<PAGE> 1
Filed pursuant to Rule 424(b)(5)
Registration Nos. 33-52819 and 33-52819-01
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED OCTOBER 7, 1994
10,000,000 PREFERRED SECURITIES
AETNA CAPITAL L.L.C.
9 1/2% CUMULATIVE MONTHLY INCOME PREFERRED SECURITIES,
[LOGO] SERIES A ("MIPS"*)
(LIQUIDATION PREFERENCE $25 PER PREFERRED SECURITY)
GUARANTEED TO THE EXTENT SET FORTH HEREIN BY
AETNA LIFE AND CASUALTY COMPANY
------------------------
The 9 1/2% Cumulative Monthly Income Preferred Securities, Series A (the
"Series A Preferred Securities"), representing the series of preferred limited
liability company interests offered hereby, are being issued by Aetna Capital
L.L.C., a Delaware limited liability company (the "Company"). All of the common
limited liability company interests of the Company (the "Common Securities") are
owned directly or indirectly by Aetna Life and Casualty Company, a Connecticut
insurance corporation ("AL&C"). The Company was formed solely for the purpose of
issuing securities and lending the proceeds from the issuance thereof to AL&C.
(continued on next page)
------------------------
SEE "CERTAIN INVESTMENT CONSIDERATIONS" FOR CERTAIN CONSIDERATIONS RELEVANT
TO AN INVESTMENT IN THE SERIES A PREFERRED SECURITIES, INCLUDING THE
CIRCUMSTANCES UNDER WHICH THE SERIES A PREFERRED SECURITIES MAY BE REDEEMED OR
EXCHANGED AS A RESULT OF A CHANGE IN LAW OR REGULATION OR INTERPRETATION THEREOF
AND THE PERIOD AND CIRCUMSTANCES DURING AND UNDER WHICH PAYMENT OF DIVIDENDS ON
THE SERIES A PREFERRED SECURITIES MAY BE DEFERRED AND THE RELATED FEDERAL INCOME
TAX CONSEQUENCES.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS TO WHICH IT RELATES.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
<TABLE>
<CAPTION>
INITIAL
PUBLIC
OFFERING UNDERWRITING PROCEEDS TO
PRICE COMMISSION(1) COMPANY(2)(3)
------------- ----------- -------------
<S> <C> <C> <C>
Per Series A Preferred Security................... $25.00 (2) $25.00
Total(4).......................................... $250,000,000 (2) $250,000,000
</TABLE>
- ---------------
(1) The Company and AL&C have agreed to indemnify the several Underwriters
against certain liabilities, including liabilities under the Securities Act
of 1933, as amended. See "Underwriting".
(2) In view of the fact that the proceeds of the sale of the Series A Preferred
Securities will be loaned to AL&C, under the Underwriting Agreement AL&C has
agreed to pay to the Underwriters as compensation ("Underwriters'
Compensation") for their services $.7875 per Series A Preferred Security (or
$7,875,000 in the aggregate). See "Underwriting".
(3) Expenses of the offering, which are payable by AL&C, are estimated to be
$712,500.
(4) The Company has granted to the Underwriters a 30-day option to purchase, on
the same terms set forth above, up to 1,500,000 additional Series A
Preferred Securities at the Initial Public Offering Price (with additional
Underwriters' Compensation) solely to cover over-allotments, if any. If the
option is exercised in full, the total Initial Public Offering Price,
Underwriters' Compensation and Proceeds to Company will be $287,500,000,
$9,056,250 and $287,500,000, respectively. See "Underwriting".
------------------------
The Series A Preferred Securities offered hereby are offered by the several
Underwriters, as specified herein, subject to receipt and acceptance by them and
subject to their right to reject any order in whole or in part. It is expected
that delivery of the Series A Preferred Securities will be made only in
book-entry form through the facilities of The Depository Trust Company on or
about November 22, 1994.
- ---------------
* An application has been filed by Goldman, Sachs & Co. with the United States
Patent and Trademark Office for the registration of the MIPS servicemark.
GOLDMAN, SACHS & CO.
CS FIRST BOSTON
DEAN WITTER REYNOLDS INC.
A.G. EDWARDS & SONS, INC.
MERRILL LYNCH & CO.
MORGAN STANLEY & CO.
INCORPORATED
PAINEWEBBER INCORPORATED
SMITH BARNEY INC.
------------------------
The date of this Prospectus Supplement is November 15, 1994.
<PAGE> 2
(continued from previous page)
The Series A Preferred Securities will entitle holders to receive, when, as
and if declared, cumulative preferential cash dividends out of funds legally
available therefor at an annual rate of 9 1/2% of the liquidation preference of
$25 per security, accruing from the date of original issuance of the Series A
Preferred Securities and payable monthly in arrears on the last day of each
calendar month of each year, commencing November 30, 1994. The payment of
dividends, if and to the extent declared and the Company has funds legally
available therefor, and payments on liquidation or redemption with respect to
the Series A Preferred Securities are guaranteed by AL&C to the extent described
in the accompanying Prospectus. If AL&C fails to make interest payments on the
subordinated debentures evidencing the loan of the proceeds from the issuance of
the Series A Preferred Securities and related Common Securities (the "Series A
Debentures"), the Company will have insufficient funds to declare or pay
dividends on the Series A Preferred Securities. The Guarantee does not cover
payment of such dividends. In such event, the remedy of holders of Series A
Preferred Securities is to enforce their rights under the Series A Preferred
Securities or the Subordinated Indenture, including their rights, under certain
circumstances, to appoint a trustee to enforce, or to directly enforce, the
Company's rights under the Series A Debentures. See "Description of the
Preferred Securities -- Voting Rights" and "Description of the Debentures and
the Subordinated Indenture -- Events of Default" in the accompanying Prospectus.
For a discussion of the terms and limitations of the Guarantee, see "Description
of the Guarantee" in the accompanying Prospectus.
The Series A Preferred Securities are redeemable, at the option of the
Company with AL&C's consent, in whole or in part, from time to time, on or after
November 30, 1999, or at any time in the event that either the Company or AL&C
is or, in the opinion of counsel (which counsel is not an employee of AL&C or
the Company), would be required to pay certain additional amounts or to withhold
or deduct certain amounts, in each case at $25 per security plus accumulated and
unpaid dividends to the date fixed for redemption (the "Redemption Price") and
will, subject to certain exceptions, be redeemed at the Redemption Price from
the proceeds of any repayment at maturity or permitted redemption of the Series
A Debentures. In addition, AL&C may cause the Company at any time to redeem the
Series A Preferred Securities at the Redemption Price or to exchange the Series
A Preferred Securities for Series A Debentures having an aggregate principal
amount and accrued and unpaid interest equal to the Redemption Price and having
an interest rate equal to the dividend rate on the Series A Preferred Securities
upon the occurrence of certain special events resulting from a change in law or
regulation or in the interpretation thereof. See "Description of the Preferred
Securities -- Redemption or Exchange" and "Description of the Debentures and the
Subordinated Indenture" in the accompanying Prospectus.
In the event of a liquidation of the Company, holders of Series A Preferred
Securities will be entitled to receive for each Series A Preferred Security a
liquidation preference of $25 plus accumulated and unpaid dividends (whether or
not declared) to the date of payment, subject to certain limitations, unless
such liquidation is in connection with the exchange of the Series A Preferred
Securities for the Series A Debentures. See "Certain Terms of the Series A
Preferred Securities -- Liquidation Preference" herein and "Description of the
Preferred Securities -- Liquidation Distribution" in the accompanying
Prospectus.
The Series A Preferred Securities have been approved for listing on the New
York Stock Exchange, subject to official notice of issuance.
------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SERIES A
PREFERRED SECURITIES OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE
PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK
STOCK EXCHANGE, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING,
IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
------------------------
FOR NORTH CAROLINA RESIDENTS: THE COMMISSIONER OF INSURANCE FOR THE STATE
OF NORTH CAROLINA HAS NOT APPROVED OR DISAPPROVED THIS OFFERING NOR HAS THE
COMMISSIONER PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT
OR THE PROSPECTUS.
S-2
<PAGE> 3
AETNA CAPITAL L.L.C.
The Company is a limited liability company formed under the laws of
Delaware and will be managed by AL&C and Aetna Capital Holdings, Inc. (the
"Managing Members"), in their capacity as the members of the Company that own
all of the Common Securities. AL&C owns directly or indirectly all of the
Company's Common Securities, which Common Securities are nontransferable. The
Company's principal executive offices are located at 151 Farmington Avenue,
Hartford, Connecticut 06156, telephone: (203) 273-0123. The principal executive
offices of the Managing Members of the Company are located at 151 Farmington
Avenue, Hartford, Connecticut 06156, telephone: (203) 273-0123. The Company
exists solely for the purpose of issuing preferred limited liability company
interests ("Preferred Securities") and Common Securities and lending the
proceeds from the issuance thereof and related capital contributions to AL&C.
Each holder of Series A Preferred Securities will be furnished annually
with unaudited financial statements of the Company as soon as available after
the end of the Company's fiscal year.
AETNA LIFE AND CASUALTY COMPANY
AL&C and its subsidiaries ("Aetna") constitute one of the nation's largest
insurance/financial services organizations based on its assets at December 31,
1993. Based on 1993 premium rankings, Aetna also is one of the nation's largest
writers of group health and managed care products, and group life, annuity and
pension products and one of the largest stock insurers of property-casualty
lines.
CERTAIN INVESTMENT CONSIDERATIONS
Prospective purchasers of Series A Preferred Securities should carefully
review the information contained elsewhere in this Prospectus Supplement and the
accompanying Prospectus and should particularly consider the following matters:
DEPENDENCE ON AL&C; SUBORDINATION OF AL&C'S OBLIGATIONS
The Company's ability to pay amounts due on the Series A Preferred
Securities is solely dependent upon AL&C's ability to make payments on the
Series A Debentures when and as required. AL&C's obligations under the
Subordinated Indenture are subordinate and junior in right of payment to all
Senior Debt of AL&C and its obligations under the Guarantee are subordinate and
junior in right of payment to all other liabilities of AL&C. As of September 30,
1994, AL&C had approximately $1.3 billion of Senior Debt outstanding. There are
no provisions in the Series A Preferred Securities, the Subordinated Indenture
or the Guarantee that limit AL&C's ability to incur additional indebtedness,
including indebtedness that ranks senior to the Guarantee and the Series A
Debentures. See "Description of the Guarantee -- Status of the Guarantee" and
"Description of the Debentures and the Subordinated Indenture -- Subordination"
in the accompanying Prospectus. In addition, since AL&C is a holding company,
the rights of AL&C, and hence the right of creditors of AL&C (including the
holders of Series A Debentures and, to the extent of the Guarantee, the holders
of Series A Preferred Securities), to participate in any distribution of the
assets of any subsidiary upon its liquidation or reorganization or otherwise is
necessarily subject to the prior claims of creditors of the subsidiary, except
to the extent that claims of AL&C itself as a creditor of the subsidiary may be
recognized.
OPTION TO EXTEND INTEREST PAYMENT PERIOD
AL&C has the right under the Series A Debentures to extend interest payment
periods for up to 60 months (which right may be exercised from time to time),
and, as a consequence, monthly dividends on the Series A Preferred Securities
can be deferred (but will continue to accumulate) by the Company during any such
extended interest payment period. In the event that AL&C exercises
S-3
<PAGE> 4
this right, AL&C will not be permitted to declare dividends on any shares of its
preferred or common stock, and therefore, the possibility of an extension of a
payment period is, in the view of the Company and AL&C, remote. See "Description
of the Debentures and the Subordinated Indenture -- Interest" in the
accompanying Prospectus.
TAX CONSEQUENCES OF EXTENDED INTEREST PAYMENT PERIOD
Should AL&C exercise its right to extend the interest payment period with
respect to the Series A Debentures, beneficial owners of Series A Preferred
Securities will be required to include interest accruing on the Series A
Debentures in gross income for U.S. federal income tax purposes in advance of
the receipt of cash, and any beneficial owners who dispose of Series A Preferred
Securities prior to the record date for payment of dividends following such
period will not receive such dividends from the Company or AL&C. See
"Taxation -- Potential Extension of Payment Period of the Debentures" in the
accompanying Prospectus.
SPECIAL EVENT REDEMPTION
AL&C may cause the Company at any time to redeem the Series A Preferred
Securities at the Redemption Price or to exchange the Series A Preferred
Securities for Series A Debentures having an aggregate principal amount and
accrued and unpaid interest equal to the Redemption Price and having an interest
rate equal to the dividend rate on the Series A Preferred Securities if there
shall have occurred after the date of this Prospectus Supplement a change in any
applicable U.S. law or regulation or in the interpretation thereof (including
the enactment or imminent enactment of any legislation, the publication of any
judicial decisions, regulatory rulings, regulatory procedures or notices or
announcements (including notices or announcements of intent to adopt such
procedures or regulations), or a change in the official position or in the
interpretation of any law or regulation by any legislative body, court,
governmental authority or regulatory body) and AL&C and the Company shall have
been advised by legal counsel (which counsel is not an employee of AL&C or the
Company) that, as a result of such change, there exists more than an
insubstantial risk that (i) the Company will be subject to federal income tax
with respect to the interest received on the Series A Debentures or (ii) AL&C
will be precluded from deducting the interest paid on the Series A Debentures
for federal income tax purposes. See "Description of the Preferred Securities --
Redemption or Exchange" and "Description of the Debentures and the Subordinated
Indenture" in the accompanying Prospectus.
USE OF PROCEEDS
The proceeds from the sale of the Series A Preferred Securities made hereby
will be used by the Company to acquire Series A Debentures from AL&C. AL&C,
after deducting the Underwriters' Compensation and estimated expenses of the
offering, will use the net proceeds of approximately $241.4 million
(approximately $277.6 million if the Underwriters' over-allotment option is
exercised in full) to repay commercial paper borrowings. At November 11, 1994,
AL&C's commercial paper borrowings bore interest at a blended rate of 5.0% per
annum.
S-4
<PAGE> 5
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
The following table sets forth Aetna's ratio of earnings to combined fixed
charges and preferred stock dividends for the periods indicated.
<TABLE>
<CAPTION>
NINE MONTHS YEAR ENDED DECEMBER 31,
ENDED -----------------------------------------------
SEPTEMBER 30, 1994 1993 1992 1991 1990 1989
------------------ ---- --------- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to
Combined Fixed Charges
and Preferred Stock
Dividends................ 4.26x (a ) 0.42x(a) 2.13x 3.03x 4.05x
</TABLE>
- ---------------
(a) Earnings were inadequate to cover fixed charges by $1.1 billion in 1993 and
$112.8 million in 1992.
For purposes of computing 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 for the
applicable year. All shares of AL&C's preferred stock were redeemed in 1989.
CAPITALIZATION
The following table sets forth the total consolidated short-term debt and
capitalization of Aetna at September 30, 1994 and as adjusted to give effect to
(i) the net increase of $162.1 million in short-term debt through November 11,
1994 to $309.2 million as of such date and (ii) the sale of the Series A
Preferred Securities offered hereby (assuming no exercise of the Underwriters'
over-allotment option) and the application of the net proceeds therefrom. This
table should be read in conjunction with the financial information and financial
statements of Aetna included or incorporated by reference herein. See "Use of
Proceeds" and "Summary Financial Information of Aetna".
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1994
--------------------------
ACTUAL AS ADJUSTED
-------- -----------
(UNAUDITED)
(IN MILLIONS, EXCEPT SHARE DATA)
<S> <C> <C>
Short-term debt................................................... $ 147.1 $ 67.8
======== =========
Long-term debt.................................................... 1,132.3 1,132.3
Series A Preferred Securities of Aetna Capital L.L.C. (minority -- 250.0
interest in consolidated subsidiary)............................
Shareholders' equity:
Preferred Stock, no par value; 40,000,000 shares authorized; no -- --
shares issued or outstanding.................................
Common Capital Stock, no par value; 250,000,000 shares 1,417.5 1,417.5
authorized; 114,939,275 issued and 112,641,905 outstanding...
Net unrealized capital losses................................... (632.1) (632.1)
Retained earnings............................................... 5,177.5 5,177.5
Treasury Stock, at cost (2,297,370 shares)...................... (105.2) (105.2)
-------- ----------
Total shareholders' equity................................... $5,857.7 $ 5,857.7
-------- ----------
Total short-term debt and capitalization................... $7,137.1 $ 7,307.8
======== =========
</TABLE>
S-5
<PAGE> 6
SUMMARY FINANCIAL INFORMATION OF AETNA
The following summary financial information of Aetna for the years ended
and as of December 31, 1993, 1992, 1991, 1990 and 1989 has been derived from
previously published audited consolidated financial statements of Aetna, as
adjusted, which have been examined and reported upon by KPMG Peat Marwick LLP,
independent auditors. The summary financial information for the nine month
periods ended and as of September 30, 1994 and 1993 has been derived from the
unaudited consolidated financial statements, as adjusted, included in AL&C's
Quarterly Reports on Form 10-Q for the quarters ended September 30, 1994 and
1993, which financial statements, in the opinion of management of AL&C, have
been prepared on the same basis as the annual financial statements and include
all adjustments, consisting only of normal recurring adjustments, necessary for
a fair statement of the results for the interim periods. The summary financial
information should be read in conjunction with, and is qualified in its entirety
by reference to, the consolidated financial statements from which it has been
derived and the accompanying notes thereto incorporated by reference in the
Prospectus. Results of operations for interim periods are not necessarily
indicative of results for the full year.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
--------------------- ----------------------------------------------------------
1994(1) 1993(2) 1993(1)(2) 1992(1) 1991 1990 1989
--------- --------- ---------- --------- --------- --------- ---------
(UNAUDITED) (IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenue:
Premiums................................... $ 8,440.0 $ 8,010.4 $ 10,574.9 $10,793.9 $11,444.6 $11,923.1 $12,432.6
Net Investment Income...................... 3,358.7 3,715.4 4,919.0 5,069.0 5,514.5 5,608.1 5,360.8
Fees and Other Income...................... 1,356.0 1,198.8 1,534.0 1,519.4 1,365.5 1,290.5 1,169.3
Net Realized Capital Gains (Losses)........ (51.0) 73.3 89.8 114.9 (282.1) (122.5) 250.0
Total Revenue........................ 13,103.7 12,997.9 17,117.7 17,497.2 18,042.5 18,699.2 19,212.7
Benefits and Expenses:
Benefits and Expenses (other than Loss on
Discontinuance of Products and Severance
and Facilities Charges).................. 12,681.2 12,370.3 16,687.1 17,473.6 17,799.0 18,149.6 18,548.9
Loss on Discontinuance of Products......... -- -- 1,270.0 -- -- -- --
Severance and Facilities Charge............ -- -- 308.0 145.0 -- 90.0 --
Income (Loss) from Continuing Operations
before Extraordinary Item and Cumulative
Effect Adjustments......................... 307.5 515.7 (615.3) (5.3) 366.4 480.6 512.8
Income from Discontinued Operations, Net of
Tax(3)..................................... -- 27.0 27.0 173.8 138.8 133.5 126.6
Extraordinary loss on debenture redemption,
net of tax................................. -- (4.7) (4.7) -- -- -- --
Extraordinary tax benefit from utilization of
loss carryforwards......................... -- -- -- -- -- -- 37.0
Cumulative effect adjustments, net of tax:
Discounting of workers' compensation life
table indemnity claims................... -- 250.0 250.0 -- -- -- --
Change in accounting for postemployment
benefits................................. -- (48.5) (48.5) -- -- -- --
Change in accounting for retrospectively
rated reinsurance contracts.............. -- 26.3 26.3 -- -- -- --
Change in accounting for debt and equity
securities............................... -- -- (0.7) -- -- -- --
Change in accounting for income taxes...... -- -- -- 272.5 -- -- --
Change in accounting for postretirement
benefits other than pensions............. -- -- -- (385.0) -- -- --
Net Income (Loss)............................ 307.5 765.8 (365.9) 56.0 505.2 614.1 676.4
Net Realized Capital Gains (Losses), Net of
Tax (included above)....................... (35.7) 48.9 59.0 78.6 (187.4) (79.2) 111.7
</TABLE>
S-6
<PAGE> 7
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
--------------------- ----------------------------------------------------------
1994(1) 1993(2) 1993(1)(2) 1992(1) 1991 1990 1989
--------- --------- ---------- --------- --------- --------- ---------
(UNAUDITED) (IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total Assets(4).............................. $95,406.8 $98,706.2 $100,036.7 $94,519.6 $91,987.6 $89,300.7 $87,099.0
Total Investments............................ 55,784.0 60,432.2 61,455.8 58,796.5 58,456.9 60,766.2 58,704.8
Total Long-Term Debt......................... 1,132.3 1,168.4 1,160.0 955.6 1,019.6 1,010.3 1,037.7
Total Shareholders' Equity................... 5,857.7 8,221.4 7,043.1 7,238.3 7,384.5 7,072.4 6,936.7
BUSINESS SEGMENT EARNINGS DATA:
Income (Loss) from Continuing Operations
before Extraordinary Item and Cumulative
Effect Adjustments:
Health and Life Insurance and Services..... $ 265.6 $ 266.3 $ 288.1 $ 280.6 $ 386.0 $ 280.3 $ 241.7
Financial Services......................... 57.3 40.0 (808.8) (17.2) (156.9) 28.4 106.9
Commercial Property-Casualty Insurance and
Services................................. (82.1) 157.9 (115.9) (245.4) 139.5 199.5 232.0
Personal Property-Casualty................. 24.4 30.1 (3.3) (36.2) (28.6) 24.8 (104.6)
International.............................. 42.3 21.4 24.6 12.9 26.4 (52.4) (17.2)
</TABLE>
- ---------------
(1) See AL&C's Annual Report on Form 10-K for the fiscal year ended December 31,
1993 and its Quarterly Report on Form 10-Q for the quarter ended September
30, 1994 for a discussion of the effects of accounting changes adopted with
respect to the first nine months of 1994 and the years 1993 and 1992 and
for a discussion of the discontinuance of Aetna's fully guaranteed large
case pension products in 1993.
