORK
BRANCH
By /S/ SHINICHI ITO
------------------------------
Title: Joint General Manager
Domestic Lending Office
The Sumitomo Bank, Limited,
New York Branch
One World Trade Center
Suite 9651
New York, NY 10048
Attention: Diana Pabon Hurtzig
Telecopier: (212) 323-0366
Telex: N/A
Euro-Dollar Lending Office
The Sumitomo Bank, Limited,
New York Branch
One World Trade Center
Suite 9651
New York, NY 10048
Attention: Diana Pabon Hurtzig
Telecopier: (212) 323-0366
Telex: N/A
Money Market Lending Office
The Sumitomo Bank, Limited,
New York Branch
One World Trade Center
Suite 9651
New York, NY 10048
Attention: Diana Pabon Hurtzig
Telecopier: (212) 323-0366
Telex: N/A
<PAGE> 82
Commitment
$13,000,000 WACHOVIA BANK OF GEORGIA, N.A.
By /S/ DAVID L. GAINES
------------------------------
Title: Senior Vice President
Domestic Lending Office
Wachovia Bank of Georgia, N.A.
191 Peachtree Street NE MC-GA 370
Atlanta, GA 30303
Attention: Gwen Miles
U.S. Corporate
Telecopier: (404) 332-6898
Telex: 542553/WACHFEX-ATL
Euro-Dollar Lending Office
Wachovia Bank of Georgia, N.A.
191 Peachtree Street NE MC-GA 370
Atlanta, GA 30303
Attention: Gwen Miles
U.S. Corporate
Telecopier: (404) 332-6898
Telex: 542553/WACHFEX-ATL
Money Market Lending Office
Wachovia Bank of Georgia, N.A.
191 Peachtree Street NE MC-GA 370
Atlanta, GA 30303
Attention: Gwen Miles
U.S. Corporate
Telecopier: (404) 332-6898
Telex: 542553/WACHFEX-ATL
<PAGE> 83
MORGAN GUARANTY TRUST COMPANY OF NEW
YORK, as Agent
By /S/ JERRY J. FALL
------------------------------
Title: Vice President
500 Stanton Christiana Road
P.O. Box 6070
Newark, DE 19713-2107
Attention: Kevin McCann,
Associate
Telecopier: (212) 385-2603
Telex: 177425 MBDEL UT
<PAGE> 84
EXHIBIT A
NOTE
New York, New York
July , 1994
For value received, Aetna Life and Casualty Company, a
Connecticut insurance corporation (the "Borrower"), promises to pay to the
order of ______________ (the "Bank"), for the account of its Applicable Lending
Office, the principal sum of $_________ or the aggregate unpaid principal
amount of the Bank's Loans then outstanding under the Credit Agreement referred
to below on the date or dates provided for in the Credit Agreement. The
Borrower promises to pay interest on the unpaid principal amount of each such
Loan on the dates and at the rate or rates provided for in the Credit
Agreement. All such payments of principal and interest shall be made in lawful
money of the United States in Federal or other immediately available funds at
the office of Morgan Guaranty Trust Company of New York, 60 Wall Street, New
York, New York.
All Loans made by the Bank, the respective maturities thereof
and all repayments of the principal thereof shall be recorded by the Bank and,
prior to any transfer hereof, appropriate notations to evidence the foregoing
information with respect to each such Loan then outstanding shall be
endorsed by the Bank on the schedule attached hereto, or on a continuation
of such schedule attached to and made a part hereof; provided that the failure
of the Bank to make any such recordation or endorsement shall not affect the
obligations of the Borrower hereunder or under the Credit Agreement.
This note is one of the Notes referred to in the Medium-Term
Credit Agreement dated as of July 27, 1994 among the Borrower, the banks listed
on the signature pages thereof and Morgan Guaranty Trust Company of New York,
as Managing Agent (as the same may be amended from time to time, the "Credit
Agreement"). Terms defined in the Credit Agreement are used herein with the
same meanings.
