This Prospectus is filed under Rule 424b(3)
and relates to Registration Statement
No. 33-52819 and 33-52819-01
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 declared by the Company, to the extent the Company has
cash on hand 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) 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 circumstances 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.
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 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 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 stock insurers of property-casualty lines and one of the
largest writers of group health and managed care products, and group life,
annuity and pension products.
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 insurance; 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.
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.
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....... 3.88 (a) 0.42(a) 2.13 3.03 4.05
<FN>
___________
(a) Earnings were inadequate to cover fixed charges by $1.1 billion in 1993
and $112.8 million in 1992.
</TABLE>
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 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 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 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 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.
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 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
(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 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 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 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.
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.
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) which have been
theretofore declared on the Preferred Securities of any series to the extent
the Company has cash on hand legally available therefor, (ii) the Redemption
Price (including all accumulated and unpaid dividends) to the extent the
Company has cash on hand 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 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, 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 upon the terms and
subject to the conditions set forth under "Description of the Preferred
Securities -- Merger, Consolidations, etc. of the Company" above.
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.
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 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 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.
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 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 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 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, 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
upon the terms and subject to the conditions set forth under "Description of
the Preferred Securities -- Merger, Consolidations, etc. of the Company" above.
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
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 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.
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, it 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 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 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 transfered 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 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 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 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.