(2) In August 1993, the Omnibus Budget Reconciliation Act of 1993 ("OBRA") was
enacted which resulted in an increase in the federal corporate tax rate
from 34% to 35%. The enactment of OBRA resulted in a net benefit of $21.8
million to continuing operations before extraordinary item and cumulative
effect adjustments. The net benefit resulted from an increase in Aetna's
deferred tax asset partially offset by an increase in current taxes.
(3) In 1992, Aetna sold American Re-Insurance Company ("Am Re"), formerly a
wholly owned subsidiary. As a result of the sale, the Reinsurance and
Related Services segment, provided through Am Re, is presented as a
discontinued operation. All prior year financial data has been restated to
reflect the change.
(4) Total assets at September 30, 1994 and December 31, 1993 include $13.5
billion and $15.0 billion, respectively, of assets attributable to
discontinued products.
S-7
<PAGE> 8
RECENT FINANCIAL RESULTS
Operating earnings (income from continuing operations, excluding capital
gains and losses) were $150 million and $343 million, respectively, for the
three and nine months ended September 30, 1994, compared with $197 million and
$467 million for the same periods a year ago. Third quarter and year-to-date
results in 1994 reflect improved operating earnings in the Health and Life
Insurance and Services, Financial Services and International segments and
decreased earnings in the Commercial Property-Casualty Insurance and Services
and Personal Property-Casualty segments.
In the Health and Life Insurance and Services segment, operating earnings
increased from $92 million to $94 million and $254 million to $286 million in
the three and nine months ended September 30, 1993 and 1994, respectively.
Operating earnings in the Financial Services segment increased from $4 million
to $25 million and $33 million to $65 million in the same periods. In the
International segment, operating earnings increased from $8 million to $15
million and $29 million to $39 million in the three and nine months ended
September 30, 1993 and 1994, respectively. In the Commercial Property-Casualty
Insurance and Services segment, operating earnings decreased from $70 million to
$9 million and $122 million to a loss of $73 million in the three and nine
months ended September 30, 1993 and 1994, respectively. Operating earnings in
the Personal Property-Casualty segment decreased from $23 million to $7 million
and $30 million to $27 million in the same periods.
Several factors affect the comparison of third quarter and year-to-date
1993 and 1994 operating earnings.
- Results for the three and nine months ended September 30, 1994 included
after-tax catastrophe losses of $28 million and $181 million,
respectively. Year-to-date 1994 catastrophe losses related primarily to
the Los Angeles earthquake and the severe winter weather occurring in
January and February. Catastrophe losses in the third quarter of 1994
resulted primarily from Aetna's revised estimate of such losses.
Catastrophe losses for the three and nine months ended September 30, 1993
were $18 million and $65 million (after-tax), respectively.
- Third quarter and year-to-date results in 1994 also reflected losses
related to prior year reserve development in the Commercial
Property-Casualty Insurance and Services segment. Such losses were
largely environmental-related and were $68 million and $185 million
(after-tax and net of reinsurance) for the three and nine months ended
September 30, 1994, respectively, compared with $34 million and $70
million, respectively, in the same periods of 1993. See "Summary Business
Description -- Commercial Property-Casualty Insurance and Services".
- Results for the nine months ended September 30, 1994 included after-tax
reductions of prior year loss reserves in the personal auto business of
$61 million compared with $9 million for the same period a year ago.
- Third quarter and year-to-date results in 1993 included losses on
discontinued products of $38 million and $11 million ($13 million and $15
million excluding net realized capital gains and losses), respectively.
Results of discontinued products for the three and nine months ended
September 30, 1994 were charged against the reserve for anticipated
future losses and did not impact the net income of Aetna. See "Summary
Business Description -- Financial Services".
- In August 1993, OBRA was enacted, increasing the federal corporate tax
rate from 34% to 35% retroactive to January 1, 1993. Federal income tax
expense for the three and nine months ended September 30, 1993 included a
deferred benefit of $27 million, offset by an increase in current taxes
of $6 million, resulting from the enactment of OBRA.
For a more complete description of Aetna's financial condition at September
30, 1994 and results of operations for the three and nine months ended September
30, 1994 and 1993, reference is made to AL&C's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1994.
S-8
<PAGE> 9
SUMMARY BUSINESS DESCRIPTION
The business of Aetna is conducted through five reportable segments: Health
and Life Insurance and Services; Financial Services; Commercial
Property-Casualty Insurance and Services; Personal Property-Casualty; and
International.
HEALTH AND LIFE INSURANCE AND SERVICES
Group health and life insurance products and services, including managed
health care products and services, are marketed through units of the Health and
Life Insurance and Services segment, primarily to employers and
employer-sponsored groups. These products and services are provided to employees
or other individuals covered under benefit plans sponsored by those
organizations. Individual life insurance products also are included in the
Health and Life Insurance and Services segment. Group life insurance consists
chiefly of renewable term coverage, the amounts of which frequently are linked
to individual employee wage levels. Aetna also offers group universal life and
sponsored universal and whole life products. Group health and disability
insurance includes coverage for medical and dental care expenses and for
disabled employees' income replacement benefits.
Health coverage is provided under both traditional indemnity and prepaid
arrangements, whereby Aetna assumes the full insurance risk, and under
alternative risk-sharing plans, whereby employers assume all or a significant
portion of the insurance risk. Managed care products, which may be sold on a
stand-alone basis or in combination with traditional indemnity products, vary
from traditional indemnity products primarily through the use of health care
networks (physicians and hospitals) and the implementation of medical management
procedures designed to enhance the quality and reduce the cost of medical
services provided. Aetna's managed care products include health maintenance
organizations, preferred provider organizations and point-of-service plans. At
year-end 1993, Aetna operated various types of managed care networks in
approximately 211 Standard Metropolitan Statistical Areas, with enrollment of
approximately 5 million. The number of members covered under health care
arrangements was 15.7 million and 15.0 million at September 30, 1994 and
December 31, 1993, respectively. The number of managed care-related members was
6.9 million and 5.4 million at September 30, 1994 and December 31, 1993,
respectively.
Although enactment of comprehensive health care reform legislation at the
federal level was a key priority of both the Clinton Administration and many
members of Congress in 1994, Congress adjourned without passing new legislation.
Aetna anticipates that the Clinton Administration and others will re-introduce
health care reform legislation in 1995. Aetna also expects that health care
reform efforts will continue at the state level. Since Aetna's managed care
business is centered around local markets where state regulation plays a
significant role, Aetna continues to monitor these efforts closely. At this time
management is unable to predict the nature of any such legislation, the outcome
of any such initiatives, or what effect any resulting legislation would have on
Aetna's health business.
FINANCIAL SERVICES
The business units in the Financial Services segment market a variety of
retirement and other savings and investment products (including pension and
annuity products) and services to businesses, government units, associations,
collectively bargained welfare trusts, hospitals, educational institutions and
individuals. Some pension and annuity products provide a variety of investment
guarantees, funding and benefit payment distribution options and other services.
Certain products are tailored for marketing to pension plans that qualify under
Section 401 of the Internal Revenue Code of 1986, as amended (the "Code") for
tax deferral. Other products qualify for similar tax status under Code Sections
401, 403, 408 and 457. As of September 30, 1994, the Financial Services segment,
including Separate Accounts, had $65.9 billion in assets under management
(including assets supporting discontinued products of $13.0 billion).
S-9
<PAGE> 10
In January 1994, Aetna announced its decision to discontinue the sale of
its fully guaranteed large case pension products. Fully guaranteed large case
pension products consist of guaranteed investment contracts and single-premium
annuities that generally were offered to larger employers.
COMMERCIAL PROPERTY-CASUALTY INSURANCE AND SERVICES
The business units in the Commercial Property-Casualty Insurance and
Services segment provide most types of property-casualty insurance, bonds, and
insurance-related services for businesses, government units and associations.
Commercial coverages accounted for 67% of Aetna's 1993 property-casualty net
written premiums. These coverages are sold for risks of all sizes and include
fire and allied lines, multiple peril, marine, workers' compensation, general
liability (including product liability), commercial automobile, certain
professional liability, and fidelity and surety bonds.
Aetna 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, Aetna 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 Aetna. As a
result of Aetna's reserving and information gathering processes, which are
on-going, Aetna has increased its environmental-liability reserves in 1994.
During the first nine months of 1994, Aetna added $100 million after-tax and
after reinsurance ($205 million pretax and before reinsurance) to environmental
claim reserves for estimated indemnity-related liabilities and $27 million ($45
million pretax and before reinsurance) for estimated litigation expenses. The
estimation of reserves for reported environmental claims is difficult and likely
to change as additional information emerges.
Aetna is continuously involved in lawsuits regarding policy coverage and
judicial interpretation of legal liability for environmental pollution,
asbestos-related and other long-term exposure claims. The lack of developed case
law, as evidenced by the coverage lawsuits, is one of the significant
uncertainties that affects Aetna's ability to estimate future losses for these
types of claims. Aetna and the insurance industry are litigating issues that
will ultimately determine, in many cases, whether and to what extent insurance
coverage exists. Certain insureds have presented Aetna with particularly large
claims for coverage in coverage dispute cases due primarily to the number of
sites alleged to be covered, the nature of the business conducted and the
alleged scope of coverage. Two cases involving such insureds are scheduled to
begin trial before juries in early 1995 with respect to a portion of the sites
alleged to be subject to coverage.
Numerous liability claims for bodily injury have been asserted against
major producers of asbestos and asbestos products, some of which are insureds of
Aetna. Also, over the last few years, asbestos bodily injury claims have been
filed by plaintiffs against entities that installed products that contained
asbestos and/or produced products that contained asbestos, and some producers
have attempted to recharacterize asbestos bodily injury product liability claims
in an effort to avoid applicable policy coverage limits. Aetna is currently
involved in binding arbitration with one such major producer that had exhausted
applicable policy limits on asbestos products claims and is awaiting the
arbitrator's decision, which is appealable to a panel of arbitrators. In
addition to bodily injury claims, property-damage claims have been brought
against Aetna's insureds seeking reimbursement for the expense of replacing
insulation material and other building components made of asbestos.
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 and asbestos-related claims. Future results of
Aetna are expected to be affected adversely by losses for environmental and
asbestos-related claims and related litigation expenses. Management is unable to
determine
S-10
<PAGE> 11
whether or not such effect will be material to Aetna's future results, liquidity
and/or capital resources.
Congress was scheduled to reauthorize the Federal environmental Superfund
law in 1994, but adjourned before voting on it, so the reauthorization will now
be scheduled for the 1995-1996 Congress. There continues to be substantial
dissatisfaction among insurance and business groups and others with the current
law, particularly with respect to the law's cleanup requirements and liability
provisions, and there is general recognition that major reforms are needed. If
legislation comparable to the 1994 bills were enacted, it could reduce the
insurance industry's and Aetna's potential environmental liability exposure
related to Superfund, in return for new federal taxes on the insurance industry.
However, Superfund reform would not directly affect the numerous environmental
liability claims against Aetna resulting from state and other federal
environmental cleanup programs. At this time, it is too early to determine
whether the law will be reauthorized and reformed in 1995-1996, what the
substance of the enacted legislation will be, or what the effect of any such
reforms will be on Aetna.
PERSONAL PROPERTY-CASUALTY
The business units in the Personal Property-Casualty segment provide
primarily personal automobile insurance and homeowners insurance. Personal
coverages accounted for 33% of Aetna's 1993 property-casualty net written
premiums. Aetna has in recent years withdrawn from or reduced exposure to
personal automobile insurance in certain states in which management has
concluded that it is not in Aetna's interest to continue selling personal
automobile insurance. Management will continue to evaluate market conditions and
maintain or increase Aetna's presence in those states that offer acceptable
returns.
INTERNATIONAL
The International segment, through subsidiaries and joint venture
operations, sells primarily life insurance and financial services products in
non-U.S. markets including Canada, Malaysia, Taiwan, Chile and Mexico. The
International segment's strategy is to invest resources in areas outside the
U.S. that have the potential for attractive returns, with emphasis on the
emerging insurance and financial services markets of newly industrialized
countries. This long-term strategy requires significant up-front investment and
a willingness to accept negative or low returns in the initial years of such
operations.
A more complete description of Aetna's business operations is contained in
"Item 1 -- Business" of AL&C's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993.
S-11
<PAGE> 12
CERTAIN TERMS OF THE SERIES A PREFERRED SECURITIES
GENERAL
The following summary of certain terms and provisions of the Series A
Preferred Securities supplements the description of certain terms and provisions
of the Preferred Securities of any series set forth in the accompanying
Prospectus under the heading "Description of the Preferred Securities", to which
description reference is hereby made. Capitalized terms used and not defined in
this Prospectus Supplement have the meanings ascribed to them in the Prospectus.
The Series A Preferred Securities constitute a series of Preferred Securities of
the Company, which Preferred Securities may be issued from time to time in one
or more series with such designations, dividend rights, liquidation preference
per security, redemption or exchange provisions, voting rights and other rights,
preferences, privileges, limitations and restrictions as are established by the
Amended and Restated Limited Liability Company Agreement of the Company (the
"L.L.C. Agreement"), the Delaware Limited Liability Company Act (the "L.L.C.
Act") and the written action (the "Action") taken, or to be taken, pursuant to
the L.L.C. Agreement and the L.L.C. Act by the Managing Members. The summary of
certain terms and provisions of the Series A Preferred Securities set forth
below does not purport to be complete and is subject and qualified in its
entirety by reference to the L.L.C. Agreement and the Action establishing the
rights, preferences, privileges, limitations and restrictions relating to the
Series A Preferred Securities. A copy of the Action relating to the Series A
Preferred Securities will be included as an exhibit to a Current Report on Form
8-K to be filed by AL&C at or prior to the closing of the sale of the Series A
Preferred Securities offered hereby.
DIVIDENDS
Dividends on the Series A Preferred Securities will be cumulative, will
accrue from their date of original issuance and will be payable monthly in
arrears on the last day of each calendar month of each year, commencing November
30, 1994, when, as and if declared by the Managing Members, except in the event
that AL&C exercises its right to extend the interest payment period for the
Series A Debentures in the manner described under "Description of the Debentures
and the Subordinated Indenture -- Interest" in the accompanying Prospectus. The
Company may only pay dividends on the Series A Preferred Securities to the
extent it has funds legally available therefor. See "Description of the
Preferred Securities -- Dividends" in the accompanying Prospectus.
The dividend payable on each Series A Preferred Security will be fixed at a
rate per annum of 9 1/2% of the stated liquidation preference thereof.
LIQUIDATION PREFERENCE
The stated liquidation preference of the Series A Preferred Securities is
$25 per security.
REDEMPTION OR EXCHANGE
The Series A Preferred Securities are redeemable or exchangeable for Series
A Debentures as described under "Description of the Preferred
Securities -- Redemption or Exchange" in the accompanying Prospectus. In
addition, the Series A Preferred Securities are redeemable, at the option of the
Company and subject to the prior consent of AL&C, in whole or in part, from time
to time, on or after November 30, 1999, upon not less than 30 nor more than 60
days' notice, at the redemption price of $25 per security, plus accumulated and
unpaid dividends (whether or not declared) to the date fixed for redemption.
S-12
<PAGE> 13
CERTAIN TERMS OF THE SERIES A DEBENTURES
GENERAL
The following summary of certain terms and provisions of the Series A
Debentures supplements the description of certain terms and provisions of the
Debentures set forth in the accompanying Prospectus under the heading
"Description of the Debentures and the Subordinated Indenture", to which
description reference is hereby made. Pursuant to the Subordinated Indenture,
AL&C will issue Series A Debentures to the Company in an aggregate principal
amount equal to approximately $316.5 million, such amount being the sum of the
aggregate stated liquidation preference of the Series A Preferred Securities
issued and sold by the Company and the proceeds from the issuance of Common
Securities to the Managing Members and related capital contributions (the
"Common Securities Payments"). In the event that the Underwriters'
over-allotment option is exercised, AL&C will issue additional Series A
Debentures to the Company pursuant to the Subordinated Indenture equal to the
aggregate stated liquidation preference of the Series A Preferred Securities so
sold plus the related Common Securities Payments. If the Underwriters'
over-allotment option is exercised in full, such additional Series A Debentures
will have an aggregate principal amount equal to approximately $47.5 million.
The entire principal amount of the Series A Debentures will become due and
payable, together with any accrued and unpaid interest thereon, including
Additional Interest, if any, on the earlier of (a) November 22, 2024 (subject to
AL&C's right to exchange the Series A Debentures for new Debentures or reborrow
the proceeds from the repayment of the Series A Debentures by issuing new
Debentures upon the terms and subject to the conditions set forth under
"Description of the Preferred Securities -- Redemption or Exchange" in the
accompanying Prospectus which new Debentures, in either case, will become due
and payable no later than November 22, 2043) and (b) the date upon which the
Company is dissolved; provided that, in the event that the Series A Preferred
Securities are exchanged for the Series A Debentures in the manner described
under "Description of the Preferred Securities -- Redemption or Exchange," the
Series A Debentures will mature on the date set forth in clause (a), whether or
not the Company shall have dissolved in connection with such exchange.
PREPAYMENT AND REDEMPTION
The Series A Debentures may not be prepaid or redeemed by AL&C except as
described below or under "Description of the Debentures and the Subordinated
Indenture -- Mandatory Prepayment" and "-- Optional Redemption" in the
accompanying Prospectus. The Series A Debentures may be redeemed at the option
of AL&C, without premium or penalty, in whole or in part (together with accrued
but unpaid interest, including Additional Interest, if any, on the portion being
redeemed) at any time on or after November 30, 1999, upon not less than 30 nor
more than 60 days' notice.
INTEREST
The Series A Debentures will bear interest at an annual rate equal to
9 1/2% from their date of original issuance until maturity. Such interest will
be payable on the last day of each calendar month of each year, commencing
November 30, 1994, except in the event that AL&C exercises its right to extend
the interest payment period for the Series A Debentures in the manner described
under "Description of the Debentures and the Subordinated Indenture -- Interest"
in the accompanying Prospectus.