<PAGE> 85
2
Reference is made to the Credit Agreement for provisions for the
prepayment hereof and the acceleration of the maturity hereof.
AETNA LIFE AND CASUALTY
COMPANY
By
--------------------
Title:
<PAGE> 86
3
LOANS AND PAYMENTS OF PRINCIPAL
<TABLE>
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Amount of
Amount of Principal Maturity Notation
Date Loan Repaid Date Made By
<S> <C> <C> <C> <C>
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<PAGE> 87
EXHIBIT B
Form of Money Market Quote Request
[Date]
To: Morgan Guaranty Trust Company of New York
(the "Agent")
From: Aetna Life and Casualty Company
Re: Medium-Term Credit Agreement (the
"Credit Agreement") dated as of July 27, 1994 among the Borrower,
the Banks listed on the signature pages thereof and the Agent
We hereby give notice pursuant to Section 2.03 of
the Credit Agreement that we request Money Market Quotes for
the following proposed Money Market Borrowing(s):
Date of Borrowing:
-------------------------
Principal Amount */ Interest Period **/
- ---------------- ---------------
$
Such Money Market Quotes should offer a Money
Market [Margin] [Absolute Rate]. [The applicable base rate
is the London Interbank Offered Rate.]
- ----------------------------------
*/ Amount must be $25,000,000 or a larger multiple of $1,000,000.
**/ Not less than one month (LIBOR Auction) or not less than 7 days
(Absolute Rate Auction), subject to the provisions of the definition of
Interest Period.
<PAGE> 88
2
Terms used herein have the meanings assigned to
them in the Credit Agreement.
AETNA LIFE AND CASUALTY
COMPANY
By
-------------------
Title:
<PAGE> 89
EXHIBIT C
Form of Invitation for Money Market Quotes
To: [Name of Bank]
Re: Invitation for Money Market Quotes
to Aetna Life and Casualty Company (the
"Borrower")
Pursuant to Section 2.03 of the Medium-Term Credit Agreement dated as
of July 27, 1994 among the Borrower, the Banks parties thereto and the
undersigned, as Managing Agent, we are pleased on behalf of the Borrower to
invite you to submit Money Market Quotes to the Borrower for the following
proposed Money Market Borrowing(s):
Date of Borrowing:
------------------
Principal Amount Interest Period
- ---------------- ---------------
$
Such Money Market Quotes should offer a Money
Market [Margin] [Absolute Rate]. [The applicable base rate
is the London Interbank Offered Rate.]
Please respond to this invitation by no later than
9:30 A.M. (New York City time) on [date].
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By
-------------------------------
Authorized Officer
<PAGE> 90
EXHIBIT D
Form of Money Market Quote
Morgan Guaranty Trust Company
of New York, as Managing Agent
60 Wall Street
New York, New York 10260
Attention:
Re: Money Market Quote to
Aetna Life and Casualty Company (the "Borrower")
In response to your invitation on behalf of the Borrower dated ____________,
19__, we hereby make the following Money Market Quote on the following terms:
1. Quoting Bank: ____________________________
2. Person to contact at Quoting Bank: ____________________________
3. Date of Borrowing: ______________________ */
- ----------------------------------
*/ As specified in the related Invitation.
<PAGE> 91
2
4. We hereby offer to make Money Market Loan(s) in the following
principal amounts, for the following Interest Periods and at the following
rates:
Principal Interest Money Market [Absolute
Amount **/ Period ***/ [Margin ****/ ] Rate *****/]
- ------ -- ------ --- ------------ ---------- -
$
$
[Provided, that the aggregate principal amount of Money Market Loans for which
the above offers may be accepted shall not exceed $______________.] **/
We understand and agree that the offer(s) set forth above, subject to
the satisfaction of the applicable conditions set forth in the Medium-Term
Credit Agreement dated as of July 27, 1994 among the Borrower, the Banks listed
on
- ----------------------------------
**/ Principal amount bid for each Interest Period may not exceed principal
amount requested. Specify aggregate limitation if the sum of the individual
offers exceeds the amount the Bank is willing to lend. Bids must be made for
$1,000,000 or a larger multiple thereof.
***/ Not less than one month (LIBOR Auction) or not less than 7 days
(Absolute Rate Auction), specified in the related Invitation. No more than
five bids are permitted for each Interest Period.
****/ Margin over or under the London Interbank Offered Rate determined
for the applicable Interest Period. Specify percentage (rounded to the nearest
1/10,000 of 1%) and specify whether "PLUS" or "MINUS".
*****/ Specify rate of interest per annum (rounded to the nearest
1/10,000 of 1%).
<PAGE> 92
3
the signature pages thereof and yourselves, as Agent, irrevocably obligates us
to make the Money Market Loan(s) for which any offer(s) are accepted, in whole
or in part.
Very truly yours,
[NAME OF BANK]
By
-----------------------
Authorized Officer
<PAGE> 93
EXHIBIT E-1
OPINION OF
COUNSEL FOR THE BORROWER
July __, 1994
To the Banks and the Agent
Referred to Below
c/o Morgan Guaranty Trust Company
of New York, as Managing Agent
60 Wall Street
New York, NY 10260
Ladies and Gentlemen:
As counsel to Aetna Life and Casualty Company (the "Borrower"), I have
been asked to provide a legal opinion to you in connection with the Medium-Term
Credit Agreement (the "Credit Agreement") dated as of July 27, 1994 among the
Borrower, the banks listed on the signature pages thereof and Morgan Guaranty
Trust Company of New York, as Managing Agent. Terms defined in the Credit
Agreement are used herein as therein defined.
In furnishing this opinion, I have:
(1) made, or caused to be made, and relied upon such
investigations of fact and law and have examined, or
caused to be examined, and relied upon such documents, records,
certificates, instruments or other written evidences, and upon
such other factual information, as in my judgment were
necessary or appropriate; and
(2) assumed that all such documents, records, certificates,
instruments and other written evidences: (a)
when examined as copies, conform with the originals thereof;
and (b) when examined in the originals or in copies, are
complete, authentic and genuinely executed on behalf of all
parties other than, with respect to the Credit Agreement and
all
<PAGE> 94
2
other documents executed and delivered in connection
therewith, the Borrower.
Upon the basis of the foregoing, I am of the opinion that:
1. The Borrower is an insurance corporation
duly incorporated, validly existing and in good standing
under the laws of the State of Connecticut.
2. The execution, delivery and performance by
the Borrower of the Credit Agreement and the Notes (i) are
within the Borrower's corporate powers, (ii) have been duly
authorized by all necessary corporate action, (iii) under the
laws of Connecticut and federal laws and, to the best of my
knowledge and belief without any investigation, the laws of
any other jurisdictions, require no action by or in respect
of, or prior filing with, any governmental body, agency or
official, (iv) do not conflict with, violate or result in a
breach of or constitute a default under the Certificate of
Incorporation or By-Laws of the Borrower, its 9-1/2%
Eurodollar Notes due 1995, its 8-5/8% Notes due 1998, its
6-3/8% Notes due 2003, its 6-3/4% Debentures due 2013, its
7-3/4% Eurodollar Notes due 2016, its 8% Debentures due 2017
or its 7-1/4% Debentures due 2023 and (v) to the best of my
knowledge and belief will not conflict with or constitute a
breach of or a default under any other financial agreement
(excluding insurance obligations) binding upon the Borrower,
which conflict, breach or default would have a material
adverse effect on the earnings or financial condition of the
Borrower and its Consolidated Subsidiaries considered as a
whole.
3. To the best of my knowledge, except as
disclosed in the Borrower's 1993 Form 10-K or 1994 First
Quarter Form 10-Q, there is no action, suit or proceeding
pending against or threatened against or affecting the
Borrower or its Consolidated Subsidiaries before any court or
arbitrator or any governmental body, agency or official in
which there is a reasonable possibility of an adverse decision
which could materially adversely affect the business,
consolidated financial position or consolidated results of
operations of the Borrower and its Consolidated Subsidiaries
taken as a whole or which in any manner
<PAGE> 95
3
draws into question the validity of the Credit Agreement or
the Notes.