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<PAGE> 14
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement, the Company has agreed to sell to each of the Underwriters named
below, and each of the Underwriters, for whom Goldman, Sachs & Co., CS First
Boston Corporation, Dean Witter Reynolds Inc., A.G. Edwards & Sons, Inc.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Morgan Stanley & Co.
Incorporated, PaineWebber Incorporated and Smith Barney Inc. are acting as
representatives, has severally agreed to purchase, the number of Series A
Preferred Securities set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
SERIES A
PREFERRED
UNDERWRITER SECURITIES
----------- -----------
<S> <C>
Goldman, Sachs & Co. ................................................... 900,000
CS First Boston Corporation............................................. 900,000
Dean Witter Reynolds Inc. .............................................. 900,000
A.G. Edwards & Sons, Inc. .............................................. 900,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated...................... 900,000
Morgan Stanley & Co. Incorporated....................................... 900,000
PaineWebber Incorporated................................................ 900,000
Smith Barney Inc. ...................................................... 900,000
Advest, Inc. ........................................................... 50,000
Bear, Stearns & Co. Inc. ............................................... 93,750
J.C. Bradford & Co. .................................................... 50,000
Alex. Brown & Sons Incorporated......................................... 93,750
JW Charles Securities, Inc. ............................................ 50,000
Commerzbank Capital Markets Corporation................................. 50,000
Cowen & Company......................................................... 50,000
Craigie Incorporated.................................................... 50,000
Credit Lyonnais Securities (USA) Inc. .................................. 50,000
Crowell, Weedon & Co. .................................................. 50,000
Dain Bosworth Incorporated ............................................. 50,000
Dillon, Read & Co. Inc. ................................................ 93,750
Donaldson, Lufkin & Jenrette Securities Corporation..................... 93,750
Fahnestock & Co. Inc. .................................................. 50,000
First Albany Corporation ............................................... 50,000
First of Michigan Corporation .......................................... 50,000
Furman Selz Incorporated ............................................... 50,000
Gruntal & Co., Incorporated ............................................ 50,000
J.J.B. Hilliard, W.L. Lyons, Inc. ...................................... 50,000
Interstate/Johnson Lane Corporation .................................... 50,000
Janney Montgomery Scott Inc. ........................................... 50,000
Josephthal Lyon & Ross Incorporated .................................... 50,000
Kemper Securities, Inc. ................................................ 93,750
Kennedy, Cabot & Co. ................................................... 50,000
Kirkpatrick, Pettis, Smith, Polian Inc. ................................ 50,000
Legg Mason Wood Walker Incorporated .................................... 50,000
McDonald & Company Securities, Inc. .................................... 50,000
McGinn, Smith & Co., Inc. .............................................. 50,000
Morgan Keegan & Company, Inc. .......................................... 50,000
The Ohio Company ....................................................... 50,000
</TABLE>
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<PAGE> 15
<TABLE>
<CAPTION>
NUMBER OF
SERIES A
PREFERRED
UNDERWRITER SECURITIES
----------- -----------
<S> <C>
Olde Discount Corporation .............................................. 50,000
Oppenheimer & Co., Inc. ................................................ 93,750
Piper Jaffray Inc. ..................................................... 50,000
Principal Financial Securities, Inc. ................................... 50,000
Prudential Securities Incorporated ..................................... 93,750
Pryor, McClendon, Counts & Co., Inc. ................................... 50,000
Rauscher Pierce Refsnes, Inc. .......................................... 50,000
Raymond James & Associates, Inc. ....................................... 50,000
The Robinson-Humphrey Company, Inc. .................................... 50,000
Roney & Co. ............................................................ 50,000
Salomon Brothers Inc.................................................... 93,750
Stifel, Nicolaus & Company, Incorporated................................ 50,000
Sutro & Co. Incorporated................................................ 50,000
Tucker Anthony Incorporated............................................. 50,000
U.S. Clearing Corp. .................................................... 50,000
Van Kasper & Company ................................................... 50,000
Wedbush Morgan Securities............................................... 50,000
Wheat, First Securities, Inc. .......................................... 50,000
Yamaichi International (America), Inc. ................................. 50,000
-----------
Total......................................................... 10,000,000
==========
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all the Series A Preferred
Securities offered hereby, if any are taken.
The Underwriters propose to offer the Series A Preferred Securities in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus Supplement and in part to certain securities
dealers at such price less a concession of $.50 per Series A Preferred Security.
The Underwriters may allow and such dealers may reallow a concession not in
excess of $.25 per Series A Preferred Security to certain brokers and dealers.
After the Series A Preferred Securities are released for sale to the public, the
offering price and other selling terms may from time to time be varied by the
Underwriters.
In view of the fact that the proceeds of the sale of the Series A Preferred
Securities will be loaned to AL&C, under the Underwriting Agreement AL&C has
agreed to pay as compensation for the services of the Underwriters in New York
Clearing House (next day) funds $.7875 per Series A Preferred Security for the
accounts of the several Underwriters.
The Company has granted the Underwriters an option exercisable for 30 days
after the date of this Prospectus Supplement to purchase up to 1,500,000
additional Series A Preferred Securities to cover over-allotments, if any, at
the initial public offering price (with additional Underwriters' Compensation),
as set forth on the cover page of this Prospectus Supplement. If the
Underwriters exercise their over-allotment option, the Underwriters have
severally agreed, subject to certain conditions, to purchase approximately the
same percentage thereof that the number of Series A Preferred Securities to be
purchased by each of them, as shown in the foregoing table, bears to the number
of Series A Preferred Securities initially offered hereby.
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<PAGE> 16
The Underwriters have advised the Company and AL&C that they currently do
not intend to confirm sales to discretionary accounts unless the customers'
prior written consent is obtained.
The Series A Preferred Securities have been approved for listing on the New
York Stock Exchange, subject to official notice of issuance. Prior to this
offering, there has been no market for the Series A Preferred Securities. In
order to meet one of the requirements for listing the Series A Preferred
Securities on the New York Stock Exchange, the Underwriters will undertake to
sell lots of 100 or more Series A Preferred Securities to a minimum of 400
beneficial holders. Trading of the Series A Preferred Securities on the New York
Stock Exchange is expected to commence within five business days after the
initial delivery of the Series A Preferred Securities. The representatives of
the Underwriters have advised the Company and AL&C that they intend to make a
market in the Series A Preferred Securities prior to the commencement of trading
on the New York Stock Exchange, but are not obligated to do so and may
discontinue market making at any time without notice.
The Company and AL&C have agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933, as
amended.
Certain of the Underwriters from time to time provide investment banking
services to Aetna.
S-16
<PAGE> 17
AETNA CAPITAL L.L.C.
PREFERRED SECURITIES
GUARANTEED TO THE EXTENT SET FORTH HEREIN BY
AETNA LIFE AND CASUALTY COMPANY
---------------
Aetna Capital L.L.C., a Delaware limited liability company (the "Company"),
may offer from time to time, in one or more series, its authorized but unissued
Preferred Limited Liability Company Interests (the "Preferred Securities"). All
of the Common Limited Liability Company Interests (the "Common Securities") of
the Company are owned directly or indirectly by Aetna Life and Casualty Company,
a Connecticut insurance corporation ("AL&C"). The payment of dividends by the
Company, if and to the extent declared and the Company has funds legally
available therefor, and payments on liquidation or redemption with respect to
the Preferred Securities are guaranteed (the "Guarantee") by AL&C to the extent
set forth herein. No portion of the dividends received by a holder of the
Preferred Securities will be eligible for the dividends received deduction for
federal income tax purposes. The Guarantee will rank subordinate and junior in
right of payment to all other liabilities of AL&C and pari passu with the most
senior preferred stock issued by AL&C. Concurrently with the issuance of each
series of Preferred Securities, the Company will loan the proceeds from the
issuance thereof and of the related issuance of Common Securities and capital
contributions to AL&C and to evidence such loans AL&C will issue and deliver to
the Company a series of AL&C's subordinated debentures (the "Debentures") with
terms corresponding to the terms of the related series of Preferred Securities.
Unless otherwise set forth in the Prospectus Supplement, the principal amount of
the Debentures relating to the Preferred Securities of any series will become
due and payable, together with any accrued and unpaid interest thereon, on the
earlier of (i) the date that is the 30th anniversary of the issuance of such
Preferred Securities (or, if AL&C exercises its right to exchange such
Debentures for new Debentures or reborrow the proceeds from the repayment of
such Debentures upon the terms and subject to the conditions set forth herein,
no later than the date that is the 49th anniversary of such date of issuance)
and (ii) subject to certain exceptions described herein, the date upon which the
Company is dissolved. The Debentures will be unsecured and subordinate and
junior in right of payment to Senior Debt (as defined herein) of AL&C. See
"Aetna Capital L.L.C.", "Description of the Guarantee" and "Description of the
Debentures and the Subordinated Indenture" for a description of various
contractual backup obligations of AL&C relating to the Preferred Securities. The
aggregate stated liquidation preference of the Preferred Securities of all
series to be issued under the registration statement of which this Prospectus
forms a part will not exceed $500,000,000.
The terms of the Preferred Securities of a particular series will be
determined at the time of sale. The specific designation, liquidation preference
per security, initial public offering price, dividend rate (or method of
calculation thereof), dates on which dividends will be payable, voting rights,
any redemption or exchange provisions and the other rights, preferences,
privileges, limitations and restrictions relating to the Preferred Securities of
the particular series in respect of which this Prospectus is being delivered, to
the extent any such terms differ from the terms set forth herein or are
otherwise not set forth herein, will be set forth in the Prospectus Supplement
pertaining to such series (the "Prospectus Supplement").
The Preferred Securities may be sold for public offering to or through
underwriters or dealers or may be sold through agents designated from time to
time or directly by the Company. Unless otherwise set forth in the Prospectus
Supplement, the Preferred Securities will be listed on the New York Stock
Exchange. See "Plan of Distribution". The names of any such underwriters,
dealers or agents involved in the sale of the Preferred Securities of the
particular series in respect of which this Prospectus is being delivered, the
number of Preferred Securities to be purchased by any such underwriters and any
applicable commissions or discounts will be set forth in the Prospectus
Supplement. The proceeds to the Company will also be set forth in the Prospectus
Supplement.
---------------
SEE "CERTAIN INVESTMENT CONSIDERATIONS" FOR CERTAIN CONSIDERATIONS RELEVANT
TO AN INVESTMENT IN THE PREFERRED SECURITIES, INCLUDING THE PERIOD AND
CIRCUMSTANCES DURING AND UNDER WHICH PAYMENT OF DIVIDENDS ON THE PREFERRED
SECURITIES MAY BE DEFERRED.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------
No person has been authorized to give any information or to make any
representations other than those contained or incorporated by reference in this
Prospectus in connection with the offer contained in this Prospectus and, if
given or made, such information or representations must not be relied upon as
having been authorized by AL&C, the Company or any underwriters, agents or
dealers. This Prospectus does not constitute an offer to sell or solicitation of
an offer to buy securities in any jurisdiction to any person to whom it is
unlawful to make such offer or solicitation. Neither the delivery of this
Prospectus nor any sale hereunder shall, under any circumstances, create an
implication that there has been no change in the affairs of AL&C and its
subsidiaries or the Company since the date hereof or that the information
contained herein is correct at any time subsequent to the date hereof.
This Prospectus may not be used to consummate sales of Preferred Securities
unless accompanied by a Prospectus Supplement.
---------------
The date of this Prospectus is October 7, 1994.
<PAGE> 18
AVAILABLE INFORMATION
AL&C is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the Securities and Exchange
Commission (the "Commission"). Reports, proxy and information statements and
other information filed by AL&C can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the following Regional Offices of
the Commission: Chicago Regional Office, Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661; and New York Regional
Office, 7 World Trade Center, New York, New York 10048. Copies of such material
can be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. AL&C's common stock is
listed on the New York Stock Exchange, the Pacific Stock Exchange and on the
Swiss exchanges in Basel, Geneva and Zurich, and such reports, proxy and
information statements and other information concerning AL&C may also be
inspected at the offices of the New York Stock Exchange, Inc., 20 Broad Street,
New York, New York 10005, and the Pacific Stock Exchange, 301 Pine Street, San
Francisco, California 94104.
The Company and AL&C have filed with the Commission a registration
statement under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the securities offered hereby (the "Registration Statement").
This Prospectus does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. Reference is made to the
Registration Statement and to the exhibits relating thereto for further
information with respect to AL&C, the Company and the securities offered hereby.
No separate financial statements of the Company have been included herein.
The Company and AL&C do not consider that such financial statements would be
material to holders of the Preferred Securities because the Company is a newly
formed special purpose entity and has no operating history. See "Aetna Capital
L.L.C." The Company is a limited liability company formed under the laws of
Delaware and will be managed by AL&C and Aetna Capital Holdings, Inc., in their
capacity as the members of the Company that own all of the Company's Common
Securities (the "Managing Members"). AL&C directly or indirectly owns all of the
Common Securities, which are nontransferable.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents have been filed with the Commission pursuant to
Section 13 of the Exchange Act under File No. 1-5704 and are incorporated by
reference into this Prospectus and made a part hereof:
1. Aetna's Annual Report on Form 10-K for the fiscal year ended December
31, 1993;
2. Aetna's Quarterly Report on Form 10-Q for the quarter ended March 31,
1994;
3. Aetna's Quarterly Report on Form 10-Q for the quarter ended June 30,
1994; and
4. Aetna's Current Report on Form 8-K dated October 5, 1994.
All documents filed by AL&C with the Commission pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date hereof and prior
to the termination of the offering described herein shall hereby be deemed to be
incorporated by reference into this Prospectus and to be a part hereof from the
date of filing of such documents. Any statement contained herein or in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein or in
any Prospectus Supplement modifies or supersedes such statement. Any
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<PAGE> 19
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
AL&C will provide without charge to each person to whom this Prospectus is
delivered, on written or oral request of such person, a copy of any or all of
the foregoing documents incorporated by reference into this Prospectus (without
exhibits to such documents other than exhibits specifically incorporated by
reference into such documents). Requests for such copies should be directed to
the office of the Corporate Secretary, Aetna Life and Casualty Company, 151
Farmington Avenue, Hartford, CT 06156, telephone (203) 273-3977.
AETNA CAPITAL L.L.C.
The Company is a limited liability company formed under the laws of
Delaware. AL&C owns directly or indirectly all of the Common Securities of the
Company, which securities are nontransferable. The Company's principal executive
offices are located at 151 Farmington Avenue, Hartford, Connecticut 06156,
telephone: (203) 273-0123. The principal executive offices of the Managing
Members are located at 151 Farmington Avenue, Hartford, Connecticut 06156,
telephone: (203) 273-0123. The Company exists solely for the purpose of issuing
Preferred Securities and Common Securities and lending the proceeds from the
issuance thereof and related capital contributions to AL&C.
Pursuant to the Company's Amended and Restated Limited Liability Company
Agreement (the "L.L.C. Agreement"), the members of the Company that own Common
Securities have unlimited liability for the debts, obligations and liabilities
of the Company in the same manner as a general partner of a Delaware limited
partnership (which do not include obligations to holders of Preferred Securities
in their capacity as such), to the extent not fully satisfied and discharged by
the Company. That liability on the part of such members is for the benefit of,
and is enforceable by, the liquidating trustee of the Company in the event of
its dissolution and is for the benefit of third parties to whom the Company owes
such debts, obligations and liabilities. The holders of Preferred Securities, in
their capacity as members of the Company, are not liable for the debts,
obligations or liabilities of the Company (subject to their obligation to repay
any funds wrongfully distributed to them).
Each holder of Preferred Securities will be furnished annually with
unaudited financial statements of the Company as soon as available after the end
of the Company's fiscal year.
AETNA LIFE AND CASUALTY COMPANY
AL&C and its subsidiaries ("Aetna") constitute one of the nation's largest
insurance/financial services organizations based on its assets at December 31,
1993. Based on 1993 premium rankings, Aetna also is one of the nation's largest
writers of group health and managed care products, and group life, annuity and
pension products and one of the largest stock insurers of property-casualty
lines.
AL&C was organized in 1967 as a Connecticut insurance corporation. The
business of Aetna is conducted through five reportable segments: Health and Life
Insurance and Services; Financial Services; Commercial Property-Casualty
Insurance and Services; Personal Property-Casualty; and International.
The principal executive offices of AL&C are located at 151 Farmington
Avenue, Hartford, Connecticut 06156; its telephone number is (203) 273-0123.
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<PAGE> 20
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
The following table sets forth Aetna's ratio of earnings to combined fixed
charges and preferred stock dividends for the periods indicated.
<TABLE>
<CAPTION>
SIX MONTHS YEARS ENDED DECEMBER 31,
ENDED -----------------------------------------------
JUNE 30, 1994 1993 1992 1991 1990 1989
------------- ---- -------- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Combined
Fixed Charges and Preferred
Stock Dividends............... 3.88x (a) 0.42x(a) 2.13x 3.03x 4.05x
</TABLE>
- ---------------
(a) Earnings were inadequate to cover fixed charges by $1.1 billion in 1993 and
$112.8 million in 1992.
For purposes of computing 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 for the
applicable year. All shares of AL&C's preferred stock were redeemed in 1989.
CERTAIN INVESTMENT CONSIDERATIONS
Prospective purchasers of Preferred Securities should carefully review the
information contained elsewhere in this Prospectus and the related Prospectus
Supplement and should particularly consider the following matters:
DEPENDENCE ON AL&C; SUBORDINATION OF AL&C'S OBLIGATIONS
The Company's ability to pay amounts due on the Preferred Securities
is solely dependent upon AL&C's ability to make payments on the related
Debentures when and as required. AL&C's obligations under the Subordinated
Indenture are subordinate and junior in right of payment to all Senior Debt
of AL&C and its obligations under the Guarantee are subordinate and junior
in right of payment to all other liabilities of AL&C. As of June 30, 1994,
AL&C had approximately $1.1 billion of Senior Debt outstanding. There are
no provisions in the Preferred Securities, the Subordinated Indenture or
the Guarantee that limit AL&C's ability to incur additional indebtedness,
including indebtedness that ranks senior to the Guarantee and the
Debentures. See "Description of the Guarantee -- Status of the Guarantee"
and "Description of the Debentures and the Subordinated
Indenture -- Subordination". In addition, since AL&C is a holding company,
the rights of AL&C, and hence the right of creditors of AL&C (including the
holders of Debentures and, to the extent of the Guarantee, the holders of
Preferred Securities), to participate in any distribution of the assets of
any subsidiary upon its liquidation or reorganization or otherwise is
necessarily subject to the prior claims of creditors of the subsidiary,
except to the extent that claims of AL&C itself as a creditor of the
subsidiary may be recognized.
OPTION TO EXTEND INTEREST PAYMENT PERIOD
AL&C has the right under the Debentures of any series to extend
interest payment periods for up to 60 months (which right may be exercised
from time to time), and, as a consequence, monthly dividends on the
Preferred Securities of the related series can be deferred (but will
continue to accumulate) by the Company during any such extended interest
payment period. In the event that AL&C exercises this right, AL&C will not
be permitted to declare dividends on any shares of its preferred or common
stock, and therefore, the possibility of an extension of a
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<PAGE> 21
payment period is, in the view of the Company and AL&C, remote. See
"Description of the Debentures and the Subordinated Indenture -- Interest".
TAX CONSEQUENCES OF EXTENDED INTEREST PAYMENT PERIOD
Should AL&C exercise its right to extend the interest payment period
with respect to the Debentures of any series, beneficial owners of
Preferred Securities of the related series will be required to include
interest accruing on the Debentures of such series in gross income for U.S.
federal income tax purposes in advance of the receipt of cash, and any
beneficial owners who dispose of Preferred Securities of such series prior
to the record date for payment of dividends following such period will not
receive such dividends from the Company or AL&C. See "Taxation -- Potential
Extension of Payment Period".