4. Each of the Borrower's Principal Insurance
Subsidiaries is a corporation validly existing and in good
standing under the laws of its jurisdiction of incorporation.
I am admitted to the Bar of the State of Connecticut, and
the foregoing opinion is limited to the laws of the State of Connecticut and
federal laws. I am furnishing this opinion to you solely for your benefit
pursuant to Section 3.01(d) of the Credit Agreement, and it is not
to be used, circulated, quoted or otherwise referred to for any other purpose.
Very truly yours,
John W. Campbell
<PAGE> 96
EXHIBIT E-2
OPINION OF
DAVIS POLK & WARDWELL
July __, 1994
The Banks and the Agent
Referred to Above
c/o Morgan Guaranty Trust Company
of New York, as Managing Agent
60 Wall Street
New York, New York 10260
Dear Sirs:
We have participated in the preparation of the Medium-Term
Credit Agreement dated as of July 27, 1994 (the "Credit Agreement") among Aetna
Life and Casualty Company, a Connecticut insurance corporation (the
"Borrower"), the banks listed on the signature pages thereof (the "Banks") and
Morgan Guaranty Trust Company of New York, as Managing Agent (the "Agent"), and
have acted as special New York counsel for the Borrower for the purpose of
rendering this opinion pursuant to Section 3.01(d) of the Credit Agreement.
Terms defined in the Credit Agreement are used herein as therein defined.
We have examined originals or copies, certified or otherwise
identified to our satisfaction, of such documents, corporate records,
certificates of public officials and other instruments and have conducted such
other investigations of fact and law as we have deemed necessary or advisable
for purposes of this opinion.
Upon the basis of the foregoing, we are of the opinion that:
1. Under the laws of New York, the execution, delivery and
performance by the Borrower of the Credit Agreement and the Notes
require no action by or in respect of, or prior filing with, any
governmental body, agency or official.
<PAGE> 97
2
2. The Credit Agreement constitutes a valid and binding
agreement of the Borrower and the Notes constitute valid and binding
obligations of the Borrower, enforceable in accordance with their
terms, except as may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement
of creditors' rights generally, by insolvency laws affecting the
rights of creditors of insurance companies generally and by general
principles of equity.
We are members of the Bar of the State of New York and the
foregoing opinion is limited to the laws of the State of New York. In giving
the foregoing opinion, (i) we express no opinion as to the effect (if any) of
any law of any jurisdiction (except the State of New York) in which any Bank is
located which limits the rate of interest that such Bank may charge or collect
and (ii) we have relied, without independent investigation, as to all matters
governed by the laws of Connecticut, upon the opinion of John W. Campbell,
counsel for the Borrower, dated July __, 1994, a copy of which has been
delivered to you.
This opinion is rendered solely to you in connection with the
above matter. This opinion may not be relied upon by you for any other purpose
or relied upon by any other person without our prior written consent.
Very truly yours,
<PAGE> 98
EXHIBIT F
July __, 1994
Dear Sirs:
We have participated in the preparation of the Medium-Term
Credit Agreement dated as of July 27, 1994 (the "Credit Agreement") among Aetna
Life and Casualty Company, a Connecticut insurance corporation (the
"Borrower"), the banks listed on the signature pages thereof (the "Banks") and
Morgan Guaranty Trust Company of New York, as Managing Agent (the "Agent"), and
have acted as special counsel for the Agent for the purpose of rendering this
opinion pursuant to Section 3.01(e) of the Credit Agreement. Terms defined in
the Credit Agreement are used herein as therein defined.
We have examined originals or copies, certified or otherwise
identified to our satisfaction, of such documents, corporate records,
certificates of public officials and other instruments and have conducted such
other investigations of fact and law as we have deemed necessary or advisable
for purposes of this opinion.
Upon the basis of the foregoing, we are of opinion as follows:
1. The execution, delivery and performance by the Borrower of
the Credit Agreement and the Notes are within the Borrower's corporate powers
and have been duly authorized by all necessary corporate action.