USE OF PROCEEDS
The proceeds from the sale of the Preferred Securities will be loaned to
AL&C and, except as may otherwise be set forth in the applicable Prospectus
Supplement, will be used for general corporate purposes.
DESCRIPTION OF THE PREFERRED SECURITIES
The following is a summary of certain terms and provisions of the Preferred
Securities of any series. Certain terms and provisions of the Preferred
Securities of a particular series will be summarized in the Prospectus
Supplement relating to the Preferred Securities of such series. If so indicated
in the Prospectus Supplement, the terms and provisions of the Preferred
Securities of a particular series may differ from the terms set forth below. The
summaries set forth below and in the applicable Prospectus Supplement address
the material terms of the Preferred Securities of any particular series but do
not purport to be complete and are subject to, and qualified in their entirety
by reference to, the L.L.C. Agreement and the written actions taken or to be
taken by the Managing Members pursuant to the L.L.C. Agreement and the Delaware
Limited Liability Company Act (the "L.L.C. Act"), establishing the rights,
preferences, privileges, limitations and restrictions relating to the Preferred
Securities of any series or of a particular series. A copy of the form of the
L.L.C. Agreement has been filed as an exhibit to the Registration Statement of
which this Prospectus forms a part.
GENERAL
The Company is authorized to issue Common Securities and Preferred
Securities. The Preferred Securities may be issued in one or more series or
classes, with such dividend rights, liquidation preference per security,
redemption or exchange provisions, voting rights and other rights, preferences,
privileges, limitations and restrictions as shall be set forth in the L.L.C.
Agreement and the written action providing for the issuance thereof adopted by
the Managing Members. All of the Preferred Securities will rank pari passu with
each other with respect to participation in profits and assets.
The Preferred Securities of any series will be issued in registered form
only without dividend coupons. Registration of, and registration of transfers
of, the Preferred Securities of any series will be by book-entry only. See
"Book-Entry-Only Issuance; The Depository Trust Company". The Preferred
Securities of any series will have the dividend rights, rights upon liquidation,
redemption and exchange provisions and voting rights set forth below, unless
otherwise provided in the Prospectus Supplement relating to the Preferred
Securities of a particular series. Reference is made to the Prospectus
Supplement relating to the Preferred Securities of a particular series for
specific terms thereof, to the extent such specific terms differ from the terms
set forth herein or are otherwise not set forth herein, which may include (i)
the designation of the Preferred Securities of
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<PAGE> 22
such series, (ii) the price at which the Preferred Securities of such series
will be issued, (iii) the dividend rate (or method of calculation thereof) and
the dates on which dividends will be payable, (iv) the voting rights, (v) any
redemption or exchange provisions, (vi) the stated liquidation preference, (vii)
any other rights, preferences, privileges, limitations and restrictions relating
to the Preferred Securities of such series and (viii) the terms upon which the
proceeds from the sale of the Preferred Securities of such series will be loaned
to AL&C.
DIVIDENDS
Dividends on the Preferred Securities will be cumulative. Cumulative
dividends on any series of Preferred Securities will accrue from the date set
forth in the Prospectus Supplement relating to such series and, except in the
event that AL&C exercises its right to extend the interest payment period for
the Debentures of the related series in the manner described under "Description
of the Debentures and the Subordinated Indenture -- Interest" below, will be
payable monthly in arrears on the last day of each calendar month of each year,
commencing on the date specified in the Prospectus Supplement relating to such
series. In the event that AL&C extends the interest payment period for any
series of Debentures, dividend payments on the related series of Preferred
Securities will be deferred during such extended interest payment period.
The dividend rate on Preferred Securities of a particular series (or the
method of calculation thereof) will be specified in the Prospectus Supplement
relating to such series. The amount of dividends payable for any full monthly
dividend period will be computed on the basis of twelve 30-day months and a
360-day year and, for any period shorter than a full monthly dividend period,
will be computed on the basis of the actual number of days elapsed in such
period. If the interest payment period for the Debentures of any series is
extended in the manner described under "Description of the Debentures and the
Subordinated Indenture -- Interest" below, then the rate at which dividends on
the related series of Preferred Securities accumulate shall be increased by an
amount such that the aggregate amount of dividends that accumulates on all
outstanding Preferred Securities of such series during such interest extension
period is equal to the aggregate amount of interest (including interest payable
on unpaid interest) that accrues during such interest extension period on the
portion of such outstanding Debentures that evidence the loan to AL&C of the
proceeds of the issuance of the outstanding Preferred Securities of such series.
The Company may only pay dividends on Preferred Securities to the extent it has
funds legally available therefor. See "Description of the Guarantee" and
"Description of the Debentures and the Subordinated Indenture" below.
Dividends on the Preferred Securities of any series will be declared by the
Managing Members of the Company to the extent that the Managing Members
reasonably anticipate that at the time such payments are due the Company will
have (i) funds legally available for the payment of such dividends and (ii) cash
on hand sufficient to permit such payments. It is anticipated that the Company's
funds will be limited to payments under the Debentures to be issued by AL&C to
evidence the loans to be made by the Company to AL&C of the proceeds from the
issuance of the Preferred Securities and the Common Securities and the related
capital contributions. See "Description of the Debentures and the Subordinated
Indenture".
Dividends declared on the Preferred Securities of any series will be
payable to the record holders thereof as they appear on the register for the
Preferred Securities of such series on the relevant record dates which, so long
as the Preferred Securities remain in book-entry-only form, will be, unless
otherwise specified in the Prospectus Supplement relating to each such series,
one Business Day (as hereinafter defined) prior to the relevant payment dates.
Subject to any applicable fiscal or other laws and regulations, each such
payment will be made as described under "Book-Entry-Only Issuance; The
Depository Trust Company" below. Unless otherwise specified in the Prospectus
Supplement, if the Preferred Securities of any series do not remain in
book-entry-only form, the record dates for such series will be the fifteenth day
of the month in which the relevant payment date occurs. In the event that any
date on which dividends are payable on the Preferred
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<PAGE> 23
Securities of any series is not a Business Day, then payment of the dividend
payable on such date will be made on the next succeeding day which is a Business
Day (and without any interest or other payment in respect of any such delay)
except that, if such Business Day is in the next succeeding calendar year, such
payment shall be made on the immediately preceding Business Day, in each case
with the same force and effect as if made on such date. A "Business Day" shall
mean any day other than a day on which banking institutions in The City of New
York are authorized or required by law to close.
Except as described herein and in the Prospectus Supplement relating to the
Preferred Securities of a particular series, holders of the Preferred Securities
will have no other right to participate in the profits of the Company.
CERTAIN RESTRICTIONS ON THE COMPANY
If dividends have not been paid in full on the Preferred Securities of any
series, the Company shall not:
(i) pay, or declare and set aside for payment, any dividends on the
Preferred Securities of any other series or any other limited liability
company interests in the Company ranking pari passu with the Preferred
Securities of such series with respect to participation in profits of the
Company ("Company Dividend Parity Securities"), unless the amount of any
dividends declared on any Company Dividend Parity Securities is paid on the
Company Dividend Parity Securities and the Preferred Securities of such
series on a pro rata basis on the date such dividends are paid on such
Company Dividend Parity Securities, so that the ratio of
(x) (A) the aggregate amount paid as dividends on the Preferred
Securities of such series to (B) the aggregate amount paid as dividends
on the Company Dividend Parity Securities is the same as the ratio of
(y) (A) the aggregate amount of all accumulated arrears of unpaid
dividends on the Preferred Securities of such series to (B) the
aggregate amount of all accumulated arrears of unpaid dividends on the
Company Dividend Parity Securities;
(ii) pay, or declare and set aside for payment, any dividends on any
limited liability company interest in the Company ranking junior to the
Preferred Securities of such series as to dividends ("Company Dividend
Junior Securities"); or
(iii) redeem, purchase or otherwise acquire any Company Dividend
Parity Securities or Company Dividend Junior Securities;
until, in each case, such time as all accumulated arrears of unpaid dividends on
the Preferred Securities of such series shall have been paid or set aside for
payment in full for all dividend periods terminating on or prior to, in the case
of clauses (i) and (ii), such payment, and in the case of clause (iii), the date
of such redemption, purchase or other acquisition. So long as the Preferred
Securities of any series are represented by one or more global certificates,
dividends on such series of Preferred Securities shall have been paid in full
with respect to any dividend payment date for such series when the amount of
dividends payable on such date has been paid to The Depository Trust Company
("DTC") or its successor securities depository. See "Book-Entry-Only Issuance;
The Depository Trust Company".
REDEMPTION OR EXCHANGE
The Preferred Securities of any series will be redeemable at the option of
the Company and subject to the prior consent of AL&C, in whole or in part from
time to time, on or after the date specified in the Prospectus Supplement
relating to such series, at the stated liquidation preference per security for
such series, plus accumulated and unpaid dividends (whether or not declared)
(the "Redemption Price") to the date fixed for redemption (the "Redemption
Date"). The Preferred
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<PAGE> 24
Securities of any series may also be redeemed at the option of the Company on
such other terms and conditions as may be set forth in the Prospectus Supplement
relating to such series.
If at any time after the issuance of the Preferred Securities of any
series, the Company is or, in the opinion of counsel (which counsel is not an
employee of AL&C or the Company), would be required to pay Additional Amounts
(as defined below) with respect to any Preferred Securities of such series, the
Company may, upon not less than 30 nor more than 60 days' notice to the holders
of Preferred Securities of such series with respect to which such Additional
Amounts are required to be paid, redeem such Preferred Securities at the
Redemption Price. In connection with any such redemption, the Company shall, so
long as the Preferred Securities remain in book-entry-only form, (i) cause the
global certificate representing all of the Preferred Securities of such series
to be withdrawn from DTC or its successor securities depository, (ii) issue
share certificates in definitive form representing Preferred Securities of such
series and (iii) redeem the Preferred Securities of such series with respect to
which such Additional Amounts are required to be paid.
In addition, if there shall have occurred after the date of the Prospectus
Supplement relating to any series of Preferred Securities a change in any
applicable U.S. law or regulation or in the interpretation thereof (including
but not limited to the enactment or imminent enactment of any legislation, the
publication of any judicial decisions, regulatory rulings, regulatory
procedures, or notices or announcements (including notices or announcements of
intent to adopt such procedures or regulations), or a change in the official
position or in the interpretation of any law or regulation by any legislative
body, court, governmental authority or regulatory body, irrespective of the
manner in which such change is made known), and the Company and AL&C shall have
been advised by legal counsel (which counsel is not an employee of AL&C or the
Company) that, as a result of such change, there exists more than an
insubstantial risk that (i) AL&C will be precluded from deducting the interest
paid on the Debentures relating to the Preferred Securities of such series for
federal income tax purposes or (ii) the Company will be subject to federal
income tax with respect to the interest received on such Debentures, then the
Company may, upon not less than 30 nor more than 60 days' notice to the holders
of Preferred Securities of such series, either (a) redeem the Preferred
Securities of such series, in whole or in part, at the Redemption Price or (b)
exchange the Preferred Securities of such series for Debentures of the related
series having an aggregate principal amount and accrued and unpaid interest
equal to the Redemption Price and having an interest rate thereon equal to the
dividend rate on such Preferred Securities.
Under current United States federal income tax law and interpretation, an
exchange of Preferred Securities of any series for the Debentures of the related
series would not be a taxable event to holders of the Preferred Securities of
such series. In the event of a change to such law or interpretation, an exchange
of Preferred Securities of any series for the Debentures of the related series
may be a taxable event to holders of the Preferred Securities.
After the date fixed for any exchange of Preferred Securities of any series
for the related series of Debentures, (i) the Preferred Securities of such
series will no longer be deemed to be outstanding, (ii) any global certificate
or certificates representing Preferred Securities of such series held by DTC or
its nominee will be exchanged for a registered global certificate or
certificates representing the Debentures of such series to be delivered upon
such exchange, (iii) any certificates representing Preferred Securities of such
series not held by DTC or its nominee and not surrendered for exchange will be
deemed to represent Debentures of such series having a principal amount and
accrued and unpaid interest equal to the Redemption Price of such Preferred
Securities until such certificates are surrendered to the Company or its agent
for exchange (and until such certificates are so surrendered, no payments of
interest or principal will be made with respect to such Debentures) and (iv) all
rights of the holders of the Preferred Securities of such series will cease,
except the right of such holders to receive the related series of Debentures
upon surrender of certificates representing Preferred Securities.
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<PAGE> 25
The Preferred Securities of any series will also be redeemed at the
Redemption Price with the proceeds from the repayment by AL&C when due of the
series of Debentures relating to such Preferred Securities or upon any optional
redemption by AL&C of such Debentures as described under "Description of the
Debentures and the Subordinated Indenture -- Optional Redemption".
Notwithstanding the foregoing, the Preferred Securities of any series will not
be redeemed if (i) in lieu of repaying any series of Debentures when due or
optionally redeeming such Debentures, AL&C is permitted by the Company to
exchange such Debentures for new Debentures or (ii) AL&C repays such Debentures
when due or optionally redeems such Debentures but is permitted by the Company
to reborrow the proceeds from such repayment or redemption which reborrowing
will be evidenced by new Debentures; provided that the Company will only permit
AL&C to so exchange any series of Debentures for new Debentures or reborrow the
proceeds from the repayment or redemption thereof if the Company owns all of
such Debentures and the following conditions are satisfied (which satisfaction,
in the case of clauses (f) through (j), shall be determined in the judgment of
the Managing Members and the Company's financial advisor (selected by the
Managing Members and who shall be unaffiliated with AL&C and shall be among the
30 largest investment banking firms, measured by total capital, in the United
States at the time of the issuance of the new Debentures that will evidence the
new loan to be made in connection with such exchange or reborrowing)): (a) AL&C
is not bankrupt, insolvent or in liquidation, (b) AL&C is not in default in the
payment of any interest or principal under the Subordinated Indenture, (c) AL&C
has made timely payments on the series of Debentures being exchanged, repaid or
redeemed for the immediately preceding 24 months (and has not elected to extend
any interest payment period for such Debentures during such 24 month period),
(d) such new loan will mature no later than the earlier of (1) the 49th
anniversary of the date of the initial issuance of such Debentures and (2) the
30th anniversary of the date such new loan is made, (e) the Company is not in
arrears on payments of dividends on the Preferred Securities of the series
relating to such Debentures, (f) AL&C is expected to be able to make timely
payment of principal of and interest on such new loan, (g) such new loan is
being made on terms, and under circumstances, that are consistent with those
which a lender would then require for a loan to an unrelated party, (h) such new
loan is being made at a rate sufficient to provide payments equal to or greater
than the amount of dividend payments required under the Preferred Securities of
such series, (i) such new loan is being made for a term that is consistent with
market circumstances and AL&C's financial condition and (j) immediately prior to
the making of such new loan, the senior unsecured long-term debt of AL&C is (or
if no such debt is outstanding, would be) rated not less than BBB (or the
equivalent) by Standard & Poor's Corporation and Baa2 (or the equivalent) by
Moody's Investors Service, Inc. and the subordinated unsecured long-term debt of
AL&C (or, if more than one issue of such subordinated debt is outstanding, the
most junior of such issues) is (or if no such debt is outstanding, would be)
rated not less than BBB- (or the equivalent) by Standard & Poor's Corporation
and Baa3 by Moody's Investors Service, Inc. (or if either of such rating
organizations is not then rating AL&C's senior or subordinated unsecured
long-term debt, as the case may be, the equivalent of such ratings by any other
"nationally recognized statistical rating organization," as that term is defined
by the Commission for purposes of Rule 436(g)(2) under the Securities Act).
The Company may not redeem any Preferred Securities of any series unless
all accumulated arrears of unpaid dividends have been paid on all Preferred
Securities of all series for all monthly dividend periods terminating on or
prior to the date of redemption.
In the event that fewer than all the outstanding Preferred Securities of a
particular series are to be redeemed, the Preferred Securities of such series to
be redeemed will be selected as described under "Book-Entry-Only Issuance; The
Depository Trust Company" below.
If the Company gives a notice of redemption in respect of Preferred
Securities of a particular series, then, by 12:00 noon, New York time, on the
applicable Redemption Date, the Company will, so long as the Preferred
Securities are in book-entry-only form, irrevocably deposit with DTC or its
successor securities depository funds sufficient to pay the applicable
Redemption Price and will give
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<PAGE> 26
DTC or its successor securities depository irrevocable instructions and
authority to pay the Redemption Price to the holders thereof. See
"Book-Entry-Only Issuance; The Depository Trust Company". If the Preferred
Securities of any series are no longer in book-entry-only form, the Company will
irrevocably deposit with the paying agent for the Preferred Securities of such
series funds sufficient to pay the applicable Redemption Price and will give
such paying agent irrevocable instructions and authority to pay the Redemption
Price to the holders thereof upon surrender of their Preferred Security
certificates. Notwithstanding the foregoing, with respect to Preferred
Securities of any series called for redemption, dividends payable on or prior to
the redemption date for such Preferred Securities shall be payable to the
holders of such Preferred Securities on the relevant record dates. If notice of
redemption shall have been given and funds deposited as required, then upon the
date of such deposit, all rights of holders of such Preferred Securities of a
series so called for redemption will cease, except the right of the holders of
such securities to receive the Redemption Price, but without interest, and such
securities will cease to be outstanding. In the event that any date on which any
payment in respect of the redemption of Preferred Securities of any series is
payable is not a Business Day, then payment of the Redemption Price payable on
such date will be made on the next succeeding day which is a Business Day (and
without any interest or other payment in respect of any such delay), except
that, if such Business Day falls in the next calendar year, such payment will be
made on the immediately preceding Business Day. In the event that payment of the
Redemption Price in respect of Preferred Securities of any series is improperly
withheld or refused and not paid either by the Company or by AL&C pursuant to
the Guarantee, dividends on such securities will continue to accrue, at the then
applicable rate, from the Redemption Date originally established by the Company
for such securities to the date such Redemption Price is actually paid, in which
case the actual payment date will be the date fixed for redemption for purposes
of calculating the Redemption Price.
Subject to the foregoing and applicable law (including, without limitation,
U.S. federal securities laws) AL&C or its subsidiaries may at any time and from
time to time purchase outstanding Preferred Securities of any series by tender,
in the open market or by private agreement.
LIQUIDATION DISTRIBUTION
In the event of any voluntary or involuntary dissolution of the Company
other than in connection with the exchange of all series of Preferred Securities
outstanding for the related series of Debentures in the manner described under
"Redemption or Exchange" above, the holders of Preferred Securities of each
series at the time outstanding will be entitled to receive out of the assets of
the Company legally available for distribution to securityholders, before any
distribution of assets is made to holders of Common Securities in the Company or
any other class of limited liability company interests in the Company ranking
junior to the Preferred Securities with respect to participation in assets of
the Company, but together with the holders of Preferred Securities of any other
series or any other limited liability company interests in the Company
outstanding ranking pari passu with the Preferred Securities with respect to
participation in the assets of the Company ("Company Liquidation Parity
Securities"), an amount equal, in the case of the holders of the Preferred
Securities of such series, to the stated liquidation preference for Preferred
Securities of such series as set forth in the Prospectus Supplement relating to
such series and all accumulated and unpaid dividends (whether or not declared)
to the date of payment (the "Liquidation Distribution"). If, upon any such
dissolution, the Liquidation Distributions can be paid only in part because the
Company has insufficient assets available to pay in full the aggregate
Liquidation Distributions and the aggregate maximum liquidation distributions on
the Company Liquidation Parity Securities, then the amounts payable directly by
the Company on the Preferred Securities of such series and on such Company
Liquidation Parity Securities shall be paid on a pro rata basis, so that the
ratio of
(i) (x) the aggregate amount paid as Liquidation Distributions on the
Preferred Securities of such series to (y) the aggregate amount paid as
liquidation distributions on the Company Liquidation Parity Securities is
the same as the ratio of
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(ii) (x) the aggregate Liquidation Distributions to (y) the aggregate
maximum liquidation distributions on the Company Liquidation Parity
Securities.
Pursuant to the L.L.C. Agreement, the Company will be dissolved and its
affairs wound up (i) when the period fixed for the life of the Company expires,
(ii) if the Managing Members by resolution require the Company to be dissolved
(subject to the voting rights of the holders of Preferred Securities described
under "Voting Rights" below), (iii) if either Managing Member is bankrupt,
insolvent or liquidated or withdraws, resigns or is expelled from the Company,
(iv) upon the entry of a decree of judicial dissolution under the L.L.C. Act or
(v) with the written consent of all holders of limited liability company
interests in the Company.
MERGER, CONSOLIDATION, ETC. OF THE COMPANY
The Company may not consolidate or merge with or into or convey, transfer
or lease its properties and assets substantially as an entirety to any
corporation or other body, except with the prior approval of the holders of not
less than 66 2/3% of the stated liquidation preference of the outstanding
Preferred Securities or as described below. The Company may, without the consent
of the holders of the Preferred Securities, consolidate or merge with or into,
or convey, transfer or lease its assets substantially as an entirety to, a
limited liability company or limited partnership or trust organized as such
under the laws of any state of the United States of America or the District of
Columbia; provided that (i) such successor entity either (x) expressly assumes
all of the obligations of the Company under the Preferred Securities or (y)
substitutes for the Preferred Securities other securities having substantially
the same terms as the Preferred Securities (the "Successor Securities") so long
as the Successor Securities rank, with respect to participation in the profits
or assets of the successor entity, at least as high as the Preferred Securities
rank with respect to participation in the profits or assets of the Company, (ii)
AL&C expressly acknowledges such successor entity as the holder of the
Debentures relating to the Preferred Securities, (iii) such merger,
consolidation, conveyance, transfer or lease does not cause the Preferred
Securities or Successor Securities, if any, to be delisted (or, in the case of
any Successor Securities, fail to be listed) by any national securities exchange
or other organization on which the Preferred Securities are then listed, (iv)
such merger, consolidation, conveyance, transfer or lease does not cause the
Preferred Securities or Successor Securities, if any, to be downgraded by any
"nationally recognized statistical rating organization," as that term is defined
by the Commission for purposes of Rule 436(g)(2) under the Securities Act, (v)
such merger, consolidation, conveyance, transfer or lease does not adversely
affect the powers, preferences and other special rights of holders of Preferred
Securities or Successor Securities, if any, in any material respect and (vi)
prior to such merger, consolidation, conveyance, transfer or lease AL&C has
received an opinion of counsel (which counsel is not an employee of AL&C or the
Company) to the effect that (w) such merger, consolidation, conveyance, transfer
or lease will not cause the Company or such successor entity to become an
"investment company" required to be registered under the Investment Company Act
of 1940, as amended, (x) holders of outstanding Preferred Securities will not
recognize any gain or loss for federal income tax purposes as a result of such
merger, consolidation, conveyance, transfer or lease, (y) such successor entity
will not be treated as a corporation for federal income tax purposes and (z)
such merger, consolidation, conveyance, transfer or lease will not adversely
affect the limited liability of holders of Preferred Securities.
VOTING RIGHTS
If (i) the Company fails to pay dividends in full on the Preferred
Securities of any series for 18 consecutive monthly dividend periods; (ii) an
Event of Default (as defined in the Subordinated Indenture) with respect to any
series of Debentures that has not been exchanged for the related series of
Preferred Securities occurs and is continuing; or (iii) AL&C is in default on
any of its payment obligations under the Guarantee, then the holders of a
majority in stated liquidation
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preference of the outstanding Preferred Securities of such series, in the case
of clause (i) above, and the holders of a majority in stated liquidation
preference of all outstanding Preferred Securities, in the case of clauses (ii)
and (iii) above, together with the holders of any other limited liability
company interests in the Company having the right to vote for the appointment of
a trustee in such event, acting as a single class, will be entitled to appoint
and authorize a trustee to enforce the Company's rights under the Subordinated
Indenture against AL&C, enforce the obligations undertaken by AL&C under the
Guarantee and, to the extent permitted by law, declare and pay dividends on the
Preferred Securities of such series in the case of clause (i) above (but only in
the event that the Company's failure to pay dividends is not a consequence of
AL&C's exercise of any right it may have to extend the interest payment period
for the related series of Debentures in the manner described under "Description
of the Debentures and the Subordinated Indenture -- Interest"), and AL&C has
agreed to execute and deliver such documents as may be necessary or appropriate
for the trustee to enforce such rights and obligations. For purposes of
determining whether the Company has failed to pay dividends in full for 18
consecutive monthly dividend periods, dividends shall be deemed to remain in
arrears, notwithstanding any payments in respect thereof, until full cumulative
dividends have been or contemporaneously are declared and paid with respect to
all monthly dividend periods terminating on or prior to the date of payment of
such full cumulative dividends.
In furtherance of the foregoing, and without limiting the powers of any
trustee so appointed and for the avoidance of any doubt concerning the powers of
the trustee, any trustee, in its own name and as trustee of an express trust,
may institute a proceeding, including, without limitation, any suit in equity,
an action at law or other judicial or administrative proceeding, to enforce the
Company's creditor rights directly against AL&C to the same extent as the
Company and on behalf of the Company, and may prosecute such proceeding to
judgment or final decree, and enforce the same against AL&C and collect, out of
the property, wherever situated, of AL&C the monies adjudged or decreed to be
payable in the manner provided by law.
Not later than 30 days after the right to appoint a trustee arises, the
Managing Members will convene a meeting to appoint such a trustee. If the
Managing Members fail to convene such meeting within such 30-day period, the
holders of 10% in stated liquidation preference of the outstanding Preferred
Securities of the series with respect to which dividends have not been paid, in
the case of clause (i) of the first paragraph under "Voting Rights", and the
holders of 10% in stated liquidation preference of all outstanding Preferred
Securities, in the case of clauses (ii) and (iii) of such paragraph, and such
other limited liability company interests that are entitled to vote, acting as a
single class, will be entitled to convene such meeting. Any trustee so appointed
shall vacate office immediately, subject to the terms of such other limited
liability company interests, if the Company shall have paid in full all
accumulated and unpaid dividends on the Preferred Securities of the series with
respect to which dividends have not been paid, in the case of clause (i) of the
first paragraph under "Voting Rights" or such default by AL&C shall have been
cured, in the case of clause (ii) or (iii) of such paragraph. Notwithstanding
the appointment of any such trustee, AL&C shall retain all rights under the
Subordinated Indenture, including any right AL&C may have to extend the interest
payment period of the Debentures as provided under "Description of the
Debentures and the Subordinated Indenture -- Interest."
If any resolution is proposed to be adopted by the securityholders of the
Company providing for, or the Managing Members propose to take any action to
effect, (x) any variation or abrogation of the powers, preferences and special
rights of the Preferred Securities of any series by way of amendment of the
L.L.C. Agreement or otherwise (including, without limitation, the authorization
or issuance of any limited liability company interests in the Company ranking,
as to participation in the profits or assets of the Company, senior to the
Preferred Securities) which variation or abrogation adversely affects the
holders of Preferred Securities of such series, (y) the dissolution of the
Company or (z) the commencement of any bankruptcy, insolvency, reorganization or
other similar proceeding involving the Company, then the holders of outstanding
Preferred Securities of the
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<PAGE> 29
series, the powers, preferences or special rights of which are proposed to be
amended in the case of any action described in clause (x) above, and the holders
of all outstanding Preferred Securities, in the case of any action described in
clause (y) or (z) above, (and, in the case of any action described in clause (x)
above which would adversely affect the powers, preferences or special rights of
any Company Dividend Parity Securities or any Company Liquidation Parity
Securities, such Company Dividend Parity Securities or such Company Liquidation
Parity Securities, as the case may be, or, in the case of any action described
in clause (y) above, all Company Liquidation Parity Securities or, in the case
of any action described in clause (z) above, all holders of outstanding
Preferred Securities, any Company Dividend Parity Securities and any Company
Liquidation Parity Securities other than holders of any such securities that are
also creditors of AL&C or any of its subsidiaries) will be entitled to vote
together as a class on such resolution or action of the Managing Members (but
not any other resolution or action) and such resolution or action shall not be
effective except with the approval of the holders of a majority in stated
liquidation preference of such outstanding securities (or, under certain
circumstances, 100% in stated liquidation preference of such outstanding
securities); provided, however, that no such approval shall be required under
clauses (x) and (y) if the dissolution of the Company is proposed or initiated
upon the occurrence of any of the events specified in clauses (i), (iii), (iv)
or (v) of the last paragraph under "Liquidation Distribution" above or in
connection with the exchange of all series of Preferred Securities outstanding
for the related series of Debentures.
The powers, preferences or special rights of the Preferred Securities of
any series will be deemed not to be varied by the creation or issue of, and no
vote will be required for the creation or issue of, any further limited
liability company interests in the Company ranking pari passu with or junior to
the Preferred Securities of any series with respect to voting rights and rights
to participate in the profits or assets of the Company.
Any required approval of holders of Preferred Securities may be given at a
meeting of such holders convened for such purpose or pursuant to written
consent. The Managing Members will cause a notice of any meeting at which
holders of the Preferred Securities of a series are entitled to vote, or of any
matter upon which action may be taken by written consent of such holders, to be
mailed to each holder of record of the Preferred Securities of such series. Each
such notice will include a statement setting forth (i) the date of such meeting
or the date by which such action is to be taken, (ii) a description of any
action proposed to be taken at such meeting on which such holders are entitled
to vote or of such matters upon which written consent is sought and (iii)
instructions for the delivery of proxies or consents.
Notwithstanding that holders of Preferred Securities of any series are
entitled to vote or consent under any of the circumstances described above, any
of the Preferred Securities of any series that are owned by AL&C or any entity
owned more than 50% by AL&C, either directly or indirectly, shall not be
entitled to vote or consent and shall, for the purposes of such vote or consent,
be treated as if they were not outstanding.
Except as described herein and in the Prospectus Supplement relating to the
Preferred Securities of a particular series, holders of Preferred Securities
will have no other voting rights.
ADDITIONAL AMOUNTS
All payments in respect of the Preferred Securities by the Company will be
made without withholding or deduction for or on account of any present or future
taxes, duties, assessments or governmental charges of whatever nature imposed or
levied upon or as a result of such payment by or on behalf of the United States
of America, any state thereof or any other jurisdiction through which or from
which such payment is made, or any authority therein or thereof having power to
tax, unless the withholding or deduction of such taxes, duties, assessments or
governmental charges is required by law. In that event, the Company will pay as
a dividend such additional amounts as may be necessary in order that the net
amounts received by the holders of the Preferred Securities after
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<PAGE> 30
such withholding or deduction will equal the amount which would have been
receivable in respect of such Preferred Securities in the absence of such
withholding or deduction ("Additional Amounts"), except that no such Additional
Amounts will be payable with respect to Preferred Securities:
(a) if the holder or beneficial owner thereof is liable for such
taxes, duties, assessments or governmental charges in respect of such
Preferred Securities by reason of such holder's or owner's having some
connection with the United States, any state thereof or any other
jurisdiction through which or from which such payment is made (including,
without limitation, actual or constructive ownership, past or present, of
10% or more of the total combined voting power of all classes of stock
entitled to vote of AL&C), other than being a holder or beneficial owner of
such Preferred Securities, or
(b) if the Company has notified such holder of the obligation to
withhold taxes and requested but not received from such holder or
beneficial owner a declaration of non-residence, a valid taxpayer
identification number or other claim for exemption (or information or
certification required to support such claim), and such withholding or
deduction would not have been required had such declaration, taxpayer
identification number or claim been received.
BOOK-ENTRY-ONLY ISSUANCE; THE DEPOSITORY TRUST COMPANY
DTC, New York, New York, will act as securities depository for the
Preferred Securities. The Preferred Securities will be issued only as
fully-registered securities registered in the name of Cede & Co. (DTC's
partnership nominee). One or more fully-registered global Preferred Security
certificates will be issued for each series of Preferred Securities,
representing all of the Preferred Securities of such series, and will be
deposited with DTC.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities that its participants ("Participants") deposit with DTC. DTC
also facilitates the settlement among Participants of securities transactions,
such as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in Participants' accounts, thereby eliminating
the need for physical movement of securities certificates. Direct participants
include securities brokers and dealers, banks, trust companies, clearing
corporations, and certain other organizations ("Direct Participants"). DTC is
owned by a number of its Direct Participants and by the New York Stock Exchange,
Inc., the American Stock Exchange, Inc., and the National Association of
Securities Dealers, Inc. Access to the DTC system is also available to others
such as securities brokers and dealers, banks, and trust companies that clear
through or maintain a custodial relationship with a Direct Participant, either
directly or indirectly ("Indirect Participants"). The rules applicable to DTC
and its Participants are on file with the Commission.
Purchases of Preferred Securities under the DTC system must be made by or
through Direct Participants, which will receive a credit for the Preferred
Securities on DTC's records. The ownership interest of each actual purchaser of
each Preferred Security ("Beneficial Owner") is in turn to be recorded on the
Direct and Indirect Participants' records. Beneficial Owners will not receive
written confirmation from DTC of their purchase, but Beneficial Owners are
expected to receive written confirmations providing details of their
transactions, as well as periodic statements of their holdings, from the Direct
or Indirect Participant through which the Beneficial Owners purchased Preferred
Securities. Transfers of ownership interests in the Preferred Securities are to
be accomplished by entries made on the books of Participants acting on behalf of
Beneficial Owners. Beneficial Owners will not receive certificates representing
their ownership interests in Preferred Securities, except in the event that use
of the book-entry system for the Preferred Securities is discontinued.
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<PAGE> 31
To facilitate subsequent transfers, all Preferred Securities deposited by
Participants with DTC are registered in the name of Cede & Co. The deposit of
Preferred Securities with DTC and their registration in the name of Cede & Co.
effect no change in beneficial ownership. DTC has no knowledge of the actual
Beneficial Owners of the Preferred Securities; DTC's records reflect only the
identity of the Direct Participants to whose accounts such Preferred Securities
are credited, which may or may not be the Beneficial Owners. The Participants
will remain responsible for keeping account of their holdings on behalf of their
customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Redemption notices will be sent to Cede & Co. If less than all of the
Preferred Securities of any series are being redeemed, DTC's practice is to
determine by lot the amount of the interest of each Direct Participant in such
series to be redeemed.
Although voting with respect to the Preferred Securities is limited, in
those cases where a vote is required, neither DTC nor Cede & Co. will consent or
vote with respect to Preferred Securities. Under its usual procedures, DTC would
mail an Omnibus Proxy to the Company as soon as possible after the record date.
The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those
Direct Participants to whose accounts the Preferred Securities are credited on
the record date (identified in a listing attached to the Omnibus Proxy).
Dividend payments on the Preferred Securities will be made to DTC. DTC's
practice is to credit Direct Participants' accounts on the relevant payable date
in accordance with their respective holdings shown on DTC's records unless DTC
has reason to believe that it will not receive payments on such payable date.
Payments by Participants to Beneficial Owners will be governed by standing
instructions and customary practices and will be the responsibility of such
Participants and not of DTC, the Company or AL&C, subject to any statutory or
regulatory requirements as may be in effect from time to time. Payment of
dividends to DTC will be the responsibility of the Company, disbursement of such
payments to Direct Participants will be the responsibility of DTC and
disbursement of such payments to the Beneficial Owners will be the
responsibility of the Direct and Indirect Participants.
DTC may discontinue providing its services as securities depository with
respect to the Preferred Securities of any series at any time by giving
reasonable notice to the Company and AL&C. Under such circumstances, in the
event that a successor securities depository is not obtained, Preferred Security
certificates for such series will be printed and delivered. Additionally, in the
event that the Company were to redeem only a portion of the Preferred Securities
of any series because the Company is required to pay Additional Amounts with
respect to such Preferred Securities to be redeemed, the Company may cause the
global certificate or certificates representing all of the Preferred Securities
of such series to be withdrawn from DTC (or its successor securities depository)
and may issue certificates in definitive form representing such Preferred
Securities. Thereafter, such Preferred Securities subject to such requirement to
pay Additional Amounts would be redeemed.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that the Company believes to be reliable, but
neither the Company nor AL&C has independently verified such information.
REGISTRAR, TRANSFER AGENT AND PAYING AGENT; TRANSFERS AND EXCHANGES
First Chicago Trust Company of New York will act as registrar, transfer
agent and paying agent for the Preferred Securities but the Company may
designate an additional or substitute registrar, transfer agent and paying agent
at any time.
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In the event that the Preferred Securities of any series do not remain in
book-entry-only form, the following provisions will apply to the Preferred
Securities of such series:
Registration of transfers of Preferred Securities of any series will be
effected without charge by or on behalf of the Company, but upon payment (with
the giving of such indemnity as the Company or AL&C may require) in respect of
any tax or other governmental charges which may be imposed in connection
therewith.
Exchanges of Preferred Securities of any series for the related series of
Debentures will be effected without charge by or on behalf of the Company, but
upon payment (with the giving of such indemnity as the Company or AL&C may
require) in respect of any tax or other governmental charges which may be
imposed in connection with the issuance of any Debenture in the name of any
person other than the registered holder of the Preferred Security for which the
Debenture is being exchanged or for any reason other than such exchange.
The Company will not be required to register or cause to be registered the
transfer of Preferred Securities of a particular series after such Preferred
Securities have been called for redemption or exchange.
MISCELLANEOUS
Unless otherwise specified in the Prospectus Supplement for any series of
Preferred Securities, the Preferred Securities will not be subject to any
sinking fund provisions. Holders of Preferred Securities of any series have no
preemptive rights.
AL&C and the Company will enter into an agreement as to expenses and
liabilities (the "Expense Agreement") pursuant to which AL&C will agree to
guarantee the payment of any liabilities incurred by the Company other than
obligations to holders of Preferred Securities, which will be separately
guaranteed to the extent set forth in the Guarantee. See "Description of the
Guarantee". The Expense Agreement will expressly provide that it is for the
benefit of, and is enforceable by, third parties to whom the Company owes such
obligations. A copy of the form of Expense Agreement has been filed as an
exhibit to the Registration Statement of which this Prospectus forms a part.
DESCRIPTION OF THE GUARANTEE
Set forth below is condensed information concerning the guarantee (the
"Guarantee") which will be executed and delivered by AL&C for the benefit of the
holders from time to time of Preferred Securities. This summary contains all
material information concerning the Guarantee but does not purport to be
complete. References to provisions of the Guarantee are qualified in their
entirety by reference to the text of the Payment and Guarantee Agreement, a form
of which has been filed as an exhibit to the Registration Statement of which
this Prospectus forms a part.
GENERAL
AL&C will irrevocably and unconditionally agree, to the extent set forth
herein, to pay in full, to the holders of the Preferred Securities of any
series, the Guarantee Payments (as defined below) (except to the extent paid by
the Company or by AL&C to any trustee appointed by such holders (as described
under "Description of the Preferred Securities -- Voting Rights")), as and when
due, regardless of any defense, right of set-off or counterclaim which the
Company may have or assert. The following payments to the extent not paid by the
Company (the "Guarantee Payments") will be subject to the Guarantee (without
duplication): (i) any accumulated and unpaid dividends (including any Additional
Amounts payable by the Company) that have been theretofore declared on the
Preferred Securities of any series, payable out of funds legally available
therefor, (ii) the Redemption Price (including all accumulated and unpaid
dividends) payable out of funds legally available therefor with respect to
Preferred Securities of any series called for redemption by the Company and
(iii) upon the liquidation of the Company other than in connection with the
exchange of all series of Preferred Securities outstanding for the related
series of Debentures in the manner
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<PAGE> 33
described under "Description of the Preferred Securities -- Redemption or
Exchange", the lesser of (a) the aggregate of the stated liquidation preference
of the Preferred Securities and all accumulated and unpaid dividends thereon
(whether or not declared) to the date of payment and (b) the amount of assets of
the Company legally available for distribution to holders of Preferred
Securities in liquidation.