2. The Credit Agreement constitutes a valid and binding
agreement of the Borrower and the Notes constitute valid and binding
obligations of the Borrower.
In giving the foregoing opinion, (i) we express no opinion as
to the effect (if any) of any law of any jurisdiction (except the State of New
York) in which any Bank is located which limits the rate of interest that such
Bank may charge or collect and (ii) we have relied, without independent
investigation, as to all matters governed by the
<PAGE> 99
2
laws of Connecticut, upon the opinion of John W. Campbell, Esq., counsel for
the Borrower dated July __, 1994, a copy of which has been delivered to you.
This opinion is rendered solely to you in connection with the
above matter. This opinion may not be relied upon by you for any other purpose
or relied upon by any other person without our prior written consent.
Very truly yours,
The Banks and the Agent
Referred to Above
c/o Morgan Guaranty Trust Company
of New York, as Managing Agent
60 Wall Street
New York, NY 10260
<PAGE> 1
AETNA LIFE AND CASUALTY COMPANY AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND RATIO OF
EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
<TABLE>
<CAPTION>
6 Months Ended
(Millions) June 30, 1994 1993 1992 1991 1990 1989
______________ ____ ____ ____ ____ ____
<S> <C> <C> <C> <C> <C> <C>
Pretax income (loss) from
continuing operations........... $ 244.6 $(1,147.4) $ (121.4) $ 243.5 $ 459.6 $ 663.8
Add back fixed charges............ 85.8 171.0 194.3 221.5 229.0 211.6
Minority interest................ 2.9 7.0 8.6 5.9 4.9 (1.9)
________ _________ ________ ________ ________ ________
Income (loss) as adjusted..... $ 333.3 (969.4) $ 81.5 $ 470.9 $ 693.5 $ 873.5
________ _________ ________ ________ ________ ________
________ _________ ________ ________ ________ ________
Fixed charges:
Interest on indebtedness....... $ 45.0 77.4 $ 81.4 $ 110.9 $ 119.9 $ 113.2
Portion of rents representative
of interest factor............ 40.8 93.6 112.9 110.6 109.1 98.4
________ _________ ________ ________ ________ ________
Total fixed charges........... $ 85.8 171.0 194.3 221.5 229.0 211.6
________ _________ ________ ________ ________ ________
________ _________ ________ ________ ________ ________
Preferred stock dividend
requirements.................... - - - - - $ 3.9
________ _________ ________ ________ ________ ________
Total combined fixed charges
and preferred stock dividend
requirements.................... $ 85.8 171.0 $ 194.3 $ 221.5 $ 229.0 $ 215.5
________ _________ ________ ________ ________ ________
________ _________ ________ ________ ________ ________
Ratio of earnings to fixed
charges......................... 3.88 (5.67) 0.42 2.13 3.03 4.13
________ _________ ________ ________ ________ ________
________ _________ ________ ________ ________ ________
Ratio of earnings to combined
fixed charges and preferred
stock dividends................. 3.88 (5.67) 0.42 2.13 3.03 4.05
________ _________ ________ ________ ________ ________
________ _________ ________ ________ ________ ________
</TABLE>
<PAGE> 1
Letter Re: Unaudited Interim Financial Information
___________________________________________________
Aetna Life and Casualty Company
Hartford, Connecticut
Gentlemen:
Re: Registration Statements No. 2-73911, 2-91514, 33-12993,
33-49543, 33-50427, 33-52819 and 33-52819-01
With respect to the subject registration statements, we
acknowledge our awareness of the use therein of our report dated
July 28, 1994 related to our review of interim financial
information.
Pursuant to Rule 436(c) under the Securities Act of 1933, such
report is not considered a part of a registration statement
prepared or certified by an accountant or a report prepared or
certified by an accountant within the meaning of Sections 7 and 11
of the Act.
By KPMG PEAT MARWICK LLP
_____________________________
(Signature)
KPMG Peat Marwick LLP
Hartford, Connecticut
August 15, 1994