CERTAIN COVENANTS OF AL&C
In the Guarantee, AL&C will covenant that, so long as Preferred Securities
of any series remain outstanding, AL&C will not declare or pay any dividend on,
or redeem, purchase, acquire or make a liquidation payment with respect to, any
of AL&C's capital stock or make any guarantee payments with respect to the
foregoing (other than (i) payments under the Guarantee, (ii) acquisitions of
shares of AL&C's common stock in connection with the satisfaction by AL&C of its
obligations under any employee benefit plans and (iii) redemptions of any share
purchase rights (the "Rights") issued by AL&C pursuant to AL&C's Share Purchase
Rights Plan adopted on October 27, 1989, as amended from time to time (the
"Rights Plan") or the declaration of a dividend of similar share purchase rights
in the future), if at such time AL&C will be in default with respect to its
payment obligations under the Guarantee or there shall have occurred an Event of
Default under the Subordinated Indenture with respect to any series of
Debentures that has not been exchanged for the related series of Preferred
Securities.
In the Guarantee, AL&C will also covenant that, so long as Preferred
Securities of any series remain outstanding, it will (i) not cause or permit any
Common Securities of the Company to be transferred, (ii) maintain direct or
indirect ownership of all outstanding securities of the Company other than (x)
the Preferred Securities of any series and (y) any other securities issued by
the Company (other than the Common Securities) so long as the issuance thereof
to persons other than AL&C or any of its subsidiaries would not cause the
Company to become an "investment company" required to be registered under the
Investment Company Act of 1940, as amended, (iii) cause at least 21% of the
total value of the Company and at least 21% of all interests in the capital,
income, gain, loss, deduction and credit of the Company to be represented by
Common Securities, (iv) not voluntarily dissolve, wind up or liquidate the
Company (other than in connection with the exchange of all series of Preferred
Securities outstanding for the related series of Debentures in the manner
described under "Description of the Preferred Securities -- Redemption or
Exchange") or either of the Managing Members, (v) cause AL&C and Aetna Capital
Holdings, Inc. to remain the Managing Members of the Company and timely perform
all of their respective duties as Managing Members of the Company (including the
duty to declare and pay dividends on the Preferred Securities as described under
"Description of the Preferred Securities -- Dividends") and (vi) use reasonable
efforts to cause the Company to remain a limited liability company and otherwise
continue to be treated as a partnership for U.S. federal income tax purposes;
provided that AL&C may permit the Company to consolidate or merge with or into
or convey, transfer or lease its assets substantially as an entirety to another
entity upon the terms and subject to the conditions set forth under "Description
of the Preferred Securities -- Merger, Consolidations, etc. of the Company"
above.
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ADDITIONAL AMOUNTS
All Guarantee Payments will be made without withholding or deduction for or
on account of any present or future taxes, duties, assessments or governmental
charges of whatever nature imposed or levied upon or as a result of such payment
by or on behalf of the United States of America, any state thereof or any other
jurisdiction through which or from which such payment is made, or any authority
therein or thereof having power to tax, unless the withholding or deduction of
such taxes, duties, assessments or governmental charges is required by law. In
that event, AL&C will pay such additional amounts as may be necessary in order
that the net amounts received by the holders of the Preferred Securities after
such withholding or deduction will equal the amount which would have been
receivable in respect of such Preferred Securities in the absence of such
withholding or deduction ("Guarantee Additional Amounts"), except that no such
Guarantee Additional Amounts will be payable with respect to Preferred
Securities:
(a) if the holder or beneficial owner thereof is liable for such
taxes, duties, assessments or governmental charges in respect of such
Preferred Securities by reason of such holder's or owner's having some
connection with the United States, any state thereof or any other
jurisdiction through which or from which such payment is made (including,
without limitation, actual or constructive ownership, past or present, of
10% or more of the total combined voting power of all classes of stock
entitled to vote of AL&C), other than being a holder or beneficial owner of
such Preferred Securities, or
(b) if the Company or AL&C has notified such holder of the obligation
to withhold taxes and requested but not received from such holder or
beneficial owner a declaration of non-residence, a valid taxpayer
identification number or other claim for exemption (or information or
certification required to support such claim), and such withholding or
deduction would not have been required had such declaration, taxpayer
identification number or claim been received.
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes which do not adversely affect the rights
of holders of Preferred Securities (in which case no vote will be required), the
Guarantee may be amended only with the prior approval of the holders of a
majority in stated liquidation preference of all Preferred Securities of all
series then outstanding. The manner of obtaining any such approval of holders of
the Preferred Securities will be as set forth under "Description of the
Preferred Securities -- Voting Rights". Except in connection with a
consolidation, merger or sale involving AL&C as may be permitted under
"Description of the Debentures and the Subordinated Indenture -- Miscellaneous,"
AL&C shall not have the right to assign the Guarantee without the prior consent
of the holders of a majority in stated liquidation preference of all Preferred
Securities then outstanding. All guarantees and agreements contained in the
Guarantee shall bind the successors, assigns, receivers, trustees and
representatives of AL&C and shall inure to the benefit of the holders of the
Preferred Securities then outstanding.
TERMINATION OF THE GUARANTEE
The Guarantee will terminate and be of no further force and effect as to
the Preferred Securities of any series upon full payment of the Redemption Price
of all Preferred Securities of such series or upon the exchange of all Preferred
Securities of such series for the related series of Debentures, and shall
terminate completely upon full payment of the amounts payable upon liquidation
of the Company. The Guarantee will continue to be effective or will be
reinstated, as the case may be, if at any time any holder of Preferred
Securities of any series must restore payment of any sums paid under the
Preferred Securities of such series or the Guarantee.
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STATUS OF THE GUARANTEE
The Guarantee will constitute an unsecured obligation of AL&C and will rank
(i) subordinate and junior in right of payment to all other liabilities of AL&C,
(ii) pari passu with the most senior preferred stock now or hereafter issued by
AL&C and with any guarantee now or hereafter entered into by AL&C in respect of
any preferred or preference stock or interest of any affiliate of AL&C and (iii)
senior to AL&C's common stock.
The Guarantee will constitute a guarantee of payment and not of collection.
A holder of Preferred Securities may enforce the Guarantee directly against
AL&C, and AL&C will waive any right or remedy to require that any action be
brought against the Company or any other person or entity before proceeding
against AL&C. The Guarantee will not be discharged except by payment of the
Guarantee Payments in full to the extent not paid by the Company.
GOVERNING LAW
The Guarantee will be governed by and construed in accordance with the laws
of the State of New York.
DESCRIPTION OF THE DEBENTURES AND THE SUBORDINATED INDENTURE
Set forth below is condensed information concerning the Debentures that
will evidence the loans to be made by the Company to AL&C of the proceeds of the
issuance of (i) Preferred Securities of each series and (ii) the Company's
Common Securities and related capital contributions ("Common Securities
Payments") and the Subordinated Indenture (the "Subordinated Indenture") between
AL&C and The First National Bank of Chicago, as trustee (the "Trustee").
References to provisions of the Subordinated Indenture are qualified in their
entirety by reference to the text of the Subordinated Indenture, a form of which
has been filed as an exhibit to the Registration Statement of which this
Prospectus forms a part. All Debentures will be issued under the Subordinated
Indenture.
GENERAL
The Subordinated Indenture does not limit the aggregate principal amount of
Debentures which may be issued thereunder and provides that the Debentures may
be issued thereunder from time to time in one or more series. The aggregate
dollar amount of the Debentures relating to Preferred Securities of any series
will be set forth in the Prospectus Supplement for such series and will be equal
to the sum of the aggregate liquidation preference of the Preferred Securities
of such series and the related Common Securities Payments. Unless otherwise
specified in the Prospectus Supplement for the related series of Preferred
Securities, the Debentures will not be subject to any sinking fund provisions.
The entire principal amount of the Debentures relating to the Preferred
Securities of any series will become due and payable, together with any accrued
and unpaid interest thereon, including Additional Interest (as herein defined),
if any, on the earlier of (i) the date that is the 30th anniversary of the
issuance of such Preferred Securities (subject to AL&C's right to exchange such
Debentures for new Debentures or reborrow the proceeds from the repayment of
such Debentures upon the terms and subject to the conditions set forth under
"Description of the Preferred Securities -- Redemption or Exchange") and (ii)
the date upon which the Company is dissolved; provided that, in the event that
such Preferred Securities are exchanged for such Debentures in the manner
described under "Description of Preferred Securities -- Redemption or Exchange"
such Debentures will mature on the date set forth in clause (i), whether or not
the Company shall have dissolved in connection with such exchange.
In the event of any exchange of Preferred Securities of any series for
Debentures relating to such series, (i) the Debentures of such series will no
longer mature upon the dissolution of the
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Company, (ii) the Debentures of such series will not be subject to an election
by AL&C to exchange the Debentures of such series for new Debentures or to
redeem or repay the loans evidenced by the Debentures of such series and
reborrow the proceeds from such redemption or repayment, (iii) AL&C will use its
best efforts to have the Debentures of such series listed on the same exchange
as that on which the Preferred Securities of such series are listed and (iv)
AL&C's obligation to pay Additional Interest (other than Additional Interest, if
any, accrued and unpaid to such date of exchange) shall cease.
The Subordinated Indenture does not contain any provisions that limit
AL&C's ability to incur indebtedness or that afford holders of Debentures
protection in the event of a highly leveraged or similar transaction involving
AL&C.
MANDATORY PREPAYMENT
If the Company redeems Preferred Securities of any series for cash in
accordance with the terms thereof, the Debentures relating to such series will
become due and payable in a principal amount equal to the aggregate stated
liquidation preference of the Preferred Securities of such series so redeemed
(together with any accrued but unpaid interest, including Additional Interest,
if any, on the portion being prepaid). Any payment pursuant to this provision
shall be made prior to 12:00 noon, New York time, on the date of such redemption
or at such other time on such earlier date as the Company and AL&C shall agree.
OPTIONAL REDEMPTION
AL&C shall have the right to redeem the Debentures relating to the
Preferred Securities of a series, without premium or penalty, in whole or in
part (together with any accrued but unpaid interest, including Additional
Interest, if any, on the portion being redeemed) at any time following the date,
if any, set forth in the Prospectus Supplement for such series. In addition, if
AL&C or any of its subsidiaries purchases Preferred Securities of any series by
tender, in the open market or by private agreement, AL&C shall have the right to
redeem Debentures of the related series, without premium or penalty, in an
amount not to exceed the aggregate stated liquidation preference of the
Preferred Securities so purchased, together with any accrued and unpaid interest
thereon, including Additional Interest, if any, on the portion being redeemed.
So long as the Preferred Securities of any series are outstanding AL&C
shall also have the right to redeem the related series of Debentures without
premium or penalty, in whole or in part (together with any accrued but unpaid
interest, including Additional Interest, if any, on the portion being redeemed),
if there shall have occurred after the date of the Prospectus Supplement
relating to such series of Preferred Securities a change in any applicable U.S.
law or regulation or in the interpretation thereof (including but not limited to
the enactment or imminent enactment of any legislation, the publication of any
judicial decisions, regulatory rulings, regulatory procedures, or notices or
announcements (including notices or announcements of intent to adopt such
procedures or regulations), or a change in the official position or in the
interpretation of any law or regulation by any legislative body, court,
governmental authority or regulatory body, irrespective of the manner in which
such change is made known), and AL&C shall have been advised by legal counsel
(which counsel is not an employee of AL&C or the Company) that, as a result of
such change, there exists more than an insubstantial risk that (i) AL&C will be
precluded from deducting the interest paid on such Debentures for federal income
tax purposes or (ii) the Company will be subject to federal income tax with
respect to the interest received on such Debentures.
In addition, if at any time after the issuance of the Preferred Securities
of any series, AL&C is or, in the opinion of counsel (which counsel is not an
employee of AL&C or the Company) would be required to pay Additional Interest
with respect to the Debentures of the related series, AL&C shall have the right
to redeem without premium or penalty, in whole or in part (together with accrued
but unpaid interest, including Additional Interest, if any, on the portion being
redeemed) the Debentures
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of such series; provided that in the event that AL&C is required to pay
Additional Interest as a consequence of the Company's being required to pay
Additional Amounts, then AL&C may only redeem Debentures of such series in a
principal amount not to exceed the aggregate stated liquidation preference of
the Preferred Securities with respect to which such Additional Amounts are
required to be paid.
The Debentures relating to Preferred Securities of any series may also be
redeemed at the option of AL&C on such terms and conditions as may be set forth
in the Prospectus Supplement relating to such series.
If AL&C gives a notice of redemption in respect of the Debentures of a
particular series, then, by 12:00 noon, New York time, on the applicable
redemption date, AL&C will deposit with the Trustee or with a paying agent funds
sufficient to pay the applicable redemption price, together with any accrued and
unpaid interest. If notice of redemption shall have been given and funds
deposited as required, then upon the applicable redemption date the Debentures
so called for redemption shall cease to bear interest and such securities shall
no longer be considered outstanding. In the event that any date on which any
payment in respect of the redemption of Debentures of any series is payable is
not a Business Day, then payment of the redemption price and any accrued and
unpaid interest payable on such date will be made on the next succeeding day
which is a Business Day (and without any interest or other payment in respect of
any such delay), except that, if such Business Day falls in the next calendar
year, such payment will be made on the immediately preceding Business Day. In
the event that payment of the redemption price in respect of any Debentures
called for redemption is not paid upon the surrender thereof for redemption,
interest on such securities will continue to accrue, at the then applicable
rate, from the redemption date originally established by AL&C for such
securities to the date such redemption price is actually paid. Notwithstanding
the foregoing, with respect to any Debentures called for redemption,
installments of interest due and payable on or prior to the redemption date for
such Debentures shall be payable to the holders of such Debentures on the
relevant record dates.
INTEREST
The interest rate on the Debentures relating to Preferred Securities of a
series (or the method of determination thereof) will be set forth in the
Prospectus Supplement for such series and interest will accrue thereon from the
date they are issued until maturity. Except as described below, such interest
shall be payable monthly in arrears on the last day of each calendar month,
commencing on the date specified in the Prospectus Supplement relating to such
series to the persons in whose names such Debentures are registered on the
relevant record date which, subject to certain exceptions and unless otherwise
specified in such Prospectus Supplement, will be the close of business on the
Business Day next preceding the relevant interest payment date. In the event
that the Debentures of any series are exchanged for the related series of
Preferred Securities and the Debentures of such series are not in
book-entry-only form at any time after such exchange, unless otherwise specified
in the Prospectus Supplement for such series of Preferred Securities, the record
dates for such series of Debentures will be, subject to certain exceptions, the
fifteenth day of the month in which the relevant interest payment date occurs.
The amount of interest payable for any full monthly dividend period will be
computed on the basis of twelve 30-day months and a 360-day year and, for any
period shorter than a full monthly dividend period, will be computed on the
basis of the actual number of days elapsed in such period. In the event that any
date on which interest is payable on the Debentures relating to the Preferred
Securities of any series is not a Business Day, then payment of the interest
payable on such date will be made on the next succeeding day which is a Business
Day (and without any interest or other payment in respect of any such delay)
except that, if such Business Day is in the next succeeding calendar year, such
payment shall be made on the immediately preceding Business Day, in each case
with the same force and effect as if made on such date.
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AL&C shall have the right at any time or times during the term of such
Debentures, so long as AL&C is not in default in the payment of interest under
the Subordinated Indenture, to extend the interest payment period for such
Debentures up to 60 months, at the end of which period AL&C will pay all
interest then accrued and unpaid on such Debentures (together with interest
thereon at the rate specified for such Debentures to the extent permitted by
applicable law); provided that any such extended interest period may only be
selected with respect to such Debentures if an extended interest period of
identical length is simultaneously selected for the Debentures of all series
outstanding. Prior to the termination of any such extended interest payment
period AL&C may further extend the interest payment period for such Debentures;
provided that such extended interest payment period for such Debentures,
together with all such further extensions thereof, may not exceed 60 months.
Following the termination of any extended interest payment period, if AL&C has
paid all accrued and unpaid interest required by such Debentures for such
period, then AL&C shall have the right to again extend the interest payment
period up to 60 months as herein described. While the Company holds the
Debentures of any series, AL&C shall give the Company notice of its selection of
any extended interest payment period for such Debentures one Business Day prior
to the earlier of (i) the date the related dividend on the related series of
Preferred Securities is payable and (ii) the date on which the Company is
required to give notice of the record or payment date of such dividend to the
New York Stock Exchange or other applicable self-regulatory organization or to
holders of such series of Preferred Securities, but in any event not less than
two Business Days prior to such record date. AL&C will cause the Company to give
such notice of AL&C's selection of any extended interest payment period to the
holders of the related series of Preferred Securities. After the Debentures of a
series have been exchanged for the related series of Preferred Securities, AL&C
shall give the holders of such Debentures notice of its selection of any
extended interest payment period for such Debentures not less than two Business
Days prior to the record date for the first interest payment for which such
extension will be effective.
During any extended interest period, AL&C shall not pay or declare any
dividends on, or redeem, purchase, acquire or make a liquidation payment with
respect to, any of its capital stock (other than (i) acquisitions of shares of
AL&C's common stock in connection with the satisfaction by AL&C of its
obligations under any employee benefit plans and (ii) redemptions of any Rights
issued by AL&C under the Rights Plan or the declaration of a dividend of similar
share purchase rights in the future).
ADDITIONAL INTEREST
In addition, so long as the Debentures of any series have not been
exchanged for the related series of Preferred Securities, if at any time
following the date of issue of the related series of Preferred Securities, (i)
the Company shall be required to pay any Additional Amounts or (ii) the Company
shall be required to pay, with respect to its income derived from the interest
payments on such Debentures, any amounts for or on account of any taxes, duties,
assessments or governmental charges of whatever nature imposed by the United
States, or any other taxing authority, then, in any such case, AL&C will pay as
interest such additional amounts ("Additional Interest") as may be necessary in
order that the net amounts received and retained by the Company after paying
such Additional Amounts or after the payment of such taxes, duties, assessments
or governmental charges shall result in the Company's having such funds as it
would have had in the absence of the payment of such taxes, duties, assessments
or governmental charges.
METHOD AND PLACE OF PAYMENT; REGISTRATION AND TRANSFER
While the Company holds the Debentures of any series, principal of and
interest (including Additional Interest, if any) on such Debentures shall be
payable in lawful money of the United States, at such place and to such account
as may be designated by the Company. After the Debentures of any series have
been exchanged for the related series of Preferred Securities, principal of and
interest on such Debentures shall be payable in lawful money of the United
States at
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the office or agency of AL&C maintained for such purposes in the city of
Hartford; provided, however, that at the option of Aetna, payment of interest
may be made by check mailed to the address of the person entitled thereto as
such address shall appear in the Debenture register.
In the event that the Debentures of any series are not in book-entry-only
form following the exchange of such Debentures for the related series of
Preferred Securities, registrations of transfers or exchanges thereof will be
effected without charge, but upon payment in respect of any tax or other
governmental charges which may be imposed in connection therewith. In addition,
AL&C will not be required to register the transfer or exchange of such
Debentures during a period beginning 15 days before and ending on the day of the
mailing of a notice of redemption of any of such Debentures or to register the
transfer or exchange of any of such Debentures so selected for redemption,
except the unredeemed portion thereof.
SET-OFF
Notwithstanding anything to the contrary in the Subordinated Indenture or
Debentures, AL&C shall have the right to set-off any payment it is otherwise
required to make thereunder with and to the extent AL&C has theretofore made, or
is concurrently on the date of such payment making, a payment under the
Guarantee.
SUBORDINATION
The Subordinated Indenture will provide that AL&C and the holders of the
Debentures covenant and agree (and each holder of Preferred Securities by
acceptance thereof agrees) that each of the Debentures is subordinate and junior
in right of payment to all Senior Debt as provided in the Subordinated
Indenture. The term "Senior Debt" means the principal of (and premium, if any)
and interest, if any (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to AL&C to the extent that
such claim for post-petition interest is allowed in such proceeding) on Debt,
whether incurred on or prior to the date of the Subordinated Indenture or
thereafter incurred, unless, in the instrument creating or evidencing the same
or pursuant to which the same is outstanding, it is provided that such
obligations are not superior in right of payment to the Debentures or to other
Debt which is pari passu with, or subordinated to the Debentures; provided,
however, that Senior Debt shall not be deemed to include the Debentures. The
term "Debt" means (without duplication and without regard to any portion of
principal amount that has not accrued and to any interest component thereof
(whether accrued or imputed) that is not due and payable) with respect to AL&C,
whether recourse is to all or a portion of the assets of AL&C and whether or not
contingent, (i) every obligation of AL&C for money borrowed, (ii) every
obligation of AL&C evidenced by bonds, debentures, notes or other similar
instruments, including obligations incurred in connection with the acquisition
of property, assets or businesses, (iii) every reimbursement obligation of AL&C
with respect to letters of credit, bankers' acceptances or similar facilities
issued for the account of AL&C, (iv) every obligation of AL&C issued or assumed
as the deferred purchase price of property or services (but excluding trade
accounts payable or accrued liabilities arising in the ordinary course of
business), (v) every capital lease obligation of AL&C, and (vi) every obligation
of the type referred to in clauses (i) through (v) of another person and all
dividends of another person the payment of which, in either case, AL&C has
guaranteed or is responsible or liable, directly or indirectly, as obligor or
otherwise.
In the event of (i) any insolvency or bankruptcy case or proceeding, or any
receivership, liquidation, arrangement, reorganization, debt restructuring or
other similar case or proceeding in connection with any insolvency or bankruptcy
proceeding, relative to AL&C or to its assets, or (ii) any liquidation,
dissolution or other winding up of AL&C, whether voluntary or involuntary and
whether or not involving insolvency or bankruptcy, or (iii) any assignment for
the benefit of creditors or any other marshalling of assets and liabilities of
AL&C, then and in any such event specified in (i), (ii) or (iii) above (each
such event, if any, herein sometimes referred to as a "Proceeding") the holders
of Senior Debt shall be entitled to receive payment in full of all amounts
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due or to become due on or in respect of all Senior Debt, or provision shall be
made for such payment in cash or cash equivalents or otherwise in a manner
satisfactory to the holders of Senior Debt, before the holders of the Debentures
are entitled to receive any payment or distribution of any kind or character,
whether in cash, property or securities (including any payment or distribution
which may be payable or deliverable by reason of the payment of any other Debt
of AL&C subordinated to the payment of the Debentures, such payment or
distribution being hereinafter referred to as "Junior Subordinated Payment"), on
account of principal of or interest on the Debentures and the holders of Senior
Debt shall be entitled to receive, for application to the payment thereof, any
payment or distribution of any kind or character, whether in cash, property or
securities, including any Junior Subordinated Payment, which may be payable or
deliverable in respect of the Debentures in any such Proceeding.
In the event that, notwithstanding the foregoing, the holders of the
Debentures shall have received any payment or distribution of assets of AL&C of
any kind or character, whether in cash, property or securities, including any
Junior Subordinated Payment, before all Senior Debt is paid in full or payment
thereof is provided for in cash or cash equivalents or otherwise in a manner
satisfactory to the holders of Senior Debt, and if such fact shall, at or prior
to the time of such payment or distribution, have been made known to such
holders, then and in such event such payment or distribution shall be paid over
or delivered forthwith to the trustee in bankruptcy, receiver, liquidating
trustee, custodian, assignee, agent or other person making payment or
distribution of assets of AL&C for application to the payment of all Senior Debt
remaining unpaid, to the extent necessary to pay all Senior Debt in full, after
giving effect to any concurrent payment or distribution to or for the holders of
Senior Debt.
In the event that any Debentures are declared due and payable before their
stated maturity (other than in connection with any mandatory prepayment of any
Debentures in the manner described under "Mandatory Prepayment" above), then and
in such event the holders of the Senior Debt outstanding at the time such
Debentures so become due and payable shall be entitled to receive payment in
full of all amounts due on or in respect of such Senior Debt, or provision shall
be made for such payment in cash or cash equivalents or otherwise in a manner
satisfactory to the holders of Senior Debt, before the holders of the Debentures
are entitled to receive any payment (including any payment which may be payable
by reason of any Junior Subordinated Payments) by AL&C on account of the
principal of or interest on the Debentures. In the event that, notwithstanding
the foregoing, AL&C shall make any payment to the holders of the Debentures
prohibited by the foregoing, and if such fact shall, at or prior to the time of
such payment, have been made known to such holders, then and in such event such
payment shall be paid over and delivered forthwith to AL&C.
In the event and during the continuation of any default in the payment of
principal of (or premium, if any) or interest on any Senior Debt, or in the
event that any event of default with respect to any Senior Debt shall have
occurred and be continuing and shall have resulted in such Senior Debt becoming
or being declared due and payable prior to the date on which it would otherwise
have become due and payable, unless and until such default in payment or event
of default shall have been cured or waived or shall have ceased to exist and
such acceleration shall have been rescinded or annulled, or in the event any
judicial proceeding shall be pending with respect to any such default in payment
or such event of default, then no payment (including any payment which may be
payable by reason of any Junior Subordinated Payments) shall be made by AL&C on
account of principal of or interest on the Debentures. In the event that,
notwithstanding the foregoing, AL&C shall make any payment to the holders of the
Debentures prohibited by the foregoing, and if such fact shall, at or prior to
the time of such payment, have been made known to such holders, then and in such
event such payment shall be paid over and delivered forthwith to AL&C.
Subject to the payment in full of all Senior Debt, or the provision of such
payment in cash or cash equivalents or otherwise in a manner satisfactory to the
holders of Senior Debt, the holders of
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<PAGE> 41
the Debentures shall be subrogated to the extent of the payments or
distributions made to the holders of such Senior Debt (equally and ratably with
the holders of all Debt of AL&C which by its express terms is subordinated to
Debt of AL&C to substantially the same extent as the Debentures are subordinated
to the Senior Debt and is entitled to like rights of subrogation by reason of
any payments or distributions made to holders of such Senior Debt) to the rights
of the holders of such Senior Debt to receive payments and distributions of
cash, property and securities applicable to the Senior Debt until the principal
of and interest on the Debentures shall be paid in full.
By reason of such subordination, in the event of liquidation or insolvency,
creditors of AL&C who are not holders of Senior Debt may recover less, ratably,
than holders of Senior Debt and may recover more ratably, than the holders of
the Debentures with respect to the Debentures. In addition, since AL&C is a
holding company, the rights of AL&C and hence the rights of creditors of AL&C
(including the rights of holders of the Debentures) to participate in any
distribution of the assets of any subsidiary upon its liquidation or
reorganization or otherwise is necessarily subject to the prior claims of
creditors of the subsidiary, except to the extent that claims of AL&C itself as
a creditor of the subsidiary may be recognized.
COVENANTS
In the Subordinated Indenture, AL&C will covenant for the benefit of the
holders of each series of Debentures that, so long as the related series of
Preferred Securities remains outstanding, AL&C will not declare or pay any
dividend on, or redeem, purchase, acquire or make a liquidation payment with
respect to, any of AL&C's capital stock or make any guarantee payments with
respect to the foregoing (other than (i) payments under the Guarantee, (ii)
acquisitions of shares of AL&C's common stock in connection with the
satisfaction by AL&C of its obligations under any employee benefit plans and
(iii) redemptions of any Rights issued by AL&C pursuant to the Rights Plan or
the declaration of a dividend of similar share purchase rights in the future),
if at such time AL&C is in default with respect to its payment obligations under
the Guarantee or there shall have occurred an Event of Default under the
Subordinated Indenture with respect to such series of Debentures.
In the Subordinated Indenture, AL&C will also covenant for the benefit of
the holders of the Debentures of any series, that, so long as the related series
of Preferred Securities remains outstanding, it will (i) not cause or permit any
Common Securities of the Company to be transferred, (ii) maintain direct or
indirect ownership of all outstanding securities of the Company other than (x)
the Preferred Securities of any series and (y) any other securities issued by
the Company (other than the Common Securities) so long as the issuance thereof
to persons other than AL&C or any of its subsidiaries would not cause the
Company to become an "investment company" required to be registered under the
Investment Company Act of 1940, as amended, (iii) cause at least 21% of the
total value of the Company and at least 21% of all interests in the capital,
income, gain, loss, deduction and credit of the Company to be represented by
Common Securities, (iv) not voluntarily dissolve, wind up or liquidate the
Company (other than in connection with the exchange of all series of Preferred
Securities outstanding for the related series of Debentures in the manner
described under "Description of the Preferred Securities -- Redemption or
Exchange") or either of the Managing Members, (v) cause AL&C and Aetna Capital
Holdings, Inc. to remain the Managing Members of the Company and timely perform
all of their respective duties as Managing Members of the Company (including the
duty to declare and pay dividends on the Preferred Securities as described under
"Description of the Preferred Securities -- Dividends"), and (vi) use reasonable
efforts to cause the Company to remain a limited liability company and otherwise
continue to be treated as a partnership for U.S. federal income tax purposes;
provided that AL&C may permit the Company to consolidate or merge with or into
or convey, transfer or lease its assets substantially as an entirety to another
entity upon the terms and subject to the conditions set forth under "Description
of the Preferred Securities -- Merger, Consolidations, etc. of the Company"
above.
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EVENTS OF DEFAULT
If one or more of the following events (each an "Event of Default") shall
occur and be continuing with respect to the Debentures of any series:
(a) failure to pay any principal of any Debentures when due (whether
or not payment is prohibited by the provisions described above under
"Subordination" or otherwise);
(b) failure to pay any interest on any Debentures, including any
Additional Interest, when due and such failure continues for a period of 10
days, if the Debentures of such series have not been exchanged for the
related series of Preferred Securities, and 30 days, if such Debentures
have been so exchanged (whether or not payment is prohibited by the
provisions described above under "Subordination" or otherwise); provided
that a valid extension of the interest payment period by AL&C shall not
constitute a default in the payment of interest for this purpose;
(c) failure by AL&C to perform in any material respect any other
covenant in the Subordinated Indenture for the benefit of the holders of
the Debentures of such series continued for a period of 60 days, if the
Debentures of such series have not been exchanged for the related series of
Preferred Securities, and 90 days, if such Debentures have been so
exchanged, after written notice to AL&C from the Trustee or to AL&C and the
Trustee from the holders of at least 25% in aggregate principal amount of
the Debentures of such series or, if such Debentures have not been
exchanged for the related series of Preferred Securities, 25% in aggregate
stated liquidation preference of the related series of Preferred
Securities; or
(d) certain events of bankruptcy, insolvency or liquidation of AL&C;
then the Trustee or the holders of at least 25% in aggregate principal amount of
the Debentures of such series may declare the principal amount of all Debentures
of such series and all accrued interest thereon (including any Additional
Interest and any interest subject to an extension election) to be due and
payable immediately; provided, however, that under certain circumstances the
holders of a majority in aggregate principal amount of such Debentures (with the
consent of the holders of a majority in aggregate stated liquidation preference
of the related series of Preferred Securities if such series of Preferred
Securities is then outstanding) may rescind or annul such declaration and its
consequences.
Under the terms of the Preferred Securities, the holders of the series of
Preferred Securities related to any series of Debentures with respect to which
an Event of Default has occurred will have the rights referred to under
"Description of the Preferred Securities -- Voting Rights", including the right
to appoint a trustee, which trustee shall be authorized to exercise the
Company's right to accelerate the principal amount of such Debentures and to
enforce the Company's other creditor rights under such Debentures; provided that
any trustee so appointed shall vacate office immediately if any such Event of
Default shall have been cured by AL&C. In addition, in the event AL&C fails to
pay any principal of or interest on any series of Debentures held by the Company
when due, holders of the related series of Preferred Securities shall, under
certain circumstances, be entitled to enforce the Company's right to receive
such payments under such Debentures directly against AL&C.
Following the exchange of any series of Preferred Securities for the
related series of Debentures, the holders of a majority in principal amount of
such series of Debentures will have the right, subject to certain limitations,
to direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee or exercising any trust or power conferred on the
Trustee with respect to such series of Debentures and to waive certain defaults.
Following the exchange of any series of Preferred Securities for the
related series of Debentures, no holder of a Debenture of such series will have
any right to institute any proceeding with respect to the Subordinated Indenture
or for any remedy thereunder, unless such holder shall have
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previously given to the Trustee written notice of a continuing Event of Default
with respect to the Debentures of such series and unless also the holders of at
least 25% in aggregate principal amount of the Debentures of such series shall
have made written request, and offered indemnity to the Trustee in form and
substance reasonably satisfactory to the Trustee to institute such proceeding as
trustee, and the Trustee shall not have received from the holders of a majority
in aggregate principal amount of the Debentures of such series a direction
inconsistent with such request and shall have failed to institute such
proceeding within 60 days. However, such limitations do not apply to a suit
instituted by a holder of a Debenture for enforcement of payment of the
principal of or interest on such Debenture on or after the respective due dates
expressed in such Debenture.
The Subordinated Indenture provides that, in case an Event of Default with
respect to any series of Debentures shall occur and be continuing after the
exchange of such series of Debentures for the related series of Preferred
Securities, the Trustee shall exercise such of its rights and powers under the
Subordinated Indenture, and use the same degree of care and skill in its
exercise, as a prudent man would exercise or use under the circumstances in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the
Subordinated Indenture at the request of any of the holders of Debentures unless
they shall have offered to the Trustee security or indemnity in form and
substance reasonably satisfactory to the Trustee against the costs, expenses and
liabilities which might be incurred by it in compliance with such request.
MODIFICATION AND WAIVER
Modifications and amendments of the Subordinated Indenture may be made by
AL&C and the Trustee, with the consent of the holders of not less than a
majority in aggregate principal amount of each series of the Debentures which is
affected by the modification or amendment; provided, however, that no such
modification or amendment may, without the consent of each such holder of
Debentures affected thereby: (i) change the maturity of the principal of or
interest on any such Debenture; (ii) reduce the principal amount of or the
interest rate on any such Debenture; (iii) change the place or currency of
payment of principal of or the interest on any such Debenture; (iv) impair the
right to institute suit for the enforcement of any such payment on or with
respect to such Debenture; (v) reduce the percentage of holders of Debentures
necessary to modify or amend the Subordinated Indenture; (vi) modify the
subordination provisions in a manner adverse to the holders of such Debentures;
or (vii) modify the foregoing requirements or reduce the percentage of
outstanding Debentures necessary to waive compliance with certain provisions of
the Subordinated Indenture or for waiver of certain defaults.
So long as the Company holds the Debentures of any series, it may not waive
compliance or waive any default in compliance by AL&C with certain restrictive
provisions of the Subordinated Indenture or modify or amend the Subordinated
Indenture without the approval of the same percentage of the holders of
Preferred Securities of the related series as would be required if the holders
of such Preferred Securities then held such Debentures.
The holders of at least a majority of the aggregate principal amount of the
Debentures of any series (with the consent of the holders of a majority in
stated liquidation preference of the related series of Preferred Securities in
the event such series of Preferred Securities is then outstanding) may, on
behalf of all holders of that series, waive compliance by AL&C with certain
restrictive provisions of the Subordinated Indenture and waive any past default
under the Subordinated Indenture, except a default in the payment of principal
or interest or in the performance of certain covenants.
DEFEASANCE AND COVENANT DEFEASANCE
The Subordinated Indenture provides that AL&C may elect either (A) to
defease and be discharged from any and all obligations with respect to the
Debentures of any series (except for the
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obligations to exchange or register the transfer of the Debentures of any
series, to replace temporary or mutilated, destroyed, lost or stolen Debentures
of any series, to maintain an office or agency in respect of the Debentures, and
to hold monies for payments in trust) ("defeasance"), or (B) to be released from
its obligations with respect to the Debentures of any series concerning the
restrictions and any covenants applicable to the Debentures of any series
(including the provisions described under "Subordination" herein) which are
subject to covenant defeasance ("covenant defeasance"), and the occurrence of an
event described in clause (c) under "Events of Default" (with respect to
covenants subject to covenant defeasance) shall no longer be an Event of
Default, upon irrevocable deposit with the Trustee (or other qualifying
trustee), in trust for such purpose, of money, and/or U.S. Government
Obligations (as defined in the Subordinated Indenture) which through the payment
of principal and interest in accordance with their terms will provide money in
an amount sufficient to pay the principal of and interest, if any, on the
Debentures of such series, and any mandatory sinking fund or analogous payments
thereon, on the scheduled due dates therefor. Such a trust may only be
established if, among other things, (i) AL&C has delivered to the Trustee an
opinion of counsel (as specified in the Subordinated Indenture) to the effect
that the holders of such Debentures will not recognize income, gain or loss for
federal income tax purposes as a result of such defeasance or covenant
defeasance and will be subject to Federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such defeasance
or covenant defeasance had not occurred, (ii) no Event of Default or event which
with the giving of notice or lapse of time, or both, would become an Event of
Default under the Subordinated Indenture shall have occurred and be continuing
on the date of such deposit, (iii) no default in the payment of principal of (or
premium, if any) or interest, if any, on any Senior Debt beyond any applicable
grace period shall have occurred and be continuing, and (iv) no other default
with respect to any Senior Debt shall have occurred and be continuing and shall
have resulted in the acceleration of such Senior Debt.
AL&C may exercise its defeasance option with respect to Debentures of any
series notwithstanding its prior exercise of its covenant defeasance option. If
AL&C exercises its defeasance option, payment of such Debentures may not be
accelerated because of an Event of Default. If AL&C exercises its covenant
defeasance option, payment of such Debentures may not be accelerated by
reference to the covenants noted under clause (B) above. In the event AL&C omits
to comply with its remaining obligations with respect to such Debentures under
the Subordinated Indenture after exercising its covenant defeasance option and
such Debentures are declared due and payable because of the occurrence of any
Event of Default, the amount of money and U.S. Government Obligations on deposit
with the Trustee may be insufficient to pay amounts due on the Debentures of
such series at the time of the acceleration resulting from such Event of
Default. However, AL&C will remain liable in respect of such payments.
GLOBAL SECURITIES
If immediately prior to any exchange of Debentures of any series for the
related Preferred Securities, such Preferred Securities are represented by one
or more global securities held by DTC, such Debentures, upon such exchange, will
be represented by one or more global securities registered in the name of DTC or
its nominee that will be deposited with DTC. Unless and until it is exchanged in
whole or in part for such Debentures in definitive registered form, a global
security may not be registered for transfer or exchange except as a whole by DTC
to a nominee for DTC.
For a description of DTC and DTC's book-entry system, see "Description of
the Preferred Securities -- Book-Entry-Only Issuance; The Depository Trust
Company". As of the date of this Prospectus, the description therein of DTC's
book-entry system and DTC's practices as they relate to purchases, transfers,
notices and payments with respect to the Preferred Securities apply in all
material respects to any debt obligations represented by one or more global
securities held by DTC.
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GOVERNING LAW
The Debentures and the Subordinated Indenture will be governed by and
construed in accordance with the laws of the State of New York.
THE TRUSTEE
The Subordinated Indenture contains limitations on the right of the
Trustee, as a creditor of AL&C, to obtain payment of claims in certain cases, or
to realize on certain property received in respect of any such claim as security
or otherwise. In addition, the Trustee may be deemed to have a conflicting
interest and may be required to resign as Trustee if at the time of a default
under the Subordinated Indenture it is a creditor of AL&C.
The Trustee or its affiliates may act as depositary for funds of, make
loans to and perform other services for, or may be a customer of, Aetna in the
ordinary course of business.
MISCELLANEOUS
AL&C shall have the right at all times to assign any of its rights or
obligations under the Subordinated Indenture to a direct or indirect wholly
owned subsidiary of AL&C other than any subsidiary that is an insurance company;
provided that, in the event of any such assignment, AL&C shall remain jointly
and severally liable for all such obligations. AL&C may not otherwise assign any
of its obligations under the Subordinated Indenture. Except as described above
under "Description of the Preferred Securities -- Redemption or Exchange", the
Company may not assign any of its rights under the Subordinated Indenture
without the prior written consent of AL&C. Subject to the foregoing, the
Subordinated Indenture shall be binding upon and inure to the benefit of AL&C
and the holders of the Debentures from time to time and their respective
successors and assigns.
The Subordinated Indenture will provide that AL&C may not consolidate with
or merge into any other person or sell its property and assets as, or
substantially as, an entirety to any person and may not permit any person to
merge into or consolidate with AL&C unless (i) either AL&C will be the resulting
or surviving entity or any successor or purchaser is a corporation, partnership
or trust organized under the laws of the United States of America, any State or
the District of Columbia, and any such successor or purchaser expressly assumes
AL&C's obligations under the Subordinated Indenture and (ii) immediately after
giving effect to the transaction no Event of Default shall have occurred and be
continuing.
AL&C will be required to furnish to the Trustee annually a statement by
certain officers of AL&C as to the compliance with all conditions and covenants
of the Subordinated Indenture. The Subordinated Indenture provides that the
Trustee may withhold notice to the holders of the Debentures of any default
(except in payment of principal or interest) if it considers it in the interest
of the holders of the Debentures to do so.
TAXATION
In the opinion of Davis Polk & Wardwell, counsel to AL&C and the Company,
these are the material United States federal income tax consequences of the
purchase, ownership and disposition of Preferred Securities and Debentures.
Unless otherwise stated, this summary deals only with Preferred Securities and
Debentures held as capital assets by initial purchasers who acquire the
Preferred Securities at the original offering price ("Initial Purchasers"), and
not with special classes of holders, such as dealers in securities or
currencies, life insurance companies, persons holding Preferred Securities and
Debentures as a hedge or hedged against currency risks or as part of a straddle,
or persons whose functional currency is not the U.S. dollar. This summary is
based on tax laws in effect in the United States, regulations thereunder and
administrative and judicial interpretations thereof, as of the date hereof, all
of which are subject to change (possibly on a retroactive basis). This summary
deals only with holders who purchase Preferred Securities of any series, and
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is subject to additional discussion of material United States federal income tax
consequences that may appear in a Prospectus Supplement delivered in connection
with a particular series of Preferred Securities.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH BELOW IS FOR THE GENERAL
INFORMATION OF PROSPECTIVE PURCHASERS. HOWEVER, SUCH PROSPECTIVE PURCHASERS OF
PREFERRED SECURITIES ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE PURCHASE, ACQUISITION,
OWNERSHIP AND DISPOSITION OF PREFERRED SECURITIES AND DEBENTURES IN LIGHT OF
THEIR PARTICULAR CIRCUMSTANCES, AS WELL AS THE EFFECT OF ANY STATE, LOCAL OR
OTHER TAX LAWS.
INCOME FROM THE PREFERRED SECURITIES AND DEBENTURES
The Company will be treated as a partnership for federal income tax
purposes. Each holder of Preferred Securities (a "Securityholder") will be
required to include in gross income the Securityholder's distributive share of
the Company's net income which will generally be equal to the amount of interest
received or accrued on the Debentures. See "Potential Extension of Payment
Period of the Debentures" below. Any amount so included in a Securityholder's
gross income will increase his tax basis in the Preferred Securities, and the
amount of cash dividends to the Securityholder will reduce such Securityholder's
tax basis in the Preferred Securities. No portion of the amounts received on the
Preferred Securities will be eligible for the dividends received deduction.
The Company does not presently intend to make an election under Section 754
of the Internal Revenue Code of 1986, as amended (the "Code"). As a result, a
subsequent purchaser of Preferred Securities will not be permitted to adjust its
taxable income from the Company to reflect any difference between its purchase
price for the Preferred Securities and the Company's underlying tax basis for
its assets.
The interest payments on the Debentures will be treated as "original issue
discount" under Treasury Regulations. Each holder of Debentures (a "Debenture
Holder") will be required to include the interest on the Debentures in income as
it accrues, in accordance with a constant yield method based on a compounding of
interest, before the receipt of the interest. The Debenture Holder's tax basis
in the Debentures will be increased by accrued interest previously included as
income by the Debenture Holder and reduced by the payment of such interest.
MARKET DISCOUNT AND BOND PREMIUM OF THE DEBENTURES
Debenture Holders other than Initial Purchasers may be considered to have
acquired the Debentures with market discount, acquisition premium or amortizable
bond premium. Such holders are advised to consult their own tax advisors as to
the income tax consequences of the acquisition, ownership and disposition of the
Debentures.
DISPOSITION OF THE PREFERRED SECURITIES
Gain or loss will be recognized on a sale, exchange or other disposition of
the Preferred Securities (including a distribution of cash in redemption of all
of a Securityholder's Preferred Securities but excluding the exchange of
Preferred Securities for Debentures) equal to the difference between the amount
realized and the Securityholder's tax basis in the Preferred Securities disposed
of. In the case of a cash distribution in partial redemption of a
Securityholder's Preferred Securities, no loss will be recognized, the
Securityholder's tax basis in the Preferred Securities will be reduced by the
amount of the distribution, and the Securityholder will recognize gain to the
extent, if any, that the amount of the distribution exceeds the Securityholder's
tax basis in the Preferred Securities. Gain or loss recognized by a
Securityholder on the sale or exchange of Preferred Securities held for more
than one year will generally be taxable as long-term capital gain
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or loss. In certain circumstances, a portion of the proceeds received upon a
disposition of a Preferred Security by a purchaser other than an Initial
Purchaser may be treated as ordinary income.
DISPOSITION OR RETIREMENT OF THE DEBENTURES
Upon the sale, exchange or retirement of the Debentures, a Debenture Holder
will recognize taxable gain or loss equal to the difference between the amount
realized on the sale, exchange or retirement and such holder's adjusted tax
basis in the Debentures. Subject to the discussion above under "Market Discount
and Bond Premium of the Debentures", such gain or loss will be capital gain or
loss.
EXCHANGE OF THE PREFERRED SECURITIES FOR DEBENTURES OF AL&C
A distribution by the Company of the Debentures of AL&C in exchange for the
Preferred Securities as described under the caption "Description of the
Preferred Securities -- Redemption or Exchange", will be non-taxable and, if the
only interest of the Securityholder in the Company is the Preferred Securities
transferred in such exchange, will result in the Securityholder receiving an
aggregate tax basis in the Debentures equal to such Securityholder's aggregate
tax basis in its Preferred Securities. A Debenture Holder's holding period in
the Debentures so received in exchange for Preferred Securities will include the
period for which such Preferred Securities were held by the Debenture Holder.
POTENTIAL EXTENSION OF PAYMENT PERIOD OF THE DEBENTURES
Under the terms of the Debentures, AL&C may be permitted to extend the
interest payment period up to 60 months. In the event that AL&C exercises this
right, AL&C may not declare dividends on any share of its preferred or common
stock, and therefore, the likelihood of extension of the payment period is, in
the view of the Company and AL&C, remote. In the event that the payment period
is extended before the Preferred Securities are exchanged for the Debentures,
the Company will continue to accrue income, which will be allocated, but not
distributed, to beneficial owners on the last day of each calendar month. As a
result, beneficial owners during an extended interest payment period will
include interest in gross income in advance of the receipt of cash and any such
owners who dispose of Preferred Securities prior to the record date for the
payment of dividends following such extended interest payment period will
include interest in gross income but will not receive from the Company any cash
related thereto.
The tax basis of a Preferred Security will be increased by the amount of
any interest that is included in income without a receipt of cash, and will be
decreased again when such holders of record subsequently receive cash from the
Company.
UNITED STATES ALIEN HOLDERS
For purposes of this discussion, a "United States Alien Holder" is any
corporation, individual, partnership, estate or trust that is, as to the United
States, a foreign corporation, a non-resident alien individual, a foreign
partnership or a non-resident fiduciary of a foreign estate or trust.
Under present United States federal income tax law:
(i) payments by the Company or any of its paying agents to any holder
of a Preferred Security who or which is a United States Alien Holder and
payments of principal or interest by AL&C on the Debentures to any holder
of a Debenture who or which is a United States Alien Holder will not be
subject to United States federal withholding tax; provided that (a) the
beneficial owner of the Preferred Security or Debenture, as the case may
be, does not actually or constructively own 10% or more of the total
combined voting power of all classes of stock of AL&C entitled to vote, (b)
the beneficial owner of the Preferred Security or Debenture, as the case
may be, is not a controlled foreign corporation that is related to AL&C
through stock
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ownership, and (c) either (A) the beneficial owner of the Preferred
Security or Debenture certifies to the Company or its agent, under
penalties of perjury, that it is not a United States holder and provides
its name and address or (B) a securities clearing organization, bank or
other financial institution that holds customers' securities in the
ordinary course of its trade or business (a "Financial Institution") and
holds the Preferred Security or Debenture certifies to the Company or its
agent under penalties of perjury that such statement has been received from
the beneficial owner by it or by a Financial Institution between it and the
beneficial owner and furnishes the Company or its agent with a copy
thereof; and
(ii) a United States Alien Holder of a Preferred Security or
Debenture will not be subject to United States federal withholding tax on
any gain realized upon the sale or other disposition of a Preferred
Security or Debenture.
COMPANY INFORMATION RETURNS
Within 90 days after the close of every taxable year of the Company, the
Managing Members of the Company will furnish or cause to be furnished to each
holder of the Preferred Securities a Schedule K-1 setting forth such
Securityholder's allocable share of income for the Company's taxable year.
Any person who holds Preferred Securities as a nominee for another person
is required to furnish to the Company (a) the name, address and taxpayer
identification number of the beneficial owner and the nominee; (b) notice of
whether each beneficial owner is (i) a person who is not a United States person,
(ii) a foreign government, an international organization or any wholly owned
agency or instrumentality of either of the foregoing, or (iii) a tax-exempt
entity; (c) the amount and description of Preferred Securities held, acquired or
transferred for the beneficial owner; and (d) certain information including the
dates of acquisitions and transfers, methods of acquisition and the costs
thereof, as well as net proceeds from transfers. Brokers and financial
institutions are required to furnish additional information, including whether
they are a United States person and certain information on Preferred Securities
they acquire, hold or transfer for their own account. A penalty of $50 is
imposed for each failure to report the above information to the Company, up to a
maximum of $100,000 per calendar year for all failures.
PLAN OF DISTRIBUTION
The Company may sell Preferred Securities (i) through underwriters, (ii)
through dealers, (iii) through agents or (iv) directly to purchasers. The
Prospectus Supplement relating to the Preferred Securities of a particular
series will set forth the terms of such offering, including the names of any
underwriters, dealers or agents involved in the sale of such Preferred
Securities, the number of Preferred Securities of such series to be purchased by
any underwriters and any applicable commissions or discounts. The estimated
proceeds to the Company from such series of Preferred Securities will also be
set forth in the Prospectus Supplement.
If underwriters are used in the sale, the Preferred Securities being sold
will be acquired by the underwriters for their own account and may be resold
from time to time in one or more transactions, including negotiated
transactions, at a fixed public offering price or at varying prices determined
at the time of sale. Unless otherwise set forth in the Prospectus Supplement
relating to the Preferred Securities of a particular series, the obligations of
the underwriters to purchase such Preferred Securities will be subject to
certain conditions precedent and the underwriters will be obliged to purchase
all of such Preferred Securities if any of such Preferred Securities are
purchased. Any initial public offering price and any discounts or concessions
allowed or reallowed or paid to dealers may be changed from time to time.
If dealers are used in the sale, unless otherwise indicated in the
Prospectus Supplement relating to the Preferred Securities of a particular
series, the Company will sell such Preferred
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Securities to the dealers as principals. The dealers may then resell such
Preferred Securities to the public at varying prices to be determined by such
dealers at the time of resale.
Preferred Securities of a particular series may also be sold through agents
designated by the Company from time to time or directly by the Company. Any
agent involved in the offering and sale of any such Preferred Securities will be
named, and any commissions payable by the Company or AL&C to such agent will be
set forth, in the Prospectus Supplement relating to the Preferred Securities of
such series. Unless otherwise indicated in such Prospectus Supplement, any such
agent will act on a best efforts basis for the period of its appointment.
Underwriters, dealers and agents may be entitled under agreements entered
into with the Company or AL&C to indemnification by the Company or AL&C against
certain civil liabilities, including liabilities under the Securities Act, or to
contribution with respect to payments which the underwriters, dealers or agents
may be required to make in respect thereof. Underwriters, dealers and agents may
be customers of, engage in transactions with, or perform services for, the
Company or Aetna in the ordinary course of business.
The Preferred Securities may or may not be listed on a national securities
exchange or a foreign securities exchange. No assurances can be given that there
will be a market for the Preferred Securities.
VALIDITY OF SECURITIES
The validity of the Preferred Securities will be passed upon on behalf of
the Company by Davis Polk & Wardwell, special counsel to AL&C and the Company.
The validity of the Guarantee and the Debentures will be passed upon on behalf
of AL&C by Zoe Baird, Senior Vice President and General Counsel of AL&C, and
Davis Polk & Wardwell, special counsel to AL&C. The validity of the Guarantee,
the Preferred Securities and the Debentures will be passed upon on behalf of any
agents or underwriters by Sullivan & Cromwell. Davis Polk & Wardwell and
Sullivan & Cromwell will rely upon the opinion of Zoe Baird as to certain
matters governed by Connecticut law. As of September 30, 1994, Zoe Baird
beneficially owned 793, and had options to purchase 19,000 shares of AL&C's
common stock.
EXPERTS
The consolidated financial statements and schedules of Aetna as of December
31, 1993 and 1992, and for each of the years in the three year period ended
December 31, 1993, incorporated by reference in this Prospectus and elsewhere in
the Registration Statement have been audited by KPMG Peat Marwick LLP,
independent certified public accountants, as indicated in their reports with
respect thereto, and are incorporated by reference herein in reliance upon the
authority of said firm as experts in accounting and auditing. The reports of
KPMG Peat Marwick LLP on the December 31, 1993 consolidated financial statements
and schedules refer to a change in 1993 in the Company's method of 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 and a change in 1992 in the Company's methods of accounting for income
taxes and postretirement benefits other than pensions.
With respect to the unaudited interim financial information incorporated or
which may be incorporated by reference in this Prospectus, the independent
certified public accountants have reported and may report, as the case may be,
that they applied limited procedures in accordance with professional standards
for a review of such information. However, any separate report included in
AL&C's Quarterly Reports on Form 10-Q and incorporated by reference herein will
state that they did not audit and they do not express an opinion on that interim
financial information. Accordingly, the degree of reliance on any report on such
information should be restricted in light of the limited
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nature of the review procedures applied. The accountants are not subject to the
liability provisions of Section 11 of the Securities Act for any report on the
unaudited interim financial information because that report is not a "report" or
a "part" of the Registration Statement prepared or certified by the accountants
within the meaning of Sections 7 and 11 of the Securities Act.
ERISA MATTERS
Set forth below is a summary of the material fiduciary considerations
required to be disclosed with respect to pension plans, profit-sharing plans,
Individual Retirement Accounts and other employee benefit plans ("ERISA Plans")
subject to the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and the employee benefit provisions of the Code. This summary is
based on the current provisions of ERISA and regulations and rulings thereunder,
which may be changed by future legislative, administrative or judicial actions.
This discussion should not be construed as legal advice and ERISA Plan
fiduciaries proposing to invest in the Preferred Securities should consult with
and rely upon their own advisors in evaluating these matters.
PROHIBITED TRANSACTIONS
Section 406 of ERISA provides that plan fiduciaries are prohibited from
causing a plan to engage in certain types of transactions with certain persons
or entities that are parties in interest. AL&C and certain affiliates of AL&C
may each be considered a "party in interest" within the meaning of ERISA or a
"disqualified person" within the meaning of the Code with respect to ERISA
Plans. Due to the ownership by AL&C directly or indirectly of all of the Common
Securities, as well as the nature of the Guarantee and the ability of the
Company under certain circumstances to exchange the Preferred Securities for
Debentures, prohibited transactions within the meaning of ERISA or the Code, may
arise, for example, if Preferred Securities are acquired by an ERISA Plan with
respect to which AL&C or any of its affiliates is a service provider, unless
such Preferred Securities are acquired pursuant to an exemption for transactions
effected on behalf of such ERISA Plan by a "qualified professional asset
manager" or pursuant to any other available exemption.
PLAN ASSETS
In addition, if the assets of the Company were deemed to be plan assets of
ERISA Plans that are shareholders, an ERISA Plan's investment in the Preferred
Securities might be deemed to constitute a delegation under ERISA of the duty to
manage plan assets by a fiduciary of such ERISA Plan. Thus, the fiduciary
responsibility provisions of ERISA could extend to the Company's actions and
certain transactions involving the operation of the Company might be deemed to
constitute prohibited transactions under ERISA and the Code. The U.S. Department
of Labor (the "DOL") has issued a final regulation with regard to whether the
underlying assets of an entity in which ERISA Plans acquire equity interests
would be deemed to be plan assets. The regulation provides that the underlying
assets of an entity will not be considered to be plan assets if the equity
interests acquired by ERISA Plans are "publicly-offered securities" -- that is,
they are (1) widely held (i.e., owned by more than 100 investors independent of
AL&C and of each other), (2) freely transferable and (3) sold as part of an
offering pursuant to an effective registration statement under the Securities
Act and then timely registered under Section 12(b) or 12(g) of the Exchange Act.
It is expected that the Preferred Securities will meet the criteria of
"publicly-offered securities" above. The Company expects (although no assurances
can be given) that the Preferred Securities will be held by at least 100
independent investors, there will be no restrictions imposed on the transfer of
the Preferred Securities and the Preferred Securities will be sold as part of an
offering pursuant to an effective registration statement under the Securities
Act and then will be timely registered under the Exchange Act.
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===============================================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO
BUY ANY SECURITIES OTHER THAN THE SECURITIES DESCRIBED IN THIS PROSPECTUS
SUPPLEMENT OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS NOR ANY
SALE MADE HEREUNDER OR THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN OR THEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE OF SUCH INFORMATION.
------------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Aetna Capital L.L.C...................... S-3
Aetna Life and Casualty Company.......... S-3
Certain Investment Considerations........ S-3
Use of Proceeds.......................... S-4
Ratio of Earnings to Combined Fixed
Charges and Preferred Stock
Dividends.............................. S-5
Capitalization........................... S-5
Summary Financial Information of Aetna... S-6
Recent Financial Results................. S-8
Summary Business Description............. S-9
Certain Terms of the Series A Preferred
Securities............................. S-12
Certain Terms of the Series A
Debentures............................. S-13
Underwriting............................. S-14
PROSPECTUS
Available Information.................... 2
Incorporation of Certain Documents by
Reference.............................. 2
Aetna Capital L.L.C...................... 3
Aetna Life and Casualty Company.......... 3
Ratio of Earnings to Combined Fixed
Charges and Preferred Stock
Dividends.............................. 4
Certain Investment Considerations........ 4
Use of Proceeds.......................... 5
Description of the Preferred
Securities............................. 5
Description of the Guarantee............. 16
Description of the Debentures and the
Subordinated Indenture................. 19
Taxation................................. 29
Plan of Distribution..................... 32
Validity of Securities................... 33
Experts.................................. 33
ERISA Matters............................ 34
</TABLE>
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10,000,000 PREFERRED SECURITIES
AETNA CAPITAL L.L.C.
9 1/2% CUMULATIVE MONTHLY INCOME
PREFERRED SECURITIES, SERIES A
GUARANTEED TO THE EXTENT
SET FORTH HEREIN BY
AETNA LIFE AND
CASUALTY COMPANY
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[AETNA LOGO]
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GOLDMAN, SACHS & CO.
CS FIRST BOSTON
DEAN WITTER REYNOLDS INC.
A.G. EDWARDS & SONS, INC.
MERRILL LYNCH & CO.
MORGAN STANLEY & CO.
INCORPORATED
PAINEWEBBER INCORPORATED
SMITH BARNEY INC.
REPRESENTATIVES OF THE UNDERWRITERS
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